Yahoo Finance GoodRx Holdings, Inc. (NASDAQ:GDRX) Q1 2024 Earnings Call Transcript
GoodRx Holdings, Inc. (NASDAQ:GDRX) Q1 2024 Earnings Call Transcript May 9, 2024
GoodRx Holdings, Inc. misses on earnings expectations. Reported EPS is $0.08 EPS, expectations were $0.09. 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 First Quarter 2024 earnings call. At this time, a reminder, today's conference 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 first quarter of 2024. 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 our business, our value proposition, our potential for growth, our hybrid retail direct and PBM contracting approach, collaborations and partnerships with third parties.
Including our integrated savings program, anticipated impacts of the deprioritization of certain solutions under our pharma manufacturer solutions offering, and our cost savings initiative, expected impacts of the sunsetting of progress savings clubs, anticipated impacts of the change healthcare outage, our capital allocation priorities and the amount, timing and benefits of our share repurchase program. 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 other filings with the Security 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 in 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.goodrex.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 first quarter results. Today, I'd like to highlight the meaningful headway we've made over the last 12 months, and more specifically in the first quarter. Then, Karsten will take you through our Q1 financials and expectations for Q2 in full year 2024. I'd like to open by saying that we'll be keeping our prepared remarks focused during this call, because as many of you are likely aware, we announced our first Investor Day, which is taking place next Wednesday, May 15th. We hope those of you listening today will join us for that event, which will be webcasted via our investor relations website. We'd like to use that opportunity to discuss several things.
First, the market context in which we operate, specifically the persistent and growing need for prescription affordability solutions, including ARPS. Second, the power of the GoodRx value proposition, elements that make us the preferred destination for consumers and healthcare professionals to find affordable prescriptions. Third, GoodRx's position within the healthcare value chain details on the strength and durability of our pharmacy network as we focused on rebalancing pharmacy and PVM economics with our own, while incentivizing joint growth with our retail partners. Fourth, our expected growth levers, including B2B integrated savings program that allows us to aggregate prescription demand efficiently, as well as continued growth and pharma manufacturer solutions, fifth, our financial trajectory and growth prospects.
Our plan is to lay out medium term revenue expectations for both our prescription marketplace and manufacturer solution segments, as well as earnings flow through, and finally, growth inflectors. Additional upsides and opportunities that aren't in our base trajectory, but give us the opportunity to accelerate growth by leveraging our existing and differentiated assets to enable extensions of the offerings that we have today. We look forward to our Investor Day and using this as an opportunity to increase our transparency for all of those in the investor community. While I look forward to discussing these further, I do want to take a moment to discuss my views on my first year at GoodRx and what I see as our significant accomplishments during that time.
When I arrived here a year ago, there were a number of questions about the company's position in the broader healthcare ecosystem. At the outset, I worked with the team to establish a set of clear priorities that reinforce our core value proposition, saving people money on prescriptions with the goal of strengthening the durability of our business model and reignite growth. Looking back, I'm encouraged and energized by the strides we've made. First, we've strengthened our retail pharmacy relationships and accelerated the uptake of our hybrid model, which includes both retail direct and our historical PBM contracting. Our retail direct approach is where some of the largest pharmacies, as well as smaller grocers and other retailers, work closely with us to offer consumer savings while we help retailers manage their revenue and category profitability.
We believe this is complementary to our existing PBM relationships and create significant additional value for retail pharmacies, opening up the potential for GoodRx is a true marketing platform and reducing friction both for consumers and for pharmacies themselves. During Q1, we continued to sign direct contracts with new pharmacies and expand the drugs covered by direct contracts. In Q1 2023, approximately 5% of our claims were through retail direct contracts, and in Q1 2024, they made up over 20% of our claims. Our second priority has been to hone our growth plans for our core prescription transaction offering, which includes extending the benefit of GoodRx 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 efficiently aggregate demand for our prescription discounts.
We're driving real value with payers and their members by seamlessly lowering the cost of their prescriptions automatically at the point of sale. We're quickly becoming a leader in the commercial market for integrated benefits, and while our programs are currently only available to a subset of our partner PBM eligible members, these PBMs do cover over 60% of eligible U.S. lives, so the market opportunity remains a key area of focus for us. We estimate that the potions and prescriptions filled in ISP have negligible overlap with those in our direct to consumer offering, which means that our ISP product line is almost entirely SAM expanding. So far this year, ISP is tracking in line with our expectations, and the traction that we're seeing is exciting as we continue to gain more lives and types of transactions.
