GoodRx Holdings, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with Q1 2022. GoodRx operates a consumer prescription-price comparison and savings platform, earning most of its revenue from prescription transactions, alongside pharma manufacturer solutions, subscriptions and telehealth.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $184.0 million | $203.3 million | Down 10% |
| Operating income | $11.3 million | $19.8 million | Down 43% |
| Operating margin | 6.1% | 9.7% | Down 3.6 percentage points |
| Net income (loss) | $(3.3) million | $12.3 million | Turned to a loss |
| Net margin | (1.8)% | 6.0% | Down 7.8 percentage points |
| Adjusted EBITDA (non-GAAP) | $53.2 million | $64.7 million | Down 18% |
| Adjusted EBITDA margin (non-GAAP) | 28.9% | 31.8% | Down 2.9 percentage points |
| Operating cash flow | $32.3 million | $30.1 million | Up $2.2 million |
- Revenue mix: Prescription transactions revenue was $134.9 million, down 13%; pharma manufacturer solutions revenue was $20.4 million, down 13%; subscription revenue was $24.1 million, up 26%; and other revenue was $4.5 million, down 14%.
- Costs: Total costs and operating expenses were $172.7 million, down 6%. Cost of revenue rose 36% to $16.7 million, while sales and marketing fell 16% to $78.5 million. Depreciation and amortization rose 31% to $14.9 million.
- Cash and liquidity: Cash and cash equivalents were $761.1 million at March 31, versus $757.2 million at year-end. Net cash increased $3.9 million during the quarter. The company reported $90.8 million available under its revolving credit facility.
- Debt: Term-loan principal was $665.3 million; carrying value, net of issuance costs and discounts, was $657.8 million. The effective interest rate was 7.81%, versus 3.39% a year earlier. No revolver borrowings were outstanding; $9.2 million of letters of credit reduced availability. The company said it complied with debt covenants.
- Other balance-sheet items: Total assets were $1.612 billion and total stockholders’ equity was $827.5 million. Cash equivalents included $642.5 million in U.S. Treasury securities money market funds.
Material changes and business drivers
- The company attributed lower prescription transactions revenue primarily to the continuing effects of the 2022 “grocer issue.” Although the issue was addressed in August 2022 and discounted pricing was again accepted at the grocery chain, management said consumer response to updated pricing and the pace of returning users continued to weigh on results.
- Monthly Active Consumers were 6.1 million, compared with 6.4 million in Q1 2022. Management reported more than 7.0 million prescription-related consumers across transaction and subscription offerings at quarter-end.
- Subscription plans were 1.007 million, down 16% from 1.203 million a year earlier. The Gold price increase supported subscription revenue growth; Kroger Savings plans were declining and the program is expected to end in July 2024.
- Management said direct pharmacy contracts may expand, but currently provide lower fees per transaction than PBM arrangements and may modestly reduce revenue per transaction in the near term. vitaCare, acquired in April 2022, added pharma solutions revenue but carries higher costs and has historically generated losses.
Outlook, risks and unusual items
- No quantified revenue or earnings guidance is provided in the filing. Management expects operating cash flow and cash on hand to be sufficient for operating, investing and financing needs for at least the next 12 months. It expects sequential growth in pharma manufacturer solutions as a share of revenue in the near to medium term, while noting near-term moderation in manufacturer spending.
- Management cited seasonality, but said the grocer issue and pandemic effects may obscure normal patterns. It also expects Kroger Savings plans to continue declining through the program’s anticipated July 2024 sunset.
- The effective tax rate was 191.5%, compared with 11.8% in Q1 2022. The company attributed the elevated rate to factors including its valuation allowance on deferred tax assets, nondeductible executive stock compensation, state taxes and equity-award tax effects.
- A $1.8 million impairment of a minority equity investment was recorded as other expense. The FTC’s $1.5 million privacy settlement, accrued in 2022, was paid in Q1 2023; the consent order also requires business-practice and compliance changes.
- Five putative class actions concerning privacy and consumer data were consolidated. GoodRx did not accrue a loss because it said a loss was not probable and reasonably estimable, but stated an adverse outcome is reasonably possible and that it could not estimate a loss or range.
- After quarter-end, the co-CEOs transitioned to other roles and Scott Wagner was appointed interim CEO, effective April 25, 2023. A permanent CEO search was ongoing. The interim CEO’s employment agreement provides for an option award covering 2.5 million to 3.0 million shares, subject to board determination.
- Key business risks include dependence on prescription transactions and a limited number of PBMs and pharmacy chains, changes in prescription pricing and partner terms, consumer retention, privacy litigation and regulation, and higher interest expense. Two customers each accounted for at least 11% of Q1 revenue.
Most important facts for investors to verify
- Whether prescription transaction activity and Monthly Active Consumers stabilize or recover, and the continuing financial impact of the grocer issue.
- Revenue, margins and profitability trends across prescription transactions, subscriptions and pharma manufacturer solutions, including the cost and performance of vitaCare and direct pharmacy contracts.
- Debt terms, interest costs, covenant headroom and the availability of liquidity under the revolver.
- Developments in the consolidated privacy lawsuits, related potential costs, and compliance obligations under the FTC consent order.
- Leadership transition progress, including appointment of a permanent CEO and the cost and dilution implications of the interim CEO option award.