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

Well, I think we're good. Thank you. All right. Thanks, everybody, for joining for GoodRx. I really appreciate it. So we have Justin and Karsten with me today. So thanks again, guys, for joining. Really appreciate it. For those who may not be as familiar with GoodRx, it'd be great to have a little bit of overview of the business, kind of what it does, maybe the revenue streams, I think that would be a good place to start.

Yes, absolutely. Thanks for having us, [ Umi ]. So GoodRx was founded now a decade ago. And really, the company started as more of a research project than anything else between Doug and Trevor, who are our Co-CEOs. And Doug went to a few pharmacies, he was told a few different prices for his drug. And at one point, he was chased out of the pharmacy and negotiated in the parking lot for a particular drug price, which sounded insane to him. And a decade ago, when you would Google a drug price on the web, you would come up with nothing and -- which seemed crazy when you could find drug prices for -- prices for airplane tickets and anything else online. And fast forward 10 years, now we have 20 million people coming to the website every month. We've saved consumers over $30 billion. And we're really synonymous with prescription savings for consumers. And what's been consistent through that time is our desire to drive a really simple experience for consumers to understand their health care. And that's led us, obviously, from prescriptions to a few more things. So we offer prescription discounts. We offer telemedicine visits. We have a subscription product. We're helping people more understand health care content through both video and written content through GoodRx Health. And we partner more with pharmaceutical manufacturers to help bring down the cost of those really expensive brand drug prices. So we want to be everywhere where consumers are thinking about their health in a digital sense and we are excited to continue to expand our platform.

So I heard some just massive market opportunity there, multiple TAMs. How do I kind of think about what specific markets you go after? And just exactly how big is this TAM that you're thinking about?

Sure. I think I'm going to take that one. But before I take it, I also want to let folks know that there's a potential that we'll be making some forward-looking statements in this, which is something we should have probably said upfront, but luckily, Justin didn't make any. And...

Nothing forward-looking here.

Yes, folks should reference our SEC filings for those as well as our risk factors as well. So but in terms of talking about market and TAM and the like, more specifically, the reality is that we feel like we have pretty much the biggest market there is to penetrate across multiple different dimensions. Like when you think about it, the health care market is $4 trillion that towards travel, that towards transportation, that towards real estate, pretty much any other market out there. And our ability to be able to capture that market and address it is incredibly salient. So on the prescription side, in particular, which is where our business started, as Justin just alluded to, that's a TAM of about $500 billion just by itself. And within that TAM, last time we quoted our GMV figures, it was only $2.5 billion back in 2019. So clearly, a massive opportunity to expand much, much more on that TAM. And that I should also add that we're by far the largest player in our space by a multiple of single-digit integer. So it's not like we're taking share. We're taking greenfield TAM. The exciting part for us, too, is that about 70% of consumers have no idea that prescription prices even differ. So this is about educating consumers on an opportunity to make their lives better, both by getting on medication and also by being able to save a significant amount of money. So on both those prongs, we have a great ability to fulfill our mission of making health care more affordable and more accessible for more Americans. So that's just the prescriptions TAM. Then we also operate in telehealth, which in itself is a significant market. And finally, in what we call manufacturer, pharma manufacturer solutions, which is an area in which we can help people save money on branded drugs and help people get on branded medications. And what's interesting about those unlike most of the prescriptions offering that we work in is that in the branded medication front, even if we save consumers as much as we do in our regular prescription transactions offering, which is about 79% of what they'd otherwise pay, and that forms the $30 billion that Justin mentioned that we saved consumers so far. When you take a branded and very expensive drug down by that 79%, it still may not be affordable for a lot of Americans. So what we do there is partner with drug manufacturers to help our users benefit from things like co-pay and deductible assistance programs, affordability programs broadly that help these patients get on medication. And along with affordability which are basically an access solution, we can also inform consumers, and particularly health care providers, around medications that are available and also ensure adherence through the pharma manufacturer solutions offering. In that alone, pharma manufacturers are spending about $30 billion on. And we're now penetrated into 19 of the top 20 manufacturers. So we've made great progress there, producing great ROIs on our marketing spend. In fact, when we quoted in our last earnings call was achieving 8x ROI, and we're getting over 150% net revenue retention because we're seeing such great results. That said, we're only penetrated about 4% into the manufacturer brand of the top 20. So about 25x runway there. And then we have the other roughly 525 manufacturers out there to penetrate as well. It's one of my favorite businesses because it's almost all margin, the only real incremental cost is selling to manufacturers. So clearly, huge TAM, $4 trillion health care, $500 million just in prescriptions, $30 billion in manufacturer solutions and of course, telehealth, [Umi].