We look forward to working to continue to ramp this program over time with both our PBM partners and retailers and types of prescription transactions in the program. Third, we've been bringing GoodRx savings to brand drugs through pharma manufacturer solutions. In 2023, we prioritized deal quality with a focus on forgoing one-off deals and instead creating standardized go-to-market programs that we expect to scale sustainably. The restructuring of our pharma manufacturer solutions offering, including the rationalization of VitaCare, is complete. We've already begun to see margin accretion in the first quarter of 2024, which we expect will continue. Over the last year, we've also strengthened our management team and organized ourselves to execute effectively.
More specifically, we've made a great executive addition with Dorothy Gemmell as our Chief Commercial Officer. We welcomed Andrew Slutsky back as our Chief Marketing Officer and promoted several high-performing executives, including Mike Walsh, who's now our President and EVP of Prescription Marketplace. These are all fantastic executives who are helping the business execute with speed and quality. Our team has a nice balance of healthcare and consumer internet expertise, a combination that I believe enables us to create elegant and distinctive experiences for our 25 million plus consumers and add real value in healthcare. During the first quarter, we continued to see positive momentum in the business, both financially and operationally. Q1 year-over-year adjusted revenue growth accelerated to 8% up compared to our Q4 growth trade, and our Q1 adjusted EBITDA margin was 31.7%, up 280 basis points year-over-year, with adjusted EBITDA growing 18% year-over-year.
This financial performance is the direct result of our efforts in executing against our priorities over the last 12 months. Looking ahead, we expect adjusted revenue growth to continue into Q2 and for the full year 2024. We anticipate adjusted revenue to be between $800 and $810 million for the full year 2024, with adjusted EBITDA over $250 million. We believe we're gaining momentum from a top line and adjusted EBITDA standpoint. We're expecting high flow through from incremental top line growth to cash flow, which would believe puts us on track to return to a rule of 40 Company. Karsten will speak to our all looking more detail. However, I will say the confidence that our priorities are the right ones to deliver growth and contribute to shareholder value creation.
With that, I'll hand it over to Karsten.
Karsten Voermann: Thank you, Scott. I'll speak briefly to our 1Q, '24 financial results before turning to guidance. In summary, during the first quarter, revenue and adjusted revenue were in the upper end of the guidance range we provided on our Q4 earnings call in February, and adjusted EBITDA margin was a beat exceeding the guidance we provided. Total revenue and adjusted revenue for the quarter increased 8% year-over-year to $197.9 million, primarily driven by organic growth and prescription transactions revenue, including expansion of our integrated savings program, as well as growth in pharma manufacturer solutions. I'll also note that the first quarter of last year included more revenue from Kroger Savings Club subscription offering, which we are sunsetting in July 2024, as compared to this year's Q1, and Q1 2023 also included revenue from our VitaCare offering within manufacturer solutions, which we restructured last fall and did not contribute any revenue at all in this Q1.
To quantify this impact on growth, Kroger Savings Club and VitaCare together contributed approximately mid-single digit billions of dollars more revenue in the first quarter of 2023 than in the first quarter of 2024. The point here is that on a like-for-like basis, growth is even stronger. Moving on to the revenue lines, prescription transactions revenue grew 8% year-over-year to $145.4 million, which was primarily driven by a 10% increase in monthly active consumers. On our 4Q, '23 earnings call, we discussed that an immaterial impact from the change outage was incorporated in the Q1 guidance we provided. At the time of the call, we'd had a couple of days of impact. While we were back up and running quickly, the outage persisted more broadly across the industry for multiple weeks, impacting benefit plans, pharmacies, and others.
On our 4Q23 earnings call, we discussed the immaterial effects of the change outage, which were incorporated in the Q1 guidance we provided. We were back up and running quickly, and having now had time to evaluate the continually impact, we believe the full year 2024 quantification is likely to also be immaterial in the low single digit millions of dollars, including the outage's effect on refills. Subscriptions revenue declined 6% as expected to $22.6 million due to the wind down of Kroger Savings Club. Kroger Savings Club revenue was almost $2 million less in the first quarter of 2024 than in the prior year period, and our own gold offering was essentially flat quarter over quarter. As I mentioned a moment ago, we expect a continued wind down of Kroger Savings Club subscribers from now to July, and given the relative subscription fee is much higher for GoodRx than for the Kroger Savings Club, the wind down will be more impactful to the total number of subscription plans than subscriptions revenue.
