GoodRx Holdings, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to the GoodRx Third Quarter 2022 Earnings Call. As a reminder, today's conference call is being recorded. I would now like to introduce your host for today's call, Whitney Notaro, Vice President of Investor Relations. Please go ahead.

Thank you, Operator. Good afternoon, everyone, and welcome to GoodRx's Earnings Conference Call for the Third Quarter of 2022. Joining me today are Doug Hirsch and Trevor Bezdek, our co-founders and co-chief executive officers, and Carson Bowerman, our chief financial officer. Before we begin, I'd like to remind everyone that this call will contain forward-looking statements. All statements made on this call that do not relate to matters of historical fact should be considered forward-looking statements, including statements regarding management's plans, strategies, goals and objectives, our market opportunity, our anticipated financial performance, the impact of the grocer issue on our business, and the impact of macroeconomic conditions on our future results of operations. These statements are neither promises nor guarantees, but involve known and unknown risks, uncertainties, and other important factors. These factors may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statement. Factors discussed in the risk factor section of our annual report on Form 10-K for the year ended December 31st, 2021, as updated by our quarterly report on Form 10-Q for the quarter ended September 30th, 2022, and our other filings with the Securities and Exchange Commission could cause actual results to differ materially from those indicated by the forward-looking statements made on this call. Any such forward-looking statements represent management's estimates as of the date of this call, and we disclaim any obligation to update these statements, even if subsequent events cause our views to change. In addition, we may also reference certain non-GAAP metrics, which are reconciled to the nearest GAAP metric in the company's earnings press release and the accompanying slides, which can be found on the overview page of our investor relations website at investors.goodrx.com. I'd also like to remind everyone that a replay of this call will become available there shortly as well. With that, I'll turn it over to Deb.

Thank you, Whitney. Good afternoon, everyone, and thank you for joining us. Today, we will be sharing our perspective on our recent performance, but I want to start off by discussing two of our most important priorities, which go hand in hand, to help Americans get the health care they need at a price they can afford, and as we deliver on that mission, to create value for our shareholders. During the last quarter, we made significant progress on both of these priorities. We furthered our mission by engaging even more deeply with all of our constituents, and in particular with consumers and providers. We continued to stabilize and further grow our retail network, worked with retailers and pharmacy benefit managers on finding more ways to offer even better consumer prices, expanded our content offerings, and enhanced our provider-focused offerings to make it even easier for providers to be great advocates for GoodRx. Providers have brought millions of consumers to the GoodRx platform over the last decade. We look forward to their future contributions in connection with the continued build-out of our provider-focused offerings. I will talk more about this shortly, but I wanted to first touch on the progress we've made toward driving value for shareholders. During the quarter, we significantly exceeded our own 3Q margin expectations with approximately 28% adjusted EBITDA margin. We drove better-than-expected growth, reaching $187.3 million in revenue in the quarter, and continued our high cash conversion with $33.7 million in cash flow provided by operating activities. Most importantly, we enhanced the stability of and expanded our ecosystem of PBMs, retailers, healthcare providers, and pharma manufacturers, all of which helped us deliver our third quarter results. Trevor will talk more about driving shareholder value shortly. Going forward, we are focused on driving adjusted EBITDA and cash conversion, which we have significant control over, while also delivering continued efficient growth and will continue to take action to drive shareholder value, strong margins, and our mission. I'll now dive into some of the actions we've taken recently that align with our culture as a mission-driven organization. We further our mission by helping consumers and strengthening our business. One example is GoodRx Health, which we launched in September 2021. During the third quarter, GoodRx Health experienced strong year-over-year traffic growth at approximately 25%. Additionally, as we discussed in our second quarter earnings call, we are in the early stages of increasing our consumer engagement efforts, which we will continue to focus on in Q4 and into 2023. We anticipate seeing meaningful benefits as a result of deeper relationships with our consumers, and these ongoing efforts will allow us to help consumers better navigate their healthcare journey with an even more compelling GoodRx value proposition and user experience. Allowing consumers to provide us with more information through registration increases the LTV of each user in prescription transactions and other areas of the business over time as we leverage data to create new tools and products in quarters and years to come. Examples of LTV enhancing consumer outreach include communications around price improvements for chronic prescriptions and reminders to engage with their provider for prescription refills. Our consumer engagement efforts are looking promising with significant differentials in LTV and repeat claim usage for engaged consumers versus baseline consumers. We serve 7.3 million consumers across our prescription transactions and subscriptions offerings in the third quarter, given each subscription plan has on average approximately 1.5 members. We see our engagement efforts opening the door to providing an array of services extending from subscribers to incremental services for engaged consumers And finally, our more transactional savings offerings. Importantly, higher engagement enhances our ability to influence consumer behavior, giving us more leverage and opportunities across our ecosystem of retailers, PBMs, and manufacturers. An example of just one of the expected benefits is our increasing ability to direct users to the retailer that best fits their needs, especially as their needs and prescription pricing change over time. In addition to these new ways to help consumers, we are also furthering our mission by helping healthcare providers through our recent launch of Provider Mode last month. Over the last decade, GoodRx has been embraced by healthcare providers who see firsthand the consequences their patients face when they choose not to fill prescriptions or to get care because it simply costs too much. In the last 16 months, over 865,000 prescribers have used GoodRx to look up medication prices, prescription discounts, and trusted health information on behalf of patients. Mindful of the pivotal role these healthcare providers play in helping patients overcome access and affordability challenges, we wanted to develop a product that would arm providers with the tools they need to better help their patients at the point of prescribing. Provider Mode offers a redesigned prescription savings flow and a faster, more customized experience to help providers find the information they need in the moment so they can spend more time focusing on patient care. At launch, we expanded access to all HTPs, including nurses, medical assistants, and front office staff, as examples. This allows us to penetrate more of the approximately $30 billion Pharma Manufacture Solutions TAM, since data shows that of $30 billion, $20 billion is spent targeting HTPs and $10 billion to target consumers. It complements our growth strategy by addressing brand name prescriptions through awareness, access, and adherence to put more medication in the hands of consumers more affordably. In addition, The broader GoodExpert providers offering has seen almost 90% opt-in rate since it started rolling out last December, putting it on the path to becoming one of the largest provider platforms in the U.S. This recent launch is a remarkable achievement by our team, and I can't thank them enough for their hard work and the progress we have seen in the short time since ProviderVote went live. Early feedback we've received from our partners has also been extremely positive. Provider Mode gives us a unique opportunity to develop strategic integrations with pharma manufacturers that are designed specifically for providers. For example, we recently announced a collaboration with Biogen to make it easier for HTPs who have decided to start patients on Bumerity to enroll patients with relaxing forms of multiple sclerosis in the specialty hub. We anticipate that in the coming months, we will plan to make Provider Mode accessible to users of a top EHR and adding more clinical drug information onto the price pages. We're very excited about where this new platform is heading, and we look forward to providing you with updates on how it is furthering our mission and driving revenue in the quarters to come. The actions we're taking reinforce our ongoing commitment to a world-class, mission-aligned team that helps millions of Americans improve their health outcomes, and as a result, also increases the LTV of our consumer and provider relationships going forward. I will now turn the call over to Trevor for more details on how we're driving shareholder value.

