GoodRx Holdings, Inc. (NASDAQ:GDRX) Q4 2023 Earnings Call Transcript

GoodRx Holdings, Inc. (NASDAQ:GDRX) Q4 2023 Earnings Call Transcript February 29, 2024

GoodRx Holdings, Inc. reports earnings inline with expectations. Reported EPS is $0.08 EPS, expectations were $0.08. GoodRx Holdings, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Ladies and gentlemen, thank you for standing by, and welcome to the GoodRx Fourth Quarter and Full Year 2023 Earnings Call. 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.

Whitney Notaro: Thank you, operator. Good morning, everyone, and welcome to GoodRx’s earnings conference call for the fourth quarter and full year 2023. Joining me today are Scott Wagner, our Interim Chief Executive Officer; and Karsten Voermann, our Chief Financial Officer. 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 facts should be considered forward-looking statements including, without limitation, statements regarding management’s plans, strategies, goals and objectives, our market opportunity, our anticipated financial performance, underlying trends in the business, our value proposition, our potential for growth, collaborations and partnerships with third parties, including our integrated savings program, our hybrid retail direct and PBM contracting approach, anticipated impacts of the deprioritization of certain solutions under our pharma manufacturer solutions offering and our cost savings initiatives, expected impact of the wind down of Kroger Savings Club, the amount, timing and benefits of our new share repurchase program, the expected impact of the macroeconomic environment on our business, and the expected impact of recent outages disclosed by UnitedHealth Group.

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 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, 2023, 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 will be referencing certain non-GAAP metrics on today’s remarks. We have reconciled each non-GAAP metric to the nearest GAAP metric in the company’s earnings press release 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. With that, I’ll turn it over to Scott.

Scott Wagner: Thanks, Whitney, and thanks to everyone joining us today to discuss our fourth quarter results. Today, I’d like to highlight the meaningful progress we’re making on our key priorities, and then Karsten will take you through our Q4 ’23 financials and expectations for Q1 and full year 2024. I’d like to start by framing the fundamentals of what we do. The critical and growing consumer needs we serve and the importance of the GoodRx value proposition, which is saving people money on prescriptions. Over the history of the company, GoodRx has saved consumers approximately $70 billion. And just last year, we saved consumers approximately $15 billion. There’s big fundamental value here. And while healthcare is highly complex, the role GoodRx plays is pretty simple.

Consumers today are facing rising healthcare costs with plans continuing to increase patient out-of-pocket costs, like deductibles and co-pays and increasing gaps of drug coverage with narrower formularies. We believe these market coverage trends are stronger than they’ve ever been, and we don’t expect them to change. Think about how Medicaid redetermination alone has limited access to funded benefit plans. We believe this reality makes GoodRx, an essential part of the American healthcare system is a trusted solution for consumers to access affordable medications in the U.S. Healthcare providers recognize this which is why we’ve become a fundamental resource for them and why more than 80% of healthcare professionals refer their patients to us.

In 2023 alone, over 25 million consumers use GoodRx to achieve approximately $15 billion in prescription savings, making GoodRx, one of the leading consumer-driven digital healthcare experiences. For those who have been following both GoodRx and the industry in recent years, short-term movements in the industry value chain have created some confusion about our prospects. We believe the market tailwinds are increasing, patient out-of-pocket costs are growing. GoodRx is scaled. Our users, our HCP advocacy are growing too, making us confident in the strength of the GoodRx value proposition and our ability to grow our business. Our financial results continue to improve as we focus on helping our industry partners in the value chain, benefit proportionally from the value that GoodRx creates for our 25 million-plus consumers annually.

In Q4, we continue to see positive momentum in the business, both financially and operationally. Consistent with the preliminary Q4 results we announced in January, our Q4 year-over-year adjusted revenue growth accelerated to 7% up significantly compared to our Q3 growth rate, and our Q4 adjusted EBITDA margin was 29.1%, up 220 basis points year-over-year, with adjusted EBITDA growing 15% year-over-year. This financial performance is the direct result of our efforts throughout 2023, specifically in three areas: first, leading into our relationships with retail partners; second, bringing the fundamental benefit of GoodRx to commercial plans through our integrated savings program for ISP; and third, bringing GoodRx savings to brand drugs through our pharma manufacturer solutions offering.

