Good morning, everyone, and thank you for joining OptimizeRx update call. With us today is Chief Executive Officer of OptimizeRx, William Febbo. He is joined by Company Chief Financial Officer, Ed Stelmakh, Chief Commercial Officer, Steve Silvestro, General Counsel and Chief Compliance Officer, Marion Odence-Ford, and Senior Vice President of Corporate Finance, Andrew D'Silva. At the conclusion of today's call, I will provide some important cautions regarding the forward-looking statements made by management during today's call. I would like to remind everyone that today's call is being recorded and will be made available for replay via webcast only. Instructions are included in today's press release and in the investor section of the company's website. The company has uploaded a presentation to the investor relations section of its website, which will be referred on today's call.
Now, I would like to turn the call over to OptimizeRx CEO, William Febbo. Please go ahead.
Good morning, and thank you for joining us today. We have some exciting news to report. To get started, we pre-announced third quarter results, which came in ahead of consensus estimates, with preliminary unaudited revenue and non-GAAP net income expected to be between $15.2 million-$15.5 million and $600,000-$1 million, respectively. With these results, we returned to year-over-year revenue growth for the third quarter. Due to the strong organic growth in messaging, driven by our recent Dynamic Audience Activation Platform, or DAAP, enhancement, our total RWD deals for the year have increased to 14. Strong execution by our team during the quarter has given us momentum, which we expect to carry into Q4 and 2024. Equally important, we announced a definitive agreement to acquire Medicx.
I'm going to start off this presentation by giving everyone an overview of Medicx, its market drivers, the strategic rationale for the acquisition, and why we're extremely excited about this combination. And then Ed will review the structure of the transaction and give us a financial overview for everyone. Medicx was founded in 2006 by its current CEO, Michael Weintraub, and is headquartered in Scottsdale, Arizona, and currently has just under 50 employees. The current team at Medicx has been successfully growing for many years as a leading omni-channel marketing and analytics company, powered by a patented closed-loop platform for audience-centric planning, activation, measurement, and optimization. Medicx was able to grow organically into one of the leading life sciences, digital marketing, and communication platforms for tailored, patient-focused communications across alternative digital channels.
Medicx will add seven new channels for OptimizeRx and will meaningfully strengthen our overall solution set and technology capabilities. To date, the majority of Medicx revenue is generated through the world's largest pharmaceutical manufacturers, which is similar to OPRX, but focused on patient marketing, where OPRX has historically focused on HCPs. The proposed OPRX and Medicx combination provides a significant unlock for brands within this pharma customer base by seamlessly connecting the brand's patient and HCP marketing teams. That, combined with the fact that over 80% of the brands our respective companies support don't overlap, align strongly with our land and expand strategy and enables significant upselling and cross-selling opportunities. The combined sales and marketing teams will enable a more rapid adoption among the clients looking to leverage their digital marketing spend efficiently and effectively.
We're excited about the different landing pads that are opening up for us through this proposed acquisition, which principally include social, streaming, and Connected TV, and various digital channels such as display, audio, online video, mobile, among others. Medicx's platform provides pharma with the ability to strategically plan their audience profile and segmentation, activate and deliver content across a broad array of channels, and quickly return data insights that can be analyzed to further improve overall program capabilities. Bringing the two platforms together delivers us a seat at the commercial table with our clients and partners, which will expand our Total Addressable Market, as well as our ability to help our clients access, communicate, and measure their communications with HCPs and patients. In a world of complex and expensive therapies, this will bring value to all involved.
Medicx will enhance OptimizeRx's HCP-focused business, which runs across electronic health records, social health system displays, and field force activation initiatives, and add scale to our DAAP platform. The combined organization will be able to create both HCP and patient audiences for a two-pronged campaign, which has been something our customers have actively looked to implement. One of the significant differentiating factors is that Medicx prepares audience segments by using a patented deterministic process called Micro-Neighborhood targeting, that zeros in on patients by condition prevalence down to a hyperlocal cluster. Their proven ability to select medical criteria, which can range from broad chronic disease to rare types of cancer, is a significant competitive advantage. Particularly, given the industry is rapidly moving away from the cookie-based targeting and is something we plan on leveraging to enhance our HCP messaging capabilities.
With that, I'll turn it over to Ed before we open up the call for Q&A.
Thank you, Will. The agreement is for a purchase price of $95 million, of which approximately $10.5 million will be reinvested by certain members of Medicx's management team.
