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

Great. Good morning, everyone, and thank you for joining us at this session on day 3 of the BofA Healthcare Conference. I'm Mike Cherny, the healthcare tech & distribution analyst. And we have with us today the GoodRx team, just more than 24 hours off of earnings. So it will be a good time for update. We have Karsten Voermann, Chief Financial Officer; as well as Romin Nabiey, I hope I pronounced it correctly, Chief Accounting Officer.

So the team didn't bring any slides, which is perfect, because I didn't want them to. I'll get this fly that's buzzing around as we go. But maybe just because you did report earnings yesterday. So why don't you give some of the key highlights that you think stood out relative to the results and especially versus your expectations?

Sure. Thank you for the question. And first of all, I think more importantly, thank you for hosting us here, Michael. We're really grateful to be here and be a part of the conference. So appreciate that very much, and appreciate all of you joining, too. See some familiar faces in the audience. That's nice as well. So with respect to earnings and the highlights from yesterday, we outlined a 1Q beat on revenue as well as the specific revenue lines underlying it as well as a significant beat on adjusted EBITDA as well, which we're quite pleased with. So that part of earnings, I think, was a pleasure to be able to do and be able to communicate to investors. I think the other highlight is that, we recently brought on a new executive, a new Chief Executive Officer in the form of Scott Wagner. Scott, for some of you who may not know him, he used to be CEO of GoDaddy, which was a very large consumer-oriented technology company. And we're pleased that he's elected to join GoodRx in the context of helping to do some similar work to what he did at GoDaddy, namely to profitably grow the business at a very, very high rate. So we're excited about that, too. Those were probably the biggest highlights of the earnings that we did yesterday, Michael.

And maybe let's just start with that on the Scott front.

Sure.

Obviously, there's been a lot of new CEO, especially taking over from founders, brings a significant amount of change. I know it's very early. It's been 3 weeks, something like that. So I guess off the bat, what's been some of your customer and partner reaction to bringing in Scott versus Trevor and Doug, who I know are obviously staying with the business?

Yes.

And I guess, hitting the ground running, what are the biggest priorities, biggest focus points that Scott is bringing to the organization?

Sure. Let me hit both those pieces separately, the customer reactions and the focus points. Just because we may have some folks here today who aren't as familiar with the story as others, when we talk about customers at GoodRx, they fall into 2 groups. First of all, GoodRx has a large prescription discount offering that allows Americans to save a substantial amount off what they'd otherwise pay for prescriptions, not just focused on uninsured users. In fact, that's a tiny minority of our users, but focused on insured Americans where we can substantially beat the co-pays they traditionally pay. That's a big part of our offering, and we do that both through our prescription transactions and for folks who want to save even more off a subscriptions offering. On that side, we consider them like more users versus customers. We have a second prong of the business and that second prong of the business is focused on pharma manufacturer solutions and is B2B insofar as pharma manufacturers engage with us to provide awareness of medications and access solutions for medications, both to consumers and evermore to healthcare providers as well. And that's where the customers are. To scale those 2 things for folks, in terms of users, we serve about 7 million users a month through our prescription discount offerings. We have a large multiple of that in terms of folks who hit our web properties, but the actual ones who engage on the prescription savings side are about 7 million. On the prescriber side and on the pharma manufacturer solution side, we have approximately 450,000 plus providers or health care providers, you can think of them as doctors, who engage with our platforms. We've seen our monthly active users of those docs and health care providers double since December of 2023 and we have a total of about 2 million providers who have a patient that's used GoodRx. So that's why pharma manufacturers work with us to reach out and that's why pharma manufacturers are our customers. Now a very long roundabout way of getting to your question about how customers reacted.

And I probably should add partners, too, because I know, obviously, you work with various different pharmacy management managers and obviously, retailers so.

Totally, yes. From the customer perspective, I think the dominant ones that matter for this context are probably the pharma manufacturer solutions one, and Scott, our new CEO, went to a conference called Assembia that was actually here in Vegas recently, met with a large number of the customers and the reaction was highly, highly positive. So I think they're very excited to work with them, too, because this is such a key area of focus. I think that might have been your next question, right? Like what are his areas of focus?

Exactly. What does he bring to the table? Especially because he brings a history of business scaling, but, obviously, from outside the health care world. So some of -- what do you think are the most important things that he's bringing to the table that he wants to make sure he's implementing to continue the GoodRx progress?

