Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains statements that relate to future events and expectations and, as such, constitute forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995. Certain statements, other than purely historical information, including estimates, projections, statements relating to our strategies, outlook, business and financial prospects, business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements.” These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions.
Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Forward-looking statements are not guarantees of future performance. Although OptimizeRx believes that the expectations reflected in any forward-looking statements are based on reasonable assumptions, these expectations may not be attained and it is possible that actual results may differ materially from those indicated by these forward-looking statements due to a variety of risks, uncertainties and changes in circumstances, many of which are beyond OptimizeRx’s control.
Forward-looking statements are subject to risks and uncertainties. Actual results could differ materially from those expressed in or implied by such forward-looking statements due to a variety of factors, including: our history of losses, seasonal trends in the pharmaceutical brand marketing industry; the inability to support our technology and scale our operations successfully, developing and implementing new and updated applications, features and services for our solutions may be more difficult and expensive and take longer than expected; the inability to offer high-quality customer support for our solutions; dependence on a concentrated group of customers; inability to maintain contracts with electronic prescription platforms and electronic health record systems, agreements with electronic prescription platforms and electronic health record systems being subject to audit; inability to attract and retain customers; inability to comply with laws and regulations that affect the healthcare industry; competition; developments in the healthcare industry; inability to manage growth; inability to identify suitable acquisition targets, complete acquisitions, or integrate acquisitions successfully; acquisition activities may disrupt ongoing business and may involve increased expenses; inability to realize the financial and strategic goals contemplated at the time of a transaction; inability to realize any synergies or other anticipated benefits of an acquisition or that such synergies or benefits may take longer than anticipated to be realized; risk that the integration with an acquired entity may be more costly or difficult than expected; impairment charges for goodwill or other long-lived assets may need to be recognized or increased if we lose a major customer, experience a decline in our common stock price, or experience changes to the regulatory environment affecting pharmaceutical advertising restricting the use of our technology; inability to comply with the restrictions in our credit agreement; inability to generate sufficient cash to service debt and fund other obligations; inability to raise capital to grow business on favorable terms or at all; inability to attract and retain senior management and other key employees; economic, political, regulatory and other risks arising from our international operations; inability to protect our intellectual property; cybersecurity incidents; reduction in the performance, reliability and availability of our network infrastructure; increases in costs due to inflation and other adverse economic conditions; decreases in customer demand due to macroeconomic factors; lack of a consistent active trading market for our common stock; volatility in the market price of our common stock; and the failure to remediate the identified material weakness or any other material weaknesses identified in the future.
The risks and uncertainties included here are not exhaustive. Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC, including our Annual Report on Form 10-K for the year ended December 31, 2024. Moreover, we operate in a rapidly changing and competitive environment. New risk factors emerge from time to time, and it is not possible for management to predict all such risk factors.
Further, it is not possible to assess the effect of all risk factors on our businesses or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. In addition, we disclaim any obligation to update any forward-looking statements to reflect events or circumstances that occur after the date of this report.
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Overview
OptimizeRx is a digital healthcare technology company that connects over two million HCPs and millions of their patients through an intelligent technology platform embedded within a proprietary omnichannel network. OptimizeRx helps life sciences organizations engage and support their customers through our combined HCP and DTC marketing strategies.
OptimizeRx has historically generated revenue by delivering messages to HCPs via their EHR systems and eRx platforms using our proprietary network of channel partners. We have gradually expanded our offerings to include audience development, audience creation, and media execution across different messaging types and media distribution channels.
Overall, we employ a “land and expand” strategy focused on growing our existing customer base and generating greater and more consistent revenues in part through a continued shift in our business model toward enterprise level engagements, while also broadening our platform with innovative proprietary virtual communication solutions such as our patented Micro-Neighborhood Targeting and our AI-powered Dynamic Audience Activation Platform (“DAAP”), which uses sophisticated machine-learning algorithms to find the best audiences in the correct channels at the right time.
Our strategy for driving revenue growth is also expected to work in tandem with our efforts to increase margin and profitability as revenue drivers such as DAAP have inherently higher margins than most other messaging solutions we offer. In addition, by aiming to transition our DAAP customers to a more predictable subscription-based model for data services, we believe will further improve margins, increase visibility, and enhance the overall predictability of our revenue streams over time.