Yes. I think you win the award for the largest TAM at the conference. $4 trillion is the largest I've heard. So you said something there, I want to kind of unpack a little bit. You have this amazing relationship with the health care providers. What incremental value proposition do you have for them? And like, how do you expand that?

Yes.

Because it's really unique.

So on the -- I think a lot of people think about GoodRx when they just think about consumers. They think about consumers coming to the website and saving money on their prescriptions or getting a telehealth offering. But the reality is that 17% of the visitors that are coming to the website are health care professionals, which is a huge number, if you think about the fact that we have 20 million people that are coming to our website every month. And really throughout our history, serving health care providers has been a really core part of what we do because so much of the health care journey either starts or is continuated or continued by a health care professional. So we're really proud of the relationships that we've built there. We have 2 million health care providers for the patient that have had used GoodRx, 96 NPS amongst health care providers and 80% awareness. So really, really high numbers. And we continue to try to serve them in ways that are going to help them help their patients better. Health care providers will frequently say the best medication is the medication that a consumer will take. And all too often, affordability and other behavioral attributes get in the way of people from taking the medications as they need to. So we've partnered for the last number of years and making their jobs easier, partnering with electronic health record companies to integrate GoodRx pricing into their building tools into the GoodRx platform specifically for professionals. We have their own app. We're continuing to build capabilities that help providers, help their patients, and we're excited about that and are going to continue to be doing more of that.

And as you build that out, is that just about awareness? Or how do you think of what accelerates that penetration into those health care providers?

I think that there's a lot of awareness already at 80%. But I think that -- I think changing the product to serve them specifically as opposed to having a ubiquitous product that can be used by consumers and health care providers themselves is kind of the first step in going there. And then creating tools that are built into their workflow, so that you don't have to have a provider going from one platform to another platform is a key way in doing that.

Okay. I saw a few weeks ago, you announced GoodRx Health. It'd be great to understand kind of what that is, where does that fit in the overall strategy, and just how critical that is in terms of what I'd personally think could be just even more TAM, Karsten, as you can imagine. So GoodRx Health?

Yes. So GoodRx Health, we announced it a few weeks ago, and let's take a step back, the fact that we've been producing content for about a decade ever since we started the company. So us producing content is not a new thing. However, the speed and veracity and the way in which it is packaged together is a new thing. And really, what we're doing with GoodRx Health is we're helping consumers across their health care journey, not just at the point of them receiving a prescription. So really, from diagnosis to treatment to care, we want to be relevant to consumers across their entire life cycle. And we're doing that across a few different areas. So we're obviously doing that on just general health care knowledge, but also financial aspects, which is obviously important to us and important to health care consumers. We have quizzes. We have integrated videos. We have the ability for you to talk to a telemedicine provider directly off of our content sites. Where that's appropriate, we're integrating other affordability things like getting on Medicare plans that are going to save you the most money. So it's really more of an integrated health care plus savings experience that we're very excited about.

Karsten, you mentioned this kind of the pharma manufacturing solutions side, which has been, I'm sure, growing extremely fast.

Yes, about 3x year-over-year through [this] year, yes.

I know you've hired in that group a lot. And could you talk about a little bit of the unit economics? I know you had really spent a lot of time with investors and stakeholders in your last quarter. And so I want to make sure we really kind of drill down into that a little bit more.

