OPRX - OptimizeRx Growth Prospects Look Intriguing

2023-11-15 17:21:18 ET

Summary

• OptimizeRx Corporation beat revenue and earnings estimates in its recent Q3 2023 financial results.
• The company offers patient and provider communications software for the healthcare industry.
• OptimizeRx's growth outlook is improving, but positive growth and metric results are needed for a more positive outlook.
• I reiterate my previous Hold rating on OptimizeRx Corporation.

A Quick Take On OptimizeRx

OptimizeRx Corporation ( OPRX ) reported its Q3 2023 financial results on November 6, 2023, beating both revenue and consensus earnings estimates.

The firm provides various patient and provider communications software for the healthcare industry.

I previously wrote about OPRX with a Hold outlook on slow pharma decisions and FDA-related delays.

While the firm’s growth outlook is improving, I remain on Hold for OptimizeRx Corporation shares until we begin to see positive growth and other metric results in early 2024.

OptimizeRx Overview And Market

Michigan-based OptimizeRx offers software and related services to improve patient engagement and provider engagement throughout the therapy lifecycle.

OPRX is led by CEO Will Febbo, who has been with the firm since February 2016 and was previously co-founder and CEO of Digital Capital Network and COO of Merriman Capital.

The company’s primary offerings include the following:

• Physician engagement

• Patient engagement

• Banner messaging

• Financial messaging

• Therapy initiation workflows.

OptimizeRx seeks new clients via its direct sales and marketing efforts as well as through strategic alliances and partner referrals.

According to a 2023 market research report by Grand View Research, the global market for patient engagement solutions was an estimated $19.5 billion in 2022 and is forecast to reach $71 billion by 2030.

This represents a forecasted very strong CAGR of 17.54% from 2023 to 2030.

The primary reasons for this expected growth are an increasing usage of electronic health records and the willingness of both patients and caregivers to interact via online means.

Also, the continued adoption of mobile health devices will add to the sector's growth potential. Below is a chart showing the North American patient engagement solutions market's historical and projected future growth trajectory through 2030:

Major competitive or other industry participants include:

• Traditional IT companies with healthcare services

• CROs

• Healthcare consulting companies

• Healthcare big data solution specialists.

OptimizeRx’s Recent Financial Trends

Total revenue by quarter (blue columns) has risen slightly year-over-year; Operating income by quarter (red line) has moved up sequentially but remains materially negative:

Gross profit margin by quarter (green line) has fluctuated within a moderate range; Selling and G&A expenses as a percentage of total revenue by quarter (amber line) have been highly variable in recent quarters:

Earnings per share (Diluted) have turned materially negative in recent quarters, as the chart shows here:

(All data in the above charts is GAAP.)

In the past 12 months, OPRX’s stock price has fallen 55.69% vs. that of the iShares Expanded Technology-Software ETF’s ( IGV ) rise of 39.64%:

For balance sheet results, the firm ended the quarter with $63.5 million in cash, equivalents and short-term investments and no debt.

Over the trailing twelve months, free cash flow was $1.7 million, during which capital expenditures were $100,000. The company paid $15.4 million in stock-based compensation in the last four quarters.

Valuation And Other Metrics For OptimizeRx

Below is a table of relevant capitalization and valuation figures for the company:

(Source - Seeking Alpha.)

Below is an estimated DCF (Discounted Cash Flow) analysis of the firm’s projected growth and earnings:

Based on the DCF, the firm’s shares would be valued at approximately $8.70 versus the current price of $9.44, indicating they are potentially currently overvalued.

OPRX’s most recent unadjusted Rule of 40 calculation was negative (22.6%) as of Q3 2023’s results, so the firm has improved slightly but remains heavily negative in this regard, per the table below:

(Source - Seeking Alpha.)

Commentary On OptimizeRx

In its last earnings call (Source - Seeking Alpha ), covering Q3 2023’s results, management’s prepared remarks highlighted the growth from its DAAP system, or Dynamic Audience Activation Platform.

Management also increased full-year 2023 revenue guidance to $69 million at the midpoint of the range for a forecasted 10% growth rate over 2022’s results.

By comparison, 2022’s revenue rose by only 2.12% over 2021, so the company's topline revenue growth rate appears to be accelerating.

Management expects adjusted EBITDA to be $3.5 million at the midpoint of the range.

In the earnings call, I tracked the frequency of various keywords mentioned by management and analysts, as shown in the chart below:

The chart shows the firm is continuing to face prevailing headwinds within the industry as it shifts to a focus on digitization.

Analysts asked leadership a number of times about the impact of the Medicx acquisition on its business strategy, revenue growth and client engagement processes.

The deal is essentially a strategic move to grow the firm’s market reach and provide comprehensive solutions to healthcare providers and patients.

The Medicx acquisition will also help improve the company’s position in the digital pharma marketing sector through its integration into the firm’s DAAP system.

Total revenue for Q3 2023 rose by 7.9% year-over-year while gross profit margin fell by 2.1%.

The net revenue retention rate was 93%, indicating improving sequential growth from 89% in Q2 2023, but still in need of improvement, which its Medicx acquisition may help with.

Selling and G&A expenses as a percentage of revenue increased by a whopping 20.2% YoY, not a good result, but operating losses were reduced by 5.3% to $3.6 million for the quarter.

The company's financial position is solid, with ample liquidity, no debt and a little positive free cash flow in the last four quarters.

OPRX’ Rule of 40 performance has been poor, with a significant negative operating margin dragging the metric down.

In sum, the company's revenue growth outlook looks materially positive due in part to the potential from its proposed Medicx acquisition, growing net revenue retention and ability to assist various healthcare providers in their transition to a digital marketing and engagement approach.

My discounted cash flow calculation indicates that the stock may be fully valued at its current price level of around $9.50 per share.

My outlook on OPRX is a Hold until management can close the Medicx deal and integrate it, and we begin to see increased growth and improved metrics in early 2024.

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