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

All right. Hello, everyone. Welcome to the next session here at the Barclays TMT Conference. I'm Steven Valiquette, the health care technology analyst here at Barclays. Next company up here is GoodRx, which I co-cover with Ross Sandler. With us from the management are Doug Hirsch, who is the Co-Founder and Co-CEO; as well as Karsten Voermann, the company's CFO. This will be a fireside chat, where Ross and I will take turns asking a few questions at a time. But before we do that, I'm going to turn it over to Whitney Notaro from Investor Relations at GoodRx just to read some disclosures. So Whitney, over to you.

Steve, Ross, thank you so much for having us today. Before we begin, I just want to remind the audience that this webcast may contain forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any forward-looking statements are based on management's current expectations and are subject to certain risks and uncertainties. Please review our SEC filings for risk factors that could impact our future performance. Back to you, Steve.

All right. Great. Okay. So let's kick off with a few questions here, starting more on the core prescription business. Investors are pretty heavily focused on the level of growth for prescription transaction revenue over the next couple of years, really in light of some, maybe some perceived changes in the competitive landscape. So maybe let's just start by having you guys discuss some of your first-mover advantages in this space related to brand awareness, PBM relationships, et cetera, and which you think is the most important to really keep some of those competitors at bay.

Sure. I'll take that one. And Karsten, you're always welcome to jump in. First of all, thank you, everybody, for your time today, really appreciate it. Thank you to Barclays for hosting us. And it's always a pleasure to talk to investors. I'm just so proud of what we've built, right? I founded this company almost 11 years ago now. And I think today, GoodRx is really America's leading resource for health care savings. We've saved Americans over $35 billion, and we serve millions of Americans every month with our top-ranked app and website. It's an honor for me to be able to walk around America these days at my neighborhoods and other places I go and just to hear people know about GoodRx without any involvement from me. We really have a brand that I think has established a presence in American's minds. So much of that comes from the strong relationships that we've built over the last 10 years, with PBMs, with retailers, with health care professionals. And I want to make sure to emphasize America's doctors really like and appreciate what GoodRx does and we're so proud of that relationship that we have with them. And that's also one that's very, very hard for folks to dislodge. Some evidence of that is the 90 NPS that we have with both consumers and with health care professionals. And again, I just want to emphasize, we're a company that is focused on doing right by consumers. It has been our DNA from the beginning. And we're rewarded with a really terrific business as a result of that passion and dedication to really helping consumers just simply find affordable and convenient care. In terms of behind the scenes, we have this incredible engine, which we've invested again over a decade into with the hundreds of incredible smart people that work here. Every day, we adjust over 230 billion price points across all of pharmacy. That's just every day. And we built this incredible impressive tech stack. And I think you look at GoodRx and you assume it's pretty easy, right, just a bunch of prices, just a bunch of pharmacies. Underneath it all is incredibly, incredibly complicated and unique information that we've built that I think is very, very hard for a competitor to stand up and try to compete with. And remember, this network strengthens with every transaction, right? Every time a consumer fills in a pharmacy, we receive information and we can validate that the price we showed is the right price and that everything is working well between the PBM, GoodRx, of course, and the customer. This huge volume does a lot of other great things, too. For example, we get improved pricing savings, right? We get strengthened engagement with the consumer and of course, expanding unit economics. And then with all this momentum, we build more amazing products and we touch more parts of the health care journey. Most people think of GoodRx as just prices at the pharmacy counter, but we do so much more than that. And we'll talk about some of that today. And this all forms a deep competitive moat. And most of the competition is sort of fragmented, small competitors who really don't have the breadth and accuracy and scope and relationships that we have. And then we've seen other players like consumer brands or health plans or well-funded start-ups that have tried to replicate our business, but they really haven't had much success. And we haven't really seen any impact on our business as a result of it. In the third quarter, we reached record revenue, record adjusted EBITDA and record users with really no competitive impacts on our prospects. So again, we're really, really proud of where we've come. Karsten, want to jump in?