These all reinforce our value proposition and are showing up in the results. We expect adjusted revenue to continue to grow into Q1 and for the full year 2024 as well. We anticipate adjusted revenue to be about $800 million for 2024 with adjusted EBITDA of approximately $250 million. Karsten will go through our outlook in more detail in a bit. I will say I’m confident our priorities are the right ones to deliver the growth we’re expecting in 2024 and to drive shareholder value over the long term. There are three areas of the business I’ll highlight today. First, we’ve been focused on strengthening our retail pharmacy relationships and accelerating the continued success of our hybrid model, which includes retailer direct and PBM contracting.

As a reminder, our retail direct approach is where leading pharmacies like CVS and Walgreens as well as smaller grocers and pharmacies work closely with us to create consumer value while executing against joint revenue and margin targets. In the fourth quarter, our contracting efforts with retailers were a driver of top line performance as we continue to sign direct contracts with new pharmacies and expand the drugs covered by direct contracts within pharmacies. Today, we have retailer direct contracts with most of our largest retail pharmacy partners and our directly contracted medication volume makes up a growing minority of our overall prescription transaction volume. It’s important to remember that GoodRx drives volume and traffic for pharmacies.

We do this in two ways. First, we estimate that between 20% and 30% of all prescriptions in the U.S. go unfilled each year due to price. By offering lower price points, pharmacies can fill scripts that patients would otherwise walk away from. Second, in 2023 alone, we’ve invested over $200 million in advertising and promotion related marketing, almost all of which is focused on increasing the number of GoodRx users, and which ultimately drives incremental prescription volume to pharmacy. Pharmacy’s proprietary affordability solutions, by definition, only impact their customers, while in contrast, GoodRx has the ability to drive incremental retail prescriptions and people into their stores. This is one of the reasons pharmacies have been so receptive to locking in multiyear contracts with us.

I also want to emphasize that as part of these retail direct contracts, GoodRx offers discount card pricing agreements that provide retailers define margins and are informed by acquisition cost-based pricing in a number of key retail pharmacy partners, including CVS Pharmacy. We’ve seen other large pharmacies work with us to use a combination of pricing models, and that’s worked out very well for both of us. We welcome the broader movement to cost-plus reimbursement models in both funded benefit plans and off benefit as it’s a great way to align economics between pharmacies, payers and consumers. Critically, we believe that our retail direct contracting strategy, which takes a cost aligned approach positions us well for sustainable growth in a market with evolving pharmacy reimbursement models.

We estimate that over 3/4 of GoodRx users have some form of insurance coverage. That means consumers are comparing prices against co-pays, not exclusively comparing prices between pharmacies. For uninsured users, the opportunity for greater patient affordability is relative to usual and customary cash pricing, which is generally substantially higher than GoodRx pricing. If there were a scenario where a more cost-focused pharmacy reimbursement model reduces drug price disparity across retail pharmacies, which we don’t believe will ultimately be the case since each pharmacy uses pricing strategically to attract different kinds of consumers. We see this trend overall as neutral to GoodRx given we will still be able to deliver significant savings benefit to consumers.

Our second priority has been to hone our growth plans for our core prescription transactions offering, which includes extending the GoodRx benefit to commercial insurance programs or funded plans. We’ve done this through our integrated savings program, or ISP, with PBM partners like CVS Caremark, Express Scripts, MedImpact and Navitus who aggregate demand for our prescription discounts. The early traction we’re seeing for ISP so far in 2024 is encouraging and its contribution to Q1 revenue is reflected in our growth expectations. ISP is generating incremental year-over-year revenue which is manifesting in line with our expectations. As we mentioned in the past, we believe there will be some level of ramp to the volume that comes through ISP and we’re still in the very early days as we work with PBMs to add more types of prescription transactions to the program and to ensure acceptance at retail.

