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. 21 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. As disclosed in our net revenue discussion, one customer that accounted for approximately 10% of total revenue in fiscal 2025 did not generate revenue during the current period, and future revenue from this customer is uncertain. Loss or a year over year reduction in sales of one or 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. These macroeconomic factors have contributed to more measured customer spending patterns, which was a factor in our 21% revenue decline for the six months ended June 30, 2026. Historically, during periods of economic uncertainty and downturns, businesses may 22 Table of Contents 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 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 believes it also provides investors with a transparent way to chart our progress in penetrating this important customer segment. Average revenue per top 20 pharmaceutical manufacturers decreased $436, or 14%, from $3,095 to $2,659 for the rolling twelve months ended June 30, 2026, as compared to the rolling twelve months ended June 30, 2025. The decrease is primarily due to reduced revenue from a small subset of the top 20 pharmaceutical manufacturers, including the impact of the customer that accounted for approximately 10% of fiscal 2025 revenue and from which the Company did not generate revenue during the current period, as discussed in the net revenues section below. Rolling Twelve Months Ended June 30, 2026 2025 Average revenue per top 20 pharmaceutical manufacturers (in thousands) $ 2,659 $ 3,095 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 decrease in the percentage of total revenue attributable to the top 20 pharmaceutical manufacturers primarily reflects lower revenue from the top 20 pharmaceutical manufacturers (including the customer discussed in the net revenues section), partially offset by growth in revenue from customers outside the top 20 pharmaceutical manufacturers. Rolling Twelve Months Ended June 30, 2026 2025 Percent of total revenue attributable to top 20 pharmaceutical manufacturers 54 % 59 % 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 23 Table of Contents retention for the period ending June 30, 2026, is primarily due to lower revenue from existing customers, driven principally by reduced revenue from a small subset of those customers. Rolling Twelve Months Ended June 30, 2026 2025 Net revenue retention 90 % 121 % 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. Revenue per average FTE decreased $17, or 2%, from $767 to $750 for the rolling twelve months ended June 30, 2026, as compared to the rolling twelve months ended June 30, 2025. The decrease was due to lower revenue, partially offset by a decrease in the average FTE count during the last 12 months period. Rolling Twelve Months Ended June 30, 2026 2025 Revenue per average full-time employee (in thousands) $ 750 $ 767 24 Table of Contents Results of Operations for the Three and Six Months Ended June 30, 2026 and 2025 The following tables set forth, for the periods indicated, the dollar value and percentage of net revenue represented by certain items in our condensed consolidated statements of operations and comprehensive income (loss) (in thousands): Three Months Ended June 30, 2026 2025 Net revenue $ 20,504 100.0 % $ 29,195 100.0 % Expenses 20,592 100.4 % 25,988 89.0 % Income from operations (88) (0.4) % 3,207 11.0 % Other expenses (1,008) (4.9) % (1,476) (5.1) % Income (loss) before provision for income taxes (1,096) (5.3) % 1,731 5.9 % Income tax benefit (expense) 393 1.9 % (199) (0.7) % Net income (loss) $ (703) (3.4) % $ 1,532 5.2 % * Balances and percentage of net revenue information may not add due to rounding Six Months Ended June 30, 2026 2025 Net revenue $ 40,348 100.0 % $ 51,123 100.0 % Expenses 40,040 99.2 % 50,018 97.8 % Income (loss) from operations 308 0.8 % 1,105 2.2 % Other expenses (2,048) (5.1) % (2,646) (5.2) % Loss before provision for income taxes (1,740) (4.3) % (1,541) (3.0) % Income tax benefit 542 1.3 % 874 1.7 % Net loss $ (1,198) (3.0) % $ (667) (1.3) % * Balances and percentage of net revenue information may not add due to rounding Net Revenues Our net revenue decreased 30% to $20,504 for the three months ended June 30, 2026 from $29,195 from the same period in 2025. Our net revenue decreased 21% to $40,348 for the six months ended June 30, 2026 from $51,123 from the same period in 2025. The decrease in net revenue was primarily attributable to an $8,400 