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

Good morning. My name is Lisa Gill, and I head the Health Care Services Group at JPMorgan. With me this morning, it is with great pleasure that I have GoodRx, with us is Scott Wagner, who is the Interim CEO; as well as Karsten Voermann, who is CFO. Karsten is going to read a quick safe harbor, and then we're just going to do a fireside chat. So with that, Karsten, I'll pass it over to you.

Thanks so much, Lisa. We appreciate the invitation. And with respect to the safe harbor. Before we begin, I'd like to remind everyone that today's fireside chat will contain forward-looking statements. All the statements made that don't relate to matters of historical fact should be considered forward-looking including statements regarding our plans, strategies, goals, objectives, our market opportunity and our anticipated financial performance. These statements aren't promises or guarantees but involve known and unknown risks uncertainties and other important factors, which may cause our actual results to differ materially from those projected in the forward-looking statements. For additional information, we refer you to the Risk Factors section of our Form 10-K for the year ended December 31, '22, as updated by our 10-Qs through September 30, 2023. We may also reference certain non-GAAP metrics, which are reconciled to the nearest GAAP metric in the company's earnings press releases, which are on the overview page of our IR site. Thanks, and back to you, Lisa.

Thanks again, everyone, for joining us this morning. Scott, it's been roughly a year since you took this interim role. Can you talk about what has maybe surprised you at GoodRx, what are the things that you're most looking forward to when we think about the future opportunities?

What's exciting -- what surprised me over the last 9 to 10 months. Well, GoodRx has this really important value proposition, which is we save people money on prescriptions. And over the history of the company, GoodRx has saved people $65 billion, $15 billion just in last year alone. So there's like a big fundamental value and for those of you who have tracked the company over the last maybe 2 years, there were certainly some choppiness that maybe led to my entrance at the company. And so we've all been ruthlessly focused on what I call driving prescription savings events. And there's been 3 ways we've been doing that. The first of which is really leaning in with our retail partners to make sure that we're being distinctive for them that they're making money and that we're driving incremental basically traffic and value. The second is taking the fundamental benefit of GoodRx, which is this called a cash discount card but really an off commercial funded plan and bringing it closer together with commercial plans called Integrated savings, which we've done a bunch of those partnerships and launches really over the last 8 days and then bringing GoodRx savings to brand drugs. And those 3 things are nicely working. They're starting to show up in the results. In the third quarter of last year, the company returned to growth. We just announced our fourth -- preannounced our fourth quarter results, so that's stacking incremental growth year-over-year was, I think, a little bit above 6%. So the nice thing is the things that we're working on reinforce the value prop and that turned into good business for us.

As we think about the numbers, and then maybe we'll spend a minute talking about the preannouncement this morning. When we think about what you were talking about on the third quarter, fourth quarter coming in better than expected, kind of preliminary '24 looking better than expected. I think you talked about mid-single-digit growth for '24?

Correct. Yes.

Can you maybe talk about what were some of the elements of the higher fourth quarter versus your expectation as we were exiting the third quarter?

Sure. Thanks for the question, Lisa. Yes, I think there are 3 elements that I'd point to. Number one, we saw better volume and that volume was driven by, among other things, some seasonally related illnesses coming in a little higher than we had expected. We didn't include them or contemplate them in our forecasting, and they've manifested particularly in December. So we're grateful for that. Number two, we saw generally more volume, both as a result of our direct contracting efforts with retailers and more broadly. And then finally, on the rate side, we had some fourth quarter specific benefits associated with some of our customer contracts as well. So all of those 3 things really help propel our prescription transactions offering forward in the fourth quarter. And as we anticipated, based on the indications we gave for 2024 as well, we expect that over performance to continue for a while in the future.

And is it the same 3 key drivers? Or how do we think about the new integrated savings playing into that updated guidance that you gave today for '24?

Sure. I think we made both comments on this one. I know Scott will be eager to too, but the ISP program, which we started really in earnest running last year with Express Scripts. And now, of course, we've added Caremark, Navitus and MedImpact [indiscernible] as well. So that's really become a much bigger program. We're super excited about it because it's so SAM expanding. Historically, we've gone direct to consumer and acquired consumers one at a time effectively through our marketing efforts. Now we can aggregate demand and pull in large numbers of consumers potentially all at once. So we're pretty excited about that. That said, we're also early in this year. So it's a little early to have a perfect beat on how the year will evolve. So when we look at 2024 broadly, the trends that I think continue from third quarter to fourth quarter to get specific about your question, are, number one, the volume that's coming in higher, we'd anticipate will continue to because when volume comes in higher, that generally gets us more Max, more users and once will start using us, given that 80-plus percent of our transactions are repeats, we just keep those folks and they carry forward into the future, which is exciting.

