Ladies and gentlemen, thank you for standing by. And welcome to the GoodRx Third Quarter 2023 Earnings Call. [Operator instructions]. Please be advised that today's conference is being recorded. I would now like to introduce your host for today’s call Whitney Notaro, Vice President of Investor Relations. Madam, you may begin..

Thank you, operator. Good morning, everyone, and welcome to GoodRx's earnings conference call for the third quarter 2023. Joining me today are Scott Wagner, our Interim Chief Executive Officer, and Karsten Voermann, our Chief Financial Officer. Raj Beri, our Chief Operating Officer, will also be joining for the Q&A portion of today’s call.

Before we begin, I'd like to remind everyone that this call will contain forward-looking statements.

All statements made on the call that do not relate to matters of historical fact should be considered forward-looking statements, including without limitation, statements regarding management's plans, strategies, goals and objectives, our market opportunity, our anticipated financial performance, the ongoing impact of the former grocer issue on our business, underlying trends in our business, our potential for growth, collaborations and partnerships with third parties, anticipated impacts of the deprioritization of certain solutions under our Pharma Manufacturer Solutions offering, and our cost savings initiatives, our direct contracting approach with retailers, reliability of our deferred tax assets, and the expected impact from the macroeconomic environment on our business.

These statements are neither promises nor guarantees, but involve known and unknown risks, uncertainties, and other important factors. These factors may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements.

Factors discussed in the Risk Factors section of our Annual Report on Form 10-K for the year ended December 31, 2022, as updated by our quarterly report on Form 10-Q for the quarter ended September 30, 2023, and our other filings with the Securities and Exchange Commission, could cause actual results to differ materially from those indicated by the forward-looking statements made on this call.

Any such forward-looking statements represent management's estimates as of the date of this call, and we disclaim any obligation to update these statements, even if subsequent events cause our views to change.

In addition, we will be referencing certain non-GAAP metrics in today’s remark, including adjusted revenue which we define as revenue excluding client contract termination costs associated with our previously announced pharma manufacturer solutions restructuring.

We exclude these costs from revenue because we believe they are not indicative of past or future underlying performance of the business. We have reconciled each non-GAAP metric to the nearest GAAP metric in the company's earnings press release, which can be found on the overview page of our investor relations website at investors.goodrx.com.

I'd also like to remind everyone that a replay of this call will become available shortly there as well. With that, I'll turn it over to Scott..

Thanks Whitney, and thanks to everyone for joining us today to discuss our third quarter results. Today I'd like to highlight the meaningful progress we're making against our top priorities, and then Karsten will take you through the Q3 results.

We've been working to rebuild momentum in the business, both financially and operationally, with an eye towards compounding growth in 2024 and beyond. On our Q2 call, we said our first financial milestone was returning to year-over-year revenue growth.

I'm happy to report that in the third quarter we achieved this important milestone on an adjusted revenue basis. We expect year-over-year adjusted revenue growth to continue with modest acceleration into Q4 and expect our full year 2023 adjusted revenue to be $752 to $758 million.

Adjusted revenue for Q3 and fiscal year 2023 is $10 million higher than GAAP revenue because GAAP includes a $10 million reduction related to a one-time nonrecurring contract termination payment that we elected to make to a VitaCare customer to end the relationship as part of our pharma manufacturer solutions restructuring that we announced last quarter, which will yield substantial ongoing savings.

The adjusted revenue guidance is within the prior fiscal year 2023 GAAP revenue guidance range we provided of $750 million to $760 million. We anticipate our Q4 adjusted EBITDA margin to be in the mid to high 20% range, which implies a raise in our full year margin guidance. Karsten will go through our outlook in more detail.

I'd like to highlight our progress in three areas of the business, which will be particularly valuable as we turn our sights to 2024 and beyond. First, we continue to execute our hybrid retail pharmacy strategy, specifically structuring PBM and retail agreements that we believe are positive to both parties.

Transitioning to this model allows us to help members of our retail network drive increased volume and margins. GoodRx was originally built in partnership with PBMs, who enabled broad distribution across 70,000 pharmacies, and GoodRx brought to band with double-digit millions of annual consumers seeking savings on prescription medication.

We're now complementing these PBM relationships with several significant retailer partnerships that can help retailers with their traffic and margin priorities while continuing to deliver great affordability to consumers.

For example, in September, we launched a direct program with Walgreens on nearly 200 medications that drove significant incremental claim volume for Walgreens and helped a huge number of consumers save money on their medication. We've also created drug-specific pricing programs at several other large retail pharmacies in the quarter.

As a marketplace, we're not just creating pricing transparency and value for consumers, but also marketing and merchandising opportunities for our retail partners. We plan to continue strengthening and expanding our relationships, retailer by retailer, over the coming quarters.

