OptimizeRx Corp Q3 FY2020 Earnings Call

Good afternoon, and thank you for joining us today to discuss OptimizeRx Corporation's Third Quarter ended September 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 the call today, 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 in 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, sir.

Thanks, Sarah, and good afternoon, everyone. Thanks for joining us on the call today. The team at OPRX is healthy, focused and very grateful to have as many opportunities as we do to scale our business in this environment as a digital health platform focused on affordability and adherence for our life science clients, doctors, and patients. I started the previous conference call thanking all the health care professionals for their commitment and bravery. I'll say it again. Thank you very much. With the increase in cases, doctor visits going up, we are again putting a big burden on our health care providers. We had optimized our capacity and consider ourselves very fortunate during the pandemic to be an instrumental conduit of communication between industry, doctors and patients. We are focused on delivering value for all our stakeholders. To support this statement with results we are very proud to announce we accelerated our revenue with 110% quarter-over-quarter growth, as well as a year-to-date growth rate of 56%. We return to delivering strong non-GAAP income. Our pipeline is currently at more than $140 million, which is almost 2x what it was this time last year, and we're still not finished with the RFP season. We expanded our network to reach patients within the retail setting, as well as mobile appointment check-in and check-out as we continue to build out additional channels. We fine-tuned our patient engagement market strategy at a time when demand has never been greater. We secured multiple clients for new solutions born out of our Innovation Lab, where we collaborate with select partners to drive more effective solutions for doctors and patients. In short, we have delivered on every growth driver of the business we have discussed in the past. We continue to build a highly impactful company situated in the middle of all its stakeholders. We are early in our journey. Our opportunity continues to grow at impressive rates with very little headwind now, and we have a team and technology that's aligned to scale. Our digital communication platform helps doctors, patients and industry do what we are all in it for, that is to improve health in an affordable and transparent way. Now, before I go further, I'd like to turn the call over to our CFO, Doug Baker, who will walk us through the financial details for the third quarter. Then I'll return to discuss more about how we are winning business and our outlook for the rest of the year in 2021. Then once again, we'll have the full executive team, Miriam and Steve on the call today to help address any of your questions. Doug?

Thanks, Will. Good afternoon, everyone. Earlier today, we issued a press release with the results of our third quarter that ended September 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 available at sec.gov. As Will mentioned, our revenue for the quarter was a record $10.5 million, up 110% compared with a year ago quarter. Gross profit was $6 million, about double that of the year ago. Our gross margin percentage declined to 57.1% in the third quarter of 2020 versus 60.4% a year ago, but is similar to our margins for the first quarters of this year. The decline from last year was a result of product mix, primarily a heavier mix of messaging to higher-class channels this year. We expect to achieve gross margin of 58% or higher for the calendar year based on a strong fourth quarter. Our operating expenses increased to $6.2 million in the third quarter of 2020, compared with the same quarter of 2019, the decrease from $6.6 million in the first quarter of this year and we're virtually the same as the second quarter of this year. The decrease from Q1 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 a 110% increase in revenue, a shift towards enterprise contracts and decreased sales cycle. Our investment in our marketing and product teams gave us the ability to be nimble and quickly respond to some of the operational items Will is going to discuss later in the call. Non-GAAP net income was $1.1 million in the third quarter. This was our second straight quarter of non-GAAP net income and we expect that to increase further in the fourth quarter. Our balance sheet remains strong. Cash and cash equivalents totaled $12 million, down from $14.1 million on June 30. This decrease resulted in the earn-out payment related to our RMDY acquisition, but we were basically operationally cash flow breakeven for the quarter. Our receivables are very high quality 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. And our day sales outstanding remains relatively constant. We expect to generate positive cash flow from operations in the fourth quarter of this year. We have continued to operate debt-free and do not anticipate needing to raise additional capital over the foreseeable future either for operating purposes or to fund our growth plans. I also want to take this opportunity to point out that we have remediated the weaknesses in our internal control that were considered material as of December 31, 2018. This wraps up our discussion of our financial results. I'd like to turn the call back over to Will. Will?

