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

All right. We're going to get started. Thanks, everybody, for joining us for another great session. On behalf of Barclays, for those that I have not met yet, Ross Sandler, I run the Internet team. We'll be joined shortly by Steve Valiquette, who is in charge of our health care research practice. But we're super excited to have a debut from Doug Hirsch and Karsten Voermann from GoodRx. You guys have been making the circuit of late. So we really appreciate carving out some time to answer some tough questions from the Barclays crowd. So thanks for joining, guys.

I guess just to start, we'll start with the easy ones and then increase the heat. But for those that are less familiar, can we just go through a brief introduction of the company. Doug, how you guys got started and what you see as the big opportunity.

Sure. So yes, we're certainly nontraditional health care company. My background actually is more tech. I was one of the first employees at both Yahoo! and then the Head of Product at Facebook. And then back in 2010, I had the strange experience like many Americans, I think, have had, where I walked into a pharmacy with a prescription in hand and the pharmacist did the thing at the computer and said that would be $500, and it kind of blew me away. And I guess I'm also naturally cheap. So I took the prescription back and I went to the other pharmacy down the street, and they said $250. And still now curious, I took it to a third pharmacy who said $400 and then chased me in the parking lot when I left and said, but we can kind of deal, what can we do? And it just kind of blew my mind because as someone, and this is back in 2010, who compared prices for everything, whether it be travel or electronics or anything, really. When you went -- when I went to Google and I searched for drug name plus price or anything, there was just no information. And that was really the genesis of GoodRx, which is can we help Americans, first and foremost, understand the cost of health care. And secondly, can we help them find all these incredible ways to save that as I started digging in, I found. And so today, 10 years later, GoodRx have saved Americans over $25 billion on prescriptions. And not only do prescriptions, but we also are servicing other categories, which we'll talk about today. We work with all constituents. We're sort of the Switzerland of health care in the sense that we are very close partners with pharmacies, with pharma manufacturers, with PBMs and -- but first and foremost, our client is the American consumer. So many consumers, even if you have insurance, are paying too much. Almost 3/4 of the people that use GoodRx actually have insurance, and yet they still can't afford their meds. And so we've really focused very hard on building a simple, easy to use technology platform. We process over 200 billion price points today at over 70,000 pharmacies. And it's really just a start, right? We have subscription products like GoodRx Gold. We started to do a lot of really cool things with brand manufacturers. We have a telehealth company now that is just an incredible experience, and I encourage everyone to check it out. We're really focused on being the leading consumer-focused digital healthcare platform. And for anyone who hasn't had the opportunity to use GoodRx, it's sort of one of those see it when you -- believe it when you see it kind of things, and it really is so simple. You just download our app, you present it at the pharmacy, it works just like a coupon does at the grocery store, and you actually can save 80% or more on prescriptions and now medical care as well.

Awesome, and it's been a crazy year with COVID in your business. I mean, you guys are kind of, I would say, a hybrid type company in that there's been some aspects of your business that have benefited massively, others that have seen new headwinds. So -- and if you look at the second quarter when everybody was freaking out, particularly in California and in New York, your mac growth rate decelerated a decent amount. We're now seeing the same kind of restrictions around mobility in California and elsewhere again. So just how has the company navigated and how these trends between both the script business and the telehealth business evolved of late?

Karsten, why don't you take a first stab at talking about COVID's impacts, and then I'd like to pop in later to talk a little bit about -- more about the future, too.

