MERRIMAN CAPITAL The Fragmented EHR Landscape Is Ripe For Intermediation, OPRX Is Positioned Well; Reiterate BUY Brian Murphy (646) 292-1411 bmurphy@merrimanco.com March 27, 2015 Key Metrics Price: $1.37 Price Target: $2.00 52-Week Range: $0.76-$1.92 Cash (M): $3.3 Debt (M): $0.0 Net Cash/Share: $0.14 Book Value/Share: $0.21 Market Data Market Cap (M): $32.1 Enterprise Value (M): $28.8 Shares Out (M): 23.4 Float (M): 10.6 30-Day Avg. Vol: 9,902.0 Merriman Estimates Sales (M) EPS FY14E FY15E FY16E 1Q $1.4A $1.6 -- 2Q $1.5A $1.8 -- 3Q $1.6A $2.1 -- 4Q $1.9 $2.3 -- FY (Dec) $6.3 $8.0 $13.0 EV/S 4.6x 3.6x 2.2x 1Q $(0.04)A $(0.01) -- 2Q $0.00A $(0.01) -- 3Q $(0.02)A $(0.01) -- 4Q $0.00 $0.00 -- FY (Dec) $(0.05) $(0.02) $0.05 Company Description Founded by a group of pharmaceutical industry veterans, OPRX develops software solutions for the health care industry to facilitate information exchange between pharmaceutical manufacturers and physicians, thereby improving affordable medication delivery and adherence to patients. Investment Conclusion OPRX's flagship product - SampleMD - provides physicians with electronicallydispensed vouchers and coupons for branded drug samples. Our work at the CBInet EHR/e-RX conference this week suggests that there is ample opportunity for OPRX to intermediate between Pharma brands and prescribers. OPRX's vast embeddedness with several hundred EHRs, which is set to reach roughly 400,000 physicians by 2H:15, gives the company unparalleled reach into the U.S. physician population with respect to electronic distribution of sample coupons and vouchers. With more than 45% upside to our unchanged $2.00 price target, we reiterate our BUY rating. Investment Summary In our view, there is a growing sense of urgency from branded Pharma to engage physicians/prescribers via EHR channels. At this week's CBInet EHR/ e-rx conference in Philadelphia, we detected a notable shift in focus and urgency among Pharma participants toward formulating strategies to engage more heavily in the EHR channel. The physician population is already heavily penetrated with EHR systems (more than 80%) and "time spent" by physicians working inside these systems continues to increase (to roughly 3 hours per day). In our opinion, it is now clear to most that much of Pharma's $15 billion annual promotional budget will eventually have to migrate toward the ascendant work-flow environment of prescribers, at the expense of budgets spent on in-person visits ("detailing") and alternative digital media resources. However, the fragmented nature of the EHR landscape is problematic for digital marketers and Pharma brand teams. With north of 400 disparate EHR systems in place, and with no single vendor with more than 10% market share, this patchwork landscape creates significant difficulty for Pharma to reach prescribers at sufficient scale and consistency via this digital channel. Moreover, the wide range of business models, technology infrastructures (cloud, client-server, etc.), formats, user interfaces, and third-party messaging policies, create tremendous complexity for Pharma marketers with inadequate resources and expertise in this channel. This "engagement complexity" creates significant opportunities for "Middleware" solution providers and aggregators to intermediate between Pharma and EHRs/Prescribers. Our discussions with Pharma marketers suggest that they are actively looking for help in navigating the complexities of this newly emergent, and increasingly important marketing channel. In our view, "middleware" vendors like OPRX are well positioned to benefit from this channel complexity, which we think will persist for some time. For instance, with OPRX already integrated into 350 EHR systems, and set to reach roughly half of the total physician population by 2H:15, the company is well positioned to intermediate between Pharma and prescribers with streamlined file integration and facilitated promotional e-couponing and messaging at high volume. Stock Performance 2 1.5 1 0.5 MAR-14 JUL-14 NOV-14 MAR-15 We reiterate our BUY rating and $2.00 price target. OPRX will hold its 4Q:14 earnings conference call on Tuesday, March 31, 2015 at 11:30 a.m. Eastern Time. The toll-free dial-in number is 1 (866) 593-0056 and the conference ID is 14678354. At this time, there are no net changes to our full-year revenue or earnings estimates. However, we make some minor modifications to the quarterly phasing of our revenue estimates in 2015, shifting roughly $400,000 in anticipated revenue from 1H:15 to 2H:15 to adjust for modest seasonal effects. We continue to think that OPRX s value proposition is aligned well with secular industry trends and addresses important gaps in the market. As various factors have conspired to restrict the physical access of pharmaceutical field reps to physicians over the past five years, OPRX has established a broad-based on-line channel for pharmaceutical manufacturers to access, and interact directly within the workflow environments of physicians. Our $2.00 price target continues to be based on 20x our 2016 adjusted-eps estimate of $0.10 (excludes options expense). See page 2 for Valuation and Risks. PLEASE SEE IMPORTANT DISCLOSURES ON PAGE(S) 4-6 OF THIS REPORT 250 Montgomery Street, 16th Floor, San Francisco, CA 94104 (415) 248-5600 Main (415) 248-5690 Fax (800) 909-7897 Trading www.merrimanco.com - twitter - OTCQX: MERR Member FINRA/SIPC