Thanks, Doug. What a great start to the second half of the year. I'll speak shortly to our growth drivers. But rest assured, they're firing on all cylinders, delivering a year-over-year growth rate of 110%. On top of that, we see no disruption in the last quarter of the year to continue the strong annual growth rate along with non-GAAP income and positive cash flow operationally. We focus on three main drivers for growth at OptimizeRx: our clients, our partner network, and digital health solutions. We digitally enabled communication, which benefits patients and doctors around therapeutic awareness, affordability and adherence. Even prior to the current pandemic, we were feeling tailwinds supporting growth in all three areas. First, let's talk about our clients. We're seeing terrific traction on multiple levels. We've spoken to enterprise deals for some time now. We define these as an engagement that involves two or more solutions on a given brand. Enterprise agreements are going exceedingly well, bringing in a total of $21 million of annualized revenue within 2020. This is all highly renewable, and we anticipate many more enterprise engagements as we enter 2021. Our land-and-expand strategy is driven by strong return on investment for our clients. We're also seeing increased internal referrals, which allow for additional tactical sell to build the pathway and pipeline for enterprise deals. Given the only six enterprise deals in 2020, we are engaged with over a hundred brands. It is clear how early we are in terms of building a much larger business. We'll see an additional 60 brands added within 2020, and we expect that to continue to grow in 2021. Our pipeline is tracking to be over double that of last year, currently sitting at $140 million. We still anticipate a close rate of between 35% to 50%. So prospects for '21 are looking terrific. Our new solutions like patient engagement, Hub enrollment, TelaRep are all generating interest and revenue within our client base and have shown our clients we are an innovator among our peers, and no longer dependent upon a single solution for growth. In fact, we see little or no competition who can do what we do given our shift to multi-solution and multi-modal delivery. Most of our growth for the year is coming from organic activities. As we see our pharma clients leaning into the point-of-care as a critical piece of their marketing strategy, we continue to come in ahead of our internal budget year-to-date, and we expect to far exceed our goals we have set earlier to finish 2020. Office visits were less challenged in Q3, but we expect to see downward pressure on visits in hotspots around the country through the winter months, which are peak flu seasons for many of our markets. However, regarding the impact on our business, the doctors will still use their EHRs from home to treat patients with several telehealth solutions alongside. In fact, according to a recent McKinsey study on closing the digital gap in pharma, nearly 70% of U.S consumers use an online channel to manage health and wellness. More than 50% of U.S healthcare providers are digital omnivores using three or more connected devices professionally. It's also important to remember that we focus on essential medications, not elective. So similar to Q2, we did not see a material drop in e-prescribing in Q3, nor do we anticipate one in Q4. We also believe we have some strong tailwinds that are back in terms of our client base. Most of our clients have decided to proceed with new launches. 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, and live advising boards continue to be disrupted or have gone virtual. So we expect this will drive an increase in demand for digital communication that delivers mission-critical information at point-of-care, of course, to delivering essential medications. Due to the recent pandemic-related disruptions to the delivery of care, we're seeing more rapid adoption of digital tools by doctors and patients. For these macro trends in our favor, we expect to enable highly targeted strategy for our clients to reach the most essential doctors and patients. In Q3, we had some terrific new partners, which connect us digitally to millions of patients. Notably, we integrated with Higi, a health engagement platform that empowers consumers to measure, track, and act on their health data. They have over 10,000 stations nationwide, 303 million biometric screenings to date, and one in seven people have used a Higi station. We are focused on helping them deliver care at a lower cost. This is the beginning of our expansion into the retail or point-of-dispense as another channel to enable affordability and adherence. We also partnered with Epion Health, a patient engagement platform that makes it easier than ever for patients to access care. At the end, Epion provides search and online scheduling tools to help patients find the right provider and care setting at the right time. Then we enable access to affordability prior to and after the office visit. This partner is also connected into the Athenahealth network, which is a new partner in our network. So we're thrilled to reach that new cloud-based community. Both of these partnerships are very timely as we are looking for greater ways to digitally reach patients in the care journey, maximizing their access to care. While many of our EHR channel partners already had telehealth solutions, the adoption had been relatively low. The recent increase in demand for these types of services has been fantastic for all involved. For us, it has the implied benefit that our channel partners are increasing their attention on the essential tools that doctors can use to better care for patients. The third driver of growth is enhancements to our technology platform and client solutions. The OPRX technology team is world-class. Every day we use state-of-the-art engineering tools and techniques to build new products as we simultaneously evolve our technology to plug into the entire digital health world. We will unlock the revenue potential for OPRX. Our newest product TelaRep is a result of our flip-to-script breakthrough mentality. We have modernized the communication between pharma reps and providers by allowing the providers to initiate the conversation with the rep on their timeline from within their workflow. In addition to the above, we are truly innovative. We have launched patient engagement products that have embedded AI-driven chatbots, and these products are fully functional in the market, not just prototypes. Beyond that, we have continuously incubated and iterated new things in our innovation lab. This year alone, we have demonstrated the ability to use AI and machine learning to intake static information, i.e., PDF offers, and then parse and translate into machine-readable data. This capability will allow us to consume and convert pharmaceutical-driven content so that it can become digitally liquid, further unlocking revenues. As our core messaging solution continues to scale, we're seeing an increase in demand not only for financial messaging but also brand and therapeutic support messaging as we enter the final quarter of 2020. Given the unemployment levels, cost has again surfaced as a major problem for patients, and we expect these trends to continue. In the third quarter, we also finalized our integration and go-forward plan for patient engagement. Given the difficulties around travel, we have decided to double down on life science clients for this solution and spend less time and money on payers. We acquired two great technology companies and have finalized our commercial plans as we approach the 2021 outlook. Our patient engagement solution will allow for more scale to drive top-line growth with recurring revenue. It will enable access to additional budgets within the client base. And lastly, it will improve gross margin over time. We will report more on this after we complete 2020, but we are very encouraged by the progress, relevance, and scale potential. Lastly, I want to talk about how OptimizeRx has a strong, sustainable competitive advantage, and then we'll get to Q&A. We have a digital health platform that brings together a very fragmented market of health information technology, connecting patients, doctors, and manufacturers. We have the ability to connect all stakeholders in healthcare 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 to our medications to stay healthy. We are well positioned to bring frequent measurable and impressive ROI for our clients. We've built meaningful physician reach over the years with some measure of exclusivity by integrating our platform into the leading EHRs and e-prescribe systems. Today, we reach over 60% of the ambulatory market where most of the prescribing happens. We are deeply entrenched in our client base as we work with 65% of the top 20 brands by revenue, with increased interest from the remaining 35%. If you recall, in Q2, we were at 45%, a dramatic increase in just one quarter. The trust we have gained from our clients at a time when digital communication is absolutely needed is supporting our continued shift to an enterprise-level recurring revenue model. Accordingly, through a recent study by VIVA, by the end of 2020, nearly 70% of all healthcare providers will be digital natives. Their experience with mobile, social, and digital technologies in their personal lives are shifting their expectations for business interaction. We sit squarely in one of the fastest-growing segments of health technology, that is point-of-care communications where there's tremendous client demand for greater connectivity that is effective, transparent, and measurable. With more than half of the healthcare providers in the U.S. under the age of 45, the expectation is for efficient digital tools to enable their workflow. We leverage the power of our position to make healthcare data actionable and further enable timely care and better outcomes for patients. With every quarter, the value of our addressable market continues to expand into the multi-billions, and a clear shift is emerging in client marketing spend, transitioning from traditional sales reps and industry conferences towards more digital communications. We now live in a digital age, so we strive to be the best-in-class digital platform for everyone we work with. Today, we have scalable and secure technology to support and protect our growth. So when the doctor and the patient are working together to solve health issues, we can be there when it matters. Now with that, we'd like to open it up for the questions. Sarah?