Yes. And in connection with that, I'd say, just to put some numbers behind what Doug was talking about as well, we've seen some really nice traction in terms of increase in our take rate over the last few quarters. It continues to go up a little bit quarter-by-quarter. We're now at 15% or 16%. And that's a reflection of the strength of those competitive moats and a reflection of the scale we've achieved. And that scale continues to grow, too, as we grow in both our prescription transactions and our subscriptions offerings, both of which are prescription-related. If you look at those 2 as one big area of consumer need and one big area we serve, we're growing at about 40% across those areas year-over-year just continuing to drive that scale that Doug referenced.

Okay. Excellent. Over the past few quarters, you guys have announced some partnerships, most notably DoorDash, USAA, Fetch Rewards. Maybe you can walk us through some of your broader demand aggregation strategy.

Sure. I can probably jump on that one, Steven. Thanks for the question. When GoodRx was founded, we focused very, very hard on having direct relationships with consumers and with health care providers. That was the original foundation. Now we've reached a point though where other entities are looking to partner with GoodRx, asking to partner with GoodRx in different ways to leverage our brand and our amazingly high NPS at 90. Those kinds of entities include pharmacies like Rite Aid, who wanted the benefit of GoodRx's brand and took on GoodRx's subscription program GoodRx Gold. There are entities that help in the insurance space, like that represented by our relationship with GoHealth as well. But what's really core here is that we've always gone direct-to-consumer in the past, and we think there are ways to aggregate a bigger group of consumers and grow more quickly and more efficiently through partners like USAA, which has its own sterling brand, like DoorDash, which lets us aggregate gig economy workers, and frankly with entities likely the one we acquired, RxNXT. RxNXT is really exciting for us because it sits at the intersection of third-party payers, so insured payer health care and the cash pay market in a way that allows us to be integrated more closely so that employers can, for example, offer a free benefit in their health plan, which reduces the cost of prescriptions and pharmaceuticals, medications more broadly for employees by using GoodRx, which beats co-pays on insurance plan over half the time by over 50%. It's a remarkable thing. So when you think about it, employed Americans covered by health plans are one of the biggest areas to aggregate demand that we have available to us, and we're going very aggressively in that direction with some pilots going on right now. So that's a really exciting thing for us. And I think you'll see continued progress going forward as we continue to broaden and deepen these different demand aggregation opportunities that continually get presented to us, Steven.

All right. Great. I don't want Ross to have too much of a break here, so I'll flip it over to Ross to ask a few questions.

Save the fun ones for me. So yes, on the growth vectors, subscription, you guys have one of the fastest-growing subscription businesses in all of consumer Internet, triple digits and have been that way for quite a while. So how sustainable is the growth there? And maybe just talk about some of the drivers of that triple-digit growth. And then could you just talk about the value prop? I mean, we know kind of how it stacks relative -- GoodRx Gold relative to just the standard. But how about out in the market versus some of the other competing offerings that are like that?

Sure. No. That's a great question. I'm happy to jump in on that one. Yes, you're exactly right. When we look at our Q2 revenue Y-o-Y, it's about 111% up from Q3 of the prior year. So very rapid growth at those rates. And the subscription counts have increased quite rapidly as well at a full 68%. Part of the reason for the faster revenue than subscription growth is we've also been able to add more, a greater proportion of more, in other words, family as opposed to individual plans that are priced a little higher because folks are finding not just value individually, but value for their whole family in the GoodRx subscription program. It also grew 13% Q-o-Q on a revenue basis and about 6% Q-o-Q on a subscriber subscription basis. So the reality is we now reach 1.6 million subscription members through those family and individual plans through subscriptions, and that's a significant proportion of the about 8 million people we serve every month in one way or another through our prescription transactions programs, or MACs as we call them, monthly active consumers, and our subscription program and subscribers. So when we think about this, at a high level, when we think about the demand for our subscriptions offering, similar with the way we do our prescription transactions offering at the top of the funnel, we're in both of those areas seeking to better serve consumers looking to get lower, more affordable prices on their health care. But we've added more and more benefits to GoodRx Gold, like mail, discounted telehealth on a relative basis to the price outside GoodRx Gold, increased pharmacy coverage. And we continue to expect to add even more benefits too. Because for us, the subscription program is both higher immediate term value in contribution and it also helps to deepen the relationship we have with consumers, too. And that deepening relationship with consumers and a more bilateral relationship than just in our prescriptions transactions offering is what allows us to expand the footprint and how much we cover of the consumers' health care journey. So from that perspective, I think we continue to expect our subscriptions growth to be quite high going forward, and we've priced it accordingly as well. To your question about the competitive environment more broadly, again, just given GoodRx's massive scale, our pricing and pharmacy discount beats almost everybody else almost all the time. It's just the way it is. And that's why GoodRx is growing and competitors that you may have heard of to GoodRx generally aren't. It's also why we've been able to offer even lower pricing in our subscription program than in our core prescriptions offering. Often those prices are half as high or even lower. So it's a remarkable opportunity for consumers to save more. And in general, the subscription program for an individual pay for themselves off a single prescription that the consumer gets chronically or monthly. So that really makes it a compelling value proposition and underscores that rapid growth that you mentioned, that for us is great because, like I said, we love the incremental contribution, too.

