GoodRx Holdings, Inc. — FY 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; filed March 11, 2021. This is an annual report, not a standalone Q4 financial report. The filing provides Q4 operating metrics but does not present a separate Q4 income statement or cash-flow statement.
Business context
GoodRx operates a U.S. digital healthcare platform centered on prescription price comparisons and discount codes. It also offers paid prescription subscriptions, pharmaceutical manufacturer solutions and telehealth services. Prescription transaction revenue remains the core business; GoodRx reported that this offering generated 89% of 2020 revenue.
Financial and operating performance
| Metric | FY 2020 | FY 2019 | Change / context |
|---|---|---|---|
| Revenue | $550.7 million | $388.2 million | Up 42% |
| Prescription transactions revenue | $488.3 million | $364.6 million | Up 34% |
| Other revenue | $62.4 million | $23.6 million | Up 164%; includes subscriptions, manufacturer solutions and telehealth |
| Operating income (loss) | $(275.7) million | $139.7 million | Swung to loss, primarily reflecting unusual 2020 expenses |
| Net income (loss) | $(293.6) million | $66.0 million | Basic and diluted loss per share: $(1.07) |
| Adjusted EBITDA (non-GAAP) | $203.4 million | $159.8 million | Up 27% |
| Adjusted EBITDA margin (non-GAAP) | 36.9% | 41.2% | Down 4.3 percentage points |
| Cash from operating activities | $131.3 million | $83.3 million | Up 58% |
| Cash and cash equivalents at year-end | $968.7 million | $26.1 million | Increase followed IPO and private-placement proceeds |
| Debt at year-end | $681.1 million principal; $666.9 million carrying value, net of discount and issuance costs | $688.2 million principal | No revolver principal outstanding; $90.9 million available capacity |
| Working capital at year-end | $1,026.8 million | $53.2 million | Liquidity strengthened following equity financings |
Prescription revenue growth was primarily associated with a 34% increase in average Monthly Active Consumers to 5.0 million from 3.7 million. Monthly Active Consumers reached 5.644 million in Q4 2020, versus 4.272 million in Q4 2019; Scriptcycle-acquired consumers were included beginning in Q4 2020.
Cost of revenue was $29.6 million, or 5% of revenue, versus $14.0 million, or 4%, in 2019. The filing does not report a single GAAP gross-margin figure. Sales and marketing expense was $255.1 million (46% of revenue), including $222.4 million of advertising costs.
Material changes and unusual items
- 2020 GAAP results included $397.3 million of stock-based compensation, including $373.0 million related to the co-CEO Founders Awards, and $10.4 million of associated payroll taxes. A separate $41.7 million charge reflected donation of 1.075 million Class A shares to a charitable organization. These items largely explain the contrast between GAAP net loss and positive Adjusted EBITDA.
- All performance price goals for the co-CEO Founders Awards were achieved in October 2020. Of 16.4 million performance-vesting RSUs, approximately 15.7 million remained vested but unsettled at year-end. The company estimated, using specified stock-price and tax-rate assumptions, that future tax withholding on those awards could require approximately $481.7 million in cash; actual amounts may differ.
- The September 2020 IPO generated $886.9 million of net proceeds to the company; a concurrent related-party private placement raised another $100.0 million. Existing preferred stock converted into common stock at the IPO.
- Investing cash outflow was $91.6 million, including $55.8 million net cash consideration for Scriptcycle and $20.6 million of capital expenditures. Financing cash inflow was $905.8 million, principally from the IPO and private placement.
- In March 2021, GoodRx agreed to acquire HealthiNation for approximately $75 million in cash, subject to customary conditions. The filing expected closing in the second half of Q2 2021.
Outlook, management commentary and risks
- No numerical revenue or earnings guidance is provided. Management cautioned that historical growth may not be sustainable and expects growth rates to slow. It plans continued investment in marketing, product development, telehealth and public-company infrastructure.
- Management attributed the decline in Adjusted EBITDA margin to higher costs relative to revenue, including investment in product and technology, telehealth growth and public-company readiness. GoodRx Care has lower margins than its other offerings, and management warned that a greater telehealth mix could pressure margins.
- COVID-19 reduced prescription activity and Monthly Active Consumers in Q2 2020 as consumers deferred care and pharmacy visits; activity improved sequentially in Q3 and Q4. The pandemic also accelerated telehealth demand, whose persistence management said was uncertain. Management noted the usual stronger first- and fourth-quarter demand, but said pandemic disruption affected seasonality.
- Revenue remains concentrated in prescription transactions and a limited number of PBMs. The three largest PBM partners accounted for 42% of 2020 revenue; Navitus, MedImpact and Express Scripts each exceeded 10%. Changes in partner contracts, pricing, consolidation or pharmacy relationships could affect discount competitiveness and revenue.
- The FTC requested information in 2020 concerning GoodRx’s privacy and security practices; the company said the investigation’s timing and outcome were uncertain. Privacy, consumer-protection, healthcare, telehealth, state licensing and advertising regulations are significant ongoing risks.
- Two securities class actions filed in December 2020 and January 2021 alleged the company failed to disclose Amazon’s developing prescription service. GoodRx said the claims were not then probable or reasonably estimable and stated its intent to defend them.
- Management concluded disclosure controls were not effective at December 31, 2020 because of material weaknesses in the financial reporting control environment, accounting processes and IT controls. Remediation was underway. The auditor expressed an unqualified opinion on the financial statements; the filing did not include management’s Section 404 assessment or an auditor attestation of internal control effectiveness.
- Debt is floating-rate and secured by substantially all relevant subsidiary assets. GoodRx was in covenant compliance at year-end. The company’s dual-class structure and stockholder agreements give insiders and specified investors substantial voting influence.
Important facts for investors to verify
- How recurring prescription usage, PBM contract economics and customer concentration are evolving, and what portion of revenue growth is sustainable.
- Whether newer revenue streams—subscriptions, manufacturer solutions and telehealth—can scale profitably enough to offset the lower margins management identifies in telehealth.
- The ongoing cash and dilution effects of founder RSUs, including the timing and actual tax-withholding requirement relative to the filing’s $481.7 million estimate.
- Progress in remediating material weaknesses and the outcome of the FTC inquiry and securities litigation.
- Debt repayment and interest-rate exposure, availability of revolver capacity, and the company’s ability to fund commitments and the HealthiNation acquisition while maintaining liquidity.