Thank you, Doug, and good afternoon, everyone. Before getting into our third quarter results, I'm going to talk about the increasing strength of our retail, PBM, and pharma manufacturer relationships, as well as the health of our broader ecosystem. One of the main areas of investor interest in our second quarter earnings call was our retail network, so I'll begin there. Importantly, as we discussed during that earnings call in August, we've addressed the grocer issue, and GoodRx discounts have since been welcomed at the grocer pharmacy's point of sales. With the exception of this particular grocer, volume across other pharmacies increased approximately 8% year over year and approximately 5% quarter over quarter. We continue to deepen our relationships with existing retailers and bring on new retailers. Historically, PBMs have contractual agreements with pharmacies, and our business model has been tied to contractual agreements with PBMs and their relationships with pharmacies. Today, our approach involves selective direct contracting with pharmacies to complement the continued existing contractual agreements with our PBM customers. We believe our hybrid approach ensures stronger lines of communication and stronger relationships with our retailers. The elements of our business model and growth strategy are all interdependent. We strongly believe that our success acquiring new consumers even more efficiently and knowing our consumers better through the initiatives Doug discussed will strengthen and provide us more control over our retail relationships. These more direct relationships have provided key insights into the unique challenges presented by the current macroenvironment and enable us to proactively collaborate on solutions to drive our mutual success and profitability. We're helping retailers drive their strategic initiatives and improve their unit economics while maintaining the strength of our own economics. With regard to strengthening our network, I am happy to share the extension of our gold retail network with the addition of Giant Eagle. You may recall a 2021 survey we conducted of over 4,000 GoodRx and GoodRx Gold users that found that 85% of consumers surveyed agreed that their positive experience with GoodRx at their preferred pharmacy makes them want to return to that pharmacy more often. The survey also found that almost 80% of consumers reported that they purchased non-prescription items, such as general merchandise or groceries, when picking up a prescription, spending an additional $40 or more on average at the pharmacy counter. These are just some examples of how GoodRx adds value to pharmacies across our retail network. In addition to our strong retail relationships, we continue to have robust and strong partnerships with our network of PBMs, and we never have had a PBM terminate its relationship with GoodRx. This is a result of the volume and value we efficiently drive for our PBM partners. Additionally, we are leveraging our PBM relationships to drive prescription transactions revenue and efficient user acquisition in new ways. An example we are especially excited about is a new collaboration with Express Scripts support them in their mission to make prescription medicines more affordable for their members. Under this innovative program, eligible Express Script members will automatically access GoodRx prices as part of their pharmacy benefit. This means an eligible Express Scripts member will have seamless access to GoodRx prices for eligible generic medication in instances where that price is lower than their benefit price. Importantly, this keeps visibility of the eligible members' GoodRx claims within the pharmacy benefit, and it enables out-of-pocket claims to count toward a member's deductible. We were delighted to be selected as Express Script's exclusive partner for this important new program. We believe this innovative collaboration is a strong validation of our leadership in the prescription discount space, the strength of our brand, and the deep trust consumers have in our technology powered by last year's acquisition of RxNext. This collaboration creates a new distribution channel that we believe expands our market opportunity and represents a way to efficiently gain many incremental users. This new offering is anticipated to become available to Express Script's commercial clients in early 2023. Today, we have the most expansive network of PBM relationships in our space, acceptance at most pharmacies in the U.S., and prescription prices on the top 30 drugs in the U.S. that beat other cash discount offerings more than 87% of the time based on our analysis. We continue to work with more pharma manufacturers, offer more solutions, and deliver superior ROIs to those with which we work. Our compelling suite of solutions creates a highly effective way for pharma manufacturers to reach patients and providers, leveraging our millions of monthly visitors made up of both consumers and healthcare providers, as well as the approximately 20% of searches on our platform that are for brand drugs. In fact, our analysis shows that among the top 100 branded medications, the traffic to the drug savings page for these brands on GoodRx is a multiple of the traffic to the same brand's own drug saving pages because of our users are so high intent and often at the bottom of the funnel with a prescription in hand. The TAM in this market is huge, $30 billion, with increasing spend shifting to digital, and we have not even penetrated 1% yet, giving us massive runway. It is important to remember that branded medications present consumers and HCPs with a unique set of challenges when compared to generic medications, as they tend to be more expensive and insurance coverage is often complicated and restrictive. Pharma manufacturers want to provide affordable options, but even with the approximately $30 billion they spend annually to reach consumers directly or through providers, they struggle to gain awareness and improve access and adherence. With our pharma manufacturer solutions offerings, we are able to partner and innovate with drug manufacturers to help address these challenges and encourage use of their life-saving products and services, increasing LTV and attractive ROI in part through our ability to target so effectively. By driving awareness, access, and adherence, We also help healthcare providers who use GoodRx and their patients to achieve better outcomes. That said, the industry has started to face some moderation in spending, which may impact our near-term results for this offering. While we continue to experience solid growth with our customers, we'll continue to monitor the landscape and be proactive with our growth strategy. Other strategic initiatives continue to perform well. On the acquisition front, the integration of VitaCare's innovative pharmacy service platform is going well. VitaCare gives us valuable capabilities to facilitate the brand medication prescription process from start to finish, adds yet another innovative product, and enhances our pharma-focused capabilities. We believe VitaCare increases our strength and differentiation, particularly as it relates to the access and adherence elements of the patient journey, which continue to be a key focus for manufacturers to drive medication volume and revenue. We work with pharma manufacturers to help patients and providers through the most complex part of their journey to therapy. An example is our recent announcement of an exciting collaboration with Biogen, which aims to improve the patient and HCP experience when initiating a new specialty therapy. HCPs who have decided to start patients on Vumerity can now utilize provider mode to send enrollment information directly to the specialty hub, which helps patients and providers navigate patient access to therapy. On our second quarter earnings call, Doug Karsten and I talked about our focus on adjusted EBITDA, which we can control. And I also talked about taking a hard look at all of our costs and expenses and reprioritizing where and how much we spend across the business and all of our offerings. That is exactly what we have done. Following a careful review of our business structure, we implemented an organizational realignment to operate more effectively and efficiently. The resulting reduction force we announced in August was part of our initiatives to rebalance our investments and cost structure into prioritized areas that we believe will drive efficient growth and margin expansion. We are focused on optimizing current cash flow generation from our established business platforms, while efficiently planting seeds for growth in new areas to expand faster into our addressable markets by strengthening our customer value proposition. Our third quarter results begin to reflect the benefits of these actions. Total revenue for this quarter was $187.3 million, which exceeded our expectation of approximately $185 million. Adjusted EBITDA was $52 million, and adjusted EBITDA margin was approximately 28%, which was approximately $15 million more than the implied adjusted EBITDA dollars on our expected 20% margin. We also continue to serve millions of consumers across our prescription transactions and subscriptions offerings, which totaled $7.3 million at the end of the third quarter. The outperformance in adjusted EBITDA was driven in part by the one-time reduction in force we completed last quarter, and partly by focusing on marketing efficiency ahead of the marketing investments we plan to make around year-end, when many consumers change health plans and begin new plan years with fresh deductibles. The advertising proportion of sales and marketing dropped by five percentage points, from 64% to 59% between the second and third quarter of 2022, even as our MAC count remained relatively consistent at $5.8 million, and despite the continued impact of the grocer issue. Relative to the second quarter of 2022, advertising fell by a full 16% to $50.9 million, while prescription transactions revenue decreased from $134.4 million to $131.2 million. The amount of prescription transactions revenue associated with the grocer decreased from $12.4 million to $4.3 million during this period, and it's still well under the $33.7 million from third quarter 2021, as well as the $37.7 million we earned in connection with the grocer in the first quarter of 2022. Our cash flow provided by operating activities was $33.7 million, representing approximately 18% of revenue, and we have been consistently strong on this metric. Our team is highly focused on consistently and efficiently growing adjusted EBITDA quarter over quarter going forward by reprioritizing investments only where they are needed to drive highly profitable growth while delivering to consumers what they've come to expect from GoodRx. With that, I'll turn it over to Karsten to discuss our financial results and guidance.