We believe the continued progress here will help us ensure network stability, provide more value to retailers and PBM partners alike, and allow us to drive consumer demand and proactively help retailers with price and margin optimization.

Our second priority has been to extend the GoodRx benefit to commercial insurance programs called funded plans in industry lingo. As we all know, commercial insurance plans continue to get more complex with an increasingly wide range of co-pay, deductible, and benefit coverage options, even within the same company.

Companies are constantly trading off what they can afford in terms of healthcare expenses with providing benefits and coverage for their employees. The result is often an increasing proportion of healthcare costs falling on individuals.

The vast majority of GoodRx's consumer base and transaction volume has come from people who already have third-party payer coverage. We believe there's a huge opportunity to seamlessly bring on- and off-plan benefits together for both patients and their employers.

In tandem with several of our PBM partners, we've created a product called Integrated Savings Program, ISP for short, that helps align these corporate funded programs more closely with GoodRx. It's simple and elegant.

The employee presents their employer-provided benefit card and pays the lower of their funded benefit price for a prescription or the GoodRx price, as is often the case. During the third quarter, we announced two more PBM partners, MedImpact and Navitas, to add to our existing programs with CVS Caremark and Express Scripts.

These programs further strengthen our relationships with each of the four PBMs, who combined, cover over 60% of U.S. lives. Now, there are two questions investors have frequently asked us about these Integrated Savings Programs. The first is whether the programs are cannibalizing or creating pricing risks somehow.

The second is how big they can get and how fast. To the first question on cannibalization, we've noted that the top 10 medications in our direct-to-consumer prescription savings offering only make up a small, low single-digit percentage of the medications we see consumers accessing through integrated savings.

And, with respect to pricing risk, we don't believe there are any material issues. In terms of sizing the opportunity, we're optimistic about ISP's potential. With over 60% of U.S. lives covered by the PBMs who've adopted the program, the opportunity could be significant.

At this stage, though, our programs are nascent and only available to a subset of eligible members through these PBMs.

Given changes in plan designs employers and other sponsors may make around year-end, we're going to want to track our trajectory into the coming quarter in Q1 before we quantify how big we think the program will be in 2024, let alone beyond. These are programs that we think every PBM should be doing with us.

We believe these partnerships are a win-win-win for GoodRx, our PBM partners, and for consumers and the companies that employ them. First, GoodRx becomes more deeply integrated into the healthcare ecosystem and can reach an incremental segment of the prescription savings TAM.

Second, PBMs access incremental volume while helping their plan sponsors save money. Third, and most importantly, consumers get access to better prices on their medications, which can improve adherence and health outcomes.

These programs also create a more seamless experience for healthcare providers at the point of prescription, as well as pharmacists at the pharmacy counter, helping both of them save time and relieve administrative burden. Some of these integrated savings programs are already live and are expected to scale going forward.

And the CVS Caremark and MedImpact programs will benefit eligible members once the expected rollout takes place in January 2024. Our third priority has been to accelerate our affordability and access solutions for branded medications, which show up as pharma manufacturer solutions in our P&L.

Our unique ability to increase affordability for brand drugs drives direct claims impact, and we're seeing this play out across a large number of brand drugs and conditions.

For example, we're working with Sanofi, a global leader in diabetes care, to offer a new way for people living with diabetes to access their most prescribed insulin, Lantus, for only $35.

For context, even with government initiatives to lower the cost of insulin earlier this year, the implementation has been slow and a significant number of consumers have actually not been able to access the low price point due to structural issues within the healthcare system.

When pharma companies like Sanofi collaborate with GoodRx, they're able to leverage our reach and scale and their direct-to-consumer relationships in an effort to broaden access and affordability for their medications.

Now, any consumer with a prescription, regardless of insurance status, can access Lantus for $35 using GoodRx across 70,000 retail pharmacies in the U.S. Affordability is becoming one of the key issues for brand pharma marketers due to its impact on adherence.

The Sanofi partnership is a clear demonstration of the unique role that GoodRx plays in the healthcare value chain to enable affordability and access to tens of millions of Americans, regardless of their insurance status or prescription drug coverage.

GoodRx's consumer reach and brand strength, both for patients and healthcare professionals, as well as our direct connection to the prescription transaction itself, are what set GoodRx apart from others in the healthcare marketing ecosystem.

The bottom line is that GoodRx is able to connect brand marketers to patients and prescribers right at the point of prescription. This can translate into a highly effective return for brands.

We're finding several brands achieving 5 to 10x increases in volume on GoodRx via our access and buy-down programs, and others are achieving best-in-class rates on industry metrics like cost per new patient start. In terms of go-forward financial performance, we expect pharma manufacturer solutions revenue to grow quarter-over-quarter in Q4.