Also, while our PBM partners market these programs to be over 60% of eligible lives in the U.S. that they cover, we’re working in parallel with them to educate and inform employers about these programs and accelerate the number of lives we can onboard. Along with increasing lives, we believe we can inflect conversion as well, given we’ve historically been able to increase GoodRx discounts and lower pricing over time in our non-ISP, direct-to-consumer offerings. As we do so in the context of ISP, we believe we can beat patients’ co-pays more often. Given that ISP is incremental to our direct-to-consumer offering and any evidence of cannibalization has been minimal, we remain focused on accelerating its growth. Based on our learnings from last year, we expect our ISP relationships to create some incremental seasonality with higher revenue during the first half of the year and contributing less revenue in the latter part, since more claims are likely to be routed through GoodRx while consumers are in the deductible phase of their health plans.

That said, our growth expectations are predicated on how ISP has performed for the first few weeks of this year. And if we’re successful in driving more types of transactions, and more lives to the program as we help drive more employer sales, we may achieve incremental lift in the coming months and during 2025’s patient deductible reset period. We’ll update everyone if we see this manifesting. Third, we’re focused on scaling our pharma manufacturer solution bills. In Q4, we continue doing the work to build our pipeline and believe we’ve set ourselves up for year-over-year growth in the first quarter and FY ’24. We’ve been leaning into our access and awareness solutions that we believe will accelerate 2024 growth. And as we mentioned in the past, in 2023, we prioritized deal quality with a focus on foregoing one off deals and instead creating standardized go-to-market programs that we expect to scale sustainably.

Our restructuring in this offer, including rationalizing vitaCare is essentially complete, and we’re on track to deliver our expected margin accretion in 2024, which Karsten will speak to in more detail. With that, I’ll hand it over to Karsten.

Karsten Voermann: Thank you, Scott. I’ll speak briefly to our 4Q ’23 financial results, which were consistent with the preliminary Q4 results we announced in January before turning to guidance. In summary, during the fourth quarter, adjusted revenue exceeded the guidance range we provided on our Q3 earnings call in November and adjusted EBITDA margin was in the upper end of the guidance range we provided. Total revenue and adjusted revenue for the quarter increased 7% year-over-year to $196.6 million primarily driven by organic growth in prescription transactions revenue. Prescription transactions revenue grew 11% year-over-year to $143.9 million, an acceleration from Q3 growth which was partially driven by quarter-specific favorability related to certain client contracts, which also slightly increased PTR per MAC.

Subscriptions revenue declined 6% to $23.1 million due to the wind down of Kroger Savings Club. Kroger Savings Club revenue was over $1 million less in the fourth quarter of 2023 than in the prior year period. Gold subscription count was up both quarter-over-quarter and year-over-year. In Q4, gold revenue was $21.5 million, and the related sub count was 694,000. We expect the continued wind down of Kroger Savings Club subscribers from now to July and given the relative subscription fee is much higher for GoodRx Gold than for the Kroger subscribers, the wind down should be more impactful to subscription plan count than revenue. Pharma Manufacturer Solutions declined 2% year-over-year to $24.4 million driven by our restructuring of the offering, which included shutting down vitaCare.

The prior year quarter included over $2 million of revenue related to vitaCare, whereas in 4Q ’23, there was essentially 0. Net loss was $25.9 million compared to a net loss of $2.0 million in the fourth quarter of 2022. Adjusted net income was $31.1 million compared to $27.4 million in the fourth quarter of 2022. Adjusted EBITDA increased 15% year-over-year to $57.3 million. The primary driver of the year-over-year increase was higher adjusted revenue, along with our cost discipline, increased marketing efficiency and the actions taken to restructure pharma manufacturer solutions, including the deprioritization of vitaCare. Adjusted EBITDA margin was up 220 basis points year-over-year to approximately 29.1%, which was on the high end of our guidance range.

We generated net cash provided by operating activities of $15.9 million compared to $31.9 million in the prior year period. Our capital allocation priorities are unchanged, and we’ll continue to focus on high-return investments and maximizing value for shareholders. Our balance sheet remains strong, and we ended the quarter with $672.3 million in cash and cash equivalents on the balance sheet and $661.8 million of outstanding debt. Significant uses of cash last quarter included approximately $78 million of share repurchases at approximately $5.53 per share on a blended basis. And as we’ve discussed on prior calls, a nonrecurring approximately $45 million of spend on withholding taxes related to the delivery of shares to our co-founders related to a 2020 equity grant which was defrayed by shares we withheld.

