U.S. Markets open in 5 hrs 58 mins

Edited Transcript of OPRX earnings conference call or presentation 7-Aug-18 8:30pm GMT

Q2 2018 OPTIMIZERx Corp Earnings Call

Aug 21, 2018 (Thomson StreetEvents) -- Edited Transcript of OPTIMIZERx Corp earnings conference call or presentation Tuesday, August 7, 2018 at 8:30:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Douglas P. Baker

OptimizeRx Corporation - CFO

* Miriam J. Paramore

OptimizeRx Corporation - President

* William J. Febbo

OptimizeRx Corporation - CEO & Director

================================================================================

Conference Call Participants

================================================================================

* Andrew Jacob D'Silva

B. Riley FBR, Inc., Research Division - Senior Analyst

* Eric Martinuzzi

Lake Street Capital Markets, LLC, Research Division - Director of Research & Senior Research Analyst

* Harvey Poppel

* Richard Kenneth Baldry

Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good afternoon, and thank you for joining us today to discuss OptimizeRx second quarter ended June 30, 2018. With us are the company's Chief Executive Officer, Will Febbo; Company President, Miriam Paramore; and Chief Financial Officer, Doug Baker.

Following their remarks, we'll open your call to questions. Then before we conclude today's call, I'll provide some important cautions regarding the forward-looking statements made by management during the call. I'd also like to remind everyone that today's call is being recorded and will be made available for telephone replay via instructions in today's press release in the Investor section of the company's website.

Now I'd like to turn the call over to OptimizeRx CEO, Will Febbo. Please go ahead, sir.

--------------------------------------------------------------------------------

William J. Febbo, OptimizeRx Corporation - CEO & Director [2]

--------------------------------------------------------------------------------

Thank you, very much. Good afternoon, everyone, and thanks for joining us on the call today. As you now have seen by today's earnings release, we made a lot of progress growing our digital health messaging platform. On the call today, we'll look to talk about our record quarter and the foundation we've been laying to support future growth and expansion.

We saw growth and improvement across the board in Q2. We realized our seventh consecutive quarter of revenue growth as compared to previous quarters and achieved profitability earlier than expected. Revenue is up 78% from the year ago quarter and 24% sequentially to a record $5.1 million. This was driven by strong client demand and continued increasing budget based on continued return on investment results. Our digital health messaging revenue and expanding reach to physicians at point-of-care together continued to fuel our growth. In fact, we've already launched 6 new EHRs in 2018, exceeded most internal revenue goals, and we're only halfway through the year.

Even with all this, we've only just begun to open this market. As we have discussed, our platform starts to really show scale when we hit all 3 areas of growth, which is evident in our expanding margins. In fact, at 56.1% for the quarter, we surpassed our previously announced gross margin goal of 55%, and we expect to again exceed this goal in the second half of the year.

Now I'd like to give you some additional perspective on this investment opportunity before we dive deeper into the numbers with Doug. I'd like to talk a little bit about why our platform of digital health solutions has become so valuable to pharma manufacturers as well as to doctors and patients and also why our position in the space is so large and growing.

Let me just pose the question, can you imagine spending billions of dollars on developing a drug and not being able to communicate or educate your clients, in this case physicians, on its clinical benefits and their patients on cost and adherence? This is precisely the predicament in which many pharma companies find themselves today. As we all know, the health care market has been undergoing many changes of late. What most people don't know, however, is it's becoming increasingly difficult for pharmaceutical companies, acting through their sales reps in the field, to get in front of physicians they want to reach. In fact, because of the Sunshine Act and similar reporting requirements, these days, more than half the hospitals in the country don't even let the reps in the door. This is a huge problem in the space, and our platform squarely addresses it.

Physicians are also spending more than 5 hours a day interacting with electronic health records through the EHR interface, whether it be viewing test results, logging notes or issuing e-prescriptions. In fact, in 2017 alone, more than 2 billion e-prescriptions were transmitted from doctor to pharmacy. This amazingly high number reflects now 90% of the ambulatory care providers use EHRs and that e-prescribing now exceeds 85% of all prescriptions written. In fact, most hospital systems now require that all medications be e-prescribed.

The trend also reveals how the adoption of e-prescription has accelerated over the last few years and why it's significant that OptimizeRx digital health technology now reaches a very large segment of this market. Remember, our technology is connected into the e-prescription software. Of the 2 billion e-prescriptions transmitted annually, 10% of these transactions involve brands with a co-pay program. This means OPRX has the potential to deliver more than 200 million transactions annually. With the escalating cost of health care and especially prescriptions being shifted into -- increasingly to patients, co-pay saving programs will be increasingly in demand. The pharma industry has set aside over $8 billion to cover co-pay programs. Based on these factors and indicators from our clients, agencies and partners, we estimate the total available market is worth well north of $500 million to $1 billion once the market fully adopts this channel.

We also believe that the point-of-care, where the patient and doctor engage together directly or in the waiting room, is becoming the most effective way to communicate. As personalized medicine grows in popularity and specialty treatments are more commonly prescribed, digital health platforms like ours that exists at the point-of-care will be the greatest technology-based enablers of communication between the pharma industry and health care professionals.

Furthermore, we see our platform become an increasingly critical component for improving outcomes and reducing costs throughout the health care system. This is especially true when you consider that prescription noncompliance leads to poor health outcomes, costing the U.S. health care system more than $100 billion annually. Any way you look at it, our current and [in-developed] solutions have tremendous market potential. This potential is being realized more and more every day as we expand our client base and channel reach and we integrate further with an e-prescription workflow and to point-of-care.