Customer Concentration
Because the pharmaceutical industry is dominated by large companies with multiple brands, our revenue is concentrated in a relatively small number of companies. We have approximately 100 pharmaceutical companies as customers, and our revenues are concentrated among the largest pharmaceutical companies in the world. Loss of one or more of our larger customers could have a negative impact on our operating results. Our top five customers represented approximately 49% and 44% of our revenue for the years ended December 31, 2024 and 2023, respectively. In 2024 and 2023, we had two customers and one customer, respectively, that represented more than 10% of our revenues.
Seasonality
In general, the pharmaceutical brand marketing industry spends its advertising budget seasonally. Many pharmaceutical companies allocate the largest portion of their brand marketing to the fourth quarter of the calendar year. As a result, the first quarter tends to reflect lower activity levels and lower revenue, with gradual increases in the following quarters. We expect these seasonality trends to continue and our ability to effectively manage our resources in anticipation of these trends may affect our operating results.
Impact of Macroeconomic Events
Unfavorable conditions in the economy may negatively affect the growth of our business and our results of operations. For example, macroeconomic events including rising inflation and interest rates have led to economic uncertainty in the recent past, and threats of multinational tariffs and retaliatory tariffs provide uncertainty as to heightened inflation in the domestic markets. In addition, high levels of employee turnover across the pharmaceutical industry as well as a fewer number of U.S. drug approvals could create additional uncertainty within our target customer markets. Historically, during periods of economic uncertainty and downturns, businesses may slow spending, which may impact our business and our customers’ businesses. Adverse changes in demand could impact our business, collection of accounts receivable and our expected cash flow generation, which may adversely impact our financial condition and results of operations.
Key Performance Indicators
We monitor the following key performance indicators to help us evaluate our business, measure our performance, identify trends affecting our business and make strategic decisions. We have updated the definition of “top 20 pharmaceutical manufacturers” in our key performance indicators to be based upon Fierce Pharma's most updated list of “The top 20 pharma companies by 2024 revenue”. We previously used “The top 20 pharma companies by 2023 revenue”. As a result of this change, prior periods have been restated for comparative purposes.
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Average revenue per top 20 pharmaceutical manufacturer. Average revenue per top 20 pharmaceutical manufacturer is calculated by taking the total revenue the Company recognized through pharmaceutical manufacturers listed in Fierce Pharma’s “The top 20 pharma companies by 2024 revenue” over the last twelve months, divided by 20, representing the aforementioned pharmaceutical manufacturers highlighted on that list. The Company uses this metric to monitor its progress in “landing and expanding” with key customers within its largest customer vertical and believe it also provides investors with a transparent way to chart our progress in penetrating this important customer segment. The increase in the average in the twelve months ended June 30, 2025 as compared to the twelve months ended June 30, 2024 is primarily the result of stronger DTC and DAAP related revenue streams (in thousands).
Rolling Twelve Months
Ended June 30,
2025 2024
Average revenue per top 20 pharmaceutical manufacturer $ 3,082 $ 2,753
Percent of total revenue attributable to top 20 pharmaceutical manufacturers. Percent of total revenue attributable to top 20 pharmaceutical manufacturers is calculated by taking the total revenue the company recognized through pharmaceutical manufacturers listed in Fierce Pharma’s “The top 20 pharma companies by 2024 revenue” over the last twelve months, divided by our consolidated revenue over the same period. The Company uses this metric to monitor its progress in “landing and expanding” with key customers within its largest customer vertical and believes it also provides investors with a transparent way to chart our progress in penetrating this important customer segment. This decrease in our total revenue attributable to top 20 pharmaceutical manufacturers, in conjunction with the increase in average revenue per top 20 pharmaceutical manufacturer discussed above, is reflective of the onboarding and growth of other customers that are not top 20 pharmaceutical manufacturers and not a decrease in our activity with top 20 pharmaceutical manufacturers.
Rolling Twelve Months
Ended June 30,
2025 2024
Percent of total revenue attributable to top 20 pharmaceutical manufacturers 59 % 66 %
Net revenue retention. Net revenue retention is a comparison of revenue generated from all customers in the previous twelve-month period to total revenue generated from the same customers in the following twelve-month period (i.e., excludes new customer relationships for the most recent twelve-month period). The Company uses this metric to monitor its ability to improve its penetration with existing customers and believes it also provides investors with a metric to chart our ability to increase our year-over-year penetration and revenue with existing customers. Net revenue for the period ending June 30, 2024 benefited from the timing of the Medicx Health acquisition, which was consummated on October 12, 2023, as its comparator period (the trailing twelve months ended June 30, 2023) did not have any Medicx Health related revenue. The period ended June 30, 2025 did not have the same magnitude of inorganic benefit from the Medicx Health acquisition; however, the Company still retained a 121% net revenue retention in the period as a result of strong organic growth from existing customers.
