Good morning, everyone. Thank you for joining for our next session. As you know, I'm Stephanie Davis. I cover healthcare technology and distribution here at Barclays, and I am very pleased to introduce the GoodRx team. We've got CFO, Karsten Voermann. We have Ramin Ebrahimi, I'm so sorry if I pronounced that wrong-
You got it.
I'm trying really hard, the CAO, and Karsten has some quick comments before we kick things off.
Hey, folks. Really grateful to be here, first of all, Stephanie.
Welcome, welcome
... And to see so many familiar faces in the audience, too. Looking forward to hopefully speaking to some of you in the one-on-ones later. But before we get into this, quickly wanted to read a safe harbor statement, as is customary. I'd like to remind everyone that our fireside chat will contain forward-looking statements, and all statements made that don't relate to matters of historical fact should be considered forward-looking statements, whether they're about our plans, strategies, goals, objectives, market opportunity, or anticipated financial performance. These statements aren't promises or guarantees, but involve known and unknown risks, uncertainties, and other factors, which may cause actual results to deliver for those projected in the forward-looking statements. For additional information, please see the Risk Factors section of our 10-K. We also may mention certain non-GAAP metrics, which are also reconciled to the nearest GAAP metrics in that same 10-K.
Thank you, Stephanie.
All the paperwork out of the way.
Exactly. Now we get to have the free-flowing conversation.
You look a lot happier since Scott joined. Can we just, can we just acknowledge that?
Yeah, I think it's been a good transition, and I think we appreciate Scott's priorities and leadership of the business over the last... Now it's been a year-
Yeah
... which is amazing. It's gone very quickly, but it's been a good year for GoodRx, one of positive inflection, so I think we're all grateful for that.
Can we touch on the announcement this morning?
Yeah, we're--I think that was something that pleased all of us, both in the company, and we anticipate it'll please our external constituents again, that Scott has extended his time with GoodRx. Like, he originally came on as an interim CEO, and the nature of his employment arrangement was focused around an annual period, and I think that annual period would have ended fairly soon, and now we have the opportunity to work with Scott going forward on a more indeterminate basis. So very grateful that that is an extended relationship for all of us in the company, and of course, investors and the broader constituencies as well. We're very excited about that, Stephanie.
Now, it's still interim, but it's extended for a year?
Yeah, I think Scott-
Is he on a W-2?
I think Scott's view is that he continues to be excited about the business and want to be involved in it. But there are aspects of the job that would be better handled by someone with a background that was more healthcare versus technology-centric. So I think we'd all be surprised if Scott didn't continue to maintain his engagement with the company for years and years to come. But I think we also see a worldview where someone who has a similar background to his, but deeper relationships in healthcare, can pick up the phone and call, whether it's Prem at CVS or the head of Pfizer or whoever it is who needs to be spoken with. I think that would be an advantage from a Corp Dev, Biz Dev perspective.
But that said, I think Scott's continued involvement with GoodRx is really not in question anymore.
Well, maybe let's talk about Scott's tech background, right? You guys have made a lot of changes over the past year.
We have.
You've kind of pivoted your focus and even the way you're kind of going to market. Can you walk us through some of the biggest changes?
Absolutely. It's a great question. So I think there are two dimensions that are really important here. One is what we're focused on, and the other is how we're executing against it. So in terms of focus, our founders, who then became our CEOs, had a fairly broad view of what GoodRx could do in the overall healthcare marketplace, and that broad view was definitely very ambitious, but it was also one that spread GoodRx thinner than Scott's more focused view. So Scott's priorities have been in two areas. First area is on, number one, driving prescription claims that drive our core prescription transactions and subscriptions revenue. Two, has been on focusing on our manufacturer solutions offering and driving into the deepest profit pools associated with the biggest medications at the biggest manufacturers.
That focus of two priorities has allowed us to align the company more, too. Among other things, you've seen that our exec team has actually shrunk, which accelerates our ability to make decisions, execute, drive value for the company, and drive value for investors. He's taken a tech-like model of incredible agility and speed that we're now putting to work in a way that's manifesting through the accelerating growth rates you've seen over the last two, three, four quarters.
Well, it wouldn't be a tech company if we didn't have existential threats. I feel like we need to, we need to focus on some of these. We were talking about this before, where we were getting mic'd up, but CVS's CostVantage program comes up probably every time I discuss your stock. How do you see your model and their model coexisting in the world?