Now I'd like to turn our call over to our CFO, Doug Baker, who will walk us through the financials for Q2. Then Miriam Paramore, our President, will discuss the latest with our product road map and channel strategy. And then I'll return to take a little -- talk a little bit more about our operational results and outlook for the remainder of the year. Doug?

--------------------------------------------------------------------------------

Douglas P. Baker, OptimizeRx Corporation - CFO [3]

--------------------------------------------------------------------------------

Thanks, Will, and good afternoon, everyone. Prior to the call, we issued a press release with the results of our second quarter ended June 30, 2018. A copy of that release is available on the Investor Relations section of our website.

We reported net revenue in the second quarter of 2018 increased 78% to a record $5.1 million. The increase was primarily due to growth in our 2 core digital messaging products of financial and brand messaging, coupled with broader distribution through our new channel partners. The launch of new pharmaceutical brands also contributed to the increase.

Historically, people asked about the actual number of brands we represent, but we've moved away from this metric because it doesn't correlate directly to revenue. For example, one brand may generate over $1 million in revenue for us, while another more specialized brand may be under $100,000.

The strong revenue growth in the second quarter increased our gross margin to 56.1%, as compared to 44% in Q2 of last year. This big improvement was due primarily to product mix and our focus on reduction of our revenue share expense. We remain focused on maintaining these improved margins in 2018 and expect to achieve our gross margin target of at least 55% through the fourth quarter of 2018.

Our operating expenses in the second quarter of 2018 were $2.6 million, up from $1.6 million in the same year ago quarter. The increase was primarily due to additional expenses related to growth initiatives. It is important to note, however, that operating expense as a percentage of revenue decreased to 51% as compared to 57% in the same year ago quarter. We expect our overall operating expenses to continue to increase slightly on a quarter-over-quarter basis as we further implement our business plan and expand our operations to grow the business in a very dynamic and active marketplace. However, we expect operating expense as a percentage of revenue to continue to decrease.

The strong quarter allowed us to attain profitability for the second quarter of 2018. Net income was $281,000 or $0.02 per diluted share as compared to a net loss of $362,000 or $0.04 per share in the year ago quarter. Profitability was primarily due to the increase in revenue and the decrease in operating expense as a percentage of revenue. Our strong second quarter also allowed us to achieve profitability for the 6-month period ended June 30. We expect to continue to be profitable on a quarterly basis, although onetime expenses related to investments and growth initiatives could result in a quarterly loss in any particular quarter.

Now turning to the balance sheet. Cash and cash equivalents totaled $12 million at June 30, 2018. This compares to $5.1 million at December 31, 2017. This increase in cash was due to the equity raise completed in May, which generated net proceeds of approximately $8.2 million. In addition, we continue to operate debt-free. We expect to have positive cash flow from operations on a quarterly basis for the remainder of 2018 as well.

That wraps up our final -- financial results. Now I'd like to turn the call over to Miriam.

--------------------------------------------------------------------------------

Miriam J. Paramore, OptimizeRx Corporation - President [4]

--------------------------------------------------------------------------------

Thanks, Doug. We are executing well against our growth plan, and I'm happy to share in a little more detail about our achievement this quarter. First, I'll discuss our broadening reach to healthcare providers, or HCP, through expansion of our point-of-care network, including comments regarding our hospital strategy. Second, I'll provide an update on our product road map. And third, I'll give some information on our data and analytics solutions.

First, we'll talk about healthcare provider, or HCP, reach. As Doug touched on earlier, our balance sheet is strong, bolstered by the $9 million capital raise completed in the quarter. Today's earnings release laid out our plan to use a portion of the proceeds to make additional sales and channel investments to expand further into our core ambulatory markets where we continue to demonstrate high ROI against the pharma marketing spend.

Regarding our reach to HCP through our channel, I will summarize our accomplishments regarding that expansion. We launched 3 new EHR channels and 1 new e-prescribing channel this quarter. In addition, we implemented our first ever clinical decision support channel, EvidenceCare. Combined, these additions bring our total year-to-date channel expansion to 6 channels against a full year goal of 7 new channels, and as Will said, we're only halfway through the year. The OptimizeRx digital communication network reaches more than half of the office-based HCPs. In some specialties, we have a very high concentration. For example, we're excited to highlight that with one of our newest channel partners, we now reach over 87% of the dermatologists in the country.

A few additional notes about EvidenceCare. As you may recall from that press release, this partnership is unique for us in that it provides 3 firsts. It's our first messaging into the hospital workflow. It's our first integration with a clinical decision support tool. And for the first time, it gives us the ability to integrate with industry-leading EHR vendors that have a strong presence in the hospital space. EvidenceCare provides clinicians with access to reliable, evidence-based treatment recommendations at the bedside in as little as 30 seconds. We look forward to rolling out various messaging solutions with them over the coming months.

The EvidenceCare partnership is an important step forward within our hospital strategy. We also plan to further expand into the hospital market, which is essentially a new channel for us, representing significant growth opportunity as compared to our ambulatory, traditional placement in the market. We will do this by building connections to the major hospital-focused EHRs and by working with our pharma clients to selectively pursue high-priority health systems.

Turning to international reach. We continue to lay the foundation for future growth and expansion by partnering with Patient Connect, our first expansion into Europe. Our strategic alliance with Patient Connect has the potential to expand distribution of our digital health messaging for clients to millions of HCPs and patients through Patient Connect's international pharmacies and EHR networks. In addition, Patient Connect's European clients will now have the opportunity to take advantage of the [OPR] network in the U.S. During this quarter, we have cross-trained our respective staffs, developed a go-to-market plan including our joint capabilities and begun to respond to sales opportunities. These are early days, and we are now aligned to pursue growth together. We expect to see pilot revenue in 2018 and revenue growth in 2019.

