GoodRx Holdings, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021; compared with the corresponding 2020 periods. Amounts are in U.S. dollars.
Business context
GoodRx operates a U.S. consumer healthcare platform centered on prescription price comparison and discount codes. It earns most prescription revenue from pharmacy benefit managers (PBMs), and also offers subscriptions, pharmaceutical manufacturer solutions and telehealth. All reported revenue was generated in the United States.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $195.1 million | $140.5 million | $532.2 million | $397.2 million |
| Operating income (loss) | $7.0 million | ($61.7 million) | $1.7 million | $23.7 million |
| Net income (loss) | ($18.1 million) | ($50.0 million) | $14.7 million | $4.7 million |
| Adjusted EBITDA | $61.8 million | $53.2 million | $167.4 million | $154.4 million |
| Adjusted EBITDA margin | 31.7% | 37.8% | 31.5% | 38.9% |
| Operating cash flow | Not stated for the quarter | $129.0 million | $116.5 million |
- Q3 revenue grew 39%; prescription transactions increased 25%, subscriptions 111%, and other revenue 177%. Management attributed prescription growth chiefly to a 31% increase in Monthly Active Consumers, partly offset by lower revenue per consumer associated with acquisitions. Other revenue growth reflected pharmaceutical manufacturer and telehealth activity.
- Q3 net loss narrowed year over year, but included $19.2 million of income tax expense versus a $17.9 million tax benefit in Q3 2020. The prior-year quarter also included $98.1 million in stock-based compensation for the founders’ IPO-related awards; Q3 2021 included $20.1 million for those awards. Total Q3 stock-based compensation was $40.0 million versus $106.9 million.
- Nine-month net income included a $30.7 million income tax benefit. The filing says interim tax estimates are unusually variable; the effective tax rates reported were 1,767% for Q3 and 191% year to date.
- Adjusted EBITDA increased, but its margin declined, reflecting higher marketing, product and technology investment, public-company infrastructure costs, and cost-of-revenue mix. Adjusted EBITDA is a non-GAAP measure.
Liquidity, debt and investment
- Cash and cash equivalents were $912.0 million at September 30, 2021, down from $968.7 million at December 31, 2020. Current assets were $1.052 billion and current liabilities $72.7 million.
- Term-loan principal was $675.9 million; carrying debt net of issuance costs and discounts was $663.9 million. The loan matures in October 2025 and had an effective interest rate of 3.41% in Q3. No revolving-facility borrowings were outstanding; $91.0 million remained available after letters of credit.
- Operating cash flow of $129.0 million was more than offset by $169.5 million of investing outflows, including $140.3 million for acquisitions, $21.4 million for capitalized software and $3.8 million for capital expenditures. Financing outflows were $19.1 million.
- Management stated that cash, operating cash flow and available revolver capacity should meet needs for at least the next 12 months. A new office lease signed in May 2021 is expected to require approximately $41.4 million in minimum payments over its term, which runs from 2022 through 2033.
Material developments, outlook and risks
- GoodRx acquired RxSaver, HealthiNation and RxNXT in 2021 for stated cash consideration of $50.7 million, $76.6 million and $14.5 million, respectively. Purchase accounting for these acquisitions was not complete in certain areas. The company also invested $4.0 million in a minority equity interest.
- Management expects subscription and other revenue to grow faster by percentage than prescription transaction revenue. It expects continued near-term investment in sales and marketing, product development and technology, and public-company infrastructure; no numerical revenue or earnings guidance is provided.
- COVID-19 affected prescription activity, which had sequentially recovered through Q3 2021 as consumers resumed healthcare interactions. Management cautioned that pandemic effects remain uncertain; telehealth demand increased, but may not persist at current levels. The company also cited seasonality, typically stronger demand in Q1 and Q4.
- The FTC informed the company on October 14, 2021 that staff intended to recommend an enforcement action relating to its privacy and data-sharing practices. GoodRx disputes the allegations and has not accrued a loss; the amount, if any, cannot be estimated. The filing warns of possible penalties, compliance costs and operational changes.
- Shareholder class actions allege securities-law violations relating to disclosure of Amazon’s competing prescription service; related derivative suits were also pending. The company had not accrued losses and could not estimate a loss range.
- Disclosure controls were deemed ineffective as of September 30, 2021 because material weaknesses in internal control over financial reporting remained. Management reported implementing remediation measures, but operating effectiveness had not yet been demonstrated over a sustained period.
- Customer concentration remains significant: two customers represented approximately 24% of Q3 revenue. Other stated risks include privacy and data regulation, competition, reliance on PBMs, COVID-19, and potentially material tax withholding payments on founder equity awards.
Important facts for investors to verify
- Whether revenue growth and consumer engagement persist, and how acquisition-related lower contribution per consumer affects prescription economics.
- Whether the falling Adjusted EBITDA margin stabilizes as spending and offering mix evolve; review the non-GAAP reconciliation alongside GAAP results.
- The effective tax rate, tax benefits and expenses, and potential effects of changes in tax law.
- Developments and possible costs from the FTC matter and shareholder litigation, as well as any required changes to data practices or marketing.
- Progress in remediating internal-control material weaknesses and the potential cash impact of founder-award tax withholding.
- Acquisition integration, final purchase-accounting adjustments, customer concentration, debt covenant headroom and liquidity needs.