... into OptimizeRx common stock. Closing is expected during the fourth quarter of 2023. The cash component of the acquisition is being funded from our existing cash and short-term investments and through $40 million in debt financing through Blue Torch Capital. More details can be found in our forthcoming 8-K, but at a high level, the new term loan bears interest of at SOFR + 8.5% and matures four years from the date of the closing. Medicx has shown significant growth and margin expansion, with trailing twelve-month revenue coming in at nearly $37 million, with an adjusted EBITDA margin at approximately 20%. So on a combined basis, we believe we will be an attractive, growing, profitable business with a significant opportunity to unlock revenue synergies.
It's also important to note that this transaction puts the pro forma business close to $100 million in revenues, which gets us to critical mass with our customer base, making us a larger and more meaningful partner to our clients, with an ability to upsell and cross-sell across a broad range of opportunities. We'll have additional data to report on next month's earnings call, but Medicx has had very strong KPIs, with net revenue retention coming in at well over 100%. We'd also like to give an update on the cost-cutting initiatives we highlighted on our last earnings call. We're well ahead of our schedule and are currently halfway to our goal of reducing our cash OpEx run rate going into 2024 by at least 10% as compared to our run rate in the first quarter of 2023.
With that, back to Will.
Thanks, Ed. Operator, we can open the call to Q&A.
Great, thank you. At this time, we'll be conducting a question and answer session. Please hold for a brief moment while we pull for questions. Our first question comes from Sean Dodge from RBC. Please go ahead, Sean.
Okay, great. Thanks. Thanks for taking the questions, and congratulations on the deal. Maybe, Will, if you wanna start with just giving us a little bit more background on what led up to this. You all historically have had very strong provider targeting capabilities. Was this just from conversations with clients, where you felt you needed to round out the platform a bit to add something that was a little bit more patient-focused? Or, and then maybe just give us a little bit more on what led you to the acquisition.
Yeah, sure. Hey, Sean. Thanks. Good morning. Super excited about this. Yes, it came from client demand. Matter of fact, we learned about Medicx from our clients. Just a stellar group of people doing great things. And if you think of the macro trend on increased spend on digital, you know, pharma has largely gotten through the noise of people who say they can do certain things and seeing if they can do it at scale. Obviously, we can do that at HCP, and we're, as Ed talked about, we're already seeing that in Q3 and in Q4, to a large degree, come back pretty quickly. And, and our... These same clients wanna reach patients.
You know, the therapies are expensive and complicated, and it's really hard to get mind share in both areas, and you need to basically help patients start and stay on therapy. So, you know, the stars aligned on this one. We were very clear on our criteria. Had to be accretive. We weren't gonna buy something we had to invest in to become profitable. It had to be profitable, and we wanted to stay very true to the omni-channel platform approach because that's where the puck is going, and that's how we roll. So very excited they came together. You know, that's rare. We've talked about it before. We looked at over 46 companies, so really excited about this one.
It comes at a perfect time where us, as a company, are just completely focused on building this platform, and and we're really thrilled to see that Q3 is coming in ahead of schedule, and we see that going forward in the rest of the year.
You had the slide that showed the synergies between the two platforms. Maybe just give us a sense of, from a technical standpoint, how much integration work needs to be done. I guess, how tightly will this be built into the existing provider-focused platform? Or are these two that can remain somewhat independent where the integration lift here wouldn't be that big?
This is a very low lift from a technology integration standpoint. We both have completely sustainable platforms. There will be some. There won't be cost synergy, but there'll be some revenue unlock synergy by bringing them together. But as we've talked about before, it's all about transparency, compliance, and reporting. They are a thought leader on the patient side, and we're a thought leader on the HCP side, so the two together are gonna make the clients feel really good. But no, Sean, this isn't a, you know, 6-12-month slog on technology integration. This is, this is good day one. The key is staying focused on finishing the year strong, and that's what the teams will be focused on.
Okay, and then last one from me. You said, 14 real-world data AI deals you've signed now. I think that's 5 more than you said you had as of last quarter. The incremental 5 here, can you just give us a sense of the profile of those? Are those similar in size to the others you've signed? Are they bigger, smaller? And then, when should those begin to launch?
... So those are all launched. Good news. Some started in Q3, some very recently. We're seeing a very big lean in ever since we rolled out DAAP, which, you know, really focuses the clients on thinking of us as a partner that helps them find and engage with audiences, both HCP and patient. And the RWD solution is just a tremendous answer. It works. We have 100% renewal rate. We have new clients on this now and several that are leaning on it from an enterprise perspective, which just means looking at it multiple brands, multiple indications within brands. And it's really, really exciting. As we said, it's gonna be a growth driver for the company, and it frankly kicked in a little sooner than we thought. So very good news.
Okay, great. Thanks, and, and congratulations again.
Thanks, Sean. Talk later.