We're continuing to focus on our access and awareness solutions that we believe will accelerate 2024 growth. These are distinctive programs at the intersection of high ROI for our clients and attractive margin for us that build on GoodRx's core value proposition of providing savings on prescription medication.

As we've mentioned, this year we've been prioritizing deal quality for going one-off deals and instead creating standardized go-to-market programs that we expect to scale rapidly. A restructuring announced last quarter, which includes VitaCare, is ahead of schedule and we're on track to deliver our expected savings in 2024.

Karsten will speak to this in more detail. There's great work underway by teams across the organization and we have exciting things in flight which should lead to year-over-year adjusted revenue growth in 2024. I like where we're headed and look forward to providing updates to everyone next quarter. With that, I'll hand it over to Karsten..

Thank you, Scott. I'll first speak to our 3Q23 financial results before turning to guidance. In summary, during the third quarter, adjusted revenue, adjusted EBITDA, and adjusted EBITDA margin were each in the upper end of our ranges. Total revenue for the quarter decreased 4% year-over-year to $180.0 million.

Adjusted revenue for the quarter increased 1% year-over-year to $190.0 million. Adjusted revenue excludes a $10 million one-time non-recurring contract termination payment to a VitaCare client associated with our pharma manufacturer solutions restructuring announced last quarter, which was recognized as a reduction of revenue.

This $10 million payment has been excluded from our adjusted revenue calculation since we do not believe it is indicative of past or future underlying performance and we do not anticipate any incremental client contract termination costs going forward. Moving on to prescription transactions revenue.

We're pleased to have had another quarter of growth with PTR up 3% year-over-year to $135.4 million. Max increased 5% year-over-year to $6.1 million and we're flat quarter-over-quarter.

The year-over-year increase in prescription transactions revenue is largely driven by the increase in max partially offset by lower fees per transaction which primarily decreased as a result of our ongoing shift to a hybrid model as well as contra revenue relates to our customer incentive program.

As we continue leaning into our retailer relationships we're seeing volume increases offsetting slightly lower fees per transaction.

Pharma manufacturer solutions revenue is $15.9 million in the third quarter and was impacted by $10 million in contract termination costs which were treated as a reduction of revenues since they related to a payment to a client.

As I mentioned earlier we do not believe this $10 million payment is indicative of past or future underlying performance as it was made in connection with our pharma manufacturer solutions restructuring and we do not anticipate any incremental client contract termination costs near term.

Growth in the underlying pharma manufacturer solutions offering partially offset the impact of the $10 million client contract termination payment. Based on the trajectory and the quality of campaigns we're running we remain very optimistic about this offer is contribution to adjusted revenue growth. Turning to subscriptions.

Subscriptions revenue declined 12% year-over-year to $23.2 million due to a decrease in the number of subscription plans where the decrease was primarily associated with Kroger Savings Club which form minority and declining portion of total subscription count as well as a change in the mix of gold plans towards more single-user plans and away from family gold plans.

Inclusive of the impacts of Kroger Savings Club we ended the quarter with 930,000 subscription plans down 12% year-over-year. Our own GoodRx gold subscription plans however were up both year-over-year and quarter-over-quarter continuing the momentum from last quarter's QOQ growth. Cost of revenue is $18.7 million versus $17.4 million in 3Q22.

The increase in absolute dollars is related to personnel costs arising from the restructuring of pharma manufacturer solutions.

I won't comment on costs and expenses as a percentage of revenue during this call since the $10 million client contract termination payment in connection with our pharma manufacturer solutions restructuring that was recognized as a reduction of revenue makes those percentages incongruent with percentages discussed on prior calls.

Please reference slide 14 in our Q3 earnings presentation for tabular information relating to percents of revenue including our adjusted view that we believe may be more informative given a restructuring and other impacts in the third quarter. Product development technology expenses were $39.6 million compared to $35.9 million in 3Q22.

The increase was primarily driven by the loss on the disposal of certain capitalized software principally in connection with our pharma manufacturer solutions restructuring partially offset by a decrease in payroll and related costs due to lower average headcount.

Sales and marketing expenses were $91.6 million versus $86.2 million in the third quarter of 2022. The increase was driven by a payroll and related costs primarily due to higher stock-based compensation as well as higher third-party vendor fees.

In the third quarter we continue to invest in consumer incentives including our point of sale discounts program and spent a total of $7.4 million, $5.6 million of which was included in sales and marketing and $1.8 million of which reduced revenue.

General and administrative expenses were $35.3 million versus $49.5 million in the third quarter last year. The decrease was primarily driven by a $16.6 million change in fair value of contingent consideration related to the VitaCare acquisition in the third quarter of 2022 which elevated the comparable period expenses.

