GoodRx Holdings, Inc.

Q4 2022 Earnings Conference Call

2/28/2023

spk23: The conference will begin shortly. To raise and lower your hand during Q&A, you can dial star 1-1.
spk41: Good day and welcome to the GoodRx fourth quarter and full year 2022 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Ms. Aubrey Reynolds, Senior Investor Relations Manager. Please go ahead.
spk20: Thank you, operator.
spk45: Good afternoon, everyone, and welcome to GoodRx's earnings conference call for the fourth quarter and full year 2022. Joining me today are Doug Hirsch and Trevor Bezdek, our co-founders and co-chief executive officers, and Carson Vorman, 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 grocery issue on our business, the impact of legal or regulatory matters, and the expected impact of the macroeconomic environment on our business. 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 statements. Factors discussed in the risk factors section of our annual report on the Form 10-K for the year ended December 31st, 2022 and 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, which can be found in the overview page of our investor relations website at investors.gotorax.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 Doug.
spk31: Thank you, Aubrey. Good afternoon, everyone, and thank you for joining us today. GoodRx operates with a clear mission, to make healthcare affordable and convenient for all Americans. I'm proud to report that in 2022, we made great progress delivering on that mission. We've saved consumers over $55 billion since our founding. In 2022 alone, we saved more than 10 million consumers over $200 on the cost of their medications. For many, those savings are life-changing, and the medication adherence we support can be life-saving. Before discussing our recent performance, I want to highlight a few of the accomplishments that have made these incredible savings possible and are helping to lay the foundation for future growth. First, we leveraged technology acquired through RxDAX to launch a new collaboration with Express Scripts. Today, eligible Express Scripts members are automatically able to receive GoodRx discount prices as part of their pharmacy benefit. It's built right into their card with no action required on the consumer's part. Through Express Scripts, we're excited to work with Cigna, which has made this program available to all participating Cigna health plans, encompassing over 10 million lives. With positive early results, Express Scripts continues to educate and enroll plan sponsors across the balance of their commercial book of business. This program opens up a huge new segment of the prescription savings TAM for us, and we are seeing great early results. Over the coming months, we plan to continue rolling the offering out to other health plans as a way to expand our reach and serviceable addressable market. Based on an August 2020 survey we commissioned, we estimate that 70% of consumers do not know that the price of a prescription can vary widely across pharmacies. With this product, consumers can now benefit from GoodRx without having to consciously price shop. The collaboration is seamless for payers, benefit plans, and most importantly, eligible Express Scripts members who are now getting access to GoodRx prices for eligible generic medication when that price is lower than their benefit price. We've also made important progress with our provider partners as we continue to expand the healthcare provider value proposition and make GoodRx a destination for providers. We've now enrolled almost 400,000 new prescribers into provider mode. One way we did this was by delivering new offerings, in part enabled by past acquisitions such as FlipMD. This brings even more value to these providers who are choosing to use GoodRx as a way to improve patient outcomes. Lastly, we've expanded our core retail network. We recently added Sam's Club and their 560 retail pharmacy locations to our network of pharmacies that accept GoodRx discounts. another proof point in our strengthening retail network, and we look forward to extending GoodRx's value to Sam's Club shoppers. While there is much to be proud of in advancing our mission, 2022 was not the year we anticipated in terms of financial performance. The grocer issue that began in the first half of the year impacted us significantly, and we haven't yet recouped the volume loss resulting from that event. But our resourceful team used this event as an opportunity to take actions to make the business more resilient, and we exited the year with results that were better than our expectations following the grocer issue. Since the second quarter of 2022, we expanded adjusted EBITDA and consistently drove high cash conversion in line with our priorities. We have more work to do, but I am pleased with how our team responded to the unexpected challenges and the progress we are making. Trevor will provide more details on our actions in a moment. We believe our consumer-facing offerings remain incredibly relevant in light of the current macroeconomic environment. When economic uncertainty increases, American families take a close look at their expenses, and we expect even more consumers to turn to GoodRx for help with their healthcare needs. A reminder catalyzed by the grocer issue last year was how critical it is for us as a company to engage even more deeply with our partners to ensure mutual success and the degree to which our relationships deliver value to our entire ecosystem. As we articulated in our third quarter earnings call, we are taking a hybrid approach to our pharmacy and retailer constituents, where we have complemented our PBM Networks contracts with formalized retail relationships to ensure ecosystem stability. As a result of prioritizing increasing engagement, we now have direct contracts with many of our top pharmacy partners. Our pharma manufacturer solutions offering continues to benefit from the shift to digital ad spending, and we expect that to remain the case for the foreseeable future. At the end of the fourth quarter, over 7 million consumers use GoodRx across our prescription and subscription offerings. Our net promoter score is 90 among both healthcare providers and consumers, and speaks to the value we continue to provide and the preference for our platform over other options in the marketplace. We continue to deepen our relationships with consumers through our engagement efforts. These engagement efforts resulted in a doubling of the proportion of prescription transactions by fully registered members between the start of the third quarter and the end of the fourth quarter. I want to briefly touch on our strategy in a particular four key areas of investment we believe will position us for long-term profitable growth. Number one, create a more direct consumer relationship to increase touch points and access. Number two, build on our strong foundation to increase savings across the entire prescription basket, including by leveraging our deep HCP relationships. Number three, grow our leading position as the B2B partner of choice across retailers, PBMs, and pharma manufacturers, driving foot traffic for retailers, volume for PBMs, and awareness, access, and adherence for pharma, all of which we anticipate will increase our relevance even further. And number four, leverage data and marketing to reach more consumers and providers, and drive higher revenue from our users, be they visitors, MACs, subscribers, or healthcare providers. This brings me to another point. While we separately disclose MACs and subscription counts, we view our users as arrayed along a spectrum of opportunity for us. Subscribers have the deepest relationships with us, engaged consumers have growing relationships, and MACs who have not yet fully registered, as well as visitors, create opportunities for strong future relationships. Regardless of the consumer type, we are expanding our relevance to them. I am looking forward to continuing to deliver on our mission and make further progress on our strategic priorities in 2023. I will now turn the call over to Trevor to provide more details on the quarter and on our strategic priorities.
spk15: Thank you, Doug, and good afternoon, everyone. Before getting into our fourth quarter results, I'm going to update you further on actions we've taken to strengthen our retail, PDM, and pharma manufacturer relationships. As Doug said, the last quarters were disappointing relative to our original aspirations, primarily due to the anticipated headwind presented from the grocer issue. However, from crisis comes opportunity, and we applied our learning from the first half of last year to make our business, and specifically our prescription transactions offering, even more durable going forward. The steps we have taken span our entire ecosystem of retailer and PBMs, and all our staff, structures, systems, and shared values. No stone was left unturned. Our hybrid strategy Doug mentioned has now been implemented across our key retailers, greatly enhancing the stability and strength of our retail and PBM relationships. Moreover, we are happy to announce the recent addition of Sam's Club to our core prescription transaction network, showcasing our retail strength. Consumers can now present a GoodRx discount at over 560 Sam's Club locations across the U.S. and access our low prices on medications, regardless of whether or not they're a Sam's Club member. With our retail network continuing to strengthen and expand, our hybrid strategy has helped to offset the churn we have seen at the grocer. I am proud of the resilience our employees and partners demonstrated throughout the year. Additionally, our engagement efforts are bearing fruit. We have doubled the proportion of prescription transactions by fully registered members between the start of the third quarter and the end of the fourth quarter, and progress is continuing. We expect higher registrations will drive more frequent and customized engagement with consumers, which we believe will increase the LTV of these relationships. Beyond the engagement efforts, we are continuing to deepen our relationships with consumers by offering timely, relevant, and actionable services and content. These include our medicine cabinet functionality that we believe helps drive adherence for consumers, prescription transaction revenue for us, volume for PBMs, and foot traffic for retailers. We believe that we continue to offer the most competitive prices on medications in the industry, beating our key competitors on the top 30 prescribed medications in America 87% of the time at top pharmacies by our analysis. We believe our competitive position has never been stronger. And when we take new entrants into our space seriously, the stickiness of our relationships with over 80% of our transactions being repeat is a direct function of our value proposition. Our take rate has remained stable since the grocer issue, which demonstrates the value that PVM has derived from us by leveraging millions of consumers across the GoodRx network. Volume across pharmacies increased approximately 5% quarter over quarter and approximately 12.5% year-over-year, excluding the impacts on the growth ratio. We believe that growth is much faster than the broader prescriptions market, which we estimate excluding COVID vaccine was up approximately 3% in the fourth quarter year-over-year. In addition, the impact to our prescription transaction volume from registration efforts to support engagement in Q4 22 represented a smaller headwind than we expected. Within our subscriptions platform, we successfully launched initiatives to help ensure Gold members consistently receive even better pricing relative to our core prescription transactions offerings than in the past. On the marketing side, we launched product and CRM initiatives to drive growth and reduce churn, including incorporating gold pricing onto core price pages. As one of our strategic initiatives, product innovation and delivering on product initiatives that result in near-term growth will remain a key focus and is critical for sustaining our competitive advantage. We believe we will see gold user growth in the quarters to come, as we lap last year's subscription fee increases. Across prescription transactions and prescriptions offerings, our platform serves millions, over 7 million at the end of the quarter. This represents an increase of over 1 million consumers since we became a public company. Pharma manufacturer solutions revenue declined in the quarter against a difficult year-over-year comparison and pockets of advertising spend moderation across manufacturers. We increased our engagement with pharma customers and rolled out a number of solutions to help manufacturers reach more patients and providers. We enabled several exciting medication access products for high-profile pharma customers. For example, our Dexcom G6 and G7 work, including rebates, saving $200 for . We believe we are becoming even more critical to the largest global manufacturers. Through our investments in new solutions, we are solving critical pain points for manufacturers and catalyzing further growth in the $30 billion Pharma Manufacturer Solutions TAM. Despite some slowing in manufacturer decision-making starting in the fourth quarter, we anticipate strong secular tailwinds and growth over the long term as pharma sales and marketing spend increasingly shifts to digital in the quarters and years ahead. We believe our runway is very long. I'm particularly excited about GoDirect's provider mode. In the fourth quarter, we saw strong provider growth with almost 400,000 providers engaging with us through our provider mode technology. And in turn, we are building capabilities connect those increasingly engaged providers to brand partners in new and beneficial ways. I could not be more enthusiastic about what our team has achieved. There are significant synergies between provider mode and our pharma manufacturer solutions platform. And we look forward to sharing more on these initiatives and our growing momentum into 2023. Turning to our fourth quarter highlights. Total revenue of $184.1 million was down 14% year over year but above the top end of our fourth quarter guidance for revenue of $175 to $180 million. Adjusted EBITDA of approximately $50 million represented a margin of approximately 27% and was also ahead of our adjusted EBITDA guidance. Efficiency gains were driven by actions to improve marketing efficiencies and productivity. Sales and marketing came in at 46% of revenue in the quarter, consistent with our third quarter, and our cash flow provided by operating activities was $31.9 million, to $33.7 million in the third quarter. During 2022, we adjusted to the new macro reality with the goal of advancing our mission and maximizing shareholder value. We prioritized investments that we expect will drive adjusted EBITDA growth in the near term, as well as profitability and cash conversion. We remain focused on initiatives and innovation that we believe will pay back sooner with higher certainty. Along with our focus on increasing our marketing efficiency, We are very early in realizing the benefits of acquisitions made over the last few years, which includes RxNext's exciting technology that underlies our Express Scripts integrated savings collaboration and our Scriptcycle acquisition, which contributes to our success in our hybrid PBM and retailer contracting strategy, as well as VitaCare's critical branded drug access and adherence capabilities that support our pharma manufacturer solutions offering. We have taken specific actions to drive focus and efficiency including divesting our GoodRxCare backend technology to wheel while maintaining the consumer-facing GoodRxCare website and mobile app. This is an example of our ability to positively impact our expense structure and asset light model while simultaneously focusing on our end user experience. Our focused strategic and tactical prioritization has positioned us to build on the adjusted EBITDA margin improvement we've achieved relative to the second quarter of 2022 in the future. We are confident we have strengthened our business model. The stabilization and expansion of our retail network and the increasing value we add to our PBM and pharma manufacturers and customers have laid the foundation for returning to year-over-year revenue growth as we move closer to lapping the grocer headwinds in the fourth quarter of 2023. We remain committed to executing on our mission to make healthcare more affordable and accessible to Americans and to returning to our historical levels of adjusted EBITDA margin and revenue growth driving value for our shareholders. With that, I'll turn it over to Karsten to discuss our financial results and guidance.