Now on to the product road map. Our recent capital raise is important to building, launching and growing our suite of products and services. One use of this capital is to try to facilitate faster ramp-up and higher utilization by our EHR and e-prescribing partners that are still running on server-based technologies. These partners have complex software upgrade cycles that must be carefully managed, and we hope to make the process as easy as possible when it comes to working with our technology.

The remainder of the year, we plan to invest in additional messaging solutions, which we will talk to after Q3. We are focused on bringing new solutions to our existing clients to capture more pharma budget in the annual planning session which starts shortly for 2019. We are arming our sales team with a broader affordability and adherence-focused solution set. Each solution brings a compelling value proposition that is transparent, measurable and ultimately effective for all stakeholders [period] .

Turning to data and analytics. This quarter, we continued investment in the underlying technology that powers our solutions, and we'll invest in our data strategy. We brought in new technical leadership and increased the size of our engineering team. On this solid foundation, we plan to invest more in our data warehouse, including both an investment in technology and talent. The data warehouse is the underpinning of our new reporting and data analytics capabilities and will provide valuable insights to our customers. These changes will support our future growth and significantly enhance our value proposition. Our intent with data and analytics is to bring more value to our client base and ultimately increase our recurring revenue potential. We will update the investment community after Q3 as to its progress.

While these investments and growth initiatives may result in quarterly fluctuations in profitability, we expect them to drive further strong top line growth and margin expansion while sustaining our position as the market leader in our space.

Now with that, I'd like to turn the call back over to Will.

--------------------------------------------------------------------------------

William J. Febbo, OptimizeRx Corporation - CEO & Director [5]

--------------------------------------------------------------------------------

Thanks, Miriam, and thanks, Doug. Nice work. I've got a little section then we'll get to Q&A.

Today's health care environment, as we know, is increasingly complex, particularly for patients who face an unprecedented cost burden as it relates to their medication. The high rates of high deductible health plans coupled with higher co-pays and fewer generic drug options creates really a perfect storm of price barriers to follow through with needed therapies. Medication adherence is the focal point of national quality initiatives aimed at improving patient outcomes and lowering costs. As I noted earlier, there's a clear connection between non-adherence to physician-prescribed medication and poor outcomes, disease progression and especially avoidable health care costs that reach in the billions annually. Recent studies have shown that the high cost of medication is primary contributor factor to the current non-adherence dynamic.

OptimizeRx is now working to better address this challenge of higher patient costs with workflow-related technology solutions. We believe there are unexplored ways of embedding patient savings strategies directly into the electronic health record, which, we believe, is a critical piece to reducing costs. Our technology already improves communication between pharma companies and healthcare providers by educating them about available financial programs as they work with patients at the point-of-care. This technology not only helps improve patient adherence to medication and clinical outcomes, but it also allows providers to extract greater value from their EHR investments by streamlining the process of identifying cost savings for patients. And that's critical because doctors do not have a lot of time in their day to be looking for these kinds of solutions.

We're also seeing an average return on investment of 5:1 when we measure our clients' programs. This strong ROI data helps encourage the adoption of our cloud-based EHR channels by potential clients. Also supporting our growth is the fact that our platform solves major pain points for the health care providers by eliminating the need to manage and store physical drug samples as well as spending time they don't have with pharma sales reps. As I mentioned earlier, these challenges have led now to nearly 60% of the doctors' offices banning or severely limiting access by pharma reps and samples they offer.

This means patients increasingly rely on their doctors to provide information on financial assistance programs as they navigate the financial challenges of high-deductible health plans. Data from the Kaiser Family Foundation reveals that deductibles have risen 300% since 2006 and co-insurance costs have nearly doubled. In tandem, physicians need access to programs that will help drive down costs for patients to improve medication adherence as part of their population health initiatives. Unfortunately, many saving programs or opportunities are missed simply because the physician and patient are unaware. Many patients are then simply unable to keep up with medication therapies due to the cost burden. And to overcome these challenges, physicians need a streamlined method of identifying access to the programs that can help their patients comply with care plans.

OptimizeRx again eliminates these problems as far as more convenient and efficient ways to allocate, administer and track co-pay savings for patients as well to gain access to important clinical information. Through the EHR, the system, doctors now use consistently in their workflow, we are effectively reopening critical communication between the doctor and the pharmaceutical companies for the benefit of the patient. Through this new digital platform, pharma companies can regain critical access to doctors and their patients and provide the information and savings they need and precisely when they need it in the point-of-care and create better health outcomes, a win, win, win.

Today, our network reaches over half the nation's HCPs in the ambulatory market, making OptimizeRx the health care industry's largest point-of-care network. So we deliver real-time financial assistance and critical clinical information from pharma companies to HCPs and patients. Our team is doing a tremendous job, and our clients are thrilled with our solutions, service and our culture.

Our recent uplist to Nasdaq Capital Market couldn't have come at a more opportune time. As we continue to demonstrate high ROI and the marketing spend of our pharma clients and strengthen our network of EHR partners, we expect our NASDAQ listing to further elevate our corporate profile, enhancing liquidity for investors and broadening our shareholder base. We are pleased our execution has resulted in greater interest and attention by the financial community, including now 3 sell-side analysts who cover companies that are the emerging market leaders.

For the second half of 2018, we will remain focused on revenue generation from our core solutions, expanding our channel and partner networks both domestically and internationally. We see continued gross margin improvement as we scale, and we're exploring all our strategic options, which would enhance growth and shareholder value.

