GoodRx Holdings, Inc.

Hello, ladies and gentlemen, and thank you for standing by, and welcome to the GoodRx Third Quarter 2024 Earnings Call. As a reminder, today's conference call is being recorded. I would now like to introduce your host for today's call, Aubrey Reynolds, Director of Investor Relations. Ms. Reynolds, you may begin.

Thank you, operator. Good morning, everyone, and welcome to GoodRx's Earnings Conference Call for the Third Quarter 2024. Joining me today are Scott Wagner, our Interim Chief Executive Officer, and Karsten 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, without limitation, statements regarding management's plans, strategies, goals, and objectives, our market opportunity, our anticipated financial performance, underlying trends in our business and industry, including ongoing changes in the pharmacy ecosystem, our value proposition, our long-term growth prospects, our direct and hybrid contracting approach, collaborations and partnerships with third parties, including our point-of-sale cash programs and our integrated savings program, our e-commerce strategy, and our capital allocation priorities. These statements are neither promises nor guarantees, but involve known and unknown risks, uncertainties, and other important factors. These factors, including the factors discussed in the risk factor section of our annual report on Form 10-K for the year ended December 31st, 2023, and our other filings with the Securities and Exchange Commission, could cause actual results, performance, or achievement to defer materially from those expressed or implied by the forward-looking statements made on this call. Any such forward-looking statements represents 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 will be referencing certain non-GAAP metrics in today's remarks. We have reconciled each non-GAAP metric 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 Scott.

Thanks, Aubrey, and thanks to everyone for joining us today to discuss our third quarter results. Our Q3 top line was where we expected, and adjusted EBITDA margin came in higher than we anticipated. Adjusted EBITDA grew 21% relative to this period last year. I'd like to start the call by reminding everyone of the GoodRx value proposition, what we're seeing in the industry, and highlight a few themes around the business, and then Carson will get into our financials. We believe our GoodRx value proposition and market position are strong and, I would argue, are increasingly relevant in a world with more and more attention in healthcare being paid to patient affordability and ease of access. Let me touch on three quick points about how GoodRx benefits our customers and partners. First, GoodRx has a huge consumer and healthcare provider audience that really values what we do, reflected by our notably high net promoter scores. That gives us the ability to drive and direct high volumes of prescriptions. over $100 million in 2023 to pharmacies and to pharma manufacturers. That's both important and unique. Second, GoodRx is well positioned as a complement to health insurance. We estimate that over 90% of our users have some form of insurance and still use GoodRx because insurance formularies are getting more restrictive, patient and employer costs continue to rise via both co-pays and deductibles, and more and more authorizations are being put in place that add friction and require more time from both patients and physicians. GoodRx helps consumers fill the gaps in their insurance, assessing coverage, finding an affordable price, and taking friction out of the time-consuming authorization processes. Third, GoodRx's relationships with pharmacies, PBMs, healthcare providers, and consumers all make GoodRx extremely relevant to pharma manufacturers. Manufacturers are leveraging GoodRx to do truly unique things like our point-of-sale cash discounts that can give them tighter, more direct relationships with patients, and importantly, grow volumes. In a world where there's increasing attention on medicine affordability and access, we feel good about where we sit in the healthcare ecosystem, likely stronger and more relevant than several years ago. As we look at Q3 and the near-term financial outlook and what we're seeing in the business, It really is a tale of two cities. On the plus side, we're making progress with brand manufacturers and brand medication. Our pharma manufacturer solutions offering is expected to deliver about 20% year-over-year top line growth in the fourth quarter as brand manufacturers are using GoodRx for unique cash, copay, and assistance programs to reach patients and physicians. This market's big. We estimate a $7 billion plus SAM In addition, we're extending our integrated savings program, or ISP, to include uncovered brand medication. We believe GoodRx provides a durable and distinctive way for manufacturers to reach patients and physicians and to clean up some of the pricing variability and cloudiness that plague the industry. We're encouraged by both our progress and our long-term potential. At the same time, the retail pharmacy environment remains unsettled. which is affecting the near-term growth of our prescription transaction business, centered largely around generics. Retail pharmacy chains, including CVS, Rite Aid, and Walgreens, are closing store locations to improve profitability, and some are renegotiating reimbursement rates with PBMs and pursuing other avenues to drive up their margins. We believe this industry resettling in retail pharmacy is a short-term dynamic that isn't permanent, but does cause turbulence for our prescriptions marketplace. We believe our success at engaging retailers in direct contracts, where we now have eight of our top 10 retailers working with us directly in some form, as well as our ability to deepen relationships with PBMs and