vitaCare Prescription Services, Inc. (GDRX) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, thank you for standing by. As a reminder, today's conference call is being recorded. I would now like to introduce your host for today's call, Whitney Notaro, Vice President of Investor Relations. Ms. Notaro, you may begin.

Thank you, operator, and good morning, everyone. We're excited to welcome you to this call to discuss the signing of an agreement to acquire vitaCare. Joining me today are Karsten Voermann, our Chief Financial Officer; and Justin Fengler, our Senior Vice President of Corporate Strategy and Business Operations. For your convenience, the accompanying slide deck has been posted to our IR website. Before we begin, I'd like to remind everyone that this call will contain forward-looking statements. All statements made on this call that do not relate to matters of historical fact should be considered forward-looking statements, including, without limitation, statements regarding the benefits of the vitaCare acquisition; the expected timing of the closing of the vitaCare acquisition, if at all; the impact of future financial results from the vitaCare acquisition; our relationships with manufacturers and the services we provide manufacturers. These statements are neither promises nor guarantees but involve known and unknown risks, uncertainties and other important factors. These factors may cause our actual results, performance or achievements to be materially different from any results, future results, performance or achievements expressed or implied by the forward-looking statements. Factors discussed in the Risk Factors section of our annual report on Form 10-K for the year ended December 31, 2021, and our other filings with the Securities and Exchange Commission could cause actual results to differ materially from those indicated by the forward-looking statements made on this call. Any such forward-looking statements represent management's estimates as of the date of this call, and we disclaim any obligation to update these statements even if subsequent events cause our views to change. In addition, we may also reference certain non-GAAP metrics, which are reconciled to the nearest GAAP metric in the company's shareholder letter, which can be found on the overview page of our Investor Relations website at investors.goodrx.com. I'd also like to remind everyone that a replay of this call will become available there shortly as well. [Operator Instructions] With that, I'll turn the call over to Justin.

Thank you, Whitney, and thank you, everyone, for joining us today. We're very excited to announce the signing of a definitive agreement to acquire vitaCare Prescription Services. vitaCare is a technology and services platform that helps patients navigate key access and adherence barriers for brand medications. Starting off on Slide 3. We expect this acquisition to further strengthen GoodRx' set of rapidly growing high-margin pharma manufacturer solutions offerings, so I'll take a moment to provide some broader context before discussing vitaCare specifically. As a reminder, GoodRx grew revenue 39% year-over-year during the fourth quarter of 2021, achieving record revenue of over $200 million for the first time, continuing our trajectory of high cumulative cash flow from operations while also producing 31% adjusted EBITDA margin for 2021. We are excited about the trajectory of the pharma manufacturer solutions. It's not only the fastest-growing offering, but also has the most attractive economics at GoodRx, and we believe we are in the early innings. In the fourth quarter of 2021, Pharma Manufacturer Solutions grew at 4x year-over-year. Our innovative solutions help address awareness, access and adherence challenges faced by manufacturers, patients and health care providers, seamlessly creating a win-win environment for all stakeholders. Our existing relationships are sticky, and the offering has been able to not only deliver rapid growth, but also an impressive net revenue retention in excess of 150%, representing expansion with existing customers. With over 20% of searches on GoodRx for brand drugs, we believe we are well positioned to capitalize on the macro shift to an increasingly digital mix. Pharma Manufacturers increased their digital ad spend by 43% in 2020. We look forward to helping even more manufacturers and more brands support patients and their physicians through the health care journey. We will continue to invest in scaling our commercial and product innovation efforts to take advantage of this opportunity, and we're not even close to capturing the 1% of the $30 billion per TAM we believe exists today, giving us ample room to grow. We have several growth vectors for our Pharma Manufacturing Solutions business, including adding manufacturers, continuing to add incremental brand at manufacturers, selling more solutions to each manufacturer consistently with prior periods and, of course, adding solutions over time. Our most recently launched solution is our new HCP mode, which leverages the over 700,000 providers who have used GoodRx since we started tracking with DMD and IQVIA data in June 2021, spanning broadly across specialties from oncology to primary care. The addition of vitaCare's capability supports all of these manufacturer solutions growth vectors. Now I'll move on to Slide 4. Over 500 million brand prescriptions are written every year in the U.S., and only 50% end up getting filled. This lack of access and adherence results in poor health outcomes and significant frustration for patients and providers. vitaCare's technology-enabled platform helps more patients get access to the care they need at a price they can afford, consistent with GoodRx' mission. vitaCare helps patients understand their coverage, identify available savings opportunities and facilitates provider communications with payers. It benefits the HCP community by reducing administrative burden and because they know the patient is more likely to get on therapy. The platform also offers prescription fulfillment options and manages ongoing patient adherence. This acquisition will enable GoodRx to help patients receive their prescription in an efficient, affordable and transparent manner and stay on their prescribed therapies as long as appropriate. Transitioning to Slide 5. Consistent with the Pharma Manufacturer Solutions road map we laid out during our Q2 2021 earnings call, vitaCare offers incremental solutions that expand across awareness, access and adherence. Specifically for access, vitaCare delivers significant value to pharma manufacturers by conducting benefits investigations, managing prior authorizations or related utilization management and applying appropriate manufacturer savings programs. We also have a contracted pharmacy network that is digitally connected for efficiency and transparency. For adherence, we will manage ongoing script renewals and refills and communicate with the patient to improve adherence. Moving to Slide 6. vitaCare and GoodRx' Pharma Manufacturer Solutions businesses are highly complementary. Not only do we share a similar mission, we have a highly complementary capabilities. GoodRx' strong relationships, HCP awareness and consumer traffic will drive more growth and adoption of vitaCare's purposeful platform. The result of this is delivering more ROI to manufacturers. Finishing with Slide 7. We're very excited about this acquisition and expect the transaction to close later this year. We expect the business to be dilutive to our gross and EBITDA margin but believe this makes strategic sense because it's going to augment the solutions we offer to pharma manufacturers, which makes the trade-off relative to strong expected revenue growth. And with that, I'll turn it over to Whitney so we can take your questions.