Thank you, Trevor. Total revenue for the quarter decreased 4% year over year to $187.3 million. which exceeded our quarterly guidance of $185 million. Prescription transactions revenue decreased 16% year over year, which also came in above our expectations as ongoing business reviews with retailers have been positive and the dialogue continues on how we can further drive revenue. Importantly, with the exception of the particular grocer, volume across other pharmacies increased 8% year over year and 5% quarter over quarter, MACs declined 9% year-over-year to $5.8 million, while PTR per MAC decreased approximately 7% year-over-year and 2% quarter-over-quarter. The PTR decrease was driven by the decrease in MACs and an ongoing shift in volume of prescription transactions to other retailers that impacted pricing as a result of the grosser impact and consumer engagement efforts that we previously discussed. We also experienced positive week-over-week growth at the grocer in the quarter, which was the first time since the end of the first quarter we saw positive week-over-week growth. We continue to be focused on user growth, pricing, and consumer engagement. On the engagement front, the impact in the third quarter on conversion was less than we expected. As Doug and Trevor touched on, we will continue to roll out our engagement efforts in the fourth quarter and beyond. Turning to subscriptions, subscription revenue remains strong, increasing 63% year-over-year, slightly exceeding our expectations. We ended the quarter with 1.1 million subscription plans, which was down 6% year-over-year, primarily due to the expected churn resulting from our fee increase in the first half of 2022 and an expected sequential decline in our subscription plans for Kroger Savings as a result of reduced marketing spend. When taking family subscriptions into account, 1.5 million total members benefited from our subscriptions offering during the quarter. The benefit from our gold subscription fee increase is offsetting the decline in memberships, and we saw meaningful improvement in September churn, but we do anticipate some continued churn and decreases in subscriber count in the fourth quarter. As Trevor said, we're proud to have served 7.3 million consumers in the third quarter across our prescription transactions and subscriptions offerings. Our pharma manufacturer solutions revenue increased 32% year over year, less than we anticipated as the industry started to see a degree of expense control in the quarter, which we expect to be temporary in nature. We continue working with more pharma manufacturers, offering more solutions, and are delivering superior ROIs to those with which we work. This is the second quarter of contribution related to VitaCare, which contributed approximately $2 million of revenue, and we are pleased with how the integration is progressing. We're also pleased that in the first nine months of 2022, pharma manufacturer solutions revenue increased 81% relative to the first nine months of 2021. Other revenue increased 10% to $5.2 million, slightly ahead of our expectations. Cost of revenue was $17.4 million, or 9% of revenue, compared to $11.3 million and 6% of revenue in 3Q21, which was primarily driven by an increase in personnel related to consumer support and allocated overhead resulting from the acquisition of VitaCare. Product development and technology expenses remained relatively flat at $35.9 million, or 19% of revenue compared to $35.1 million, or 18% of revenue in the comparable period last year, primarily driven by higher headcount and costs related to our in-period reduction in force, resulting from the realignment of our organization in support of our strategic goals, substantially offset by higher capitalization of costs related to software development due to greater investment in our products and reprioritization of the development efforts that better align with our strategic goals in future scale. Excluding stock-based compensation expense and other items, adjusted product development technology expense was 13% of revenue compared to 12% of revenue in 3Q21. The increase was due to investments in the team and product. Adjusted product development technology expenses were also relatively flat quarter over quarter. Sales and marketing expenses were $86.2 million, or 46% of revenue, compared to $95.7 million, or 49% of revenue, in 3Q21, as we looked to balance investments in our team and build the GoodRx brand more efficiently. Excluding stock-based compensation expense and other items, adjusted sales and marketing expense was down 12% year over year and down 9% quarter over quarter, driven by a focus on marketing efficiency. Despite the spend reductions and the larger impact of the grocer issue in the third quarter relative to the second quarter, we're pleased that our MAC counts have remained consistent. General and administrative expenses were $49.5 million, or 26% of revenue, compared to $35.9 million, or 18% of revenue, in 3-2-21. The increase was primarily due to a $16.6 million change and fair value of contingent consideration related to the VitaCare acquisition and an increase in payroll and related expenses due to higher headcount, partially offset by a decrease in stock-based compensation expense. Excluding these and other adjustments, adjusted G&A expense as a percentage of revenue is 8% compared to 5% in 3Q21. The grocer issue contributed to the increase in adjusted general and administrative expense as a percentage of revenue. Net loss was $41.7 million compared to a net loss of $18.1 million in 3Q21. Net loss was impacted by the grocer issue and an increase in general and administrative expense related to a change in the fair value of contingent consideration related to the VitaCare acquisition described earlier, partially offset by a decrease in stock-based compensation expense and sales and marketing expenses. adjusted net income decreased 25% year-over-year to $29.9 million. Adjusted EBITDA decreased 16% year-over-year to $52 million, largely driven by the grocer issue, which materially impacted revenue growth, as well as adjusted costs and operating expenses as a percentage of revenue. We also continue to invest in growing our new offerings, such as VitaCare, which, as we stated at the time of acquisition, has historically generated net losses in negative adjusted EBITDA, which we expect will continue in the near term. Adjusted EBITDA margin of approximately 28% declined 390 basis points year-over-year, but improved quarter-over-quarter and exceeded the 3Q guidance we provided in August, given the one-time reduction in force we completed during the quarter and our focus on marketing efficiency. We generated net cash provided by operating activities of $33.7 million for the quarter, and we will continue to focus on strong cash flow and adjusted EBITDA generation in the quarters to come. During Q3, we repurchased $18 million of Class A common stock, or approximately 2.8 million shares. At the end of Q3, we had $148.3 million remaining in from our $250 million share repurchase authorization approved by our board during the first quarter. Given the ongoing uncertainty around the economy, I also wanted to talk about our balance sheet and our capital allocation priorities. GoodRx maintains a strong balance sheet with a net cash position. We had $728.8 million in cash and cash equivalents on the balance sheet and $668.8 million in outstanding debt as of the end of the third quarter. Our capital allocation priorities are reinvesting in the business, maintaining a strong balance sheet, returning capital to shareholders via share repurchases, and evaluating acquisition opportunities that support the company's strategy. These support GoToRex's long-term growth strategy while also providing flexibility to navigate near-term challenges and are directly linked to our two most important priorities, furthering our mission in creating shareholder value. Moving on to guidance. For the fourth quarter, we expect prescription transactions revenue of approximately $125 to $126 million, which assumes a combined $45 to $50 million estimated impact related to the grocer issue and our consumer engagement efforts. We expect to continue seeing the year-over-year impact of the grocer issue until 3Q 2023, when we last 3Q 2022, which was the first quarter with full impact of the disruption. Our expectation is for PTR per MAC to continue to modestly decrease quarter over quarter until that time, primarily due to an ongoing shift in retailer volume. We expect subscription revenue of approximately $22 to $23 million down quarter over quarter. As we anticipated, we're entering the fourth quarter with a smaller gold subscriber base due to the expected churn related to the increased prices we rolled out to new and existing subscribers during the first half of the year. As we mentioned on our second quarter earnings call, the strategic repositioning of this offering focuses on the narrower audience, which negatively impacts growth rates, but is anticipated to reduce churn in the longer term. As a reminder, the price increases took place during the first half of the year and are not providing incremental benefit to the fourth quarter. However, the churn effects on subscriber counts lag from the time users' pricing changed, which does impact the fourth quarter. We expect pharma manufacturer solutions to grow quarter over quarter by approximately 10%. As a CFO, pharma manufacturer solutions continues to be my favorite GoodRx offering. However, as we've discussed previously, this offering comprises relatively large, often multi-million dollar deals that can create quarterly volatility. The macro tail end driving more digital outreach to healthcare providers and their staff shifts on the consumer side to video content consumption such as the assets we acquired in our Healthy Nation deal and the fundamentally huge $30 billion TAM we barely penetrated, making me highly optimistic about our multi-year trajectory. Finally, we expect other revenue to be approximately $4 or $5 million in the fourth quarter, consistent with the third quarter. In aggregate, we expect total revenue of approximately $175 to $180 million. We expect the adjusted EBITDA margin to fall into the low to mid 20% range. The modest margin decline is primarily a function of the anticipated revenue decline in our prescription transactions business relative to third quarter, which relates to our user engagement efforts and is consistent with the expectations we provided on our second quarter earnings call. And as I mentioned, year-end can be an opportune time to invest in marketing, so we're maintaining the flexibility to do so. Finally, as we've articulated since the time of VitaCare's acquisition, we continue to expect VitaCare to have a drag on our adjusted EBITDA margins, as will likely be the case for a few more quarters. Our focus continues to be on growing adjusted EBITDA and continuing to deliver strong margin performance and cash conversion. We believe we have the right strategy in place to return to consistent high margin growth and are focusing on efficient organic investments that will drive growth and strengthen our platforms for the long term. I look forward to updating you on this progress in the quarters ahead. With that, I'll turn it over to Trevor for closing remarks.