Rolling Twelve Months
Ended June 30,
2025 2024
Net revenue retention 121 % 124 %
Revenue per average full-time employee. We define revenue per average full-time employee (“FTE”), as total revenue over the last twelve months divided by the average number of employees over the last twelve months (i.e., the average between the number of FTEs at the end of the reported period and the number of FTEs at the end of the same period of the prior year). The Company uses this metric to monitor the productivity of its workforce and its ability to scale efficiently over time and believes the metric provides investors with a way to chart our productivity and scalability. Our revenue rate
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per employee increased year over year due to revenue growing at a higher rate than the average number of FTEs over the last 12 month period (in thousands).
Rolling Twelve Months
Ended June 30,
2025 2024
Revenue per average full-time employee $ 767 $ 658
Results of Operations for the Three and Six Months Ended June 30, 2025 and 2024
The following tables sets forth, for the periods indicated, the dollar value and percentage of net revenue represented by certain items in our condensed consolidated statements of operations (in thousands):
Three Months Ended June 30,
2025 2024
Net revenue $ 29,195 100.0 % $ 18,812 100.0 %
Cost of revenues 10,560 36.2 % 7,108 37.8 %
Gross profit 18,635 63.8 % 11,704 62.2 %
Operating expenses 15,446 52.9 % 15,453 82.1 %
Income (loss) from operations 3,189 10.9 % (3,749) (19.9) %
Other expense (1,476) (5.1) % (1,347) (7.2) %
Income (loss) before provision for income taxes 1,713 5.9 % (5,096) (27.1) %
Income tax benefit (expense) (181) (0.6) % 1,088 5.8 %
Net income (loss) $ 1,532 5.2 % $ (4,008) (21.3) %
* Balances and percentage of net revenue information may not add due to rounding
Six Months Ended June 30,
2025 2024
Net revenue $ 51,123 100.0 % $ 38,502 100.0 %
Cost of revenues 19,144 37.4 % 14,595 37.9 %
Gross profit 31,979 62.6 % 23,907 62.1 %
Operating expenses 30,904 60.5 % 32,685 84.9 %
Income (loss) from operations 1,075 2.1 % (8,778) (22.8) %
Other expense (2,646) (5.2) % (2,874) (7.5) %
Loss before provision for income taxes (1,571) (3.1) % (11,652) (30.3) %
Income tax benefit 904 1.8 % 744 1.9 %
Net loss $ (667) (1.3) % $ (10,908) (28.3) %
* Balances and percentage of net revenue information may not add due to rounding
Net Revenues
Our net revenue increased 55% to $29,195 for the three months ended June 30, 2025 from $18,812 from the same period in 2024. Our net revenue increased 33% to $51,123 for the six months ended June 30, 2025 from $38,502 from the same period in 2024. The increase in net revenue was a result of the growth of DTC and DAAP related sales.
Cost of Revenues
Our cost of revenues, composed primarily of revenue-share expense paid to our channel partners, increased for the three months ended June 30, 2025 to $10,560 compared to $7,108 for the same period of 2024. Our cost of revenues as a percentage of revenue decreased to approximately 36% for the three months ended June 30, 2025 from approximately 38% for the three months ended June 30, 2024. Our cost of revenues increased for the six months ended June 30, 2025 to
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$19,144 compared to $14,595 for the six months ended June 30, 2024. Our cost of revenues as a percentage of revenue decreased to approximately 37% for the six months ended June 30, 2025 from approximately 38% for the six months ended June 30, 2024. This improvement in cost of revenues as a percentage of revenues was primarily a result of solution and channel partner mix.
Gross Margin
Our gross margin, which is the difference between our revenues and our cost of revenues, divided by our revenues, increased for the three months ended June 30, 2025 and the six months ended June 30, 2025 compared to the same periods of 2024, primarily due to product and channel partner mix. Further, the increase in revenue year over year diluted the effect of certain fixed cost of sales on gross margin.
