Q3 2022 Goodrx Holdings Inc Earnings Call

November 8, 2022

Yeah.

Ladies and gentlemen, and thank you for standing by and welcome to the <unk> third quarter 2022 earnings call. As a reminder, today's conference call is being recorded I would now like to introduce your host for today's call Whitney Natera Vice President of Investor Relations. Please go ahead.

Thank you operator, good afternoon, everyone and welcome to <unk> earnings Conference call for the third quarter of 2022.

Joining me today are Doug Hirsch and Trevor best back, our cofounder and co Chief Executive Officer, and Christian <unk>, Our Chief Financial Officer.

Before we begin I would like to remind everyone that this call will contain forward looking statements.

All statements made on this call that do not relate to matters of historical fact should be considered forward looking statements, including statements regarding management's plan strategies goals and objectives, our market opportunity our anticipated financial performance the impact of the grocery issue on our business and the impact of macroeconomic conditions on our future.

After the operation.

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 2021.

Updated by our quarterly report on Form 10-Q for the quarter ended September 32022, 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 managements 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.

In addition, we May also reference certain non-GAAP metrics, which are reconciled to the nearest GAAP metric in the company's earnings press release, and the accompanying slides, which can be found on the overview page of our Investor Relations website at investors <unk> Dot com.

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

Thank you Whitney good afternoon, everyone and thank you for joining US today, we will be sharing our perspective on our recent performance, but I wanted to start off by discussing two of our most important priorities, which go hand in hand to help Americans get the health care they need at a price they can afford and as we deliver on that mission to create value for our shareholders.

During the last quarter, we made significant progress on both of these priorities, we furthered our mission by engaging even more deeply with all of our constituents and in particular with consumers and providers. We continued to stabilize and further grow our retail network worked with retailers and pharmacy benefit managers on finding more ways to offer even better consumer prices.

<unk> expanded our content offerings and enhanced our provider focused offerings to make it even easier for providers to be great advocates for good Rx provide.

Providers have brought millions of consumers to the <unk> platform over the last decade, and we look forward to their future contributions in connection with the continued build out of our provider focused offerings.

I'll talk more about this shortly but I wanted to first touch on the progress we've made toward driving value for shareholders.

During the quarter, we significantly exceeded our own <unk> margin expectations with approximately 28% adjusted EBITDA margin.

We drove better than expected growth, reaching $187 $3 million in revenue in the quarter and continued our high cash conversion was $33 $7 million in cash flow provided by operating activities.

Most importantly, we enhanced the stability of an expanded our ecosystem of Pbms retailers health care providers and pharma manufacturers all of which helped us to deliver our third quarter results Trevor will talk more about driving shareholder value shortly.

Going forward, we are focused on driving adjusted EBITDA and cash conversion, which we have significant control over while also delivering continued efficient growth and we will continue to take actions to drive shareholder value strong margins in our mission.

I'll now dive into some of the actions we've taken recently that align with our culture as a mission driven organization.

We further our mission by helping consumers and strengthening our business.

One example is <unk> health, which we launched in September 2021 during the third quarter, good health experienced strong year over year traffic growth at approximately 25%.

Additionally, as we discussed in our second quarter earnings call. We are in the early stages of increasing our consumer engagement efforts, which we will continue to focus on in Q4 and into 2023.

We anticipate seeing meaningful benefits as a result of deeper relationships with our consumers and these ongoing efforts will allow us to help consumers better navigate their health care journey with an even more compelling value proposition and user experience.

Allowing consumers to provide us with more information through registration increases the LTV of each user and prescription transactions in other areas of the business over time, as we leverage data to create new tools and products in quarters and years to come.

Examples of LTV enhancing consumer outreach include communications around price improvements for chronic prescriptions and reminders to engage with their provider for prescription refills.

Our consumer engagement efforts are looking promising with significant differentials in LTV and repeat claim usage for engage consumers versus baseline consumers.

We serve $7 3 million consumers across our prescription transactions and subscription offerings in the third quarter given each subscription plan has on average approximately one five members.

We see our engagement efforts opening the door to providing an array of services extending from subscribers the incremental services for engage consumers and finally, our more transactional savings offerings.

Importantly, higher engagement enhances our ability to influence consumer behavior, giving us more leveraging opportunities across our ecosystem of retailers pbms and manufacturers.

An example of just one of the expected benefits is our increasing ability to direct users to the retailer that best fits their needs, especially as their needs and prescription pricing change over time.

In addition to these new ways to help consumers. We are also furthering our mission by helping healthcare providers through our recent launch of provider about last month.

Over the last decade, <unk> has been embraced by health care providers, who see firsthand the consequences of their patient space when they choose not to fill prescriptions or to get care because it simply cost too much in.

In the last 16 months over 865000 prescribers have you've got to look up medication prices prescription discount and trusted health information on behalf of patients might.

Mindful of the pivotal role of these health care providers play in helping patients overcome access and affordability challenges.

Wanted to develop a product that would arent providers with the tools they need to better help their patients at the point of prescribing <unk>.

Provider mode offers a redesigned prescription savings flow and a faster more customized experience to help providers find the information they need at the moment. So they can spend more time focusing on patient care.

At launch we expanded access to all hcp's, including nurses medical assistants in front office staff as examples.

This allows us to penetrate more of the approximately $30 billion pharma manufacturer solutions Tam since data shows that a $30 billion $20 billion, it's been targeting hcp's and $10 billion to target consumers. It complements our growth strategy by addressing brand name prescriptions through awareness access and adherence to put more medication in the hands of consumers.

Affordably.

In addition, the broader good extra providers offering has seen almost 90% up in rate since it started rolling out last December putting it on the path to becoming one of the largest provider platforms in the U S.

This recent launch is a remarkable achievement by our team and I can't thank them enough for their hard work and the progress we have seen in the short time since provider both went live.

Early feedback we've received from our partners has also been extremely positive provided boat gives us a unique opportunity to develop a strategic integrations with pharma manufacturers to design specifically for providers.

For example, we recently announced the collaboration with Biogen to make it easier for Hep's who've decided to start patients on humira ready to enroll patients with relapsing forms of multiple sclerosis in the specialty hub.

We anticipate that in the coming months, we will plan to make provider mode accessible to users are a top EHR and adding more clinical drug information onto the price pages.

We're excited about where this new platform is heading and we look forward to providing you with updates on how it is furthering our mission and driving revenue in the quarters to come.

The actions, we're taking reinforce our ongoing commitment to a world class mission aligned team that helps millions of Americans improve their health outcomes and as a result also increases the LTV of our consumer and provider relationships going forward.

I will now turn the call over to Trevor for more details on how we're driving shareholder value.

Thank you, Doug and good afternoon, everyone before getting into our third quarter results I'm going to talk about the increasing strength of our retail <unk> and pharma manufacturer relationships as well as the health of our broader ecosystem.

One of the main areas of Investor interest in our second quarter earnings call with our retail network. So I'll begin there importantly.

Importantly, as we discussed during that earnings call in August we've addressed the growths are issue and <unk> discounts have since been welcomed the grocer pharmacies point of sale with the exception of this particular grocer volume across other pharmacies increased approximately 8% year over year and approximately 5% quarter over quarter, we continue to deepen our relationships with existing <unk>.

Retailers and bring on new retailers.

Historically pbms have contractual agreements with pharmacies and our business model has been tied to contractual agreements with pbms and their relationships with pharmacies today. Our approach involves selective direct contracting with pharmacies to complement the continued existing contractual agreements with our PV on customers. We believe our hybrid approach ensures stronger lines of communication and strong.

Our relationships with our retailers the elements of our business model and growth strategy. Our all interdependent, we strongly believe that our success in acquiring new consumers, even more efficiently and knowing their consumers better through the initiatives, Doug discussed will strengthen and provide us more control over our retail relationships.

These more direct relationships that provided key insights into the unique challenges presented by the current macro environment and enable us to proactively collaborate on solutions to drive our mutual success and profitability, we're helping retailers drive their strategic initiatives and improve their unit economics, while maintaining the strength of our own economics.

With regard to strengthening our network I am happy to share the extension of our gold retail network with the addition of giant Eagle you.

You May recall in 2021 survey, we conducted of over 4000, <unk> <unk> called users, but found that 85% of consumers surveyed agreed that their positive experience with <unk> as their preferred pharmacy makes them want to return to that pharmacy more often.

The survey also found that almost 80% of consumers reported that they purchased nonprescription items, such as general merchandise for groceries, when picking up a prescription spending an additional $40 or more on average at the pharmacy counter. These are just some examples of how <unk> adds value to pharmacies across our retail network.

In addition to our strong retail relationships, we continue to have a Boston strong partnerships with our network of Pbms and we never have had of Pbms terminate its relationship with <unk>. This is the result of the volume and value we efficiently drive for our <unk> partners.

Additionally, we are leveraging our <unk> relationships to drive prescription transactions revenue inefficient user acquisition in new ways.

An example, we are especially excited about is the new collaboration with express scripts to support them in their mission to make prescription medicines more affordable for their members.

Under this innovative program eligible express script members will automatically access correct prices as part of their pharmacy benefit. This means an eligible express scripts member will have seamless access to <unk> prices for eligible generic medication and instances where that price is lower than their benefit price importantly, it keeps the visibility of the eligible members correct claims within the pharmacy.

And it enables out of pocket claims account order members deductible.

We were delighted to be selected as express scripts exclusive partner for this important new program. We believe this innovative collaboration is a strong validation of our leadership in the prescription discount space the strength of our brand and the deep trust consumers have in our technology powered by last year's acquisition of Rx next.

This collaboration creates a new distribution channel that we believe expands our market opportunity and represents a way to efficiently gain many incremental users. This new offering is anticipated to become available to express scripts commercial clients in early 2023.

To date, we have the most expansive network of PGM relationships in our space acceptance that most pharmacies in the U S and prescription prices on the top 30 drugs in the U S, but other cash discount offerings more than 87% at the time based on our analysis.

We continue to work with more pharma manufacturers offer more solutions and deliver superior rois, because those with which we work.

Our compelling suite of solutions creates a highly effective way for pharma manufacturers to reach patients and providers.

Leveraging our millions of monthly visitors made up of both consumers and health care providers.

As well as the approximately 20% of searches on our platform that are for brand drugs.

In fact, our analysis shows that among the top 100 branded medications the traffic the drug savings page to these brands I am good Rx is a multiple of the traffic to the same brands one drug fitting pages because of our users are so high intent and often at the bottom of the funnel with a prescription in hand.

The Tam in this market is huge $30 billion with increasing spend shifting to digital and we have not even penetrated 1%, yet giving us massive runway.

It is important to remember that branded medications presents consumers in acp's, but a unique set of challenges when compared to generic medications as they tend to be more expensive and insurance coverage is often complicated and restrictive.

Pharma manufacturers want to provide affordable options, but even with the approximately $30 billion they spend annually to reach consumers directly or through providers. They struggled to gain awareness and improve access and adherence.

With our pharma manufacturer solutions offerings, we are able to partner and innovate with drug manufacturers to help address these challenges and encourage use of their life saving products and services, increasing LTV and attractive ROI in part through our ability to target to effectively buy.

Driving awareness access and adherence we also help health care providers, who use <unk> and their patients to achieve better outcomes.

That said the industry has started to face some moderation of spending which may impact our near term results for this offering while we continue to experience solid growth of our customers. We will continue to monitor the landscape and be proactive with our growth strategy.

Other strategic initiatives continue to perform well on the acquisition front the integration of <unk> innovative pharmacy service platform is going well Medicare gives us valuable capabilities to facilitate the brand medications prescription process from start to finish and we had another innovative product and enhances our pharma focused capabilities, we believe by the carrier.

With our strengthened differentiation, particularly as it relates to the access and adherence elements of the patient journey, which continue to be a key focus for manufacturers to drive medication volume and revenue.

We work with pharma manufacturers to help patients and providers through the most complex part of their journey to therapy.

An example is our recent announcement of an exciting collaboration with Biogen, which aims to improve the patient and HCP experience when initiating a new specialty therapy <unk>.

Hcp's, who have decided to start patients on Humira <unk> can now utilize provider mode to send enrollment information directly to the specialty hub, which helps patients and providers navigate patient access to therapy.