Our revolving credit facility is untapped, except for letters of credit and had $90.8 million of unused capacity as of December 31, 2023, representing total liquidity of $763.1 million. This month, we extended the maturity date of our revolving credit facility to July 11, 2025. Recently, our Board of Directors approved a new stock repurchase program to repurchase up to $450 million worth of Class A common stock. Now turning to guidance. Our outlook for Q1 revenue and adjusted revenue is $195 million to $198 million, which represents 6% to 8% year-over-year revenue and adjusted revenue growth which includes our current estimate of the impact of recent outages disclosed by UnitedHealth Group that we believe at this early stage despite lasting a couple of days has likely not had a material impact on our financials.

We expect adjusted and GAAP revenue to be identical in the first quarter because we believe the third quarter 2023 adjustment to revenue in relation to the Pharma Manufacturer Solutions restructuring related to vitaCare, with solely onetime and nonrecurring. For the full year 2024, we also expect revenue and adjusted revenue to be identical at about $800 million representing about 5% growth on an adjusted basis. The anticipated adjusted revenue growth rate is tempered by approximately $15 million of top line impact associated with the deprioritization of vitaCare as part of our pharma manufacturer solutions restructuring as well as the wind down of the Kroger Savings Club. Our continued investments in consumer incentives will increase contra revenue by approximately $10 million.

In aggregate, this $25 million of top line impact is absorbed in our full year $800 million revenue and adjusted revenue guidance. We thought it might also be helpful to provide our current expectations for our prescription marketplace and pharma manufacturer solutions offerings in 2024. As a reminder, our prescription marketplace is made up of prescription transactions, subscriptions and other revenue. We expect our prescription marketplace contribution to our implied 2024 adjusted revenue growth to be about $25 million to $30 million. The expected growth includes the impact of the previously mentioned headwinds related to increasing contra revenue in the sunsetting of the Kroger Savings Club. This also reflects the current ISP network footprint execution we have today, and we are working to optimize both.

We expect Pharma Manufacturer Solutions to contribute about $10 million to $15 million to our implied 2024 adjusted revenue growth. This implies a year-over-year growth rate for that offering that exceeds the growth rate of the digital pharma ad spend market, which has been in the low teen percentages. As part of the restructuring of our pharma manufacturer solutions offering, we discontinued vitaCare, which contributed approximately $8 million of adjusted revenue in 2023 and is not contributing to 2024. Considering that, we’re pleased with our anticipated 2024 Pharma Manufacturer Solutions growth. As a reminder, our Pharma Manufacturer Solutions offering has some seasonality to it and so we expect 1Q ’24 revenue to be slightly below 4Q ’23 revenue.

Based on what we’ve seen historically, we expect there to be seasonality in some quarter-over-quarter variability for our business more broadly. But given our scale relative to very large TAMs for a prescription marketplace and our pharma manufacturer solutions offering, we’re confident in the growth trajectory. From a margin perspective, during the last couple of quarters, we’ve delivered adjusted EBITDA margins in the high 20% range, and we continue to expect to be in the high 20% range again for the first quarter, potentially up to 30% and to achieve around $250 million of adjusted EBITDA for the full year, up 15% from 2023. With that, I’ll now turn it over to the operator for Q&A.

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Q&A Session

Operator: Thank you. [Operator Instructions] Our first question comes from the line of Stephanie Davis with Barclays. Your line is now open.

Stephanie Davis: Hi, guys. Thank you for taking my question. First up, it sounds like you’re starting to see the direct contracting become a much bigger part of the model. So I wanted to ask about what GoodRx looks like, not in 2024, but maybe five, ten years from now. Do you see that becoming more of the primary model versus the D2C business, or is this going to be more of a balanced growth once it’s fully ramped?

Scott Wagner: Hi, Stephanie. Thanks for the question. I think if you roll this forward, it’ll look like what we’re doing today, which is a combination of working with a multivariate PBM network as well as some form of direct relationships with retailers, depending upon the size of the book. That’s really where we are and are in the process of rolling that out into the world. I don’t think that’s going to change much. Because, really, we’re following a retail partner’s guidance in some ways, and they all approach this a little bit differently. And so, I don’t think there’s going to be a really transformative difference in the composition of our network. It’ll literally be more of a similar and more rolled out version of kind of what we’re going through right now.