Depreciation and amortization expenses were $33.0 million versus $14.0 million in the third quarter last year, primarily driven by an increase in amortization related to accelerated amortization of the acquired intangible assets and capitalized software in connection with our pharma manufacturer solutions restructuring.

Net loss was $38.5 million compared to a net loss of $41.7 million in the third quarter of 2022. Adjusted net income was $25.5 million compared to $29.9 million in the third quarter of 2022. Adjusted EBITDA increased 3% year-over-year to $53.5 million, which was ahead of expectations.

The primary driver of the year-over-year increase is higher prescription transactions revenue. Adjusted EBITDA margin of approximately 28.1% was up 30 basis points year-over-year.

Cost savings related to the restructuring of our pharma manufacturer solutions offerings are ahead of plan, including the shifting of more high cost to serve clients off VitaCare sooner than originally anticipated.

Because of this rapid client off-boarding, we expect an approximately $1 million revenue impact, decreasing 4Q23 revenue and adjusted revenue, which is reflected in our guidance. We generated net cash provided by operating activities of $60.3 million compared to $33.7 million in the prior year period.

Our capital allocation priorities are unchanged and will continue to focus on high return investments and maximizing value for shareholders. Our balance sheet remains strong and we ended the quarter with $794.9 million in cash and cash equivalents on the balance sheet and $661.8 million of outstanding debt.

Our revolving credit facility had $90.8 million of unused capacity, representing total liquidity of $885.7 million. Now on to guidance. We're transitioning our Q4 and full year 2023 revenue guidance to be reported on an adjusted revenue basis.

Our outlook for 4Q adjusted revenue is $188 million to $194 million, which represents mid-single digit year-over-year adjusted revenue growth, as well as growth acceleration from the third quarter.

We expect adjusted and GAAP revenue to be identical in the fourth quarter because the third quarter adjustment to revenue in relation to the pharma manufacturer solutions restructuring related to VitaCare was solely one-time and non-recurring. Previously, our full year GAAP revenue guidance range was $750 million to $760 million.

After adding back the $10 million client contract termination payment to GAAP revenue, we continue to expect we will be within that range with adjusted revenue between $752 million and $758 million.

From a margin perspective, during the last couple of quarters, we've delivered adjusted EBITDA margins in the high 20s and we're expecting to be in the mid-to-high 20% range again in the fourth quarter, which implies high 20% adjusted EBITDA margin for the full year above our prior guidance of mid-to-high 20%.

Moving on to fourth quarter guidance by offering, we expect prescription transactions revenue of approximately $133 million to $136 million. We expect pharma manufacturer solutions revenue of approximately $27 million to $30 million.

This guidance range reflects our continued rationalizing of this offering, including deprioritizing of VitaCare services. We expect subscription revenue of approximately $23 million in the fourth quarter. Our GoodRx Gold subscriber counts have been increasing and we anticipate that they may increase again in Q4.

However, we expect total subscription plans to continue to fall due to declines in subscription plans for the Kroger Savings Club program we operate. We expect other revenue to be approximately $5 million in the fourth quarter.

Also, as a reminder, we released the remaining shares related to our co-founders' performance RSU grants in October of this year. The performance conditions were met as of 2020 and delivery took place in 4Q23 as anticipated.

As we mentioned in previous quarters, we withheld shares to cover the tax liability due in connection with delivery of the grant and expended GoodRx cash to pay the taxes. This cash expenditure related to the co-founders' performance RSU grants was approximately $44.5 million incurred in October 2023.

Many of you have asked about our perspectives on 2024 during prior calls. We're currently in the ordinary course of planning for 2024 and are confident that the priorities Scott discussed are the right focus areas for the business.

These priorities catalyze growth in the third quarter and we anticipate that adjusted revenue trend continuing in the mid-single digit percentage range as previously indicated for 4Q23.

While we are continuing to refine our views on 2024, including assessing the uptake in our new initiatives like ISP, for those of you building models, we feel good about the business growing next year at a roughly similar rate to the growth rate implied in the 4Q23 and we expect adjusted EBITDA margins to meet or exceed those of 4Q23 into 2024.

Similar to prior years, we expect to provide more detailed 2024 guidance on our next journey's call following our annual planning cycle. With that, I'll now turn it over to the operator for Q&A..

Thank you. [Operator Instructions] Our first question comes from the line of Charles Rhyee of Cowen..

Yes, thanks for taking the question and good morning guys. Wanted to ask, obviously a lot of information here and appreciate all the details. This is sort of the first quarter we've kind of gotten past the Kroger situation and I guess really you've done a lot of work in kind of partnering and more directly with retailers.

I know you announced a Walgreens partnership a few months back as well.

Maybe can you give a sense on how you're feeling about that retail network stability and your confidence that we're not going to have these issues anymore? And I guess in that sense, what percent of retailers or at least the ones that are most important to you within PTR, do you now have sort of a direct relationship and what kind of progress do you expect to make over the next, let's say, coming months towards that?.

