OptimizeRx Corp 10-Q

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,” “projects,” “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 (“eRx”) platforms and electronic health record (“EHR”) systems, and agreements with eRx platforms and EHR 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; strategic activities that 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, 2025. 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. 20 Table of Contents 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 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 artificial intelligence ( “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. Dollar figures are in thousands, except per share data and where the context indicates otherwise. 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 over 100 pharmaceutical manufacturers as customers, and our revenues are concentrated in these customers. Our top five customers represented approximately 47% and 49% of our revenue for the years ended December 31, 2025 and 2024, respectively. In 2025 and 2024, we had three customers and two customers, respectively, that represented more than 10% of our revenues. Loss or a year over year reduction in sales of one of more of our larger customers, or a loss of one or more of any of the pharmaceutical brands that purchase our solutions, could have a material negative impact on our operating results. 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 persistent inflation, elevated interest rates maintained by the U.S. Federal Reserve, ongoing most favored nations (“MFN”) pricing dynamics and ongoing geopolitical conflicts (including the wars in Ukraine and the Middle East) have contributed to sustained economic uncertainty. The implementation of broad-based U.S. tariffs and retaliatory tariffs by major trading partners in 2025 and 2026 has further disrupted global supply chains and contributed to renewed inflationary pressure in the domestic markets, which may continue over the next twelve months. In addition, continued high levels of employee turnover across the pharmaceutical industry, a slower pace of U.S. drug approvals, and reductions in force and policy shifts at the U.S. Food and Drug Administration and other federal health agencies over the past year have created 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. 21 Table of Contents 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 2025 revenue”. We previously used “The top 20 pharma companies by 2024 revenue”. As a result of this change, prior periods have been restated for comparative purposes. Average revenue per top 20 pharmaceutical manufacturers. 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 2025 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 decrease in the average of twelve months ended March 31, 2026, as compared to the twelve months ended March 31, 2025, is a result of reduced revenues from the top 20 pharmaceutical manufacturers. Rolling Twelve Months Ended March 31, 2026 2025 Average revenue per top 20 pharmaceutical manufacturers (in thousands) $ 2,791 $ 2,963 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 2025 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. The percent of total revenue attributable to top 20 pharmaceutical manufacturers reflects a combination of a year over year decrease in overall revenue from top 20 pharmaceutical manufacturers and growth in revenue from non-top 20 customers. Rolling Twelve Months Ended March 31, 2026 2025 Percent of total revenue attributable to top 20 pharmaceutical manufacturers 52 % 63 % 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. The decline in net revenue retention for the period ending March 31, 2026, is primarily due to a decline in DTC related managed service revenue and lower revenue from the top 20 pharmaceutical manufacturers. Rolling Twelve Months Ended March 31, 2026 2025 Net revenue retention 110 % 114 % 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 22 Table of Contents 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. This is reflective of operational efficiencies gained over the previous twelve months. Rolling Twelve Months Ended March 31, 2026 2025 Revenue per average full-time employee (in thousands) $ 801 $ 710 Results of Operations for the Three Months Ended March 31, 2026 and 2025 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 March 31, 2026 2025 Net revenue $ 19,844 100.0 % $ 21,928 100.0 % Expenses 19,448 98.0 % 24,030 109.6 % Income (loss) from operations 396 2.0 % (2,102) (9.6) % Other expenses (1,040) (5.2) % (1,170) (5.3) % Loss before provision for income taxes (644) (3.2) % (3,272) (14.9) % Income tax benefit 149 0.8 % 1,073 4.9 % Net loss $ (495) (2.5) % $ (2,199) (10.0) % * Balances and percentage of net revenue information may not add due to rounding Net Revenues Our net revenue decreased 10% to $19,844 for the three months ended March 31, 2026 from $21,928 from the same period in 2025. The decrease in net revenue was primarily attributable to a $3,400 decline in revenue from a low-margin managed service program which represented approximately 9.8% of total revenue in 2025. The Company is no longer actively supporting these types of low-margin managed service contracts. In addition, the Company did not generate revenue during the current period from a customer that accounted for approximately 10% of total revenue in fiscal 2025. While the master service agreement with this customer remains in effect, future revenue is uncertain and may be lower than in prior periods. This decrease is also attributable to some short to intermediate term disruption from prior year Most Favored Nations pricing negotiations and other macroeconomic factors leading to more measured customer spending. These decreases were partially offset by increased spending from new and existing customers. Expenses Expenses decreased to $19,448 for the three months ended March 31, 2026 from $24,030 for the same period in 2025, a decrease of approximately 19%. The detail by major category is reflected in the next table (in thousands). Three Months Ended March 31, 2026 2025 Cost of revenues, exclusive of depreciation and amortization presented separately below $ 4,912 $ 8,584 Sales and marketing 4,729 4,985 General and administrative 3,513 4,557 Research and development 3,402 3,252 Stock-based compensation 1,828 1,558 Depreciation and amortization 1,064 1,094 Total expenses $ 19,448 $ 24,030 23 Table of Contents Cost of Revenues Our total cost of revenues, composed primarily of revenue-share expense paid to our channel partners, decreased for the three months ended March 31, 2026 to $4,912 compared to $8,584 for the same period of 2025. Our cost of revenues as a percentage of revenue decreased to approximately 25% for the three months ended March 31, 2026 from approximately 39% for the three months ended March 31, 2025. This improvement in our cost of revenues as a percentage of revenues was primarily a result of solution and channel partner mix. In addition, the prior year period included a large DTC managed service program that operated at lower margins. This program concluded in the third quarter of 2025 and the Company has since shifted its focus toward higher-margin solutions. Sales and marketing remained consistent at $4,729 for the