Good afternoon. Thank you very much for taking my questions and really congrats on the progress year-to-date. To start, can we just discuss 2020 as a whole? Do you believe much of the revenue growth that you've experienced with these initiatives that were already in place would have been fairly similar, say, if the pandemic hadn't taken place or do you think the majority of the benefit was related to the pandemic as you kind of consider year-over-year growth? And then on the enterprise side of the business, where are you seeing traction right now? Is it more with new or existing brands?

Great. I'll take the first one. Then I'm going to pass the other over to Steve. I think we were pretty consistent in Q2. Pharma does not move quickly when it comes to pivots. What we said in Q2 was they are assessing the change, looking at how to reposition content. We really wouldn't see a lot of revenue in this year. What we have seen is more internal referrals and more focus from the top down and really looking how to leverage all the content and frankly, the people with knowledge into the market at a time when it's been disrupted. So for 2020, we don't anticipate, specifically up to Q3, a big increase. I will say that in Q4, we might see a greater than normal buy-up just because there would be excess budget. But year-to-date, the pandemic has not influenced that, but it has gotten deeper into clients with more touch points. Steve, you want to talk to the enterprise?

Yes, happy to. Hi, Andy, thanks for the question. Regarding the enterprise deals, I mean, what we're seeing is a blend of both new and existing clients coming into this sort of dialogue of bringing in more than one solution. The existing client base, which has been just tremendous and wonderful to work with, has come back to the table and asked for additional solutions that they can use to implement more communication with HCPs and subsequently with patients. So we've seen that scale up very nicely. Our point-of-care team has done a wonderful job of really penetrating into those accounts and expanding. And you can see that in the financials. On the new side, new clients are coming to the table. As you will mention, we've seen several programs come in as nascent programs at the beginning of the year that perform that initial return on investment and very quickly make the decision to scale. So I think that's the trend that we're seeing across the board. Hopefully that answers the question.