Charles, it's a great question. Appreciate it.

I'm happy with the progress and we're, I would say, working through a relationship with retailers on a retailer by retailer basis such that we've covered and finalized plans with several, with others in discussion with a framework of where I think we're both going to want to land that'll get defined as we go into 2024.

And each retailer is different, but the themes are the same, which is we're working more closely both contractually and operationally to really help our retailers with both their volume and margin targets. And I'm happy with it.

And again, what it's doing is enabling us to help our retailers first and foremost, but also to deliver on our value proposition of affordability and medication to tens of millions of Americans. And I feel pretty good about it..

And would you say overall you have a, is that relationships, do you feel like the direction of where it's going? So even those retailers you don't have a direct relationship with yet through contracting, you feel like there's a different sense with them when you speak with them in sort of the value proposition that you bring them? Because I know that in the past pharmacies weren't very excited about GoodRx sometimes, right? Because they would lose out maybe on a full cash pay drug..

Yes, a hundred percent, Charles.

So I think what you're seeing is examples, if you track back to the last probably three to five months of individual pricing relationships that are happening with some big chains, and I won't call them out specifically, but in the world you're seeing more individual execution that's both great for retailers and our core value prop.

And importantly, these are also good for PBMs too, right, because they're a part of this network also. So you're seeing examples of this in flight. I think the important point for everybody is this is in some ways forever work. That isn't one and done on a single contract basis.

This is about how a marketplace works with its partners on either side of both supply and demand fulfillment.

And so it's not just a contracting effort, but I'm both pleased and then we're all mindful of the work underway on pricing engineering to sort of tie ourselves really closely with our retailing partners so that we can continue to add value on an ongoing basis. So again, the broad point for everybody is that's forever work..

Thank you..

Thank you. Our next question comes from the line of Jailendra Singh of Truist..

Thank you and good morning everyone. First, a quick clarification, Scott. I think you mentioned that ISP programs will drive more volumes for PBM. I really couldn't follow because if there's no cannibalization happening, that why will, I mean, I'm assuming these scripts are already flowing through PBMs.

Why will they see more volumes? Maybe clarify that. But my main question is on 2024 revenue growth expectations, 2% to 5%. I understand it's preliminary, but the big delta compared to where consensus is.

So I know you're not quantifying ISP contribution yet, but can you confirm if you're reflecting any benefit there or will that be incremental to that outlook? Maybe talk about some other headwind tailwind because, I mean, given all the headwinds you're facing this year in ISP, we were expecting growth to be at least higher than 2% to 5%.

Maybe clarify more..

Thanks, Jailendra. I'll start off. This is Raj. I'll start off with the ISP question and pass on to Karsten. First of all, we're really thrilled about how the ISP program is going. We're live with multiple partners, including ESI, and we're going live with others like Caremark next year.

I think on the cannibalization question and volume question, I think where it comes down to is there are, for PBMs, there are claims that would not happen because the insurance price was too high or the copay was too high, and those claims were just not going into their ecosystem at all.

And now with the ISP program, what they're seeing is there's another option for them, and on those ones, the cash price there is really attractive. And so that's a claim that is now staying within the ecosystem, and so it's incremental. I'll pass on to Karsten for the second part..

Hi, Jailendra. Yes, thanks for the question. I think with respect to 2024, which was the second part of your question, as we said, we're expecting growth aligned with Q4, so lower-mid to mid-single digit growth. I think the important thing here is we're still assessing some of our growth levers, including ISP and Pharma Man Sol in particular.

The guidance is really based on what we see and what we know, not what we believe or what we hope for or might anticipate. And from that perspective, I think that's an important distinction.

We think that ISP is very positive, and we look forward to continued Pharma Man Sol growth, but they're also in their early stages at this point, and we'll know a lot more as we get into the new plan year and as we have more of our ISP partners begin to ramp going into 2024.

And that's why we said on the call that we provide more detailed information when we normally guide as opposed to providing the indication now in response to a lot of questions we've been getting..

Thank you. Our next question comes from the line of Scott Schoenhaus at KeyBanc..

Hi, team. Thanks for taking my question.

Just following up on Jailendra’s and kind of more of a broader question, the pharma manufacturing solutions revenue, what are you seeing currently in the market? Has something changed that would cause you to adjust your outlook or be more cautious with that 2024 revenue initial guidance? Just trying to kind of piece together the moving parts on that end market, what your customers are saying about budgets for next year.

Thanks..

Scott, thanks for the question. There's, I think in the industry you're hearing a bunch of commentary about budgets really for us in some ways we're budget independent.