On our second quarter earnings call, Doug Karsten I talked about our focus on adjusted EBITDA, which we can control and I also talked about taking a hard look at all of our costs and expenses and re prioritizing where and how much we spend across the business and all of our offering that is exactly what we have done.

Following a careful review of our business structure, we implemented an organizational realignment to operate more effectively and efficiently the resulting reduction in force we announced in August was part of our initiatives to rebalance, our investments and cost structure and to prioritize areas that we believe will drive efficient growth and margin expansion.

We are focused on optimizing current cash flow generation from our established business platforms, while efficiently planting seeds for growth in new areas to expand faster into our addressable markets by strengthening our customer value proposition.

Our third quarter results begin to reflect the benefits of these actions total revenue for this quarter was $187 3 million, which exceeded our expectation of approximately $185 million adjusted.

Adjusted EBITDA was $52 million and adjusted EBITDA margin was approximately 28%, which was approximately $15 million more than the implied adjusted EBITDA dollars on our expected 20% margin.

We also continue to serve millions of consumers across our prescription transactions and subscription offerings, which totalled $7 3 million at the end of the third quarter.

The outperformance in adjusted EBITDA was driven in part by the one time reduction in force, we completed last quarter and partly by focusing on marketing efficiency ahead of the marketing investments we plan to make around year end when many consumers change health plans and begin new plan years with fresh deductibles.

Advertising proportion of sales and marketing dropped by five percentage points from 64% to 59% between the second and third quarter of 2022, even if their Mac count remained relatively consistent at $5 8 million and despite the continued impact of the grocery issue relative to the second quarter of 2022.

Advertising fell by 16% to $50 $9 million, while prescription transactions revenue decreased from $134 4 million to $131 $2 million.

The amount of prescription transaction revenue associated with the grocer decreased from $12 4 million to $4 $3 million. During this period and it's still well under the $33 $7 million from third quarter 2021, as well as the $37 7 million, we earned in connection with a grocer in the first quarter.

2022.

Our cash flow provided by operating activities was $33 $7 million representing.

Approximately 18% of revenue and we have been consistently strong on this metric.

Our team is highly focused on consistently and efficiently growing adjusted EBITDA quarter over quarter going forward I re prioritizing investments only where they are needed to drive highly profitable growth, while delivering to consumers what they have come to expect from <unk>.

With that I'll turn it over to Carsten to discuss our financial results and guidance.

Thank you Trevor total revenue for the quarter decreased 4% year over year to $187 $3 million, which exceeded our quarterly guidance of $185 million.

Prescription transactions revenue decreased 16% year over year was also came in above our expectations as ongoing business reviews with retailers have been positive and the dialogue continues and how we can further drive revenue.

Importantly, with the exception of the particular grocer volume across other pharmacies increased 8% year over year and 5% quarter over quarter.

Max declined 9% year over year to $5 8 million, while PTR per Mac decreased approximately 7% year over year and 2% quarter over quarter.

The <unk> decrease was driven by the decrease in Max and.

And an ongoing shift in volume prescription transactions to other retailers that impacted pricing as a result of the grocer impact in consumer engagement efforts that we previously discussed.

We also experienced positive week over week growth of the grocer in the quarter, which was the first time since the end of the first quarter, we saw a positive week over week growth.

We continue to be focused on user growth pricing and consumer engagement.

On the engagement front the impact in the third quarter on conversion was less than we expected as Doug and Trevor touched on we will continue to rollout our engagement efforts in the fourth quarter and beyond.

Turning to subscription subscription revenue remained strong increasing 63% year over year slightly exceeding our expectations. We ended the quarter with $1 1 million subscription plans, which was down 6% year over year, primarily due to the expected churn, resulting from our fee increase in the first.

Half of 2022, and an expected sequential decline in our subscription plans for Kroger savings as a result of reduced marketing spend.

When taking family subscriptions into account one 5 million total members benefited from our subscriptions offering during the quarter.

Benefit from our gold subscription fee increase is offsetting the decline in memberships and we saw meaningful improvement in September churn, but we do anticipate some continued churn and decreases in subscriber counts in the fourth quarter.

As Trevor said, we're proud to have served seven 3 million consumers in the third quarter across our prescription transactions and subscription offerings.

Our pharma manufacturer solutions revenue increased 32% year over year less than we anticipated at the industry started to see a degree of expense control in the quarter, which we expect to be temporary in nature. We continue working with more pharma manufacturers offering more solutions and are delivering superior rois to those with which we work.

This is the second quarter of contribution related to Veda care, which contributed approximately $2 million of revenue and we are pleased with how the integration is progressing. We're also pleased that in the first nine months of 2022 pharma manufacturer solutions revenue increased 81% relative to the first nine months of 2021.

Other revenue increased 10% to $5 2 million slightly ahead of our expectations.

Cost of revenue was $17 4 million or 9% of revenue compared to $11 3 million and 6% of revenue and <unk> 21, which was primarily driven by an increase in personnel related to consumer support and allocated overhead resulting from the acquisition of Veda cure pro.

Development and technology expenses remained relatively flat at $35 9 million or 19% of revenue compared to $35 1 million or 18% of revenue in the comparable period last year, primarily driven by higher head count and costs related to our in period reduction in force, resulting from the realignment of our org.

Innovation in support of our strategic goals substantially offset by higher capitalization of costs related to software development due to greater investment in our products and re prioritization of the development efforts that better align with our strategic goals and future scale.

Excluding stock based compensation expense and other items adjusted product development and technology expense was 13% of revenue compared to 12% of revenue in <unk> 'twenty. One the increase was due to investments in the team and product.

Adjusted product development and technology expenses were also relatively flat quarter over quarter.

Sales and marketing expenses were $86 2 million or 46% of revenue compared to $95 7 million or.

Our 49% of revenue in <unk> 'twenty one.

As we look to balance investments in our team and build the <unk> brand more efficiently excluding stock based compensation expense and other items adjusted sales and marketing expense was down 12% year over year and down 9% quarter over quarter, driven by our focus on marketing efficiency.

Despite the spend reductions and the larger impact of the grocer issue in the third quarter relative to the second quarter. We're pleased that our Mac counts have remained consistent.

Yeah.

General and administrative expenses were $49 5 million or 26% of revenue compared to $35 9 million or 18% of revenue in <unk> 'twenty. One the increase was primarily due to a $16 6 million change in fair value of contingent consideration related to the <unk> acquisition.

And an increase in payroll and related expenses due to higher head count partially offset by a decrease in stock based compensation expense <unk>.

Excluding these and other adjustments adjusted G&A expense as a percentage of revenue was 8% compared to 5% and <unk> 21, the grocery issue contributed to the increase in adjusted general and administrative expense as a percentage of revenue.

Net loss was $41 7 million.

Compared to a net loss of $18 1 million and <unk> 21, net loss was impacted by the grocer issue and an increase in general and administrative expense related to a change in the fair value of contingent consideration related to the Medicare acquisition described earlier, partially offset by a decrease in stock based compensation expense.

Sales and marketing expenses, adjusted net income decreased 25% year over year to $29 $9 million.

Adjusted EBITDA decreased 16% year over year to $52 million, largely driven by the grocer issue, which materially impacted revenue growth as well as the adjusted cost and operating expenses as a percentage of revenue.

We also continue to invest in growing our new offerings, such as might occur, which as we stated at the time of acquisition has historically generated net losses and negative adjusted EBITDA, which we expect will continue in the near term adjust.

Adjusted EBITDA margin of approximately 28% declined 390 basis points year over year, but improved quarter over quarter and exceeded the <unk> guidance. We provided in August given the one time reduction in force, we completed during the quarter and our focus on marketing efficiency.

We generated net cash provided by operating activities of $33 $7 million for the quarter and we will continue to focus on strong cash flow and adjusted EBITDA generation in the quarters to come.

During Q3, we repurchased $18 million of class, a common stock or approximately $2 8 million shares at the end of Q3, we had $148 3 million remaining from our $250 million share repurchase authorization approved by our board during the first quarter.

Given the ongoing uncertainty around the economy and I also wanted to talk about our balance sheet and our capital allocation priorities.

<unk> maintains a strong balance sheet with a net cash position.

We had $728 $8 million in cash and cash equivalents on the balance sheet and $668 8 million and outstanding debt as of the end of the third quarter, our capital allocation priorities are reinvesting in the business maintaining a strong balance sheet, returning capital to shareholders via share repurchases.

In evaluating acquisition opportunities that support the company's strategy.

Can you support good or excess long term growth strategy, while also providing flexibility to navigate near term challenges and are directly linked to our two most important priorities furthering our mission and creating shareholder value.

Moving onto guidance for the fourth quarter, we expect prescription transactions revenue of approximately $125 million to $126 million, which assumes a combined $45 million to $50 million estimated impact related to the grocery issue and our consumer engagement efforts, we expect to continue seeing the year over year impact.

Grocery issue until <unk> 2023, when we last <unk> 2022, which was the first quarter with full impact of the disruption.

Our expectation is for a PTR per Mac to continue to modestly decrease quarter over quarter until that time, primarily due to an ongoing shift in retailer volume.

We expect subscription revenue of approximately $22 million to $23 million.

Down quarter over quarter.

As we anticipated we are entering the fourth quarter with a smaller gold subscriber base due to the expected churn related to the increased prices, we rolled out to new and existing subscribers during the first half of the year.

As we mentioned on our second quarter earnings call. The strategic repositioning of this offering focuses on a narrower audience, which negatively impacts growth rates, but is anticipated to reduce churn in the longer term.

As a reminder of the price increases took place during the first half of the year and are not providing incremental benefit to the fourth quarter. However, their churn effects on subscriber counts lag from the time users pricing changed which does impact the fourth quarter.

We expect pharma manufacturer solutions to grow quarter over quarter by approximately 10% as the CFO farmer manufacturer solutions continues to be my favorite good Rx offering. However, as we've discussed previously this offering comprises a relatively large often multimillion dollar deals that can create quarterly volatility the macro.

<unk> driving more digital outreach to health care providers and their staff shifts on the consumer side to video content consumption such as the assets. We acquired in our healthy nation deal and are fundamentally huge $30 billion Tam, we barely penetrated making me highly optimistic about our multiyear trajectory.

Finally, we expect other revenue to be approximately $4 or $5 million in the fourth quarter consistent with the third quarter.

In aggregate, we expect total revenue of approximately $175 million to $180 million.

We expect adjusted EBITDA margin to fall into the low to mid 20% range. The modest margin decline is primarily a function of the anticipated revenue decline in our prescription transactions business relative to third quarter, which relates to our user engagement efforts and is consistent with the expectations. We provided on our.

Second quarter earnings call and as I mentioned year end can be an opportune time to invest in marketing. So we're maintaining the flexibility to do so finally, because we've articulated since the time of <unk> acquisition. We continue to expect <unk> to have a drag on our adjusted EBITDA margins as it will likely be the case for a few more.

<unk>.

Our focus continues to be on growing adjusted EBITDA and continuing to deliver strong margin performance and cash conversion. We believe we have the right strategy in place to return to consistent high margin growth and are focusing on efficient organic investments that will drive growth and strengthen our platform for the long term I look forward to updating you on this progress in the quarters ahead.

Ed.

With that I'll turn it over to Trevor for closing remarks.

We are excited about our future and the opportunities ahead, while also recognizing the near term challenges we face our leadership team is committed to navigating. These challenges will continue to focus on improving our profitability as measured by adjusted EBITDA, which we view as our number one goal. We are also focused on re accelerating revenue growth and efficient manner.

By leveraging our platform to expand margins following the cost reduction initiatives. We began in the third quarter, we expect to see meaningful benefits over the long term from our engagement efforts along with our focus on investing in our fast growing pharma manufacturer solutions platform. We are confident in our ability to achieve our goals of returning to high growth or.

Meaning highly profitable as we continued to deliver on our mission to help Americans get the health care they need at a price they can afford it. Thank.

Thank you again for joining us today I'll now turn it over to the operator for Q&A.

Thank you and as a reminder to ask a question you will need to press star one one on your telephone and I ask that you. Please keep your questions to one Indians yourself time, please standby, while we compile the Q&A roster.

One moment for our first question.

And it comes from the line of George Hill.

With DB. Please go ahead.

Mr Hill Your line is open.

One moment for our next question please.