Yes. That's one of the businesses, I'm most excited about, [Umi]. So I appreciate the question. Yes, pharma manufacturing solutions business to the point we were just talking about a second ago, 3x year-over-year growth, over 150% net revenue retention, penetrated into 19 of the top 20 pharma manufacturers, but only about 4% of their medications. So lots of runway there, and high ROIs that manufacturers appreciate, hence, the net revenue retention. All those dimensions are great in terms of the value we deliver and the value we capture with respect to manufacturers. But I think what's also excited about the business for us is that it helps us help our users in different areas. So the 3 primary areas are first around awareness of pharmaceuticals, access to them, and then finally, adherence. And you and Justin we're talking a little bit about the concept of how we help providers too. And this is a business that's critical in terms of not just helping the consumer but equally helping the provider as well because health care providers, at least according to the AMA studies, American Medical Association studies, spend about 14.6 hours a week, trying to get their patients on medication. So when you think about health care workers, a health care professional is working on a 40-hour a week. That's over 1/3 of their time, not doing diagnosis, not providing care, but just doing the administrative function of trying to help their patients get on any kind of a medication that's going to help them. We want to help those health care providers and their patients. And so the principal initial starting point of that is awareness. So manufacturers often look to GoodRx to help provide awareness of solutions that they have and alternatives that they have, and when one alternative might be better than another alternative for a particular patient in a particular case. Then the second area that we focus on is access, and this is making medications affordable and available to consumers. And that's an important one because health care providers spend so much time, as I said, helping patients address the access needs. And these things are things like manufacturer, co-pay assistance programs and manufacturer deductible assistance programs that I mentioned. And what's important here is these programs are only penetrated to around 3% of the users who could actually use them and take advantage of them, which when you think about it is terrible because manufacturers lose out as fewer people are getting on their medications, which are a revenue stream for them. Consumers lose out too because they're losing the benefits of these potentially life-saving medications. If we go back to access for a second as well, the reality is that GoodRx has so much more traffic that across the top 100 prescribed drugs, when we look at the amount of traffic we have in GoodRx properties versus just the web,Drugs.com, our volumes tend to be significantly higher, well in excess of 10x higher. So drug manufacturers want to get in front of those people and be able to present their offerings to them. And then finally, on the adherence side, we have a number of novel solutions that really help consumers, health care providers and the pharma manufacturers, including things like the ability to directly interact through the GoodRx platforms with nurses and other health care practitioners to talk about everything from affordability solutions to side effects to drug interactions. So we run the whole panoply again of everything from awareness to access and ultimately to adherence for those taking the medications, very excited about it.

Are you able to share a little bit more on what's the financial impact? And then like what -- I just want to make sure I understand the monetization method that's being used in this segment.

Sure. So the monetization method in most of the deals is a flat rate model, where about 85% of revenue comes in through flat rate deals. And by flat rate, what we mean by that is, you as a drug manufacturer may have a particular medication you want to market through us over a particular period of time. And we'll carefully look at with you our ability to drive volume to you. And we'll look at from our side, the monetization of that and the contribution we will provide to the manufacturer as we establish what that flat fee will be. And as we continue to deliver more and more value to those manufacturers, we'll also raise the flat fees from one renewal period to another potentially. But we do focus on the flat fees, especially now because we're just so incredibly focused on expanding the volume of our footprint in manufacturer solutions prior to expanding price. And that's one of the reasons we're actually -- even as the CFO, I'm happy to hear manufacturers getting an 8x ROI because if we can grow the business 3x year-over-year by revenue at the pricing we have now and continue to expand our volume on a trajectory like this for quarters or years to come and then subsequently, still have the price lever available even better. About 15% of the deals that aren't flat rate are more traditional web-based or Internet marketing. So it could be CPCD or CAC-based, but the massive majority are flat rate. And again, given that there's so little cost structure in this business, the principal cost is just the selling of the deals. That's one of the reasons we can both do the flat rate pricing; and second, focus on volume at this stage before we focus on margin and on deeper monetization potentially quarters or years from now. Is that helpful, [Umi]?

Yes, that was great. Maybe switching gears a little bit. I saw recently, you entered a partnership with GoHealth, so the insurance marketplace. It'd be great to understand kind of what that does for the overall GoodRx brand, what you expect to get out of that? And should we look for more of those kind of in the future, whether it's for insurance or maybe some other kind of vertical?