spk17: Thank you, Trevor. Total revenue for the quarter decreased 14% year-over-year to $184.1 million, which exceeded our quarterly guidance of $175 to $180 million. Prescription transactions revenue growth was down 19% year-over-year to $129.4 million, but was also ahead of our expectations by approximately $4 million. The estimated grocer issue impact to our revenue in the quarter was approximately $40 to $50 million when compared to the fourth quarter of 2021, while the volume friction from engagement efforts was again less than we expected. MACs declined 8% year-over-year to $5.9 million, while PTR per MAC decreased approximately 11% year-over-year and 3% quarter-over-quarter. The shift in volume to other retailers from the grocer contributed to the YOY PTR per MAC decrease, the average volume of scripts per MAC at the grocer was higher than the average volume of scripts per MAC across all pharmacies prior to the grocer issue arising, likely due to the historical low consumer pricing at the grocer. Flu activity and the increase in growth across the prescriptions market had a slight positive volume impact. However, we did see some offsetting impact from adverse weather in the latter part of December. In line with our expectations, pharma manufacturing solutions revenue declined 23% year-over-year in the fourth quarter to $24.9 million, driven partly by our increased focus on prioritizing recurring service arrangements relative to the prior year, from timing, and from a moderation in spending across pharma companies, resulting in part from some deal approval periods being extended by our customers. Revenue is up 2% quarter over quarter, and full-year revenue growth was up 36% despite the challenging fourth quarter comp last year. We remain very optimistic about this business long-term and our ability to drive growth in this extremely large and fast-growing $30 billion market. Turning to subscriptions. Subscriptions revenue again was very strong, growing 42% year-over-year to $24.6 million, approximately $2 million ahead of our latest expectations, as the gold membership fee increase implemented in the first half of 2022 more than offset the churn-related decline in paid memberships. We ended the quarter with over 1 million plans, down 15% year-over-year, and approximately 1.5 million total members, with both plans and members lower as a result of the continued churn throughout the fourth quarter from the pricing increase. Progress savings declined sequentially as expected, given its reduced priority. Other revenue increased 8% year-over-year to $5.2 million, slightly ahead of our expectations. Cost of revenue is $17.4 million, or 9% of revenue, versus $13.9 million, or 7% of revenue in Q4-21. An increase in personnel related to consumer support and the VitaCare acquisition primarily drove the year-over-year increase. Product development and technology expenses were $36.8 million, or 20% of revenue, compared to $35.1 million, or 16% of revenue in the fourth quarter of 2021, driven by increases in third-party costs associated with cloud computing and hosting arrangements, and in stock-based compensation expense, partially offset by lower allocated overhead as a result of lower headcount as well as higher capitalization of qualified costs related to software development. Adjusted product development technology expense was relatively flat at $26.3 million compared to $25.5 million in the fourth quarter of 2021. Sales and marketing expenses were $84.1 million, or 46% of revenue, versus $106.5 million, or 50% of revenue in the fourth quarter of 2021, and declined approximately 2% quarter over quarter. As Trevor and Doug discussed, we are proactive in managing marketing expenses in response to the current environment, our efficiency goals, and our adjusted EBITDA and cash conversion focus. We will continue to look for ways to further leverage our marketing spend while still building the GoodRx brand. Excluding stock-based compensation expense and other items, adjusted sales and marketing expense was down 22% year over year and was 43% of revenue compared to 47% of revenue in the year-ago quarter. Despite lower marketing spend, we've modestly increased our MAC count quarter over quarter. General and administrative expenses were $28.6 million, or 16% of revenue, versus $35.4 million, or 17% of revenue in the fourth quarter of 2021. The decrease is primarily driven by stock-based compensation, principally related to non-recurring co-CEOs' awards made in connection with the IPO. Excluding stock-based compensation expense and other items, adjusted G&A expense as a percentage of revenue is 7% compared to 5% in the fourth quarter of 2021. The decline in sales resulting from the grocer issue is the primary contributor to the increase in adjusted general and administrative expense as a percentage of revenue. Net loss was $2 million compared to a net loss of $39.9 million in the fourth quarter of 2021 and was impacted by the grocery issue and our investment in VitaCare, partially offset by our ability to proactively manage marketing spend. Adjusted net income was $27.4 million compared to $40.5 million in the fourth quarter of 2021. Adjusted EBITDA decreased 20% year-over-year to approximately $50 million, which was ahead of expectations. The decline in our PTR related to the grocer issue with the biggest driver was an estimated impact of approximately $40 to $50 million for the fourth quarter and approximately $110 to $120 million for the year, which we believe has an almost straight flow-through to adjusted EBITDA. We expect VitaCare will continue to be a drag in adjusted EBITDA margins as we work to scale and integrate the business. Adjusted EBITDA margin of approximately 27% was down 230 basis points year over year due to the flow-through impact of the revenue from the grocer falling. We are pleased with our resiliency and our profitability since the issue, and we are committed to driving efficiencies and targeted growth investments. We generated net cash provided from operating activities of $31.9 million compared to $49.8 million in the fourth quarter of 2021. Cash conversion will remain a key focus along with growing our adjusted EBITDA going forward as we progress through 2023. Our capital allocation priorities are unchanged. These priorities play a critical role in our organizational realignment and how we are thinking about growing adjusted EBITDA and cash flow going forward. We expect to continue to focus on high-return projects and investments and deploy capital in ways that create the most value for our shareholders most quickly. Currently, our priorities are investing for organic growth, maintaining a strong balance sheet, buying back shares, and possibly strategic M&A that aligns with our longer-term priorities. Our balance sheet remains strong, and we ended the quarter with $757.2 million in cash on the balance sheet and $667.1 million of outstanding debt. I'd now like to spend a moment talking about our guidance. For the first quarter, we expect prescription transactions revenue of approximately $134 to $135 million, which assumes impact from the grocer issue of approximately $35 to $45 million. An ongoing engagement effort had been consistent with fourth quarter of 22. Recall, as we have discussed previously, we expect to continue seeing a year-over-year impact from the grocer issue of until 4Q 2023 when we'll lap the volume impact. Our expectation for PTR per MAC is to show a modest decrease quarter over quarter until that time. We expect subscription revenue of approximately $23 to $24 million, slightly down quarter over quarter from the decreasing levels of price increase churn as we are nearing the anniversary of our fee increases implemented last year. We may see additional churn although we'd expect it to be increasingly modest in future quarters. We expect pharma manufacturer solutions revenue to decrease modestly in the first quarter, following the same fourth quarter to first quarter pattern as a year ago, and also due to the continuing effects of longer deal approval cycles discussed on our last earnings call and the resulting delays in our ability to deliver and recognize revenue. As a reminder, this offering comprises relatively large often multi-million dollar deals that can create quarterly volatility depending on agreement and delivery timing. For our pharma manufacturer solutions, we expect Q1 revenue of approximately $20 million, down 15% year-over-year and 20% quarter-over-quarter. However, we have a number of engagements we are working on with some of the largest manufacturers, which we anticipate will drive sequential growth in future quarters. The favorable macro tailwinds driving more digital outreach to HCPs and their staff, and a focus by pharma manufacturers on continuing to move more spend to digital, generally make me highly optimistic about our ability to grow this offering sequentially in coming quarters and over the coming years. Finally, we expect other revenue to be approximately $4 million in the first quarter, which is slightly below the fourth quarter. In aggregate, the total outlook for revenue is $181 to $183 million in the first quarter. We anticipate making additional targeted investments that quickly scale some of our new retail expansions, as well as our efforts to drive user engagement. We're also integrating and working to better leverage VitaCare, which will be a key growth driver in our pharma business in the coming years. As we said on our last earnings call, the new plan year period can be an opportune time to invest in marketing, So while we didn't invest substantially in the fourth quarter, we're maintaining the flexibility to do so. For that reason, expect our adjusted EBITDA margin to fall in the mid-20% range for the first quarter. For the full year, we expect total revenue across our entire business of approximately $780 to $790 million at adjusted EBITDA margins in the mid-20% range. As I mentioned with respect to the first quarter, maintaining the flexibility to make strategic and tactical investments throughout the year remains a priority. On the capital deployment side, I'd also like to call out for everyone that the equity relating to our co-CEO grants made around the time of our IPO will be delivered to our co-CEOs in the fourth quarter. We expect to withhold part of the equity to cover the recipient's taxes and to use cash to pay the taxing authorities. The exact amount depends on the stock price, but I anticipate a figure in the range of $40 to $75 million of cash will be required to fund the tax obligation. Finally, also on the cash and capital deployment side, I'd like to note that approximately $148 million of our original $250 million share repurchase authorization remains. Our strategy is clear to deploy capital only to where we see potential for high returns and profitable growth, and where investments are strategic and support proven offerings. We look forward to leveraging our brand and technology to continue strengthening our platform for the long term and returning to our historical profitability growth profile. With that, I'll turn over to Trevor for closing remarks.
spk15: Thanks, Karsten. As we look forward to the rest of the year, our leadership team is laser-focused on executing on our realigned priorities. We are working hard to drive efficient, durable growth, deliver on our mission, and create value for shareholders. We believe we have a stronger, more stable, and more resilient business today than ever before. We see attractive avenues to pursue profitable growth in our core markets where we maintain strong market share and are well positioned to capitalize on those opportunities. We have stabilized our retail network and are now expanding the network while reaching more consumers, and our value proposition to our partners has never been greater. We look forward to updating you on our progress in the quarters to come. As always, I want to thank our employees and team members at GoodRx for their hard work and focus, in moving our mission forward, and we look forward to the opportunities ahead. Thank you again for joining us today. I'll now turn it over to the operator for Q&A.
spk41: Thank you. As a reminder, to ask a question, you will need to press star 1-1 on your telephone. To withdraw your question, press star 1-1 again. Due to time restraints, we ask that you please limit yourself to one question. Please stand by while we compile the Q&A roster. And today's first question will come from the line of Mark Mahaney with Evercore ISI. Your line is open.
spk29: Thanks. Two questions, please. First, on the grosser impact, you quantified it for Q1 and also qualitatively talked about it impacting throughout the year. Can you help us think through what that impact should be like through the balance of the year? Will there be kind of a sequential step down as it looks like there will be from Q1? you know, Q4 of last year to Q1 of this year. And then secondly, you just talk about stock-based comp and what that's going to look like this year. That also stepped down from whatever 160 million in 21 to 120 million in 22. Should we, as you move through the founders grants, does it step down at a similar pace at an accelerated pace? How do you think about managing that expense item? Thank you.
spk17: Sure. Thanks for the question, Mark. This is Carson Borman speaking. Mark, um, I'll take those in reverse order. First of all, on the stock comp piece, we expect stock comp of approximately $27 million in the first quarter and approximately $110 million for 2023 in aggregate at this point. Of those amounts, approximately $7 million and $21 million relates to our closed COO grant made around the time of our IPO. And to your second question on The grocer issue and its impact, as we get further and further from the grocer issue, it becomes a little more challenging to estimate the impact with absolute precision, of course. So, we triangulate using a couple analytical approaches to try and estimate how big it is. I think the reality is, first of all, we'll fully lap the grocer issue in the third quarter, but because we also increased our engagement in the middle of the third quarter, it's really only the fourth quarter of 2023 that will be the absolutely cleanest comp to show the impact of growth absent both unusual grocer and unusual engagement effort changes. That said, as we said right where the gross ratio happened, we see it as a step down versus a change in growth rate. So a step down, meaning in total volume of users, and that's why I've seen the amounts of the impact of the gross ratio be relatively consistent over time versus seeing them having dropped over time as you might otherwise have expected. So hopefully that's helpful. If not, I'm happy to dig in deeper.
spk28: No, that's great. Thank you, Karsten.
spk41: Thank you. One moment for our next question. And that will come from the line of Sandy Draper with Guggenheim. Your line is open.
spk09: Hi, thank you. This is actually Mitchell on for Sandy. We wanted to ask about the Cigna partnership and just any more details exactly about how it came about. and how it works, and we wanted to see how the economics are and if they're similar to a regular transaction. So any kind of more color on the signal would be really helpful. Thanks.
spk31: Hey there, this is Doug. Thank you for the question. First of all, we're very excited about this partnership, of course. We've invested a tremendous amount of time and effort to be the preferred technology partner across the healthcare ecosystem. You know, we think that our multi-PBM marketplace plus our brand plus great pricing really makes us the player of choice for a program such as this. Obviously, Express is one of the largest PBMs, and they chose us to be their exclusive partner for this program, which is called Price Assured Powered by GoodRx. So we launched the pilot in Q4, and it uses the technology from RxNEXT that we acquired back in 2022. And it's really beautiful in how simply it works. Basically, an ExpressCurse member who's eligible just presents their existing ExpressCurse card at the pharmacy, and they get the better price of their commercial price and or the discount price provided by GoodRx. This enables out-of-pocket claims to count toward a member's deductible and also gives full visibility of the claim to the payer. So we launched it in Q4. Again, it's gone really well. This is early. I want to be clear. But we're really, really excited at the momentum. We're extremely pleased with the progress, and it's performing better than we anticipated. Now, as we're talking today even, Express Scripts is educating and rolling plan sponsors to bring more people onto the program. And again, we're just really, really pleased with it. We think that it's going to expand market opportunity, expand our reach, and address the market.