Our next question comes from the line of Joanne Lim dressing with Truest. Please proceed.

Thanks, and thanks for taking my question I know you guys are not providing 2008 2018 guidance at this point, but are you willing to share some puts and takes you see for next year at this point how much visibility do you have on those factors at this point.

Of course gross that issue is one headwind on it you had already go basis, but maybe you can shed some additional puts and takes we should keep in mind for next year.

Sure. Thanks for the question to lender. This is Carsten speaking great to hear from me again, yes, I think as we look into 2023.

We do have some visibility of course I think the <unk>.

Biggest areas.

Confidence come from the reality that we still feel like we're barely penetrated in per prescription transactions Tam number one our manufacturer solutions market and Tam is also very large where we're also lightly penetrated and so those two <unk> in particular.

We're highly focused on I think in the interim period, particularly with respect to manufacturer solutions, given what we're seeing going on in the marketplace.

With pharma manufacturers, taking longer to make decisions around marketing spend and being somewhat more focused on spend period in the fourth quarter, which could extend into 2023 as well.

We will continue to monitor the situation between now and when we do our upcoming earnings call at the beginning of 2023 to continue to revise and refine our views on how that year will evolve.

One moment for our next question please.

It comes from the line of Michael Cherny with Bank of America. Your question. Please.

Good evening, Thanks for taking the question and congratulations on a nice result this quarter.

I'd love to dive in a little bit on the express scripts announcements, obviously, a very important brand name pbms to work with to expand with I noticed the term you talked about relative to exclusive can you maybe just give us a sense on.

Again, not trying to get ahead on guidance, but how to think through how the progression of this relationship first came to fruition and then b, how we should see it start to filter through both in terms of the potential for revenue potential for incremental costs into 'twenty three and beyond is it really ramps up.

Thank you Michael good question.

We're really pleased about the new collaboration with express scripts.

Helps us support their mission to make prescription medicines more affordable for their members under this new program eligible express card members get access to <unk> prices as part of their pharmacy benefit. So an eligible expresscard member gets seamless access to good prices for the eligible generic medication when the price is lower than the <unk>.

This keeps visibility of the eligible.

Remember good Rx claim within the pharmacy benefit.

Enables out of pocket claims count toward members deductible give us full visibility of the claim to the payer and as you just brought up we are delighted that we were selected as express scripts exclusive partner for them.

Program, we believe really good recognition of our leadership in the prescription discount space of the strength of the <unk> brand and of the trust consumers have in our technology and this technology is powered by last year's acquisition of Rx next.

Our collaboration creates a new distribution channel for US we believe that expands the market opportunity. It represents a way to efficiently gain many new incremental users and.

This offering is anticipated to be available to express scripts commercial clients later this year and in early 2023.

Yes.

Thank you one moment for our next question.

It comes from Eric Sheridan with Goldman Sachs. Please go ahead.

Thanks, So much for taking the question I wanted to hone in a little bit on some of the drivers of of other revenue in terms of like what you see coming out of this year and going into next year, we've talked a lot about marketing solutions and working more closely with with the industry on the healthcare side to drive good outcomes for you as a platform for them as companies.

How could some of those budget conversations and dynamics continue to evolve as you move out of 'twenty, two and into 'twenty, three and supportive evidence of of continuing to drive high ROI outcomes for for marketers on the platform. Thanks, so much.

Thanks for the Great question. This is Carson speaking here, yes, I think we are very excited about the other revenues you characterized at our manufacturer solutions.

The line in particular is the biggest component of I think what you are considering them there the business in which we serve pharma manufacturers.

And in that context, I think there are a few points that are really critical here. The first point is that the <unk>.

Jim it's huge.

It's about a 30 billion Tam split 20 million to health care providers and $10 million of consumers and we had both of those parts of the Tam very effectively for manufacturers so from that perspective.

That business continues to be very attractive to us in the last 16 months alone 865000, prescribers have used or extra look at medication prices prescription discounts et cetera on behalf of their patients so from that perspective.

We remain highly bullish I think in addition.

The relationships, we have both on the consumer and the provider frame.

Create a lot of value for us the 90, NPS with providers and with consumers mean, both sets of constituencies are highly receptive to being approached and being served by us with.

With respect to pharma manufacturers. We also have as Trevor mentioned in our prepared remarks significant volume when you think of all of the monthly visitors that come to garner access platforms, which number in the tens of millions those visitors are all visitors for whom pharma manufacturers.

Benefit in particular, because again its trevor.

Tend to be very deepen the funnel folks who are actually looking for a particular medication or a savings opportunity on it. We've also layered in provider mode, which is a tool that allows providers to for example.

Very rapidly share good Rx discounts directly with their patients without sharing their personal email address or phone number. So these kinds of tools that build new infrastructure that providers use on a recurring basis in their interactions with patients.

Very very sticky indeed, so I think all of those elements together continue to allow us to over sort of the medium meaning couple of quarters to longer term incredibly bullish on our pharma manufacturer solutions business I think in the interim period right now as I alluded to in the scripted remarks is well pharma manufacturer.

Yes.

We are taking more time to make decisions around spam and given that year and in particular the deals can be quite significant in size amounting to millions or sometimes even 10 millions or tens of millions of dollars in one deal that catalyses potential fluctuation around year end and Thats one of those.

Things that causes us to have some challenges around predicting the specific level that a business like that will come into in a specific quarter that said and looked at it over any longer term period of time like for example, the first nine months of this year compared to the first nine months of last year when the business grew by 81% when looked.

Any over any longer period of time.

I think we've been very pleased with the growth rates that are for our manufacturer solutions business has sustained.

Thank you one moment for our next question. Please.

And it comes from the line of Doug Anmuth with Jpmorgan. Please proceed.

Thanks for taking my question.

This discount welcomed.

Mortgage closings can you just help us understand.

Thanks, Brian .

Brian .

Issues.

No more step function.

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Some of them.

Yes.

In some places.

Less compelling.

Yes.

Okay.

T cell phone apps.

<unk>.

Thank you Doug Little hard to hear you. So I'll do my best to.

Touch on each part of that question, but to the grocer issue.

<unk> addressed in August because we discussed good discounts have since been welcomed.

<unk> program pharmacy point of sale during third quarter. We are pleased to see with the exception of the particular grocer that volumes did increased 5% quarter over quarter.

We're also happy that we are now seeing week over week increases in volume at Kroger as well as increases in subscribers for Kroger savings club.

Did have a step down in volume because of the disruption and that's why we've really brought up these.

In the.

Prepared remarks. These topics of how we are strengthening the retail network and we think we've made really good headway on that front in this period that we have.

Made it more direct relationships with retailers.

We have continued to maintain our really strong pbms marketplace, but in addition, we are selectively.

Contracting with.

Pharmacies, and including many of the largest chance that hybrid model really lets us ensure network stability.

We want to make sure we don't have and we anticipate we don't anticipate having any similar issue.

Partly because these direct relationships enable us to collaborate on solutions.

Drive success, we also think.

That allows us to be have deeper direct relationships allow deeper and stickier relationships marketing partnerships and just there are a variety of incremental opportunity there.

Thank you one moment for our next question. Please.

It comes from Stephanie Davis with SBB.

Please go ahead.

Hey, guys. Thank you for taking my question.

I wanted to ask a little bit about the new profitability focus just in light of both the press release in March really point to a greater focus on cash conversion.

So could you walk us through your early thoughts on areas that could merit stepped back on investments and.

Business lines that Conversely could merit a bit of a step up just in light if that's okay.

Sure I can take that to start Stephanie. This is Carson speaking and I think others may jump in because they see it there really <unk> the focus on flow through of EBITDA and cash and the other is that focus on opportunities for growth going forward. So focusing on the first.

Part of the question initially.

Yes, you heard us quite correctly I think the risk we undertook at the end of August in particular, and a refocusing and prioritization that that allowed us to do.

Also as a manifestation of that focus you mentioned, we took a really careful review of our business unit structure involved key leaders across the entire organization and realigned the organization to operate really more efficiently and effectively as well and that was consistent we felt like with our comments during our second quarter earnings.

Call already where we said that we would focus on earnings and cash conversion as well as on revenue growth at that point to these elements, particularly EBITDA and cash conversion are largely in our control and I think our reality is that even by focusing on gray.

<unk> efficiency, we don't trade off a significant amount of forward looking growth you see it still.

Creating new offerings like provider mode, which I'm sure we'll talk about further in the Q&A that highly impactful.

And <unk> seen when we look at things like Mac counts for example, those Mac counts. Despite the grocer issue remains stable, even as we were able to successfully cut back marketing as a percent of revenue and also in absolute dollar terms. When you look at the sales and marketing line as well I think the reality is that the strength of the brand.

We bill and the fact that we're at a scale player and certainly many of the spaces, we operate such as our prescription transactions of subscriptions combined savings offerings, meaning that we can leverage what we've already built to still be able to grow quite effectively but also more efficiently than we used to.

In terms of growth areas going forward I'll start, but I'm sure others on the team will jump in as well.

As we've talked about in the past we remain incredibly bullish on current manufacturer solutions, particularly over a multi quarter sort of evolution I think in any given quarter. There can be some fluctuation, but over multiple quarters. It continues to be an incredibly attractive business.

The shift of that business towards digital which of course benefits us plus the sheer size of the Tam which were relatively.

Low penetration into today and the recent reports that have come out from the sell side were interviews with pharma manufacturers indicate that spend will only go up into next year and the shift to digital will only continue into next year. For example, also encourage us to be very very bullish across the broader pharma manufacturer solutions.

Offering in particular.

And this is Doug I'll jump in and talk a little bit about that.

Some of the things we're excited about with regard to engaging with our both our consumers as well as physicians more and more tightly as we deepen our relationship we're seeing much higher LTV and repeat claim usage per engage consumers versus our baseline when we know our consumers better and allows us to anticipate and respond to more of the health care needs and play a more active role in all aspects of their care and not just at that.

Pharmacy counter and when we know that our axes of better we can guide gives us the retailer investments the best fit.

Knees, we can communicate price improvement for their chronic prescription we can set reminders to engage with their provider or their pharmaceutical prescription refills really it allows us to leverage our data to create new products and tools. For example, the medicine cabinet, which we've recently all of that and I'm very very excited about as a result, and really the punch line to this is that we anticipate increasing the value to each of our users.

And therefore, the arcos associated with all of the offerings, both our subscription related core as well as our subscription businesses and also from pharma manufacturer solutions like Arthur mentioned.

Okay.

Thank you one moment for our next question. Please.

It comes from the line of Craig <unk> with Morgan Stanley . Please proceed.

Yes. Thanks, just following back on the pharma manufacturing solutions.

Particularly it relates to the Tam is there any anecdotes you can share update us on whether it's your penetration with top 20 pharma or just any statistics in terms of just kind of where that business stands today and then also had a quick question on just the prescription business.

<unk> seen for core utilization trends kind of through the end of October .

Sure. So I think couple of questions that are embedded there first of all this is currently speaking again I'll tackle the manufacturer solutions part so on that business as we've said before.

While we're deeply penetrated into the top pharma manufacturers.

<unk>, we're in 19 of the top 20 today.

We see significant opportunity to continue to grow those relationships as well as to grow beyond that top 20 by quite a bit. So first of all in the context of the top 20, well. We are in 19 of the top line. The number of solutions, we're offering to manufacturers and the number of.

Medications at each manufacturer that we're able to help drive volume on those opportunities continue to grow over time and we've been excited about the progress we've made and deepening those relationships and taking advantage of those opportunities to expand the number of brands, we serve and expand the number of different solutions that are you.

<unk> from <unk> in fact that also ties into the acquisition. We did earlier in the year on Vita care, because <unk> is really an offering that allows us to be involved in almost the entirety of the prescription cycle from the moment, a health care provider writes a prescription.

Through to the period when the consumer is actually benefiting from receiving at the pharmacy, including managing a lot of the complexity that exists, particularly for insured patients around things like step therapies and preauthorization of L. A so our.

<unk> to become more deeply involved with these manufacturers and the top 20 very high then secondly, we're penetrated into approximately call it 10%, 15% of U S manufacturers Purion, So theres still.

Raising amount of runway ahead of us to penetrate into more manufacturers as well. So we're excited about that growth vector. We're excited about the incremental solutions vector.