Very, very helpful. Thank you. And then my last question maybe you can just give us an idea of what the cadence of the pipeline RFPs typically looks like. About how much does it typically grow into the end of the year or beyond? I remember last year in late December, you were over $80 million. So if you continue to effectively double from where you are, would it be reasonable to think that you could get close to $160 million to $180 million backlog or pipeline?

Do you want me to take that?

Well, yes, go for it.

Yes. I think that's reasonable, Andy. I mean, what we're seeing now is just an acceleration of interest. The referral business that we're getting from existing clients is just a real wonderful thing to see. And that is driving the acceleration in the pipeline. So we anticipate being well over the $140 million, $146 million mark, and probably closer to the $160 million mark by December this time. RFPs are still coming in, as everyone knows, we're right in the middle of RFP season. So it's still early to call, but we're certainly trending that way and feel very positive, both about the quantity and the quality of the RFPs that we're getting.

That's incredible to hear. I'm very happy for you guys. Thank you very much for taking the questions and I'll catch you up on it.

Thanks, Andy.

Thanks, Andy.

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

Yeah. Thanks for taking the question and thanks for all the information so far. Will, I'm hoping you can discuss any potential from the vaccine, obviously, a lot of noise today on that positive news for all of us, I guess. But I'm curious for your organization kind of what your thoughts are on that strategically, not simply the ability to return to conferences and keeping digital at the forefront of pharma marketing dollars, but maybe even more importantly, the ability to engage consumers to try to get the vaccine out there and to drive utilization of that? Thanks.

Yes, thanks, Ryan. We all heard the news and shared a collective sigh of relief. The market responded positively, which is essential for returning to normalcy. However, we recognize that achieving that is still a 6 to 12 month journey. On a positive note, we have the network in place to effectively communicate with a large number of healthcare providers working with patients. I do not see any significant changes to our business; rather, our network can facilitate this communication. Regarding our clients, this year we have observed that they are increasingly using conferences and meetings to connect with new solution providers. Without those conferences, they leaned heavily on peer referrals, which proved beneficial. Once people understand the advantages of our network, they are likely to stay engaged. Doctors will likely not revert to previous methods, and pharmaceutical companies may rethink their approaches, blending personal connections with technology. I believe we are well-positioned for this shift. Steve, could you share your insights from your direct work with clients? That’s my perspective.

Sure. Happy to. I mean, I think, Ryan, when we contemplate it, any drug launch that happens, right, it's always about identifying the correct patient population, identifying HCPs that are treating that population and then contemplating what the uptake curve will look like. And the COVID-19 vaccine won't be any different than that, right? They're going to take a look at prioritization of at-risk populations. They'll identify where those patients are. They're going to look at co-morbid studies and things that would say, hey, this population is at risk. They might be overweight, diabetic, all the co-morbidities that we've been hearing about in the news and in the media. And then they're going to communicate with the physicians that are treating those patients and find ways to distribute accordingly. So while we are definitely excited about it, I don't even want to mitigate the excitement, because I think it's tremendous. It's a data celebratory, for sure. I think about things in terms of tactical execution, and actually we are positioned strategically very well as a business to be able to help Pfizer and frankly, other businesses to be able to identify those pockets of population where patients are at risk, identify where those physicians are and help get the messaging out to those physicians and subsequently to those patients, and then validate that the patient has received therapy. That will be the critical part of what Pfizer's launch plans will look like.

Okay. Thank you. Very helpful color. And then in regards to Q4, I know you always typically see some buy-up with leftover marketing dollars. Will, I think you mentioned that could be higher this year because there's probably a lot of leftover dollars due to lack of conferences and promotional materials they spend in other areas. I'm curious, how large of a year are you expecting that? That's something you can actually track as an external partner to those firms. Number one. Then number two, do you have any capacity constraints with that? If certain brands come to you and want to spend more on digital marketing campaigns, is there a limit to what you can distribute per se within one quarter?

So, second question first. There certainly is, but we're far from it. So it would not be an issue inside of the next year or so at all. Lots of capacity. There could be some bottleneck in particular therapeutic areas, but even that I'm going to say that’s in the out years as well. And it's too early to call because it's sort of real time and we're just in early November. But we did want to signal to everybody that we're encouraged by what we're seeing. We have the capacity to execute it and actually help us deliver a terrific year.

Okay. That's helpful. And then one quick housekeeping issue, just from the press release. I know the gross margins were down a little bit year-over-year, just due to product mix, but you said you expect them to get back to the 60% level? Should we be thinking about that as 60% level by year-end, 60% for the fourth quarter or 60% for the full year? Because the latter would take a pretty enormous jump in the quarterly profit to get to 60% for the year. Thanks.

