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

And as you thought about rolling this out and I completely hear all the points that you made. How are you measuring the returns on the work that you're doing here? I know it's a bit of a weird question but when will you feel like you'll be able to judge whether or not this is successful in terms of making the platform better, making that incremental information the cross-sell opportunity more efficient?

And it's not that question at all. It's a kind of question my board asked me all the time, Michael. So I get that pressure quite frequently. The reality is that there are 2 dimensions to this. One dimension is more defensive meaning if I have more information about my users I can then leverage that information in a variety of contexts to be able to message them to incrementally enhance my ability with existing users to redirect them if there's an issue at say, one pharmacy versus another. And two again, tighten up the relationship to make sure that as users move from one prescription to another or run out of refills on a prescription, don't discontinue their use of GoodRx because they can remind them their refills are running out and encourage them to do something about it including using our own telehealth services to get that refill. The other prong which is more I think aligned with your question is around new features and functionality we can provide and the ROI on those new products we develop. And from that perspective, we create gates for ourselves which say, "Hey, if we're going to develop this feature, this functionality what do we expect the results of that to be.” And we then we measure against the anticipated either KPIs or dollar-denominated results we expect once the product feature has been implemented in market to see whether it’s performing in accordance with our intentions and in accordance with our plan. We won't invest further unless it is, it's the bottom line. So from that perspective we stay very, very focused on making sure that the investments end up providing the returns we anticipate. Again, on this one because it's partly defensive as well as partly focused on increasing the revenue pie, there are 2 dimensions to it. And it's likely something that we would do for the defensive purposes and the ability to more strongly manage our consumer base regardless of even the future value that we could achieve. So the future value is effectively a very nice incremental benefit that I think you'll see hit the P&L in years to come in late '23 and '24.

So speaking of that investment dynamic, you made a pretty strategic change with your gold subscription program this year in terms of the price increases. You alluded to it a bit on the call but obviously the whole dynamic on the grocer took presence. It felt like over everything else as you can imagine. So maybe just give us an update or progression when what some of the existing customer feedback was like and how it's progressed in terms of your new customer adoption of what I believe to be a much more robust benefit obviously at a higher price point?

I think our initiatives have on the subscription side have been working exactly as we had planned. So at the beginning of the year, we talked at some length about the price changes we're going to drive and the rationale for why? The rationale for why being primarily that over the years that our subscription program existed, we continue to add more and more features and benefits to it. But we never changed the price. So we recognize that our consumers are benefiting more and more but we're capturing very little of that value. So we shifted to a model where we essentially roughly doubled pricing. And at the beginning of the year, when we talked about it, we said that in connection with the doubling of pricing based on our testing we expected to see revenue increase by about 50%. And of course, to make that math reconcile you need a couple of different pieces of information. The first piece of information is that the center of gravity of the price increase was around the middle of the year which is why you see a 50% increase versus the doubling, even though the price effectively is roughly double. The second thing is that we expected that due to the price increase our user counts would sort of wee out for the year. So they'd start at a certain level and they ended at a very similar level. But in between we'd see some amount of attrition associated with the price increase. So I think between the sort of midpoint of the price increase being around the middle of the year and the fact that we expect user accounts to be roughly even for the year as a whole which we continue to believe is true now. Our views on that haven't changed. That helps explain why a doubling of price ends up equaling a 50% in terms of revenue increase. Hopefully, that makes sense.

It certainly does. It brings me to a question about how you see the landscape? I think you're the acknowledged pretty much by any one largest marketplace. But there's been a number of new some competitors, some substitute, some internal businesses from the various different PBMs. Maybe just give us as we stand today a lay of the land is who you view as both your direct competition but also substitution? I'm thinking about beyond just the more traditional players but the Amazon entry, some of McKesson's point sale program has been really helped. Even the Mark Cuban Cost Plus Drug Company. How do you lay the landscape down in terms of all of the entities that have an end goal of trying to save out-of-pocket cost for customers?