leverage them as a sales channel for our ISP offering, will lay the foundation to exit this period of turbulence on solid footing. I'd like to share some additional color on both of these two cities, to continue with the analogy. Starting on the positive in pharma manufacturer solutions, we saw solid year-over-year top-line growth in the third quarter, consistent with what we indicated at Investor Day, excluding the impacts from VitaCare. We're pleased with our strategic progress to bring all brand affordability programs onto GoodRx. As we've talked about before, brand medications have unique challenges that complicate the patient journey cost often being one of the biggest, we found that pharma is increasingly looking for innovative solutions to deliver affordability options to consumers. And they're turning to GoodRx because we have the reach and scale to get them in front of a high intent audience and to help drive conversion. We estimate that more than 85% of our users already have a prescription in hand and are looking for ways to afford it. Our offering to brands are now threefold. First, We help brands surface their copay cards and patient assistance programs to high intent patients. Second, we create clear and affordable cash prices for brand medication that often isn't covered by insurance. And third, we now offer e-commerce capabilities that allow brands to integrate their direct to consumer experiences into our platform. We're seeing strong momentum around our point of sale cash programs and believe the impact of these programs will only get bigger in the future. As a reminder, these programs lower the cash price of branded medication for consumers immediately at the checkout counter with very little friction and are increasingly being used by manufacturers to serve more patients and to grow their revenue. Over the past several months, we've announced partnerships with Boringer Ingelheim for its Humira biosimilar, ARS Pharmaceuticals for Nephi, the first needle-free epinephrine, Pfizer for its entire portfolio of menopause hormone therapies, and Vivas for its weight management medication, Qsymia. For each of these, discounted cash prices are easily accessible via GoodRx. We're now up to 72 signed point-of-sale cash programs for brands, over twice the number of deals we began 2024 with. The reason for the rapid growth is that these point-of-sale programs work. Manufacturers drive incremental prescriptions, which translates into more revenue. Pharmacies often receive a higher reimbursement rate than if the transaction ran through a benefit plan. And of course, consumers are delighted by the savings. Here's a real-time customer story to show how these things come together. The other week, my mother-in-law, Kathy, received a prescription for a Dexcom G7 diabetes unit. Kathy rolled up to her neighborhood pharmacy, I'll withhold the name, and was informed that her insurance plan, I'll also withhold the name, didn't cover the G7 and it would cost her $600 a month. Kathy's quote in her email to my wife, well, I guess I'll have to keep sticking myself. Fortunately, Dexcom is one of our 72 cash programs and G7 devices are offered via GoodRx for $185 cash price. One of our more progressive retail partners made it super easy for Kathy Kathy got her medicine and also happened to switch her pharmacy. When we talk about filling the gaps in insurance, removing friction for patients, and adding value to the system, this is what it looks like. We're also excited about our new e-commerce solution, which just launched with OPIL, the first over-the-counter birth control pill. This new capability allows consumer health and pharmaceutical brands looking to provide a frictionless experience for consumers to integrate their offerings directly into the GoodRx platform. Not only are we creating new ways for consumers to buy their medications directly through GoodRx, but this is our first partnership with an over-the-counter brand, which is an incremental addressable market we're exploring. Over the past year, we've seen a shift towards healthcare brands creating direct-to-consumer experiences, And the GoodRx e-commerce solution could enable us to integrate many of these offerings directly into our platform, providing valuable opportunities for both us and our partners. Similarly, we're also working with Hy-Vee and other retail pharmacies so consumers can soon pay over time with a firm via the GoodRx platform. This is part of our broader e-commerce strategy to streamline consumer experience and help people access their medications. by delivering a more affordable payment solution and helping them reach their deductible. Ideally, this will make the entire purchasing process simpler for patients, for retailers, and also for healthcare plans and their employees. We feel great about the trajectory in pharma manufacturer solutions and the potential growth in this business going forward. At our investor day in the spring, we shared a 20% or more revenue growth rate target for pharma manufacturer solutions. As Karsten will discuss, we see our Q4 results coming in at about that same level. Turning to what's a bit more challenging in the near term, results in our prescription marketplace were more mixed. We've been consistently adding market share over the past several quarters, and our integrated savings program, or ISP offering, is performing well. However, our core direct consumer prescription offering does face some near-term retail pharmacy headwinds. as we've mentioned previously. On the positive side, ISP, which provides consumers with a valuable complement to their health insurance and leverages PBMs to bring us new users, has been performing in line with our expectations. Our core ISP program, running for its second year now, focuses on providing patients the lowest possible price we can on