Stephanie Davis: That kind of – no. I feel there’s a lot of questions on the cost-plus model that’s been floated about CVS and Walgreens. I know you do have some relationships there. Is there anything you can share on how GoodRx fits into the ecosystem?

Scott Wagner: Oh, absolutely. And I think the big theme for, let’s just say, CVS and Walgreens as well is we’re really side-by-side with both of them around their own merchandizing strategies for the category. So specifically on CVS and cost-plus, we’re working with them in this manner already today. The fundamentals of several, of our specific drug contracting plus overall, is really tied at the hip with CVS. And so, it works exactly on how we’re set up not only with CVS, but really our core benefit today. In Walgreens, an anecdote that I’ll share from the fall that, I think is just indicative of our working relationship with all the retailers is, during cold and flu season, we in Walgreens, took a basket of cold and flu drugs and drove 40% savings, because that was one of their merchandizing goals.

And it drove a heck of a lot of incremental activity and traffic. It was good for Walgreens. It was good for us. But again, it was really about, working with a retail partner, to achieve their category goals. And if you step back, and think thematically about what we’re doing, with this contract approach, it’s really that, which is tying them together and working with them, to achieve goals.

Stephanie Davis: That’s awesome. Thank you.

Operator: Thank you. Our next question comes from the line of Lisa Gill with JPMorgan. Your line is now open. Lisa Gill, your line is open.

Lisa Gill: Good morning. Thanks for taking the question. Scott, I want to go back to ISP, and I want to make sure that I heard this correctly. I think you said that, there’s a 60% opportunity in the books of business, for CVS and Express Scripts, as far as the opportunity. When I think about that opt-in and them selling them this option into their clients. Can you maybe talk about what you’re seeing as far as the first initial phase here? Is it opt-in is more of the driver here, or is it more of utilization? And when we think about the offerings that you have, how should we think about this over time? I heard you talk about deductibles, and that makes sense, longer term throughout the year, but is it really going to be utilization that’s driving this program over time? So if you can just help me to understand that a little bit?

Scott Wagner: Yes, thanks. I appreciate it and understand the question. First of all, say the rollout at each of our partners, whether it’s Caremark, ESI, MedImpact, or Navitus, it’s still early. And by early, you know, the 60% you described are the total eligible lives that they cover. Right now, the amount of lives that this program, is operating under is, much less than that 60% coverage universe. It’s a much narrower set of that, but it’s about a rollout. And so, as we go, the first step to building this program out, is expanding more lives. So getting more coverage. And there are a, it’s probably a step change, or two level of rollout of just lives covered, for where we are today. I don’t want to give you specific percentages because it differs by, it differs by each PBM.

But the point is we’re in a much narrower universe than that total coverage life. Then, optimization is something that, we also believe there’s going to be ongoing ways that, we can tweak and hopefully help that improve over time. And then the last, component to this is how the programs accepted at retail, which is also, the final component of this. And so, it’s early days. I think, is the punch-line on particularly the lives covered, and acceptance level. And it’s in line with our expectations, I’d say, from kind of how we thought this would roll out.

Lisa Gill: And then can you just remind us of how to think about the margin on ISP versus your traditional business?

Karsten Voermann: Sure. Thanks, Lisa, for the question. This is Karsten. With respect to margin, we think over time it looks substantially identical to the margin in the rest of our business. The really only distinction is how we capture demand. In our direct-to-consumer business, we capture demand, by spending CAC, marketing dollars in advance to capture users, and then we monetize them over time. In the ISP context, demand is aggregated by the PBMs. And so, we do pay a marketing fee associated with that, but that’s on a per-transaction basis. So over time, those two things converge, the upfront CAC and the margin we pay to the PBMs. So, we’ve engineered them to try and keep them very similar.

Lisa Gill: That’s helpful. Thank you.

Operator: Thank you. Our next question comes from the line of Charles Rhyee with TD Cowen. Your line is now open.