We are excited about our future and the opportunities ahead while also recognizing the near-term challenges we face. Our leadership team is committed to navigating these challenges. We'll continue to focus on improving our profitability as measured by adjusted EBITDA, which we view as our number one goal. We are also focused on re-accelerating revenue growth in an efficient manner by leveraging our platform to expand margins following the cost reduction initiatives we began in the third quarter. We expect to see meaningful benefits over the long term from our engagement efforts, along with our focus on investing in our fast-growing pharma manufacturer solutions platform. We are confident in our ability to achieve our goals of returning to high growth or remaining highly profitable as we continue to deliver on our mission to help Americans get the healthcare they need at a price they can afford. Thank you again for joining us today. I'll now turn it over to the operator for Q&A.

Thank you. And as a reminder, to ask a question, you will need to press star 11 on your telephone. And I ask that you please keep your questions to one in the interest of time. Please stand by while we compile the Q&A roster. One moment for our first question. And it comes from the line of George Hill.

With DB, please go ahead. Mr. Hill, your line is open. One moment for our next question, please.

Our next question comes from the line of Jailendra Singh with Truist. Please proceed.

Thanks, and thanks for taking my questions. I know you guys are not providing 2023 guidance at this point, but are you willing to share some puts and takes you see for next year at this point, and how much visibility do you have on those factors at this point? Of course, grocery issue is one headwind on a year-over-year basis, but maybe share some additional puts and takes we should keep in mind for next year.

Sure. Thanks for the question, Jalendra. This is Karsten speaking. Great to hear from you again. Yeah, I think as we look into 2023, we do have some visibility, of course. I think the biggest areas of confidence come from the reality that we still feel like we're barely penetrated into our prescription transactions TAM, number one. Our manufacturer solutions market and TAM is also very large, where we're also lightly penetrated. And so those two tailwinds in particular are ones that we are highly focused on. I think in the interim period, though, particularly with respect to manufacturer solutions, given what we're seeing going on in the marketplace now with pharma manufacturers taking longer to make decisions around marketing spend and being somewhat more focused on spend period in the fourth quarter, which could extend into 2023 as well, we will continue to monitor the situation between now and when we do our upcoming earning call at the beginning of 2023 to continue to refine our views on how that year will evolve.

One moment for our next question, please. It comes from the line of Michael Cherney with Bank of America. Your question, please.

Good evening. Thanks for taking the question. Congratulations on a nice result this quarter. I'd love to dive in a little bit on the Express Scripts announcement. Obviously, a very important brand name, PBM, to work with, to expand with. I noticed the term you talked about relative to exclusive. Can you maybe just give us a sense on, again, I'm not trying to get ahead on guidance, but how to think through how the progression of this relationship first came to fruition and then, B, how we should see it start to filter through both in terms of the potential for revenue, potential for incremental costs, into 23 and beyond as it really ramps up.

Thank you, Michael, for the question. We're really pleased about this new collaboration with Express Scripts. It helps us support their mission to make prescription medicines more affordable for their members. Under this new program, eligible Express Script members get access to GoodRx prices as part of their pharmacy benefits. So an eligible ExpressGRIP member gets seamless access to GoodRx prices for the eligible generic medication when the price is lower than their benefit price. This keeps visibility of the eligible member GoodRx claim within the pharmacy benefit and enables out-of-pocket claims to count toward a member's deductible, gives full visibility of the claim to the payer. And as you just brought up, we're delighted that we were selected as ExpressGRIP's exclusive partner for this program. We believe it's really good recognition of our leadership in the prescription discount space, of the strength of the GoodRx brand, and of the trust consumers have in our technology. This technology is powered by last year's acquisition of RxNext. The collaboration creates a new distribution channel for us. We believe that expands the market opportunity. It represents a way to efficiently gain many new incremental users. you know, this offering is anticipated to be available to Express Scripts commercial clients later this year and in early 2023.