Absolutely. I think there are 4 things that matter here that he's articulated and that we've echoed back as a leadership team of the company to prioritize our focus on. The first big focus is stability on our prescription discount business side, stability of the network that's a relationship with pharmacy benefit managers, retailers, et cetera, to continue to deepen those relationships to be able to leverage them to drive more volume. Second thing is growth in that business, meaning leveraging different tools we have at our disposal, both on the marketing side and on the pricing side, to be able to optimize for consumer growth in our prescription discount offerings. Thirdly, it's to grow our pharma manufacturer solutions business, the one where we just talked about the customers, where we have so many health care providers that pharma manufacturers are trying to reach as well as our consumer base. That's been our fastest growing business. The business did about $19 million of revenue in 2020. It did $20 million in revenue last quarter and it did $99 million last year. So it's grown about 5x from 2020 to today. Very excited about that. And that's the business Scott's focused on accelerating the growth of most. And within that context, the fourth prong, because I said there are 4, again, stability and deeper retailer and PBM relationships, growth of the prescription transactions, discount business, pharma [ man sell ] growth and then the final one that he'd add as being critical underlying all of those is executing with incremental urgency to be able to increase the pace of play maybe relative to where a founder-led company might be, Michael.

Got it. And that's helpful. And I definitely want to make sure we have plenty of time for the pharma manufacturer business. But I want to start on the traditional prescription discount side. We're basically on a year anniversary, give or take, since your grocer situation, as we call it, arose. I think I remember reading the press release while I was out here at our conference last year.

Yes.

Maybe just level set for us, what has changed in your network in terms of how the lay of the land of your interactions with pharmacies currently sit right now? I think about it and I look back at it, basically and that seems to me from a high-level basis, is their share of your prescriptions are meaningfully higher than the share of the overall market. You were -- were.

Yes.

Very clearly were. So as you sit now what is that landscape and how has it changed from pharmacies that maybe access higher share versus lower share and what that discount dynamic in terms of the spread you see across your pharmacy partners look like?

Sure. We may split this answer. I may address the piece related to the grocer in question, the incident that happened. And Romin can talk about some of the initiatives, especially our direct contracts that we're engaging with, with pharmacies to make sure this never happens again. So for folks in the audience, about a year ago, a large retailer here in the States, at this point everyone knows their name, it's Kroger, elected not to accept cash-paid prescription discounts anymore at all. So they basically shut that business down. And since we aggregate prescription discounts from all the different pharmacy benefit managers we work with, which are well over a dozen and a half that meant that, that particular area of retail distribution, that particular pharmacy became unavailable to our users. And because the folks there had particularly attractive prescription pricing, we had about 24% of our revenue flowing through or sourced from, maybe a way to say it, associated with being the most general with that particular pharmacy. So that 24% of revenue effectively disappeared for us almost immediately. So that amount of revenue in 1Q of 2022 was in the mid-30s of millions of dollars. So on a quarterly basis it was material to our revenue, certainly around sort of 15% to 20% of revenue that disappeared quite rapidly. So in that context, we've since then a couple of things differently. Number one is, as we look at the need to increase network stability, we've started to rely less on solely the PBMs running these relationships, but also getting into them ourselves, which Romin will talk about. But before going there, I think some of the relevant things that showcase what we've done since then in a numerical fashion are that when we look at growth outside this grocer and compare that year-over-year, number one, we've seen growth rates in the last quarter that showed volume being up approximately 16%. We reported in our fourth quarter call volumes outside the grocer were up about 12.5%. So we're consistently seeing high growth outside the grocer in question through all the other pharmacies we work with. Number 2, I think the other thing that's relevant is it's really made it difficult, I think, for investors, so a lot of you here listening today, to assess our growth rates and what the company actually really looks like from a growth perspective on the prescription transaction side. And one of the reasons I call out the fact that last year the grocer in question contributed approximately mid-30 millions of revenue more than this year is had this incident not happened, our growth rates for total revenue would have been about 8% year-over-year. Prescription transactions revenue, the relevant prescription savings piece, up about 9% year-over-year but for this issue happening, had the grocer's volume stayed constant. So with that, I should turn to you to talk about what we're doing about it. [indiscernible].