And our effort right now is just getting the GoodRx value proposition still in front of the right brand marketers in their agencies, you know again for context this business is three years old less than three years old and the value proposition of GoodRx for brand marketers as really a transaction engine to match patients and physicians with a transaction is kind of no-brainer marketing really And there's a whole bunch of brand drugs that you know now that I've been in the business for six months I look at say gosh we should be the first move of marketers which is hey sponsor your brand drug page and all your access programs should run through GoodRx.

And we have to go through now the pick and shovel work of getting that in front of the right people and running those pilots through budgets and getting them ramped up.

But I'm hopeful on our behalf that as we go into 2024 really this this work is in our control And less susceptible of the macro as does matter these are things that we should be able to do on our own..

Thank you. Our next question comes from the line of Lisa Gill of JPMorgan..

Thanks very much and good morning. Scott I want to go back to ISP for a minute and just make sure that I understand something.

The way I understand it and talking to the PBM is that because we're talking about primarily high deductible plans So going back to your comment people not being able to afford the drug many times They forgo the drug, but my understanding from the PBMs is that each employer will have to opt into this program, and that's what's going to take time So as we think about plan design for 2024 will they notify you say in the next couple of months, so we'll have an idea when you give guidance in 2024 or will this be kind of plans rolling on as we move throughout 2024 would be my first question.

And then secondly, when I think about the margin for ISP is it similar to what you see today an RX transaction?.

Thanks for the thanks for the question in terms of rollout The opt-in or opt-out is a little different for each of the PBMs. And so it's a little different, and again that's one of the things that as we get into January and roll through the first quarter it will help us come back to all of you with a tighter range for what to expect. You're right.

That's the essence of the ramp. But again, there's really nice I think uptake and discussion around the value prop themselves certainly not only from the PBMs, but as they're bringing this out to all of their payer customers. So that's kind of how it'll work. Let me hand it off to Raj or Karsten on the economics question.

Yes, I think more generally when we think about ISP from an economics perspective it mirrors our core PTR business essentially identically meaning that as a claim comes in it flows through the multi PBM model and the PBM with the best price at that particular pharmacy in that particular geography will generally win.

So from an economic perspective, it's in our prescription transactions revenue line and the economics of the transaction looks substantially identical from the revenue perspective..

Thank you. Our next question comes from the line of Eric Sheridan of Goldman Sachs..

Thank you so much for taking the question.

I'll maybe also going back to the forward commentary, can you better help us understand what you see is some of the headwinds and tailwinds to margin both in terms of the way you're building the guide for Q4 and how we should think about some of those headwinds and tailwinds evolving next year because it seems like you're implying we should take Q4 margins and sort of run those out.

But I wonder if there was variability in that that we should be aware of or mix shift dynamics that are underpin that. Thank you..

Hey, Eric, it's Scott. I think broadly as you think about not only Q4 but going into next year We're in a nice spot to have really nice flow through from incremental revenue growth. So make what you're seeing is a bice balance right now that is as the business returns back to revenue growth.

We're in a good position to be able to flow through a sizable amount to the bottom line, one. Two, what we described and are going through with VitaCare, again, will create a nice little help to margins.

And that's going to let us invest in the areas to continue to rebuild growth as we get signal on what works, whether it's more go to market on things like ISP or brands, farm manufacturer solutions on brands. Then we haven't talked a lot about marketing, but again, in the same way, our marketing engine has really nice return today.

And there's things underway that we're doing to try to spend in a different way to get in front of our consumers and patients, both at retail and doctor's offices, which is a little different than we've been in the past, but it's got signal. And I think we're giving ourselves nice room to lean into that as we see what works..

Thank you. Our next question comes from the line of Craig Hettenbach of Morgan Stanley..

Yes, thanks. Just wanted to come back to the farmer manufacturing solutions. And Scott, it sounds like you're kind of being more focused as you evaluate the opportunity set.

As you look out over time, how do you see kind of the growth opportunity, even if it's a range or what could this market grow to in the coming years?.

Yes, thanks for that question. I think broadly, that will absolutely be something when we get everybody together in the first quarter and a more fulsome investor day, not only for 2024, but kind of lay out some goal posts for the opportunity on a multi-year basis.

I would say, however, that if a business is less than three years old, it's $100 million in revenue. The brand pharma companies spend $5 billion on market access programs that today only 3% of patients actually access.

And when I look at what that means for somebody like GoodRx, where tens of millions of lives right at the point of the prescription, taking brand drugs and matching them to generics in a logical way, it feels like most access programs should start at GoodRx.

And so if you think about the potential for this on a multi-year basis, it absolutely seems significant and should be significant because we work and we should work..

Thank you. Our next question comes from the line of Stan Berenshteyn of Wells Fargo Securities..

Hi, thanks for taking my questions.