spk19: Thank you.
spk41: One moment for our next question. And that will come from the line of Charles Rye with Cowan. Your line is open.
spk13: Hi, this is Lucas on for Charles. When I look at your guidance, it seems to imply that we're going to see sequential revenue growth throughout the year. Can you walk us through what is contributing to that sequential ramp, what revenue streams you're expecting to drive that, and then how should we think about the cadence of revenue throughout the year?
spk17: Sure. Thanks for the question, Lucas. This is Carson speaking again. A couple things. I think, first of all, As we've talked about historically, we see our highest growth business being our pharma manufacturer solutions business. That business grew approximately 36% YY for the full year last year, and we expect it to continue to be delivering significant growth results at a faster rate than our other lines of business. That said, I'd also reference as contributors to our overall growth rate, the fact that we've seen the growth of our non-grocer retailers increase from the third quarter to the fourth quarter. You might recollect that we talked about on the third quarter earnings call non-grocer retailers seeing about 8% YY growth relative to the about 12.5%, 13% rounded growth in the fourth quarter of non-grocer retailers. So that business as well is performing up. Finally, things like Doug addressed on the prior question associated with The ESI Cigna Initiative are also contributors to growth as well. So I think those are in priority, the ordering of where I think you'd see the growth coming from. Again, the largest nominal amount of dollar growth coming from our farm manufacturer solutions business.
spk19: Thank you. One moment for our next question.
spk41: And that will come from the line of Michael Turney with Bank of America. Your line is open.
spk48: Good afternoon, and thanks for taking the question. If I can dive in a little bit more, when you think about, as we move past the annualization of the grocer side, how do you think about the implied revenue per MAC that you're seeing in the model? And especially given what appears to be, as you said, a strong kickoff with Express Scripts, How much of that revenue per MAC and what we should think going forward as well as some of the dynamics you have around the direct contracting gets adjusted as some of the contracts that you're bringing to market with Express with the direct pharmacies evolve and become a bigger piece of the total revenue pie?
spk17: Sure. Thanks for the question. I think there are a couple pieces in that sort of revenue per MAC generally as well as revenue per MAC and the impact on it of some of the things that we're doing including, for example, the ESI Cigna initiative that Doug talked about. I think taking those in reverse order, first of all, the ESI Cigna initiative, that business looks much like our traditional business does from our side and from a revenue perspective, meaning it flows through our existing business model and marketplace associated with all the PBMs we have in our backplane. the revenue per MAC and our ability to generate revenue off that looks identical in all material ways to our normal business. I think what it really does for us is it creates an incredibly variabilized and efficient way to have incremental distribution, particularly into, as Doug referenced in the prepared remarks, the 70% of consumers who aren't actually aware that prescription prices might vary widely and that they could save money on them. So massively SAM expanding as a portion of the TAM since those slips just automatically benefit from GoToRx and we automatically pick up revenue. So from a PTR per MAC perspective, we get more MACs that way. Those MACs in terms of the amount of PTR they generate, it's a little early, as Doug said, to speculate on exactly how that will look relative to other MACs, but early signs are clearly promising. With respect to PTR per MAC more generally, as everyone's probably calculated on this call, we've seen that flux a little bit, particularly associated with the impact of the grocer issue last year. There is slight over-indexing of the amount of volume per MAC at the grocer versus other places, in part because the grocer's pricing was lower. So because of that, you saw some volatility during the year 2022 in particular. We could see some continued mild declines as a percentage or in dollar terms on PTR per MAC, but we're not seeing any or anticipating any non-linearities there at all.
spk41: Thank you. One moment for our next question. We'll come from the line of Craig Hettenbach with Morgan Stanley. Your line is open.
spk37: Yes, thank you. I had a question just on the top of the funnel conversion, just as you look to get deeper with consumers. Any update there? And then a longer-term question on just getting back to 30% plus type EBITDA margins and how you're thinking about whether it's the revenue growth you'll need to get back to or any other operational efficiencies that might help you get there over time.
spk15: Thank you for the question. One of the areas that we have optimized is sales and marketing. We've been very focused this year, as we talked about, on prioritizing sufficient growth and margin expansion, and we've made significant progress there. Sales and marketing is one of those areas. We have found a lot of ways to optimize that. The other area I think we'd like to talk about briefly is engagement. You know, that's another piece of that. And so I'll have Doug speak to that, and then I'll ask Carson to answer the last part of your question.
spk31: Thank you, Trevor. Yeah, engagement is obviously a significant priority for us. If you go back in the history of GoodRx, originally, you know, when we were a small brand and people didn't know us, we tried to get people on the site, you know, simple experience, search for a drug, get a coupon, find savings, so we could establish that trust and value with consumers. If you look forward, it's been, you know, 12-plus years we've been doing this. We have that trust. We have that 90 MPS. And we have the opportunity to engage users and drive a higher LTV for us. I'm proud to say, as I think Carson mentioned previously, that we doubled the proportion of transactions attached to fully engaged users in the second half of 22. And when we have those fully engaged users, we can do incredibly cool things. For example, a medicine cabinet. So if you haven't downloaded our app recently, I strongly recommend you check it out. You can actually see a visual representation of your actual medicine cabinet on the app. And then we can do exciting things to drive engagement and adherence, like push notifications for refill reminders or pricing changes. We believe that these will drive better adherence, better patient outcomes, and obviously lift LTV too. So we're really, really excited about some of the engagement issues. I'll throw it to Carson for some of the financial perspective.
spk17: Thanks, Doug. And yeah, ending off on the financials, as we mentioned in our prepared remarks, we expect both Q1 2023 and FY 2023 adjusted EBITDA to be in the mid-20% range. On our last earnings call, we mentioned that we contemplated making marketing investments in either the fourth quarter or this quarter and first quarter since the timing works for when consumers make decisions around health plans, new plan years start, et cetera. It's a great time to reach them. We didn't make those investments extensively in the last quarter, but we're still exploring making them as new consumers have fresh deductibles in the start of the year, so around now. Looking forward, we continue to be really focused on driving adjusted EBITDA and cash conversion, while also delivering efficient growth. So we're going to continue to take actions that drive shareholder value in those ways. You've seen us reduce marketing as a percent of revenue. That's been an opportunity to drive EBITDA, manage headcount through our risk, and also through the continued limiting and careful hiring that we're doing. And you've seen us sell off direct care assets, that didn't impact our consumer experience, but reduce the amount of OPEX that it takes for us to maintain them and let us be even more asset light. Those are all actions that we've taken in support of increasing dollar EBITDA Q over Q as the business grows. From a margin perspective, we still think we have room to go, and we believe that we can expand our margins over time through the continued growth. The grocer issues volume and revenue impact means it'll take us a bit longer to do that. But given that our business now has a more fixed cost base than it ever has historically through the risk, through the care sale and other initiatives we've taken, it means that the incremental dollars of growth we're able to achieve will likely contribute to incremental margin, both in dollars and in percents going forward in the out years to come.
spk21: Got it. Thank you.
spk41: Thank you. One moment for our next question. And that will come from the line of Eric Sheridan with Goldman Sachs. Your line is open.
spk46: Thanks so much for taking the question. I want to come back to the comment you made earlier on in the call around how you might be a beneficiary as we go into a more volatile, maybe downward macro environment and people look to save money can you just help us better understand how you possibly try to capitalize on that type of environment you know do you run greater marketing campaigns around that you try to be in front of your consumers uh to make them more aware of the savings that are available in apps sort of how how should we think about you sort of being exposed to that theme and then you know to some degree benefiting from it if there is a shift downward in terms of savings behavior coupled with consumption in the vertical and then the second one would be if we think about industry marketing solutions and how you continue to build that business for the long term. Can you give us a little bit of color of how industry conversations continue to evolve with partners looking to deploy advertising and marketing dollars to drive awareness of their products on the platform away from just the quarter-to-quarter dynamic, but maybe thinking more broadly about budget dynamics on a multi-year view in 2023 and beyond? Thanks so much.
spk15: Thank you. Appreciate the question. The The macro environment, I think, relative to consumers, looks like it'll be a bit harder for consumers with inflation and other challenges. This is definitely an environment, though, that we believe is where we can shine, where good Rx can help people. Fortunately, medication is one of the very last things people are going to substitute away from. You know, we can help consumers save on prescriptions so they can afford their rent, so they can afford their other costs, you know, because these are critical things they need to purchase for their health and their family's health. So we do think it is helpful to the business, albeit, you know, we want to be there to help people. The other part of that is the moving on from this period of COVID. You know, COVID was a certainly challenging for our business, where it's decreased new prescriptions and others, where we're definitely back to a much more normal environment. But the other aspect of that, though, is certain programs that were expanded in COVID that are now being curtailed. For example, Medicaid is being rolled back in certain states, and so we would expect people to come off Medicaid rolls, and that is also a tail end for our business as we can help those people as they move out of Medicaid and are needing to access services. How do we do that is, you know, we're very fortunate we have this amazing brand. We have access to consumers. We have access to healthcare providers. Our largest source of people knowing about us remains word of mouth that remains healthcare providers telling consumers about it. We've tried to innovate to reach those consumers more with things like provider mode, which now has 400,000 activated providers. We are trying to get those providers and make it even easier to activate them in their workflow. We continue to do marketing, albeit continue to do it as efficiently and effectively as we can. But those are the ways. We'll continue running marketing and continuing running our innovative product efforts, but we're largely benefited by the brand and trust that we built. Relative to the second part of your question, which was just how the industry is evolving and budget dynamics, I think I would speak generally that the industry is always changing. We believe our network, our relationships with retail, with PBM, with pharma manufacturers, is the strongest it's been in our history. When we look at various entities in those channels, you know, you mentioned spending, spending budget for awareness. So, you know, and one entity that would do that, for example, would be the pharma manufacturers. We believe that, you know, there are, on a long-term basis, the environment there is very good. We think that, you know, we will see strong growth this year in manufacturer solutions and Glad to discuss some of this more. Hope that's helpful.
spk25: Thank you.
spk41: Thank you. One moment for our next question. We'll come from the line of Stephanie Davis with SVB Larrink. Your line is open.
spk39: Hey, guys. Thanks for taking my question.
spk40: Kind of on that same sort of manufacturer solutions question that we guys just have, How should we think about some of the blockbuster consumer drug releases like will go via Nozempic? And how would something like that factor into growth on the platform? Is that relatively small versus the larger base that won't really be impactful for the year? Or is that something that could be a large swing factor?
spk15: Yeah. Thank you very much, Stephanie. The pharma manufacturer business continues to grow at a fast clip. We grew about 30% year over year despite the tough 4Q comp last year. And that rapid growth is because of the strength of the brand that I've been speaking about with consumers and with healthcare professionals and our deep relationship with healthcare professionals. And manufacturers want to leverage that for access and awareness. And so we're proud we have these relationships. We talked about last earnings call, 19 of the top 20 manufacturers, and we're continuing to grow into those accounts, adding more brands, adding more other additional manufacturers outside of those top 20. So there's a lot of progress there, a lot of good launches. Those drugs you mentioned, those are great opportunities. They are places where we can really help on access and driving that awareness and effectively using the spend. But what I would highlight is while the net total portion of our business will grow for the year significantly, and we think this will be the fastest growing area of our business. We don't have significant concentration here. So we work with a lot of manufacturers on a lot of programs. So one program, two programs, like you mentioned, would not alone meaningfully change it. But we do see lots of opportunity here across a lot of products.
spk40: Super helpful. Thanks. And one for Carson on this one. Because looking at margins year over year, I was surprised to see them compressing a little bit in the guidance. So with that in mind, how can we think about some of the moving pieces and like the recent pricing changes and Kroger and even like some of the competitive dynamics? And how should we think about the arc of margins throughout the year?
spk17: Sure. Thanks for the question, Stephanie. Carson here. I think number one is as we think about margins over time, The key focus is managing cost structure against growth on the revenue side. So I think we're preserving for the first quarter in particular the flexibility to make investments. We talked previously about 4Q and 1Q being good times to invest given their new plan years, new deductible periods for patients, et cetera. And throughout the year, too, now that we have – created a more refined view of marketing, reduced sales and marketing as a percent of revenue and so on, our ability to invest in a way that drives growth even more clearly than before is higher. And so as we contemplate sort of growth and margin trade-offs, we see the need to maintain some flexibility to continue to be able to drive that growth with incremental investments as we go further into future quarters. I think that said, the area where we will be able to showcase more margin expansion is when we actually show more growth, again, relative to the cost structure not moving on the same slope as the revenue does, meaning revenue growing faster. So when we lap the engagement efforts that we started in the middle of Q3 and the growth ratio, which we both fully lapped in the fourth quarter, of this year, that's when we'll be able to showcase growth numbers that everyone on the street will be able to see for themselves. I think with that trajectory in mind, it'll show a clear path to folks too around how in the years to come we can see margin expanding further as well as we keep concentrating on the appropriate expense side controls and on managing those expenses very carefully going forward. That's probably the best way to articulate it. For the year, I think we see margins both for 1Q and full year in the mid-20% range as we're continuing to make those investments to drive that growth as well.