covered medications, typically generics. We're excited about the integrated savings program, WRAP, or off-formulary brand deals, which we've begun signing and are expected to launch in early 2025. These programs will allow patients to benefit from low good or X prices where medications, typically brands, are not covered by their benefit plan, which is a growing portion of the market. We believe this capability, having a cash or copay offering for uncovered brand medication, should be a core component of every single funded plan. And we look forward to working with our plan and PBM partners to make this a reality in 2025 and beyond. While we're excited about the higher growth areas like ISP, our prescription marketplace continues to be impacted by challenges in the retail pharmacy environment. Multiple chains are closing locations and some are renegotiating reimbursement rates with PBMs in an effort to improve profitability. In prior quarter, we talked about Rite Aid store closures impacting revenue by about $5 million in the second half of 2024, and we've seen approximately $2.5 million of impact in the third quarter. The Walgreens and CVS store closures are indicative of the pressures retailers face. While these retailers' store thinning isn't expected to be as impactful to us on a store basis as Rite Aid's continued, more concentrated closures, All pharmacy retailers are taking actions to increase their revenue and margins. With all this going on, it's important to take a step back and note that GoodRx provides invaluable support to retailers in three important ways. First, we invest over half of our revenue into sales, marketing, and technology to capture and drive more prescriptions and more consumers to pharmacies. Second, we follow our partner pharmacy's leads on how they'd like to contract with us, whether direct to good or X, or still working through PBMs. Our direct and hybrid contracting enhances retailers' ability to merchandise. As I mentioned, we now have some form of direct contracts with eight of 10 of our top pharmacies, and over 30% of our volume now flows through hybrid and direct contracts, in part because of the share gain we've picked up at some of these direct retailers. Third and finally, We believe our ISP programs, particularly the WRAP programs that focus on brand drugs, reduce patient script abandonment, lead to more filled prescriptions, and may improve a retailer's overall economics in meaningful ways. So what does this mean? Well, in the short term, retailers are looking at all avenues to improve their margins. Since the start of the year, We've all heard in the industry about increasing numbers of store closures, larger pharmacy losses, and negotiations on funded reimbursements. However, in the long term, retail pharmacies will ultimately need to attract and serve consumers with a clear value proposition that combines physical retail with online capability. We believe that the longer term consideration should ultimately be a tailwind for GoodRx, although the wind will swirl at times. Before I hand it off to Karsten, I'd like to reiterate this tale of two cities theme. We're getting great traction with brand manufacturers, and it's showing up in the results. Obviously, the short-term retail landscape has changed quite a bit over the past 100 days in terms of store closures and retail PBM negotiations. But as these normalize, we see a continued path for durable growth in core PTR, as articulated at Investor Day. For those building models, obviously, you're going to want visibility into what that pacing will look like in 2025. The reality for us right now is that the goalposts are pretty wide, with brand medications and our pharma manufacturer solutions offering on track to provide 20% plus year-over-year top-line growth and strong market momentum. Core PTRs experiencing some short-term choppiness relative to recent quarters, higher single-digit percentage year-over-year growth rate. Given the external desire for precision guidance, we'll keep refining our expectations over the rest of the year and to share more refined expectations with everybody on a year-end call, consistent with our prior practice. With that, I'll hand it over to Karsten. Thank you, Scott. I'll review our third quarter financial results before turning to guidance. During the third quarter, revenue and adjusted revenue were at the midpoint of the guidance we provided on our second quarter earnings call in August, and adjusted EBITDA margin was higher than we anticipated. Adjusted EBITDA was up 21.5% year-over-year, despite the challenges in the retail pharmacy space. Q3 total revenue increased 8%, and adjusted revenue increased 3% year-over-year to $195.3 million. due to growth in our prescriptions marketplace as well as pharma manufacturer solutions. The third quarter of last year also included a total of $2.1 million of revenue from the Kroger Savings Club subscription offering and $2.5 million of revenue from the VitaCare offering within manufacturer solutions, neither of which contributed revenue this quarter. Moving on to the revenue lines, Prescription transactions revenue grew 4% year-over-year to $140.4 million, primarily due to a 7% increase in monthly active consumers and despite Rite Aid closure impact of $2.4 million. Subscription revenue declined 8%, as expected, to $21.3 million, largely due to the sunset of the Kroger Savings Club, which contributed $2.1 million in the third quarter of last year. Pharma Manufacturer Solutions revenue increased to $28.1 million, which represents 77% year-over-year growth. As a reminder, Q3 2023 Pharma Manufacturer Solutions revenue included a $10 million contract termination payment related to VitaCare that was recognized as a reduction of revenue. Excluding this payment, we still saw year-over-year growth as we continue to expand