OptimizeRx Corp Q2 FY2020 Earnings Call

Good afternoon, and thank you for joining us today to discuss OptimizeRx Corporation's Second Quarter ended June 30, 2020. With us today are the Company's Chief Executive Officer, William Febbo; Company President, Miriam Paramore; Chief Financial Officer, Doug Baker; and Chief Commercial Officer, Stephen Silvestro. Following management's remarks today, we'll open the call to questions. And 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 like to remind everyone that today's call is being recorded and will be made available for telephone replay via instructions on today's press release in the Investors section of the company's website. Now, I'd like to turn the call over to OptimizeRx CEO, William Febbo. Please go ahead.

Thanks, Lisa. Good afternoon, everyone. Thank you for being with us today. It has only been a few months since our last call on May 4, yet so much has changed around us. The disruption in our daily lives is difficult to express, but it is something we all experience. I hope all our listeners are in good health. The OptimizeRx team is healthy, focused, and grateful for the opportunities we have to grow our business in this environment. I began the last conference call by thanking healthcare professionals for their dedication and courage, and I want to repeat that sentiment: thank you very much. We at OptimizeRx feel fortunate during the pandemic to serve as a vital link in communication among industry professionals, doctors, and patients. We are dedicated to providing value for all our stakeholders. To support this, we experienced growth of 34% in the first half of 2020, which is typically slower for us, and we expect the second half to significantly surpass this growth rate. We closed new enterprise deals, increasing the value of our enterprise engagements to $21 million in annualized revenue. We extended our network reach by adding 125,000 doctors through our connections with Epic and Cerner. We also secured revenue from five clients for new solutions developed through our Innovation Lab, positioning us well for 2021. Additionally, we refined our patient engagement market strategy at a time when demand is at an all-time high due to COVID. In summary, we exceeded our internal goals across the board and continue to build a highly impactful company that connects all stakeholders. Our digital communication platform enables doctors, patients, and the industry to work together to improve health affordably. Before I go further, I would like to turn the call over to our CFO, Doug Baker, who will outline the financial details for the second quarter. I will then return to share more about our business achievements and our outlook for the remainder of the year. After that, I will open the floor to questions. Our full executive team is also on the call to assist with any inquiries. Doug, please proceed.

Thanks, Will, and good afternoon, everyone. Earlier today, we issued a press release with the results of our second quarter that ended June 30, 2020. The copy is available for viewing and may be downloaded from the Investor Relations section of our website. We also filed a copy of our 10-Q with the SEC a short time ago, and that is also available at sec.gov. Our revenue for the quarter was a record $8.8 million, up 25% compared to the year-ago quarter. Gross margin was $5.1 million, up 19% versus a year ago. Our gross margin percentage declined to 59% in the second quarter of 2020 versus a year ago, but improved over the first quarter of this year. The decline from last year was a result of an unusually favorable product mix in the 2019 quarter and a heavier mix of financial messaging this quarter. We expect to achieve a minimum gross margin of 60% for the year, but are targeting a gross margin of at least 62% by the fourth quarter. Our operating expenses increased to $6.2 million in the second quarter of 2020 compared with the same quarter of 2019, but decreased from $6.6 million in the first quarter of this year. The decrease largely reflects the reduction in travel as well as other related expenses given the stay-at-home policy. Our investment in our commercial organization led to the 25% increase in revenue, a shift towards enterprise contracts, and the decreased sales cycle. Our investment in our marketing and product teams gave us the ability to be nimble and quickly respond to some operational items that Will is going to discuss later in this call. Adjusted EBITDA, which we report as a non-GAAP financial measure, was a positive $254,000 in the second quarter. It is great to be back in the black, and we expect that to continue to increase for the rest of the year. Our balance sheet remains strong. Cash and cash equivalents totaled $14.1 million, down from $15.2 million at March 31. The decrease resulted from an earnout payment related to our CareSpeak acquisition, but we were operationally cash flow positive for the quarter. Our receivables are very high-quality receivables because of our customer base. While they are increasing because of our strong revenue growth and customer payment terms, our customers continue to pay regularly and predictably. We expect to generally generate positive cash flow from operations in future quarters and for the full year. We have continued to operate debt-free and do not anticipate needing to raise additional capital in the foreseeable future either for operating equipment or to fund our growth plans. This wraps up our discussion of our financial results. So, I'd like to turn the call back over to Will. Will?