On ISP, I realize it's still early, but can you maybe give us a sense of how this program has been deployed thus far? Is it for prescriptions that sometimes fall outside of the formulary for the PBMs and instead of going to a cash pay type of situation, you end up filling it? What kind of use cases that you've seen thus far in the deployment here?.

Thanks, Stan for the question there. Yes, I think, again, as Scott mentioned, it's a little bit different by PBM by PBM. I think there are definitely examples of those cases where they're either high deductible cash pay, fall out of the formulary, that these are just medications that are not actually staying within that PBM's ecosystem.

And that forms a compelling use case for them to work with us overall. What we're actually also seeing is that the mix of drugs is very different than the drugs that we see in our consumer cash offering overall. And so when we look at that type of mix, we're not seeing it cannibalized at all.

And we see that there's a lot of covered drugs for maintenance meds that are life sustaining. And so for that reason, for us, it's really expanding the serviceable addressable market. And we see this as really, really great incrementality. And that's why we want to roll it out to as many lives as possible.

And so it's a win-win for PBMs who are capturing this new revenue stream. And it's a win-win for us as we're capturing new consumers..

Thank you. Our next question comes from the line of Daniel Grosslight of Citi..

Hi, guys. Thanks for taking the question. You mentioned that direct contracting could be a bit of a revenue headwind or at least a PTR per MAC headwind, given the lower admin fee.

I'm curious if this quarter, volume has offset some of this admin fee headwind in your direct contracts, volume was strong broadly, but in your direct contracts that volume offset the lower admin fee.

And then as we think about fiscal 2024, do you anticipate the mix shift to, the continued mix shift I should say to direct contracting will be a headwind?.

Hi, this is Karsten, and thanks for the question, Daniel. From our perspective, first of all, yes, I think we have seen volume benefits when we look at our MAC counts year-over-year, for example, they grew quite significantly in the higher single digits.

That was offset, but to some degree by our PTR per MAC, which drifted down ever so slightly when you look at that either YOY or QOQ for that matter.

So from those perspectives, the two things offset to some degree and part of the drivers for the PTR per MAC changes are number one, that as we indicated on prior calls and in our filing, we do have a contra rev component to a portion of what would otherwise be marketing expense.

And number two, I think the direct contracting effects we have, there can be a volume gain versus a slight drop in revenue component to it. But as we said at the beginning of the call, when you're looking at PTR per MAC sort of Q over Q, it's barely down at all..

Thank you. Our next question comes from the line of Robert Simmons of D.A. Davidson..

Hey, thanks for taking the question.

So I was wondering how much of a revenue hit when will the customer and etcetera just related to that $10 million payment be going forward? I know that $10 million itself is one off, but how much business are you walking away from?.

Thanks for the question. I'll take that one. This is Karsten again. I think what's really important to note here is that this is a one-time event and non-recurring in our view, which is why we drove it into and what led to the adjusted revenue metric.

We really elected to make the payment to accelerate when particular customers transition off our manufacturer solutions and in specific our VitaCare services that we're restructuring. VitaCare had an ongoing services obligation to this customer, who's a big one for us and important to us as well.

And as part of accelerating the wind down and weeping the savings, we wanted to make sure that customer is in good shape with the transition because we continue to earn revenue off them in other areas.

And the payment was part of ensuring that they're in good standing, that they were supportive of the transition that we're asking them to make, and that they're able to set themselves up in their new environment successfully.

It really allowed us to benefit from the VitaCare restructuring more quickly and to fully reap our expected rewards from that restructuring starting at the very beginning of 2024 in our anticipation..

Thank you. Our next question comes from the line of Parker Snure of Raymond James..

Hey, good morning and thanks for the question. This is Parker on for John Ransom. Just following up on that previous question, I just want to understand the mechanics of why it was a revenue write down versus a cost line item.

Was this essentially like a prior period adjustment to revenue? Like was this revenue previously booked and it is now being not fulfilled and that's why it's a revenue write down? Just trying to get actually kind of mechanical understanding of why it was contra revenue and not considered necessarily a cost line item.

And then just kind of building off of that, is this $26 million kind of run rate in the Pharma Man Sol business a good run rate to build off of going forward or is there going to maybe be a slight step down given that you're walking away from some of this business? Thanks..

I'll take those in reverse order. I think, thanks for the question, Parker. On the 26, I think that is absolutely a good base and one of the reasons we made the payment is so that the customer is quite happy with the way things have worked out for them.

I think to the first part of your question, the sole reason that this is contra rev is because it's a payment to a customer and payments to customers under S, under 606 are inherently contra rev except in extraordinarily limited circumstances. So, from that perspective, payment to customer equals contra rev.

There was no revenue book that's being reversed or anything of that sort at all. It's simply a matter of the cash expenditure that went to a customer and the guidance indication of how that should be treated..

