By Brian Marckx, CFA
Q2 2013 Results: Big Jump In Distributions and Revenue. Positive Income and Cash Flow…
OptimizeRx (OPRX) filed their Q2 10-Q on August 12th. Q2 revenue came in at $1.1 million, as expected following the company's pre-announcement in mid-July. Both revenue and net income set all-time records, as did the number of coupon distributions in a single quarter.
Q2 revenue and net income of $1.1 million and $355k were both well ahead of our (prior to the pre-announcement) estimates of $768k and $22k. Actual coupon distributions in the quarter of 266k (~247k of which were paid distributions) were also materially better than our 228k estimate. EPS came in at $0.01 versus our $0.00 estimate.
Revenue continues to ramp nicely on strong growth in coupon distributions and expansion of OPRX's distribution platform. Revenue in Q2 and in the first half of 2013 increased on a yoy basis of 114% (from $515k in Q2 2012) and 110% (from $845k in 1H 2012) and has grown sequentially in five of the last seven quarters (with the two exceptions being contractions of less than 11%). As we noted in our prior update, while we still think that there may be some short-term variability, depending on timing/terms/length of couponing programs by OPRX's various pharma partners, the early numbers are very encouraging and continue to suggest that revenue could begin to ramp fairly substantially over the near-to-mid term. Q3 also appears to be off to a strong start - management noted on the call that they had just over 100k distributions in July. Importantly, the vast majority (90%+) of total revenue is coming from distributions (as opposed to set-up fees) - which will be the driver of revenue long term. Q2 numbers are also highlighting the leverage and scalability in the business model as OPRX kept operating expenses about flat (actually fell slightly) from Q1 while revenue jumped about 65% over the same period.
Along with consistent revenue growth and increasing distribution numbers, OPRX is also now generating positive cash flow - which we view as one of Holy Grails of building tangible value. Cash from operations in Q2 and 1H 2013 were $100k and $107k. Ex-changes in working capital these were $385k and $328k, respectively.
Along with increasing the number of drugs promoted and expanding relationships with existing and new pharma partners, OPRX has other irons in the fire which could spark additional revenue growth. The PDR relationship is expected to come online in Q4 and progress through integration into 2014 - this could increase their physician base (currently at about 100k) by more than 40k and the HealthTronics channel just came online and is expected to add over 2k physicians and bring on key urology drugs including Viagra as well as expand promotion for existing drugs including Cialis and VESIcare. On the Q2 call management also alluded to other revenue generating opportunities including expanding their product offerings which can be accessed through their installed base and other potential collaborations with their pharma partners - this could even potentially include investments in OPRX - which we think could be particularly compelling. Management expects to be able to talk more about this in the near future. We have yet to model these potential ancillary contributions - which could provide some upside to our numbers.
We are maintaining our Outperform rating and $3.50/share price target.
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By Brian Marckx, CFA