Yes, absolutely. So we're excited about our partnership with GoHealth. I think a common misconception about GoodRx is that it's just for uninsured people. But the reality is, is that 3/4 of the people that come to GoodRx have some form of insurance, whether it's Medicare, commercial insurance or Medicaid, and about 30% of that is Medicare. So starting with the Medicare market, which is what a lot of these brokers are going after for Medicare Advantage, we looked at our population and combined with the fact that people on Medicare Advantage plans are saving multiple hundreds to thousands of dollars over and above fee-for-service Medicare, it seemed like a logical next step for us to provide more value and financial benefit to our users. So we're -- there's a number of different tactics that we're taking on the website, in our call center and other areas to provide onboarding in the Medicare plans for this open enrollment period for the first time ever. So we're very excited about that. And I think that using the data that GoodRx has on our users and the relationship that we have with our users, we're able to provide a very bespoke, a very targeted and a better way to recommend plans for consumers in the future that we'll just make their experience in choosing health care better and better, just beyond the prescription experience alone. So I think that you can expect to see more from us as we look to add more value to our consumers across their health care journey, whether it's insurance selection or other items.

So speaking of increasing the funnel, more value to consumers. I know during COVID, telehealth became a very big topic, and it was sometimes the only way to go see a doctor. And I'd love to hear your strategy on telehealth, how critical it is to kind of make sure you have kind of that part of the market. And would you have to do that by yourself? Would you do it with partners? Like give me the strategy on telehealth?

Yes. So there's a lot of different ways that people are going after telehealth. You have the Teladocs of the world, the Amos of the world that have more of a B2B model, selling to payers, selling to employers. That's not the GoodRx model. 1 in 5 people that are coming to GoodRx don't have an active prescription for their medication. So by having a telemedicine offering, we're able to better serve consumers in their health care journey on GoodRx, by getting them on the therapy that they need to be on. And we're very focused direct-to-consumer. And we're very focused on medication-specific telemedicine experiences, where it's appropriate and safe to prescribe online. We're not as focused on a general visit or a general primary care visit. I think that's not really our model. We want more of a discrete experience that's going to add value to consumers. And I think that on the telemedicine side, it's also another way for us to bring consumers into GoodRx as an acquisition funnel. We're obviously acquiring a ton of people on brand terms and drug terms, but as people are searching for, how can they get on a medication or looking up a condition, we're acquiring people that way. And there has been a significant increase in the amount of cross-sell that we've been able to take advantage of and provide additional value to those consumers. So last year, I believe we were getting 30% of people that were on a telemedicine visit on to another GoodRx service, whether it'd be a core prescription discount or a subscription, that's increased to 60% this year. So as people are coming through these telemedicine visits, they're really becoming a better part of the GoodRx core experience.

That's good. As I think of all of these initiatives you put in place, you're kind of one of the rare companies that have really good growth and really good margins just because of the uniqueness of the platform. As you think of capital allocation and the ability to increase kind of just the overall kind of users, where do you think and how aggressive will you be on marketing for awareness? Or are there other initiatives to kind of get more folks to come into the GoodRx kind of ecosystem?