Got it. And then just stepping back, kind of a macro question. So you got all these kind of interesting distortions around the pandemic on your MAC growth rates historically. This winter looks like kind of a more traditional flu season. But any indications on how that might play out in 4Q and 1Q vis-a-vis MACs or just the overall kind of uptake of GoodRx?

Sure. Yes. I can probably grab that one too before Doug steps in again. So a couple of things. I think, yes, the COVID headwind has primarily been associated just with health care utilization broadly. I think as lots of folks know, our biggest source of new users is -- I'd categorize as unpaid. And within that, the biggest single factor that we spend time thinking about focusing on, et cetera, are health care providers who refer GoodRx to their patients. Over 80% of them do, in fact, refer and there are over 2 million health care providers with a patient that's used GoodRx. So when health care utilization is down, that huge free sales channel is also attenuated for us. So we thought through that this year a little bit, but we're eagerly looking at the continued resurgence of health care utilization as a factor that will contribute to the unwinding of the big billion condition backlog that's out there. With respect to cold/flu more specifically, I was looking a couple of days ago at the stacking of cold/flu curves from prior years, and it looks like the season, while still very early to really allow us to fully assess the size, it looks like the season is not going to be great for all of us from a cold/flu perspective, but that will likely drive some demand on the pharmaceutical/medication side. We talked in our 1Q earnings call related to 4Q last year about how the light cold/flu season last year cost us about $5 million in revenue. Of course, we've grown since then. So a more normalized flu season this year, an equal and opposite way, contributes $5 million or more given the incremental growth we've had since then to potential revenues looking forward. So we'll keep an eye on it looking forward. And I think our anticipation right now is, looks like it's going to be a little more virulent than in the past unfortunately for all of us folks here in America.

All right. Great. Maybe if we shift gears here a little bit to some of your newer businesses. It seems like the good news is that investors are paying attention more to some of those newer product launches, revenue streams, you're starting to get a little more credit for that. I guess I'm curious just to get a quick update on some of these launches. Maybe we'll start around GoodRx Health, talk about how utilization is tracking since launch. And from all that written and video content for health care consumers that's tied in with HealthiNation, are there any metrics or comments on the cross-sell tie-in to the GoodRx platform? Curious to hear any anecdotes about that as well.