Sure. So Steve, Ross, yes, I think the reality is similar to how you described it. The second quarter for us was the first quarter in our history where we didn't show significant macros. Now we're lucky because we have an 82%-plus repeat transaction rate from our users. So that meant we still beat every quarter in our history, except the first quarter of 2020, which was a good position to be in, but we still obviously weren't happy with the year-over-year growth or with the quarter-over-quarter sequential decline. And the principal reason that we feel like that happened is because of the access to the health care system. And as you said, with that lockdown back in those days, folks felt a higher degree of fear, both on the patient side and actually on the health care side, too, and that limited -- more limited access to health care meant that many conditions went undiagnosed and many prescriptions just never happened. So what we really saw was that those new prescriptions were the driving factor because the new prescriptions drive our new mac number. So we had great recurring revenue, but our new macs didn't increase at the rate that we would have liked. I think the reality now, though, is a little different. The Q2 to Q3 growth was a huge jump. It was 11% Q-over-Q. And as we said in our earnings guidance and in our call a few weeks ago, for Q3 to Q4, we suggested that it would be more like 4 -- maybe 4% to 5% macros. And part of that is because of the same dynamic. We had the benefit of seeing the evolution of COVID and being able to see the evolution of how the health care system might be impacted. So even though we had a monthly record number of active consumers in Q3, we still were in our guidance for the fourth quarter, tried to be pretty realistic because we always try to hit that number as close to the pin as we can because we feel like a lot of people use that for modeling. I think the final thing I'd say, though, is when we think about sort of COVID and growth in macs in general, a number of our business lines, like subscriptions, do quite well. And in some ways, they actually work against the mac number because when someone becomes a subscriber, that's usually someone who is formerly just a monthly active consumer and decided, hey, I'm saving so much money, I'm going to become a subscriber. So that ends up potentially hurting what would otherwise be even faster growth on the mac side, and that's probably relevant in this discussion, too. And with that, I'll turn it back to Doug to talk about the future and how we see the evolution going forward.

Yes. I mean one of the things -- we are very, very -- most of GoodRx's history has been -- I would say that consumers obviously have been very concerned about the cost of health care and the increasing burden on consumers. Since the history of our company, we started prior to the ACA and then obviously, we've lived through the ACA and the -- just increased burden for both uninsured and underinsured consumers. And now we have this whole different dynamic that's playing out, right, which is where I'm very excited to see the progress we're making with this vaccine. And hopefully, a lot of those health care workers will start to get that vaccine, and we'll start to see a reopening of any of those limitations that we had around medical services. And then if you think what's going to happen in 2021, and again, this is not about our business per se, but if you look at a macro level, every single American who at least is willing to take the vaccine is going to have to interact with the health care system. They're going to have to walk into their nearby pharmacy, they're going to have to go to an urgent care clinic, they're going to have to go back to their primary care physician. And it's a really incredible opportunity, I would argue, for all of us, not just GoodRx, to really reengage with these folks and say, okay, there's a new way of doing business, whether it be using telehealth, whether it be home delivery, whether it be just putting products and services and education in front of people. So I think 2021 is going to be really interesting because it's going to be the post pandemic, what sticks, right? And I think it's a really interesting opportunity for us, certainly, for us to continue to drive behavior change with consumers and show them that there's a better way.

Yes. Yes. On that front. So you guys acquired HeyDoctor. It was kind of a scrappy start-up operation from what we gather talking to other folks that were competing with them that are private. And Steve, who just joined us, he covers Teladoc and he knows that space pretty well. So I guess, how do you progress the HeyDoctor franchise since closing that acquisition? I think there was a limited set of conditions and a limited like geographic footprint when you bought it and now you've quickly kind of ramped. So where are we on the breadth of services and the number of states that you're doing business in at this point?