Now with that, I'd like to open up the call to questions, what I consider the fun part. Operator?

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) And we will go first to Eric Martinuzzi with Lake Street.

--------------------------------------------------------------------------------

Eric Martinuzzi, Lake Street Capital Markets, LLC, Research Division - Director of Research & Senior Research Analyst [2]

--------------------------------------------------------------------------------

Congrats on the 78% revenue growth, but I think it's also pretty impressive that you're GAAP profitable now. So that's a nice milestone. I wanted to take a -- just kind of focus strategically. When you talked about, in the press release and in the prepared remarks about further expanding into the hospital market. Miriam addressed this a little bit with the EvidenceCare commentary, but is there anything else you can tell us about penetrating that hospital market?

--------------------------------------------------------------------------------

William J. Febbo, OptimizeRx Corporation - CEO & Director [3]

--------------------------------------------------------------------------------

Yes, I'll start, and then I'll hand it over to Miriam. And we won't go into too much detail for competitive reasons, but what we realized was that it's a critical piece to the overall market, one. Two, our clients are asking for access to it. So we know there's revenue there. And it's highly complex. So we have a strategy which, we believe, is client-centric. It has a tremendous opportunity and it's going to take time, but that time is worth it, frankly, because we're growing our ambulatory at the same time. So this is all incremental reach, which really touches the core of our clients' concerns because if you think of the percentages we threw out [of who] they can't get to, hospital systems are actually the highest of those that exclude reps from entering. So Miriam, maybe you can give a little bit more color and we can do more next quarter, too. You're on mute.

--------------------------------------------------------------------------------

Miriam J. Paramore, OptimizeRx Corporation - President [4]

--------------------------------------------------------------------------------

Thank you. Sorry, I was on mute. Thank you, Will. Eric, yes, it's multi-faceted and I will keep it high level. Just think about it in terms of all of the health systems that are out there and the predominant EHRs which are in them and the various business models that those EHRs have. So we have to work it from a two-prong, really kind of a three-pronged effort. It's the -- our clients demand and what is important to them in terms of which health systems they prioritize. And then it's the health systems then communicating with at least a champion within the health system to help move the project work along. And then it's technology, making sure that the technology is ready and can work and plug and play. Each of those installations of very large EHR hospitals -- hospital EHRs, rather, are a little bit different and they're tweaked. So those are the components that add up to the time that Will mentioned, that we have action plans and investments and all of those [facets] of the strategy. Hope that's helpful.

--------------------------------------------------------------------------------

Eric Martinuzzi, Lake Street Capital Markets, LLC, Research Division - Director of Research & Senior Research Analyst [5]

--------------------------------------------------------------------------------

Okay. Well, kind of stay tuned more, kind of, I guess. As far as the way your customers spend, Will, I know they kind of budget for the coming year and then they -- there's insertion orders and there's (inaudible) and you were pretty good about January 2018, getting those spends fired off. What about mid-course corrections, kind of customers coming back because they've had a good experience the first 6 months and expanding their campaigns mid-year? Are you seeing any of that?

--------------------------------------------------------------------------------

William J. Febbo, OptimizeRx Corporation - CEO & Director [6]

--------------------------------------------------------------------------------

Yes, absolutely. Q4 is always our biggest quarter and that's when -- if there's additional budget that can be used. And obviously, if you have a very transparent, measurable service or solution that's showing good ROI, you kind go to the top of the list. So we have a great sales team. They are absolutely in line with all that thinking and process. And I will say our operational team does a tremendous job of just keeping them in the loop proactively as we work down budgets. So they were really -- we're not waiting. We're going to the client well before it's run out and telling them about what else they could do for the year. So it gives a great chance to talk about additional reach and different solutions. And certainly, the more you're there, the better in their mindset. So yes, we are seeing them, those that have worked through their budget. We're seeing those go through on the larger brands, and we're going into planning for '19. We're pretty excited about it.

--------------------------------------------------------------------------------

Eric Martinuzzi, Lake Street Capital Markets, LLC, Research Division - Director of Research & Senior Research Analyst [7]

--------------------------------------------------------------------------------

Okay. And then lastly, a housekeeping item maybe for Doug. It looks like the -- based on the 10-Q, the share count now as of the end of July was around 11.6 million. You've had some pretty good stock price appreciation. That 11.6 million is a basic share count. But now that you're profitable, we need to use a diluted count. Is that diluted count about 1 million, 1.2 million or so? Is that the right way to think about the dilution?

--------------------------------------------------------------------------------

Douglas P. Baker, OptimizeRx Corporation - CFO [8]

--------------------------------------------------------------------------------

Yes, that would be -- that's roughly -- like both is totally -- basic and fully diluted are in there, and there is about 1 million related to dilution, 1 million extra shares.

--------------------------------------------------------------------------------

Operator [9]

--------------------------------------------------------------------------------

We'll continue on to Richard Baldry with Roth Capital.

--------------------------------------------------------------------------------

Richard Kenneth Baldry, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [10]

--------------------------------------------------------------------------------

You talked about exceeding your goal of 55% gross margins, but if we look at the quarter itself, revenues were up about $1 million and your COGS only grew a little over $200,000. So the incremental margin is about 77%. Could you maybe talk through how that happened? I assume there -- your renegotiations on maybe rev share had a bit of a help on the existing base of revenues. Or are some of your newer offerings carrying materially higher gross margins that might make that type of incremental gross margin contribution sustainable?