Sure. We get that question a lot, too, and it's one that-
Probably been a fun conference, right? Just shaking down in a room. Do we exist?
Yeah. I think CostVantage is interesting insofar as we know that pharmacies are challenged from a margin perspective, and we see, and in our conversations with all of the pharmacies, we see that as an important issue for them to address around their ability to survive. From our perspective, we are absolutely agnostic. The reason I say that is because in our relationships with pharmacies, we already operate in a cost-informed basis. Like, you've seen us and known our story for years, but we began as a company in our core prescription transactions offering, aggregating all the different PBM discount prices into one place, sort of like Expedia does with airline prices, so GoodRx users could find the lowest price for their medication at any given pharmacy.
We evolved from that model to one where instead of solely aggregating PBM prices, we work directly with pharmacies, effectively directly contract with them, to establish the price points that they want and we want, that give them the margin they need and us the margin we need. We've been doing that for well over a year now. In that context, the key point is we work with them to establish the margins they need and we need, so it's effectively a cost-informed process. What CostVantage is, is something that we've been working on now for multiple quarters at this point. It's also how we have worked with CVS historically, too, among other large pharmacies, in terms of the direct contracting we do with them. Number one, consistent with what we're doing.
Number two, consistent with our model as well, because what I think some folks forget is that the massive majority of GoodRx users are coming to GoodRx, not because they don't have insurance, but because the amount of cost burden that's being shifted to consumers has increased year over year over year. And in that context, specifically, what consumers are finding themselves needing to do is compare what they pay under their health plan, whether it's deductible or copay, against the GoodRx price, which is almost always lower. So in that context, the relevant metrics are: what would you pay under your plan for all of us in the room, or how much can I save with GoodRx? And CVS's CostVantage program doesn't change either of those numbers, nor does it change the delta or the savings we can provide.
So the need for GoodRx, the reason people come to us, looks exactly the same now as it did a year ago or two years ago. In fact, the need's probably increased because the portion of burden being borne by consumers keeps going up. So overall point here is, number one, how we work with pharmacies today already. Number two, doesn't change the consumer need to go find savings, given that this doesn't impact consumer pricing outside of the plan in GoodRx in any way at all.
So you did mention that you have this direct contracting relationship with CVS.
Yeah.
It might be helpful for folks to hear how that's progressed in the past few months.
Sure. Yeah, so, historically, as we mentioned before, GoodRx aggregated pricing from a whole variety of different PBMs, effectively creating a marketplace so consumers could have a price discovery tool to figure out where they could get their prescriptions at the lowest rate. We've complemented that over the last couple of years now that we have material scale with our own direct contracting. To go back in time in the time machine, the reason we didn't do that originally is when GoodRx was first starting out, it needed two things that are very difficult to achieve at small scale. One is ubiquity of availability, meaning you could use GoodRx at every pharmacy, and the other is extraordinarily low prices. Absent scale, it was easier to leverage the PBMs' agreements with all the different pharmacies to make sure that consumers could use GoodRx anywhere.
The second was that at the time, with smaller scale, it would have been difficult for us to push consumer price points as low as the PBMs already had. I think what's evolved since then is we're now finding ourselves in a spot where, from a pricing perspective, we are really big. We have 25 million-plus users filling scripts on GoodRx every year, a much larger number of folks coming to GoodRx for pricing information, so we have scale. From that perspective, we can drive prices lower ourselves. The other piece is we now have ubiquity of relationships. You can use GoodRx at over 70,000 pharmacies, and where in 2012, CVS and Walgreens probably wouldn't have talked to us to direct contract, now that we have so much scale and now that we can help them with their merchandising goals, they're eager to do that.
I'll give you a perfect example. One of the big pharmacies, one of the ones I just mentioned, in the fall, was looking to drive consumer demand and foot traffic off cold flu medication. So we worked with them to specifically set the prices consumers would see in GoodRx on those medications to give them a relative advantage to other pharmacies and, from a merchandising perspective, pull more folks into their store. Being able to work directly with pharmacies to hit their strategic goals is a big differentiator for GoodRx relative to any other entity out there.
Well, I guess how much of this is... We used to talk about top-of-funnel work that you had to do. You, you are top-of-funnel work now for a lot of the pharmacies. So how much of this is consumers organically going to your website, so you, you're able to help them by leveraging your brand?