Thanks, Doug. Appreciate that. While I will provide the caution that we are all on new ground when it comes to the level of continued disruption due to COVID-19, at OptimizeRx, we are fortunate to be so well situated in the market and able to affect digital communication among our stakeholders. In terms of business continuity, our teams are operating very well, and we continue to see practically no disruption in operations. We had a great start to the year across the board, and my hats off to the team. I'm really glad to be connected with our clients and partners. Our first half is traditionally the slower half of the year, and we expect this to hold true again this year, even given the 34% increase. This means we shall see accelerating growth in the second half along with positive cash flow, as Doug mentioned. We focus on three main drivers for growth: our clients, our partner network, and our digital health solutions. We digitally enable communication which benefits patients and doctors around therapeutic awareness, affordability, and adherence. Even prior to COVID, we were feeling tailwinds to support growth in all three areas. COVID-19 has accelerated those tailwinds, and we have a very positive outlook for the remainder of '20 and into '21. First, our clients, we're seeing terrific traction on multiple levels. Our shift to enterprise agreements is going exceedingly well, as we mentioned, $21 million in annualized revenue. Our new solutions like patient engagement, hub enrollment, TelaRep are all generating interest and revenue within our client base, which will drive further growth this year and very strong growth next year. COVID has disrupted traditional non-digital ways of communication for our clients with doctors and patients. We stand as a perfect solution to solve for that in the coming years. Most of our growth for the year is coming from organic activity as we see our pharma clients leaning into point of care as a critical piece to their marketing strategy. We came in ahead of our internal budgets for the first half, and we expect to far exceed our goals for the second half. Office business continued to be challenged in Q2, and we expect that to hold true through the summer in hotspots around the country and possibly again later in the year. However, in regard to the impact on our business, the providers are still using their EHRs from home to treat patients. It's also important to remember that we focus on essential medications, not elective. So similar to Q1, we did not see a material drop in e-prescribing in Q2. We also feel we have some strong tailwinds in our back in terms of our client base. Most of our clients have decided to proceed with their new launches of brands. This is due to the complexities and costs around preparation and as part of the overall strategy designed to prevent any substantial disruption. Medical conferences, medical liaisons, live advisory boards have all been disrupted or gone virtual, so we expect this to drive an increase in demand for digital communication that delivers mission-critical information at the point of care. Of course, we're thrilled with our 34% increase in revenue growth for the first half, but perhaps more importantly, we have seen our close rate increase above 50%, and our sales cycle continues to be considerably shorter than the previous year period. The second driver of growth is our network of partners, and man, were we busy there. We are seeing more rapid adoption of digital tools for doctors to combat the disruption of COVID. Macro trends are in our favor as highlighted by the rapid adoption of telehealth and other digital tools. A clear theme forming is the need for the appropriate digital tools for doctors to maintain their practices as such drastic disruptions appear. This allows our solution to be highlighted as an effective tool set up to deliver care to patients. Of note, we integrated with new partners like Change Healthcare, Cerner, and Epic, which extends our reach further into the point of care with over 125,000 additional doctors, a significant add to our network. We're making terrific traction with additional access to patients, enhancing our ability to affect adherence and affordability. We now reach, via 10 hospital systems, some 15 million patients at the point of discharge. In the third quarter, we expect to gain considerably more access to patients with additional partnerships with direct digital connection to patients. Our Innovation Lab was very timely and is producing strong receptivity in the market. We continue to believe that the lab will allow us to capture more EHR partners as well as additional channel partners within hub services, telehealth, appointment enablement, and retail pharmacy. Hub