Sure. So I'm super excited to jump in on this topic. This is my space that I spend lots and lots of time on. We just, I feel like at this point we're firing on all cylinders, and I'm so excited for the momentum that we've really started to gather here. GoodRx has dramatically expanded our headcount over the course of the pandemic and we have a really, really exciting product road map. That is what I spend, frankly, the majority of my time on. Most of our products are really focused on extending our platform, right? We want to reach more consumers across more stages of their health care journey. And as you mentioned, GoodRx Health is just one way. And it's totally different from what people think of as GoodRx, right? Traditionally, you're thinking about GoodRx again at the pharmacy counter, in the doctor's office and you ultimately see a price next to GoodRx. And yet, this is a whole different product. GoodRx Health helps people who are searching for health information, and it's a totally different touch point. This is trying to help people at the point of diagnosis, right, where I don't feel great, what's going on or I'm living with a condition and I want to understand it better, or understand the pros and cons of various treatments. This is not a discussion on cost. It's a different form of engagement. And it's an incredible content. It's actually something I've wanted to do for over 5 years now where we basically are providing answers to crucial health questions. We have over 2,500 videos covering 350 health conditions, which was augmented by the acquisition of HealthiNation earlier this year. But I just want to emphasize, this is content that I think is like the next generation of helpful health care content in a sea of just too much noise. We'll be giving you one concise answer and again, often written by health care professional. And I encourage you to check it out if you haven't seen it. Certainly, we're seeing significant additional traffic. I think it's almost 60% year-over-year increase in our content traffic, and we now have over 5 million subscribers to our newsletter as of earlier this month. So GoodRx Health is just one example of some of these future products. Another is, it's also contributing to our pharma manufacturer solutions offering, right, which increases awareness, access and adherence for branded drugs. In the third quarter, we had huge growth for pharma manufacturer solutions, about 3x year-over-year growth. So I think we're going to talk a little bit more about that, maybe for the remainder. So I'll hold there for the moment, but suffice to say that we have a whole slew of exciting new products. GoodRx Health is just one of them. Our pharma manufacturer solutions is another. And we're focused, I mean, really what I spend most of my day on is these additional health care pain points because there's just so many exciting opportunities for us to continue to help Americans and of course, spawn exciting new businesses.

Okay. Great. All right. As we shift from GoodRx Health to GoodRx Care, this is more of the telehealth offerings, formerly HeyDoctor was how it was branded, I think, at one point. But maybe just curious here to hear about some of the utilization trends. I think most investors understand that there was a pretty big spike in utilization of telehealth last year. That's obviously come back down a little bit in '21 versus 2020. So maybe just any anecdotes on utilization trends there. Same sort of question, too, about still the cross-sell opportunity, tying that into the overall GoodRx platform.

Sure. So yes, GoodRx Care, as you said, was rebranded from HeyDoctor earlier this year. And I want to emphasize that GoodRx Care was not meant to be like some of these D2C subscription services. We really ultimately purchased HeyDoctor because we wanted to provide, a few reasons actually. Number one was, consumers were coming to GoodRx that didn't have a prescription in hand, and we wanted to solve that pain point. And secondly, we wanted to provide low-cost doctor visits, which just like we provide low-cost prescriptions, we think it's really important to be able to find cash pay interactions between a consumer and a health care professional at a fair price because so many consumers simply just avoid the doctor's office because they assume it's going to be hundreds of dollars. And I'm really, really proud of what GoodRx Care looks like. It's again low-cost telemedicine for prescription-associated conditions. It's another entry point for consumers to access our platform like I talked about a few minutes ago. It drives incremental volume as we talk about cross-sell to our prescription subscription and manufacturer solutions offerings. For example, 65% of telehealth visits drive incremental revenue through our other offerings, like the ones I just mentioned, up from just 30% earlier in 2021. So we're seeing tremendous growth there and tremendous cross-sell. And we're excited to continue to kind of mush the various services that we have across these platforms so that we have fully integrated experiences to ultimately increase the stickiness and LTV of those users.

All right. Great. All right. Ross, over to you.

Yes. So while we're talking newer businesses, the pharma manufacturer segment, Doug, you just mentioned that. Obviously, that's been the standout performer of late. Can you just give us an update on overall penetration and where you are in terms of those pharma manufacturer relationships? The GoodRx 101 deck from a few months ago had, I think, 10% penetration of the addressable markets of U.S. manufacturers. So where are we today? And then how should we think about the growth there?