Yes, that would be 60% for the fourth quarter. It would be slightly lower for the entire year. Regarding gross margin, we are really focused on the product mix issue. We believe we have a strong long-term solution, as even at 58%, it's quite impressive compared to our peers. As patient engagement increases, we expect that gross margin number to improve over time.

Yes. I just want to get clarity because that wasn’t sure from the release.

Yes.

So thank you and congrats on the very strong quarter. Thanks so much.

Thanks, Ryan.

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

Thanks. If I consider your bookings as suggested by the RFPs you mentioned, it could range between $60 million and $80 million. Last year, your bookings almost directly converted into revenue, indicating potential growth of 75% to 100%. Given this context, could you discuss any potential discrepancies we should be aware of between bookings and actual revenue? Additionally, could you outline what the typical progression might look like for that next level of revenue in 2020, possibly starting a bit slower sequentially, and then having the last two quarters show very strong sequential growth? Should we anticipate that, and is there anything we need to be cautious about in that calculation?

Certainly. There is a seasonal aspect to the business, and based on previous years, we anticipate that this pattern will remain the same for 2021 since that is how the pharmaceutical industry operates. Regarding our pipeline, last year was the first time we shared our close rate, which was between 35% and 50%. Earlier in the year, we noticed it approaching 50%. We can't give a definitive forecast at this moment, but we will discuss our outlook when we report Q4. Generally, the second half of the year tends to outperform the first half. I believe we will experience smoother growth next year due to our strategic repositioning with enterprise and patient engagement, as well as different partnerships with channel partners. While we expect some smoothing, seasonality will still play a key role because of the inherent patterns in the pharmaceutical sector. We do not expect to fall below a 35% close rate and are not ready to specify where we believe it will be next year, but we are very optimistic about our pipeline. As Steve mentioned, there is still more to be accomplished in that area.

Okay. And start with a view of some of those RFPs seeming more targeted. Is there a way to think about the potential for close rates against that backdrop that it would seem like they're more likely to be one or maybe frame it around how much of the increase in RFPs is from existing customers who might be simpler because they understand and have used the value proposition in the past versus newer or different brands even within a similar customer that might be more challenging.

Yes, all excellent questions. A big chunk of this is from existing clients, right? So that's why we've seen no disruption and expect it to continue to grow into next year. We did get internal referrals, even though you get an internal review or this referral, they still test you. It seems odd, but they do. I will say the cycle there would be faster, the test might be slightly bigger. But, Steve, I don't know, do you want to add anything to that?

Yes, I believe it's still too early for us to provide specifics. However, I do notice that the requests we're receiving show a greater understanding of our offerings. The nature of the requests for proposals reflects a broader inclusion of our services, which I view as a positive sign of success. We will have more updates on this as we move forward. Overall, I'm quite optimistic about the pipeline and the incoming requests for proposals, with more developments to come.

Thanks. Then maybe two very sort of smaller things. There was some discussion from what I would call less informed analysts out there or confusion, maybe it's a better way to think about your days sales outstanding versus a very consumer-driven business that recently IPOed, whose DSOs are more credit card-driven. You may be talking about just very quickly one-on-one on the quality of your DSOs with your pharma companies, normal aging for an enterprise versus a consumer business?

Sure. So I guess there's two parts to it. We sell both direct to pharma and sometimes it goes through an agency. So the pharma companies pretty much dictate payment terms, which are usually 60 to 90 days. You can get paid earlier if you want, but it just involves substantial discount. So you can get paid in 15 days, but that’s annualized up 40% to 50% interest rates. So we just basically accept their terms because we don't need the cash. And then the second part with agencies. Agencies wait to pay us until they get paid by pharma. So that kind of compounds that a little bit. Our days we usually have one quarter of revenue on average in receivable at the end of the quarter, and that’s been relatively consistent over the years. So it may look like we have a lot of old receivables, but we really don't. It's just a consistent number based on how pharma operates.

Turning to back office operations, I want to clarify that there's a misconception about using QuickBooks, which is not accurate. I believe you are using a Sage system in the background. However, for the smaller companies you've acquired, you seem optimistic about integrating their back offices into your systems. Thank you.

Sure. You're right. We do use them. We do use Sage Intacct, which is kind of number one rated cloud software by the AICPA, used by large companies. And then when we are doing acquisition, we immediately integrate them in because usually they're small, so they're using QuickBooks or something else, but we just take their customers and vendors and load them into our system, and it's relatively seamless.

Right. Congrats on the impressive RFP pipeline and good luck.

Thanks, Rich.

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

Yes. I assume to take kind of pull back to the efforts going on in the Innovation Labs. Is there anything you can tell us about? And I'm anticipating this is more of a 2021 impact, but where's the focus of the Innovation Labs these days?