Thank you. One moment for our next question. It comes from Eric Sheridan with Goldman Sachs. Please go ahead.

Thanks so much for taking the question. I want to hone in a little bit on some of the drivers of of other revenue in terms of what you see coming out of this year and going into next year. We've talked a lot about marketing solutions and working more closely with the industry on the healthcare side to drive good outcomes for you as a platform and for them as companies. How could some of those budget conversations and dynamic continue to evolve as you move out of 22 and into 23 in support of evidence of continuing to drive high ROI outcomes for for marketers on the platform. Thanks so much.

Thanks for the great question. This is Carson speaking here. Yeah, I think we are very excited about the other revenues you characterized that are manufacturer solutions line in particular as the biggest component of, I think, what you're considering in there, the business in which we serve pharma manufacturers. And in that context, I think there are a few points that are really critical here. The first point is that the TAM is huge. It's about a $30 billion TAM, split 20 million to healthcare providers and 10 million to consumers. And we hit both of those parts of the TAM very effectively for our manufacturers. So from that perspective, that business continues to be very attractive to us. In the last 16 months alone, 865,000 prescribers have used GoodRx to look at medication prices, prescription discounts, et cetera, on behalf of their patients. So from that perspective, we remain highly bullish. I think in addition, the relationships we have both on the consumer and the provider front create a lot of value for us. The 90 MPS with providers and with consumers mean both sets of constituencies are highly receptive to being approached and being served by us with respect to pharma manufacturers. We also have, as Trevor mentioned in the prepared remarks, significant volume. When you think of all of the monthly visitors that come to GoodRx's platforms, which number in the tens of millions, those visitors are all visitors for whom pharma manufacturers benefit, in particular because, again, as Trevor said, they tend to be very deep in the funnel, folks who are actually looking for a particular medication or a savings opportunity on it. We've also layered in provider mode, which is a tool that allow providers to, for example, very rapidly share GoodRx discounts directly with their patients without sharing their personal email address or phone number. So these kinds of tools that build new infrastructure that providers use on a recurring basis in their interactions with patients are very, very sticky indeed. So I think all of those elements together continue to allow us to, over sort of the medium, meaning couple quarters to longer term, incredibly bullish on our pharma manufacturer solutions business. I think in the interim period right now, as we alluded to in the scripted remarks as well, pharma manufacturers are taking more time to make decisions around spend. And given that at year-end in particular, the deals can be quite significant in size, amounting to millions or sometimes even tens of millions of dollars in one deal, that catalyzes some potential fluctuation around year end. And that's one of the things that causes us to have some challenges around predicting the specific level that a business like that will come into in a specific quarter. That said, looked at over any longer term period of time, like for example, the first nine months of this year compared to the first nine months of last year when the business grew about 81%, when looked at over any longer period of time, I think we've been very pleased with the growth rates that our farm manufacturer solutions business has sustained.

Thank you. One moment for our next question, please. And it comes from the line of Doug Anmos with J.P. Morgan. Please proceed.

Thanks for the question. Just with the discounts welcomed again at the mortgage brochure, can you just help us understand kind of how that's playing out on the ground with the issue Thank you, Doug. It was a little hard to hear you, so I'll do my best to touch on each part of that question. But to the grocer issue, you know, was addressed in August, as we discussed.

GoodRx discounts have since been welcomed at Kroger Pharmacy's point of sale. During third quarter, we are pleased to see, with the exception of the particular grocer, that volumes did increase 5% quarters over quarter. We are also happy that we are now seeing week over week increases in volume at Kroger, as well as increases in subscribers for Kroger Savings Club. We did have a step down in volume because of the disruption, And that's why we really brought up these, you know, in the prepared remarks, these topics of how we are strengthening the retail network. And we think we've made really good headway on that front in this period, that we have, you know, made more direct relationships with retailers. You know, we have continued to maintain our really strong PBM marketplace, but in addition, we are selectively direct contracting with pharmacies, including many of the largest chains. That hybrid model really lets us ensure network stability. We want to make sure we don't have and we don't anticipate having any similar issue, partly because these direct relationships enable us to collaborate on solutions to drive success. We also think this allows us to have deeper, you know, these direct relationships allow deeper and stickier relationships, marketing partnerships, and just there are a variety of incremental opportunities there.

Thank you. One moment for our next question, please. It comes from Stephanie Davis with SVV Securities. Please go ahead.

Hey, guys. Thank you for taking my question. I wanted to ask a little bit about the new profitability focus, just in light of both the press release and a pair of remarks really pointing to a greater focus on cash conversion. So could you walk us through your early thoughts on areas that could merit a step back in investment and business lines that conversely could merit a bit of a step up, just in light of that focus?

Sure, I can take that to start, Stephanie. This is Karsten speaking, and I think others may jump in, because as I see it, there are really two parts here. One's the focus on flow through EBITDA and cash, and the other is the focus on opportunities for growth going forward. So focusing on the first part of the question initially, yeah, you heard us quite correctly. I think the risk we undertook at the end of August, in particular in the refocusing and prioritization that that allowed us to do also is a manifestation of the focus you mentioned. We took a really careful review of our business and its structure, involved key leaders across the entire organization, and realigned the organization to operate really more efficiently and effectively as well. And that was consistent, we felt like, with our comments during our second quarter earnings call already, where we said that we'd focus on earnings and cash conversions as well as on revenue growth at that point, too. These elements, particularly EBITDA and cash conversion, are largely in our control. And I think our reality is that even by focusing on greater efficiency, we don't trade off a significant amount of forward-looking growth. You see us still creating new offerings like provider mode, which I'm sure we'll talk about further in the Q&A that's highly impactful. And you've seen when we look at things like Mac counts, for example, those Mac counts, despite the grocer issue, remain stable even as we're able to successfully cut back marketing as a percent of revenue and also in absolute dollar terms when you look at the sales and marketing line as well. I think the reality is that the strength of the brand we've built and the fact that we're the scale player in certainly many of the spaces we operate, such as our prescription transactions and subscriptions, combined savings offerings, mean that we can leverage what we've already built to still be able to grow quite effectively, but also more efficiently than we used to. In terms of growth areas going forward, I'll start, but I'm sure others on the team will jump in as well. As we've talked about in the past, we remain incredibly bullish on pharma manufacturer solutions, particularly over a multi-quarter sort of evolution. I think in any given quarter, there can be some fluctuation, but over multiple quarters, it continues to be an incredibly attractive business. The shift of that business towards digital, which of course benefits us, plus the sheer size of the TAM, which we're relatively low penetration into today, and the recent reports that have come out from the sell side, where interviews of pharma manufacturers indicate that spend will only go up into next year and the shift to digital will only continue into next year, for example, also encourage us to be very, very bullish across the broader pharma manufacturer solutions offering in particular.