Operating Expenses
Operating expenses remained consistent, slightly decreasing to $15,446 for the three months ended June 30, 2025 from $15,453 for the same period in 2024. For six months ended June 30, 2025, operating expenses decreased to $30,904 from $32,685 for the six months ended June 30, 2024, a decrease of approximately 5%. The detail by major category is reflected in the table below (in thousands).
Three Months Ended June 30, Six Months Ended June 30,
2025 2024 2025 2024
Stock-based compensation $ 1,488 $ 2,903 $ 3,046 $ 5,926
Depreciation and amortization 1,074 1,073 2,168 2,140
Other general and administrative expenses 12,884 11,477 25,690 24,619
Total operating expenses $ 15,446 $ 15,453 $ 30,904 $ 32,685
Stock-based compensation decreased to $1,488 for the three months ended June 30, 2025 from $2,903 for the three months ended June 30, 2024, and decreased to $3,046 for the six months ended June 30, 2025 from $5,926 for the six months ended June 30, 2024. The decrease in both periods was a result of the lower grant date fair value of awards due to declines in the Company’s stock price as well as a decrease in the quantity of awards granted. Further, the prior year expense included significant costs associated with grants to the prior CEO which were forfeited as of December 31, 2024.
Depreciation and amortization increased to $1,074 for the three months ended June 30, 2025 from $1,073 for the three months ended June 30, 2024, and increased to $2,168 for the six months ended June 30, 2025 from $2,140 for the six months ended June 30, 2024. The increase in both periods was a result of the additional amortization associated with capitalized labor for internal software development.
Other general and administrative expenses increased to $12,884 for the three months ended June 30, 2025 from $11,477 for the three months ended June 30, 2024, and increased to $25,690 for the six months ended June 30, 2025 from $24,619 for the six months ended June 30, 2024. This increase in both periods is primarily a result of an increase in compensation expense. The increase reflects higher variable compensation tied to sales achievement and performance-based incentive plans aligned with our operating results. These increases were partially offset by cost savings realized across various expense categories as a result of ongoing efficiency initiatives.
Other income (expense)
Interest expense increased to $1,603 for the three months ended June 30, 2025 from $1,528 for the three months ended June 30, 2024, and decreased to $2,899 for the six months ended June 30, 2025 from $3,074 for the six months ended June 30, 2024. Interest expense represents interest charges on our Term Loan, together with the amortization of the related issuance costs. The increase is primarily a result of the higher effective interest rate due to the voluntary prepayments of principal on the Term Loan resulting in an interest penalty for the three months ended June 30, 2025 as compared to the three months ended June 30, 2024. The decrease is primarily a result of the decrease in the interest rate on the Term Loan and a lower average principal balance for the six months ended June 30, 2025 as compared to the six months ended June 30, 2024
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Interest income decreased to $90 for the three months ended June 30, 2025 from $106 for the three months ended June 30, 2024, and increased to $177 for the six months ended June 30, 2025 from $125 for the six months ended June 30, 2024. The variability in interest income is a result in the fluctuation of interest rates as the balance in the Company's money market account has remained consistent.
Income tax benefit (expense)
Income tax expense was $181, or an effective rate of 10.6%, and income tax benefit was $904, or an effective rate of (57.5)% for the three and six months ended June 30, 2025, respectively. Income tax benefit was approximately $1,088, or an effective rate of 21.4%, and $744, or an effective rate of 6.4% for the three and six months ended June 30, 2024, respectively. For further information, see Part I, Item I. Financial Statements; Note 13 — Income Taxes in the Condensed Consolidated Financial Statements.
Net income (loss)
We had a net income of approximately $1,532 for the three months ended June 30, 2025, as compared to a net loss of approximately $(4,008) during the three months ended June 30, 2024 and a net loss of approximately $(667) for the six months ended June 30, 2025 as compared to $(10,908) for the six months ended June 30, 2024. The reasons and specific components associated with the change are discussed above.
Liquidity and Capital Resources
Historically, our primary sources of liquidity have been cash receipts from customers and proceeds from equity offerings. In addition, on October 11, 2023, the Company entered into a Term Loan of $40,000 in order to partially fund the acquisition of Medicx Health. As of June 30, 2025, the total principal balance outstanding on the Term Loan was approximately $29,290 and we were in compliance with all of the financial covenants of the Term Loan.