Thank you. Our next question comes from the line of George Hill of Deutsche Bank..

Hey, good morning, guys, and thanks for taking the questions. I kind of have two quick ones that I'll lump together. On the Q2 call, you guys talked about the ESI relationship being in the pilot stage. We'd just love to hear what you've learned as the rollout has continued.

And then second, I wanted to come back to Charles's question as it related to retail partnerships. And again, we know the use of the discount cards tends to be a headwind for the retailers. I guess anything that you could share about kind of the economics or what's the value prop for the retailer in these relationships I think would be helpful.

Thank you..

Yes it’s Scott, let me do the second part of your question first. You're 100% right in frankly how the whole industry has worked in terms of demand and workload on retailers and what it means.

And broadly part, a big focus of what we're orienting towards doing is not just from an economic standpoint, but it's really business practices and workflow with retailers to lean in and make that better.

And so one example of us doing that with a retail partner was some pricing action we've done with Walgreens for a month where there was a whole set of drugs that Walgreens wanted to particularly emphasize and spike.

And so we helped them absolutely do that and that had a meaningful impact on both volume of drugs and the traffic that they were trying to drive. There's also offsets to that where certain things are with attention being able to help them manage margin.

And this is where when I call it forever work earlier, building the tooling and both from an API standpoint and how we manage pricing and doing that in a real time basis with models is how this should work. And it's not how it works today, but it is how it should work.

And therefore we're investing the time, energy, resourcing with our retail partners to get to that sample. I'm going to hand it off to Raj to answer the first part of your question..

Yes, thanks, Scott. Yes, on ESI, we're actually really, really happy about how the ESI rollout has gone. And we anticipate this evolving into a much bigger and broader initiative over time. You know, why we're happy about it is, first of all, ESI is really happy about how it's really beneficial to their members and their employer plans.

And for us, this is really just incremental volume and incremental business for us and is really expanding our addressable market. And so this year we've been focused on successfully ramping the program out and we expect to be transitioning to a broader rollout in 2024.

And what that means is, how can we work to get even more eligible members into the program and how can we work with ESI to optimize? Overall in terms of the financials, as we've mentioned before, it represents a tiny single digit percentage of our 2023 revenue. We expect it can be more and more material as we move beyond 2024..

There's -- so Scott, again, one point that threads between the two parts of your questions is the degree to which GoodRx adds incredible value to the system with insight into pricing and pricing and the dynamics across different drugs within a category.

And it's something where our reach and scope adds a ton of distinctive value in our ability both for PBMs and for retailers to match pricing strategy depending upon what they want to do.

And so if you think about GoodRx relative to others in the ecosystem, part of what's distinctive for us is our ability to do that, both with insight, with tooling, etcetera.

And so underneath this comment of our ability to do it relies, frankly, a sophisticated team and one that we're spending more time, energy, and resources on around pricing sophistication and the engineering to support this across the system..

Thank you. Our next question comes from the line of Jack Wallace of Guggenheim Partners..

Hey, thanks for taking my questions. I'm sorry, I came out here late, so apologies if these are, already been asked. Just quickly on the former advertising business, yet.

It's what you're seeing so far in 4Q, in terms of seasonality of spend there and your conversations with Pharma clients, how should we think about the impact of some of the budget realignment that's going on there impacting the business potentially next year? Thank you..

We're deep right now in the planning for 2024 with RFPs and just discussions with clients and agencies. And so that's happening really, as we speak. I think to what I said earlier from our standpoint, selfishly GoodRx.

Those are opportunity is far more about just getting in front of the right people and designing and developing programs and getting them going in 2024. We're still new enough. That getting the 1st, what I call brand brank, or the foundation within certain divisions of certain companies. It entirely is the thing that then lets us expand other brands.

And so are where we are in our evolution of this is still go get more beach head brands. Access and awareness on those and then roll them out. So the nice thing is that that's, we're certainly always affected by macro and budgets, but really our ability to do that is mostly in our control..

Thank you. As there are no further questions in queue, I would now like to turn the conference back to Scott Wagner for closing remarks. Sir..

Hey, everybody, thanks for joining us. Thanks for the questions, which were great. We all appreciate it. Maybe to hit a couple of themes before we sign off. It's nice that we have hit a really important financial milestone of year-over-year growth and are on a pacing to continue to do that.

And our focus is on a set of priorities that are incredibly important for GoodRx, they match our value proposition and should have compounding benefit as we get into 2024.

We will definitely both as we get into the year and on our next quarter calls give specifics around 2024 and we're in the process of trying to set a date in the 1st quarter to have a more fulsome investor day with everybody. So, again, thanks for the time and we'll talk to everybody in a couple months. Thank you..

This concludes today's conference call. Thank you for participating. You may now disconnect..