Charles Rhyee: Yes. Thanks for taking the questions. I just wanted to follow-up on Lisa’s question. Scott, you just mentioned that some of – the factors to consider here is, the pace of the rollout and a few other things. Just first on that, I guess for an example, if, let’s say, 10 million lives are going to be covered, or signed up for ISP, does that mean all 10 million got access to it Gen 1, or is there still a phased rollout, where those members will gain access to it, over the course of this year? And then secondly, you kind of mentioned, you’re also looking at how the program is accepted at retail. My understanding was that, someone goes in and the system will automatically adjudicate, between the funded benefit price, versus the GoodRx price and get the lower of. Isn’t that a system function at the PBM level, where the retailer kind of, will then just see, which one they’re charging? Can you talk about what retail acceptance means in this instance? Thanks.

Karsten Voermann: Sure, Charles. This is Karsten. I may jump in on this one first, and Scott may follow. So, I think the first point to make, is ISP is up about 2x year-over-year, which we’re pretty pleased with. I think second point is that while for ESI this program, is now in its second year of existence, for Caremark, Navitus, MedImpact, this is the first year. And while they have a ton of lives to contribute to us. Given they need this, for their own customer relationships with sponsors, with sponsored employees, et cetera, to be very smooth. We don’t believe all of the volume that, is potentially available to us, has been loaded on immediately up front. So that’s what Scott was referring to, when we say, hi, it’s still ramping.

I think the second point on retail, is that much like the PBMs, the retailers are assessing, how this impacts their business. And also want to make sure it’s a good experience for our shared customers, their retail customers and ours. So in that context as well, we see retailers with different levels of energy around trying to attract this ISP business into their stores.

Charles Rhyee: I see. Maybe I can follow-up. Is there a way for consumers to know, like, for example, I just went to Walgreens the other day, pick up a generic script. And I asked the pharmacist desk whether, I was getting the ISP price. It didn’t seem like they could tell. Is there a way for consumers, will they be able to know going in in the future, if they’re like a Caremark member?

Scott Wagner: That would be the hope, Charles, as we get to the end state. I think the rollout of this is really going through plans, and the benefit feature. And so as of right now, that’s a communication vehicle that, is almost working through your plans. Less, oh my, gosh, Walgreens or CVS, is making that a core merchandizing element. But thematically, if you think about the benefits at retail pharmacy and what might be different. Whether it’s this, or other things we’re working on, that’s the dialogue that we have with each of our retailer partners, which is how can our value proposition help you achieve your goal? So that doesn’t really exist today, but it’s not to say that it won’t in the future.

Charles Rhyee: Great. I appreciate it. Thank you.

Operator: Thank you. Our next question comes from the line of Michael Cherny with Leerink. Your line is now open.

Michael Cherny: Good morning. And thanks so much for taking the question. I think a similar one along the same vein, in terms of thinking about the, evolving nature of your two sided network, both the PBM relationships as well, as on the ISP side with the pharmacies. Obviously, we had the reset from a couple of years back with Kroger. And now as you go forward, you look at the health of the two side dynamics of your market. Where else do you think you see the next important leg of development? Is it adding more partners on the ISP side? Is it more direct pharmacy? Do you feel like, you’re at homeostasis now across the network? And if not, where do we see the next leg, of who the next partner should be?

Scott Wagner: Yes, thank you for that. I like the theme of that question. In terms of our retailer partnerships and balance, I would characterize the approach now, as the right one that can carry us forward for, I would hope, years. That is really the forever work, of how do you work with retailers, as well as PBMs, to deliver benefit and have the economics, such that people are feeling good about it. And so, I think from a retailer standpoint, I would say, we’re in the earlier days of working kind of how, if you could wave a magic wand, you’d always run this effort. And so, I’d say there won’t be any probably huge structural differences, but it’ll continue to evolve over time. What I do believe has a whole other wave of evolution, is really the thematic marrying of what GoodRx is, which is the benefit that exists outside of your insurance plan and tying it more closely, right.