Sure. So we were very fortunate. I'd love to say we saw the writing on the wall, but we did not. We -- when we first met the HeyDoctor guys, we just thought these guys are so smart. They so understand how to make health care and telemedicine services done right, an experience a consumer can understand and easily access and do it in a safe manner. And they also brought a different model. If you think of the traditional Teladoc guys in that, they're all kind of in the PMPM, B2B sort of experience. Then on the other side, you've got the sort of the prescription-based services out there. We wanted to take a different approach, which is we wanted to be able to provide affordable, straightforward $20 to $40 doctor visits where a consumer could come in and very quickly find the savings, finding the care that they need at an affordable price that should be in line with what they would expect the co-pay to be, but in many cases, don't have insurance where it's going to be covered. And we've been very successful I think in doing that. Today, we're in all 50 states. We're servicing -- I don't have the exact number. Karsten, you might know of the actual number of conditions. But we continue to expand the number of conditions that HeyDoctor treats. And then backing all that up is we have this marketplace. So for services that we don't necessarily provide, we have a marketplace of a number of other providers who do -- who specialize in certain categories, whether it be mental health or diabetes or something like that. We've also integrated telemedicine -- mail delivery services into our telemedicine experience. And honestly, it's just -- it's one of those experiences, again, where it's just such a seamless, perfect complement to the GoodRx experience. Because remember that 20% of the consumers that come to GoodRx don't actually have a prescription on them. And so if you're looking up whatever, atorvastatin, and you don't have a regular relationship with a cardiologist, you can literally click a button. Again, it's a nominal amount of money. We'll send the prescription either to a mail order pharmacy or to a retail pharmacy near you. It's meant to just really continue to focus on not only affordability but convenience. And I'm really, really pleased with the growth. I think we've made a lot of improvements with the experience, and we continue to address the key conditions that consumers finding those pain points with. And I think, again, with COVID, we've seen a huge impact, like a huge increase. I think when we look to the future of telemedicine, my personal opinion is I think that some services will stick. An example, one that I'm obsessed with is mental health. And I think there's no reason for me to drive to my therapist office and parking for $30 in the parking lot. I think you can have a great therapy session remotely. But -- so I think you'll see a lot of categories where you see telemedicine kind of here to stay. I think in other cases, especially obviously hands-on one, you'll see sort of a return to the in-person experience. I think the result will be a medley, and we plan to help service both.

Awesome. I promised that we'd ask some tough questions, not just the easy ones. So maybe we can go to the Amazon topic now, and I'm going to bring Steve in because we -- as I mentioned to you guys before we started, we actually are just multitasking over here. We just hosted a call with an early PillPack employee, and he had a lot of interesting things to say. So I guess, before Steve jumps in with the grilling, I'll start by just asking what -- so the news has been out now for a couple of weeks. And Doug, you've talked about how there might be things that are happening in this PrimeRx card that are just for kind of regulatory kind of price transparency reasons, compliance reasons. What have you learned about what's going on here? And are there things about that single PBM relationship that they're going with that are going to limit their ability to really have a viable product compared to what GoodRx is offering?