Valuation To value OPRX, we consider the company's large growth opportunity, significant operating leverage and strong margin profile, as well as its early leadership in an under-penetrated niche market. We think OPRX's growth opportunity is closely tied to the secular growth in e-prescriptions (which is expected to double by 2016), as well as the continued adoption of EHR systems. Our $2.00 price target is based on 20x multiple our 2016 adjusted- EPS estimate of $0.10, which excludes non-cash stock-based compensation and assumes an estimated share count of 26 million in 2016. Over the past year, OPRX has traded in a range of $0.76 - $1.92 and the stock currently trades in the middle of this 52-week range. With more than 45% upside to our price target, we reiterate our BUY rating. Risks that could impede the realization of our price target The company is small with limited resources. Loss of key management personnel could detract from the company's operational capability. Encroachment on OPRX's technology and value proposition by EHR/EMR software channel partners or pharmaceutical customers could pressure margins and impede sales growth. OPRX faces potential litigation risk surrounding its proprietary technology. Customer concentration remains high, with five customers accounting for 63% of year-to-date sales through 3Q:14. Customer concentration may limit OPRX's pricing power. Unfavorable consolidation in the EHR/EMR space (i.e. OPRX channel partners acquired by vendors who do not utilize OPRX' technology) could cause potential disruption for OPRX's distribution capacity. Growing power of distribution partners could diminish OPRX's leverage with respect to revenue share agreements. March 27, 2015 2
Optimizerx Corp., (OPRX) Income Statement ($000s except per share data) 2012 Mar Jun Sep Dec 2013 MarA JunA SepA DecE 2014 Mar Jun Sep Dec 2015 2016 Net revenue 1,989 669 1,104 1,373 1,811 4,957 1,317 1,454 1,620 1,900 6,292 1,600 1,800 2,100 2,500 8,000 13,000 Revenue share expense 115 160 451 529 627 1,767 499 540 859 988 2,886 832 936 1,092 1,300 4,160 6,760 Gross profit 1,874 509 653 844 1,184 3,190 819 914 761 912 3,406 768 864 1,008 1,200 3,840 6,240 Advertising 57 3 4 23 17 47 30 46 22 40 137 40 40 45 45 170 200 Professional fees 263 53 79 152 269 553 93 87 43 50 273 100 100 100 100 400 500 Consulting 19 20 20 26 34 100 16 17 25 30 88 25 25 25 25 100 150 Salaries, wages and benefits 1,184 375 320 345 279 1,320 349 374 386 400 1,509 400 425 450 475 1,750 2,000 Rent 62 15 15 15 15 61 15 15 15 15 60 15 15 15 15 60 60 Depreciation and amortization 187 48 48 48 49 194 59 57 67 67 249 65 65 60 60 250 250 Stock-based compensation 286 0 10 282 119 411 422 233 464 100 1,219 300 300 325 325 1,250 1,300 General and administrative 269 219 56 95 (82) 288 89 137 134 130 490 110 115 125 150 500 600 Other 0 0 197 0 (197) 0 400 0 0 0 400 0 0 0 0 0 0 Total operating expense 2,329 734 750 986 505 2,974 1,472 967 1,156 832 4,427 1,055 1,085 1,145 1,195 4,480 5,060 Operating Income - GAAP (455) (224) (97) (142) 679 216 (653) (53) (395) 80 (1,021) (287) (221) (137) 5 (640) 1,180 Operating Income - Adjusted** (169) (224) (87) 140 799 627 168 180 69 180 598 13 79 188 330 610 2,480 Total other income (expense) 0 0 0 0 0 0 0 0 0 0 1 5 5 5 10 25 50 Pretax income (loss) (455) (224) (97) (142) 679 215 (653) (53) (394) 80 (1,020) (282) (216) (132) 15 (615) 1,230 Income tax benefit (expense) 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Net income (loss) - GAAP (455) (224) (97) (142) 679 215 (653) (53) (394) 80 (1,020) (282) (216) (132) 15 (615) 1,230 Net income (loss) - Adjusted** (169) (224) (87) 140 799 627 168 180 70 180 598 18 84 193 340 635 2,530 Diluted EPS - GAAP ($0.03) ($0.02) ($0.00) ($0.01) NM*** $0.01 ($0.04) ($0.00) ($0.02) $0.00 ($0.05) ($0.01) ($0.01) ($0.01) $0.00 ($0.02) $0.05 Diluted EPS - Adjusted** ($0.01) ($0.02) ($0.00) $0.01 NM*** $0.04 $0.01 $0.01 $0.00 $0.01 $0.03 $0.00 $0.00 $0.01 $0.01 $0.03 $0.10 Diluted share count 14,211 14,232 33,608 14,228 NM*** 14,713 16,684 23,242 23,362 24,000 