--------------------------------------------------------------------------------

William J. Febbo, OptimizeRx Corporation - CEO & Director [11]

--------------------------------------------------------------------------------

Sure, Rich. It's Will. Good to hear your voice. So it's really products mix and contracts. And I think the contracts were really done last year. So we're starting to see those this year. And then product mix, yes, we have some that have a higher margin than we've traditionally sold and the solutions we continue to keep selling. So I would expect that this business can continue to improve. We do have -- we have revenue share agreements and that's -- our business is built off of that and those don't go away. But we have some that -- these alternative channels, like EvidenceCare, that would have a slightly lower share. So I think it's product mix and contracts hitting at the same time. And I think we expect to see sort of continued improvement -- marginal continued improvement throughout the end of the year.

--------------------------------------------------------------------------------

Richard Kenneth Baldry, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [12]

--------------------------------------------------------------------------------

Okay. And then if we look at the incremental revenues again, about 50% of it translated all the way to the bottom line. Given the growth rate you've got, which is pretty hyper-accelerated, it would seem to me that that's not a long-term, sustainable pattern, that you would need to [stop out] more in the OpEx side and kind of build infrastructure to keep up the pace you're growing. So now that you've achieved GAAP profitability materially early, are positive generating, how do you think about incremental drop-down gross profit? And how much might stop in the OpEx line longer term, as opposed to the 50% number we saw in the second quarter?

--------------------------------------------------------------------------------

William J. Febbo, OptimizeRx Corporation - CEO & Director [13]

--------------------------------------------------------------------------------

Yes. So we've been pretty consistent on not focusing on profitability, just being very fiscally responsible with our cash management. And I think we had all 3 things happen, that we say if all 3 things happen, we grow a lot and we make money. But we are not going to get in the way of top line growth if we have opportunities to invest more in either people or tech. But I will say that this business does scale very nicely with relatively small group of OpEx behind it. And if you think of our value proposition, why pharma likes us, as they come to us one provider and they get to a very high percentage of the physician that matter to them, it's mainly just one dashboard, right. And then we control the chaos and have technology that makes it easy for us as well in distributing that content. So it should start to scale. If it doesn't, frankly, we've done something wrong. So I would expect we will build. We had a board meeting last week and that question came up. We will invest in the team. And I think now we're at a really good place to bring on more sales talents. So we'll have someone starting next week to increase our team more. And Miriam -- on Miriam's side, she's done a good job bringing more operational people on and a tech team on. But again, our whole purpose is to automate and leverage the technology around these solutions so that we don't need big groups of people, which are expensive and frankly hard to manage. So we're excited about the scale that's starting to show.

--------------------------------------------------------------------------------

Richard Kenneth Baldry, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [14]

--------------------------------------------------------------------------------

So without asking for guidance, maybe talk a little about the seasonal impacts, too. You talked about Q4 being pretty strong. There's been -- we have some -- sometimes, there's a pattern of people not launching programs early enough in Q1. So Q1 potentially could be a softer quarter. How do we think about the Q3 period? It looks like in the last couple years that Q2 has been pretty strong, Q3 is sort of a little more muted before the real strong Q4. Do you think that's -- those same kind of patterns still hold? Do you think that some of the recent EHR launch and partner launches might change that seasonality as we head into September after -- the September quarter after a very strong June quarter?

--------------------------------------------------------------------------------

William J. Febbo, OptimizeRx Corporation - CEO & Director [15]

--------------------------------------------------------------------------------

Yes. I wouldn't say Q3 is going to be as strong as Q4 just because historically the data says otherwise. But historical data, in our case, it's a little skewed because you've got multiple things happening at the same time, right; as you said, more reach, right. And anytime that happens, that allows us to go back and get more budget on top of the budget we already have. We're closing more clients even through the year, and we are piloting several new solutions, which we'll talk about later in the Q3 -- after Q3. But that's -- when pharma pilots, that's real revenue. So we feel like we've got a really good view into the second half. We feel very confident in the business and very thankful for some of the investments we've made in people and tech last year because it's really starting to show.

--------------------------------------------------------------------------------

Operator [16]

--------------------------------------------------------------------------------

Our next question will come from Andrew D'Silva with B. Riley FBR.

--------------------------------------------------------------------------------

Andrew Jacob D'Silva, B. Riley FBR, Inc., Research Division - Senior Analyst [17]

--------------------------------------------------------------------------------

Just a few follow-up questions here. First off, you really came in meaningfully. You had what we were looking for here from a top line standpoint. Could you maybe touch on if there were any anomalies during the quarter? And then can you just walk around what's the catalyst for this growth? Would you say it's more related to things getting to capacity from your brand messaging offering? Or is it more closely tied to more platforms and brands feeling comfortable with your position in the space and moving more heavily with the marketing capabilities that financial messaging brings to the table?

--------------------------------------------------------------------------------

William J. Febbo, OptimizeRx Corporation - CEO & Director [18]

--------------------------------------------------------------------------------

Sure. Thanks, Andy. So no anomalies, nothing strange to call out other than we did raise some money. That's a balance sheet anomaly, but that didn't impact our revenue. It's pure execution. Sales team is killing it. Operation team is delivering and the technology is working, so nothing strange. In terms of catalyst, I had a gathering last week with my -- the national sales team and really impressed with the revenue growth per manufacturer that we have. We've doubled it. And that's being driven by a couple of things: one, just solid ROI, right, that they run independent studies on what we do. So they actually believe the ROI, and that really gets them coming back for more. And it also -- it helps others within the manufacturer, maybe different brands adopt this channel. And secondly, I think the channel itself, we've gone through and educated the market particularly at the agency level. And I think now they're really looking at this point-of-care as a space, "Okay, we need to be there. How do we do it? How do we do it without really getting in the way of a physician when they're doing their job?" And I think you've got 3 areas. You've got affordability, adherence, and then you've got some other things that we don't do. But those first 2 are big ones. And so we're really in the right place when it comes to enabling solutions with the technology that don't get in the way of the doctor, and they really help the patient. So I would say that's our -- that's the catalyst and no anomalies.

