GoodRx Holdings, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. GoodRx operates a prescription-price comparison and savings platform, with additional pharma manufacturer solutions, subscriptions and telehealth offerings. Most revenue comes from prescription transactions, primarily through PBM relationships.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $189.7 million | $191.8 million | $373.7 million | $395.1 million |
| Operating income (loss) | $18.3 million | $(4.0) million | $29.6 million | $15.7 million |
| Net income (loss) | $58.8 million | $(1.4) million | $55.5 million | $10.9 million |
| Adjusted EBITDA, non-GAAP | $53.5 million | $47.2 million | $106.7 million | $111.9 million |
| Adjusted EBITDA margin, non-GAAP | 28.2% | 24.6% | 28.6% | 28.3% |
| Operating cash flow | Not separately reported | Not separately reported | $62.2 million | $81.2 million |
Revenue mix: Q2 prescription transactions revenue was $136.5 million, up 2%; pharma manufacturer solutions revenue was $24.3 million, down 8%; subscription revenue was $23.9 million, down 8%; and other revenue was $4.9 million, up 1%. For the first half, prescription transactions revenue fell 6% to $271.4 million, pharma manufacturer solutions fell 11% to $44.8 million, subscriptions rose 6% to $48.0 million, and other revenue fell 7% to $9.4 million.
Margins and costs: Q2 operating income improved from a loss year over year as total operating expenses declined 13% to $171.4 million, led by lower sales and marketing costs. First-half operating expenses declined 9% to $344.1 million. Depreciation and amortization increased in both periods, reflecting greater capitalized software amortization.
Cash, debt and liquidity: Cash and cash equivalents were $762.0 million at June 30, 2023, versus $757.2 million at December 31, 2022. Debt carrying value was $656.8 million, including $7.0 million current; term-loan principal was $663.6 million. No revolver borrowings were outstanding, and $90.8 million of the $100 million revolving facility was available after letters of credit. The company reported compliance with its debt covenants. First-half investing cash outflow was $29.2 million and financing cash outflow was $28.1 million; cash increased $4.8 million.
Tax effect on reported profit: Q2 income tax benefit was $46.7 million, including a discrete $55.9 million release of valuation allowance on deferred tax assets. The first-half tax benefit was $39.8 million. Consequently, net income is not a straightforward indicator of underlying operating performance.
Material changes and management commentary
- Total revenue declined 1% in Q2 and 5% for the first half. Management attributed prescription-transaction pressure to the continuing effects of the 2022 “grocer issue” and a shift in prescription volume to retailers with lower pricing. The issue was addressed in August 2022, but management expects sustained effects on revenue and Monthly Active Consumers.
- Q2 Monthly Active Consumers were 6.1 million, up 5% year over year; first-half levels were described as relatively flat. Subscription plans were 969,000 at quarter-end, down 14% year over year, largely due to the Kroger Savings program sunset and prior marketing reductions.
- Management said it expects pharma manufacturer solutions revenue to grow sequentially in absolute dollars through the second half of 2023, while noting that announced restructuring actions are expected to reduce that revenue by a mid-single-digit number of millions in the second half and have a sustained medium-term effect.
- Direct pharmacy contracts generally provide lower fees per transaction than PBM arrangements. GoodRx expected to increase direct pharmacy relationships in proportion to existing PBM arrangements in the near term, with a possible modest near-term reduction in revenue per transaction.
Outlook, unusual items and risks
- Restructuring announced after quarter-end: On August 7, 2023, the board approved a plan to de-prioritize certain pharma manufacturer solutions, including workforce reductions and changes to client arrangements. Completion is expected by year-end 2023. Estimated pre-tax charges are $55–$75 million, mostly in Q3 and Q4; approximately $50–$60 million are expected to be non-cash. Management estimates $18–$22 million of annualized run-rate cash savings, principally affecting future cost of revenue. Estimates may change, and additional charges are possible.
- New offering: Caremark Cost Saver was announced in July 2023 and is anticipated to launch in early 2024, giving eligible CVS Caremark members access to lower prices on generic medications when available.
- Debt rates: Amendments replaced LIBOR with SOFR as the benchmark for term-loan and revolver borrowings beginning in July 2023. The term loan matures in October 2025; the revolving facility expires in October 2024. Interest expense more than doubled year over year in Q2, primarily because of higher interest rates.
- Legal and regulatory: GoodRx paid the $1.5 million FTC settlement in Q1 2023; the consent order also requires certain business-practice and compliance changes. Five consumer privacy class actions were consolidated; the company had not accrued a loss because it was not considered probable and estimable, while stating that an adverse outcome is reasonably possible and the loss range could not be estimated.
- Key business risks: Dependence on prescription transactions and a limited set of PBMs and pharmacy chains; changes in drug pricing, partner terms or consumer behavior; effects of the grocer issue; competition and regulation; privacy litigation; execution of restructuring and savings plans; and the transition to a permanent CEO. Interim CEO Scott Wagner was appointed in April 2023; the filing says the board was conducting a permanent CEO search.
- The company stated that cash and expected operating cash flows should meet needs for at least the next twelve months. Results remain subject to seasonal demand and are not necessarily indicative of full-year performance.
Important facts for investors to verify
- Whether prescription transaction revenue, consumer activity and transaction economics recover despite the lasting grocer-issue effects and shift toward lower-fee direct pharmacy arrangements.
- Whether the restructuring achieves the stated $18–$22 million annualized cash savings, and how its charges and pharma-revenue impact compare with estimates.
- How much Q2 and first-half net income depended on the $55.9 million deferred-tax valuation-allowance release, and whether future tax profitability supports realization of deferred tax assets.
- Debt interest costs and covenant headroom after the SOFR transition; the filing gives the covenant ceiling but does not provide a clear period-end leverage ratio.
- Developments in the consolidated privacy litigation, the FTC consent-order compliance costs, and the permanent CEO search.