And this is Doug. I'll jump in and talk a little bit about some of the things we're excited about with regard to engaging with both our consumers as well as physicians more tightly. You know, as we deepen our relationship, we're seeing much higher LTV and repeat claim usage for engaged consumers versus our baseline. When we know our consumers better, it allows us to anticipate and respond to more of their healthcare needs and play a more active role in all aspects of their care, not just at the pharmacy counter. And when we know good directives are better, we can guide users to the retailer that best fits their needs. We can communicate price improvements for their chronic prescriptions. We can set reminders to engage with their provider or their pharmacy for prescription refills. Really, it allows us to leverage our data to create new products and tools, for example, the medicine cabinet, which we've recently rolled out and I'm very, very excited about. As a result, and really the punchline of this, is that we anticipate increasing the value to each of our users, and therefore the ARCO associated with all the offerings, both our prescription-related core as well as our subscription businesses, and also from pharma manufacturer solutions like Arson mentioned.

Thank you. One moment for our next question, please. It comes from the line of Craig Hattenbach with Morgan Stanley. Please proceed.

Yes, thanks. Just following back on the pharma manufacturing solutions, particularly related to the TAM, are there any anecdotes you can share or update us on, whether it's your penetration with top 20 pharma or just any statistics in terms of just kind of where that business stands today? And then also had a quick question on just the prescription business.

know what you're seeing for core utilization trends kind of through the end of october sure so i think a couple uh questions are embedded there first of all this is carson speaking again i'll tackle the manufacturer solutions part so on that business as we've said before um while we're deeply penetrated into the top pharma manufacturers in fact we're in 19 of the top 20 today we see significant opportunity to continue to grow those relationships as well as to grow beyond that top 20 by quite a bit. So, first of all, in the context of the top 20, while we are in 19 of the top ones, the number of solutions we're offering to manufacturers and the number of medications at each manufacturer that we're able to help drive volume on, those opportunities continue to grow over time. And we've been excited about the progress we've made in deepening those relationships and taking advantage of those opportunities to expand the number of brands we serve and expand the number of different solutions they're using from GoodRx. In fact, that also ties into the acquisition we did earlier in the year around VitaCare, because VitaCare is really an offering that allows us to be involved in almost the entirety of the prescription cycle. From the moment the healthcare provider writes the prescription through to the period when the consumer is actually benefiting from receiving it at the pharmacy, including managing a lot of the complexity that exists, particularly for insured patients, around things like step therapies and preauthorization and the like. So our ability to become more deeply involved with these manufacturers in the top 20, very high. Then secondly, we're penetrated into approximately, call it 10 or 15% of U.S. manufacturers, period. So there's still an amazing amount of runway ahead of us to penetrate into more manufacturers as well. So we're excited about that growth vector. We're excited about the incremental solutions vector. And we're also excited about the opportunity to penetrate into more medications. With respect to the prescription transactions business, on that dimension, I think one of the factors that we follow very closely in a call it week-to-week, month-to-month basis, particularly at this time of year that we've talked about in the past, is the evolution of the flu season in particular. While it's tough on all of us as individuals, more aggressive flu seasons tend to correlate with tailwinds for GoodRx as well. So we're monitoring that situation closely as well as healthcare utilization broadly closely. And on the healthcare utilization broadly front, as we talked about in the last earnings call, we've seen that largely return to normal, which is great. On the flu front, I think it's a little too early to predict. But the reason both of those dimensions matter so much is that consumer interactions with the healthcare community are a key driver for us of our own growth. And one of the big reasons for that is healthcare providers are potentially the first evangelists that GoodRx had on its behalf and one of the largest set of groups who are able to help promote GoodRx to their patients. We have over 400,000 doctor's offices that solicit GoodRx-related collaterals from us so that they can promote GoodRx to their patients and result in better patient outcomes. We also created things like the provider mode tools to do exactly the same thing so that healthcare providers can leverage GoodRx even more efficiently. And having returned back from sort of the COVID era underutilization around middle of this year to more normal utilization, we expect those dynamics to be bigger and bigger tailwinds as the quarters evolve going forward into 2023.

Thank you. One moment for our next question. And it comes from the line of Jonathan Young with Credit Suisse. Please proceed.

Hey, thanks for taking my question. Just on the grocer impact, for 3Q, you're estimating that the impact was a $40 million headwind. But then you're also mentioning that you're seeing week-on-week improvement from that particular grocer. But if I look at your 4Q guide, you're essentially guiding for little improvement on a sequential basis. So can you help me reconcile the guide and your commentary on the improvement? And is this a function of conservatism on your end? And alongside that, should we think that this $40 million gap closes as we move into 2023 and deeper into 2023? Thanks.

Sure. Yeah. Let me first of all start with the beginning of your question and bridging the commentary. While we talked about a roughly $40 million impact in the last quarter for the grocer and we're anticipating similar size impact going forward, that's a function of a couple different things. I think the first is that while we are seeing some week-on-week growth associated with the grocer, the week-on-week growth is off an extraordinarily small base relative to what it used to be. when you look at the grocer as having historically represented approximately 20% of volume just shy of 25% of revenue to where they are today, that much lower percentage today in the very low single digits, even if it's growing slightly, doesn't really impact the aggregate dollar number associated with the amount of revenue that we've forgone with the grocer. So again, It's a relative small scale today, even though growing doesn't have a significant impact on the gap that's left in association with the grocer's historical levels of contribution to our revenue at, like I said, just shy of 25%. I think to the other part of your question, which goes to how that could evolve going forward and whether the gap will close, I think there are a couple of dynamics to articulate. The first is that while we're excited about the momentum that we have with the grocer, and we're excited about the ubiquity of availability of GoodRx. We think it's important that you can use GoodRx at any of the large pharmacies across the country. At the same time, the reality is that I don't think we expect to see volume levels for that grocer anywhere close to historical ones, meaning that we don't see a return to 20%-ish of volume and nearly 25% of revenues. And that's a function of a few factors, including the reality that pricing at the grocer used to be highly advantaged relative to other retailers. And because of that, given that we're a marketplace, many of our users went to the lowest price, which was that particular grocer. Now that they're often not the lowest price anymore, the return of the volume to that particular pharmacy, I think we see is unlikely at anywhere close to historical levels. That pharmacy represents low single digits of total volume in the market as a whole from a market share perspective, and I wouldn't expect them to over-index going forward. Therefore, I don't think we see their share getting anywhere close to as big as it was historically. I hope that's helpful.

One moment for our next question, please. And it comes from the line of Yan Li with Evercore ISI. Please proceed.

Great. Thank you. I have a couple questions. One, just to clarify on the pharma solution comment of deal timing push-out. Just to clarify, is it just like do you expect that to be kind of a push-out in timing or do you see an overall pullback in the marketing spend from pharmaceuticals? And also the second on the the 45 to 50 million in Q4, how much of that is from the customer engagement and initiative? Because I think that's mentioned in the letter as well. And when do you expect that to become a tailwind rather than a headwind? Thank you.