Miriam, you want to grab that one?

We're collaborating with our partner in the Innovation Lab to introduce TelaRep, which has a solid pipeline and is a brand new product that didn't even exist six months ago. This reflects our ability to swiftly develop and deploy a product that is already being purchased in the market. We anticipate increased activity with TelaRep, and we believe other innovations from the lab will follow this example. Additionally, we are progressing with hub enrollment, which we mentioned earlier. We have a new product with strong revenue potential this year and a promising pipeline for next year. The next phase involves enhancing data movement related to TelaRep's functionality. I'm referring to it as a smart button, which will integrate advanced life sciences features within the EHR at critical workflow points. Our goal is to modernize the EHR experience to benefit physicians, allowing them to operate on their schedules and workflows. We expect to see more developments from the Innovation Lab this upcoming year.

Okay. I'm curious about the pipeline regarding the $140 million, which has the potential to be much larger as we move through our peak season. Your revenue mix has often been influenced by acquisitions, including one from a year ago that included a SaaS component. Are we expecting a similar revenue mix? If we examine the pipeline, is it around 90% to 95% traditional income, or should we consider an element of SaaS as the win rate affects the pipeline?

Yes, I think we'll see a nice shift in 2021 with a higher percentage of SaaS, in particular around patient engagement and also parts of the recurring revenue model connected to enterprise. We can't dictate to pharma how they want it to be designed, but we're starting to see the benefits of the combined message solution set that we have, which to my point earlier in prepared remarks, there aren't many competitors with this type of suite delivered this way as efficiently. And so yes, to your question, we should start to see more substantial contribution from that piece. And we have the team in place to do it and feeling really good about how it's positioned with the focus, in particular, as I said on life science companies, which is the client we understand the best and have the most traction with.

Okay. And then, Doug, on the OpEx side, we're pretty consistent here, Q3 versus Q2. Anything we need to look out for in Q4 as far as seasonal expenses?

No, not really. I'd say we'll be pretty consistent, maybe slightly up in Q4, but not anything significant.

Got it. Thanks and congrats on the quarter.

Thanks, Eric.

We will take our next question from Josh Goldberg with G2.

Hey guys. Thanks. Great numbers and continued success. I have two questions. I guess, first is obviously you guys have leaned in here post-COVID and really have shown how sticky your product is. And I’m just curious if you can kind of for people who are newer to this story, how many years you've been preparing for really just this sort of penetration of your products as part of this advertising pie for many of these key health care companies? And then I have a follow-up.

Sure, I can start, and Steve can add if I miss anything. So, when I joined the company five years ago, we were already collaborating with pharma and EHRs to deliver the financial messaging solution. At that time, we had to explain the differences between EHRs and EMRs, which caused a lot of confusion. The market has since seen significant education on the relevance of our space, with competitors like CoverMyMeds and Freesia digitizing other areas, along with Teladoc Livongo and many others. What has really happened is a substantial education on the strategic importance of point-of-care channels. The pandemic has certainly accelerated adoption; while we anticipated this growth, it may come a bit quicker, which is positive. However, this process takes time. To achieve enterprise success, we need many tactical clients first, but enterprise clients are necessary down the line. This year, I am particularly proud of the team for securing and delivering results for the six key clients we’ve mentioned, as it sets the stage for discussions next year with more than 80 other tactical partners we work with. Steve, do you have anything to add?

So just on that, yes, go ahead, Steve.

No, I think you made an important point, Will, with what you said. And I think, Josh, one thing to add is that Will mentioned in the initial script that we are definitely observing a change in the demographics of consumers on the HCP side and their willingness over the last 12 to 24 months to use digital tools they may not have previously considered. We referenced both the McKinsey study and emerging research. VIVA is intentionally highlighting this because it's not just OptimizeRx; many companies are witnessing this shift towards digitization of tools. I believe our preparation over the last 5 to 6 years has positioned us well to capitalize on this trend and progress as a company, as we've noted.

Do you find it unclear whether the $21 million you booked is in addition to what the pipeline could generate if you close those deals? Essentially, do you have $21 million in annualized revenue going into the year, with everything else being potential revenue from future closures? Is that the correct perspective?

No, the pipeline includes any renewable offer. This year is $21 million of enterprise business. Yes, it will be included.

Okay. And I know it's new, but how often has an enterprise not renewed their contract?

I would say we've achieved a great rate because we had a client from 2019 who has returned, and now we have five additional clients. After we close Q4, we'll discuss the details of these clients because what's really impressive is the internal referral method. Once they try our services, it becomes difficult for them to stop using them, in my opinion. Then they begin to integrate other solutions, which helps us penetrate further into enterprise accounts. So while our average contract value might decrease, the number of enterprise deals could significantly increase, making everything stickier and more recurring. Additionally, the return on investment for our existing enterprises has been outstanding, which certainly benefits us as we approach the end of the year.