spk41: Awesome. Thank you.
spk22: Thanks, Stephanie.
spk41: Thank you. One moment for our next question. And that will come from the line of Jalindra Singh with Truist. Your line is now open.
spk03: Thank you and thanks for taking my questions. So I want to stay on the topic of pharma manufacturing solutions business and go back to the ramp you expect beyond Q1 this year. It seems like this is a business where you think that the growth will ramp and is the primary driver for the revenue ramp you expect this year. What trends have you seen there which gives you the confidence and visibility in that business for the rest of the year ramp? And it could be great if you could share any color around What are you seeing with respect to digital marketing spending among your pharma clients? And kind of related to this, like there was a comment in the release around prioritizing recurring service arrangement with customers. Maybe flush a little bit there, like what exactly you mean in terms of that sort of arrangements.
spk17: Sure. Jalendra, great to hear from you. This is Karsten speaking as well. So I'll see if I can hit all the parts. I think the three parts generally were – Number one, how we see the general trends evolving. Number two, the Mansell being a contributor, as we commented on, in terms of dollar growth, potentially one of the largest ones to our YY growth this year. And was there a third piece in there as well, Jalendra, that I didn't catch?
spk03: Just in general, like the comments around prioritizing recurring service arrangements, like what you're offering there.
spk17: Sure. Let me take those in reverse order and hit that one first. I think that's probably in some ways the most important one, the recurring revenue arrangements, because when we look at our performance in fourth quarter of 22 relative to fourth quarter of 21, the big piece of it was the reality that farm manufacturers had significant amounts of budget, and others too, at the end of CY21, where they looked to deploy those funds and look to us since we could deploy them quite quickly given we have material proportion of direct contracts with manufacturers versus working through agencies. So we can react quite quickly. I think that revenue is great to receive and we're grateful for it. However, revenue that is more recurring and is associated with particular, this goes back a little to Stephanie's question too, I think it was around Blockbuster drugs, around larger drugs and larger manufacturers will continue to create that recurring stream. That's very attractive to us. And so deploying the sales force and deploying our energy against that more recurring revenue in the long run creates more shareholder value because the revenue stacks on top of each other year after year versus being more episodic in nature. So I think that's what we're referring to in the context of a greater focus on recurring revenue. I think looking more broadly at the pharma manufacturer solutions business, We still see this as a huge and very attractive TAM at $30 billion or so, and we've penetrated very, very little of it so far. The other reality is the shift to digital is continuing to happen. In fact, I think we see some data suggesting that it's accelerating, if anything. So from that perspective, we see great opportunity in that continued shift to digital too. I think finally, the other aspect of it that's important for us is that we are now focused not just on the consumer side of the business. Early last year, we launched provider-only focused farm manufacturer solutions. And since then, we've seen that only increase, especially as our HCP mode product and others have helped us to capture and draw the attention of more and more providers. That creates effectively a new growth vector, a growth avenue for us on top of the existing growth factors of more manufacturers, more medications per manufacturer, and more solutions that we offer in relation to each medication. So we see those attributes as contributing to accelerating pharma manufacturer solutions growth through the year. Did I hit all the questions there, Jalendra, or are there still gaps?
spk02: No, that's perfect. Thanks a lot.
spk16: Great. Thanks, Jalendra. Great to speak with you.
spk41: Thank you. As a reminder, due to time restraints, we ask that you please limit yourself to one question. One moment for our next question. That will come from the line of Jonathan Young with Credit Suisse. Your line is open.
spk38: Okay. Thanks for taking the question here. Just kind of building on that comment you just made, you guys said that you're over 900,000 subscribers now. Can you talk about the benefits that are being being derived from that? Has that come up in pharma manufacturer solutions in the conversations you're having with manufacturers? And then alongside that, has that led to any increased prescription transaction revenue that may be derived from that?
spk18: Thanks.
spk22: Thank you, Jonathan, for the question.
spk15: Throughout the company, providers have been extremely important to us. They've been an incredible channel for us. They've been a great referral source for patients broadly. And this is because we really provide a lot of value for them and for their patients. This is evidenced by the over 90 MPS score that we have with them. The stat we've been talking about today is that with provider mode, which we launched in the last year, we have about 400,000 prescribers now activated in provider mode. As you alluded to, that's out of a larger audience of prescribers who use GoodRx. But these are about 400,000 prescribers who are now activated in provider mode. We're really excited about that because we are seeing materially higher LTVs from those activated providers. So these new tools that we've been building and developing for them to make their workflow even easier by incorporating GoodRx and provide other tools, they're working. And just like you are saying, we have the primary revenue that we derive from this is through manufacturer solutions. And so we have been generating revenue from this offering for about a year, and that's because we are selling within our pharma manufacturer solutions business some deals that just target HCVs, deals that target HCPs and consumers, a variety of different things. But it is clear that because of our great access to providers, this is a great way for us to access that portion of the $30 billion TAM that manufacturers do spend on access and awareness. So it's a very important piece. There is green shoots around this second point, which is we are making tools within that provider mode, then make it even easier for doctors to tell their patients about GoodRx, to use GoodRx through transactions. And that is, you know, helps increase PTR revenue by making those recommendations to patients at an increased rate.
spk41: Thank you. One moment for our next question. Come from the line of George Hill with Deutsche Bank, your line is open.
spk36: Hey, good evening guys and I appreciate you taking my question. I guess can you guys talk about how big like as a percentage of revenue and maybe the margin impact of these direct retail contracts? I think we would assume that the margin profile on these is a little bit worse than the composite. Given the you seems like you wouldn't have multiple PBMs playing off each other, but would love any incremental commentary that you could make on the kind of direct retail contracts versus the balance of the business.
spk15: Sir, the you know, What's really important that we want to highlight is that we've made changes to make sure that we have the strongest and largest retail PBM manufacturer network in our history. One of those components is implementing this hybrid approach to contracting across the key retailers to enhance stability and strength of the network. So we have our PBM marketplace with our full set you know, of these PBMs we work with, and then also we selectively contract in order to make sure we are meeting the needs of all the parties in the ecosystem. So we do now have direct contracts with many of our top pharmacy partners. I would highlight, I think, which to what I think answers your question, that take rate has remained stable since the grocer issue. So we've been able to continue to maintain this competitive advantage we have through our multi-PBM network, We've been able to maintain really great pricing and satisfy all of the participants. So we are really pleased that we've been able to make these changes and think it's very helpful to the long-term stability of the business.
spk17: I think the only thing I'd add is that, Carson here quickly, George, the only thing I'd add is that part of the reason for all this is the direct contract volume is not really not material for the business at all. The direct contracts are really helping us in corner cases more than driving a significant majority or even a large minority of volume today.
spk35: That's helpful. Thank you.
spk41: Thank you. One moment for our next question. We'll come from Robert Simmons with DA Davidson. Your line is open.
spk07: Hey, thanks for taking my question. It's great to hear that you doubled the proportion of fully registered members. I was wondering if you could share how penetrated you are now and how high do you think that can get over time?
spk22: Thank you for the question.
spk15: We spoke to the registrations and the priority we have to getting to know our customers better. The real focus here is that we are trying to make sure we get users registered. Those users, as Doug mentioned, we're seeing substantially higher LTV from early indications. We're not disclosing the total registration base, but we did double the portion of transactions attached to those fully engaged users in the second half. you know, is very encouraging, and we think that will continue and that there's lots of opportunities there. And, you know, as Doug alluded to, from where we have those registered users just opens up lots of new opportunities, opportunities to cross-sell, opportunities to give better functionality, opportunities to drive LTV increases.
spk22: So we're very excited about the engagement efforts.
spk41: Thank you. One moment for our next question. And that will come from the line of Steve Vallecat with SparkLays. Your line is open.
spk33: Great. Thanks.
spk32: Good afternoon. So a couple things. First, there's been a little bit of a further evolution on the competitive landscape with this recent news around Amazon RX Pass subscription service, the OptumRX launching price edge. I guess the question really is just whether or not these new competitor offerings were something for which you maybe had to specifically adjust the 23 guidance range for or would the impact from these, if any, really just be absorbed within the guidance range the way you see it now? And then on the positive side, again, you alluded to the potential tailwinds from Medicaid redeterminations earlier on the call. I guess just to clarify, same sort of thing. Are the tailwinds from those Medicaid roll-offs something that you specifically baked into the 23 guidance, or is this just something that would be more of an upside driver relative to the range? Thanks.
spk15: I'm going to let Carson speak briefly to the questions around guidance. And then I'll have Doug answer the question around competition.
spk17: Hi, Steve. I think your question was around what's baked into guidance versus not. So in terms of what's baked into guidance, I think everything's through today effectively. So we've considered the competitive environment, certainly, and how that's been evolving, which Doug will speak to a little bit further. We've also considered everything we know today about Medicaid and what each of the states are doing in terms of rolling folks off Medicaid. So, again, we took all information that we had available to us and incorporated that in.
spk31: Sure. Thank you, Karsten. You know, I think, as we mentioned previously on the call, I just want to really reiterate what we really view as our competition, which is the 70% of Americans who simply don't know that prices vary. There's such an incredible opportunity for us to continue to educate consumers, and guide them to better outcomes. I also want to just set the table here about our three core strengths, which is really the way we frame our competition, which is, again, our multi-PBM marketplace. We're the only ones at scale, which means we drive lower prices, just one data point. We beat competitors 87% of the time at the top retailers of the 30 most prescribed drugs. Secondly, our breadth, where, again, GoodRx works for virtually all medications, obviously generics, which is our sweet spot, and increasingly on brand where we can save you know, thousands of dollars. And lastly, on reach, where GoodRx works at every pharmacy in America, pretty much over 70,000 pharmacies plus mail. And then we have that incredible NPS that we spoke to a few times. So again, you know, that's really the competition and our key strengths against potential competition. With regard to your questions about individual folks, you know, look, we've seen a lot of press releases and we know that Amazon has focused over the course of, you know, many years actually to really get into the space and try to drive change. We have seen no evidence of growth in volume, and we've seen no impact on our business, and I just want to be pretty clear about that. This latest program is for a subset of drugs, but we don't see it as necessarily more compelling than some of the previous offerings they had out there, and so we do not see any direct impact on our business.
spk25: Got it. Okay. Thanks.
spk41: Thank you. One moment for our next question. We'll come from the line of Steve Deschert with KeyBank. Your line is open.
spk26: Hey, guys. Could you provide some color on what you're currently seeing with your gold subscribers activity? Thanks.
spk17: Sure. Thanks for that question. This is Carson speaking to this one again. So, on gold, we continue to see some churn post our price increase from last year. Of course, from an elasticity perspective, revenue is way up. the reality of the revenue increasing as much as it did indicates that, as we expected, we have a largely inelastic offering in our subscriptions offering. In particular, if you remember, we had never done a price increase since the inception of our subscriptions offering, even though the reality is that we had added a significant amount of value over the years, including, just by way of example, discounts in telehealth. among other types of offerings. So from those perspectives, we felt like it was the right time to be able to do the price increase. That said, I think our perspective on it has remained the same way as it has previously, that it was generally a great success to be doing the price increase. We've seen subscriptions revenue increased year-over-year dramatically for the fourth quarter. And while we have seen some continued churn that may continue on through the beginning part of this year, we expect sort of like a half-life curve. The churn gets less and less quarter-over-quarter. So from those perspectives, I think we're quite pleased with the way subscriptions are performing for us.
spk27: Okay, great. Thank you.
spk41: Thank you. One moment for our next question. We'll come from the line of Luis Mario Higuera.
spk14: Hi, this is Luis. Hi, this is Luis for Daniel Gross. I just wanted to ask if there's any updates on the trends from the and if you expect that to be detrimental to revenue or EBITDA for 23. Thank you.
spk17: Hi, thanks for the question, Luis Mario. This is Carsten again. So with regard to KSC, that program is still adding users, but we expect that it'll discontinue adding users around July of 2024. The program, though, is pretty tiny. And what I mean by that is we've, on previous calls, talked about a small contribution, both in terms of subscriber count and on revenue. To frame that up for you, when you think about it, The pricing on Kroger Savings Club is $36.72 a year for an individual and a family. That amount gets split between Kroger and GoToRex. So only a portion of that comes to GoToRex, only a fraction. And our own pricing is $9.99 a month. And $19.99 a month for our individual and family plans. So off price alone, you can see that it skews from a revenue perspective dramatically towards our own plans. So we don't expect a material impact on our financials should we stop adding new Kroger Savings Club users around middle of 2024 at all. We see it as non-impactful.
spk41: Thank you. I'm showing no further questions in the queue at this time. Thank you all for participating in today's question and answer session as well as today's conference call. This concludes today's program. You may now disconnect.