Sure. I may jump in on this one, Ross, just because this is just such an exciting business. As the CFO, I love the margin profile and the growth profile. Our pharma manufacturer solutions offering has continued to grow incredibly fast. Last quarter, it was 3x year-over-year again. This reflects, I think, the strength of our brand with consumers and more importantly, the deep relationships with health care providers and the coordination of the 2 that manufacturers seek to leverage given that we can address both markets equally effectively on their behalf. As we mentioned on our second quarter earnings call, we're proud to have relationships with 19 of the top 20 and have our sights on the enormous upside potential ahead as we continue to penetrate these accounts. Right now, we have mid-single-digit sell-through on the roughly 1,000 brands they have. And we see that growing quite rapidly as we continue to increase our manufacturer and brand penetration. We also increased the breadth of the solutions that we offer and that manufacturers are buying from us as well. So for example, we have a range of 8 solutions for the manufacturers to potentially use, and we saw the count of solutions increase from around 1.5 to well over 2 on average per manufacturer, which is great. And they're all using different ones of the 8 so there's room for expansion across all of that. We also partnered up with CoverMyMeds, which we're excited about and announced earlier. The CoverMyMeds effort is great because it will help consumers save more money on brand medications than before, including especially specialty that CoverMyMeds works with particularly. So that's going to help us increase our manufacturer penetration, our brand penetration within existing manufacturers and frankly, the number of solutions that they're using. And I think this is really founded on the consumer side, which everyone knows about, but also our really deep relationships with health care providers that continue to strengthen. Health care providers make up about 25% of our website visitors. And they gave us an NPS of 90 last time we surveyed them, up from 86 about a year ago. These relationships are pretty key to the growth of this offering, and we're continuing to sell more and more to both consumers and HCPs. Pharma manufacturer solutions is not only our fastest-growing offering, it's also one that has extremely high net revenue retention, which is a foundation of that, well over 150%. And between the attractive unit economics and it being a sold offering with really only sales costs, as we continue to shift more of our revenue mix toward this, it has nice impact on our margins as well over time. We're proud of the big progress we've made so far, and we've got a long way to go into this $30 billion TAM given our scale today.

As you guys think about your advertising expense to kind of help fuel growth of your business, we all see your TV commercials look great. You've seen an uptick over the last couple of quarters. I guess just the overall philosophy around that? And now that you have the pharma manufacturing business, the subscriber business and telehealth, how is that evolving your overall view on levels of advertising expense that make sense?

Yes. I think that you're referring to the dollar uptick in spend versus the Q-o-Q decline as a percent of revenue that went to marketing and advertising from 50% to 49%. When we were discussing our 2021 guidance at the beginning of this year, we said it would be a year we'd be investing pretty heavily in product and in marketing. And that's exactly what we've done. When it comes to the marketing spend, we continue to see very strong performance and business strength with largely consistent unit economics. One of the most significant sources of traffic in consumer acquisition, like we talked about earlier, is unpaid, effectively word of mouth and referrals especially by prescribers. Again, 2 million of whom have a patient that's used GoodRx and 80% of whom plus recommend it. So that big source is very, very valuable to us. And with health care utilization having been below pre-COVID levels for most of this year and even now, we've ended up increasing some of our focus on paid channels this year relative to what we'd expect to do in the future and relative to what we've done in the past to mitigate the unpaid channel being quite as powerful as it was in the past. We're also more recently spending up ahead of open enrollment season, particularly as we focus on Medicare, where direct mail is pretty effective. So towards the end of the third quarter, we've spent a significant amount of money in that area that will really pay off in fourth quarter and beyond. We're also doubling down on more nonmarketing-specific but top of funnel activity like the ones Doug was talking about around GoodRx Health that really drives top of funnel and our acquisition of HealthiNation, which contributes to GoodRx with its great video content is also driving top of funnel and is something that providers refer their patient to, for example, on videos on how to self-administer injectables like insulin, which a lot of people don't know. And it's important for health care providers to have an authoritative place where they can help direct folks to get better education. We're also continuing to test new DTC channels and, like we talked about earlier, demand aggregation. We have such a diverse source of new users between unpaid being the dominant one, some in the paid channel, and health care providers, regular just word of mouth. And on top of that, some of these demand aggregation partnerships we've created that we look forward to continuing to be able to leverage those to drive our growth. We also look forward to health care utilization and the big backlog of undiagnosed conditions receding because that unpaid channel is just such a powerful one for us.