enrollment closed 5 clients. TelaRep is getting a lot of attention, and we anticipate additional revenue from those short term, but clearly setting us up for nice growth in '21. While many of our channel partners already had telehealth solutions, the adoption had been relatively low. The recent increase in demand for these types of service has been fantastic for all. But for us, it's implied a benefit that our channel partners are increasing their attention towards these essential tools. Affordability and adherence has also moved up the priority list. As a result, the discussions that we're progressing in normal speed are now accelerating with partners. The third level of growth is enhancements to our core solutions as well as new solutions. As our core solutions continue to scale, we're seeing an increased demand, not only for financial messaging, but also brand and therapeutic support messaging as we enter the second half. Given the unemployment levels, cost has again surfaced as a major problem for patients, and we expect those trends to continue. We've also seen pharma reps continue to work from home and health conferences moving to virtual only. These are drivers for demand for what we do in terms of our digital delivery. We saw gross margin come up in Q2 as the growth in the messages in patient engagement kicked in. We expect to see much more of that in Q3 and Q4, bringing our gross margin up to where we expected on an annual basis. I'm very proud to share that we've taken one of our patient engagement clients beyond $1 million a year in revenue for 2020. COVID has put a lot more attention within our client base on effective, compliant, and transparent digital technologies that enable patient engagement. We are very well situated to start to scale this part of our business with multiple clients and a very strong team. These solutions are almost all recurring revenue and build nicely into 2021 as we complete the technology integration. It's important to keep in mind why OptimizeRx has such a strong, sustainable competitive advantage, a critical piece to the future of the company. We have a digital platform that brings together a very fragmented market of health care information technology, connecting patients, doctors, and manufacturers. We have the ability to connect all stakeholders in health care in a way that fits into their daily lives and touches on the pain points we have all experienced, which include awareness, affordability, and adherence of our medications just to stay healthy. We are well positioned to bring frequent and measurable and very impressive return on investment for our clients. We have built meaningful physician reach over the years and some measure of exclusivity by integrating our platform into the leading EHRs and e-prescribe systems. As many of you know, today, we reach over 60% of the ambulatory market where most of prescribing happens. We're deeply entrenched in our client base as we work with 45% of the top 20 brands by revenue and have increased interest from the remaining 55%. Our clients have multiple siloed businesses in need of our services. So we are focused on a land-and-expand strategy and are confident our growth in the second half will yield favorable results. The trust we've gained from our clients at a time when digital communication is absolutely needed is supporting our continued shift to enterprise-level recurring revenue model. We also sit squarely in one of the fastest-growing segments in health technology, that is point-of-care communications, where there is tremendous client demand for greater connectivity that's effective, transparent, and measurable. Our addressable market continues to expand beyond the billions we have discussed with a clear shift coming from the sales rep and conference spend to digital communications. We now live in a digital age, so we strive to be the best digital platform for everyone to work with. Today, we have a scalable and secure technology to support and protect our growth. So when a doctor and a patient are working together and solve health issues, we can be there when impactful. Fostering a great culture continues to be a top priority, which, as any great leader or savvy investor knows, is essential for making a company great. People invest in people. We saw widespread unrest around racism in our country, and I want to share that my team, our clients, our partners, our investors, we're absolutely dedicated to an open work environment where all are treated equally. As a result, we formed an internal group to focus on our policies and practices to assure we all have the best possible work environment. Now with that, we'd like to open it up to your questions, which is always my favorite part.