Sure. Thanks for the great questions, Yang. So first of all, to the questions around farm manufacturer solutions and the timing and quantum of Market revenue is probably the best way of putting it to take it at the general level before getting specific to go to Rex I think our view is that the market as a whole Continues to be one that's growing rapidly and in an attractive direction for us and what I mean by that is The latest studies that I've read that came out of the sell side over the last couple weeks indicate based on interviews that the pharma spend market on medication advertising, broadly speaking, and awareness, access, and adherence solutions more broadly is expected to grow in the mid-single digits next year. That's, I think, in itself very attractive to us, that mid-single digit growth. I think what makes it even more attractive is the continued shift to digital that pharma manufacturers are indicating they're continuing to be committed to make. because that shift to digital in years, particularly to GoodRx's benefit, given our relatively unique ability to be able to both target healthcare providers and consumers, and to target healthcare providers and consumers in a very specific way. So, for example, healthcare providers by specialty, which is one of the benefits that we've been able to reap from our provider mode offering, as well as the investments we're making in healthcare provider-related solutions. So in those two dimensions, I think we see the reality as one in which timing may be more questionable than it was in the past, but the overall attractiveness of the market for good or X is as high as it ever was, potentially even higher with the continued shift to digital now being confirmed, I think, through the recent surveys we're seeing. So again, I think we remain very positive and very bullish on this business over a multi-quarter view. I think with respect to the second part of your question, I think that part of your question related more specifically to consumer engagement and the impacts of consumer engagement in the fourth quarter. So the consumer engagement efforts launched around mid-quarter of the third quarter. So we only saw about half the impact we'd expect to see in the fourth quarter. And last quarter, we said we expected to see somewhere around 5 million of impact. I think the reality was a little better than that. We're pleased that the attenuation or the narrowing of the final clause with the engagement efforts reduced a little bit. But again, where the impacts only manifested for a partial quarter this quarter, they're going to impact for about double as long. So for the full quarter in the coming quarter, consistently with the commentary I think we made on the prior call. And we also intend to continue these engagement efforts beyond this year, of course. So I think we'll expect that we'll continue to focus heavily on knowing our consumers better, being able to get more information from them that allows us to help them more and create products that are even more innovative and even more supportive of their health outcomes. So this is not just a 2022 thing. This will continue into 2023 as well on the engagement side.

Thank you. One moment for our next question. It comes from the line of Sandy Draper with Guggenheim Partners. Please proceed.

Thank you very much. A lot of the questions have been asked and appreciate all the answers. Maybe just one last drill down on the farming manufacturer solution side. Just trying to think through, there were some comments you made at a recent, or back in September, I believe it was, about still expecting that business to maybe even double this year. And so while you're still growing nicely, it's obviously slowed down fairly quickly. So I'm just trying to think if you can give some commentary around, like, average tenure of the programs you're working, how long it is, you know, just trying to think about visibility and how much of this is coming out of more of the consumer-facing versus physician side, just trying to understand, you know, I understand the long-term view of the market and think that is positive, but just trying to understand the visibility, how it switches off that quickly unless it's really customer concentration or maybe just much shorter duration contracts than I maybe have expected. Thanks.

Hey, Sandy. Great to speak with you, and thanks for the question as well. This is Carsten again. I think the best way to articulate it is when we look at sort of PharmaSpan's performance for the first nine months of the year, it's up about 81%, so just shy of or somewhat shy of doubling. I think earlier this year we said we expected it to close to double for the year. That held largely true through the first nine months. I think for the fourth quarter, we're really seeing a macro environment that's shifted a little bit versus where it was. And again, I think we see that as something that delays revenue more than anything else. I think the other aspect of that is that if deals are delayed, then the delivery on them also gets pushed out. And of course, the delivery is where and when you can recognize the revenue on them. In terms of deal duration and in terms of concentration, on our farm manufacturer solutions business, it's not a business where any one customer accounts for even a large minority of revenue, let alone a majority. The customer dispersion is very, very high, with very few of them, trying to think if there are any of them in the double digits, but very few of them in double digit percentage of revenue. But what we do see is that certain kinds of offerings made by manufacturers and made by others who leverage or manufacture solutions offerings are more episodic, or they can be tied to a particular time of year. For example, we have historically worked with entities that are seeking to support Medicare open enrollment. Medicare open enrollment spend happens predominantly in the third quarter versus, say, the fourth quarter or the second quarter. And so you do see in those areas, revenue that can come in in one quarter, but not come in from the same entities in a subsequent quarter. I think the other piece of it is that while individual deals can be quite large, and those therefore swing revenue growth, QOQ in particular, when you look at a given quarter, that as the business continues to expand, over time, portfolio theory will apply and that QOQ volatility will decrease as we continue to scale the business. But in the interim period, again, I think we see this as more, like John asked a few minutes ago, we see this more as a timing issue than anything else, given the nature of the market and the huge TAM and growth rate associated with it, and our unique ability to go hit it. I think one of the folks that people haven't heard clearly from us in the past, we're certainly stressing on this call too, is just the sheer number of healthcare providers who we work with as well, which are, of course, an incredibly attractive audience, given that in most cases we can identify them by specialty and by the prescriptions they write. So having that 865,000 healthcare providers using GoodRx that we talked about earlier, I think is something that is of huge benefit to pharma manufacturers, especially given that we can also support them on the consumer side in a coordinated fashion.

Thank you. One moment for our next question, please. It comes from the line of Steve Valliquette with Barclays. Please proceed.

Great. Hi, good afternoon. Thanks, everyone, for taking the question. So I just wanted to walk through a scenario or two for a moment. I think, as you alluded to on this call, you reiterated the importance communication from August that the grocery dispute was resolved and your direct relationships with retailers such as grocers is a key positive development. However, I think some in the investment community became a little bit confused when Kroger announced back on September 30th that their dispute between themselves and Express Scripts was still not resolved. Without a resolution by December 31st, their commercial contract would be terminated. So I guess really the scenario question now is, you know, what would be the expected impact of GetRx in 23, you know, if that Kroger Express Scripts PBM contract is terminated on 12-31-22, if any? And then does either your direct contracts with grocers either mitigate that or shield that, or does your new collaboration with Express Scripts you know, shield you or mitigate you from that scenario I just mentioned. Just trying to get clarity around that September 30th press release from Kroger slash Express Script. Thanks.