three months ended March 31, 2026 from $4,985 for the three months ended March 31, 2025. General and administrative decreased to $3,513 for the three months ended March 31, 2026 from $4,557 for the three months ended March 31, 2025. This decrease is primarily a result of cost savings realized across various expense categories as a result of ongoing efficiency initiatives. Research and development remained consistent at $3,402 for the three months ended March 31, 2026 from $3,252 for the three months ended March 31, 2025. Stock-based compensation increased to $1,828 for the three months ended March 31, 2026 from $1,558 for the three months ended March 31, 2025. The increase in stock-based compensation expense primarily reflects changes in the Company’s stock price, which affects the grant-date fair value of awards. There was also an increase in the quantity of awards granted. Depreciation and amortization remained consistent at $1,064 for the three months ended March 31, 2026 from $1,094 for the three months ended March 31, 2025. Other income (expense) Interest expense decreased to $1,155 for the three months ended March 31, 2026 from $1,297 for the three months ended March 31, 2025 and represents interest charges on our Term Loan, together with the amortization of the related issuance costs. 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 three months ended March 31, 2026 as compared to the three months ended March 31, 2025. Interest income decreased to $77 for the three months ended March 31, 2026 from $88 for the three months ended March 31, 2025. The variability in interest income is a result of the fluctuation in interest rates as the balance in the Company's money market account has remained consistent. Income tax (expense) benefit Income tax benefit was approximately $149, or an effective rate of 23.1%, for the three months ended March 31, 2026. Income tax benefit was approximately $1,073, or an effective rate of 32.8%, for the three months ended March 31, 2025. For further information, see Part I, Item I. “ Financial Statements; Note 12 — Income Taxes.” Net income (loss) We had a net loss of approximately $(495) for the three months ended March 31, 2026, as compared to a net loss of approximately $(2,199) during the same period in 2025. 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 March 31, 2026, the total principal balance outstanding on the Term Loan was approximately $23,598 and we were in compliance with all of the financial covenants of the Term Loan. On March 2, 2026, the maturity date of the Term Loan was extended to October 11, 2029. On May 7, 2026, upon the closing of the 24 Table of Contents Credit Agreement, the proceeds from the New Term Loan were used to repay our outstanding Term Loan balance and the Financing Agreement was terminated. As of March 31, 2026, we had total current assets of $56,165, compared with current liabilities of $10,459, resulting in working capital of $45,706 and a current ratio of 5.4 to 1. This represents a increase from our working capital of $43,451 and an increase from the current ratio of 3.0 to 1 at December 31, 2025. 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 New 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 of any combination of our common stock, preferred stock, debt securities, warrants, or units. On March 5, 2026, the Company announced that its’ Board authorized the repurchase of up to $10,000 of the Company’s outstanding common stock. Under this new program, share repurchases may be made from time to time depending on market conditions, share price, share availability, and other factors at the Company’s discretion. This share repurchase authorization was effective on March 12, 2026 and will expire on the earlier of March 15, 2027 or when the repurchase of $10,000 of shares has been reached. The Company’s repurchase of shares will take place in open market transactions or privately negotiated transactions in accordance with applicable securities and other laws, including the Securities Exchange Act of 1934. The Company intends to finance the purchase using its available cash and cash equivalents. The Board may modify, suspend, extend or terminate the repurchase program at any time. Cash Flows Following is a table with summary data from the condensed consolidated statements of cash flows for the three months ended March 31, 2026 and 2025, as presented (in thousands). Three Months Ended March 31, 2026 2025 Net cash (used in) provided by operating activities $ (467) $ 3,864 Net cash used in investing activities (21) (84) Net cash used in financing activities (2,708) (587) Net (decrease) increase in cash and cash equivalents $ (3,196) $ 3,193 Our operating activities used $467 during the three months ended March 31, 2026, compared with operating activities provided $3,864 in the same period in 2025. The net increase in net cash (used in) provided by operating activities was mainly attributable to a $8,843 increase in cash flows from accrued expenses and other liabilities due to the payout of the prior year variable compensation in the three months ended March 31, 2026. This was partially offset by a $1,704 decrease in net loss, a $1,179 decrease in cash flows from revenue share payable, a $655 decrease in cash flows from deferred tax liabilities and a $312 decrease in cash flows from taxes receivable and payable. Investing activities used $21 for the three months ended March 31, 2026, compared with $84 in the same period in 2025. The decrease in net cash used in investing activities was mainly attributed to a decrease in capitalization of internally developed software. Financing activities used $2,708 during the three months ended March 31, 2026, compared with $587 in the same period in 2025. The increase in net cash used for financing activities was primarily related to the repayment of long-term debt. 25 Table of Contents Critical Accounting Estimates We prepare our condensed consolidated financial statements in conformity with U.S. 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. Our significant accounting policies are described in Part II, Item 8. “Financial Statements and Supplementary Data; Note 2 - Summary of Significant Accounting Policies” in our Annual Report on Form 10-K for the year ended December 31, 2025. The accounting policies we used in preparing these financial statements are substantially consistent with those we applied in our 2025 Annual Report on Form 10-K. Our critical accounting estimates are described in Management’s Discussion and Analysis included in our 2025 Annual Report on Form 10-K. Recently Issued Accounting Pronouncements See Part I, Item I. “ Financial Statements; Note 2 — Recently Issued Accounting Pronouncements” for information on recently adopted accounting standards and new accounting pronouncements issued. 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 March 31, 2026, the Company had commitments with channel partners for future minimum payments of $31,293 that will be reflected in cost of revenues during the remainder of 2026 and years from 2027 through 2030. See Part I, Item 2. “Financial Statements; Note 11 – Commitments and Contingent Liabilities.” Item 3. Quantitative and Qualitative Disclosures about Market Risk Not applicable to smaller reporting companies.