--------------------------------------------------------------------------------

Andrew Jacob D'Silva, B. Riley FBR, Inc., Research Division - Senior Analyst [19]

--------------------------------------------------------------------------------

Okay, great. That's very useful color. Just moving on, what is the continued industry consolidation, primarily the health system level mean to you? Are you seeing EHR wins or losses from an HCP standpoint as these mergers take place? And any color on how you're thinking about, sort of, consolidation of space would be extremely useful, really.

--------------------------------------------------------------------------------

William J. Febbo, OptimizeRx Corporation - CEO & Director [20]

--------------------------------------------------------------------------------

Yes, it's such a fragmented market that you just expect a lot of consolidation, like in the CRM space back in the day. But what we're seeing is -- so physicians really are grumpy. I think we can say that. They don't want to be on the computer. They didn't go to med school to be on a computer 6 hours a day. They like taking care of people and solving problems. And so I think they're -- probably once they're trained up on EHR, it's very difficult to switch. That's -- we've all been through software changes. We don't like it either. So that's just human nature. So I think you're seeing even those that are purchased, you're not going to see a lot of switching. I do think at the end of the day, the cloud-based, UI-rich, less clicks, more value-added-type EHRs are going to do really well with physicians. And so our strategy is to work with the server-based partners we have and see what kind of technology we can enable with them just to make everything easier. We've been doing that for a couple years. And then the other is looking at the cloud-based solutions, and we've had several partners recently like Modernizing Medicine and a few others that have a tremendously powerful cloud-based solution which just makes rolling out tech better and easier. So I don't see -- there's obviously been some news out there. There's Allscripts bought Practice Fusion, and Athena's had some management changes. But I don't see tremendous consolidation happening, mainly because the user base is not going to want to just up and switch again after they really spent a lot of money or time figuring out a system.

--------------------------------------------------------------------------------

Andrew Jacob D'Silva, B. Riley FBR, Inc., Research Division - Senior Analyst [21]

--------------------------------------------------------------------------------

Okay, fair enough. Two more quick questions for you and then I'll hop back in queue. Obviously, I come at this story from a little different angle because I'm more life-science-focused than software-focused. But, like, a lot of the companies that I cover are starting to go more into premium, specialty prescription offerings. I was looking at some data, it showed that, that had a very high correlation with coupons much higher than even normally priced branded drugs. Are you seeing any sort of tailwinds from that? And is that resulting in the -- of this upswing that we're seeing now in the first and second quarter?

--------------------------------------------------------------------------------

William J. Febbo, OptimizeRx Corporation - CEO & Director [22]

--------------------------------------------------------------------------------

Yes, they're definitely in the mix and I think will be more in the mix over the quarters to come just because we have a wave of specialty drugs coming to market over the next 18 months. And yes, part of some -- part of the new solutions we're working on are enabling that specialty drug to be administered and having financial assistance connected to it. But it is -- as you said, it's essential. But yes, they're in the mix and that mix will only grow.

--------------------------------------------------------------------------------

Andrew Jacob D'Silva, B. Riley FBR, Inc., Research Division - Senior Analyst [23]

--------------------------------------------------------------------------------

Okay. And just my last question. I skimmed your Q. I just saw the slight change in the WPP relationship. Is that -- I don't really necessarily care about what it means behind the scenes, but should we on The Street think about that any differently than how we previously did?

--------------------------------------------------------------------------------

William J. Febbo, OptimizeRx Corporation - CEO & Director [24]

--------------------------------------------------------------------------------

No, business as usual. They've got a board seat, very happy shareholder and a solid partner.

--------------------------------------------------------------------------------

Operator [25]

--------------------------------------------------------------------------------

(Operator Instructions) We'll hear from Harvey Poppel with Poptech, LP.

--------------------------------------------------------------------------------

Harvey Poppel, [26]

--------------------------------------------------------------------------------

Will, congratulations, super quarter, especially the start of the new developments on the corporate strategy front, with the raise and the uplisting, very gratifying. Just continuing on that side for a moment. Now that you have more cash in the bank and your cash flow requirements are getting better, do you see the possibility of some M&A in the not-too-distant future?

--------------------------------------------------------------------------------

William J. Febbo, OptimizeRx Corporation - CEO & Director [27]

--------------------------------------------------------------------------------

I think we talked a little bit, I think, in this last time -- last call, and it's challenging for small companies to buy small companies or big companies, and things can go wrong fast. So I have that bias. But at the same time, we now, as Miriam likes to say it, built the railroad tracks between a very large industry and physicians. And so we are constantly coming across technology-enabled solutions from entrepreneurs and seasoned corporate people who have spun out of big companies, who are really trying to do what we're doing for some element of adherence or affordability. And we talk to all of them because at a minimum, there could be a commercial relationship, like EvidenceCare, for example, or Patient Connect. And there -- we haven't found the perfect fit, but I can tell you I have an eye on it. I'm just very cautious with it.

--------------------------------------------------------------------------------

Harvey Poppel, [28]

--------------------------------------------------------------------------------

Okay. Second question deals with the market potential of -- you've sized the market many times, I think, typically more on an ambulatory market basis. How would you compare the magnitude of the opportunity in the hospital side from the ambulatory side?