Sure. And it's probably worth just setting the table for a minute because I think despite many, many conversations about it, I still think the reality is pharmacy is complicated and confusing. And it's really hard for people to understand the dynamics that are at play here because it's just so often counterintuitive and doesn't apply -- the normal rules of economics don't often apply in pharmacy. So as we all know, Amazon announced really effectively an upgrade to their PillPack experience that they have, which they now call Amazon Pharmacy, right? And the primary -- they acquired PillPack back in 2018. They've actually been doing pharmacy for far longer than that. If you remember drugstore.com back in 2000, which I think at one point they own the majority of. And it makes sense, right? Amazon is in the business of shipping boxes to people's homes, and what greater thing to do than to ship prescriptions to people's homes. The challenge is really, really, really hard. And it sounds like you guys are already familiar with, there's all sorts of restrictions in play. First and foremost, there's the consumer, the patient who doesn't necessarily want to receive prescriptions by mail because they actually enjoy going to pharmacies. It's basically a free mini doctor visit very often where they can ask about side effects or ask about that rash that they have or ask about any other question and pick up their toothpaste and toilet paper, whatever while they're there, right? Then on top of it, you've got these restrictions on behalf of the PBM. So for example, Amazon Pharmacy is not allowed by the PBMs to fill 90-day prescriptions. They can only fill 30 days. And I believe 90-day makes up about 30% of prescriptions. So you just -- and it's not their fault. It's -- that's the nature of these relationships between PBMs who, as everyone, hopefully, in this call knows, don't only adjudicate benefits, but actually also offer a mail order pharmacy their own, which is often a profit center, and they want to protect that to some extent. And lastly, as you know, the result of these contracts with these PBMs and with the government as well, result in an inability for a pharmacy to set its own price. So for example, if I have Doug's pharmacy and you walk in, and I think, okay, Ross is a nice guy, I'm going to just, for him, make this drug $5. That's technically a violation of my PBM contracts as well as potentially Medicare and Medicaid fraud. It actually could be a felony. And nobody wants to get in that situation, right? And so in order to do that, you have to dissociate yourself from this discount price by using a third party. And in Amazon's case, I think you guys mostly know this. They teamed up with Express Scripts. I think it's called Ever North now. Their discount card program, which we actually started with them. We actually with our launch partner, it's called Inside Rx. And so what Amazon has done is they've taken this Inside Rx price, and they put it on the page, like you see other products. The price is not that great. Actually GoodRx has lower prices about over 90% of the time than you'll see on that Amazon price. But -- and then the other aspect of it is because it has to be dissociated from Amazon is it has to theoretically work in other places. And there were a number of news outlets and things that somehow got into their head that, that means that Amazon is suddenly partnering with Walmart and CVS and Walgreens, so that you can drive a discounted Amazon price at a Walmart, Walgreens or CVS. Now if we just take a deep breath for a second, that doesn't seem like archenemies or -- it doesn't -- first of all, I can promise you, there's no actual contract relationship between any of them. And it seems highly doubtful that Walmart is really excited for someone to waltz in with their Amazon card and get half off Walmart's everyday low prices. So that's not -- that was never the intention. That's not -- I don't personally see that as Amazon taking over the retail pharmacy business. And as I just said, I think mail is really, really hard. We are partners with Amazon. I don't want -- it's not a David, Goliath. It's not a GoodRx versus Amazon thing. They are our partners. We talk to the PillPack guys all the time. GoodRx is actually accepted at the Amazon Pharmacy, if someone wants to drive a discount. We're thrilled about anyone that tries to disrupt the pharmacy delivery system so that they can get drugs at either better price or more convenient. And so again, it's just strange to have this thing that we view as a partnership and a positive thing for the industry as a whole to be construed as us versus them a relationship when it's really not. We think it's really, really hard to do mail. We applaud their efforts. We think it's going to be a long road.

Steve, do you want to hop in?

Yes. Sure. Hey, Karsten. Thanks for joining the conference today. We at Barclays definitely appreciates that. So yes, we just hopped off an expert call. This was a guy who currently works for a publicly traded company that has a pretty good sized PBM. And he worked at PillPack previously. He worked for UnitedHealth and Humana, PBM pharmacy operations previously as well. And we spent more of that call talking about the third-party reimbursed side of the prescription business. But as far as the cash pay portion, yes, I mean, basically, his punchline was that from the work they've done, they've dived into this great in-depth recently as well that the Amazon Pharmacy pricing, even on the cash base side, is coming out consistently higher than where pricing is coming out from you guys and other players. So they also thought that this Amazon Pharmacy threat was kind of greatly diminished by the pricing that they're seeing. So maybe more into the question for you guys. Maybe to talk more about the fact that you are leveraging a dozen or more PBM relationships to establish your pricing. I think you've kind of said that you think you'll maintain a superior pricing advantage because of that, but that seems to be getting reinforced by third-party consultants that we're talking to as well. I think we want to hear more about that piece of the puzzle. So I'll flip it to you guys to talk more about that.

Yes. I mean, remember who we are. And look, I think our DNA is we are a trusted marketplace, right? We have an NPS score of -- I want to be careful because I don't know what the latest numbers are, Karsten, but I believe it's around 80 something.

90 with consumers and 86 with health care providers, Doug. So quite a lot.