I think the big macro context here is, 80% of our own users and the vast majority of us as Americans, get our healthcare through our insurance plans, which come through our work. And the macro trends in that are, co-payers are going up, deductibles are going up, and there’s a narrower set of drugs that are being covered. That’s the zone that, we’re addressing and operating in. And in a world where approximately 1 billion prescriptions a year, billion with a B, are left at the counter due to affordability, the whole industry actually has a heck of a lot of incentive, to help people get those medications. And that’s the value proposition we’re setting. And what does that mean for our partnerships? It means we’re going to continue to work with our PBM partners.

And then, their plans downstream, to bring these couple of things together, whether it’s corporate-funded plans and Medicare. So I hope, not just on behalf of GoodRx, but honestly the system, you’re hearing about continued evolution from us, certainly over the coming months, quarters, and years, to keep marrying those two things. Because it’ll be good for the system, and it’ll also be good for us.

Michael Cherny: Thank you. Our next question comes from the line of Jack Wallace with Guggenheim Partners. Your line is now open.

Mitchell Kellett: Hi, this is Mitchell on for Jack. Thanks for taking my question. What have you been seeing lately in the demand environment for pharma manufacturing solutions? And have there been any changes in pharma decision making? And then what gives you the confidence that you’re going to outperform the market growth rate in that business? Thanks.

Scott Wagner: Manufacture solutions is approximately a $100 million business that’s really anchored in the core of the GoodRx marketplace, which is 25 million people a year coming here, searching for a specific drug and the pricing benefit that is surrounded, that’s reflective of approximately, again, 100 million scripts a year. If you’re a brand drug, whether you’re a generic, you’re a brand, you’re an OTC. You kind of want to be in that environment, and be in that environment either with a pricing discount, depending upon the nature of your brand drug, or merely communicating to a user at very low in the funnel. So, we’re a pretty high return marketing vehicle in pharma, and one that I would say is pretty unique and extremely valuable.

So relative to our expectation here. We should be able to outperform a market that grows in the mid-single digit simply by penetrating more brands that we think have high value with us, and the work we’re doing is really getting ourselves in front of brand managers, access teams, and agencies, which, are different in every single company, but getting our value prop for the right things in front of them, and having them sign up and run programs.

Operator: Thank you. Our next question comes from the line of Jailendra Singh with Truist. Your line is now open.

Jailendra Singh: Good morning, and thanks for taking my questions. I want to follow-up on your comments around your exposure, to the recent system outage disclosed by change United. Can you elaborate more on the dependencies and integration there? Is it more for your pharmacy partners, more on the PBM side? I know you said two days, but it seems systems were down longer than that, have been down longer than that. What have been the workarounds? And if it does impact your financials, is it more on volume side, or is it more on the cost side?

Karsten Voermann: Hi, Jailendra, this is Karsten speaking here. So I think, first of all, we’ve been really pleased with the performance of our tech teams. We think they did an amazing job in two ways. First of all, creating alternatives for us, so alternatives in the context of what switches, we use and being able to shift our volume quite rapidly. That’s one of the big reasons we refer, to this as being an issue that affected us, for a couple of days versus an issue that, affected many in the industry for a longer period of time. And for folks on the call, who might not know the issue, it’s the issue around the ability, to route transactions in the pharmacies, being able to fill funded, or discount card scripts broadly. So from that perspective, I think our much quicker response was helpful to our users and, of course, helpful to us, because that diminished the impact that would otherwise have manifested in the quarter.

I’ll also add we’re still evaluating it, but sort of, like with a winter storm, when volume drops, you often see a significant portion of that volume come back. And that’s one of the reasons the impact has been not as large as it would otherwise have been. Also want to point out that it is reflected in our Q1 guide. We contemplated this, based on the data we had to-date and our expectations for how the issue would evolve, and included in the growth rates.

Operator: Thank you. Our next question comes from the line of Jian Li with Evercore ISI. Your line is now open.

Jian Li: Great. Thanks a lot. This is Jian for Mark Mahaney. A couple questions. One is maybe just going back to the ISP, what’s the go-to-market that GoodRx can do? Because it sounds like it’s sort of, dependent on the ISP partners ramping up, the benefit plans on it. So anything that GoodRx, is doing to increase that penetration and maybe related to that, I think you guys mentioned sort of, ramping up marketing. What channels are you testing? Like where is the dollar spent?