--------------------------------------------------------------------------------

William J. Febbo, OptimizeRx Corporation - CEO & Director [29]

--------------------------------------------------------------------------------

It's hard -- it's not apples-to-apples, right. So -- but it's still 65% of those physicians, right. So it's a lot of physicians, a lot of touch points, a lot of prescriptions, a real desperate need to communicate there, particularly with adherence and affordability. But it's hard to size a market where you're not -- clients aren't currently delivering a solution, right. So if I took all the existing reps and the conferences and all the other things they do to sort of influence and educate in that space, it's billions of dollars. It's big. If you look at what we're doing, I think you're going to see -- you saw adoption in the ambulatory space over the last 3 or 4 years. And Harvey, you were early. You watched it. And I think if we can effectively get into the sort of top 20, top 30 hospital systems for our clients, you're going to see more rapid spending on the client side. So there would be less convincing that we need to do. The hard part is really getting it to work technologically. But that's why we have Miriam. So we've got our weapon. So it's a lot bigger but it takes time on the integration side, not as much on the client side.

--------------------------------------------------------------------------------

Harvey Poppel, [30]

--------------------------------------------------------------------------------

A similar question on international. What do you see as a practical issue because there are, obviously, a lot of differences between what happens -- goes on internationally, regulatory requirements and so forth. Is the international opportunity something that could become a real, material part of your revenue stream, say, in the next 2, 3 years? By material, I'm saying like as much as 20%, 25%?

--------------------------------------------------------------------------------

William J. Febbo, OptimizeRx Corporation - CEO & Director [31]

--------------------------------------------------------------------------------

I do think so. If you just looked at other large companies that do any form of health media, it's a big piece of their business. Telemedicine, it's huge globally and growing very quickly. And I would say traditionally, I would stay away from international. But when it's technology-enabled with the right partner to deliver content to countries that are really hard to get content to in any language, yes, I'm very hopeful for it. I think this year, we'll see some initial revenue from it. And I'm hoping as we approach the '19 planning process we'll have some good business in there that we can talk more to, probably either in Q4 or after Q4 or Q1 of '19.

--------------------------------------------------------------------------------

Harvey Poppel, [32]

--------------------------------------------------------------------------------

Great. Final question. In past conference call or 2, you alluded to thresholds that you'd be disappointed that -- gains this year, if they didn't exceed, I think at one point, you said 30%. You may have said 40% at one point. But having knocked out in first half of over 80%, it seems like it's a -- 40% is kind of a slam dunk even if you almost -- growth almost stalled out in the second half, the math kind of worked for you. Do you want to raise that threshold at all at this point?

--------------------------------------------------------------------------------

William J. Febbo, OptimizeRx Corporation - CEO & Director [33]

--------------------------------------------------------------------------------

I don't because I'm getting close to giving guidance, and that's a dangerous thing to do as a smaller, growing company. But I do feel very confident that there's plenty of dollars on the client side. We've got great solutions and terrific partners and the right team. So I do still think that if you wanted to have protection to the downside on growth -- and I would [hold through] to that 40%. I think we're just scratching the surface, Harvey, and the market is just really waking up to this channel and we're one of the few in it, and that gives us a really good potential.

--------------------------------------------------------------------------------

Operator [34]

--------------------------------------------------------------------------------

[Ron Chez], private investor.

--------------------------------------------------------------------------------

Unidentified Participant, [35]

--------------------------------------------------------------------------------

A quick question for Doug Baker. I know it's in the 10-Q. What was EBITDA?

--------------------------------------------------------------------------------

Douglas P. Baker, OptimizeRx Corporation - CFO [36]

--------------------------------------------------------------------------------

I don't have that right in front me but...

--------------------------------------------------------------------------------

Unidentified Participant, [37]

--------------------------------------------------------------------------------

Okay. Don't bother then. I'll see it in the Q. I thought a couple things that you were saying. By the way, nobody should refer to anything as a slam dunk because that, of course, is bad luck and -- Harvey, I'm just giving you a hard time, though. Two things, I think your observation about acquisitions, you making them, is a very good -- don't let that money burn a hole on your pocket. Make sure if you make a deal that it is heavily tilted in your favor.

--------------------------------------------------------------------------------

William J. Febbo, OptimizeRx Corporation - CEO & Director [38]

--------------------------------------------------------------------------------

Absolutely, yes. It's too -- we don't want to get ahead of our skis there. We've got enough remaining access to get with physicians, more clients to get, and we can keep growing on that. But if we see something that plugs in nicely but couldn't scale on its own, then we will definitely look at it. But yes, I agree with you, [Ron]. We need to be -- you need to be careful.

--------------------------------------------------------------------------------

Unidentified Participant, [39]

--------------------------------------------------------------------------------

It should be strategically great and with favorable terms, obviously, earnout, whatever small company. So while I'm commenting or asking about your making deals, do you want to say anything about the overall M&A market in this space, any comment, color?

--------------------------------------------------------------------------------

William J. Febbo, OptimizeRx Corporation - CEO & Director [40]

--------------------------------------------------------------------------------

Yes, yes, okay. Thanks, [Ron]. We saw, last year, McKesson take out CoverMyMeds. We saw Ziff Davis take out Everyday Health. Recently, we saw Amazon take out PillPack. And these multiples were -- first of all, these companies had been around longer than we have. They are all tech-enabled solutions and they're being acquired by very large companies. And I think what's relevant about that is, one, the multiples are amazing. It's good for investors. Secondly, it's showing these big companies are really starting to say, "Okay, what do we need to do with technology-enabled solutions to keep our position?" And I think what we've built is a tremendous network at point-of-care. We're in the e-prescribe workflow, which is really an interesting place to be to affect outcomes and help patients. And we're swinging -- swimming among giants. And so I feel good that we've got protections and good barriers to entry, but I'm also very thankful that there's that activity because it does show us that this is a big market and we're focused on the right things.