And we're also excited about the opportunity to penetrate into more medications with respect to the prescription transactions business.

Dimension I think one of the factors that we follow very closely.

Call It week to week month to month basis, particularly at this time of year that we've talked about in the past is the evolution of the flu season in particular.

Well it's.

It's tough on all of us as individuals.

More aggressive flu season tends to correlate with tailwind for good Rx as well. So we're monitoring that situation closely as well as health care utilization broadly closely and on their health care utilization broadly front as we've talked about in our last earnings call. We've seen that largely returned to normal which is great on the <unk>.

<unk> frankly, I think it's a little too early to predict but the reason both of those dimensions matter. So much as that consumer interactions with the healthcare community are a key driver for us of our own growth and one of the big reasons for that as health care providers are potentially the first evangelists that <unk> had on his behalf and one.

The largest set of groups, who are able to help promote or X to their patients. We have over 400000 doctors offices that solicit good R X related collateral from us so that they can promote good rx to their patients and result in better patient outcomes. We also created things that can provide them with tools to do exactly the same thing.

So that health care providers can leverage good or actually even more efficiently and having returned back from sort of the COVID-19 era underutilization around the middle of this year to more normal utilization, we expect those dynamics to be bigger and bigger tailwind.

The quarters evolve going forward into 2023.

Thank you one moment for our next question any comes from the line of Jonathan Young with Credit Suisse. Please proceed.

Hey, Thanks for taking my question just on the grocery impact for <unk>, you're estimating that the impact of $40 million headwind.

But then you also mentioned that Youre seeing week on week improvement from that particular growth, but if I look at your <unk> Guide you have since been guiding for led.

Little improvement on a sequential basis. So can you help me help me reconcile the guide and your commentary on the improvement and is this a function of conservatism on your end alongside that should we think that this $40 million gap closes as we move into 2023 and deeper into 2023.

Sure Yeah, let me first of all I'll start by the beginning of at the beginning of your question on bridging.

The commentary so.

While we talked about a roughly $40 million impact in the last quarter for the grocer and were anticipating similar size impact going forward and Thats a function of a couple of different things I think.

First as well.

While we are seeing some week on week growth associated with the.

Grocer the week on week growth as Arthur.

Extraordinarily small base relative to what it used to be so when you look at the grocer is having historically represented approximately 20% of volume just shy of 25% of revenue to where they are today.

That much lower percentage today in the very low single digits, even if it's growing slightly it doesn't really impact the aggregate.

Number dollar number associated with the amount of revenue that we have foregone with the grocers. So again, it's a relative small scale today, even though growing doesn't have a significant impact on the GAAP. That's left in association with the grocers historical levels of contribution to our revenue at <unk>.

I said, just shy of 25% I think the other part of your question, which goes to how that could evolve going forward and whether the gap will close I think there are couple of dynamics to articulate. The first is that while we're excited about the momentum that we have with a grocer.

And we're excited about the ubiquity.

Availability of good Rx, we think it's important that you can use good or exit any of the large pharmacies across the country at the same time. The reality is I don't think we expect to see volume levels for that grocer anywhere close to historical lines.

Meaning that we don't see a return to 20% ish of volume and nearly 25% of revenue and Thats a function of a few factors, including the reality of that pricing at the grocery used to be highly advantaged relative to other retailers.

And because of that given that we're a marketplace. Many of our users went to the lowest price, which was that particular grocer now that they are often not the lowest price anymore.

The return of the volume to that particular pharmacy I think we see is unlikely at anywhere close to historical levels that pharmacy represents low single digits of total volume in the market as a whole from a market share perspective, and it wouldn't expect them to over index going forward. Therefore, I don't think we see their share getting anywhere.

Close to as big as it was historically I hope that's helpful.

Yeah.

One moment for our next question please.

And it comes from the line of Lee with Evercore ISI. Please proceed.

Great. Thank you.

Couple of questions one just to clarify on the the.

The pharma solution comment of deal timing push out just.

Just to clarify is it just like do you expect that to be kind of a push out in timing or do you see an overall pullback in the marketing spend from front of Pharmaceuticals and also the second.

Ah the $45 million to $50 million in Q4, how much of that is from the customer engagement and initiatives.

I think Thats mentioned in the letter as well and when do you expect that to become a tailwind rather than a headwind. Thank you.

Sure. Thanks for the great questions.

So first of all to the to the.

Questions around farm manufacturer solutions, and the timing and quantum.

Market revenue is probably the best way of putting it.

Taken at the general level before getting specific to <unk>.

Our view is that the market as a whole.

Continues to be one that's growing rapidly and attractive direction for us and what I mean by that is.

The latest studies that I've read that came out of the sell side over the last couple of weeks indicate based on interviews at the pharma spin.

Spend market on medication advertising broadly speaking and awareness access and adherence solutions more broadly is expected to grow in the mid single single digits next year I think in itself very attractive to us.

Mid single digit growth I think what makes it even more attractive as the continued shift to digital that pharma manufacturers are indicating they're continuing to be committed to make because the shift to digital in Europe , particularly to good <unk> benefit given our relatively unique ability to be able to both target health.

Care providers and consumers and to target healthcare providers and consumers in a very specific way. So for example, health care providers by specialty which is one of the benefits that we've been able to.

Read from our provider mode offering as well as the investments, we're making in health care provider related solutions.

Two dimensions I think we see the reality is one in which timing maybe more questionable than it was in the past, but the overall attractiveness of the market for good our axes highest ever was essentially even higher with the continued shift to digital now being confirmed I think through the recent surveys we're seeing so again.

I think we remain very positive and very bullish on this business over a multi quarter view.

I think with respect to the second part of your question.

I think that part of your question related more specifically to consumer engagement and the impacts of consumer engagement in the fourth quarter.

So the consumer engagement efforts launched around mid quarter of the third quarter. So we only saw about half the impact we would expect to see in the fourth quarter.

Last quarter, we said, we expected to see her for somewhere around $5 million of impact I think the reality was a little better than that we're pleased that the attenuation or the narrowing of the final causes engagement efforts reduced a little bit, but again, where the impacts on the manifest it for a partial quarter this quarter theyre going to impact for about double that.

So for the full quarter in the coming quarter consistently with the commentary I think we made on the prior call and we also intend to continue these engagement efforts beyond this year of course, so I think we will expect that we will continue to focus heavily on <unk>.

Consumers better being able to get more information from them that allows us to help them more and create products that are even more innovative and even more supportive of their health outcomes. So this is not just at 2022 thing. This will continue into 'twenty three as well on the engagement side.

Thank you for our next question.

It comes from the line of Sandy Draper with Guggenheim Partners. Please proceed.

Thank you very much a lot of the questions have been asked and I appreciate all the answers.

Maybe just one last drill down on the on the pharma manufacturer solution side.

Just trying to think through there were some comments you made at a recent back in September I believe it was about still expecting that business to maybe even double this year and so while you're still growing nicely. It's obviously slowed down fairly quickly. So I'm just trying to think if you can give some commentary around like average tenure of the.

The programs are working how long it is.

What what just trying to think about visibility and how much of this is coming out of more of a consumer facing versus physician side just trying to understand.

I understand the long term view of the market and I think that is positive, but just trying to attend the visibility how it switches off that quickly is it less it's really customer concentration or may be just much shorter duration contracts than maybe you had expected.

Hey, Sandy great to speak with you and thanks for the question as well this is Carson again.

I think the best way to articulate it is when we look at sort of pharmacy <unk> performance for the first nine months a year up 81%. So just shy of our somewhat shy of doubling I think earlier. This year. We said we expected it to close to double for the year that held largely true through the first nine months.

Zinc.

For the fourth quarter, we're really seeing a macro environment, that's shifted a little bit.

Versus where it was and again I think we see that as something that delays revenue more than anything else I think the other aspect of that is that.

If deals are delayed then the delivery also.

Also gets pushed out and of course, the deliveries where and when you can recognize that revenue on them in terms of.

Deal duration and in terms of concentration on a firm manufacturer solutions business.

Not a business, where any one customer accounts for even though a large minority of revenue level on a majority.

Customer dispersion is very very high with very few of them trying to think if there are any of them in the double digits, but very few of them are double digit percentage of revenue.

But what we do see is that certain kinds of offerings made by manufacturers and made by others, who leverage our manufacturer solutions offerings are more episodic or they can be tied to a particular time of the year. For example, we have historically worked with entities that are seeking to support.

Medicare open enrollment Medicare open enrollment spend happens predominantly in the third quarter versus say the fourth quarter in the second quarter and so you do see in those in those areas.

Revenue that can come in in one quarter, but not coming from the same entities in a subsequent quarter I think the other piece of it is that.

While individual deals can be quite large.

And those therefore swing revenue growth Q O Q in particular, when you look at a given quarter that as the business continues to expand over time portfolio theory.

Apply <unk> volatility will decrease as we continue to scale the business.

In the interim period again, I think we see this as more leg John asked a few minutes ago. We see this more as a timing issue than anything else given the nature of the market and the huge Tam in growth rate associated with it and our unique ability to go head I think one of the folks that people haven't heard clearly from us.

In the past and we're certainly stressing on this call too is just the sheer number of health care providers, who we work with as well which are of course, an incredibly attractive audience given that in most cases, we cannot.

And identify them by specialty and by the prescriptions. They write so having that 865000 health care providers using <unk> that we've talked about earlier I think it's something that is a huge benefit to pharma manufacturers, especially given that we can also support them on the consumer side and the coordinated.

<unk>.

Thank you one moment for our next question. Please comes from the line of Steve Valiquette with Barclays. Please proceed.

Great Hi, good afternoon, and thanks, everyone for taking the question. So just wanted to walk through a scenario or two for a moment and.

I think as you alluded to on this call you reiterated the.

Communications from August that the grocery dispute was resolved.

And your direct relationships with retailers such as groceries as a key positive development. However, I think some in the investment community became a little bit confused when.

Kroger announced back on September 30th.

Now that theyre dispute between themselves.

Express scripts was still not resolved.

And without a resolution by December 31.

There are commercial contract would be terminated.

So I guess really the scenario question now is what would be the expected impact of <unk> and 'twenty three.

If that Kroger express scripts PVM contract.

Terminated on 12 31, 'twenty two if any and then does either your direct contracts with groceries, either mitigate that or a shield that or does your new collaboration with express scripts.

Yields are you or mitigate you from.

That scenario I, just mentioned just trying to get clarity around.

At September 30th press release from Kroger Slash Express scripts.

Yes. Thank you very much for the question.

Yeah.

Not.

The b.

That anything between Kroger and express scripts, we don't anticipate would affect our business.

As we mentioned good Rx is accepted at almost all pharmacies in the U S. We addressed the grocer issue.

And good Rx discounts are welcome at Kroger.

<unk> been pleased with that growth, we've been seeing I guess I'd like to highlight again.

We've been growing fourth strengthening our retailer relationships because we view that is incredibly important.

We are selectively direct contracting with a growing number of pharmacies, including many of the largest chains that hybrid model lets us ensure network stability and these direct relationships, let us collaborate on various solutions.

All of this has led to continued strengthening of those relationships. So let us work on strategic initiatives together.

We're driving traffics to retailer locations, we're driving additional merchandise spend for.

Our customers are in places in stores not using their pharmacy, we're getting them to use their pharmacies.

We are driving additional adhere and so we're driving all of these additional benefits. We're also have been making good headway. This hybrid effort to improve unit economics for retailers. We're also balancing that against strength of our own economics.

Which continue to be strong.

As partially evidenced by our strong margins.

<unk>.

These direct relationships as I mentioned open up these opportunities for stickier partnerships that we think will be incremental so.

We're really pleased that we think we have.

May may strengthened this further we're also seeing new additions to their retail network such as the addition of giant Eagle to the gold retail network, which adds additional geographical coverage.

<unk>.

I hope that answered your question.

Thank you one moment for our next question.

It comes from the line of Stan <unk> with Wells Fargo. Please go ahead.

Alright, thanks, so much for taking my questions.

As we're thinking about next year can you maybe remind us when the Kroger savings club contract is up for renewal and can you maybe walk us through the revenue visibility you have in the event that the contract is sunset. Thanks, so much.

Sure Stan great to speak with you Carsten here I think a couple of points to make.