21,822 24,500 25,000 25,000 25,500 25,000 26,000 Growth (year over year) Sales growth 79.0% 103.2% 114.2% 203.0% 162.0% 149.2% 96.8% 31.7% 18.0% 4.9% 26.9% 21.5% 23.8% 29.6% 31.6% 27.2% 62.5% Operating expense growth -9% 16% 27% 76% -8% 28% 101% 29% 17% NM 49% -28% 12% -1% 44% 1% 13% % of sales Gross margin 94% 76% 59% 61% 65% 64% 62% 63% 47% 48% 54% 48% 48% 48% 48% 48% 48% Operating expense 117.1% 109.7% 67.9% 71.8% 27.9% 60.0% 111.7% 66.5% 71.3% 43.8% 70.4% 65.9% 60.3% 54.5% 47.8% 56.0% 38.9% Operating Income - GAAP -22.9% -33.5% -8.8% -10.3% 37.5% 4.3% -49.6% -3.6% -24.4% 4.2% -16.2% -17.9% -12.3% -6.5% 0.2% -8.0% 9.1% *Source: Company reports and Merriman Capital estimates ** Excludes stock-based compensation and one-time items *** No sharecount available for 4Q:13 ` March 27, 2015 3
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Specific Disclosures OptimizeRx Corporation currently is, or during the 12-month period preceding the date of distribution of the research report was, a client of Merriman Capital. Merriman Capital provided non-investment banking securities-related services and non-securities services to OptimizeRx Corporation. March 27, 2015 4
Merriman Capital has coordinated research coverage for OptimizeRx Corporation. The research reflects the independent opinion of the research analyst and Merriman Capital has not represented to OptimizeRx Corporation that the research will recommend an investment in OptimizeRx Corporation s securities or be otherwise favorable to OptimizeRx Corporation. OptimizeRx Corporation currently is, or during the 12-month period preceding the date of distribution of the research report was, a client of Merriman Capital. Merriman Capital provided investment banking securities-related services to OptimizeRx Corporation. Merriman Capital has coordinated research coverage for OptimizeRx Corporation. The research reflects the independent opinion of the research analyst and Merriman Capital has not represented to OptimizeRx Corporation that the research will recommend an investment in OptimizeRx Corporation s securities or be otherwise favorable to OptimizeRx Corporation. Merriman Capital received compensation for products or services other than investment banking services from OptimizeRx Corporation in the past 12 months, including, among other things, corporate services and advice on strategic initiatives, financing solutions, capital structure and publishing research. Merriman Capital Inc or its affiliates expects to receive or intends to seek compensation for investment banking services from OptimizeRx Corporation in the next 3 months. Merriman Capital, Inc. has received compensation for investment banking services within the last 12 months from OptimizeRx Corporation. Merriman Capital, Inc. makes a market in OptimizeRx Corporation. Merriman Capital, Inc. or its affiliates beneficially owns 1% or more of an equity security of OptimizeRx Corporation. Key to investment Ratings (expected total share price return inclusive of dividend reinvestment, if applicable). As of February 1, 2013 Merriman Capital LLC added Speculative into its rating system. As of December 23, 2013 Merriman Capital LLC added Unrated into its rating system. : Merriman Capital, Inc. expects the stock price to appreciate 10% or more over the next 12 months. Initiate or increase position. Speculative : Merriman Capital, Inc. believes the stock price could appreciate 15% or more over the next 12-18 months if anticipated contingencies materialize, however, investors are cautioned that initiating or increasing a position presents a significantly higher degree of risk than our recommendation. Neutral: Merriman Capital, Inc. believes the stock price is fairly valued at current levels. Maintain position or take no action. Sell: Merriman Capital, Inc. expects the stock price to depreciate 10% or more over the next 12 months. Sell or decrease position. Unrated: Merriman Capital, Inc. currently has no opinion regarding the future price of this stock. Investors are cautioned that initiating or increasing a position in such a security presents a significantly high degree of risk and may be unsuitable for certain investors depending on their risk profile. Ratings Distribution & Investment Banking Disclosure Rating Count Ratings Distribution Count *Investment Banking 13 68.42% 7 53.85% Spec 5 26.32% 0 0% Neutral 1 5.26% 0 0% Sell 0 0.00% 0 0% Unrated 0 0.00% 0 0% * Percent of companies under research coverage from which Merriman Capital, Inc. received compensation for investment banking services provided in the previous 12 months or expects to receive or intends to seek in the next three months March 27, 2015 5
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