We'll take our first question from Ryan Daniels with William Blair.

Maybe let me start with a bit of a housekeeping one. Gross margin, you discussed being a little bit lower year-over-year due to product mix, but confident they'll get to 63%. If I could do some quick math, it looks like if you're on 63% for the full year, you're going to be in the mid to high 60s over the next few quarters. Is that correct? Or did you mean 63% by the year-end?

You're pretty far from the mic, I think, Ryan, but I think I got it. Doug, do you want to answer that question?

Sure. Well, we're talking about year-end. Our goal is to get there for the full year, but at the minimum, we think we can get there by the fourth quarter or so.

Okay. And if we think about the growth outlook...

Hey, Ryan, can you get closer to the mic? Sorry, I'm not hearing you so well.

Can you hear me better now? I'm closer to the mic.

Yes. Thank you. That's great.

Okay. All right. You talked about accelerating revenue in the back half of the year. And I know you don't want to explicitly give guidance, but how should we think about the cadence in the back half of the year versus the first half in regards to overall organic revenue growth?

It's important to remember that what we're doing is a business-to-business solution in the pharmaceutical sector. The manufacturers were not prepared for this disruption at the beginning of the year. They primarily used the first half to continue normal operations, which is reflected in the current numbers, and to develop strategies for the second half. If we focus solely on our usual business, we might avoid the term accelerated. However, due to the increasing need to connect with physicians and patients, which has significantly grown year-over-year, we feel it's appropriate to describe it as accelerated. We know that 34% was our slow quarter, and while we won't provide specific numbers, we are very optimistic about the opportunities ahead and the additional business we usually see in the latter half of the year.

Sure. And do you think the additional business, kind of the leftover marketing funds that could go digital because it's quicker to implement that, could be greater than in years past? So you may even see more of a Q4 boost than you have, given what's going on with COVID and the lack of conferences and other advertising venues to manufacturers, in particular?

Sure, Will. Ryan, yes, I think already then, we've seen a meaningful pivot in budget towards digital spend. Many of the conferences as well as sort of deployment of sales reps have pivoted into digital enablement, focusing on driving sort of, as Will said earlier in the script, point-of-care communication. And we've seen that across the board. I think the confidence interval that we've got for the second half is largely based on our visibility to the second half. For us, sales is a leading indicator of revenue. So we have a little bit more visibility on the sales side than we do on the revenue side. But we feel extremely confident that we'll see outsized growth in the second half just based on what we are seeing in those pivots, conversations that we're engaging on sales that we've made and pipeline that is certainly accretive to anything that we've seen previously. So feeling very good.

Yes. And Ryan, I would just add to that, that it might be sort of a twofer, right? You're going to get the normal buyouts, which we see even in bad years. You see them. And then there could be an additional shift from traditional non-digital budgets to the digital. So I think across the board with our peers as well, we'll see some of that.

Okay. Great. Maybe two more quick ones. Just in regards to the enterprise pipeline, congrats on all the momentum there, 6 deals, about $21 million or more in CV. How much of that do you think you'll actually be able to implement and see in 2020 versus how much we should think of that being kind of a head start on the 2021 sales revenue?

We will see most of that in 2020. The beauty of that business is that it is generally annual in nature. It also sets you up for the next year really nicely and is much stickier. So yes, that is revenue we will see this year.

This year, okay. And then maybe for Miriam, just I want to get a little bit more discussion on how far off you are on the relationship that takes you into the 300 Cerner and Epic systems. Can you talk a little bit about that integration, how it's progressing and what the potential revenue opportunities could be as you tap into the acute care market more actively?

Yes. Ryan, this is Miriam. I will address the channel partner aspect, and then Steve can discuss the revenue potential within the hospital sector. Last year, we began our initial steps into the acute care market through various channels. The new addition we made allows us direct access to the health systems mentioned in the release and earlier by Will. We are currently in the integration phase, and we will soon start the rollout. There's a mix of good and bad news regarding the rollout. Some health systems are cloud-based while others are not, making it impossible to onboard everyone simultaneously. However, we expect these new solutions to incorporate both point-of-discharge and point-of-prescribe capabilities as part of the real-time benefits check, illustrating the total out-of-pocket costs. It’s an important moment, but we are still very early in the process. We are just beginning the integration phase, and these features will be available soon. I anticipate that we will deliver solutions in Q4 this year, as we aim to complete integration with that channel by September, though we are still in the early stages. Steve?

Thank you, Miriam. Ryan, regarding revenue for the model, we currently have a 45% penetration with optimal brands based on sales. We view this in two ways: looking at the top 20 brands by sales and examining penetration in terms of sales volume. The integrations with Epic and Cerner are expected to provide significant growth opportunities for brands we haven't yet accessed. Strategically, as we analyze our network, we consider the brands currently on our platform and evaluate our access by measuring NPIs or the number of physicians we reach. We also identify areas where we're lacking and will utilize that as a guide to improve our channel strategy. This will significantly affect brands not yet live on the platform and will enhance our ability to communicate with existing brands, leading to an increase in NPIs, which correlates with higher revenue for the business. I hope this clarifies the model.