Thanks for the question, Sean. Our next question comes from Craig Jones from Stifel. Please go ahead, Craig.
Hey, thank you. So, first of all, congrats. You know, it looks like a, you know, a great deal. So I guess just to start, so when you, when you call it a $100 million run rate, does that include your fourth quarter seasonality? Or how—when you said run rate, I guess, was that on a third quarter, fourth quarter? How do we think about that?
Yeah, it's based on a pro forma projection based on where they think they'll be and where, you know, the street has us.
Yeah, and our trailing twelve month for both companies is right around $100 million.
Got it. Okay. All right, that works. And what about on the line of credit? What, what's the rate you're paying there?
Ed, do you want to talk to that one?
Yeah. Yeah, I think I mentioned in my comments, the rate on that. It's SOFR plus... Let me look my notes here. Is it-
8.5.
8.5, yeah.
All right. What about, like, on a revenue per brand perspective? Like, is there similar to y'all's, or how should we think about, like how much you could upsell to your current brands you have?
Yeah, this is the exciting part, Craig. So we'll update our KPIs when we report Q3, and once we close, we can talk about forward a little bit more. But yeah, definitely there is tremendous opportunity here. To combine, the companies will have over 300 brands, and only about 20% of them overlap, so just tremendous unlock potential. So it should drive KPI by revenue by manufacturer. We don't do KPI revenue by brand, but net-net, it's gonna give us a lot more land and expand opportunity and just incremental lift.
Okay, got it. And then last one. Do you have the third quarter cash flow and what you think the total cash flow for the core business will be for the year, excluding acquisition?
Yeah, we don't, we don't project the cash flow, but people who have been following this business know we don't burn cash. We, we generated a lot of cash last year. Given some of the cost reductions, plus the pickup in business, exceeding consensus by quite a bit for Q3 and feel really good about Q4, yeah, cash flow is not gonna be an issue.
Okay, sounds great. That's all for me. Thanks.
Thanks for the questions, Craig. Our next question comes from Eric Martinuzzi from Lake Street. Please go ahead, Eric.
Yeah, just curious, as far as the management investment, that $10.5 million, is that post-deal close, and actually when does the deal close?
Hey, Eric, how you doing? It'll close within Q4, and that is, it's based on the valuation, and yeah, that'll all happen when we close.
But these, these shares, they're not being issued by OPRX. These are purchased in the aftermarket?
It's conceptually like a, like a rollover, basic- but, but the way it's structured, it just basically happens right after the, the acquisition closes.
Okay. You talked about the, you know, the ability to target the consumer here. Do you guys have any prior experience in consumer targeting?
Yeah. Hey, Eric, it's Steve. Actually, the way that we build our models for the targeting of HCPs is a patient-based model construction. So we start with longitudinal patient historical data, and then we find the HCPs that are treating that patient. So we're starting from the same denominator as the Medicx platform, but Medicx has got a different way of curating the audience, and we're focusing obviously on the HCP. They've had a patient focus, but the genesis is the same, and so the synergy between the products is, it's just a it's a beautiful symphony of targeting. Like, like you heard Will say, there's zero time to implement in terms of, you know, technical integration.
Mm-hmm. And then back to valuation on this. It looks like you—you know, we've got OPRX trading at basically 1x sales, and you're buying these guys for 2.6x EV to revs. What can you tell us about the growth rate? I would assume it's a—you know, substantial growth rate, but what is the growth rate kind of TTM for Medicx?
... Dan, do you wanna handle that one?
Well, on the slide, we have the revenue from each of the years on the slide.
Yeah.
Sorry.
Oh, sorry, I don't have the slides up in front of me. Okay.
It was 15.1 in 2019 and 2021, 30.6 in 2022, and 36.8 LTM, June 2023.
Got it. We'll get some color on the kinda 2024 outlook next, on the Q3 earnings report, or are you gonna wait till the Q4?
We'll probably wait until Q4, past the RFP season.
Gotcha. Okay, thanks for taking my questions.
Yeah.
Thanks, Eric.
Thanks for the questions, Eric. Our final question comes from Neil Chatterjee from B. Riley. Please go ahead, Neil.
Hey, guys, congrats on the deal. I might have had some Zoom connection issues here, so I'm not sure if I missed or if I'm gonna ask similar questions here. But just in terms of the TAM expansion opportunity, just you know, how should we think about sizing that?
Sorry, say that again, Neil. What opportunity?
The TAM expansion.