Sure. So I think the point you raise is an interesting one because, GoodRx, we believe, is viewed quite differently by pharmacies than other discount providers. And the reason for that is we put our own dollars to work, $200 million a year on advertising and marketing, focused on creating demand that we can then funnel into pharmacies. So we're actually you can think of us as a demand generation tool, where we can acquire users because we have such low prices, very efficiently. Our paybacks have consistently, since the time of the IPO, been sort of sub 8 months. And then we can take that demand and effectively sell it to PBMs and pharmacies, and that spread becomes our revenue.
So from our perspective, and from the pharmacy's perspective, one thing that's distinctive is that of all of the entities in our space, we're the only one that significantly invests in marketing to expand the number of users that we can drive into a given pharmacy, and that's a unique attribute that I think you'll hear the MEC as well.
I'm satisfied with the existential threat. Good explanation. Can we talk numbers?
Sure.
You have a lot of moving pieces in the guidance this year. I think on a clean basis, it's around a 9% run rate.
Growth rate.
Correct me if I'm wrong. Growth rate, yes.
Yeah, growth rate, yep.
Growth rate. Well, is it a run rate? You have a 9% clean growth rate.
Mm-hmm.
Is that, is that how we think about the forward growth arc for GoodRx?
I think I'll turn that over to Ramin.
Sure, I'll take that one, Stephanie. So-
Ramin, take us home.
Yeah, absolutely. So from a, We have a number of one-time headwinds in 2023 that are going to impact up to about $25 million, approximately $23 million from 2024, and they're associated with the VitaCare restructuring, our wind down with the Kroger Savings Club, and our continued investments in consumer incentives, and their increase in contra revenue due to a one-time shift in P&L geography year-over-year. So to get you to that 9%, to walk to it, Stephanie, you'd take the $760 million that we reported in adjusted revenue for 2023, and normalize for those non-recurring, one-time headwinds that I just mentioned, which should get you to a $735 million base, upon which you can then project out to our $800 million guide and get you to that high single-digit growth rate.
As far as whether that growth rate's a good proxy, I think both Karsten and I think it is a pretty solid one to determine the long-term growth potential of the business.
Yes, that's a nice floor-
Yeah
... for where we think the business is, is going, over the coming years, I think.
Mm-hmm.
When I think about that 9% growth rate, how much of that is from some of these volume initiatives? How much of it is from things like ManSol? How much of it is from something completely different?
Sure, yeah.
Completely different.
So, so about 60%-70% of that's gonna be coming from the Rx marketplace, including the ramp in ISP volume, and the remainder, about 30%, coming from Pharma Manufacturer Solutions. And, you know, I think on both of those markets, we're really just getting started. We're a tiny sliver of the TAM, and so, you know, we're really excited about the trajectory, especially for Pharma Manufacturer Solutions, where the growth is not really predicated on the broader market, but more so on our ability to just execute. And in that vein, we've done a number of things, including narrowing our product offering to what we believe to be the very best solutions. We've scaled our infrastructure so that we can deploy and deliver faster and at scale, and hired some top sales talent, including new leadership in the form of Dorothy Gemmell, who hails from WebMD.
We think that lays a really strong foundation for repeatable and sustainable growth in that business to come. We're excited about the trajectory.
When I think about the blessing and the curse of your model, as we've seen for the past few years, it's that you're a very high incremental, very high decremental margin business.
Correct.
Which was great when volume was growing. It was terrible when volume was falling off. If your growth is mostly volume-based, is a 9% growth trajectory, where can the margins go? And, and should I think of that IPO margin as something that can ever happen again?
Yeah, great question.
Great question.
I think... Yeah, first I'll address, you know, ISP is new this year, so I wanna address that first, because ISP volume versus core, we've specifically engineered that to be very similar, so that as that ramps, you're not gonna see material deviations in adjusted EBITDA, as a result of stemming from that ISP ramp. I think more broadly, on the topic of margins, if you plot out historically our margins over time in the post-IPO period, you'll see there was a dip, and that was mostly driven by a combination of two things. One, COVID, in which we spent up on marketing in order to counter the impact of folks no longer going in office and, us getting those referrals that we typically were getting due to lockdowns.