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 21% to $20,592 for the three months ended June 30, 2026 from $25,988 for the same period in 2025, a reduction of $5,396. For the six months ended June 30, 2026, expenses decreased 20% to $40,040 from $50,018 for the six 25 Table of Contents months ended June 30, 2025, a reduction of $9,978. The detail by major category is reflected in the next table (in thousands). Three Months Ended June 30, Six Months Ended June 30, 2026 2025 2026 2025 Cost of revenues, exclusive of depreciation and amortization presented separately below $ 4,816 $ 10,560 $ 9,728 $ 19,144 Sales and marketing 5,528 5,865 10,257 10,850 General and administrative 3,702 3,909 7,215 8,466 Research and development 3,274 3,092 6,676 6,344 Stock-based compensation 2,208 1,488 4,036 3,046 Depreciation and amortization 1,064 1,074 2,128 2,168 Total expenses $ 20,592 $ 25,988 $ 40,040 $ 50,018 Our total cost of revenues, composed primarily of revenue-share expense paid to our channel partners, decreased for the three months ended June 30, 2026 to $4,816 compared to $10,560 for the same period of 2025. Our cost of revenues as a percentage of revenue decreased to approximately 23% for the three months ended June 30, 2026 from approximately 36% for the three months ended June 30, 2025. Our cost of revenues decreased for the six months ended June 30, 2026 to $9,728 compared to $19,144 for the six months ended June 30, 2025. Our cost of revenues as a percentage of revenue decreased to approximately 24% for the six months ended June 30, 2026 from approximately 37% for the six months ended June 30, 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 decreased to $5,528 for the three months ended June 30, 2026 from $5,865 for the three months ended June 30, 2025, a decrease of $337, or 6%. Sales and marketing decreased to $10,257 for the six months ended June 30, 2026 from $10,850 for the six months ended June 30, 2025, a decrease of $593, or 5%. This a decrease in both periods is primarily a result of a decrease in commission expense, General and administrative decreased to $3,702 for the three months ended June 30, 2026 from $3,909 for the three months ended June 30, 2025, a decrease of $207, or 5%, and decreased to $7,215 for the six months ended June 30, 2026 from $8,466 for the six months ended June 30, 2025, a decrease of $1,251, or 15%. This a decrease in both periods reflects cost savings realized across various expense categories as a result of ongoing efficiency initiatives. The decrease for the six months period was primarily driven by a $2,000 reduction in performance based bonuses and a $527 decrease in legal fees, partially offset by a $1,700 increase in severance costs related to organizational restructuring. Research and development increased to $3,274 for the three months ended June 30, 2026 from $3,092 for the three months ended June 30, 2025, an increase of $182, or 6%. Research and development increased to $6,676 for the six months ended June 30, 2026 from $6,344 for the six months ended June 30, 2025, an increase of $332, or 5%. The increase in both periods was primarily attributable to higher personnel-related costs, including organizational changes that shifted certain internal resources from supporting services to research and development, as well as increased efforts to support development initiatives. The Company's continued investment in research and development reflects its strategic commitment to product innovation, including enhancements to DAAP and the Company's patent-pending Natural Language Audience Builder (“NLAB”). Stock-based compensation increased to $2,208 for the three months ended June 30, 2026 from $1,488 for the three months ended June 30, 2025, and increased to $4,036 for the six months ended June 30, 2026 from $3,046 for the six months ended June 30, 2025. The increase in both periods is primarily a result of the acceleration of $588 of stock-based compensation upon employee terminations during the three months ended June 30, 2026. Depreciation and amortization remained consiste nt at $1,064 for the three months ended June 30, 2026 from $1,074 for the three months ended June 30, 2025, and remained consistent at $2,128 for the six months ended June 30, 2026 from $2,168 for the six months ended June 30, 2025. 