Yeah, thank you very much for the question. You know, I'm not, you know, the, that, anything between Kroger and Express Script, we don't anticipate would affect our business. As we mentioned, GoodRx is accepted at almost all pharmacies in the U.S. We addressed the grocer issue and GoodRx discounts are welcome at Kroger. We've been pleased with that growth we've been seeing. I guess I'd like to highlight again how we've been going forth strengthening our retailer relationships because we view that as incredibly important. We're selectively direct contracting with a growing number of pharmacies, including many of the largest chains. That hybrid model lets us ensure network stability, and these direct relationships let us collaborate on various solutions. All of this has led to continued strengthening of those relationships. It's let us work on strategic initiatives together. We're driving traffic to retailer locations. We're driving additional merchandise spend for customers who are in places, in stores not using their pharmacies, we're getting them to use their pharmacies, we're driving additional adherence, so we're driving all these additional benefits. We also have been making good headway through this hybrid effort to improve unit economics for retailers while also balancing that against the strength of our own economics, which continues to be strong as partially evidenced by our strong margins. And these direct relationships, as I mentioned, open up these opportunities for just stickier partnerships that we think will be incremental. So, you know, we're really pleased that we think we have, you know, may strengthen this further. You know, we're also seeing new additions to the retail network, such as the addition of Giant Eagle to the gold retail network, which adds additional geographical coverage. And I hope that answers the question.

Thank you. One moment for our next question. It comes from the line of Stan Bernstein with Wells Fargo. Please go ahead.

Hi. Thanks so much for taking my questions. So as we're thinking about next year, can you maybe remind us when the Kroger Savings Club contract is up for renewal? And can you maybe walk us through the revenue visibility you have in the event that the contract is sunset? Thanks so much.

Sure. Stan, great to speak with you. Karsten here. I think a couple points to make. A couple earnings calls ago, we talked about the scale of the Kroger Savings Club that we support as a proportion of our subscriptions revenue. And the reality is that the Kroger Savings Club is very small, both as a proportion of our subscriptions revenue and our proportion of our total revenue. So from that perspective, really wanted to shed light on the fact that the massive majority of our subscription revenue comes from our own gold program. That said, the current agreement with Kroger runs through July of 2023, and we're enrolling new members right now on annual plans. Of course, we're past July of 2022 at this point, so I think that's a good indicator of the nature of the relationship with Kroger that we're continuing to add annual members and plan servicing them through at least mid-2024 at this point. But again, KSC doesn't really swing the needle or move the needle on our business overall relative to our own business. Given all that, I think the bottom line for us is we're extremely pleased that Kroger's still working with us on KFC, number one. We're extremely pleased that GoodRx discounts are welcome to Kroger, number two. Again, as I said earlier in response to another question, ubiquity of availability of GoodRx is key. And especially now to the question that I think that got asked by Steve a few minutes ago too, having GoodRx available at Kroger is critical, especially if... if ESI and other offerings aren't as available as they used to be.

Thank you. One moment for our next question, please. And it comes from the line of Scott Schonhaus with KeyBank.

Hi, team. I wanted to follow up on the provider mode that launched last month. Combined with the EHR you said you're partnering with, how do you see this growing into 2023, and what does this translate into the pharma manufacturing growth? Is this priced differently for your pharma manufacturing clients versus your legacy revenue stream? Thanks.

Sure. When we look at – maybe I'm going to speak a bit generally about what we're doing with provider mode and why we think it's valuable and how we're monetizing it. So GoodRx provider mode is part of this GoodRx for providers we've been talking about. So GoodRx for providers is all of these offerings we have for healthcare providers, including provider mode, FlipMD from GoodRx, and our general work with more than 400,000 HCPs and HCP offices to actively distribute GoodRx materials. So provider mode is this technology platform that we launched last month. And it has a number of advantages and provides a number of advantages to HCP and related parties to help consumers, help patients get through the healthcare journey, get access to medication, the adherence to medication. So one of the advantages with provider mode is we've expanded access from prescribers to all HCPs, including nurses, medical assistants, and front office staff, you know, all of these participants are really important in helping get patients to the right solutions. And provider mode also includes this redesigned prescription savings flow that gives a faster, more customized experience to get users to help the providers get their patients medication. This is super synergistic both across our prescription discount business and the pharma manufacturer solutions business because we're trying to help patients get all their medications, generic, brand, specialty, and get access to them. This gets monetized through increased use of prescription discounts, and it gets monetized through the pharma manufacturer solutions. Some of our pharma manufacturer solutions deals, I believe this is part of your question, are for both our consumer and HCP offerings, and then we have other deals that are specifically an HCP deal, for example.

Thank you. One moment for our next question, please. It comes from the line of Robert Simmons with DA Davidson. Please go ahead.

Hey, guys. Thanks for taking the question. So it's understandable and expected that they're going down now, but when do you think the number of subscription plans will trough and start to go up again on a quarter-over-quarter basis?

Yeah. Thank you for the question. So subscription revenue grew 63% year over year to $26.5 million for the quarter. As we've discussed, we've sort of made the decision to tighten the focus of it to the patients, you know, to chronic care, chronic patients with chronic conditions more tightly. And that has been the focus. And, you know, that price increase has worked, I believe, as we expected with the increase the amount of people decreasing sort of within or better than our expectations there. But we continue to work on that program and are optimizing it. And so you'll see some continued improvements there as we try to make that program applicable to a broader and broader set of users and start increasing subscriber numbers again.

Thank you. One moment for our next question, please. It comes from the line of Kevin Caliendo with UBS. Please proceed.

Thank you. Thanks for getting me in. I noticed the capitalized software number jumped in 3Q, and the run rate this year is a lot higher than last year. I'm just wondering if this is the run rate we should be working off of going forward, or is it going to continue to accelerate as you make investments in software? Just thinking about how to model that and the driver of it.

Sure, so thanks for the great question, first of all, Kevin. In terms of CapSoft, we spent a lot of time over the prior years continuing to focus on managing and maintaining our base of code, building new infrastructure to allow us to develop faster, and taking on other initiatives of the like. I think what you're seeing, particularly since Mark Hall joined us to head product, you're seeing a shift in which we're now focused very, very hard on delivering direct value to healthcare providers through things like the provider mode that Trevor talked about and new offerings for consumers too. And as we do that, as we continue to drive these new offerings and focus very heavily on creating new products and new features, the capitalization rate has crept up just a little bit. And that's really a function of the great work that's being done to serve consumers better.

And yeah, what I want to highlight there though is we are just laser focused on driving efficient growth and driving margin expansion. And, you know, the series of actions we've been taking is what enabled us to exceed expectations this quarter, you know, in particular on adjusted EBITDA. So, you know, two things I want to highlight. You know, we did complete the organizational realignment, the reduction in fourth in August to rely on ourselves. You know, while that, you know, had some, you know, hard trade-offs, we believe that was executed very well and that we are now operating even more effectively and getting products out the door quickly. We also have made really good headway on marketing efficiency. We've reduced advertising spend and heading into Q4 while maintaining relatively stable max. So the strength of our brand and just the really solid work being done there has showed us that we can – be more efficient there and we continue to see opportunities there. And then my final comment is this is a macro environment where GoodRx really shines. The need for affordability is really only increasing as employers cut back some spending and consumers need affordability solutions. This is what we made GoodRx for. We are here in these slightly harder times to help consumers, to get them the medications they really need, to keep people adherent to their medications, to produce better health outcomes. So we're happy we can provide that. Thank you.

Thank you. And with that, ladies and gentlemen, we conclude the Q&A and program for today. We thank you for participating, and you may now disconnect. Thank you.

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