Scott Wagner: Yes. Scott, thanks. It’s again, in the vein of early days. Right now our effort is working with our PBM partners to then present, this capability into their plan and their own client base. And so the nature of your question of, oh, what are we doing? Right now, we’re working with our partners. And then over time, this question of hi, how do you educate not only corporate, the corporate clients. But probably the brokers and consultants, who are the real decision makers and influence in this? We’ll again, work with our partners to figure that out. So that’ll be part of the things that we’ll work on through this year. And we do believe that there’s more that we can and should do, not necessarily even for our own benefit, but just for the success of the product to that audience.

But we’ll figure it out with our partners. Then your second question on marketing. So the nice thing about GoodRx and our value prop is, if there’s an individual, and we know what their condition is and what kind of insurance they have, you can pretty much map the savings benefit that, we can do to that individual, to a super precise amount. And for a marketer, what that means is, you can and should be able to hone in on audiences that, are particularly valuable in a precise way, not an incredibly one-to-one way. But we can get pretty focused on, here are the high-value people that we’re going to add a lot of benefit to. So it’s less about channel, per se, as much as mapping our messaging and where GoodRx shows up towards these individuals that, we just know we’re going to save them $800, $1,000, $5,000, right.

You can kind of do that mapping, and that’s really what the marketing team’s been working on. Along with this ongoing realization, or recognition that healthcare professionals, who legitimately love GoodRx. Coming in, that was one of my biggest surprise delights about what’s here is, the fact that you walk into a healthcare professional’s office. And whether it’s a doctor, or a nurse, or the office administrator, they absolutely love GoodRx, because we’re helping people get on beds, and stay on beds and get better. And so that audience is, a huge advocate for us in a supernatural way. When we look at our marketing, we’re really focused on, how and where can, we help that audience continue to advocate, for us in this totally natural way.

Operator: Thank you. Our next question comes from the line of Allen Lutz with Bank of America. Your line is now open.

Allen Lutz: Good morning, and thanks for taking the questions. Scott, it sounded like direct contracting may actually be contributing a little bit more than ISP. Can you breakdown the relative growth in 2024 from direct contracting and ISP? And then, regarding the ramp in ISP, is there any way to frame, how many more lives could be on the platform, by 4Q versus the start of the year? Thanks.

Scott Wagner: The parsing of relative growth, one versus the other, I might come at that a little differently, which is in the quarter, our revenue grew 7%. You can look at the marketplace growth. And I think what you’re seeing is, now the performance of GoodRx in the context of the system. And so, you see a retail network at a, we’ll call it a stable place, but really working forward. And so now, right now, you’re basically just seeing the GoodRx operating in the way that we can within the system. So it’s not retail contracting versus ISP. This is back to the fundamentals of number of people who are using GoodRx, to get a benefit. And you’re now seeing that grow nicely in the, now what’s mid to high single-digits. And that is, I think, higher than the average prescription volume growth rate, and of our category.

And the number of things that we have underway, the nice thing is, if we keep landing them, we should be able to continue, to drive that growth above category rates. Hopefully, we can.

Operator: Thank you. Our next question comes from the line of Daniel Grosslight with Citi. Your line is now open.

Daniel Grosslight: Hi, guys. Thanks for taking the question. On direct contracting, you’ve previously noted that it might be a slight headwind to PTR per MAC, just given those contracts generally have lower admin fees. So I’m curious, as I look at your 4Q numbers, you had a very nice sequential improvement in PTR per MAC. But for 2024 and beyond, how should we be thinking about that metric given direct contracting will become a bigger part of your business?

Karsten Voermann: Thanks for the question. This is Karsten. With respect to PTR per MAC, you’re right. We are pleased to see that as a really a reflection of the relationships we have, and the value we add when we deliver prescriptions to our customers, our PBMs and our pharmacies. So from that perspective, it’s really a reflection of what we do and how well we do it. I think with respect to the future, we’re not expecting any non-linearity in the trends. So, we think it’s not going to move very much at all, as we go into 2024. Now that direct contracting, is already a significant minority, of the volume coming through.