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spk41: Good day and welcome to the GoodRx fourth quarter and full year 2022 earning conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Ms. Aubrey Reynolds, Senior Investor Relations Manager. Please go ahead.
spk20: Thank you, operator.
spk45: Good afternoon, everyone, and welcome to GoodRx's earnings conference call for the fourth quarter and full year 2022. Joining me today are Doug Hirsch and Trevor Bezdek, our co-founders and co-chief executive officers, and Carson Vorman, 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 grocery issue on our business, the impact of legal or regulatory matters, and the expected impact of the macroeconomic environment on our business. 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 statements. Factors discussed in the risk factors section of our annual report on the Form 10-K for the year ended December 31st, 2022, and 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, which can be found in the overview page of our investor relations website at investors.gooderx.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 Doug.
spk31: Thank you, Aubrey. Good afternoon, everyone, and thank you for joining us today. GoodRx operates with a clear mission, to make healthcare affordable and convenient for all Americans. I'm proud to report that in 2022, we made great progress delivering on that mission. We've saved consumers over $55 billion since our founding. In 2022 alone, we've saved more than 10 million consumers over $200 on the cost of their medications. For many, those savings are life-changing, and the medication adherence we support can be life-saving. Before discussing our recent performance, I want to highlight a few of the accomplishments that have made these incredible savings possible and are helping to lay the foundation for future growth. First, we leveraged technology acquired through RxDex to launch a new collaboration with Express Scripts. Today, eligible Express Scripts members are automatically able to receive GoodRx discount prices as part of their pharmacy benefit. It's built right into their card with no action required on the consumer's part. Through Express Scripts, we're excited to work with Cigna, which has made this program available to all participating Cigna health plans, encompassing over 10 million lives. With positive early results, Express Scripts continues to educate and enroll plan sponsors across the bounds of their commercial book of business. This program opens up a huge new segment of the prescription savings TAM for us, and we are seeing great early results. Over the coming months, we plan to continue rolling the offering out to other health plans as a way to expand our reach and serviceable addressable market. Based on an August 2020 survey we commissioned, we estimate that 70% of consumers do not know that the price of a prescription can vary widely across pharmacies. With this product, consumers can now benefit from GoodRx without having to consciously price shop. The collaboration is seamless for payers, benefit plans, and most importantly, eligible Express Scripts members who are now getting access to GoodRx prices for eligible generic medication when that price is lower than their benefit price. We've also made important progress with our provider partners as we continue to expand the healthcare provider value proposition and make GoodRx a destination for providers. We've now enrolled almost 400,000 new prescribers into provider mode. One way we did this was by delivering new offerings, in part enabled by past acquisitions such as FlipMD. This brings even more value to these providers who are choosing to use GoodRx as a way to improve patient outcomes. Lastly, we've expanded our core retail network. We recently added Sam's Club and their 560 retail pharmacy locations to our network of pharmacies that accept GoodRx discounts, another proof point in our strengthening retail network, and we look forward to extending GoodRx's value to Sam's Club shoppers. While there is much to be proud of in advancing our mission, 2022 was not the year we anticipated in terms of financial performance. The grocer issue that began in the first half of the year impacted us significantly, and we haven't yet recouped the volume loss resulting from that event. But our resourceful team used this event as an opportunity to take actions to make the business more resilient, and we exited the year with results that were better than our expectations following the grocer issue. Since the second quarter of 2022, we expanded adjusted EBITDA and consistently drove high cash conversion in line with our priorities. We have more work to do but I am pleased with how our team responded to the unexpected challenges and the progress we are making. Trevor will provide more details on our actions in a moment. We believe our consumer-facing offerings remain incredibly relevant in light of the current macroeconomic environment. When economic uncertainty increases, American families take a close look at their expenses, and we expect even more consumers to turn to GoodRx for help with their health care needs. A reminder catalyzed by the grocer issue last year was how critical it is for us as a company to engage even more deeply with our partners to ensure mutual success and the degree to which our relationships deliver value to our entire ecosystem. As we articulated in our third quarter earnings call, we are taking a hybrid approach to our pharmacy and retailer constituents where we have complemented our PBM Networks contracts with formalized retail relationships to ensure ecosystem stability. As a result of prioritizing increasing engagement, we now have direct contracts with many of our top pharmacy partners. Our pharma manufacturer solutions offering continues to benefit from the shift to digital ad spending, and we expect that to remain the case for the foreseeable future. At the end of the fourth quarter, over 7 million consumers use GoodRx across our prescription and subscription offerings. Our net promoter score is 90 among both healthcare providers and consumers, and speaks to the value we continue to provide and the preference for our platform over other options in the marketplace. And we continue to deepen our relationships with consumers through our engagement efforts. These engagement efforts resulted in a doubling of the proportion of prescription transactions by fully registered members between the start of the third quarter and the end of the fourth quarter. I want to briefly touch on our strategy in a particular four key areas of investment we believe will position us for long-term profitable growth. Number one, Create a more direct consumer relationship to increase touch points and access. Number two, build on our strong foundation to increase savings across the entire prescription basket, including by leveraging our deep HCP relationships. Number three, grow our leading position as the B2B partner of choice across retailers, PBMs, and pharma manufacturers, driving foot traffic for retailers, volume for PBMs, and awareness, access, and adherence for pharma, all of which we anticipate will increase our relevance even further. And number four, leverage data and marketing to reach more consumers and providers and drive higher revenue from our users, be they visitors, MACs, subscribers, or healthcare providers. This brings me to another point. While we separately disclose MACs and subscription counts, we view our users as arrayed along a spectrum of opportunity for us. Subscribers have the deepest relationships with us, engaged consumers have growing relationships, and MACs who have not yet fully registered, as well as visitors, create opportunities for strong future relationships. Regardless of the consumer type, we are expanding our relevance to them. I am looking forward to continuing to deliver on our mission and make further progress on our strategic priorities in 2023. I will now turn the call over to Trevor to provide more details on the quarter and on our strategic priorities.
spk15: Thank you, Doug, and good afternoon, everyone. Before getting into our fourth quarter results, I'm going to update you further on actions we've taken to strengthen our retail, PDM, and pharma manufacturer relationships. As Doug said, the last quarters were disappointing relative to our original aspirations, primarily due to the unanticipated headwind presented from the grocer issue. However, from crisis comes opportunity, and we applied our learning from the first half of last year to make our business and specifically our prescription transactions offering even more durable going forward. The steps we have taken span our entire ecosystem of retailer and PBMs and all our staff, structures, systems, and shared values. No stone was left unturned. Our hybrid strategy Doug mentioned has now been implemented across our key retailers, greatly enhancing the stability and strength of our retail and PBM relationships. Moreover, we are happy to announce the recent addition of Sam's Club, to our core prescription transaction network, showcasing our retail strength. Consumers can now present a GoodRx discount at over 560 Sam's Club locations across the U.S. and access our low prices on medications, regardless of whether or not they're a Sam's Club member. With our retail network continuing to strengthen and expand, our hybrid strategy has helped to offset the churn we have seen at the grocer. I am proud of the resilience our employees and partners demonstrated throughout the year. Additionally, our engagement efforts are bearing fruit. We have doubled the proportion of prescription transactions by fully registered members between the start of the third quarter and the end of the fourth quarter, and progress is continuing. We expect higher registrations will drive more frequent and customized engagement with consumers, which we believe will increase the LTV of these relationships. Beyond the engagement efforts, we're continuing to deepen our relationships with consumers by offering timely, relevant and actionable services and content. These include our medicine cabinet functionality that we believe helps drive adherence for consumers, prescription transaction revenue for us, volume for PBMs, and foot traffic for retailers. We believe that we continue to offer the most competitive prices on medications in the industry, beating our key competitors on the top 30 prescribed medications in America 87% of the time at top pharmacies by our analysis. We believe our competitive position has never been stronger, and when we take new entrants into our space seriously, the stickiness of our relationships, with over 80% of our transactions being repeat, is a direct function of our value proposition. Our take rate has remained stable since the grocer issue, which demonstrates the value that PVM has derived from us by leveraging millions of consumers across the GoodRx network. Volume across pharmacies increased approximately 5% quarter over quarter, and approximately 12.5% year-over-year, excluding the impacts on the growth ratio. We believe that growth is much faster than the broader prescriptions market, which we estimate excluding COVID vaccines was up approximately 3% in the fourth quarter year-over-year. In addition, the impact to our prescription transaction volume from registration efforts to support engagement in Q4 22 represented a smaller headwind than we expected. Within our subscriptions platform, we successfully launched initiatives to help ensure gold numbers consistently receive even better pricing relative to our core prescription transactions offerings than in the past. On the marketing side, we launched product and CRM initiatives to drive growth and reduce churn, including incorporating gold pricing onto core price pages. As one of our strategic initiatives, product innovation and delivering on product initiatives that resulted in near-term growth will remain a key focus and is critical for sustaining our competitive advantage. We believe we will see gold user growth in the quarters to come as we lap last year's subscription fee increases. Across prescription transactions and prescriptions offerings, our platform serves millions, over 7 million at the end of the quarter. This represents an increase of over 1 million consumers since we became a public company. Pharma manufacturer solutions revenue declined in the quarter against a difficult year-over-year comparison and pockets of advertising spend moderation across manufacturers. We increased our engagement with pharma customers and rolled out a number of solutions to help manufacturers reach more patients and providers. We enabled several exciting medication access products for high-profile pharma customers. For example, our Dexcom G6 and G7 work, including rebates, saving $200 for current consumers. We believe we are becoming even more critical to the largest global manufacturers through our investments in new solutions We are solving critical pain points for manufacturers and catalyzing further growth in the $30 billion pharma manufacturer solutions TAM. Despite some slowing in manufacturer decision-making starting in the fourth quarter, we anticipate strong secular tailwinds and growth over the long term as pharma sales and marketing spend increasingly shift to digital in the quarters and years ahead. We believe our runway is very long. I'm particularly excited about GoDirect's provider mode. In the fourth quarter, we saw strong provider growth with almost 400,000 providers engaging with us through our provider mode technology. And in turn, we are building capabilities to connect those increasingly engaged providers to brand partners in new and beneficial ways. I could not be more enthusiastic about what our team has achieved. There are significant synergies between provider mode and our pharma manufacturer solutions platform, and we look forward to sharing more on these initiatives and our growing momentum into 2023. Turning to our fourth quarter highlights. Total revenue of $184.1 million was down 14% year over year, but above the top end of our fourth quarter guidance for revenue of $175 to $180 million. Adjusted EBITDA of approximately $50 million represented a margin of approximately 27% and was also ahead of our adjusted EBITDA guidance. Efficiency gains were driven by actions to improve marketing efficiencies and productivity. Sales and marketing came in at 46% of revenue in the quarter, consistent with our third quarter, And our cash flow provided by operating activities was $31.9 million compared to $33.7 million in the third quarter. During 2022, we adjusted to the new macro reality with the goal of advancing our mission and maximizing shareholder value. We prioritized investments that we expect will drive adjusted EBITDA growth in the near term, as well as profitability and cash conversion. We remain focused on initiatives and innovation that we believe will pay back sooner with higher certainty. Along with our focus on increasing our marketing efficiency, we are very early in realizing the benefits of acquisitions made over the last few years, which includes RxNext's exciting technology that underlies our Express Scripts integrated savings collaboration and our Script Cycle acquisition, which contributes to our success in our hybrid PVM and retailer contracting strategy, as well as VitaCare's critical branded drug access and adherence capabilities that support our pharma manufacturer solutions offerings. We have taken specific actions to drive focus and efficiency, including divesting our GoodRxCare backend technology to wheel, while maintaining the consumer-facing GoodRxCare website and mobile app. This is an example of our ability to positively impact our expense structure and asset light model, while simultaneously focusing on our end user experience. Our focused strategic and tactical prioritization has positioned us to build on the adjusted EBITDA margin improvement we've achieved relative to the second quarter of 2022 in the future. We are confident we have strengthened our business model, the stabilization and expansion of our retail network, and the increasing value we add to our PBM and pharma manufacturers and customers have laid the foundation for returning to year-over-year revenue growth as we move closer to lapping the grocer headwinds in the fourth quarter of 2023. We remain committed to executing on our mission to make healthcare more affordable and accessible to Americans and to returning to our historical levels of adjusted EBITDA margin and revenue growth driving value for our shareholders. With that, I'll turn it over to Karsten to discuss our financial results and guidance.