Oh, yeah. Well, look, if I- I'm pretty realistic with total addressable market. You know, it's billions and billions, and we're at a hu- you know, about a $100 million run rate, so sort of limitless opportunity. The thing to focus in on is, you know, we're going from basically 150 brand each to 300, and we only have 20% overlap. Those are all preexisting relationships with brands that are relevant in the market, and we're gonna have two teams focused on leveraging that both ways. It's a, it's a, it's a really wonderful land and expand, increase of opportunity. I think that the TAM itself is gigantic, and that's why there's a lot of people trying to get into it.
The difference is we have the scale and the reach, and now we have that on the patient side too. So... And at a time, Neil, that's what's interesting is, you've heard a lot of talk about the death of the cookie, really starting next year, and Medicx has done a spectacular job patenting a way of targeting patients that fit into the most stringent of compliant states. So really excited about that.
Got it. And, maybe just one follow-up here. You know, if you could just maybe just elaborate on... You kinda talked about the seven new channels and the expanded landing pads. Maybe just talk a little bit more about that in terms of the patient marketing strategy.
Hey, hey, Neil, it's Steve. Thanks for the question. I mean, essentially, the client demand is the connection of HCP marketing and DTC marketing, and you know that DTC marketing, on average, from a budgetary perspective, is a 10x on HCP marketing. So just to sort of bolster the comment Will made on TAM. And then in terms of landing pad, you know, you heard me reply to Eric's comment around, you know, what's the difference? We're building patient-based models and using that to target HCPs and patients. The second vector of consideration there is the expansion of landing pads, right? So the more landing pads that we add to the omni channel, the more opportunity we have to communicate, the more shots on goal, the more surround sound we create.
So, you know, pharma is considering, or they're constantly contemplating reach and share of voice as they're building their own models and thinking about how they're aligning budgets, and those are two of the most important vectors of consideration. So this squarely fits into really getting more of their, you know, their budget aligned in one solution and provides significant synergy for them on the planning front. So we're really excited to, you know, to lean into it.
Great. Thanks for that. That's it for me.
Thanks for the questions, Neil. This concludes our Q&A session. I'll now turn it back over to William.
Thank you, operator. Again, we're extremely excited with the significant progress we've made on our core business since we reported earnings in August of 2023. Our heightened focus on resource and expense management and the pickup in market demand for our AI-enabled core messaging solution are coming together faster than we expected inside of 2023. That, coupled with this proposed acquisition, will significantly strengthen OptimizeRx, both financially and with our client base, making us a preferred partner for engaging HCPs and patients. We believe this completely aligns with our key growth drivers of expanding our reach with new landing pads, introducing new solutions, and expanding client penetration and growth opportunities. The timing of this transaction is perfect. As mentioned, we're seeing our core business accelerate profitably.
We are ahead of our timeline on reducing expenses, and we are now layering in a high-margin growth business, which will sustainably drive improvement with all our KPIs. We look forward to our Q3 earnings to dive into more details together. Thank you for your time today. Operator?
Thank you, sir. 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 and the Securities Act of 1933, as amended, and Section 21E of the Securities Act of 1934, as amended. These forward-looking statements should not be used to make investment decisions. The words "anticipate," "estimate," "expect," "possible," and "seeking" and similar expressions identify forward-looking statements. They may speak only to the date that such statements are made. Such forward-looking statements in this call include statements regarding the proposed acquisition of Medicx, the timing of such acquisition, the anticipated benefits and synergies therefrom, market penetration, revenue growth, operating expenses, profitability, cash flow, growth opportunities, and upcoming announcements.
They also include management's expectations for the rest of the year. 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 possibility that the proposed merger will not close when expected or at all. Any revenue synergies and other, any other anticipated benefits of the proposed merger may not be realized or may take longer than anticipated to be realized.
Disruption to the party's business activities as a result of the announcement and pendency of the proposed merger and diversion of management's attention from ongoing business activities and opportunities, the occurrence of any event, change or other circumstances that could give rise to the right of one or both of the parties to terminate the merger agreement. The risk that integration of OptimizeRx and Medicx will be more costly or difficult than expected.
The outcome of any legal proceedings that may be instituted against OptimizeRx or Medicx, the failure of any of the closing conditions in the merger agreement to be satisfied on a timely basis or at all, delays in closing the proposed merger, the possibility that the proposed merger may be more expensive to complete than anticipated, including as a result of unexpected factors or events and the additional factors discussed in OptimizeRx's annual report on Form 10-K for the year ended December 31, 2022, and its subsequent filings with the SEC, including subsequent periodic reports on Forms 10-Q and 8-K. Before we end today's conference call, I would like to remind everyone that this call will be available for replay via webcast, only starting later this evening, running through for a year.
Please refer to today's press release for replay instructions available via the company's website at www.optimizerx.com. Thank you for joining us today. This concludes today's conference call. You may now disconnect your lines.