So -- and I treasure that. That's what -- when I go to sleep at night, and I have a smile in my face, it's because of that. It's because we have built this unique relationship with America's health care professionals and consumers that we are guiding them in the right direction. We are not a seller of prescriptions, right? We are not -- again, it's strange to compare a marketplace to one of the vendors, right, because that's not -- that's really the relationship that we're talking about here. We provide information across the board about, again, not just prescriptions but for many aspects of health care. And it's just -- this kind of us versus them or our price is lower. There's a -- you can go online today and you can search for cheap Viagra and find 100 different companies that are selling really, really cheap prescriptions, right? They're not winning because there's all these other factors that we just talked about. And so while I am very proud of the pricing GoodRx has, because we are a marketplace and we have 200 billion price points every day. I want to just emphasize that it's not like, ooh, will GoodRx move more prescriptions than Amazon? And I'm not -- just because we will work with Amazon, we will work with Walmart, we will work with CVS. We run Kroger's program, a discount program, for example, which is incredible, and it's been highly successful. So I guess, I just -- I don't see it as us versus them. I see -- what our prime advantage will always be is we're trusted. Consumers believe in us. In a terrible, terrible world of confusing health care terms and everyone's terrified, if you walk in the doctor's office or pharmacy, you don't know what's going to happen, it's that $500 a moment I had. We're here to take that away from consumers. We're going to show them, give them the tools to be in control. And we have this virtuous cycle that I'm just -- I'm really, really proud of where -- if you ask around about GoodRx, we work closely with everybody. We treat everybody really, really well. And I just -- I think that our partners value the relationship that we have with our consumers, and that's our secret sauce. And Amazon is a wonderful company. I have no issues with Amazon. But they are a vendor, and we may guide our folks to them if that makes sense, but we may guide them somewhere else as well. So I think you'll continue to see us strengthen that relationship with consumers really as I look into the future.

Yes. One of the other keys from that extra call was that [indiscernible] could also view it that, yes, Amazon is not really trying to drive more business to other retailers, and they clearly want to do their own fulfillment and dispensing wherever they can. But there are some roadblocks. They can't do any 90-day fills right now. It's only 30-day. So I mean, really -- I mean, the only thing I could think of that they might have would be the fact that if they could get somebody to use their cash card, that consumer could get the drug delivered to their doorstep, where through GoodRx, conversely, somebody still has to make a trip to a retail store. I'm curious how you think about that. And I mean, obviously, this will evolve over a longer period of time, multiyears, but do you have a sense in the back of mind that you may have to build up more of a home delivery type presence? Or do you think having the customers mainly go to retail fulfillment still works for the foreseeable future?

Sure. So I just want to clarify one thing very, very clearly. We offer mail order services today at incredible prices, that I'd argue -- I haven't done an actual comparison, but I know across the board, our prices are lower than Amazon, over 90% of the time. So -- and when I say we offer that, we offer that to a network of other pharmacies who fill on our behalf. And it's an amazing service. I use it myself. And it's slick and it works. And the prices are mindbogglingly low, far lower than a co-pay very often. And so again, we offer everything. That's one of the great things I love about what we do is you tell us how you want to get it, and we're going to get it to you there. So if you go through a flow on GoodRx, we'll say, oh, in fact, if go to any GoodRx price page you'll see, would you like to get at the pharmacy? Would you like us to send it to you? Would you like to join a savings club? Or are you a member of a savings club, so that may help drive? Would you like to look at patient assistance programs? Would you like to look at manufacture copay cards? We put this menu of options in front of consumers in a way they can understand. And again, it's unique. It's what we've been doing for every decade, and there's a lot of expertise behind it and a lot of hard data behind it. So again, I think we offer those services today. I think we have a history and an understanding of how to offer those services. I think Amazon will continue to try to make moves here. But again, they are constrained by the limitations of the system that we have in place today. And so I think as your expert observed, it's a long road. And we continue to poke at those problems as well to see how we can resolve those. And we have the advantage of working with every partner out there to see what the best solution is.