spk17: Thank you, Trevor. Total revenue for the quarter decreased 14% year-over-year to $184.1 million, which exceeded our quarterly guidance of $175 to $180 million. Prescription transactions revenue growth was down 19% year over year to $129.4 million, but was also ahead of our expectations by approximately $4 million. The estimated grosser issue impact to our revenue in the quarter was approximately $40 to $50 million when compared to the fourth quarter of 2021, while the volume friction from engagement efforts was again less than we expected. Max declined 8% year over year to $5.9 million, while PTR per MAC decreased approximately 11% year-over-year and 3% quarter-over-quarter. The shift in volume to other retailers from the grocer contributed to the YOY PTR per MAC decrease. The average volume of scripts per MAC at the grocer was higher than the average volume of scripts per MAC across all pharmacies prior to the grocer issue arising, likely due to the historical low consumer pricing at the grocer. Flu activity and the increase in growth across the prescriptions market had a slight positive volume impact. However, we did see some offsetting impact from adverse weather in the latter part of December. In line with our expectations, pharma manufacturing solutions revenue declined 23% year-over-year in the fourth quarter to $24.9 million, driven partly by our increased focus on prioritizing recurring service arrangements relative to the prior year, from timing and from a moderation in spending across pharma companies, resulting in part from some deal approval periods being extended by our customers. Revenue is up 2% quarter over quarter, and full-year revenue growth was up 36%, despite the challenging fourth quarter comp last year. We remain very optimistic about this business long-term and our ability to drive growth in this extremely large and fast-growing $30 billion market. Turning to subscriptions, Subscriptions revenue again was very strong, growing 42% year-over-year to $24.6 million, approximately $2 million ahead of our latest expectations, as the gold membership fee increase implemented in the first half of 2022 more than offset the churn-related decline in paid memberships. We ended the quarter with over 1 million plans, down 15% year-over-year, and approximately 1.5 million total members, with both plans and members lower as a result of the continued churn throughout the fourth quarter from the pricing increase. Kroger's savings declined sequentially as expected, given its reduced priority. Other revenue increased 8% year-over-year to $5.2 million, slightly ahead of our expectations. Cost of revenue is $17.4 million, or 9% of revenue, versus $13.9 million, or 7% of revenue in Q4-21. An increase in personnel related to consumer support and the VitaCare acquisition primarily drove the year-over-year increase. Product development and technology expenses were $36.8 million, or 20% of revenue, compared to $35.1 million, or 16% of revenue in the fourth quarter of 2021, driven by increases in third-party costs associated with cloud computing and hosting arrangements, and in stock-based compensation expense, partially offset by lower allocated overhead as a result of lower headcount as well as higher capitalization of qualified costs related to software development. Adjusted product development technology expense was relatively flat at $26.3 million compared to $25.5 million in the fourth quarter of 2021. Sales and marketing expenses were $84.1 million, or 46% of revenue, versus $106.5 million, or 50% of revenue in the fourth quarter of 2021, and declined approximately 2% quarter over quarter. As Trevor and Doug discussed, we are proactive in managing marketing expenses in response to the current environment, our efficiency goals, and our adjusted EBITDA and cash conversion focus. We will continue to look for ways to further leverage our marketing spend while still building the GoodRx brand. Excluding stock-based compensation expense and other items, adjusted sales and marketing expense was down 22% year over year and was 43% of revenue compared to 47% of revenue in the year-ago quarter. Despite lower marketing spend, we've modestly increased our MAC count quarter over quarter. General and administrative expenses were $28.6 million, or 16% of revenue, versus $35.4 million, or 17% of revenue in the fourth quarter of 2021. The decrease is primarily driven by stock-based compensation, principally related to non-recurring co-CEOs' awards made in connection with the IPO. Excluding stock-based compensation expense and other items, adjusted G&A expense as a percentage of revenue is 7% compared to 5% in the fourth quarter of 2021. The decline in sales resulting from the grocery issue is a primary contributor to the increase in adjusted general and administrative expense as a percentage of revenue. Net loss was $2 million compared to a net loss of $39.9 million in the fourth quarter of 2021 and was impacted by the grocery issue and our investment in VitaCare, partially offset by our ability to proactively manage marketing spend. Adjusted net income was $27.4 million compared to $40.5 million in the fourth quarter of 2021. Adjusted EBITDA decreased 20% year-over-year to approximately $50 million, which was ahead of expectations. The decline in our PTR related to the grocer issue with the biggest driver with an estimated impact of approximately $40 to $50 million for the fourth quarter and approximately $110 to $120 million for the year, which we believe has an almost straight flow-through to adjusted EBITDA. We expect VitaCare will continue to be a drag on adjusted EBITDA margins as we work to scale and integrate the business. Adjusted EBITDA margin of approximately 27% was down 230 basis points year-over-year due to the flow-through impact of the revenue from the grocer falling. We are pleased with our resiliency and our profitability since the issue, and we are committed to driving efficiencies and targeted growth investments. We generated net cash provided from operating activities of $31.9 million compared to $49.8 million in the fourth quarter of 2021. Cash conversion will remain a key focus along with growing our adjusted EBITDA going forward as we progress through 2023. Our capital allocation priorities are unchanged. These priorities play a critical role in our organizational realignment and how we are thinking about growing adjusted EBITDA and cash flow going forward. We expect to continue to focus on high-return projects and investments and deploy capital in ways that create the most value for our shareholders most quickly. Currently, our priorities are investing for organic growth, maintaining a strong balance sheet, buying back shares, and possibly strategic M&A that aligns with our longer-term priorities. Our balance sheet remains strong, and we ended the quarter with $757.2 million in cash on the balance sheet and $667.1 million of outstanding debt. but now I'd like to spend a moment talking about our guidance. For the first quarter, we expect prescription transactions revenue of approximately $134 to $135 million, which assumes impact from the grocer issue of approximately $35 to $45 million. An ongoing engagement effort had been consistent with the fourth quarter of 2022. Recall, as we have discussed previously, we expect to continue seeing a year-over-year impact from the grocer issue until 4q 2023 when we'll lap the volume impact our expectation for ptr per mac is to show a modest decrease quarter over quarter until that time we expect subscription revenue of approximately 23 to 24 million dollars slightly down quarter over quarter from the decreasing levels of price increased churn as we are nearing the anniversary or fee increases implemented last year we may see additional churn although we'd expect it to be increasingly modest in future quarters. We expect pharma manufacturer solutions revenue to decrease modestly in the first quarter, following the same fourth quarter to first quarter pattern as a year ago, and also due to the continuing effects of longer deal approval cycles discussed on our last earnings call and the resulting delays in our ability to deliver and recognize revenue. As a reminder, this offering comprises relatively large often multi-million dollar deals that can create quarterly volatility depending on agreement and delivery timing. For our pharma manufacturer solutions, we expect Q1 revenue of approximately $20 million, down 15% year-over-year and 20% quarter-over-quarter. However, we have a number of engagements we are working on with some of the largest manufacturers, which we anticipate will drive sequential growth in future quarters. The favorable macro tailwinds driving more digital outreach to HCPs and their staff, and a focus by pharma manufacturers on continuing to move more spend to digital, generally make me highly optimistic about our ability to grow this offering sequentially in coming quarters and over the coming years. Finally, we expect other revenue to be approximately $4 million in the first quarter, which is slightly below the fourth quarter. In aggregate, the total outlook for revenue is $181 to $183 million in the first quarter. We anticipate making additional targeted investments that quickly scale some of our new retail expansions, as well as our efforts to drive user engagement. We're also integrating and working to better leverage VitaCare, which will be a key growth driver in our pharma business in the coming years. As we said on our last earnings call, the new plan year period can be an opportune time to invest in marketing, So while we didn't invest substantially in the fourth quarter, we're maintaining the flexibility to do so. For that reason, expect our adjusted EBITDA margin to fall in the mid-20% range for the first quarter. For the full year, we expect total revenue across our entire business of approximately $780 to $790 million at adjusted EBITDA margins in the mid-20% range. As I mentioned with respect to the first quarter, maintaining the flexibility to make strategic and tactical investments throughout the year remains a priority. On the capital deployment side, I'd also like to call out for everyone that the equity relating to our co-CEO grants made around the time of our IPO will be delivered to our co-CEOs in the fourth quarter. We expect to withhold part of the equity to cover the recipient's taxes and to use cash to pay the taxing authorities. The exact amount depends on the stock price, but an anticipated figure in the range of $40 to $75 million of cash will be required to fund the tax obligation. Finally, also on the cash and capital deployment side, I'd like to note that approximately $148 million of our original $250 million share repurchase authorization remains. Our strategy is clear to deploy capital only to where we see potential for high returns and profitable growth, and where investments are strategic and support proven offerings. We look forward to leveraging our brand and technology to continue strengthening our platform for the long term and returning to our historical profitability and growth profile. With that, I'll turn over to Trevor for closing remarks.
spk15: Thanks, Karsten. As we look forward to the rest of the year, our leadership team is laser-focused on executing on our realigned priorities. We are working hard to drive efficient, durable growth, deliver on our mission, and create value for shareholders. We believe we have a stronger, more stable, and more resilient business today than ever before. We see attractive avenues to pursue profitable growth in our core markets where we maintain strong market share and are well positioned to capitalize on those opportunities. We have stabilized our retail network and are now expanding the network while reaching more consumers, and our value proposition to our partners has never been greater. We look forward to updating you on our progress in the quarters to come. As always, I want to thank our employees and team members at GoodRx for their hard work and focus, in moving our mission forward, and we look forward to the opportunities ahead. Thank you again for joining us today. I'll now turn it over to the operator for Q&A.
spk41: Thank you. As a reminder, to ask a question, you will need to press star 1-1 on your telephone. To withdraw your question, press star 1-1 again. Due to time restraints, we ask that you please limit yourself to one question. Please stand by while we compile the Q&A roster. And today's first question will come from the line of Mark Mahaney with Evercore ISI. Your line is open.
spk29: Thanks. Two questions, please. First, on the grosser impact, you quantified it for Q1 and also qualitatively talked about it impacting throughout the year. Can you help us think through what that impact should be like through the balance of the year? Will there be kind of a sequential step down as it looks like there will be from Q1? you know, Q4 of last year to Q1 of this year. And then secondly, you just talk about stock-based comp and what that's going to look like this year. That also stepped down from whatever, $160 million in 21 to $120 million in 22. Should we, as you move through the founders grants, does it step down at a similar pace, at an accelerated pace? How do you think about managing that expense item? Thank you.
spk17: Sure. Thanks for the question, Mark. This is Carson Borman speaking. Mark, I'll take those in reverse order. First of all, on the stock comp piece, we expect stock comp of approximately $27 million in the first quarter and approximately $110 million for 2023 in aggregate at this point. Of those amounts, approximately $7 million and $21 million relates to our closed COO grants made around the time of our IPO. And to your second question on The grocer issue and its impact, as we get further and further from the grocer issue, it becomes a little more challenging to estimate the impact with absolute precision, of course. So we triangulate using a couple analytical approaches to try and estimate how big it is. I think the reality is, first of all, we'll fully lap the grocer issue in the third quarter, but because we also increased our engagement in the middle of the third quarter, it's really only the fourth quarter of 2023 that will be the absolutely cleanest comp to show the impact of growth absent both unusual grocer and unusual engagement effort changes. That said, as we said right where the gross ratio happened, we see it as a step down versus a change in growth rate. So a step down, meaning in total volume of users. And that's why I've seen the amounts of the impact of the gross ratio be relatively consistent over time versus seeing them having dropped over time as you might otherwise have expected. So hopefully that's helpful. If not, I'm happy to dig in deeper.
spk28: No, that's great. Thank you, Karsten.
spk41: Thank you. One moment for our next question. And that will come from the line of Sandy Draper with Guggenheim. Your line is open.
spk09: Hi, thank you. This is actually Mitchell on for Sandy. We wanted to ask about the Cigna partnership and just any more details exactly about how it came about. and how it works, and we wanted to see how the economics are and if they're similar to a regular transaction. So any kind of more color on the signal would be really helpful. Thanks.
spk31: Hey there, this is Doug. Thank you for the question. First of all, we're very excited about this partnership, of course. We've invested a tremendous amount of time and effort to be the preferred technology partner across the healthcare ecosystem. You know, we think that our multi-PBM marketplace plus our brand plus great pricing really makes us the player of choice for a program such as this. Obviously, Express is one of the largest PBMs, and they chose us to be their exclusive partner for this program, which is called Price Assured Powered by GoodRx. So we launched the pilot in Q4, and it uses the technology from RxNEXT that we acquired back in 2022. And it's really beautiful in how simply it works. Basically, an ExpressCurse member who's eligible just presents their existing ExpressCurse card at the pharmacy, and they get the better price of their commercial price and or the discount price provided by GoodRx. This enables out-of-pocket claims to count toward a member's deductible and also gives full visibility of the claim to the payer. So we launched it in Q4. Again, it's gone really well. This is early. I want to be clear. But we're really, really excited at the momentum. We're extremely pleased with the progress, and it's performing better than we anticipated. Now, as we're talking today even, Express Scripts is educating and rolling plan sponsors to bring more people onto the program. And again, we're just really, really pleased with it. We think that it's going to expand market opportunity, expand our reach, and address the market.
spk19: Thank you.