Yes. And I think, said differently our largest shareholders sitting in the front row, so that may have even been a nice planted question. The results that we've just delivered really don't have anything to do with integrated savings. The programs that we're now live with Caremark, ESI, MedImpact being the 3 largest ones, they went live January 1 for the most part. And I think the nice thing -- I think the nicest thing about these for me are they absolutely meet a need frankly, in the world that is, wow, as plans get more complicated as frankly, drug costs, either more drugs get pushed off benefit or co-pays go higher. It's very clear there's a big and expanding need for an ancillary service. And it's pretty much recognized by employers, plans, people and that's kind of the need we're meeting.

Yes. I think one of the things that's interesting to me, when you think about high-deductible health plans and more than 50% of Americans are in high-deductible health plans, and you look at the fact that part of the benefit, you have to have the same deductible for pharmacy and medical. And so initially, people are paying out of pocket for all of their pharmaceuticals because to reach that average deductible, which is nearly $3,000 in the United States today. So my understanding is that when I think about that integrated savings program that you have and what companies like ESI and Caremark were trying to sell for is exactly this, and so as I think about the ramp of people signing up for that, and you said it primarily starts in January of this year, and I would assume that it goes with the benefit plan here? Is that the way to think about it? So how should I think about how that rolls on? So is it the Caremark sells it to an employer and then that employer offers it to the employees. And do they have to opt in? Or are they immediately all part of this plan? How does that work mechanically?

How is it working? Let me go first you might pick it up. You have the gist. It is introduced by let's use Caremark as the example, to their corporate plans. Now Again, this is pretty early when we signed these agreements, is measured a couple of months ago. And so they're not introducing it to everybody in their universe. And each PBM is a little different, Caremark being probably the broadest coverage around it. But then once somebody is either opted in or opts themselves in then every time a member in their plan goes and is redeeming a prescription, they're getting a check against GoodRx. Now so the economics and how is this going to roll out. So right now, it's number of lives being offered and number of script events at the point-of-sale counter. The evolution of this, I think, will continue to have to invest in retail because our CBS, Walgreens, Walmart, retail partners of the chain need to make sure that this is working great for them too and I think as it continues to evolve and roll out, I would hope that this becomes a little bit more of a structural part of people's plans.

And so again, I just want to make sure that I understand this. So it's not materially different than the GoodRx from the consumer side. It's just more tied to your actual benefit that you have within your health plan?

Yes, the economics of it are substantially identical from a revenue perspective, meaning as folks come in, whether they are folks who we acquire directly or who are aggregated in through these ISP offerings. In either case, when the check happens at the pharmacy counter for the ISP folks or the direct-to-consumer folks show up with a GoodRx card, the app or other things, the way the transaction routes across our back plane of PBMs and our direct contracts works identically, which means at a nominal level, the revenue on a claim is substantially similar to. So this is basically our core business, the way it's historically worked, but pointed in a new direction that allows us to aggregate demand much more efficiently, #1. And number two, because there's still significant numbers of folks who don't even know you can save on prescriptions, it ends up being hugely SAM expanding. We did analysis through last year obviously, before you bring many new PBMs on, you check to make things -- sure things are working great. And what we found is the overlap between our directly acquired consumers and these are very, very small. I can't stress that too much, both in terms of people and actually the kinds of scripts they're filling. So this is, for us, very attractive.

When I think about overall prescription volume, you've outperformed the market, generally speaking. So when we think about those volumes and we think about those trends, and we think about the trends in cash pay, what are some of the things that we need to think about from an investment perspective? And is this continued opportunity for you to outperform? Do we think of you as going more towards normalization when we think about what utilization trends look like in the U.S.?

Yes. I can jump in on this one. And I think historically, you've seen us grow faster than market. If you define market as cash pay. I think cash pay itself is also something that's looking like a more and more attractive market, too. I think over the last few months as well, certainly, all the data we're looking at suggests that we continue to be a growing share of that pie. So from that perspective, we're coming back to the point where we have consistently grown faster than the market as a whole. And I think that's fundamentally driven by some of the changes we've made on the marketing side and various other efforts on our part.

If I could, maybe just framing cash pay, and then relatively GoodRx. So roughly, we'll do a little under 100 million prescription fills associated with GoodRx a year. Like it's a pretty good number. And we're high 30% share of what's called cash, but back to the fundamental trends that you just laid out in terms of higher deductible plans, higher co-pay, more drugs with less benefit, right? The tailwind broadly would sit in the space that we'd call cash, but it's almost a bad label for it. And what we're starting to do now is bring cash even a little closer to funded plans through ISP. So I think from an investor perspective, when you asked that question, what gives me comfort, again, particularly, it's a non-health care guy coming into this is, oh, wait a minute, the fundamentals of how and where healthcare gets delivered in the country, kind of our tailwind. Now in the value chain, there's obviously a bunch of swirling and arm wrestling that seems to happen all the time. But fundamentally, there's tailwind that we're serving and eat on, and that gives me a lot of comfort.