All right. One other quick one to touch on. Your partnership with GoHealth is fairly new. It was only commenced back in August. But curious if you have any updates on progress of that. And also, as you get to know that business better, what are your thoughts around maybe yourselves expanding into this digital and telephonic e-broker space for overall health insurance member placement?

Sure. I'll take that one. As I mentioned earlier, look, we built the GoodRx platform and business to be extensible and scalable. And again, I focus so much time on really trying to knock out all these individual pain points that consumers experience. So generic prescriptions, I think we've got a pretty mature -- not mature, but a growing and solid business there. I think brand prescriptions in pharma obviously growing rapidly. We've talked about health care provider visits, GoodRx Care. Obviously, we have a wonderful product there, and we continue to improve upon it. And we still see significant opportunities though to help fill in more gaps to that journey. And again, that's what I spend most of my time working on. And insurance is obviously one of the biggest pain points for consumers in America. And so we find it very compelling because there's lots of great business opportunities as well as, again, that magic sauce of also being able to help consumers simply find savings and find affordable care. Remember that about 75% of our users have insurance with over 30% on Medicare already. So they're literally sitting on GoodRx, these millions of people and helping them navigate insurance using that magic that GoodRx brings to the space where we can help consumers understand and then find a solution that works for them. And in this case, with GoHealth, right, we're bringing Medicare-related plans and we're putting them in front of consumers in a way that delivers value to our customers and of course, helps us deliver on our mission. As a reminder, the GoHealth agreement allows us to help our consumers who are Medicare eligible find, enroll in the best Medicare plan for their needs. And it also expands our reach by giving GoHealth members access to GoodRx prices to further improve their health outcomes. So we're delivering a great simple user experience. Again, I see this as a huge opportunity for us to continue to have an impact on people's lives and make a great business, and we're going to continue to work to improve upon it.

Okay. Great. And then we're kind of running low on time here. Maybe the final question. We certainly talked about a lot of the newer services, a lot of the newer offerings, some of those were through acquisitions, some were de novo. But to the extent that you're able to talk about your M&A strategy from here obviously without giving anything away unless you want to. But just talk more about kind of what else we could expect as far as where you're focused as far as leveraging your platform and further expansion.

Sure. And first of all, I want to, since we're almost out of time, I want to thank you guys for your time. I want to thank everyone who watched today. We always love talking about our business. And so it's fun to do things like this. Obviously, M&A is a part of our strategy, right? I mean, I think we build a lot of great products here, but we're not going to build everything. There's lots of incredible businesses out there. And where we can find a complementary business that helps us accelerate our path, we're going to take action, right? We've previously completed a bunch of acquisitions to pursue our long-term vision and capabilities. And I'd argue, we've integrated them really successfully. I mean, if we talk about, again, HealthiNation, for example, or if we talk about HeyDoctor. Again, I'm very proud of those products, and I think they've been really effectively seamlessly integrated into the GoodRx experience and ultimately help more people and build a better business. With our increased scale and capacity, we're going to continue to accelerate our efforts to grow our capabilities both organically and inorganically. And with our profile and position in health care, we believe there's so many opportunities. And we're seeing lots of great stuff come across our transom here. We continue to evaluate all those targets that can advance our mission and increase our scale and drive growth. We think we're a very attractive platform for high-growth companies. I've had a number of incredible conversations even in the last few months with just incredible founders and incredible companies that are doing great things to help Americans and highly profitable businesses that we very much want to continue to engage with. So basically, lots of exciting opportunities. We will act quickly when needed. We're going to continue to focus on providing the best experience for consumers as well as having a very profitable and successful business. So that's pretty much our job for 2022 and beyond.

All right. Excellent. All right. Well, with that, I think we're out of time. So certainly want to thank Doug and Karsten and also Whitney for your time today. And everyone, enjoy the rest of the conference. Thank you.

Thank you so much folks.

Thanks, guys.