spk41: One moment for our next question. And that will come from the line of Charles Rye with Cowan. Your line is open.
spk13: Hi, this is Lucas on for Charles. When I look at your guidance, it seems to imply that we're going to see sequential revenue growth throughout the year. Can you walk us through what is contributing to that sequential ramp, what revenue streams you're expecting to drive that, and then how should we think about the cadence of revenue throughout the year?
spk17: Sure. Thanks for the question, Lucas. This is Carson speaking again. A couple things. I think, first of all, As we've talked about historically, we see our highest growth business being our pharma manufacturer solutions business. That business grew approximately 36% YY for the full year last year, and we expect it to continue to be delivering significant growth results at a faster rate than our other lines of business. That said, I'd also reference as contributors to our overall growth rate, the fact that we've seen the growth of our non-grocer retailers increase from the third quarter to the fourth quarter. You might recollect that we talked about on the third quarter earnings call non-grocer retailers seeing about 8% YY growth relative to the about 12.5%, 13% rounded growth in the fourth quarter of non-grocer retailers. So that business as well is performing up. Finally, things like Doug addressed on the prior question associated with The ESI Cigna initiative are also contributors to growth as well. So I think those are in priority, the ordering of where I think you'd see the growth coming from. Again, the largest nominal amount of dollar growth coming from our farm manufacturer solutions business.
spk19: Thank you.
spk41: One moment for our next question. And that will come from the line of Michael Turney with Bank of America. Your line is open.
spk48: Good afternoon, and thanks for taking the question. If I can dive in a little bit more, when you think about, as we move past the annualization of the grocer side, how do you think about the implied revenue per MAC that you're seeing in the model? And especially given what appears to be, as you said, a strong kickoff with Express Scripts, How much of that revenue per MAC and what we should think going forward as well as some of the dynamics you have around the direct contracting gets adjusted as some of the contracts that you're bringing to market with Express with the direct pharmacies evolve and become a bigger piece of the total revenue pie?
spk17: Sure. Thanks for the question. I think there are a couple pieces in that sort of revenue per MAC generally as well as revenue per MAC and the impact on it of some of those things that we're doing including, for example, the ESI Cigna initiative that Doug talked about. I think taking those in reverse order, first of all, the ESI Cigna initiative, that business looks much like our traditional business does from our side and from a revenue perspective, meaning it flows through our existing business model and marketplace associated with all the PBMs we have in our backplane. the revenue per MAC and our ability to generate revenue off that looks identical in all material ways to our normal business. I think what it really does for us is it creates an incredibly variabilized and efficient way to have incremental distribution, particularly into, as Doug referenced in the prepared remarks, the 70% of consumers who aren't actually aware that prescription prices might vary widely and that they could save money on them. So massively SAM expanding as a portion of the TAM since those slips just automatically benefit from GoToAction, we automatically pick up revenue. So, from a PTR per MAC perspective, we get more MACs that way. Those MACs, in terms of the amount of PTR they generate, it's a little early, as Doug said, to speculate on exactly how that will look relative to other MACs, but early signs are clearly promising. With respect to PTR per MAC more generally, as everyone's probably calculated on this call, we've seen Uh, that flux a little bit, particularly associated with, um, the, the impact of the grocery issue last year. There is slight over index of indexing of the. Amount of volume per Mac at the grocer versus other places in part, because the grocers pricing was lower. So, because of that, you saw some volatility during, um, the year 2022 in particular. We could see some continued mild declines as a percentage or in dollar terms on PTR per MAC, but we're not seeing any or anticipating any non-linearities there at all.
spk41: Thank you. One moment for our next question. We'll come from the line of Craig Hettenbach with Morgan Stanley. Your line is open.
spk37: Yes, thank you. I had a question just on the top of the funnel conversion, just as you look to get deeper with consumers. Any update there? And then a longer-term question on just getting back to 30% plus type EBITDA margins and how you're thinking about whether it's the revenue growth you'll need to get back to or any other operational efficiencies that might help you get there over time.
spk15: Thank you for the question. One of the areas that we have optimized is sales and marketing. We've been very focused this year, as we talked about, on prioritizing sufficient growth and margin expansion, and we've made significant progress there. Sales and marketing is one of those areas. We have found a lot of ways to optimize that. The other area I think we'd like to talk about briefly is engagement. You know, that's another piece of that. And so I'll have Doug speak to that, and then I'll ask Carson to answer the last part of your question.
spk31: Thank you, Trevor. Yeah, engagement is obviously a significant priority for us. If you go back in the history of GoodRx, originally, you know, when we were a small brand and people didn't know us, we tried to get people on the site, you know, simple experience, search for a drug, get a coupon, find savings, so we could establish that trust and value of consumers. If you look forward, it's been, you know, 12-plus years we've been doing this. We have that trust. We have that 90 MPS. And we have the opportunity to engage users and drive a higher LTV for us. I'm proud to say, as I think Carson mentioned previously, that we doubled the proportion of transactions attached to fully engaged users in the second half of 22. And when we have those fully engaged users, we can do incredibly cool things. For example, a medicine cabinet. So if you haven't downloaded our app recently, I strongly recommend you check it out. You can actually see a visual representation of your actual medicine cabinet on the app. And then we can do exciting things to drive engagement and adherence, like push notifications for refill reminders or pricing changes. We believe that these will drive better adherence, better patient outcomes, and obviously lift LTV, too. So we're really, really excited about some of the engagement issues. I'll throw it to Carson for some of the financial perspective.
spk17: Thanks, Doug. And, yeah, ending off on the financials, as we mentioned in our prepared remarks, we expect both Q1 2023 and FY2323 adjusted EBITDA to be in the mid-20% range. On our last earnings call, we mentioned that we contemplated making marketing investments in either the fourth quarter or this quarter and first quarter, since the timing works for when consumers make decisions around health plans, new plan years start, et cetera. It's a great time to reach them. We didn't make those investments extensively in the last quarter, but we're still exploring making them as new consumers have fresh deductibles in the start of the year, so around now. Looking forward, we continue to be really focused on driving adjusted EBITDA and cash conversion while also delivering efficient growth. So we're going to continue to take actions that drive shareholder value in those ways. You've seen us reduce marketing as a percent of revenue. That's been an opportunity to drive EBITDA, manage headcount through our risk, and also through the continued limiting and careful hiring that we're doing. And you've seen us sell off direct care assets, That didn't impact our consumer experience, but reduce the amount of OPEX that it takes for us to maintain them and let us be even more asset light. Those are all actions that we've taken in support of increasing dollar EBITDA Q over Q as the business grows. From a margin perspective, we still think we have room to go, and we believe that we can expand our margins over time through the continued growth. The grocer issues volume and revenue impact means it'll take us a bit longer to do that. But given that our business now has a more fixed cost base than it ever has historically through the RIF, through the CARESALE and other initiatives we've taken, it means that the incremental dollars of growth we're able to achieve will likely contribute to incremental margin both in dollars and in percents going forward in the out years to come.
spk21: Got it. Thank you.
spk41: Thank you. One moment for our next question. And that will come from the line of Eric Sheridan with Goldman Sachs. Your line is open.
spk46: Thanks so much for taking the question. I want to come back to the comment you made earlier on in the call around how you might be a beneficiary as we go into a more volatile, maybe downward macro environment and people look to save money can you just help us better understand how you possibly try to capitalize on that type of environment you know do you run greater marketing campaigns around that you try to be in front of your consumers uh to make them more aware of the savings that are available in apps sort of how how should we think about you sort of being exposed to that theme and then you know to some degree benefiting from it if there is a shift downward in terms of savings behavior coupled with consumption in the vertical and then the second one would be if we think about industry marketing solutions and how you continue to build that business for the long term. Can you give us a little bit of color of how industry conversations continue to evolve with partners looking to deploy advertising and marketing dollars to drive awareness of their products on the platform away from just the quarter-to-quarter dynamic, but maybe thinking more broadly about budget dynamics on a multi-year view in 2023 and beyond? Thanks so much.
spk15: Thank you. Appreciate the question. The The macro environment, I think, relative to consumers, looks like it'll be a bit harder for consumers with inflation and other challenges. This is definitely an environment, though, that we believe is where we can shine, where good Rx can help people. Fortunately, medication is one of the very last things people are going to substitute away from. you know, we can help consumers save on prescriptions so they can afford their rent, so they can afford their other costs, you know, because these are critical things they need to purchase for their health and their family's health. So we do think it is helpful to the business, albeit, you know, we want to be there to help people. The other part of that is the moving on from this period of COVID. You know, COVID was a certainly challenging for our business, you know, where it's decreased new prescriptions and others, where we're definitely back to a much more normal environment. But the other aspect of that, though, is certain programs that were expanded in COVID that are now being curtailed. For example, Medicaid, you know, is being, you know, rolled back in certain states. And so we would expect people to come off Medicaid rolls And that is also a tailwind for our business as we can help those people as they move out of Medicaid and are needing to access services. How do we do that is, you know, we're very fortunate we have this amazing brand. We have access to consumers. We have access to healthcare providers. Our largest source of people knowing about us remains healthcare. word of mouth that remains healthcare providers telling consumers about it. We've tried to innovate to reach those consumers more with things like provider mode, which now has 400,000 activated providers. We are trying to get those providers and make it even easier to activate them in their workflow. We continue to do marketing, albeit continue to do it as efficiently and effectively as we can. But those are the ways. We'll continue running marketing and continuing running our innovative product efforts, but we're largely benefited by the brand and trust that we built. Relative to the second part of your question, which was just how the industry is evolving and budget dynamics, I think I would speak generally that the industry is always changing. We believe our network, our relationships with retail, with PBM, with pharma manufacturers, is the strongest it's been in our history. When we look at various entities in those channels, you know, you mentioned spending, spending budget for awareness. So, you know, and one entity that would do that, for example, would be the pharma manufacturers. We believe that, you know, there are, on a long-term basis, the environment there is very good. We think that, you know, we will see strong growth this year in manufacturer solutions and Glad to discuss some of this more. Hope that's helpful.
spk22: Thank you.
spk41: Thank you. One moment for our next question. We'll come from the line of Stephanie Davis with SVB Larrink. Your line is open.
spk39: Hey, guys. Thanks for taking my question.
spk40: Kind of on that same sort of manufacturer solutions question that we guys just have, how should we think about some of the blockbuster consumer drug releases like will go via Nozempic? And how would something like that factor into growth on the platform? Is that relatively small versus the larger base that won't really be impactful for the year? Or is that something that could be a large swing factor?
spk15: Yeah. Thank you very much, Stephanie. The pharma manufacturer business continues to grow at a fast clip We grew about 30% year over year despite the tough 4Q comp last year. And that rapid growth is because of the strength of the brand that I've been speaking about with consumers and with healthcare professionals and our deep relationship with healthcare professionals. And manufacturers want to leverage that for access and awareness. And so we're proud we have these relationships. We talked about last earnings call, 19 of the top 20 manufacturers, and we're continuing to grow into those accounts, adding more brands, adding more other additional manufacturers outside of those top 20. So there's a lot of progress there, a lot of good launches. Those drugs you mentioned, those are great opportunities. They are places where we can really help on access and driving that awareness and effectively using the spend. But what I would highlight is while the net total portion of our business will grow for the year significantly, and we think this will be the fastest growing area of our business. We don't have significant concentration here. So we work with a lot of manufacturers on a lot of programs. So one program, two programs, like you mentioned, would not alone meaningfully change it. But we do see lots of opportunity here across a lot of products.
spk40: Super helpful. Thanks. And one for Carson on this one. So looking at margins year over year, I was surprised to see them compressing a little bit in the guidance. So with that in mind, how can we think about some of the moving pieces and like the recent pricing changes and Kroger and even like some of the competitive dynamics? And how should we think about the arc of margins throughout the year?
spk17: Sure, thanks for the question, Stephanie. Carson here. I think number one is as we think about margins over time, The key focus is managing cost structure against growth on the revenue side. So I think we're preserving for the first quarter in particular the flexibility to make investments. We talked previously about 4Q and 1Q being good times to invest given their new plan years, new deductible periods for patients, et cetera. And throughout the year, too, now that we have – created a more refined view of marketing, reduced sales marketing as a percent of revenue and so on, our ability to invest in a way that drives growth even more clearly than before is higher. And so as we contemplate sort of growth and margin trade-offs, we see the need to maintain some flexibility to continue to be able to drive that growth with incremental investments as we go further into future quarters. I think that said, the area where we will be able to showcase more margin expansion is when we actually show more growth, again, relative to the cost structure not moving on the same slope as the revenue does, meaning revenue growing faster. So when we lap the engagement efforts that we started in the middle of Q3 and the growth ratio, which will be both fully lapped in the fourth quarter, of this year, that's when we'll be able to showcase growth numbers that everyone on the street will be able to see for themselves. I think with that trajectory in mind, it'll show a clear path to folks too around how in the years to come we can see margin expanding further as well as we keep concentrating on the appropriate expense side controls and on managing those expenses very carefully going forward. That's probably the best way to articulate it. For the year, I think we see margins both for 1Q and full year in the mid-20% range as we're continuing to make those investments to drive that growth as well.