We'll take our next question from Andrew D'Silva with B. Riley FBR.

Just a few quick ones from me. To start, I'm just kind of curious, as you look at the growth that you're expecting in the second half of the year, how much of that is tied to contracts that you've already won throughout the first half of the year or year-to-date specifically versus new initiatives that you expect to come on in the back part of the year? And then are you still seeing additional off-cycle RFPs coming in currently? Or has that largely stopped at this point?

We have been very transparent about the anticipated growth in the second half of the year because we have clear visibility on the business that is confirmed. We expect more business opportunities to arise that we cannot predict at this time. Additionally, we are entering the RFP season, which is when we actively engage with our clients to present our offerings for the coming year. There's a lot happening, but we have a solid understanding of the current year's expectations. Please repeat your second question for me.

No, you answered it. Yes.

Okay, got it. Okay. Good.

Accidentally, you're still great doing it, huh? And if we're thinking about just life science clients in general, I know right after the largest swap of shutdowns took place in late Q1, everybody was primarily virtual. Has that at least shifted a little bit where you're seeing some sales reps being able to access physicians in person? Or is it really status quo and still completely primarily virtual at this point?

Yes, it remains virtual. In fact, during my discussions with clients, I learned that they report an effective rate between 4% to 12% via phone. They are not conducting in-person meetings unless it's for a surgery or similar situation. The representatives we are working with and the medications we handle are still entirely virtual. They have transitioned to training over the phone, utilizing any means to connect. It's important to note that this situation is not widely understood. Many doctors reach out to representatives with specific queries, which has caused significant disruption not only for the pharmaceutical industry but also for healthcare providers. This highlights the importance of TelaRep, which enables doctors to contact representatives within their workflow. We are the only company offering this solution embedded in the workflow. While major CRM systems may provide options outside the workflow, we are integrated directly within it. When you combine these factors, it becomes clear that we are facing extended disruption in the representative space. To remind everyone, this market represents an annual spend of $15 billion to $18 billion for the pharmaceutical sector, indicating substantial disruption. This is certainly one of the favorable factors for us.

Yes, that's interesting. The results you've achieved with your platform over the last several years are impressive. The news in the industry has also been quite noteworthy. For instance, there was the recent acquisition of Livongo by Teladoc. How do you perceive that merger and acquisition activity? Considering the various components that OPRX has integrated to develop your platform over the past five years, there appears to be some overlap with Teladoc's initiatives. Can you share your perspective on how their platform compares to yours and how you see yourselves fitting into the larger market landscape?

Yes. First off, I'm excited for both companies. They are excellent and early innovators that have executed well. I believe there's a good cultural alignment between them. Both companies focus on employers, aiming to reduce healthcare costs for them through digital means. By combining a digital therapeutic with a telehealth platform, there are evident synergies to explore. However, our focus is on pharmaceutical companies, patients, and doctors, which places us in a different segment of the industry. Nevertheless, we share the same goal of enabling vital communication to deliver more affordable care that people are willing to adhere to. They are offering employers a compelling value proposition by facilitating involvement and implementing protocols to enhance adherence, particularly for diabetes, which is a significant issue for many employers. While we operate in a different space, both are notable companies that have demonstrated scalability. Their success inspires us, especially since we are a young public company with opportunities to grow to a similar size. Our investment thesis suggests we might not typically be public, but we are. Observing these types of deals genuinely encourages me, as I believe the market will recognize and reward our efforts to build a strong digital health company, which has been quite rare lately.

Yes. It's a really interesting campus that's being created right now. Last question for me. Could you just give a little bit of additional color on the collaboration with Change Healthcare and how different it may be from some of the other partnerships you established? Or the same? I really just want to get a better understanding of what it could mean for you going forward.

Sure.

Yes. Andrew, do you want me to take that or...

Go for it, yes.

