GoodRx Holdings, Inc. (GDRX) Earnings Call Transcript & Summary

Okay. Good morning, everybody. I'm Mark Mahaney, Head of Internet Research here at RBC. My colleague, Sean Dodge, and I are thrilled to host GoodRx. We have Doug Hirsch, who's the co-Founder and co-CEO; and Karsten Voermann, who's the CFO. We've got only 30 minutes. We're going to go through a series of questions. There's a Q&A box at the bottom right. If you want to ask any questions, please type them in. I'm going to start off and then swing it over to Sean for questions.

First, Doug and Karsten, thank you very much for joining us today. And Doug, before we -- so this is still a relatively early stage in your public company life. So you created something -- you entered in the market because you saw -- this is a great example of a business that founded inefficiency in the market and created a great business model around it. So just remind us of why you found -- why this market opportunity is so interesting to you and now obviously, the other people, too. But first off, just talk about the TAM, the addressable market and what makes you so excited about this growth potential from here.

Sure, and thanks for having us. I really appreciate it. When we started GoodRx, our goal was just simply to provide consumers with affordable and convenient health care, to provide information and guidance to demystify an incredibly complex industry, and honestly, most importantly, was just to help people who had nowhere else to turn. I mean I don't need to tell anyone here. The health care system is very broken. Pricing is totally irrational, and I think -- I experienced this personally back in 2010 when I walked into a pharmacy and was presented with a $500 bill, and I just thought we can do better. We started with a free-to-access price comparison tool that grew into a successful prescription website and app that allows consumers to save money. You literally just present GoodRx at any 1 of 70,000 pharmacies where GoodRx is accepted, and you save up to 80% of your prescription. If you haven't tried it, I strongly recommend. It's one of those aha moments when you realize how simple and easy it could be to save so much money and find affordable health care. Today, we help almost 5 million consumers a month and have generated $25 billion in savings to our customers, and I'm so, so proud of that, that our platform has extended at such a tremendous level. From a TAM standpoint, consumers can find discounts for both generic and brand medications for our products. It's also worth noting that we'll always be the best option for the uninsured, but our negotiated prices are often cheaper than insurance co-pays. In fact, the majority of people that come to GoodRx has some sort of coverage, but their insurance just isn't working. They're underinsured. They have some sort of restriction. And many people here know there's all sorts of ways that insurance basically pays for less and the consumer pays for more, so they end up coming to us. And again, the majority of people that come to GoodRx have insurance. A New York Times investigation found that 40% of the time for the top 100 most common prescriptions in America, GoodRx was cheaper than insurance co-pay, even after hitting deductibles. And that was a few years ago. I honestly think our savings rate has improved materially even since then. So insurance is getting more and more complicated, and additional mechanisms are in place to basically push more and more of the burden to the consumer who really can't afford it and especially now in COVID, where there's all this disruption, and insurance is even more contact than it normally is and people are changing insurance, et cetera. We've created a simple -- that's simple and easy to use and has none of these complications and can address a really large market. Karsten, do you want to add anything to that?

I think that was perfect. I think we can wait for Mark to come in with any follow-ups, and then I'll jump in, Mark.

Yes. Let me keep going. So I think your business has had some pressures during the COVID crisis. Can you talk about what happens to -- I also refer to this as the vaccine conference. This is the first investor conference post what looks like very constructive positive news about clinical trials, vaccines. Maybe we'll have broadly -- hopefully have broadly distributed vaccine in the middle of next year. There are some companies that probably benefit from -- there are a lot of companies that benefit from a reopening of the economy, of societies, cultures, et cetera. Talk about what impact that has on GoodRx, which is also asking you how -- the way that GoodRx has been negatively impacted by COVID.

Yes. So -- oh, Karsten, do you want to take that one because I think you have more...

Sure. Yes. So Mark, COVID has been interesting for us. Our business has been pretty incredibly resilient generally through the COVID era. When we look at any of our metrics, whether it's revenue metrics or our monthly active consumer metrics, or MAC metrics, the second quarter of this year, which is really the highest COVID quarter and the one with the biggest impact, was higher than any other quarter in our history, except for the first quarter of this year. So even though we had a slight dip with COVID, that dip really was small. And the second quarter is even bigger than, say, 4Q of 2019 on a MAC-count basis or on a revenue basis. And I think the reason for that resiliency is twofold. The first is our repeat transaction rates or users who recurrently use GoodRx and repeat their transactions is well over 80%. And so the high repeat transaction rate creates a sort of annuity stream-like reality with a lot of our users, and that allows us to continue to help them, of course, too, through periods like COVID. I think the other reason is that the massive majority of prescriptions generally are for non-acute, in other words, for chronic conditions. So -- because they're for chronic conditions, whether COVID happens or not, you don't really see a lot of impact. In fact, the majority of the impact was really limited to our new users not being able to come on to the platform as quickly as they might otherwise be able to. And that's not -- has nothing to do with us. It has to do with the fact that during the height of COVID, it became much more challenging to see health care providers for a lot of folks, either because they're a little concerned about leaving their home or because the health care providers themselves weren't necessarily available. So in terms of the impact historically through the first big phase of COVID, not that much for us compared to many, many other businesses. Is that helpful?