our market penetration including ongoing growth in our brand drug point-of-sale discount programs and more than offset the approximately $2.5 million reduction in revenue contribution relative to the third quarter of last year from VitaCare shuttering. Net income was $4.0 million compared to a net loss of $38.5 million in the third quarter of 2023. Adjusted net income was $31.9 million up from $25.5 million in the third quarter of 2023. Adjusted EBITDA increased 21.5% year-over-year to $65.0 million. Adjusted EBITDA margin was 33.3%, and it was up 520 basis points year-over-year. The significant year-over-year improvement was primarily driven by top-line growth in savings from the restructuring, of our VitaCare Pharma Manufacturer Solutions offering in the second half of 2023. This marks another quarter of increasing adjusted EBITDA margin up from 31.7% in the first quarter and 32.6% in the second quarter. It also consistently follows adjusted EBITDA growth of 18% year-over-year in Q1 and 22% in Q2. We generated net cash provided by operating activities of $86.9 million in Q3 compared to $60.3 million in the prior year period. The increase in cash provided by operating activities was driven by an increase in net income after adjusting for non-cash items and changes in operating assets and liabilities. Our balance sheet is robust and we ended the quarter with $423.8 million of cash and cash equivalents and $500 million of outstanding debt. Our revolving credit facilities untapped except for letters of credit and had $91.7 million of unused capacity as of September 30, 2024, representing total liquidity of $515.5 million. Our capital allocation priorities are unchanged and will continue to focus on high return investments and maximizing value for shareholders. Okay, moving on to guidance. For the fourth quarter, we expect revenue and adjusted revenue to come in at around $200 million. This would put full-year revenue and adjusted revenue just under $795 million, which would result in approximately 6% year-over-year growth in revenue and roughly 4% growth year-over-year on an adjusted revenue basis. We see the approximately $200 million of fourth quarter revenue and adjusted revenue being made up of approximately $164 to $165 million of prescriptions marketplace revenue, which is prescriptions transactions revenue and subscriptions revenue. That represents an approximate 2% decline year over year for prescriptions marketplace revenue. As a reminder, on the subscriptions revenue line, Kroger Savings Club contributed approximately $1.6 million of revenue in the fourth quarter of 2023 and is not contributing revenue this year due to the sunset of the program in July. And we anticipate approximately $2.5 million of Rite Aid store closure effects impacting the prescription transactions revenue line in the fourth quarter, consistent with our estimate from our prior earnings call, which pointed to approximately $5 million of total Rite Aid impact in the second half of 2024. Our expected growth would be positive without the anticipated Kroger Savings Club and Rite Aid impacts. We see pharma manufacturer solutions coming in at approximately $29 to $30 million of revenue, representing about 20% growth, consistent with our expectations for the pharma manufacturer solutions offering we laid out during our investor day. We expect other revenue to be approximately $5 million, flat for the fourth quarter of 2023. The full year roughly 4% adjusted revenue and 6% revenue growth is at around the low end of our 6% to 12% three-year compound annual revenue growth rate we discussed at our investor day, in part because of the expected approximately $5 million Rite Aid store closure impacts. Also, as a quick reminder, Full-year 2024 growth is also tempered by approximately $16 million more revenue included in 2023 from the offerings we shuttered, VitaCare and Kroger Savings Club, than they contributed in 2024. From a margin perspective, we expected just to deep at that margin to be about 34% in the fourth quarter. For the full year, we expect $255 to $260 million of adjusted EBITDA, up over 17% from 2023, based on our expectations of a high degree of adjusted EBITDA flow through from top line growth and our continued focus on cost structure and efficiency generally. Our full year 2024 expectations represent over 32% adjusted EBITDA margin, up more than 340 basis points from 2023, and we believe demonstrates the inherent adjusted EBITDA margin growth potential of this business. Now that we've talked about 2024 outcomes, I expect many people listening would appreciate a view on 2025, particularly the folks out there who are building and updating their models. We're not formally guiding now because we're still doing our 2025 planning, but we do want to be helpful. On the one hand, we have clear views on our pharma manufacturer solutions revenue for 2025 as client discussions progress and commitments and bookings for 2025 are locked in. We are confident that we'll see 20% plus year-over-year growth in pharma manufacturer solutions in 2025 versus 2024. On the other hand, with retail pharmacy struggling, The goalposts for our prescriptions marketplace, and especially prescription transactions revenue, remain fairly wide. Incorporating these two dynamics, we believe total GoodRx revenue will grow in 2025 relative to 2024, and we expect that revenue growth to be somewhere in the single-digit percentage range. We expect adjusted EBITDA margins to continue to increase as we drive flow-through from incremental revenue higher, continuing our trajectory of EBITDA growth. Because of the wide range and potential outcomes, we encourage everyone to model 2025 revenue conservatively and will provide updates as our prescriptions marketplace visibility improves. With that, we'll turn over to the operator for questions.