Our collaboration with Change is significant because they are among the first partners to enable all of our solutions right from the start. We offer various messaging solutions, including TelaRep and a new smart button for the Internet of Things, which they support, as well as patient engagement solutions. Having a partner that fully integrates with us and can utilize all our signals is something we've been striving for, especially since some of our legacy partners are slowly adding our new offerings. It's exciting to onboard a network of providers that can access all our solutions from the outset. We are currently in the integration phase. However, it's important to set expectations, as there are a relatively small number of prescribers involved—measured in the thousands rather than tens of thousands. Nonetheless, Change Healthcare's clinical interface complements our efforts, and my previous experience with them as part of the management team adds to our confidence. This is a solid starting point, and we see plenty of opportunities within the Change Healthcare ecosystem to expand further. I hope that clarifies things.

Very useful. Yes, no, very useful. And great execution year-to-date, and good luck closing out the year.

Thank you.

Thanks, Andy.

We'll take our next question from Eric Martinuzzi with Lake Street.

I wanted to focus on the enterprise deals. So, a quick calculation on the $21 million suggests that we’re looking at about 6 deals, which means each enterprise deal has an annualized contract value of approximately $3.5 million. My assumption is that people become aware of OPRX mainly through our messaging, particularly our financial messaging capability, and subsequently add a second and third product. So, rather than providing an answer, let me ask: what do most people typically start with, and what do they tend to expand into within our product suite?

Yes, that's a correct assumption. We've built credibility by delivering strong ROI with our financial messaging product, which reaches the entirety of our network. It's the primary offering and has performed well. In the enterprise space, we assist clients in considering the patient journey and their preferred methods of communication with healthcare practitioners and patients. When we engage with an enterprise client, they typically have multiple solutions, usually including financial messaging, although not always. Steve and his team have done an exceptional job incorporating these additional solutions. I'm genuinely impressed by how successful we've been this year in increasing our numbers from last year, encouraging clients to adapt their approaches can be challenging. However, based on the pre-RFP season developments, our solutions are resonating with clients. So, I would anticipate a range of solutions for every enterprise deal.

I am particularly interested in product number two. What is the next most popular option in the product portfolio? Is it patient engagement, adherence, or digital therapeutics? Or is there no clear next choice?

I think it's sort of a close tie between brand and therapeutic messaging, both are really effective awareness messages for doctors, and then I would say patient engagement is climbing pretty fast.

Okay, great. And then, I want to comment on the outlook from a different angle. You did finish the quarter where you did $8.8 million. Is the expectation for the third quarter that we'll be sequentially up in the third quarter?

Yes.

Okay. And then on the OpEx side, I've doubled my model the most probably in the last few quarters is on the OpEx. It looks like this time, I got it right or at least within $100,000. Was there any onetime items that I need to be concerned about for Q3 and Q4? Or is the $6.2 million on the OpEx a good number to work with?

Yes, you're solid. Yes. Sorry, Doug, go ahead and add to that.

Well, I was just going to say that should be a good number for the rest of the year.

We'll take our next question from Richard Baldry with ROTH Capital.

Can you discuss any adjustments to your marketing strategy in light of the lack of conferences? Are there still ways to connect with new prospects or demonstrate your capabilities on a broader scale? Or is it primarily necessary to shift toward very targeted one-on-one B2B sales efforts?

Steve, do you want to handle that one?

Yes, I'm happy to speak to it. Can you hear me clearly, okay?

Yes, it's better.

Yes, no worries. So Rich, what we've endeavored to do is really set up an account-based marketing construct within the business that allows us to proactively reach out to both new contracts and existing contracts where we have the ability to cross-sell and upsell. It's part of the reason why we've given such good results, I think, in the first half and why we're very confident about the second half. Basically, we're able to reach out digitally to these people through various themes without the conferences. We've seen very little impact on top of the funnel marketing qualified lead generation from conferences decreasing, in fact. So it's been a net positive but the focus for us is account-based marketing, truly driving into the accounts where we have a good match for our solution, which we know who those are, and we've shared largely that we've mapped those out.

Okay. In the first half, you had a strong ability to guide us through the timing and pace of adding your first-ever new series of enterprise wins. I'm curious about your visibility on the next phase. Should we wait for the fall spending decision cycle in pharma to see those? Will they have a different timing this year compared to the first half? Is it possible they could occur in the fall of this year, or do you believe it will likely be in the first half of next year?

Yes. So...

