GoodRx Holdings, Inc. — Q3 2020 Form 10-Q Summary
Business context and reporting period
Quarter ended September 30, 2020; filed November 12, 2020. GoodRx operates a U.S. digital healthcare platform, led by free prescription price-comparison and discount codes. It primarily earns prescription transaction revenue from pharmacy benefit managers (PBMs), with additional revenue from subscriptions, pharmaceutical manufacturer solutions and telehealth.
The company completed its IPO on September 25, 2020, issuing 28.6 million shares at $33 per share and receiving $886.9 million in net proceeds. It also received $100 million from a private placement. Existing preferred shares converted to common stock. GoodRx acquired Scriptcycle in August for consideration of $58.3 million, including contingent consideration.
Financial and operating highlights
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $140.5 million | $101.7 million | $397.2 million | $275.0 million |
| Operating income (loss) | $(61.7) million | $37.8 million | $23.7 million | $103.9 million |
| Net income (loss) | $(50.0) million | $19.6 million | $4.7 million | $50.8 million |
| Adjusted EBITDA, non-GAAP | $53.2 million | $43.2 million | $154.4 million | $117.8 million |
| Adjusted EBITDA margin, non-GAAP | 37.8% | 42.4% | 38.9% | 42.9% |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $116.5 million | $66.8 million |
- Q3 revenue rose 38%; prescription transaction revenue increased 30% and other revenue increased 170%. Nine-month revenue grew 44%, with prescription transaction revenue up 37% and other revenue up 171%.
- Monthly Active Consumers reached 4.9 million in Q3, up 29% from 3.8 million a year earlier. Management attributed prescription revenue growth primarily to increased active consumers.
- Q3 basic and diluted loss per share was $0.21; nine-month basic and diluted earnings per share were $0.01 and $0.01, respectively.
- Q3 operating expenses included $98.1 million of stock-based compensation for Co-CEO founder awards. Total stock-based compensation was $111.2 million for the first nine months. The founder award expense substantially explains the GAAP loss and the divergence from Adjusted EBITDA.
- Cash and cash equivalents were $1.075 billion at September 30, plus $2.9 million restricted cash. Total debt carrying value was $695.9 million; the term loan principal was $682.9 million and revolving borrowings were $28 million. The company repaid the revolving balance in October. It reported $62.9 million of revolver availability at quarter-end.
- Nine-month investing cash outflow was $81.8 million, including $55.8 million for acquisitions, $15.7 million for capital expenditures and $10.3 million for capitalized software. Financing cash inflow was $1.017 billion, principally from the IPO and private placement.
Changes, outlook and notable items
- Profitability declined versus the comparable periods: Q3 shifted from GAAP net income to a loss, while nine-month net income fell substantially. Management cited the founder awards, higher marketing and development investment, and growth in telehealth costs. Adjusted EBITDA increased, but margins contracted in both comparisons.
- COVID-19 reduced prescription activity and Monthly Active Consumers in Q2 as consumers avoided in-person care; activity and active consumers improved in Q3, though continued recovery was uncertain. Telehealth demand increased significantly, but management cautioned that demand may not persist and that telehealth growth can pressure margins.
- Management expects continued investment in sales and marketing, product development and technology, and public-company infrastructure. Adjusted EBITDA and margin may fluctuate. The filing provides no formal numerical revenue or earnings guidance.
- All 16.4 million performance-vesting founder RSUs achieved their stock-price goals in October 2020. GoodRx reported approximately $232.1 million of related Q4 2020 stock-based compensation expense; together with other founder award expense, it expected roughly $275.1 million of Q4 founder-award expense. At an assumed $55 share price and approximately 50% withholding rate, it estimated a future tax-withholding cash obligation of about $447.8 million for the vested performance awards; actual amounts depend on settlement-date share prices, vesting and tax rates.
- Liquidity outlook: management believed cash, operating cash flow and revolver availability would cover operating, investing and financing needs for at least 12 months. Debt bears floating rates; a hypothetical 100-basis-point rate increase would have raised nine-month interest expense by $3.5 million.
- Disclosure controls were deemed ineffective at September 30 because of previously identified material weaknesses in staffing and control environment, accounting processes, transaction review, financial close and IT controls. Remediation was underway but not complete.
- The FTC had requested information in an investigation of GoodRx’s privacy and security practices; the company was cooperating, and the timing and outcome were uncertain. The filing reported no pending legal matter expected to have a material adverse financial effect.
- Other principal risks include dependence on prescription revenue and a limited number of PBM and pharmacy partners, healthcare and privacy regulation, cybersecurity and service-provider reliance, telehealth competition and provider availability, COVID-19 uncertainty, debt covenants, and concentrated voting control through dual-class shares. Three PBM partners accounted for 44% of nine-month revenue.
Important facts for investors to verify
- How prescription activity, active consumers and telehealth demand developed after Q3, including the durability and profitability of telehealth growth.
- The ongoing and future effects of founder RSU expense, dilution and tax-withholding cash requirements.
- Progress in remediating internal-control material weaknesses and the status and outcome of the FTC investigation.
- Revenue exposure to major PBMs and pharmacies, contract renewals, and any changes in negotiated pricing or transaction fees.
- Debt principal, floating-rate exposure, covenant compliance and liquidity after the October revolver repayment.
- Actual GAAP performance alongside non-GAAP Adjusted EBITDA, including the adjustments used to calculate it.