Do you think that as you look at the next year or two, are there any products you feel you still need to develop for platform sale? Your balance sheet has strengthened and you grew your cash this quarter, but it's still a small amount. Do you believe you need to acquire rather than build going forward, or should investors feel confident that what you have is sufficient and that there won't be a need for any financing series for additional acquisitions? Thank you.

Sure, Josh. Thanks. I believe we have the right solutions, network, and team to grow our business. That said, we remain open to opportunities and maintain an entrepreneurial culture. We're always looking for ways to connect with patients and doctors, especially specialists, as that's where the majority of spending occurs from pharmaceutical and life science companies. Currently, we have sufficient capital to support our growth, but we will continue to explore options. Our focus for the second half of this year is on partnerships rather than mergers and acquisitions, allowing us to concentrate on growth, and the team has done an outstanding job in achieving that.

Thanks, guys.

Thanks, Josh.

Our next question comes from Ron, a Private Investor. Please go ahead.

Good afternoon.

Hey Ron, how are you?

I'm fine. Thank you. I think you should not get carried away by the good quarter and so far good results and that you'll work harder going into, or in the fourth quarter and next year. And I liked your comment about keeping your head down instead of searching for additional acquisitions, which sometimes are a distraction.

We will, I can assure you. This is a group of athletes that likes to keep running. So we're in good shape there.

Could you provide an example of land and expand? Please go ahead.

Yes. Steve, do you want to talk to some without mentioning manufacturers or brands? Just some examples of these internal referrals we've seen.

Yes. Sure. Happy to. Earlier in the year we had a manufacturer that came in through an RFP largely interested in some financial assistance distribution of point-of-care. So financial messaging we had sales rep reach out and engage in the conversation. We were able to consummate an initial deal that was for 4 months and wanted to do financial messaging. We were able to get them to try therapeutic support messaging at the same time. So we did a combination of financial messaging and therapeutic support messaging. We worked with their internal analytics team to structure the ROI measurement. So after the 4-month period of time, we would be able to go back, look at the return on investment and make sure the program was working the way we initially anticipated and structured it. I'm happy to report that, that ROI came back very positively from their internal analytics team to us. And that deal has generated an enterprise-level deal, which will be comprised of six different solutions on the platform, which we'll see posts. So very positive outcome. Again, when talking with our sales leader for point-of-care, Terry Hamilton and our leader for patient engagement, Serge Loncar, it seems to follow that same archetype, Ron, of getting in starting small and/or having a referral and then scaling up on the expansion side. And we continue to see that time and time again, which is very encouraging. Very encouraging, given the current penetration rate we have at a client level, not so much at a brand level, lots of white space.

That's a good business one-off example. But could you address if you would an example of an existing client and they had expanded and now they have more than one brand and they refer you to another? Is that been very successful or not?

Yes, Steve, I was going to suggest that you refer to the brand with multiple indications as a great example rather than focusing on internal referral and scale.

Yes. Sure. So we have one brand that's been a customer now for three years, Ron, same brand. This brand is an oncology brand. It was initially approved for one disease. They went and applied for indication extrapolation, which is essentially getting approval for more than one disease. Each one of those diseases creates a separate team within pharma to work on that brand. And so the initial brand was so pleased with the work that we did and the one solution they referred us to the second disease team. Then they referred us subsequently to the third and the fourth disease team. We now have seven diseases live with that one brand on that team. And that gives you kind of an idea of the ability to scale. That's all internal referral for a longstanding customer that's now just decided to scale up.

Thank you. Good example. One other thing for context, perhaps, Will, you mentioned retail. Do you want to provide any context on that?

We have a strong connection at the point of care when doctors are interacting with patients, and our technology enables direct communication with patients. However, we haven't made significant progress at the point of dispense until now. The third quarter was particularly exciting for us as we onboarded a new Board member, Greg Wasson, a former CEO of Walgreens, who brings valuable insights and energy to help us navigate that space. Additionally, we formed a partnership with Higi, which has transformed from a retail concept into an effective communication tool for patients to manage their health. This partnership is crucial because patient care is a journey; often, after visiting a doctor—who can create a stressful experience unless the individual is healthy—patients go to the pharmacy and then return home. We identified this as a gap in the process. By bringing in expertise and focusing on partnerships, we aim to enhance value for the pharmaceutical industry, doctors, pharmacists, and patients. This is an exciting area for us, and while it's still in the early stages, we are committed to pursuing it in the future.