A couple earnings calls ago, we talked about the scale of the Kroger savings club that we support as a proportion of our of our subscription revenue.

The reality is.

The Kroger savings club is very small, but both of the proportion of our subscriptions revenue and our proportion of our total revenue so from that perspective.

Really wanted to shed light on the fact that the massive majority of our of our subscription revenue comes from our own gold program.

The current agreement with Kroger ramp through July of 2023.

And we're enrolling new members right now on annual plans of course of our past July of 2022 at this point, so I think thats a good indicator of the nature of their relationship with Kroger that that we're continuing to add annual members.

Planned servicing them through at least mid 2024 at this point, but again at KFC doesn't really swing the needle or move the needle on our business overall relative to our own business, though.

Given all of that I think the bottom line for us. If we're extremely pleased that Kroger is still working with us on KFC number one we're extremely pleased that good Rx discounts are welcomed back Kroger number two again as I said earlier in response to another question ubiquity of availability of <unk> key and especially now.

To the question that I think that got asked by Steve a few minutes ago to having good R X available at Kroger is critical especially if if.

If ESI and other offerings are available they used to be.

Thank you one moment for our next question. Please.

And it comes from the line.

Schonhaus with Keybanc.

Hi, Jim I wanted to follow up on the provider mode that launched last month.

Combined with the EHR, you said youre partnering with how do you see this growing into 2023 and what does this translate into the pharma manufacturing growth is this price differently for your pharma manufacturing clients versus your legacy revenue stream.

Sure.

When we look at maybe I'm going to speak a bit generally about what we're doing with provider mode and why we think it.

Valuable and how we're monetizing them so correct for provider mode.

As part of this good extra providers, we've been talking about so good or extra providers as all of these offerings, we have for health care providers, including provider mode flip MD from <unk> and our general work with more than 400000, HCP is needs to be offset as tactically distributed direct materials.

<unk> provider mode. As this technology platform that we launched last month and it has a number of advantages and provides a number of advantages to HCP and related.

Related party too.

Consumers help.

Patients get through the health care journey get access.

To medication adherence medication. So one of the advantages. We have provided mode is we've expanded access from prescribers to all HCP, including nurses medical assistants in front office staff all of these.

Participants are really important in helping get.

Patients to the right solutions and provide them. It also includes a redesigned prescription savings that gives a faster more customized experience to get.

Users.

To help the providers get their patients medication. This is super synergistic both across our prescription discount business and the pharma manufacturer solutions business, because we're trying to help patients get all their medications generic brand specialty and get access to them.

This gets monetize through increased use of prescription discounts and it gets monetized through the pharma manufacturer solutions some of our pharma manufacturer solutions deals.

This is part of your question.

Our for both our consumer and HCP offerings and then we have other deals that are specifically in HCP deal for example.

Thank you gentlemen, our next question please.

It comes from the line of Robert Simmons with D. A Davidson. Please go ahead.

Hey, guys. Thanks for taking my question.

That is understandable unexpected that theyre going down now, but when do you think the number subscription plans will trough and start to go up again on a quarter over quarter basis.

Yeah.

Thank you for the question. So subscription revenue grew 63% year over year to $26 5 million for the quarter as we've discussed we have.

<unk> made the decision to tighten the focus of it too.

Two the patients to chronic care chronic patient with chronic conditions more more tightly and.

That has been the focus and that price increases work I believe as we expected with.

The.

The amount of people decreasing sort of.

Within or better than our expectations there.

But we continue to work on that program and are optimizing it and so youll see some continued improvements there as we try to make that program applicable to.

Our broader and broader set of users and start increasing subscriber numbers again.

Thank you one moment for our next question. Please.

It comes from the line of Kevin Caliendo with UBS. Please proceed.

Thank you thanks for getting me in.

I noticed the.

The capitalized software number jumped in <unk> and the run rate. This year is a lot higher than last year I'm. Just wondering if this is the run rate we should be working off of going forward or is it going to continue to accelerate as you make investments in software to thinking about how to model that.

And the driver of it.

Sure. So thanks for the Great question first of all Kevin.

In terms of cap soft.

We spent a lot of time over the prior years are continuing to focus on.

Managing and maintaining our base of Cola building, new infrastructure to allow us to develop faster and.

Taking on other initiatives with the like I think what Youre seeing particularly since Mark Hull joined us to head product Youre seeing a shift in which we are now focused very very hard on delivering direct value to health care providers through things like the provider mode that Trevor talked about and new offerings for consumers too and as we do.

Do that as we continue to drive these new offerings and focused very heavily on creating new products and new features the capitalization rate has crept up just a little bit and thats really a function of the great work, that's being done to serve consumers consumers better.

What I want to highlight there though is we are just laser focused on driving efficient growth and driving margin expansion and the series of actions. We've been taking is what enabled us to speed exceed expectations. This quarter in particular on adjusted EBITDA. So.

Yeah.

Two things I want to highlight we did complete the organizational realignment the reduction in fourth on August three we rely on ourselves.

All of that.

Awesome.

Hard tradeoffs.

We believe that was executed very well and we are now operating even more effectively and getting product out. The door quickly. We also have made really good headway on marketing efficiency, we reduced advertising spending heading into Q4, while maintaining relatively stable Max so the strength of our brand and they are really solid.

Work being done there has showed us that we can.

Be more efficient there and we continue to see opportunities. There and then my final comment is this is a macro environment, where good are really shines.

Need for affordability is really only increasing as employers cut back some spending as consumers need affordability solutions. This is what we made good R X four we are here in the us.

So having a harder time to help consumers to get them the medications, they really need to keep people adherent to their medications to produce better health outcomes. So.

We're happy we can provide that thank you.

Thank you and with that ladies and gentlemen, we conclude the Q&A and program for today.

Thank you for participating and you may now disconnect. Thank you.

The conference will begin shortly to raise Johan during Q&A you can dial one one.

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Of Investor Relations. Please go ahead.

Thank you operator, good afternoon, everyone and welcome to <unk> earnings Conference call for the third quarter at 2022, joining me today are Doug parish and Kevin <unk>, Our co founders and co Chief Executive Officer, and Chris <unk>, Our Chief Financial Officer.

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

Statements made on this call that do not relate to matters historical fact should be considered forward looking statements, including statements regarding management's plan strategies goals and objectives, our market opportunity our anticipated financial performance the impact of the Gracia issue on our business and the impact of macroeconomic conditions on our future results.

For the operation.

These statements are neither promises nor guaranteed.

I have 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 factor section of our annual report on Form 10-K for the year ended December 31 2021.

David that our quarterly report on Form 10-Q for the quarter ended September 32022, 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 managements estimates as of the date of this call and we disclaim any obligation to update these statements even if subsequent events cause <unk>.

James.

In addition, we May also reference non-GAAP metric, which are reconciled to the nearest GAAP metric in the company's earnings press release, and the accompanying slide which can be found on the overview page of our Investor Relations website at investors.

Dot com.

I would also like to remind everyone that a replay of this call will become available that shortly as well with that I'll turn it over to Deb.

<unk> expanded our content offerings and enhanced our provider focused offerings to make it even easier for providers to be great advocates for good Rx provide.

We'll talk more about this shortly but I wanted to first touch on the progress we've made toward driving value for shareholders.

During the quarter, we significantly exceeded our own <unk> margin expectations with approximately 28% adjusted EBITDA margin.

We drove better than expected growth, reaching $187 $3 million in revenue in the quarter and continued our high cash conversion with $33 $7 million in cash flow provided by operating activities.

Going forward, we are focused on driving adjusted EBITDA and cash conversion, which we have significant control over while also delivering continued efficient growth and we will continue to take action and drive shareholder value strong margins in our mission.

I'll now dive into some of the actions we've taken recently that align with our culture as a mission driven organization. We further our mission by helping consumers and strengthening our business.

One example is <unk> health, which we launched in September 2021.

During the third quarter, good health experienced strong year over year traffic growth at approximately 25%.

Additionally, as we discussed in our second quarter earnings call. We are in the early stages of increasing our consumer engagement efforts, which we will continue to focus on in Q4 and into 2023.

Allowing consumers to provide us with more information through registration increases the LTV of each user and prescription transactions and other areas of the business over time, as we leverage data to create new tools and products in quarters and years to come.

Examples of LTV enhancing consumer outreach include communications around price improvements for chronic prescriptions and reminders to engage with their provider for prescription refills.

Our consumer engagement efforts are looking promising with significant differentials and LTV and repeat claim usage for engage consumers versus baseline consumers.

We serve $7 3 million consumers across our prescription transactions and subscription offerings in the third quarter given each subscription plan has on average approximately $1 five members.

We see our engagement efforts opening the door to providing an array of services extending from subscribers incremental services for engage consumers and finally, our more transactional savings offerings.

Importantly, higher engagement enhances our ability to influence consumer behavior, giving us more leveraging opportunities across our ecosystem of retailers pbms and manufacturers.

In addition to these new ways to help consumers. We are also furthering our mission by helping healthcare providers through our recent launch of providing about last month.

Over the last decade, <unk> has been embraced by health care providers, who see firsthand the consequence of their patients face when they choose not to fill prescriptions or to get care, because it simply cost too much and.

In the last 16 months over 865000 prescribers have you've got to look up medication prices prescription discount and trusted health information on behalf of patients might.

Mindful of the pivotal role these health care providers play in helping patients overcome access and affordability challenges.

Wanted to develop a product that would provide us with the tools they need to better help their patients at the point of prescribing <unk>.

At launch we expanded access to all hcp's, including nurses medical assistants in front office staff as examples.

This allows us to penetrate more of the approximately $30 billion pharma manufacturer solutions Tam since data shows that of $30 billion $20 billion, it's been targeting hcp's and $10 billion to target consumers. It complements our growth strategy by addressing brand name prescriptions through awareness access and adherence so more medication in the hands of consumers.

Affordably.

In addition, the broader good extra providers offering has seen almost 90% opt in rate since it started rolling out last December putting it on the path to becoming one of the largest provider platforms in the U S.

This recent launch is a remarkable achievement by our team and I can't thank them enough for their hard work and the progress we have seen in the short time since provided both went live.

Early feedback we've received from our partners has also been extremely positive provided both gives us a unique opportunity to develop a strategic integrations with pharma manufacturers that designed specifically for providers.

For example, we recently announced the collaboration with Biogen to make it easier for Hcp's, who have decided to start patients on <unk> to enroll patients with relapsing forms of multiple sclerosis in the specialty hub.

We anticipate that in the coming months, we will plan to make provide remote accessible to users of the top EHR and adding more clinical drug information onto the price pages.

Excited about where this new platform is heading and we look forward to providing you with updates on how it is furthering our mission and driving revenue in the quarters to come.

I will now turn the call over to Trevor for more details on how we're driving shareholder value.

One of the main areas of Investor interest in our second quarter earnings call with our retail network. So I'll begin there importantly.

Tailors and bring on new retailers.

Historically pbms have contractual agreements with pharmacies and our business model has been tied to contractual agreements with pbms and their relationships with pharmacies today. Our approach involves selective direct contracting with pharmacies to complement the continued existing contractual agreements with our customers. We believe our hybrid approach ensures stronger lines of communication and strong.

Our relationships with our retailers the elements of our business model and growth strategy. Our all interdependent, we strongly believe that our success acquiring new consumers, even more efficiently and knowing our consumers better through the initiatives, Doug discussed will strengthen and provide us more control over our retail relationships.

These more direct relationships provided key insights into the unique challenges presented by the current macro environment and enable us to proactively collaborate on solutions to drive our mutual success and profitability, we're helping retailers drive their strategic initiatives and improve their unit economics, while maintaining the strength of our own economics.

With regard to strengthening our network I'm happy to share the extension of our gold retail network with the addition of giant Eagle you.

You May recall in 2021 survey, we conducted of over 4000, good Rx and go direct called users, but found that 85% of consumers surveyed agreed that their positive experience with <unk> at their preferred pharmacy makes them want to return to that pharmacy more often.

The survey also found that almost 80% of consumers reported that they purchased nonprescription items, such as general merchandise or groceries, when picking up a prescription spending an additional $40 or more on average at the pharmacy counter. These are just some examples of how <unk> adds value to pharmacies across our retail network.