During that time, our marketing peaked at about 50% of revenue, and since then, it's dropped considerably on the order of hundreds of basis points, which have contributed to our margin growth. The second factor was Kroger, which we've talked about briefly, but you know, obviously, they had their spat with their PBM partner and stopped accepting discount cards as a result of that, and that hit our volume and for a period of time, our PTR offering went to negative growth. Since then, you know, we've rebounded. Volume has come back, and we're growing again, and you're seeing a lot of that drop quickly from revenue to the bottom line. Part of the reason for that is that we have very high gross margins, and almost all of our cost structure is fixed.
So again, gonna see a lot of that drop to the bottom line. And as far as, you know, the mid-thirties margins that you may have mentioned earlier, I think both Karsten and I would be pretty, pretty disappointed if we don't get there in the coming years.
We're already on the trajectory, I think. I think at, at our low point, post-Kroger, the margins dropped to the lower mid-20s, 24-ish%, and now, for next year's guide, implicitly, we're materially higher than that, pushing 30. So I think with incremental volume, as Ramin described, we see that going up further, and it would be very disappointing if we didn't drive that trend going forward, not just through the volume gains, but. Again, with Scott's leadership, we've been able to take a focus that is narrower and take a decent amount of cost out of the business, too, whether it's exec team or the VitaCare restructuring or otherwise. All of those things are contributing and we'll continue to stay very vigilant.
So there's nothing that would change that cadence of margin expansion?
Because of the nature of the cost structure, as long as we keep growing, now we've returned to growth, there's an endemic margin expansion out of that, and then on top of that, we will continue to do cost structure work. We're not losing our motivation to do that, so-
This is why you're in a better mood all the time.
Better growing margins are good, growing revenue is even better.
It's not bad. I do wanna touch on this. We have three minutes left. We had a bad run on guidance for a while, right? We didn't have the greatest time. What changed? How is your guidance cadence more reliable now, and how should we think about, you know, new happy Karsten's guidance philosophy versus sad Karsten's old philosophy?
It's an excellent question, and well-deserved, I think on our side, given some of the historical periods that, in particular, preceded Scott's arrival in that picture. I think Scott's focus on guidance has been very simple. It's: he summarizes it, and we talk about this a lot, "You guide what you know, not what you hope for," and-
We don't have hopes as a CFO. That's, that's not what you do.
We have fears, but not hopes.
Only fears!
I'm kidding.
Only fears.
But, but yeah, so Scott's guide what you know philosophy has really led our guidance story now for, I guess, three or four quarters, and in that period, you've seen us generally land closer to or a little above the top of the ranges that we put out, because if you guide what you know, and then some of the things that are more speculative work out, sometimes it pulls you up a little bit. That may not happen every quarter, that you get pulled up a little bit by the things you don't know, but the philosophy of guiding what you know is extraordinarily distinct from, I think, the view that our founder CEOs had. So in the sort of push-pull of the guidance-setting process, Scott's history of having sat in the CFO seat himself at GoDaddy before he was CEO is-
He didn't do that.
... certainly very welcome for someone like me, because he's kind of been there, done that, and both knows what the trade-offs are and is also very happy to work through those trade-offs to a way that's delivered what you've seen over the last 2, 3, 4 quarters that he's been leading, namely top of the range or a little above.
This is a very bullish conversation. We talked about how, you know, the growth trajectory is great. We're talking about how the margin expansion, there's nothing that should really throw it off base. What, what are your fears, then?
Sure. I think-
You're supposed to have them.
Yes, I'm the CFO. It's my job-
Gotta have them.
... to have fears. No, I think, for us and for me in particular, to personalize it, too, the things that we are most focused on right now are execution against the priorities, and given how small we are and the times we operate in, whether it's on the marketplace side or on the pharma ManSol side, we're not really dependent on changes in market or market growth rates. We're dependent on the things we can control and executing well. So my biggest concerns are around how I, in the CFO seat, Scott in the CEO seat, can drive that execution going forward and make sure we win. There are a few dimensions of that that we're really focused on. Area one is continuing to increase the volume available to us in the ISP area.
We have several new PBMs who joined us for this demand aggregation and SAM expanding opportunity. So in that context, execution against that, getting more employers and more lives on through this year, will be very important. Second thing that'll be very important is now that we've shifted to a model where we're chasing the bigger profit pools in Pharma Manufacturer Solutions, and focusing on a narrow product palette, is execution against that dimension, too. And so driving that is priority number one for me and for Scott.
Perfect. All right, that's all the time we have. Thank you guys so much for joining.
Thanks for hosting us.
Thank you.
It's an amazing conference.