Pharma manufacturer solutions increased 20% year-over-year to $24.5 million, driven by organic growth as we continue to expand our market penetration, including continued growth in our point of sale programs, with more than an offset the low single digit million dollar reduction in revenue from VitaCare. Net loss was $1.0 million compared to a net loss of $3.3 million from the first quarter of 2023. Adjusted net income was $32.6 million compared to $29.5 million in the first quarter of 2023. Adjusted EBITDA increased 18% year-over-year to $22.8 million. Adjusted EBITDA our total number of our guidance rate was 31.7% and was up quarter-over-quarter and up 280 basis points year-over-year. The year-over-year improvement was primarily driven by top line growth and run rate savings from the restructuring of our VitaCare pharma manufacturer solutions offering in the second half of 2023.
We generated net cash provided by operating activities of $42.6 million compared to $32.3 million in the prior year period. Our capital allocation priorities are unchanged and will continue to focus on high return investments and maximizing value for shareholders. Our balance sheet remained strong and we ended the quarter with $533 million in cash and cash equivalents on the balance sheet and $658 million of outstanding debt. During the quarter we executed approximately $155 million of share repurchases at an average price of approximately $7.26 per share on a blended basis. As of March 31, 2024 we had $295 million of unused authorized share repurchase capacity under our $450 million share repurchase program approved by our board of directors during the first quarter of 2024.
Our revolving credit facilities untapped except for letters of credit and had $92 million of unused capacity as of March 31, 2024 representing total liquidity of $625 million. Now turning to guidance. Our outlook for Q2 revenue and adjusted revenue is approximately $200 million representing approximately 5% year-over-year growth. We expect revenue and adjusted revenue to be identical in the second quarter because we believe the third quarter 2023 adjustment to revenue in relation to the pharma manufacturer solutions restructuring related to VitaCare was one time a non-recurring. Similar to my commentary earlier on 1Q '24's results, we expect our 2Q '24 growth to be tempered because of the VitaCare offering we restructured last fall and Kroger Savings Club which were sunsetting in July, which together contributed approximately mid-single-digit millions of dollars more revenue in the second quarter of 2023 than they'll contribute in the second quarter of 2024.
For the full year 2024, we continue to expect revenue and adjusted revenue to be identical and expect to come in between $800 and $810 million representing approximately 6% growth on an adjusted revenue basis at the midpoint. Like 1Q '24 and 2Q '24, the anticipated full year 2024 adjusted revenue growth rate has been tempered by approximately $15 million of full year top-line impact associated with a deep prioritization of VitaCare which contributed to revenue and adjusted revenue in 2023, but is not contributing at all in 2024 as well as the anticipated sunset of the Kroger Savings Club. Also we expect counter revenue related to consumer incentives to increase by almost $10 million this year. In aggregate, this $25 million of top-line impact is reflected in our full year $800 million to $810 million revenue and adjusted revenue guidance as is the ongoing full year effect of the change outage with its low single-digit million impact I mentioned earlier.
We expect our prescriptions marketplace portion of our anticipated 2024 adjusted revenue growth to be about $25 million to 35 million. As a reminder, our prescriptions marketplace is made up of prescriptions transactions, subscriptions and other revenue. We expect pharma manufacturer solutions to contribute about $10 million to $20 million to anticipated 2024 adjusted revenue growth. This implies a year-over-year growth rate for our pharma manufacturer solutions offering that exceeds the growth rate of the digital pharma ad spend market which has been in the low-teen percentages the last few years. Based on what we've seen historically, we expect there to be seasonality in some quarter-over-quarter variability in each of our prescription marketplace and pharma manufacturer solutions offerings and potentially in our business more broadly.
That said, given our scale relative to the very large TAMs for our prescription marketplace and our pharma manufacturer solutions offering, we're confident in the anticipated 2024 growth trajectory and our guide of $800 million to $810 million in revenue and adjusted revenue. From a margin perspective, during the last few quarters we've delivered adjusted EBITDA margins from a high 20% range and most recently in the low 30s in Q1. We expect adjusted EBITDA margin to be in the low 30% range again in the second quarter and expect to achieve over $250 million of adjusted EBITDA for the full year, up 15% from 2023 based on our expectations of a high degree of adjusted EBITDA flow through from revenue growth and our continued focus on the cost structure and efficiency generally.
With that, I'll now turn over to the operator for Q&A.
See also 20 Largest Banks in the US by Customers and
20 Countries with the Highest Literacy Rate in the World.
To continue reading the Q&A session, please click here.