Yes. Absolutely. I'm going to spin it over to Sean, but Doug and Karsten, you can probably see the questions on your screen, too. And I think that's the first 6 of the -- 6 of the first 7 questions are about the topic that Sean is about to raise. Go ahead, Sean.

Yes. And I guess -- so obviously, big news out of the channel yesterday with Amazon launching its pharmacy efforts. Could you maybe just kind of walk us through the different elements of that and how you see that affecting GoodRx? And then maybe you can weave in some comments around your competitive differentiation there, the strength of your moat -- levers you can pull that -- to maybe widen that moat here?

Yes. And I'd like to spend a little bit of time on this one because I think there's some significant misunderstandings in pharmacy, and it's been sort of surprising to us, to be honest. Look, pharmacy is really complicated. It's one of the reasons I love working in this business. And I can -- throughout our company's history, I've been told many times that there was something that was going to significantly disrupt the way we do business. And honestly, obviously, it's been a decade of growth for us and I'm very proud of that. If you actually look at what Amazon was talking about yesterday, they're focused on being a mail order provider. That is what Amazon does, and it's what they do best. And a lot of folks sort of conflated this retail pharmacy discount card that they've put up there as being an actual product or service. But really, it's mostly there to comply with contractual obligations around insurance co-pays which they need to do for mail. And it's a complex pricing step, which I think some of you folks might understand. We can walk through in more detail. But in short, you have to offer a retail prescription discount card in order to show those co-pays and offer the Amazon pharmacy prices on the website, which is what they're really trying to do. And it's not me making this up. I mean I challenge anyone to go to Amazon and actually try to find this discount card. And the card that they put up looks a lot like what the world looked like prior to GoodRx launching in 2010. And let's step beyond that. I mean if you -- I really just doubt that anyone at Amazon or Walmart or Walgreens or CVS, all of them are obviously competitors, think that when someone walks in with an Amazon-branded discounted card at a CVS or Walmart, that's a good idea, especially when they're going to then send the data, the patient data, prescription data back to Amazon. It just doesn't seem like that's necessarily sustainable. So I'm just -- I'm a little surprised at how people have been somehow translated that into this sort of massive new player in the discount card space. Let's be honest, other folks in, I'll call it, the health care space have tried to launch discount card programs like this and they generally failed, and I mean, very large companies, and you can go back in history and see that. When I think of competition, I don't think of Amazon. I think about the 70% of Americans who just don't have a price area, right? I mean Amazon being in the space means more people are aware that they have a choice. It's a $524 billion market. We've been doing this for a decade. We have the largest healthcare digital marketplace by far. Mail order, as we talk about that, let's be honest, it's just 5% of overall prescriptions. 95% of prescriptions are done in the retail pharmacy environment. And that hasn't changed, even in COVID, when people are scared to go to pharmacy or haven't been able to go. This is a really hard business and getting people to go to mail is very tricky. It's not a one-click experience, and it's something -- that's why Amazon has been working on this for so long. And look, I'm -- as a partner of Amazon, which we are, I'm very proud to see them continue to make progress on their mail order product. And we -- but I think in terms of retail, I just think that people potentially are thinking there's more than there actually is. GoodRx is a marketplace. We get 2 billion price points per day. It's hard to beat our discounts. I should mention that the prices that GoodRx has are better than Amazon the vast majority of the time. And we even have those prices again on GoodRx as well as those Inside Rx prices. So we're confident that when people are looking for the best price, they're going to find it at GoodRx. But most importantly, look, we're focused on the larger health care journey. We've got new products like brand savings, telehealth, really, really exciting, fast-growing categories that I'd love to get into more today. So I just -- I don't mean to sound either defensive or impatient. I just think that -- I'm surprised that the perception people have that they are like directly going after GoodRx, I just don't see it that way. Karsten, is there anything you want to add or...

No. I think that's exactly right, Trevor. And I think from our perspective, as Doug said, the Amazon shift in this space also does 2 other things. It, number one, underscores the size of the TAM, which is very, very large. I think as we all know, Amazon doesn't go after small TAM, after small addressable market realities and spaces. And I think as Doug said, the most important thing is that this will increase the awareness of the reality that there is a possibility for consumers to save money on prescriptions, period. And when we see competitors of any kind advertising and marketing their discount programs, whether it's Charlie Sheen ads or any other ones, because we have such large relative market share in the space, we're, by far, the biggest player. The benefits of that advertising near to us as much or maybe more than the -- near to anybody else. So we get that rising tide effect lifting us up, too.