In addition to our strong retail relationships, we continue to have a Boston strong partnerships with our network of Pbms and we never have had a PVM terminate its relationship with <unk>. This is the result of the volume and value we efficiently drive for our <unk> partners.

Additionally, we are leveraging our <unk> relationships to drive prescription transactions revenue inefficient user acquisition in new ways.

An example, we are especially excited about is the new collaboration with express scripts to support them in their mission to make prescription medicines more affordable for their members.

This innovative program eligible express script members will automatically access correct prices as part of their pharmacy benefit. This means an eligible express scripts member with seamless access to <unk> prices for eligible generic medication and instances where that price is lower than their benefit price importantly, it keeps the visibility of the eligible members correct claims within the pharmacy benefit.

And it enables out of pocket claims count board members deductible.

To date, we have the most expansive network of PGM relationships in our space.

Except as the most pharmacies in the U S and prescription prices on the top 30 drugs in the U S, but other cash discount offerings more than 87% of the time based on our analysis.

We continue to work with more pharma manufacturers offer more solutions and deliver superior rois, because those with which we work.

Our compelling suite of solutions creates a highly effective way for pharma manufacturers to reach patients and providers.

Leveraging our millions of monthly visitors made up of both consumers and healthcare providers.

As well as the approximately 20% of searches on our platform that are for brand drugs.

In fact, our analysis shows that among the top 100 branded medications the traffic the drug savings page to these brands I'm. Good Rx is a multiple of the traffic to the Hanesbrands one drug taking patients because of our users are so high intent and often at the bottom of the funnel with a prescription in hand.

The Tam in this market is huge $30 billion with increasing spend shifting to digital and we have not even penetrated 1%, yet giving us massive runway.

It is important to remember that branded medications prevent consumers in acp's, but a unique set of challenges when compared to generic medications as they tend to be more expensive and insurance coverage is often complicated and restrictive.

Driving awareness access and adherence we also help health care providers, who use <unk> and their patients to achieve better outcomes.

That said the industry has started to pay some moderation of spending which may impact our near term results for this offering while we continue to experience solid growth of our customers. We will continue to monitor the landscape and be proactive with our growth strategy.

Yet another innovative product and enhances our pharma focused capabilities, we believe by the care increases our strengthened differentiation, particularly as it relates to the access and adherence elements of the patient journey, which continue to be a key focus for manufacturers to drive medication volume and revenue.

We work with pharma manufacturers to help patients and providers through the most complex part of their journey to therapy.

An example is our recent announcement of an exciting collaboration with Biogen, which aims to improve the patient and HCP experience when initiating a new specialty therapy <unk>.

Hcp's, who have decided to start patients on Humira D. Can now utilize provider mode defend enrollment information directly to the specialty hub, which helps patients and providers navigate patient access to therapy.

Our third quarter results begin to reflect the benefits of these actions total revenue for this quarter was $187 3 million.

Which exceeded our expectation of approximately $185 million adjust.

Adjusted EBITDA was $52 million and adjusted EBITDA margin was approximately 28%, which was approximately $15 million more than the implied adjusted EBITDA dollars on our expected 20% margin.

We also continue to serve millions of consumers across our prescription transactions and subscription offerings, which totaled $7 3 million at the end of the third quarter.

Advertising proportion of sales and marketing dropped by five percentage points from 64% to 59% between the second and third quarter of 2022, even as our Mac count remained relatively consistent at $5 8 million and despite the continued impact of the grocery issue.

Relative to the second quarter of 2022 advertising fell by 16% to $50 $9 million, while prescription transactions revenue decreased from $134 4 million to $131 $2 million.

The amount of prescription transaction revenue associated with the grocer decreased from $12 4 million.

The $4 $3 million during this period, and it's still well under the $33 $7 million from third quarter 2021, as well as the $37 7 million, we earned in connection with the grocer in the first quarter of 2022.

Our cash flow provided by operating activities was $33 7 million.

Representing approximately 18% of revenue and we have been consistently strong on this metric.

Our team is highly focused on consistently and efficiently growing adjusted EBITDA quarter over quarter going forward.

Re prioritizing investments only where they are needed to drive highly profitable growth, while delivering to consumers what they have come to expect from <unk>.

With that I'll turn it over to Carsten to discuss our financial results and guidance.

Thank you Trevor total revenue for the quarter decreased 4% year over year to $187 $3 million, which exceeded our quarterly guidance of $185 million.

Importantly, with the exception of the particular grocer volume across other pharmacies increased 8% year over year and 5% quarter over quarter.

Max declined 9% year over year to $5 8 million, while <unk> decreased approximately 7% year over year and 2% quarter over quarter.

The <unk> decrease was driven by the decrease in Max and an ongoing shift in volume prescription transactions to other retailers that impacted pricing as a result of the grocer impact and consumer engagement efforts that we previously discussed.

We also experienced positive week over week growth of the grocer in the quarter, which was the first time since the end of the first quarter, we saw a positive week over week growth.

We continue to be focused on user growth pricing and consumer engagement.

The engagement front the impact in the third quarter on conversion was less than we expected as Doug and Trevor touched on we will continue to rollout our engagement efforts in the fourth quarter and beyond.

Turning to subscriptions subscription revenue remains strong increasing 63% year over year slightly exceeding our expectations. We ended the quarter with $1 1 million subscription plans, which was down 6% year over year, primarily due to the expected churn, resulting from our fee increase in the first half of.

2022, and an expected sequential decline in our subscription plans for Kroger savings as a result of reduced marketing spend when.

When taking family subscriptions into account one 5 million total members benefited from our subscriptions offering during the quarter.

<unk> from our gold subscription fee increase is offsetting the decline in memberships and we saw meaningful improvement in September churn, but we do anticipate some continued churn and decreases in subscriber counts in the fourth quarter.

But as Trevor said, we're proud to have served $7 3 million consumers in the third quarter across our prescription transactions and subscriptions offerings.

Other revenue increased 10% to $5 $2 million slightly ahead of our expectations.

Excluding stock based compensation expense and other items adjusted product development technology expense was 13% of revenue compared to 12% of revenue in <unk> 'twenty. One the increase was due to investments in the team and product <unk>.

<unk> product development technology expenses were also relatively flat quarter over quarter.

Sales and marketing expenses were $86 2 million or 46% of revenue compared to $95 7 million or.

A 49% of revenue in <unk> 'twenty one.

Despite the spend reductions and the larger impact of the grocer issue in the third quarter relative to the second quarter. We are pleased that our Mac counts have remained consistent.

Okay.

General and administrative expenses were $49 5 million of.

26% of revenue compared to $35 9 million or.

18% of revenue in <unk> 'twenty one.

The increase was primarily due to a $16 6 million change in fair value of contingent consideration related to the <unk> acquisition and an increase in payroll and related expenses due to higher head count partially offset by a decrease in stock based compensation expense exclude.

Excluding these and other adjustments.

G&A expense as a percentage of revenue was 8% compared to 5% in <unk> 'twenty one the grocery issue contributed to the increase in adjusted general and administrative expense as a percentage of revenue.

Net loss was $41 7 million compared.

Sales and marketing expenses adjusted net income decreased 25% year over year to $29 9 million.

Adjusted EBITDA decreased 16% year over year to $52 million, largely driven by the grocer issue, which materially impacted revenue growth as well as adjusted costs and operating expenses as a percentage of revenue.

We generated net cash provided by operating activities of $33 7 million for the quarter and we will continue to focus on strong cash flow and adjusted EBITDA generation in the quarters to come.

Given the ongoing uncertainty around the economy and I also wanted to talk about our balance sheet and our capital allocation priorities.

<unk> maintains a strong balance sheet with a net cash position.

In evaluating acquisition opportunities that support the company's strategy.

Support <unk> long term growth strategy, while also providing flexibility to navigate near term challenges and are directly linked to our two most important priorities furthering our mission and creating shareholder value.

Fact of the grocery issue until <unk> 2023, when we last <unk> 2022, which was the first quarter with full impact of the disruption.

Our expectation is for a PTR per Mac to continue to modestly decrease quarter over quarter until that time, primarily due to an ongoing shift in retailer volume.

We expect subscription revenue of approximately $22 million to $23 million down.

<unk> down quarter over quarter.

As we anticipated we are entering the fourth quarter with a smaller gold subscriber base.

The expected churn related to increased prices, we rolled out to new and existing subscribers during the first half of the year.

As we mentioned on our second quarter earnings call. The strategic repositioning of this offering focuses on the narrower audience, which negatively impacts growth rates, but is anticipated to reduce churn in the longer term.

As a reminder, the price increases took place during the first half of the year and are not providing incremental benefit to the fourth quarter. However, their churn effects on subscriber counts lag from the time users pricing change, which does impact the fourth quarter.

We expect pharma manufacturer solutions to grow quarter over quarter by approximately 10% as a CFO farmer manufacturer solutions continues to be my favorite correct offering. However, as we've discussed previously this offering comprises relatively large often multimillion dollar deals that can create quarterly volatility.

Macro tailwind is driving more digital outreach to health care providers and their staff shifts on the consumer side to video content consumption such as the assets, we acquired in our healthy nation deal and Thats fundamentally huge $30 billion Tam, we barely penetrated making me highly optimistic about our multiyear trajectory.

Finally, we expect other revenue to be approximately $4 or $5 million in the fourth quarter consistent with the third quarter.

In aggregate, we expect total revenue of approximately $175 million to $180 million.

<unk>.

Ed.

With that I'll turn it over to Trevor for closing remarks.

Meaning highly profitable as we continued to deliver on our mission to help Americans get the health care they need at a price they can afford thank.

Thank you again for joining us today I'll now turn it over to the operator for Q&A.

Thank you and as a reminder to ask a question you will need to press star one on your telephone and I ask that you. Please keep your questions to one Indians yourself time, please standby, while we compile the Q&A roster.

One moment for our first question.

And it comes from the line of George Hill.

With DB. Please go ahead.

Mr Hill Your line is open.

One moment for our next question please.

Our next question comes from the line of Joanne Lim dressing with Truest. Please proceed.

Thanks, and thanks for taking my question I know you guys are not.

Not providing 2020 guidance at this point, but I'd be willing to share some puts and takes you see for next year at this point.

We didn't need to have on those factors at this point.

Of course goes to the issue is one headwind on it yet or what are your basis, but maybe you can shed some additional puts and takes we should keep in mind for next year.

Sure. Thanks for the question to lender. This is Carsten speaking great to hear from me again, yes, I think as we look into 2023.

We do have some visibility of course I think the biggest areas.

Confidence come from the reality that we still feel like we're barely penetrated into a prescription transactions Tam number one our manufacturer solutions market and Tam is also very large where we're also lightly penetrated and so those two <unk> in particular are ones that we are highly focused on.

I think in the interim period, particularly with respect to manufacturer solutions, given what we're seeing going on in the marketplace.

With pharma manufacturers, taking longer to make decisions around marketing spend and being somewhat more focused on spend period in the fourth quarter, which could extend into 2023 as well.

We will continue to monitor the situation between now and when we do our upcoming earnings call at the beginning of 2023 to continue to revise and refine our views on how that year will evolve.

One moment for our next question please.

Yeah.

It comes from the line of Michael Cherny with Bank of America. Your question. Please.

Good evening, Thanks for taking the question and congratulations on a nice result this quarter.

I'd love to dive in a little bit on the express scripts announcement, obviously, a very important brand name pbms to work with to expand with I noticed the term you talked about relative to exclusive can you maybe just give us a sense on.

Thank you Michael good question.

Cleaved about this new collaboration with express scripts.

It helps us support their mission to make prescription medicines more affordable for their members under this new program eligible express card members get access to <unk> prices as part of their pharmacy benefit. So an eligible expresscard member gets seamless access to <unk> prices for the eligible generic medication when the price is lower than that.

<unk>.

This keeps visibility of the eligible member good Rx claim within the pharmacy benefit.

It enables out of pocket claims count toward a member's deductible give us full visibility of the claim to the payer and as you just brought up we are delighted that we were selected as express scripts exclusive partner for this program. We believe it's really good recognition of our leadership in the prescription discount space of the strength of the <unk>.

<unk> brand and the trust consumers have in our technology and this technology is powered by last year's acquisition of Rx next.

The collaboration creates a new distribution channel for US, we believe that expands the market opportunity. It represents a way to efficiently gain many new incremental users and.