Let me start. We're very encouraged by the onset of the RFP season, which truly begins now given our strong presence in the market. It will fully kick off in September. Since we have everything organized, we can proactively reach out to our clients to showcase our capabilities and our potential for growth. While we won't discuss the pipeline today, I believe we will be pleased with where we end up for next year. I anticipate a healthy mix of enterprise solutions, tactical initiatives, core offerings, and patient engagement, with commitments likely to come in before the year ends. This will give us better visibility into 2021 compared to the previous year. Steve, do you have anything else to add?

No, I think you covered it. We have good visibility even before the RFP process, and we're having great conversations. We're staying active, and the Q3 pipeline looks very strong. As Will mentioned, we have clear insights into what we've already sold that hasn’t yet been recognized, as well as additional visibility into what we anticipate selling in the near term. We will share more about the market soon; our outlook is very positive.

Our next question comes from Alex Silverman with AWM Investment.

So most of my questions have been asked and answered. Just want to confirm one thing. Q3, in a typical season, looks like Q2 from a revenue standpoint, no?

Yes, that's correct.

Okay. So if we take the second quarter as a starting point and build on that, it’s a useful exercise.

That's correct.

I noticed that on the OpEx side, you spent $6.6 million in the first quarter, which decreased to $6.2 million here. Moving forward, it seems there are savings from reduced travel and other factors. However, I was expecting you to increase spending on investments. Is there something we're not seeing?

No. If you consider our business, it operates as a platform. When our clients provide content that requires distribution on this platform, it’s a straightforward task. Therefore, there’s no need to overhire to meet this demand. We also have a commercial team capable of achieving a $100 million revenue run rate without needing additional executives. Any investment would primarily be focused on managing accounts and ensuring client satisfaction, along with servicing our essential partners. If we can recruit more commercial staff to attract new pharmaceutical clients or strengthen existing relationships, we will definitely pursue that. If necessary, we'll raise funds to facilitate these efforts or utilize our cash reserves. We are proactive and strategic in demonstrating the scalability of this business, and we have significant capacity for growth.

Got it. Okay. And then one last question. What was the earn-out for CareSpeak?

Sure. So as part of the original purchase agreements for both CareSpeak and RMDY, they gain additional contingent consideration if they hit certain revenue targets. And so the CareSpeak had a revenue target for 2019 that they exceeded, so we paid out that portion of the earnout. It was additional...

Like how much roughly?

Roughly $1.5 million.

Our next question comes from Harvey Poppel.

So Will, a great, great quarter, hitting on all 16 cylinders. Congratulations.

Thanks, Harvey.

I really only have one question. I want to kind of home in on the issue of profitability, which was kind of hit by an implication in some of the previous questions. If your G&A is not going to grow that materially, at least at the pace of the past or in the pace you're setting for your revenue growth and your gross margin is going up to the mid-60s heading in that direction, it would seem that pretty soon, you're going to be crossing the GAAP profitability line. Is that a reasonable expectation, at least for some time in 2021?

Absolutely. It's a reasonable expectation and our primary focus. We believe we're at a point where we can demonstrate this, so yes. To clarify, it's not mid-50s; it's more in the lower 60s for gross margin. If patient engagement scales up, we can increase that into the 60s, but that's unlikely to happen this year. We definitely want to see gross margin start decreasing. Aspirationally, if you look at similar businesses that have gone public, they generally see strong profitability as they reach a $50 million to $60 million run rate, typically dropping 20% or more to the bottom line. That is our target.

Great. I have another question regarding the Livongo-Teladoc deal. If we were to consider the multiple on Livongo, they weren't making any profit, so we need to focus on revenue multiples. Applying that to OPRX, your stock seems to be valued significantly lower than what was assigned to Livongo in that deal. Do you have any comments on this?

Yes, it's challenging to determine multiples accurately until transactions occur because that's when their true value is revealed. I've been monitoring all the public companies in our sector, and we've been undervalued primarily because they are further along in their development. Our public entity has slightly less retail support. However, I see this as a positive indicator for our market because strong transaction multiples attract a broad range of investors, including institutional and retail ones, as well as strategic international mutual funds. I'm really pleased to see this development and happy for the teams involved, as I believe it will create a good cultural fit and lead to an effective digital health company. I'm very optimistic about it.