Just to sort of map that out, Michael. I think there are different categories. And the right way to think about them is how specifically analogous they are to the businesses that we're in today versus how differentiated they are. And I think in terms of our space as narrowly defined as prescription-related savings, our brand as well as just our ability to serve consumers is greater than anyone else's we believe right now. In terms of the surveys at least we run on recognition in response to save money on medications and prescriptions or in terms of just at least important IQVIA data, some of the share intimation that we have that shows that we're quite large from a relative market share perspective as well. So on those dimensions there are other players whether I think the next biggest one that folks may have heard of a SingleCare and then there are a bunch of tiny players below them. But even relative to SingleCare at least last time I checked the IQVIA data, we're well over double the size that they are. So that's an important variable from the perspective of being able to offer really, really good pricing. Because again, in our multi PBM model the more scale we have and the more volume we push to the PBMs the better the pricing is that we can secure for our users. So scale is important from that perspective for us. In terms of if you exit sort of the narrow world of prescription discount programs in the broader market we serve. And when you think of things like Cost Plus or Mark Cuban’s Company and others, I think those entities become a little less relevant. And the reason I say that is because of 2 dimensions. One is distribution broadly speaking because most consumers do and prefer to receive their prescriptions in a more traditional way versus solely male and other mechanisms. We've seen that through Amazon's ability to be able to really drive prescription volume at mail as a whole or delivery as a whole for prescriptions hasn't grown and actually shrank a little post-Covid surprisingly. It's a tiny, tiny share of the market. So especially in the non-specialty sort of non-branded generic space that we operate in. I think secondly, the other issue with upstarts like Mark Cuban’s that got a lot of attention is what you have to believe to really think that company is going to become material in the space is kind of interesting. So in generic pharmaceutical manufacturing scale matters. There are a large number of really big players in the space. So you have to believe that those big players who are in the space have a cost structure somehow that's either inferior to Mark Cuban’s or that they are electing to charge a premium that's sufficient. So even as a smaller less efficient player, Mark Cuban can be under cut them on price and that is sustainable, that price won't change. The larger players won't drop price in response to it. I think the other thing you have to believe is that those large scale players over a time won't have a reaction to what Mark's doing broadly Mark Cuban and adjust not just their pricing but adjust their delivery mechanisms on generics differentially too. And frankly if generic prices do end up dropping because of the work Mark Cuban is doing in Cost Plus that ultimately helps our users and helps us. So we won't complain about that one bit if there’s more pressure on those manufacturers.

I was about say at some point there would be some flow through it seems like to your marketplace. Appreciate that color in that context. Maybe pivoting a bit beyond the prescription business to some of your ancillary services. Maybe if I can start with the manufacturer solutions offering. This is something that you've had a number of expansions in both organically and inorganically. Maybe a similar question but how do you see GoodRx playing into the lay of the land given that it feels like every company now that we cover that falls into other spaces I think of CROs and others that continue to try to find a way to call themselves a manufacturer services, manufacturer solutions business.

I think our manufacturer solutions business for us is very differentiated from other analogous businesses that different entities have. I think some of the dimensions that make it unique are number one, ours is both health care provider and consumer focused. So we can work with manufacturers to message in a coordinated fashion. And that's important because most players in the space are either focused very, very much on providers like sort of a Doximity or on consumers like a WebMD and that ability to combine both sense of messaging together doesn't exist. I think the second big differentiator that we have versus others is that we have especially on the consumer side, a very sort of bottom of funnel approach to helping manufacturers. Meaning that we can help manufacture reach consumers who are incredibly relevant for their particular medication that they may be trying to promote. A perfect example of that, for example, is some of the work we've done with Sanofi around diabetes medications. We obviously know who in our users base that will be relevant for. And we have things like condition hubs in our platform where those condition hubs relate to disease data or disease state B and a manufacturer can interact with consumers who is self-selective to that condition hub. And that creates the ability to be extraordinarily targeted for them in ways that are impossible otherwise. I think the most opposite contrast to that is sort of when you see general TV ads for conditions that affect only a small proportion of the population are tardive dyskinesia. That's hugely shock and wide approach versus us where we can take the approach and make it very, very narrow and very, very salient to the specific manufacturer and the specific manufacturer medication and ensure that users associated with or are seeing it. And we can do the same thing on the health care provider side. Again, as we see prescriptions flow through, we understand from the data flow who the prescriber was and because of that we can see what other medications prescribers are in fact prescribing. And between that in DMD data tells us everything from who the prescribers are to specialties and other information that too allows us to put the relevant information for a certain medication of a certain manufacturer in front of the specific health care providers who are going to be most likely to benefit for that information and have patients for whom as they get a medication in question could be very, very relevant indeed. So hopefully, that's helpful.

It certainly is. So maybe along those lines as we think about the future of this area which seems to be very much where the market is evolving, too. So it certainly makes logical sense for GoodRx to build in there given your scale and back-end capabilities. Obviously, you made the vitaCare acquisition that plays into this theme. How do you think about the balance that GoodRx wants to pursue between driving organic growth versus potential bolt-on additional capabilities? Especially vitaCare is interesting. There was a tiny little carve out of a company that I would have never known owned a business like vitaCare. I mean how do we think about that future balance in the strategic priorities of the company going forward to make sure that you're best servicing your manufacturer partners?