This offering is anticipated to be available to express scripts commercial clients later this year and in early 2023.

Yes.

Thank you one moment for our next question.

And comes from Eric Sheridan with Goldman Sachs. Please go ahead.

How could some of those budget conversations and dynamics continue to evolve as you move out of 'twenty two 'twenty three and supported evidence of continuing to drive high ROI outcomes for for marketers on the platform. Thanks, so much.

Thanks for the Great question. This is Carson speaking here, yes, I think we are very excited about the other revenues you characterized at our manufacturer solutions.

The line in particular is the biggest component of I think what you are considering them there the business in which we serve pharma manufacturers and in that context. I think there are a few points that are really critical here. The first point is that the Tam is huge.

It's about a $30 billion Tam split $20 million to health care providers and $10 million of consumers and we had both of those parts of the Tam very effectively for manufacturers so from that perspective.

That business continues to be very attractive to us in the last 16 months alone 865000 prescribers of US got our extra look at medication prices prescription discounts et cetera on behalf of their patients. So from that perspective, we remain highly bullish I think in addition.

The relationships, we have both on the consumer and the provider frame Cree.

Create a lot of value for us the 90, NPS with providers and with consumers I mean, both sets of constituencies are highly receptive to being approached and being served by us with.

With respect to pharma manufacturers. We also have as Trevor mentioned in the prepared remarks significant volume when you think of all of the monthly visitors that come to <unk> platforms, which number in the tens of millions those visitors are all visitors for whom pharma manufacturers.

Benefit in particular, because again as Trevor said.

Tend to be very deep in the funnel folks who are actually looking for a particular medication or a savings opportunity on it. We've also layered in provider mode, which is a tool that allows providers to for example.

Very rapid lease share good Rx discounts directly with their patients without sharing the personal E mail address or phone number. So these kinds of tools that build new infrastructure to that providers use on a recurring basis in their interactions with patients.

Very very sticky indeed, so I think all of those elements together continue to allow us to over sort of the medium meaning couple of quarters to longer term incredibly bullish on our pharma manufacturer solutions business I think in the interim period right now as we alluded to in the scripted remarks is well pharma manufacturer.

Yes.

We are taking more time to make decisions around spend and given that year and in particular the deals can be quite significant in size amounting to millions or sometimes even 10 millions or tens of millions of dollars in one deal that catalyzes us some potential fluctuation around year end and Thats one of the.

Things that causes us to have some challenges around predicting the specific level that a business like that will come into in a specific quarter that said looked out over any longer term period of time like for example, the first nine months of this year compared to the first nine months of last year when the business grew by 81% when looked.

Any over any longer period of time.

I think we've been very pleased with the growth rates that are far manufacturer solutions business has sustained.

Thank you one moment for our next question. Please.

And it comes from the line of Doug Anmuth with Jpmorgan. Please proceed.

Thanks for answering the question.

Discounts welcomed.

Mortgage closings can you just help us understand.

At this point.

Brian .

Issue.

Metal more specialist motor function.

Yes.

Some of them.

Yes.

In some places.

Tony.

Yes.

Okay.

Thanks.

Thank you Doug Little hard to hear you. So I'll do my best to.

Touching on each part of that question, but to the grocer issue.

<unk> addressed in August because we discussed correct discounts have since been welcomed.

At Kroger pharmacy point of sale during third quarter. We are pleased to see with the exception. The particular grocer that volumes did increased 5% quarter over quarter.

We're also happy that we are now seeing week over week increases in volume at Kroger as well as increases in subscribers for Kroger savings club.

We did have a step down in volume because of the disruption and that's why we've really brought up these.

In the prepay.

Prepared remarks these topics.

How we are strengthening the retail network and we think we've made really good headway on that front in this period that we have.

Made it more direct relationships with retailers.

We have continued to maintain our really strong pbms marketplace. But in addition, we are selectively direct contracting with.

Pharmacies.

Including many of the largest chains that hybrid model really left with insured network stability.

We wanted to make sure we don't have and we anticipate we don't anticipate having any similar issue.

Partly because these direct relationships enable us to collaborate on solutions.

Drive success, we also think.

That allows us to be have deeper direct relationships allow deeper and stickier relationships marketing partnerships and just there are a variety of incremental opportunity there.

Thank you one moment for our next question. Please.

It comes from Stephanie Davis with SBB.

Please go ahead.

Hey, guys. Thank you for taking my question.

I wanted to ask a little bit about the new profitability focus just in light of the press release, Mark really point to a greater focus on Pos conversion.

So could you walk us through your early thoughts on areas that could merit Scott back on investment.

Why is that.

Firstly could merit a bit of a step up just in light of that okay.

Sure I can take that to start Stephanie. This is Carson speaking and I think others may jump in because they see it there really <unk> the focus on on flow through of EBITDA and cash and the other is that focus on opportunities for growth going forward. So focusing on the first part of.

The question initially.

You heard us quite correctly I think the risk we undertook at the end of August in particular in the refocusing and prioritization.

Allowed us to do.

Also as a manifestation of the focus you mentioned, we took a really careful review of our business in that structure involved key leaders across the entire organization and realigned the organization to operate really more efficiently and effectively as well and that was consistent we felt like with our comments during our second quarter earnings call.

All already where we said that we would focus on earnings and cash conversion as well as on revenue growth at that point to these elements, particularly EBITDA and cash conversion are largely in our control and I think our reality is that.

Even by focusing on greater efficiency, we don't trade off a significant amount of forward looking growth you see is still creating new offerings like provider mode, which I'm sure. We'll talk about further in the Q&A that's highly impactful.

And do you have seen when we look at things like Mac counts for example, those back half. Despite the grocer issue remains stable, even as we were able to successfully cut back marketing as a percent of revenue and also in absolute dollar terms. When you look at the sales and marketing line as well I think the reality is that the strength of the <unk>.

<unk> Bill and the fact that we're the scale player and certainly many of the spaces, we operate such as our prescription transactions of subscriptions combined savings offerings mean that we can leverage what we've already built to still be able to grow quite effectively but also more efficiently than we used to.

In terms of growth areas going forward I'll start, but I'm sure others on the team will jump in as well.

As we've talked about in the past we remain incredibly bullish on pharma manufacturer solutions, particularly over a multi quarter sort of evolution I think in any given quarter. There can be some fluctuation, but over multiple quarters. It continues to be an incredibly attractive business.

The shift of that business towards digital which of course benefits us plus this year size of the Tam which were relatively.

Offering in particular.

This is Doug I'll jump in and talk a little bit about some of the things. We're excited about with regard to engaging with our both our consumers as well as physicians more and more tightly as we deepen our relationship we're seeing much higher LTV replete repeat claim usage per engaged consumers versus our baseline when we know our consumers better and allows us to anticipate and respond to more of the health care needs.

And play a more active role in all aspects of their care and not just at the pharmacy counter and when we know good axes of better we can guide gives us the retail investors.

Their needs, we can communicate price improvements for their chronic prescription we can set reminders to engage with their provider or their pharmacy for prescription refills really it allows us to leverage our data to create new products and tools. For example, the medicine cabinet, which we've recently rolled out and Im very very excited about as a result, and really the punch line to this is that we anticipate increasing that value to each of our youth.

And therefore, the arcos associated with all of the offerings, both our subscription related core as well as our subscription businesses and also a component manufacturer solutions like Arthur mentioned.

Thank you one moment for our next question. Please.

Okay.

It comes from the line of Craig <unk> with Morgan Stanley . Please proceed.

Yes. Thanks, just following back on the pharma manufacturing solutions.

You had seen for core utilization trends kind of through the end of October .

Sure So I think couple.

<unk> sort of embedded there first of all this is currently speaking again I'll tackle the manufacturer solutions part so on that business as we've said before.

While we're deeply penetrated into the top pharma manufacturers.

In fact, we're in 19 of the top 20 today.

We see significant opportunity to continue to grow those relationships as well as to grow beyond that top 20 by quite a bit. So first of all in the context of the top 20, while we are in 19 of the top line. The number of solutions, we're offering to manufacturers and the number of Medicare.

<unk> add each manufacturer that we're able to help drive volume on those opportunities continue to grow over time and we've been excited about the progress we've made and deepening those relationships and taking advantage of those opportunities to expand the number of brands, we serve and expand the number of different solutions. They are using.

From <unk> in fact that also ties into the acquisition. We did earlier in the year on Vita care, because <unk> is really an offering that allows us to be involved in almost the entirety of the prescription cycle.

From the moment the health care provider writes a prescription.

Through to the period when the consumer is actually benefiting from receiving at our pharmacy, including managing a lot of the complexity that exists, particularly for insured patients around things like step therapies, and preauthorization and alike. So our.

Our ability to become more deeply involved with these manufacturers and the top 20 very high then secondly, we're penetrated into approximately call. It 10%, 15% of U S manufacturers Purion. So theres still an amazing amount of runway ahead of us to penetrate into more manufacturers as well. So we're excited.

About that growth vector, we're excited about the incremental solutions vector.

And we're also excited about the opportunity to penetrate into more medications with respect to the prescription transactions business on that dimension I think one of the factors that we follow very closely.

Call It week to week month to month basis, particularly at this time of year that we've talked about in the past is the evolution of the flu season in particular.

Well it.

It's tough on all of us as individuals.

More aggressive flu season tends to correlate with tailwind for good Rx as well. So we're monitoring that situation closely as well as health care utilization broadly closely and on their health care utilization broadly front as we've talked about in the last earnings call. We've seen that largely returned to normal which is great on the.

The largest set of groups who are able to help promote good rx to their patients. We have over 400000 doctors offices that solicit good R X related collateral from us so that they can promote good R X to their patients and result in better patient outcomes. We also created things that could provider more tools to do exactly the same thing.

So that health care providers can leverage good Rx, even more efficiently and having returned back from sort of the Covid era underutilization around middle of this year to more normal utilization, we expect those dynamics to be bigger and bigger tailwind.

As the quarters evolve going forward into 2023.

Thank you one moment for our next question any comes from the line of Jonathan Young with Credit Suisse. Please proceed.

Hey, Thanks for taking my question just on the grocery impact for <unk>, you're estimating that the impact of it.

$8 million headwind.

And you also mentioned that Youre seeing week on week improvement from that particular growth, but if I look at your <unk> Guide you have since been guiding for.

Sure Yeah, let me first of all I'll start by the beginning of at the beginning of your question on bridging the.

The commentary so.

While we talked about a roughly $40 million impact in the last quarter for the grocer and were anticipating similar size impact going forward.

That's a function of a couple of different things I think.

First as well.

Well, we are seeing some week on week growth associated with the.

Grocer the week on week growth as Opex.

That much lower percentage today in the very low single digits, even if it's growing slightly doesn't really impact the aggregate.

Number dollar number associated with the amount of revenue that we've foregone with the grocers. So again, it's a relative small scale today, even though growing doesn't have a significant impact on the GAAP. That's left in association with the grocers historical levels of contribution to our revenue at <unk>.

And we're excited about the ubiquity.

Availability of good Rx, we think it's important that you can use correct any of the large pharmacies across the country at the same time. The reality is I don't think we expect to see volume levels for the growths are anywhere close to historical lines.

Meaning that we don't see a return to 20% ish of volume and nearly 25% of revenue and Thats a function of a few factors, including the reality that pricing at the grocery used to be highly advantaged relative to other retailers.

And because of that given that we're a marketplace. Many of our users went to the lowest price, which was that particular grocer now that they are often not the lowest price anymore.

Close to as big as it was historically I hope that's helpful.

One moment for our next question please.

And it comes from the line of Lee with Evercore ISI. Please proceed.

Great. Thank you I have a couple of questions one just to clarify on the <unk>.

Pharma solution comment of deal timing pushout.

Just to clarify is it just like do you expect that to be kind of a push out in timing or do you see in the overall pullback in the marketing.

Marketing spend from front of Pharmaceuticals, and also the second.

The $45 million to $50 million in Q4, how much of that is from the customer engagement and initiatives.

I think Thats mentioned in the letter as well and when do you expect that to become a tailwind rather than a headwind. Thank you.

Sure. Thanks for the great questions.

So first of all to the to the.

Questions around farm manufacturer solutions, and the timing and quantum.

Market revenue is probably the best way of putting it.