Sure. The other thing, I'd say is that prior to the Kroger issue, we were already exploring direct contracting with pharmacies and it was more of a catalyst when that occurred to accelerate down that path. And by having these direct contracts in place, it creates a direct relationship with pharmacies where we now have a pulse on what's going on at each of these retail partners and understand whether it's margin pressures they're facing or if they want to drive volume or partnering up in other ways, we have a pulse of what's going on. And so we can nip issues in the bud before they occur. The other thing I'll note is that when you look at kind of the cloud of actual volume that we're driving through, there's no other retailer that over-indexes relative to their market share, save for perhaps one that is more based on demographics overlapping rather than very low pricing like the Kroger issue.

And so the Kroger issue and I always talk to the grocer, but if you go Kroger, I'll say Kroger too, is an interesting one in the sense that the constant push and pull between pharmacies and PBMs is…

Yes.

A neverending battle. You're not even the only PBM-oriented entity, I know you're not a PBM, but…

Yes.

The partnerships that Kroger is currently in a fight with, I mean, witness their Express Scripts network disagreements. And so as you think about that, how does that underlie your desire to go through that direct contracting route? And from an economic perspective, this is something that I know you're spending more time with, is there any economic difference between a prescription that's being done inside the 4 walls of a direct contract versus the 4 walls of a traditional PBM network-like contract?

Sure. I think we can both hit on this one too. I think the piece I can hit on is what's changed and why we're going direct at an accelerated rate now. And I think one of the biggest reasons is we had these deep relationships with PBMs. We relied on their contracts with pharmacies as we aggregated all their low pricing in our marketplace. And that reliance in the context of the grocer Kroger and that context, that reliance proved to be something that was not helpful for us and where the PBMs themselves elected not to or weren't able to enforce the acceptance of their very own discounts that we aggregate that hurt our revenue. So what's really changed for us is that historically we resisted to some degree, or at least had concerns around direct contracting with pharmacies in the context of not wanting to disrupt our ecosystem of PBM partners, who drove so much revenue and so much margin for us. I think the reality today is that we and they have both seen through this example that complete reliance on the PBM relationships is not optimal for GoodRx. And so it gives us a justifiable reason for going direct to retailers and contracting for a portion of the volume at retailers or even all the volume at a given retailer today. And that's really been the biggest single change is that we now effectively feel like this is not a channel conflict issue in the way it might have previously been because the PBMs themselves weren't able to enforce on our behalf. So I think that's the first prong of it. In terms of how direct contracting actually works, do you want to hit that part or...

Yes. Sure. I mean, when you look at the actual script or transaction level, the pharmacy is paying an admin fee up to the PBM, of which a portion is remitted to us, right? When we direct contract, it's effectively just between us and the pharmacy and there's an admin fee involved there. Just one less entity is involved as well. More broadly speaking, when you look at the direct contracting that we're doing, I think it points towards the fact that PBMs continue to want to work with us because we drive incremental value, but we cannot not have direct relationships with pharmacies. And so that's something we believe we need to do to the points we made earlier to ensure that we have the most important relationships in place and can understand what it is they want and work with them in that capacity.

I think on the economic side of it, it gives us a unique lever we never had in the past, which I'm pretty excited about, which we're just starting to focus on now, which is historically the PBM has an agreement with a pharmacy and that agreement is relatively static and pays a certain admin fee associated with the pharmacy filling a certain medication and that is what it is. When we direct contract to a point Romin made, we're much more deeply integrated with the pharmacy and we can work with the pharmacy to make margin versus volume tradeoffs, for example. So for the first time in our history, that gives us some control over the relationship with the pharmacy and their incentive to drive more volume towards GoodRx over time. So we could, for example, agree to reduce an admin fee by a certain percentage, if we pick up volume that's higher by a larger percentage. That wasn't even an option when we worked solely through PBMs, so we're pretty excited about that.

And it's great for pharmacies, because their contracts normally renew or are renewed annually, right? That's the only opportunity to get to reset prices and there could be a mispricing going on that whole time where you're driving volume to a mispriced drug and you're upside down in your margin. Well, we are in constant contact and have great relationships now with those contracts that we have in place with the pharmacy. So we can help nip those issues in the bud pretty early.

And just along those lines, in terms of dichotomy in the sense that, at least from the call recently, your 2 biggest focuses are direct contracting, but also your Evernorth partnership.

Yes.

So we're trying to go with our own relationships, but also partnering with one of the big 3 PBMs in a deeper way. So maybe just give us now some background of how that came to fruition and what you're seeing so far. Because I think you said it led to some of the 1Q outperformance. So how exactly that's filtering through and how, as an Evernorth member, if I was one, I would feel the impact of the GoodRx discounts?