Okay. Great. I think we're good on the Amazon topic at this point. That was -- test these things with like the -- what would you arrive to kind of question, and we spend 6 figures on Amazon every year. And she's like, no way would I ever give my health information to Amazon Prime or no Prime. So anyway, on to other subjects. So we've got only time for maybe one more. So I was just going to ask about maybe a financial question for Karsten about margins. Doug, you mentioned that you're investing in building out the telehealth marketplace and I know there's some high-margin businesses in the other segment. You've got subscription. You've got manufacturing solutions, which is really high margin. And then you've got telehealth, which is more of a long-term margin build story but probably dilutive today. So Karsten, as you think about the next couple of years and you're kind of balancing all these factors of investing and harvesting certain parts of the business. I guess, how are you managing that? And what's the thinking about driving profitability versus growth over the long term?

Sure. I really appreciate the question, and it's a good one. You nailed it. Some of our businesses like manufacturer solutions are extraordinarily high margin, given we've got the 15-plus million visitors coming to the platform already and the platform is built out and has room to allow those manufacturers to provide information to our users. But yes, in the context of the margin evolution, during our earnings call, we talked about the fact that we're going to invest more deeply in 4Q '20 and beyond. And the reason for that is really partially that we continue to just see great payback, sub-8 months paybacks in our core prescriptions offering, which are really solid and continuing to be throwing off great rewards. Second thing that really impacts us is that this time period in the year is also a period when it's great to reach out to people as they're contemplating their benefits more broadly, given its open enrollment and the like. But sort of going a little bit more long-term from those periods, as we see our future going forward, we know we're the largest, by far, relative market share player in our market, number one. And number two, we know that our biggest competitor is lack of awareness around what we can do for people. Even if you just look at our core prescriptions offering, over 70% of people don't know that prescription prices differ between pharmacies. They just don't know that they should be using GoodRx. So our ability to continue to market into that, continue to achieve our rapid paybacks, and again, as the largest market share player, continue to own more and more of that market is attractive to us. So we will continue to accelerate our trajectory in that core prescriptions offering as well, to your point, as adding and continuing to drive marketing in our other business lines, particularly to shift people over to our subscriptions offering. We've now integrated our prescriptions and subscriptions product to make that much easier for people and much to discover and much more easy for them to do. And on the telehealth and marketplace side, the marketplace is a particular area of focus. Of course, that business looks a lot like our core prescriptions offering, too. It's a take rate business. Connecting consumers, our monthly active consumers with the marketplace participants. So it has a nicer cost of goods sold profile or more helpful cost of goods sold profile than, say, our own internal HeyDoctor service. HeyDoc continues to be important, too. It's got 5 stars. It's the best service of its kind. Second entry point for people into the GoodRx ecosystem because they might start there and then go to prescriptions, as we talked about earlier on the call. But given its different cost of goods sold profile than the other businesses, we also view it and balance that through a slightly different lens. Is that helpful? I think the long run margins that we anticipate haven't really changed. We continue to believe that in businesses like this, marketplace businesses, when you're the biggest player with the largest relative market share, the big get bigger and the margins for those big players improve, particularly once things like unaided awareness cross certain thresholds, like in the 25% to 35% range. When all of your marketing becomes more effective all at once and that ends up pulling up your margin in aggregate pretty darn significantly. And we feel like we're at the inflection over the next few quarters of reaching that point of awareness and reaching the inflections on the marketing side, which is super exciting for us.

Yes. Yes, that makes sense. That's super helpful. All right. We're out of time. I'm going to keep you guys on time for your next one. So again, on behalf of Steve and myself, and we at Barclays really want to thank you guys for carving out some time to talk to us live here today, and happy holidays and be safe, and we'll talk in 2021.

Thanks, Steve.

Looking forward to it. Thank you.

Bye, guys. Thank you.