Taken at the general level before getting specific to <unk>.

Our view is that the market as a whole.

Continues to be one that's growing rapidly.

<unk> direction for us and what I mean by that is.

The latest studies that I have read that came out of the sell side over the last couple of weeks indicate based on interviews the pharma.

<unk> the market on medication advertising broadly speaking and awareness access and adherence solutions more broadly is expected to grow in the mid single single digits next year.

Zinc in itself very attractive to us that mid single digit growth I think what makes it even more attractive as the continued shift to digital that pharma manufacturers are indicating they're continuing to be committed to make.

The shift to digital in Europe , particularly to <unk> benefit given our relatively unique ability to be able to both target healthcare providers and consumers and to target healthcare providers and consumers in a very specific way. So for example, health care providers by specialty which is one of the benefits that.

We've been able to.

Read from our provider mode offering as well as the investments, we're making in health care provider related solutions.

Two dimensions I think we see the reality is one in which timing maybe more questionable than it was in the past, but the overall attractiveness of the market for good or <unk> as high as it ever was essentially even higher with the continued shift to digital now being confirmed I think through the recent surveys we're seeing.

Again, I think we remain very positive and very bullish on this business over a multi quarter view.

I think with respect to the second part of your question.

I think that part of your question related more specifically to consumer engagement and the impacts of consumer engagement in the fourth quarter.

So the consumer engagement efforts launched around mid quarter of the third quarter. So we only saw about half the impact we would expect to see in the fourth quarter.

Last quarter, we said, we expected to see somewhere around $5 million of impact I think the reality was a little better than that we're pleased that the attenuation or the narrowing of the final positive engagement efforts reduced a little bit, but again, where the impacts on the manifest it for a partial quarter this quarter theyre going to impact for about double of law.

Knowing our consumers better being able to get more information from them that allows them to help them more and create products that are even more innovative and even more supportive of their health outcomes. So this is not just the 2022 thing. This will continue into 'twenty three as well on the engagement side.

Thank you for our next question.

It comes from the line of Sandy Draper with Guggenheim Partners. Please proceed.

Thank you very much a lot of the questions have been asked and I appreciate all the answers.

Maybe just one last drill down on the on the pharma manufacturer solutions side.

I'm just trying to think through there were some comments you made at a recent back in September I believe it was about still expecting that business to maybe even double this year and so while you're still growing nicely. It's obviously slowed down fairly quickly. So I'm just trying to think if you can give some commentary around like average tenure of the.

The programs are working how long it is.

Just trying to think about visibility and how much of this is coming out of more of a consumer facing versus physician side just trying to understand.

Understand the long term view of the market.

I think that is positive, but just trying to change the visibility how it switches off that quickly.

It's really customer concentration or may be just much shorter duration contracts and I may have expected. Thanks.

Hey, Sandy great to speak with you and thanks for the question as well. This is Carsten again, I think the best way to articulate. It is when we look at sort of pharmacy <unk> performance for the first nine months of the year up about 81%. So just shy of somewhat shy of doubling I think earlier. This year, we said we expected it to.

Close to double for the year that held largely true through the first nine months I think for the fourth quarter, we're really seeing a macro environment, that's shifted a little bit.

Versus where it was and again I think we see that as something that delays revenue more than anything else I think.

The other aspect of that is that if.

If deals are delayed then the delivery on also.

Also gets pushed out and of course, the deliveries where and when you can recognize that revenue on them in terms of.

Deal duration and in terms of concentration on a firm manufacturer solutions business. It is.

Not a business, where any one customer accounts for even though a large minority of revenue level on a majority.

Customer dispersion is very very high with very few of them.

Trying to think if there are any of them in the double digits, but very few of them are double digit percentage of revenue.

Medicare open enrollment Medicare open enrollment spend happens predominantly in the third quarter versus say the fourth quarter in the second quarter and so you do see in those in those areas.

Revenue that can come in in one quarter, but not coming from the same entities in a subsequent quarter I think the other piece of it is that.

While individual deals can be quite large.

And those therefore swing revenue growth Q O Q in particular, when you look at a given quarter that as the business continues to expand over time portfolio theory.

Apply <unk> volatility will decrease as we continue to scale the business.

In the past and we're certainly stressing on this call too is just the sheer number of health care providers, who we work with as well which of course, we are incredibly attractive audience given that in most cases, we can act, where we can identify them by specialty and by the prescriptions. They write so having that 865000 health care providers using <unk>.

Because that we've talked about earlier I think is something that is a huge benefit to pharma manufacturers, especially given that we can also support them on the consumer side in a coordinated fashion.

Okay.

Thank you one moment for our next question. Please see consulate form the line of Steve Valiquette with Barclays. Please proceed.

Great Hi, good afternoon, and thanks, everyone for taking the question. So just wanted to walk through a scenario or two for a moment.

I think as you alluded to on this call you reiterated the.

Communications from August that the grocery dispute was resolved.

And your direct relationships with retailers such as groceries as a key positive development. However, I think some in the investment community became a little bit confused when.

Kroger announced back on September 30th.

Now that theyre dispute between themselves and the express scripts was still not resolved.

And without a resolution by December 31.

There are commercial contract would be terminated.

So I guess really the scenario question now is what would be the expected impact of <unk> and 'twenty three.

If that Kroger express scripts PVM contract.

Is terminated on 12 31, 'twenty two if any and then does either your direct contracts with groceries, either mitigate that or a shield that or does your new collaboration with express scripts.

Yields are you or mitigate you from.

That scenario I, just mentioned just trying to get clarity around.

At September 30th press release from Kroger Slash Express scripts.

Got it thank you very much for the question.

Yeah.

Im not.

Not.

No.

That any anything between Kroger and express scripts, we don't anticipate would affect our business.

As we mentioned good Rx is accepted at almost all pharmacies in the U S. We addressed the grocer issue.

And good Rx discounts are welcome at Kroger.

Been pleased with that growth, we've been seeing what I guess I'd like to highlight again, how we've been growing fourth strengthening our retail relationships because we view that is incredibly important.

All of this has led to continued strengthening of those relationships. So let us work on strategic initiatives together.

We're driving traffics to retailer locations, we're driving additional merchandise spend for <unk>.

Our customers are in places in stores, not using their pharmacy or getting them to use their pharmacies.

We're driving additional adherence so we're driving all of these additional benefits. We're also have been making good headway through this hybrid effort to improve unit economics for retailers, while also balancing that against strength of our own economics.

Which continued to be strong.

As partially evidenced by our strong margins.

<unk>.

These direct relationships as I mentioned open up these opportunities for stickier partnerships that we think will be incremental so.

We're really pleased that we think we have.

May may strengthened this further we're also seeing new additions to their retail network such as the addition of giant Eagle to the gold retail network, which adds additional geographical coverage.

<unk>.

I hope that answered your question.

Thank you one moment for our next question.

It comes from the line of <unk> with Wells Fargo. Please go ahead.

Alright, thanks, so much for taking my questions.

Thanks, so much.

Sure Stan great to speak with you Carsten here I think a couple of points to make.

Couple earnings calls ago, we talked about the scale of the Kroger savings club that we support as a proportion of our of our subscription revenue.

And the reality is that.

<unk>.

Kroger savings club is very small, but both as a proportion of our subscriptions revenue and our proportion of our total revenue so from that perspective.

Wanted to shed light on the fact that the massive majority of our of our subscription revenue comes from our own gold program that said the current agreement with Kroger rent through July of 2023.

Planned servicing them through at least mid 2024 at this point, but again at KFC doesn't really swing the needle or move the needle on our business overall relative to our own business.

Given all of that I think the bottom line for asset. We're extremely pleased that Kroger is still working with us on KFC number one we're extremely pleased that good Rx discounts are welcome to Kroger number two again as I said earlier in response to another question ubiquity of availability of <unk> key and especially now.

Now to the question, but I think that got asked by Steve in a few minutes ago to having good Rx available at Kroger is critical especially if if.

If ESI and other offerings are available as they used to be.

Thank you one moment for our next question. Please.

Okay.

From the line of Scott Schonhaus with Keybanc.

Hi, Jim I wanted to follow up on the provider mode that launched last month.

Sure.

Yeah.

When we look at maybe I'm going to speak a bit generally about what we're doing with provider mode and why we think it's <unk>.

<unk> and how we're monetizing them so correct for.

Provider mode.

As part of this good extra providers, we've been talking about so good extra providers as all of these offerings, we have for health care providers, including provider mode flip MD <unk> and our general work with more than 400000, HCP HCP offices tactically distributed Rx materials, so provider mode. As this technology platform that we.

Launched last month and it has a number of advantages and provides a number of advantages to HCP and related.

Weighted parties too.

Help consumers help help patients get through the health care journey get access to medication adherence medication. So one of the advantages provided mode is we've expanded access from prescribers to all HCP, including nurses medical assistants in front office staff all of these.

Participants are really important in helping get.

Patients to the right solutions and provide them. It also includes a redesigned prescription savings flow that gives us faster more customized experience to get.

Users.

To help the providers get their patient medication. This is super synergistic both across our prescription discount business and the pharma manufacturer solutions business, because we're trying to help patients get all of their medications generic brand specialty and get access to them.

This gets monetize through increased use of prescription discounts and it gets monetized through the pharma manufacturer solutions some of our pharma manufacturer solutions deals.

I believe this is part of your question.

Our for both our consumer and HCP offerings and then we have other deals that are specifically in HCP deal for example.

Thank you for a moment for our next question. Please.

It comes from the line of Robert Simmons with D. A Davidson. Please go ahead.

Hey, guys. Thanks for taking my question.

That is understandable and expected that theyre going down now, but when do you think the number of subscription plans will trough and start to go up again on a quarter over quarter basis.

Yeah. Thank.

Thank you for the question so subscription revenue grew 63% year over year to $26 5 million for the quarter.

As we've discussed we have.

<unk> made the decision to tighten the focus of it too.

Two the patients to chronic care chronic patient with chronic it isn't more more tightly and that has been the focus and that price increases work I believe as we expected with.

The.

The amount of people decreasing sort of.

Within or better than our expectations there.

But we continue to work on that program and are optimizing it and so youll see some continued improvement there as we try to make that program applicable to.

Our broader and broader set of users and start increasing subscriber numbers again.

Thank you one moment for our next question. Please.

It comes from the line of Kevin Caliendo with UBS. Please proceed.

Thank you and thanks for getting me in.

No.

And the driver of it.

Sure. So thanks for the Great question first of all Kevin.

In terms of cap soft.

We spent a lot of time over the prior years are continuing to focus on.

Managing and maintaining our base of call it building new infrastructure to allow us to develop faster and.

Taking on other initiatives like I think what Youre seeing particularly since Mark Hall joined us to head product Youre seeing a shift in which we are now focused very very hard on delivering direct value to health care providers through things like the provider mode that Trevor talked about and new offerings for consumers too and as we do.

Do that as we continue to drive these new offerings and focus very heavily on creating new products and new features the capitalization rate has crept up just a little bit and thats really a function of the great work, that's being done to serve consumers consumers better.

Yes, what I want to highlight there though is we are just laser focused on driving efficient growth and driving margin expansion and the series of actions. We've been taking is what enabled us to speed exceed expectations. This quarter in particular on adjusted EBITDA. So.

Yeah.

Two things I want to highlight we did complete the organizational realignment the reduction in fourth in August III on ourselves.

All of that.

Awesome.

Tradeoffs.

We believe that was executed very well and that we are now operating even more effectively and getting product out. The door quickly. We also have made really good headway on marketing efficiency, we reduced advertising spending heading into Q4, while maintaining relatively stable Max so the strength of our brand and they are really solid.

Work being done there has showed us that we can.

Be more efficient there and we continue to see opportunities. There and then my final comment is this is a macro environment, where good are really shines the need for affordability is really only increasing as employers cut back some spending and as consumers need affordability solutions. This is what we made good R X four.

We are here in the us.

100 times to help consumers to get them the medications, they really need to keep people adherent to their medications to produce better health outcomes.

<unk>.

We're happy we can provide that thank you.

Thank you and with that ladies and gentlemen, we conclude the Q&A and program for today we.

Thank you for participating and you may now disconnect. Thank you.

Q3 2022 Goodrx Holdings Inc Earnings Call

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