Thank you, Justin. Our first question today is, given the provider-facing nature of the vitaCare asset, should we think of this acquisition as a next step, not just for manufacturer solutions, but also in the build-out of GoodRx for providers? What other capabilities are you looking to build out in GoodRx for providers business? Justin, maybe you want to take the first part. And Karsten, maybe you can talk a little bit more about providers as well.

Yes, absolutely. Thanks, Whitney. And thanks, Doug. In terms of how we're thinking about the vitaCare business, I think that this is really consumer-focused. It helps consumers get on the care that they need in a simple manner. I think all too often, patients leave the doctor's office and have issues with filling their script after the fact that they might not be aware of before because they had to make that prescribing decision in the office. So this helps streamline that whole process and make sure that they're getting on the prescription or on the therapy that's appropriate, but the doctor prescribed them in a manner that is most easy and most affordable and all of the steps between the writing of the script and the managing with your health plan and getting it to the pharmacy at the most appropriate price. That's what vitaCare does, and that's really, really helpful to consumers. It is helpful to providers in the sense that their patients are going to be healthier at the end of the day, and it also reduces the administrative burden that many providers experience in terms of trying to get their patients on therapy. So it does help both communities. I would not look at it just in terms of a provider solution, though.

Yes, I think that was fulsome, Justin. I think we can move on to next question.

All right. Great. Our next question speaks to vitaCare's last public earnings call. They previously -- the previous owner cited 3 existing contracts with 30 in the pipeline. How will you be able to scale up the pipeline and expedite the sales process by integrating the business into your larger sales platform? Justin, you want to take that one?

Yes, absolutely happy to take that one. I think that as we've talked about on previous calls on the GoodRx side, obviously, the pharma business, the Pharma Manufacturing Solutions business is a huge focus for us, and we've had tremendous sales traction. We have 19 of the top 20 manufacturers. The number of solutions that we continue to partner with manufacturers on continues to grow quarter-over-quarter. We talked about the 4x year-over-year growth earlier in the call. So I think from a sales side, there's a tremendous amount that we're going to be able to bring to the table there in terms of introducing their great, great solution to our clients and deliver even more value. And it is something that we hear as a market need that we're meeting, so I think that there's certainly a lot that we're excited about there.

Okay. Great. Our next question is, just wanting to clarify that this revenue contribution is 1% of the second half of 2022, implying 2% contribution for the full year. Karsten, do you want to take that one?

Sure. And thanks for the question, Scott. Yes, that's accurate. I think we're -- this -- we anticipate this will close around midyear, and we think that it would contribute around 1% or less to 2022's revenue. Given the ramp that Justin was talking about, I think had we owned it for the full year, it might have contributed more than that given our incremental ability to sell this offering to manufacturers relative to the way it's been sold in the past.

Great. Thanks, Karsten. Our next question is vitaCare's network of third-party pharmacies. Is this mostly fulfilled through mail orders? Or can you explain that a little bit more? And Justin, you want to take that?

Yes, absolutely. The network of contracted pharmacies includes both mail and retail. I would say that it's a broad network and continues to grow, and I think it's also something that we'll continue to work on. I think that we have a general belief that we want to have a broad, open network. I think this is something that we should remind folks that this is definitely brand drug-oriented, not kind of broader-oriented, and we think it's mutually beneficial across the board to all constituents in the ecosystem.

Great. Okay. I will check for any more questions. I think -- let's see. That's all we have in the queue this morning. So again, with that, I want to thank everyone for your time this morning, and we look forward to speaking with many of you at the upcoming conferences we'll be attending over the next few weeks, and we hope you have a great rest of your day.

Ladies and gentlemen, that does in our conference for today. Thank you for your participation. You may now disconnect.