GoodRx Holdings, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021; comparisons are with the corresponding 2020 periods. Amounts below are in U.S. dollars. GoodRx operates a consumer healthcare platform focused on prescription price comparisons and savings, subscriptions, pharmaceutical manufacturer solutions, and telehealth. Its core prescription business primarily earns revenue from pharmacy benefit managers (PBMs).
Financial and operating performance
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Revenue | $176.6m | $123.3m | $337.1m | $256.7m |
| Operating income (loss) | ($0.4m) | $41.7m | ($5.3m) | $85.4m |
| Net income | $31.1m | $27.3m | $32.7m | $54.7m |
| Adjusted EBITDA | $54.6m | $49.4m | $105.6m | $101.2m |
| Adjusted EBITDA margin | 30.9% | 40.0% | 31.3% | 39.4% |
| Operating cash flow | Not separately provided | Not separately provided | $80.4m | $83.8m |
- Revenue mix: Q2 prescription transactions revenue was $144.9m (+32%); subscription revenue $14.3m (+125%); and other revenue $17.5m (+136%). For the first half, these were $278.9m (+20%), $26.3m (+119%), and $31.8m (+162%), respectively.
- Profit and margins: Q2 net income increased 14%, despite a small operating loss and pretax loss of $6.2m. The reported result included a $37.3m income tax benefit. First-half net income declined 40%; a $49.9m tax benefit partly offset a $17.1m pretax loss. Adjusted EBITDA increased, but its margin contracted in both periods.
- Costs: Q2 sales and marketing rose 70% to $88.4m, product development and technology rose 147% to $29.6m, and general and administrative expense rose 525% to $39.6m. First-half stock-based compensation was $87.2m, including $54.0m for the co-CEO Founders Awards.
- Cash and liquidity: Cash and cash equivalents were $894.7m at June 30, 2021, down from $968.7m at year-end 2020. First-half cash flow from operations was $80.4m; investing used $142.4m, including $125.7m net cash for acquisitions; financing used $14.9m. Management said cash, operating cash flow, and revolver availability were expected to cover needs for at least 12 months.
- Debt: Term-loan principal was $677.6m, with a net carrying value of $664.9m after issuance costs and discounts. The loan matures October 2025; the $100m revolving facility had no borrowings and $90.9m availability after letters of credit. The company reported covenant compliance.
- Operating metrics: Monthly active consumers were 6.0m in Q2, up from 4.4m a year earlier; subscribers were 1.1m, up from 0.6m.
Material changes and unusual items
- Revenue grew 43% in Q2 and 31% in the first half. Management attributed prescription revenue growth mainly to more monthly active consumers; subscription growth to subscriber gains and plan mix; and other revenue growth to pharmaceutical manufacturer solutions and telehealth.
- Adjusted EBITDA margin fell from 40.0% to 30.9% in Q2. Management cited higher marketing spend versus the pandemic-reduced prior-year quarter, continued technology and product investment, higher costs associated with offering mix, and public-company infrastructure spending.
- Reported earnings were materially affected by equity compensation and unusually large interim tax benefits. The effective tax rates were 597.5% in Q2 and 291.1% for the first half; management linked the tax effects in part to pretax losses, nondeductible executive stock compensation, and excess tax benefits from equity awards.
- In April, GoodRx acquired RxSaver for $50.7m cash and HealthiNation for $76.6m cash. Goodwill and intangible assets were recorded, and purchase accounting remained incomplete. The company also paid $2.9m of contingent consideration related to its 2020 Scriptcycle acquisition.
- After quarter-end, GoodRx acquired RxNXT assets for $14.5m cash on July 7, 2021. On July 21 it granted employee equity awards estimated at $15.2m in grant-date fair value.
Outlook, commentary, risks, and contingencies
- No specific revenue or earnings guidance is provided in the filing. Management expects subscription and other revenue to grow faster, as a percentage, than prescription transactions revenue; it also expects continued near-term investment in sales and marketing, product development and technology, and public-company infrastructure. Adjusted EBITDA and margin may fluctuate with investment levels and revenue.
- Management reported prescription activity recovering sequentially from the 2020 pandemic decline through Q2 2021, but said continued recovery is uncertain. Telehealth demand increased during COVID-19, but may not persist. Seasonality typically favors the first and fourth quarters, although pandemic effects have disrupted patterns.
- Three customers represented approximately 13%, 11%, and 10% of Q2 revenue, respectively, highlighting customer concentration. The business also depends on PBM relationships and faces competition, including risks from changes in prescription pricing, consumer behavior, regulation, privacy, and third-party platforms.
- The company disclosed securities class-action litigation alleging failure to disclose Amazon’s planned competing prescription service, plus related derivative suits. GoodRx denied the allegations and intended to defend itself; no loss was accrued because a loss was not considered probable and estimable, and the amount could not be estimated.
- Disclosure controls and procedures were deemed ineffective as of June 30, 2021 because of previously identified material weaknesses in financial reporting controls, including accounting expertise, complex transaction controls, financial close and reporting, and IT general controls. Remediation was underway but remained subject to testing.
- Founder equity awards create future compensation and potential cash tax-withholding obligations. The filing’s estimate for withholding on remaining performance-vested awards was approximately $481.7m, based on assumed 47% withholding and a $65 share price; actual amounts may differ materially.
- Other commitments include approximately $41.4m of minimum payments under an office lease beginning in 2022 and a $1.2m remaining 2021 advertising commitment. The filing also notes a proposed federal corporate tax-rate increase, whose timing and adoption were uncertain.
Most important facts for investors to verify
- Whether revenue growth and consumer/subscriber gains continue, and how acquired businesses contribute to growth and per-consumer economics.
- Whether operating profitability and adjusted EBITDA margin stabilize as marketing, technology, compensation, and integration costs rise.
- The sustainability and cash-tax implications of the unusually large interim tax benefits, and the scale and timing of Founder Award withholding payments.
- Debt covenant headroom, variable-rate exposure, and liquidity after acquisitions, lease commitments, and equity-award tax payments.
- Progress in remediating material weaknesses and the outcome or potential financial impact of the securities and derivative litigation.