And then maybe, Doug, you touched on it a little bit here, but if you could kind of walk us through the -- hey, any initial analysis you've done, the efficacy of the Amazon discount card versus GoodRx. You guys are sourcing data. You're able to cherry-pick across many different PBM contracts. Amazon looks like it's only really being driven by one. So any kind of initial data or thoughts you have on how the discounts under the 2 different cards can vary or compare?

I mean, I'll keep it simple and say, obviously, Amazon's using Inside's Rx for -- to provide this discount card. We are a founding partner of Inside Rx. In fact, we've worked with them for quite some time. It's obviously powered by Express Scripts or I think they're called Evernorth now. Again, we have those discounts built by GoodRx, but we also have pretty much every major and even midsized PBM and GoodRx as well, as well as GoodRx Gold. So I guess what I can say with confidence is that GoodRx is going to have great prices because GoodRx is every price. We have all of the information, and we provide it to consumers in a super intuitive, easy-to-use way. And we've been doing it for a decade, and we know how to do it. So again, I think there's been a lot more attention placed on what I would call, really, honestly, more of a contractual obligation than the real gist of it, which is that Amazon wants to be a mail order pharmacy. And I think that will -- that is where they're going to make their bets in my personal opinion.

And Sean, we have seen a number of reports from various analysts we've spoken to over the last 24 hours or so comparing what Amazon's offering to what we're offering, and the consensus coming back from them as well as our own analysis is that our pricing is just better. So the massive majority of the time, if you search on GoodRx Gold relative to Amazon Prime pricing, sort of subscription to subscription, or if you just search GoodRx, the normal GoodRx, not even the subscription version, massive majority of the time, our pricing is better. And when it's better by quite a bit and on the very few number of instances where their pricing might be better, they're better by not very much. And we've not only seen that ourselves. Our analysis is continuing, so I don't want to represent it as complete. But we're hearing that back from The Street, too and some of the other banks who are covering us and looking at the relative pricing. And I think that will likely continue because what we've also heard is that Amazon and Cigna are touting this is an exclusive relationship. So where we have over a dozen PBMs from whom we can source pricing, as Doug said, every price, and therefore, we can pick the lowest price for a given consumer in a given geography. That's not possible for folks who only work with one PBM instead of working with many. And that exclusivity makes it sounds like that reality is really not going to change for Amazon anytime soon.

Okay. If we look to the PBMs with the other retailers, is there any chance those become more of a competitive threat? Now could Amazon's announcement elicit some type of competitive response from somebody like a Walmart or a CVS or a Walgreens that could impact you one way or the other?

I mean, yes. I'll keep it simple and basically say we have incredibly positive relationships with all -- I mean, one of the wonderful things about having -- the position that I'm in is that we actually work very closely with everyone in the health care ecosystem, everyone from providers to pharmacies to PBMs. And we have very close relationships to the point where we're talking almost daily with all these folks. And you can imagine whenever someone makes a move in the space, everyone around that would very much like to engage and see how they're going to respond. And so for us, this has just been -- all these changes to the world of pharmacy have been opportunities for us to continue to look at new ways for us to work closer with retailers. And I think that -- I think there's a lot of opportunity, I'll say that. And I also want to remind you guys that we are -- we actually partner with Amazon, so you can actually use a GoodRx discount at the Amazon pharmacy, and you can use it at Walmart. You can use it at Walgreens. And so my point is I see lots of opportunity for us to continue to extend and grow our partnerships with all those retailers. And I think competitive pressures drive them to be more open to working with us, so we're excited to take advantage of that.

Okay. And then one more for me before I spin it back to Mark. Maybe on the election now that we're mostly hopefully on the other side of that, what are you think the implications of that for GoodRx? Are there any kind of key regulatory issues outstanding that could potentially have a meaningful impact on your business?

I mean, I think the short answer is no. We do not see any meaningful policy changes, regulatory changes that would significantly impact our business. Again, a little perspective, I've been doing this for a decade, and I've seen many proposals. Remember, GoodRx has started before Obamacare, the ACA came into effect. And everyone told us that there wouldn't be a need for our service because Obamacare was going to make everything free. Obviously, our business is quite successful and works very comfortably in a world with Obamacare or a modified Obamacare because there are just so many gaps in care. There are so many people who still remain unable to afford the health care that they need. So look, regardless of the administration, health care is going to remain complex and expensive. Americans are going to need help navigating the system. We are going to be there. We are the trusted resource, not just for consumers, but also for the health care industry and for providers as well. So I don't think we anticipate anything like that. I think we're going to have a -- it sounds like a mixed party leadership anyway. And the one thing that I am excited about is I think there's more transparency that's being thrown around from a number of different places where we may have access to more information that we can use to help more Americans save on more health care services. So in short, no, no specific policies, but we will continue to work in whatever environment there is.

Sounds good. Mark, I'll turn it over to you.

Hello, Mark, we can't hear you.