--------------------------------------------------------------------------------

Unidentified Participant, [41]

--------------------------------------------------------------------------------

And the multiples have been large, right?

--------------------------------------------------------------------------------

William J. Febbo, OptimizeRx Corporation - CEO & Director [42]

--------------------------------------------------------------------------------

Yes, 10x revenue and plus.

--------------------------------------------------------------------------------

Unidentified Participant, [43]

--------------------------------------------------------------------------------

One more thing. I think another important thing that you touched on, which is very important in this environment with the government and all sorts of regulatory activity, is -- this is focused on making things better for patients. You talked about adherence. That's a really good position to be and to be able to say that you're going to help outcomes as a result of what you're doing. So that emphasis should be continued in your commentary and positioning.

--------------------------------------------------------------------------------

William J. Febbo, OptimizeRx Corporation - CEO & Director [44]

--------------------------------------------------------------------------------

Right, couldn't agree more. Thanks, [Ron].

--------------------------------------------------------------------------------

Unidentified Participant, [45]

--------------------------------------------------------------------------------

Well, we'll stop agreeing now, okay. I'm done.

--------------------------------------------------------------------------------

William J. Febbo, OptimizeRx Corporation - CEO & Director [46]

--------------------------------------------------------------------------------

And [Ron], to answer your question on Q2 EBITDA, it was around $850,000.

--------------------------------------------------------------------------------

Unidentified Participant, [47]

--------------------------------------------------------------------------------

You know what, there's a bit of a conflict in what -- I'm sorry, one more, a bit of a conflict in what you're saying about you're going to take money and invest but you're going to be cash flow positive. So what you're doing is taking -- I mean, you've got the money there, but it's going to be used in the context of disciplined operating expenditures, right?

--------------------------------------------------------------------------------

William J. Febbo, OptimizeRx Corporation - CEO & Director [48]

--------------------------------------------------------------------------------

That's right. And remember, we can appreciate, depreciate those over the life of any contract we're cutting. So it's not all hitting at once. But yes, that's right.

--------------------------------------------------------------------------------

Operator [49]

--------------------------------------------------------------------------------

Thank you. Ladies and gentlemen, at this time, this concludes our question-and-answer session. I would now like to turn the conference back over to Mr. Febbo for any additional or closing remarks.

--------------------------------------------------------------------------------

William J. Febbo, OptimizeRx Corporation - CEO & Director [50]

--------------------------------------------------------------------------------

Well, thanks, everyone, for joining us on the call. I really believe in our potential as a company to deliver continued revenue growth, margin improvement and our profile in the industry. I also believe we're just getting started, and we've got that team to really scale this business. So I look forward to talking you all in the future, reporting on our progress. And meanwhile, always feel free to reach out to me, Miriam or Doug. We all stand ready to address your concerns or comments and ideas. So thanks again for the time, and have a great day.

--------------------------------------------------------------------------------

Operator [51]

--------------------------------------------------------------------------------

Thank you. Now before we conclude today's call, I would like to provide the company's safe harbor statement that includes important cautions regarding forward-looking statements made during today's call. Statements made by management during the call may contain forward-looking statements within the definition of Section 27A in the Securities Act of 1933 as amended and the Section 21E of the Securities Act of 1934 as amended. These forward-looking statements should not be used to make investment decisions. The words anticipate, estimate, expect, possible and seeking and similar expressions identify forward-looking statements, and they speak only to the date the statement was made.

Examples of such forward-looking statements in this presentation include statements regarding gross margin target, continued gross margin improvement as the company scales, overall operating expenses to continue to increase slightly on a quarter-over-quarter basis, operating expenses as a percentage of revenue to continue to decrease, expectation to continue to be profitable on a quarterly basis although onetime expenses related to investments and growth initiatives could result in a quarterly loss in any particular quarter, positive cash flow from operations on a quarterly basis for the remainder of 2018, a plan to use a portion of the proceeds from its recent raise to make additional sales and channel investments for expanding further into its core ambulatory market, rolling out various messaging solutions over the coming months, plan to further expand into the hospital market, expectation to see pilot revenue in 2018 and revenue growth in 2019 from Patient Connect partnership, plan to invest in additional messaging solutions, bringing new solutions to the company's existing clients, plan to invest more in the company's data warehouse, the data warehouse supporting future growth and enhancing the company's value proposition, investment in growth initiatives during -- driving further strong top line growth and margin expansion while sustaining the company's position as the market leader in its space, expectation that the company's NASDAQ listing will further elevate the company's corporate profile, enhance liquidity for its investors and broaden its shareholder base, continued growth in 2018 and the company's estimation of the total available market.

The company undertakes no obligation to publicly update or revise any forward-looking statements whether because of new information, future events or otherwise. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Future events and actual results could differ materially from those set forth and/or contemplated by underlying forward-looking statements, risks and uncertainties to which forward-looking statements are subject and could affect business and financial results are included in the company's annual report on Form 10-K for the fiscal year ended December 31, 2017. This form is available on the company's website and on the SEC website at sec.gov.

Before we end today's conference, I would like to remind everyone that this call will be available for replay starting later this evening through August 28. Please refer to today's press release for dial-in replay instructions available via the company's website at www.optimizerx.com.

Thank you for joining us today. This concludes our call. You may now disconnect.