I think vitaCare is really exciting for us. And the reason it's so exciting for us is because it allows GoodRx to uniquely control the script. And what I mean by that is that the traditional problem or a traditional problem because there's more than one that manufacturers have is, “Hey, we may be able to convince prescribers that we have the right medication for some of their patients. We may also be able to convince patients that this medication is going to be very helpful for them.” But the challenge of getting the prescriber and the patient to a point where the patient can actually benefit from the medication can be quite high. And there are a number of different factors for that including some of the hurdles that insurance places in front of folks with [ pre-ops ], volume limitations, formulary limitations, etc. Step therapy is another probably good example as well that have to be worked through. And so traditionally, manufacturers rely on either the health care provider who is super busy and whose staff for super busy or the patient to be able to navigate that thicket of challenges. And what vitaCare effectively does is outsources that problem on behalf of providers and the patients. So provider writes the script to vitaCare, vitaCare deals with the vagaries of the insurance universe to actually be able to get the patient on the prescription or absent the insurance universe to take advantage of manufacturer cost savings programs to do the same thing. And because of that manufacturers are willing to pay a significant amount of dollars both in aggregate and even on a per user basis in order to increase the odds that prescriptions don't fall through the cracks because either the health care provider is too busy to work through all these hurdles or the consumer doesn't have the competencies to do so. So again, provides GoodRx who control the script, solve the big manufacturer problem which is reliance on people who aren't actually paid to get a patient on medication or in this instant case are not competent to do it. And it's something manufacturers are promoting to health care providers on our behalf as in, “Hey, when you write the script write it to GoodRx’ vitaCare and we'll take it from there.

I want to make sure I'm hitting the entire broad portfolio that you have. One of the other areas that I know comes up from time to time but maybe gets lost the shuffle are your telehealth capabilities. Can you give us a sense the balance between the financial aspect, financial contribution of this versus more the strategic contribution of what it means to your ability to best serve members?

So I think our telehealth offering is one that was particularly helpful to us. I think during the coronavirus is a heavier year among other times. And since then, we've continued to leverage it specifically because it served as a good marketing tool historically. So people come in for telehealth and then end up using GoodRx in other ways. One of the more valuable and more dominant ways is that they ultimately potentially become subscribers and user subscriptions offering. It supported a large number of our new subscriber volume, a lot of proportion of our new subscriber volume for quite some time. So from that perspective, I think telehealth has continued to be attractive. That said, we never viewed and we've been consistent in our messaging on this. Telehealth is sort of a freestanding, super attractive business for us like we've never in business being a multibillion-dollar offering. We don't think we're going to be competing with Teladoc because we've always focused on a narrow range of prescription associated conditions that are most relevant for a user base. And again I view this as sort of near breakeven marketing versus as some sort of an offering that on a freestanding basis we're going to start pushing in a super aggressive way. The margin profile, in our view, relative to our other businesses of the telehealth business. The margin profile is just not nearly as attractive. So given if we can invest a dollar and this goes back to your beginning question around how we evaluate ROIs and the like Michael, given we can invest a dollar in a variety of ways. I think particularly sitting in the [ CFOC ] like I see growth in areas that have high margin versus growth in areas that are sort of margin neutral but help drive some potential marketing demand.

And so maybe as we get close to wrapping up thinking about the trajectory of the business. This is a company that has despite it still being in a high-growth aspect of the business has pretty healthy margins already. And so as you go forward, how do you balance that dynamic? Maybe it just ties into last question about the appropriate targeted levels of spend on marketing? And what is the still competitive environment where you're still trying to make sure that you're it still feels to me that you still have opportunities over time to still optimize the pharmacy network. And so how does that positioning, that marketing spend, that targeted investment spend balance versus the growth opportunity of the company? I'm talking more obviously qualitatively more than anything else. But that philosophy maybe wrap us up with especially coming out of the renegotiation and somewhat resolution of the grocer side probably gives you an opportunity for management to take a step back and say, okay, here's how GoodRx can be better going forward?

I think there are 2 dimensions to this. One dimension taking a step back is one of our biggest sources, perhaps our biggest source of new users on our prescription transactions offering is sort of what we call unpaid user acquisition. And the biggest piece of unpaid we believe ties to health care providers. And during the COVID period when health care utilization was lower not only were fewer scripts written but there are fewer opportunities for health care providers to recommend or refer GoodRx. And I challenged folks in the call next time you’re in a doctor's office look around. You'll almost always find GoodRx collaterals in their offices. And those are requested by the health care providers who want to give them to their patients. So patients get on therapy and have good health outcomes. So that channel has largely been diminished through the COVID period. And now we're seeing IQVIA data suggesting that utilization is pretty much back to normal. So we see that channel as becoming relatively more contributory to our user growth again going forward. On the flip side, you saw us during the COVID period increase our marketing spend as a percent of revenue. And you certainly saw us increase it much more dramatically in terms of just sheer dollar terms. And that was partially to offset the fact that this great sort of free sales force was less effective for us during the COVID period. So now you see us doing the opposite. Like you saw our advertising spend drop in Q-o-Q in 2Q relative to 1Q. And we're taking a hard look more broadly at that as well as at our expenses in the business overall. But marketing to the narrow part of your question is a key focus of that because opportunities to rationalize that marketing spend with no attenuation. We believe, of our ability to acquire new users is an attractive opportunity to drive margins higher as well.

Really appreciate the time and the overview of GoodRx and especially after obviously a busy week with earnings to start of the week. So thank you so much and thanks everyone for joining us.