spk41: Also, thank you.
spk22: Thanks, Stephanie.
spk41: Thank you. One moment for our next question. And that will come from the line of Dylendra Singh with Truist. Your line is now open.
spk03: Thank you and thanks for taking my questions. So I want to stay on the topic of pharma manufacturing solutions business and go back to the ramp you expect beyond Q1 this year. It seems like this is a business where you think that the growth will ramp and is the primary driver for the revenue ramp you expect this year. What trends have you seen there which gives you the confidence and visibility in that business for the rest of the year ramp? And it could be great if you could share any color around What are you seeing with respect to digital marketing spending among your pharma clients? And kind of related to this, like there was a comment in the release around prioritizing recurring service arrangements with customers. Maybe flush a little bit there, like what exactly you mean in terms of that arrangements.
spk17: Sure. Jalendra, great to hear from you. This is Karsten speaking as well. So I'll see if I can hit all the parts. I think the three parts generally were – Number one, how we see the general trends evolving. Number two, the Mansell being a contributor, as we commented on, in terms of dollar growth, potentially one of the largest ones to our YY growth this year. And was there a third piece in there as well, Jalendra, that I didn't catch?
spk03: Just in general, like the comments around prioritizing recurring service arrangements, like what you're offering there.
spk17: Sure. Let me take those in reverse order and hit that one first. I think that's probably in some ways the most important one, the recurring revenue arrangements, because when we look at our performance in fourth quarter of 22 relative to fourth quarter of 21, the big piece of it was the reality that farm manufacturers had significant amounts of budget and others too at the end of CY21 where they looked to deploy those funds and look to us since we could deploy them quite quickly given we have material proportion of direct contracts with manufacturers versus working through agencies so we can react quite quickly. I think that revenue is great to receive and we're grateful for it. However, revenue that is more recurring and is associated with particular, this goes back a little to Stephanie's question too, I think it was around Blockbuster drugs, around larger drugs and larger manufacturers will continue to create that recurring stream. that's very attractive to us. And so deploying the sales force and deploying our energy against that more recurring revenue in the long run creates more shareholder value because the revenue stacks on top of each other year after year versus being more episodic in nature. So I think that's what we're referring to in the context of a greater focus on recurring revenue. I think looking more broadly at the pharma manufacturer solutions business, We still see this as a huge and very attractive TAM at $30 billion or so, and we've penetrated very, very little of it so far. The other reality is the shift to digital is continuing to happen. In fact, I think we see some data suggesting that it's accelerating, if anything. So from that perspective, we see great opportunity in that continued shift to digital too. I think finally, the other aspect of it that's important for us is that we are now focused not just on the consumer side of the business. Early last year, we launched provider-only focused farm manufacturer solutions. And since then, we've seen that only increase, especially as our HCP mode product and others have helped us to capture and draw the attention of more and more providers. That creates effectively a new growth vector, a growth avenue for us on top of the existing growth factors of more manufacturers, more medications per manufacturer, and more solutions that we offer in relation to each medication. So we see those attributes as contributing to accelerating pharma manufacturer solutions growth through the year. Did I hit all the questions there, Jalendra, or are there still gaps?
spk02: No, that's perfect. Thanks a lot.
spk16: Great. Thanks, Jalendra. Great to speak with you.
spk41: Thank you. As a reminder, due to time restraints, we ask that you please limit yourself to one question. One moment for our next question. That will come from the line of Jonathan Young with Credit Suisse. Your line is open.
spk38: Okay. Thanks for taking the question here. Just kind of building on that comment you just made, you guys said that you're over 900,000 subscribers now. Can you talk about the benefits that are being being derived from that? Has that come up in pharma manufacturer solutions in the conversations you're having with manufacturers? And then alongside that, has that led to any increased prescription transaction revenue that may be derived from that?
spk18: Thanks.
spk22: Thank you, Jonathan, for the question.
spk15: Throughout the company, providers have been extremely important to us. They've been an incredible channel for us. They've been a great referral source for patients broadly. And this is because we really provide a lot of value for them and for their patients. This is evidenced by the over 90 MPS score that we have with them. The stat we've been talking about today is that with provider mode, which we launched in the last year, we have about 400,000 prescribers now activated in provider mode. As you alluded to, that's out of a larger audience of prescribers who use GoodRx. But these are about 400,000 prescribers who are now activated in provider mode. We're really excited about that because we are seeing materially higher LTVs from those activated providers. So these new tools that we've been building and developing for them to make their workflow even easier by incorporating GoodRx and provide other tools, they're working. And just like you are saying, we have the primary revenue that we derive from this is through manufacturer solutions. And so we have been generating revenue from this offering for about a year, and that's because we are selling within our pharma manufacturer solutions business some deals that just target HCVs, deals that target HCPs and consumers, a variety of different things. But it is clear that because of our great access to providers, this is a great way for us to access that portion of the $30 billion TAM that manufacturers do spend on access and awareness. So it's a very important piece. There is green shoots around this second point, which is we are making tools within HCPs that provider mode, then make it even easier for doctors to tell their patients about GoodRx, to use GoodRx through transactions. And that is, you know, helps increase PPR revenue by making those recommendations to patients at an increased rate.
spk41: Thank you. One moment for our next question. We'll come from the line of George Hill with Deutsche Bank. Your line is open.
spk36: Hey, good evening, guys, and I appreciate you taking my question. I guess can you guys talk about how big, like as a percentage of revenue and maybe the margin impact of these direct retail contracts? I think we would assume that the margin profile on these is a little bit worse than the composite. Given that it seems like you wouldn't have multiple PBMs playing off each other, but would love any incremental commentary that you could make on the kind of direct retail contracts versus the balance of the business.
spk15: Sure. You know, what's really important that we want to highlight is that we've made changes to make sure that we have the strongest and largest retail PBMs manufacturer network in our history. One of those components is implementing this hybrid approach to contracting across the key retailers to enhance stability and strength of the network. So we have our PBM marketplace with our full set of these PBMs we work with, and then also we selectively contract in order to make sure we are meeting the needs of all the parties in the ecosystem. So we do now have direct contracts with many of our top pharmacy partners. I would highlight, I think, to what I think answers your question, that take rate has remained stable since the grocer issue. So we've been able to continue to maintain this competitive advantage we have through our multi-PBM network. We've been able to maintain really great pricing and satisfy all of the participants. We are really pleased that we've been able to make these changes and think it's very helpful to the long-term stability of the business.
spk17: I think the only thing I'd add is that, Carsten here quickly, George, the only thing I'd add is that part of the reason for all this is the direct contract volume is not really that material for the business at all. The direct contracts are really helping us in corner cases more than driving a significant majority or even a large minority of volume today.
spk35: That's helpful. Thank you.
spk41: Thank you. One moment for our next question. We'll come from Robert Simmons with DA Davidson. Your line is open.
spk07: Hey, thanks for taking my question. It's great to hear that you doubled the proportion of fully registered members. I was wondering if you could share how penetrated you are now and how high do you think that can get over time?
spk22: Thank you for the question.
spk15: We spoke to the registrations and the priority we have to getting to know our customers better. The real focus here is that we are trying to make sure we get users registered. Those users, as Doug mentioned, we're seeing substantially higher LTV from early indications. We're not disclosing the total registration base, but we did double the proportion of transactions attached to those fully engaged users in the second half. you know, is very encouraging, and we think that will continue and that there's lots of opportunities there. And, you know, as Doug alluded to, from where we have those registered users just opens up lots of new opportunities, opportunities to cross-sell, opportunities to give better functionality, opportunities to drive LTV increases.
spk22: So we're very excited about the engagement efforts.
spk41: Thank you. One moment for our next question. And that will come from the line of Steve Vallecat with Barclays. Your line is open.
spk33: Great. Thanks.
spk32: Good afternoon. So a couple things. First has been a little bit of a further evolution on the competitive landscape with this recent news around Amazon RX Pass subscription service, the OptumRX launching price edge. I guess the question really is just whether or not these new competitor offerings were something for which you maybe had to specifically adjust the 23 guidance range for Or would the impact from these, if any, really just be absorbed within the guidance range the way you see it now? And then on the positive side, again, you alluded to the potential tailwinds from Medicaid redeterminations earlier on the call. And I guess just to clarify, same sort of thing. Are the tailwinds from those Medicaid roll-offs something that you specifically baked into the 23 guidance? Or is this just something that would be more of an upside driver relative to the range? Thanks.
spk15: I'm going to let Carson speak briefly to the questions around guidance. And then I'll have Doug answer the question around competition.
spk17: Hi, Steve. I think your question was around what's baked into guidance versus not. So in terms of what's baked into guidance, I think everything's through today effectively. So we've considered the competitive environment, certainly, and how that's been evolving, which Doug will speak to a little bit further. We've also considered everything we know today about Medicaid and what each of the states are doing in terms of rolling folks off Medicaid. Again, we took all information that we had available to us and incorporated that in.
spk31: Sure. Thank you, Garsten. You know, I think, as we mentioned previously on the call, I just want to really reiterate what we really view as our competition, which is the 70% of Americans who simply don't know that prices vary. There's such an incredible opportunity for us to continue to educate consumers and guide them to better outcomes. I also want to just, you know, set the table here about our three core strengths, which is really the way we frame our competition, which is Again, our multi-PBM marketplace, we're the only ones at scale, which means we drive lower prices, just one data point. We generally, we beat competitors 87% of the time at the top retailers of the 30 most prescribed drugs. Secondly, our breadth, where again, GoodRx works for virtually all medications, obviously generics, which is our sweet spot, and increasingly on brand where we can save, you know, thousands of dollars. And lastly, on reach, where GoodRx works at every pharmacy in America, pretty much over 70,000 pharmacies plus mail. And then we have that incredible NPS that we spoke to a few times. So again, that's really the competition and our key strengths against potential competition. With regard to your questions about individual folks, look, we've seen a lot of press releases, and we know that Amazon has focused over the course of many years, actually, to really get into the space and try to drive change. We have seen no evidence of growth in volume, and we've seen no impact on our business. And I just want to be pretty clear about that. This latest program is for a subset of drugs, but we don't see it as necessarily more compelling than some of the previous offerings they had out there, and so we do not see any direct impact on our business.
spk25: Got it. Okay, thanks.
spk41: Thank you. One moment for our next question. We'll come from the line of Steve DeShirt with KeyBank. Your line is open.
spk26: Hey, guys, could you provide some color on what you're currently seeing with your gold subscribers activity? Thanks.
spk17: Sure. Thanks for that question. This is Carson speaking to this one again. So, on gold, we continue to see some churn post our price increase from last year. Of course, from an elasticity perspective, revenue is way up. the reality of the revenue increasing as much as it did indicates that, as we expected, we have a largely inelastic offering in our subscriptions offering. In particular, if you remember, we had never done a price increase since the inception of our subscriptions offering, even though the reality is that we had added a significant amount of value over the years, including, just by way of example, discounts in telehealth. among other types of offerings. So from those perspectives, we felt like it was the right time to be able to do the price increase. That said, I think our perspective on it has remained the same way as it has previously, that it was generally a great success to be doing the price increase. We've seen subscriptions revenue increased year-over-year dramatically for the fourth quarter. And while we have seen some continued churn that may continue on through the beginning part of this year, we expect sort of like a half-life curve. The churn gets less and less quarter-over-quarter. So from those perspectives, I think we're quite pleased with the way subscriptions are performing for us.
spk27: Okay, great. Thank you.
spk41: Thank you. One moment for our next question. We'll come from the line of Luis Mario Higuera.
spk14: Hi, this is Luis. Hi, this is Luis for Daniel Gross. I just wanted to ask if there's any updates on the trends from the progress you've uncovered in NULS and if you expect that to be detrimental to revenue or EBITDA for 23. Thank you.
spk17: Hi, thanks for the question, Luis Mario. This is Carson again. So with regard to KSC, that program is still adding users, but we expect that it'll discontinue adding users around July of 2024. The program, though, is pretty tiny. And what I mean by that is we've, on previous calls, talked about a small contribution, both in terms of subscriber count and on revenue. To frame that up for you, when you think about it, The pricing on Kroger Savings Club is $36.72 a year for an individual and a family. That amount gets split between Kroger and GoToRex. So only a portion of that comes to GoToRex, only a fraction. And our own pricing is $9.99 a month. And $19.99 a month for our individual and family plans. So off price alone, you can see that it skews from a revenue perspective dramatically towards our own plans. So we don't expect a material impact on our financials should we stop adding new Kroger Savings Club users around middle of 2024 at all. We see it as non-impactful.
spk41: Thank you. I'm showing no further questions in the queue at this time. Thank you all for participating in today's question and answer session as well as today's conference call. This concludes today's program. You may now disconnect.
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