26 Table of Contents Other income (expense) Interest expense decreased to $1,127 for the three months ended June 30, 2026 from $1,603 for the three months ended June 30, 2025, and decreased to $2,282 for the six months ended June 30, 2026 from $2,899 for the six months ended June 30, 2025. Interest expense represents interest charges on our Term Loan and New Term Loan, together with the amortization of the related issuance costs. The decrease in both periods is primarily a result of the decrease in the interest rate on the New Term Loan and a lower average principal balance for the three months ended June 30, 2026 as compared to the three months ended June 30, 2025 and for the six months ended June 30, 2026 as compared to the six months ended June 30, 2025 Interest income decreased to $81 for the three months ended June 30, 2026 from $90 for the three months ended June 30, 2025, and decreased to $158 for the six months ended June 30, 2026 from $177 for the six months ended June 30, 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 benefit (expense) Income tax benefit was $393, or an effective rate of 35.8%, and income tax benefit was $542, or an effective rate of 31.1% for the three and six months ended June 30, 2026, respectively. Income tax expense was $199, or an effective rate of 11.5%, and income tax benefit of $874, or an effective rate of 56.7%, for the three and six months ended June 30, 2025, respectively. For further information, see Part I, Item I. “Financial Statements; Note 13 — Income Taxes.” Net income (loss) We had a net loss of $(703) for the three months ended June 30, 2026, as compared to net income of $1,532 during the three months ended June 30, 2025 and a net loss of $(1,198) for the six months ended June 30, 2026 as compared to a net loss of $(667) for the six months ended June 30, 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. On May 7, 2026 (the “Closing Date”), the Company completed a debt refinancing and entered into a new credit agreement (the “Credit Agreement”) providing for senior secured credit facilities in an aggregate principal amount of $35,000 on the Closing Date, consisting of (i) a $10,000 revolving credit facility (the “Revolving Facility”), which includes a $250 letter of credit subfacility and a swing line subfacility (with an initial swing line maximum amount of $0), and (ii) a $25,000 term loan facility (the “New Term Loan”). As of June 30, 2026, the total principal balance outstanding on the New Term Loan was approximately $19,688 and we were in compliance with all of the financial covenants of the New Term Loan. The New Term Loan matures on May 7, 2031. As of June 30, 2026, we had total current assets of $54,146, compared with current liabilities of $9,711, resulting in working capital of $44,435 and a current ratio of approximately 5.6 to 1. This represents an 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 of approximately $24,096 and our $10,000 undrawn Revolving Facility, 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, if earlier. As of June 30, 2026, no shares had been repurchased under this program. 27 Table of Contents The Company’s repurchase of shares may 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 purchases, if any, under this program 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 six months ended June 30, 2026 and 2025, as presented (in thousands). Six Months Ended June 30, 2026 2025 Net cash provided by operating activities $ 8,144 $ 8,425 Net cash used in investing activities (56) (128) Net cash used in financing activities (7,368) (5,092) Effect of exchange rate changes on cash and cash equivalents 11 — Net increase in cash and cash equivalents $ 731 $ 3,205 Our operating activities provided $8,144 during the six months ended June 30, 2026, compared with $8,425 in the same period in 2025. The net decrease in net cash provided by operating activities was mainly attributable to a $531 increase in net loss partially offset by a $195 decrease in cash flows from deferred revenue. Investing activities used $56 during the six months ended June 30, 2026, compared with $128 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 $7,368 during the six months ended June 30, 2026, compared with $5,092 in the same period in 2025. The increase in net cash used for financing activities was primarily related to a $26,603 increase in repayments of long-term debt partially offset by a $24,298 increase in proceeds from the New Term Loan. 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 June 30, 2026, the Company had commitments with channel partners for future minimum payments of $27,444 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 12 – Commitments and Contingent Liabilities.” 28 Table of Contents Item 3. Quantitative and Qualitative Disclosures about Market Risk Not applicable to smaller reporting companies.