Sure. I can tackle that, and I'm sure Justin can jump in. So as Justin alluded to earlier in the conversation, health care providers are absolutely key for us as far as our existing user base. A single biggest source of new users is the unpaid channel. And within that unpaid channel, health care providers are absolutely critical. I think Justin mentioned the NPS of 90. He mentioned that roughly over 80% of them are referring patients directly to GoodRx. So they take advantage of GoodRx's services, which is also exciting for us. And we see that continuing -- those NPSs continuing to improve over time, even though they're already at such high levels. We're also taking initiatives such as integrating GoodRx more deeply into the prescribing flows. Surescripts, the deal we announced recently is related to that, as there are a number of other integrations we've done even previously to that. So again, when it comes to marketing, biggest single source is unpaid. I think the other dimension to think about in connection with GoodRx and the growth and profitability combined is that once folks begin using GoodRx, they generally keep using GoodRx. Over 80% of our transactions even in our core prescriptions business are repeats and our subscription business is obviously higher. But in our core prescriptions business, it's already over 80%. So the accumulation of users who benefit from GoodRx is quite rapid given that extraordinarily high repeat transaction level has driven off an equally high NPS to the one that the providers have of 90% with consumers, too. So that means that given that we have so much free effectively marketing through health care providers, and through other GoodRx users, and we have such good retention, it means that our marketing spend goes to acquire incremental new users beyond those choices that we've already talked about. And those new users that we get continue to be monetizable for quite a long time. So we've spent up on marketing year-over-year pretty dramatically. But the one thing that's been consistent throughout is that our payback on marketing spend. We've always talked about that being 7 to 8 months. And the reason we're able to do that is because when we continue to spend more, our marketing teams aren't only optimizing across marketing vehicles. They're also optimizing across audience, identifying new pockets of consumers who may not even be familiar with GoodRx or more broadly like I was talking about earlier, may not be familiar that you can save money on prescription drugs at all. So that gives us these awesome pockets of greenfield opportunity that tend to be very low CAC. I think the other dimension that's important as we contemplate marketing in the GoodRx context is that we continue to add more opportunities to benefit from incremental LTV, like our subscriptions offering as folks convert from being prescription transactions users to becoming subscribers increases LTV. When folks layer on things like telehealth, increases LTV. Things like our manufacturer solutions offering with its high margins increase LTV again. As it grows, actually potentially pull up margins for the business as a whole. So when we think about the spend and growth versus margin perspective, broadly, [Umi]. I think the final point I'd make is, we think about it in terms of relative market share, and we're the biggest in this space, and we're also growing more than anybody else. The reason that's so important is that, that fairly common marketplace dynamic impacts us in a beneficial way that's unusually large. It means that we have the better -- we have the best pricing of anyone in general on average in our space. Number two, we can continue to invest in having the best product and the best adjacent products, things like not just our prescriptions, but also our manufacturer solutions and subscriptions programs. And with the continued investment in those areas, we can become more and more relevant for health care providers, too. So we will spend such that we continue to grow faster than everybody else. But given we're growing and not many others are, that's not a significantly high bar for us and allows us to throw off the kind of adjusted EBITDA margins we have been.

Speaking of spend, M&A is also a core kind of strategy in addition to the partnerships that we just talked about. So Justin, it would be great to kind of hear from you a little bit of like the framework of how you think of M&A. What are some of the verticals, subverticals you need or looking to build out? And like how should we think about your M&A strategy kind of going forward?

Yes, absolutely.

There's a lot going on.

Yes. There's a lot going on. Digital health is an exciting area. And health care broadly is evolving significantly, not just during COVID, but generally. We've done a number, I think, 4 transactions in the past 12 months. So M&A, we've been very active. And I think we're really looking at it across 2 different areas. One is capabilities. So we've acquired a number of capabilities. We acquired a video content company earlier this year called HealthiNation. Acquired telemedicine business in the past and a few other prescription technology businesses that have allowed us to expand into new markets and become a more well-rounded platform and offer more value to our users. We also have experienced through Scriptcycle and RxSaver by investing more into the prescription transaction space and becoming a bigger player in serving our consumers, both in regional pharmacy chains, independents and at bigger retailers in a deeper way. So I think that you can expect to see more across both of those themes from us. And I think that we're very excited to use the M&A lever to become an even bigger platform. Obviously, as we've mentioned earlier, we have 20 million people that are coming to GoodRx every month. There's not any other platform in health care that I'm aware of, of people transacting at that scale. So being able to use M&A as a lever to have kind of cross-sell synergies into other platforms provides a lot of underwriting capability into new M&A opportunities.

And in addition to the verticals or subverticals you're in, is there anything else that you feel you guys don't have the capabilities to do today because 20 million folks, that's big. Health care is constantly evolving. What are some of the other adjacent kind of markets that you could think about or look at?

I think that there's always a question in M&A of build versus buy. And I think that while we may have a lot of capabilities, there may be other people out there that are doing it at scale or with a unique consumer experience or a unique brand that we don't have. So I think those are some of the considerations that we have like should we choose to build something where that may take time versus having a focus of an entirely other team that's 100% focused on one segment and becoming an expert in that space and not having to make necessarily trade-offs within our existing business. So -- those are things that we're consistently evaluating across a number of verticals. And I think that there's a lot of exciting opportunities out there. And I think that it's just something that you'll -- you're going to see more from us and it's going to be exciting as we continue to build the platform.

Great. Well, again, I really appreciate you guys taking the time with us today. Justin, Karsten, thank you again for -- I know we can't do the questions. So we -- no questions today for this team. But thanks, again, for joining. Really appreciate it.

Thanks for inviting us. Great. Thanks for the opportunity, [Umi].

Appreciate it.