The third like that you mentioned is a direct connection to the patient.

Yes. At point of contact.

Okay. Thank you.

You got it, Ron. Thanks for your questions.

We'll take our next question from Harvey Poppel with Poptech, LP.

Thank you very much. Will, super quarter. Amazing. Even improved on your pre-release, pre-announcement where you said 10 million reported 10.5. That's not a small number going back in time.

Thank you.

One question about the profitability. And if I did the math correctly, you flipped about $2 million from a loss to a gain in non-GAAP earnings on what is about a $5.5 million level of revenue on a year-over-year basis. So some math says it’s 36%, is that indicative? I know it's only a single point in time. Is that indicative of the breakdown potential of your economic model, or is it high or is it low?

Thanks, Harvey. It's great to hear from you. I'm very proud of the quarter. I believe it's still early, and we can definitely improve further. Our model has seen significant investments in the network, and we have a team in place that can help us scale our revenue. Our costs are tied to a revenue share, which is established. What's positive about Q3 is that it's a genuine quarter without any anomalies or artificial revenue fluctuations, and there are no unusual costs to note. I think this is a solid indicator for investors. As we enhance our revenue, we should also see improvements in our non-GAAP EBITDA, which we've been discussing. I believe our shareholders will feel some relief, and it gives us more flexibility to expand the business. I'm very excited about the outcome. Our goal is to achieve over 60%, with an EBITDA target of 25% or more.

Great. Secondly, you mentioned the pipeline that has been discussed extensively during this call, which includes a lot of new information. Do you view the pipeline as essentially representing the business for the fourth quarter of 2021 in terms of timeframe? In other words, is it at this point in the year more of a 15-month outlook, or is there a different perspective on how it has evolved over the course of the year?

No, I think 15 to 18 months is a safe horizon. I'd probably go to 18, just because we do have some engagements that started in Q3 or Q4, which would extend into '21, '22. So I'd say it's safer to consider it as an 18-month horizon.

Good. Third, for …

Steve, do you agree with that?

Yes, that's correct.

Okay. And third just shifting gears totally, during the quarter, of course there was a very splashy IPO with the GDRX, GoodRx. And I think for some who aren't familiar with the space might regard that in a couple of different ways. First, what's your thought on them being in any way a competitor either currently or in the future? And secondly, what does their IPO imply about the valuation of OPRX?

Great questions. We like GoodRx and do not see them as competition. Their approach is direct-to-consumer, and they have successfully implemented technology to help people understand and view prices effectively, enabling a digital experience. We believe their presence in the market raises awareness among consumers, patients, doctors, nurses, pharmacies, and pharmaceutical companies about the importance of pricing and affordability. Overall, we think this benefits everyone in the industry. We have a generic partner that collaborates with us on cash cards, and while they are different from GoodRx, they share the same mission of helping people afford medication. We fully support this market, and we are not surprised by the positive reception of GoodRx due to their strong brand recognition among consumers. If you attended their IPO roadshow, you would likely be quite impressed with the company. Miriam, do you have anything to add about GoodRx? We've known them for some time, and you might have some valuable insights as well.

Yes. Thank you. Hey, Harvey. I think that the most important thing to remember is that we are primarily communicating to providers and then to patients through providers. Now we've added our direct-to-patient engagement solutions that we've talked about. And we are primarily branded in our focus. So branded medications and the patient support programs, affordability of programs for branded solutions. Whereas GoodRx started and is still only a direct-to-consumer, they're not a direct-to-provider company. So they're direct-to-consumer, and they're focused on generics. So they're really in many ways the inverse of what we are. What they don't do is they don't do really push. We push these solutions, whether they be affordability or adherence or both, we push them to providers in workflow. We push them to patients via SMS text, and it's just a different model than their pull model. So they're very complimentary, but not competitive.

Thank you very much.

Thanks, Harvey. Have a great night.

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

Thanks, Sarah, and thanks everyone for joining the call today. If you can take just one thing away from our discussion, I hope it's the understanding of our view to a very strong growth this year, and ability to generate tremendous value for our shareholders because of our sustainable strategic advantage and these market tailwinds. And beyond all the numbers, I hope you can see that we've created a unique culture dedicated to do something truly valuable, and which makes a difference in people's lives from patients to physicians and beyond. We did not give guidance as an early stage public company and especially in this current environment, but given everything you've heard today and what we can see, we are very optimistic for a very strong finish to 2020. Now, with that, let's wrap up the call. Everyone have a good evening. Thanks 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 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 management's expectations for the rest of the year and 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 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 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, 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, running through November 30. 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 the call. You may now disconnect.