Just coming back to ISP and when we think about 2024, and you said so early on, not really a lot in the number, but how do I think about what that market opportunity looks like? And how much do you think that you potentially can capture in '24?

Sure. So Scott briefly touched on some of the variables. I think the 2 key ones are the number of people or lives who benefit from it through their employers and the PBMs we work with. And the second dimension is the conversion rate, meaning the proportion of the time that the GoodRx price is lower and we win the transaction, and the prescription effectively. So when I think about those 2 variables on the first one, in many cases, our PBMs are having employers opt out, particularly new employers who are being sold by the particular PBMs. So that means from the perspective of acquiring lives, we're relatively well positioned, we think, and we're pleased with the trajectory we're seeing. With respect to the conversion rate, I think that's where more data will be helpful to us. But on that dimension as well, given that we have the experience of running this program last year, we feel like we have a decent line of sight, I'd actually argue a pretty good line of sight on what we should expect there. That said, fundamentally, the employers who take offers like ISP, particularly the ones who are opting in, tend to be the more forward-thinking employers who have better benefits anyway. So the conversion rate may not be as high as it would be for just some random directly acquired consumer and likely won't be as high in our view, relative to some directly acquired consumer because of the relative richness of the plans being higher from the sponsors who are most eager to adopt ISP early. It's probably the best way of putting it.

And so as we think about when you give guidance and you give us updated numbers, please correct me if I'm wrong here, but I think you're going to break this out for us. Is that the plan to give us some KPIs around this as we think about it rolling out throughout '24?

Yes. As we get to our normal guidance time, I think we'll anticipate, number one, we'll provide more [indiscernible] around the first quarter and potentially '24. And we'll also have more line of sight at that point on the ISP program. Again, now we're in 10 days into January, but has 8 real days because one of them was New Year's Day and one of them is today, and I don't have a ton of data from today yet. So I think we're really looking forward to being able to share more concrete realities around the fourth quarter call.

We'll give people an indication. If you're building the model and tracking GoodRx, there's really 2 revenue lines that we will continue to be providing sort of metrics and thought around. One is we call it the marketplace, but is the combination of script fills in the marketplace and then manufacturer solutions, which are their special brand deals. And I'd kind of encourage everybody to just think in those 2 blocks.

Okay. Perfect. Can you spend a few minutes just talking about GoodRx pricing and how they compete, whether it's an insured versus the traditional offering or ISP. Is there a meaningful difference between the traditional and ISP?

Certainly not from a revenue standpoint and how the economics work, they look exactly the same. So speaking selfishly for and on behalf of investors, everybody would be agnostic to GoodRx, having an individual walk in on a GoodRx sort of branded and generated transaction and traditional cash versus ISP, if you're an investor, you're agnostic and thrilled to have them both.

And just again, asking a lot of questions around this. But when we think about the ISP pilots that you had and think about the mix between branded and generic drugs, has that been consistent with non ISP GoodRx users? Or have you skewed more towards branded drugs because of the cost of the branded drug?

Marketplace offering broadly to use the taxonomy that Scott just laid out between our brand drug support manufacturer solutions offering and our prescriptions fills in both our prescription transaction and our subscriptions offering, have always been very oriented towards generics on the prescriptions marketplace side, and we continue to see that, that generics are extraordinarily dominant in that -- in that marketplace for a...

And that's because that's 90% of the volumes in the U.S. today, right, or basically generic?

It is. The brand, although, again, boy, the brand opportunities specifically for brands. And this is -- this will be an anecdote, but it's indicative of the opportunity here where I was sitting with one of a brand owner of a big pharmaceutical company and their head of market access. And it's a drug that's going off benefit and competes with generics. And we pulled up the site and they didn't have -- they didn't know what the cash price of their drug was. And it's something that it popped up and it was about $800. And they both said, oh why is that $800? I don't want it to be $800, and it's like, well, we can work with you -- in our parlance, that's manufactured solutions, which is great if you want to be under the price of the generic you're competing with. Gosh, you can buy this down on GoodRx and actually have an ability to put your drug at a price point that people, individuals want to interact with.

Do you see a lot of opportunities like that?

I do. I do. Again, that's how we've probably shifted may even be the wrong word. We're honing the focus of our manufacturer solutions effort because if you think about a brand owner or a brand steward of a drug, what GoodRx really brings that's unique is we're a marketplace for people looking for a drug at a price point. And so anybody with a brand drug that maybe competes with another brand, maybe competes with generics and you really care about the end price, we're kind of uniquely suited to be the vehicle by which you can translate that price to people. So yes, I do. It's actually the thing that kind of coming in, I was most excited about. And I'm a little frustrated by the fact that if I could get every market access person in this room, there's a set of drugs...