We'll take our next question from Josh Goldberg with G2.

There has clearly been a turning point in your business. For several years, you've discussed pipeline, coverage, and the opportunities available. Could you clarify if the pipeline has increased by 100%? You mentioned plans to accelerate growth in certain periods, which is understandable given the favorable comparison from last year. However, I’m looking for more insight into how robust the quarter was in terms of new client engagements and whether you’re truly elevating your business to the next level. I have a follow-up question.

Okay. Thanks. Yes, no, look, we're not doing the pipeline talk yet because it's premature. But it is very safe to say that we will pass the $100 million mark just based on what we're seeing now. It's absolutely safe to say in terms of pipeline. Everything we mentioned, we're not making up. And it's so verified out in the open market in terms of digital shift spend, M&A activity raises. It's a shift, right? You're looking at a $20 billion to $25 billion spend shift towards digital and very well understood and documented. So we are absolutely in the right place. We're seeing it through the dialogue. We can keep up with those dialogues as well. And my hats off to the team because they're really doing a good job being proactive with our clients. And someone asked what are we doing for marketing that's different because you can't go knock on doors. Those webinars we did, and I'm always a little skeptical with fluffy stuff, but they absolutely drove credibility and share of voice in our market. And it was a brilliant move, and we're seeing the benefit, and we'll see it even more. And we will talk to that number when we report Q3 so we can get into it more specifically. But I hope that gives you a little bit more color.

Can you discuss which of your various product segments is performing the best right now? Also, could you provide insight into your pipeline, specifically regarding your largest clients and where they are finding significant traction in your business?

You want me to take that one?

Sure. Sure, go ahead.

We are seeing some of our largest clients purchasing multiple solutions, as we've indicated previously. The top pipelines have shown a strong compound annual growth rate over the last three years as we move into the latter half of this year. While I won't divulge specific figures during this call, we plan to share them soon. Many of these solutions include financial messaging, along with some that focus on therapeutic support and brand messaging. We have several clients involved in hub enrollment. What we're observing is that clients are starting to view their interactions as a funnel-like process. This means engaging with physicians at the start of a patient's journey, then supporting both the physician and patient throughout, ensuring they stay engaged and avoid issues like therapy abandonment or prescription barriers. The clients generating the most revenue are the ones utilizing multiple solutions and are effectively delivering value throughout the care continuum.

At this time, this concludes our question-and-answer session. I'd now like to turn the call back over to Mr. Febbo. Please go ahead, sir.

If you can take just one thing away from our discussion, although you're probably going to take several positive things, I hope it's the understanding of our view of very strong growth this year and our ability to generate significant value for our shareholders due to our sustainable strategic advantage and the favorable market conditions. Beyond the numbers, I hope you can see that we've created a unique culture dedicated to something truly valuable, which makes a difference in people's lives, from patients to physicians and beyond. We do not provide guidance as an early-stage company, especially in the current environment. However, based on everything you've heard today and what we observe, we're very optimistic for a strong second half of 2020. Now with that, let's wrap up the call. Thank you, everyone, for your time.

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 today's call may contain forward-looking statements within the definition of Section 27A in the Securities Act of 1993, as amended in Section 21E at 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. They may speak only to the date that statements are made. Such forward-looking statements in this call include statements regarding the estimation of total addressable market size, market penetration, revenue growth, gross margin, operating expenses, profitability, cash flow, technology, investments, growth opportunities, acquisitions, upcoming announcements and the need for raising additional capital. They also include the management's expectations for the rest of the year and the adoption of the company's digital health platform. 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 in, contemplated by or underlying these forward-looking statements. The risks and uncertainties to which forward-looking statements are subject to, include, but are not limited to, the effect of government regulation, competition and other material risks. Risks and uncertainties to which forward-looking statements are subject to could affect business, and financial results are included in the company's annual report in Form 10-K for the fiscal year ended December 31, 2019. This form is available on the company's website 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 and running through August 26. 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 today's conference call. And you may now disconnect.