As of June 30, 2025, we had total current assets of approximately $54,080, compared with current liabilities of approximately $21,057, resulting in working capital of approximately $33,023 and a current ratio of approximately 2.6 to 1. This represents a decrease from our working capital of approximately $35,317 and an increase from the current ratio of 3.0 to 1 at December 31, 2024.
We believe that funds generated from operations, together with existing cash, will be sufficient to finance our current operations and meet our obligations under the Term Loan for the next twelve (12) months. In addition, we believe we can generate the cash needed to operate beyond the next 12 months from operations. However, we may seek additional debt, equity financing, or lines of credit to supplement cash from operations to fund acquisitions or strategic partner relationships, make capital expenditures, and satisfy working capital needs. We currently have an effective shelf registration statement, which allows us to issue, from time to time, up to $75,000,000 of any combination of our common stock, preferred stock, debt securities, warrants, or units.
Cash Flows
Following is a table with summary data from the condensed consolidated statements of cash flows for the six months ended June 30, 2025 and 2024, as presented (in thousands).
Six Months Ended June 30,
2025 2024
Net cash provided by operating activities $ 8,425 $ 2,900
Net cash used in investing activities (128) (238)
Net cash used in financing activities (5,092) (1,555)
Net increase in cash and cash equivalents $ 3,205 $ 1,107
Our operating activities provided $8,425 during the six months ended June 30, 2025, compared with $2,900 in the same period in 2024. The net increase in net cash provided by operating activities was mainly attributable to a $10,241 decrease
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in net loss. This was partially offset by a $2,880 decrease in noncash expense related to stock based compensation, a $926 decrease in cash flows from accounts payable and a $870 decrease in cash flows from deferred revenue.
Investing activities used $128 during the six months ended June 30, 2025, compared with $238 in the same period in 2024. The decrease in net cash used in investing activities was mainly attributed to a decrease in capitalization of internally developed software.
Financing activities used $5,092 during the six months ended June 30, 2025, compared with $1,555 in the same period in 2024. The increase in net cash used for financing activities was primarily related to the increase in repayments of long-term debt partially offset by a decrease in payments of withholding taxes on behalf of employees vesting in restricted stock units.
Critical Accounting Estimates
We prepare our condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”). The preparation of these financial statements requires the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the periods presented. Actual results could differ from those estimates and assumptions. The following areas all require the use of subjective or complex judgments, estimates or assumptions: the allowance for credit losses, carrying value of assets, fair values assigned to acquired long-lived assets, depreciable and amortizable lives of tangible and intangible assets, the carrying value of liabilities, the valuation allowance for deferred tax assets, the timing of revenue recognition and related revenue-share expenses, and inputs used in the calculation of stock-based compensation.
Our significant accounting policies are described in Note 2 to the Consolidated Financial Statements in the Annual Report on Form 10-K for the year ended December 31, 2024 (2024 Annual Report on Form 10-K). The accounting policies we used in preparing these financial statements are substantially consistent with those we applied in our 2024 Annual Report on Form 10-K.
Our critical accounting estimates are described in Management’s Discussion and Analysis included in the 2024 Annual Report on Form 10-K.
Recently Issued Accounting Pronouncements
In December 2023, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2023-09 (“ASU 2023-09”), Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 addresses investor requests for more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. This update also includes certain other amendments to improve the effectiveness of income tax disclosures. The provisions of ASU 2023-09 are effective for annual periods beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the impact of adopting ASU 2023-09.
In November 2024, the FASB issued ASU 2024-03 (“ASU 2024-03”), Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40). ASU 2024-03 requires that public business entities disclose additional information about specific expense categories in the notes to financial statements at interim and annual reporting periods. The prescribed categories include purchases of inventory, employee compensation, depreciation, intangible asset amortization, and depletion. This authoritative guidance is effective for annual periods beginning after December 15, 2026 and interim periods beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the effect of this new guidance on its consolidated financial statements.
Off-Balance Sheet Arrangements
From time to time, the Company enters into arrangements with channel partners to acquire minimum amounts of media, data or messaging capabilities. As of June 30, 2025, the Company had commitments with channel partners for future minimum payments of $13,071 that will be reflected in cost of revenues during the remainder of 2025 and years from 2026 through 2029. See Part I, Item 2. Financial Statements; Note 12 – Commitments and Contingencies.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
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