Q2 2023 GoodRx Holdings Inc Earnings Call
Good day and thank you for standing by welcome to the good Rx second quarter 2023 earnings conference call and webcast. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a.
Question during the session you will need to press star one one on your telephone you will then hear an automated message advising your hand is raised to withdraw your question. Please press star one one again, please be advised that today's conference is being recorded.
I would now like to hand, the conference over to your Speaker today Whitney Notaro, Vice President of Investor Relations. Please go ahead.
Thank you operator, good morning, everyone and welcome to go to access earnings Conference call for the second quarter of 2023, joining me today are Scott Wagner, our interim Chief Executive Officer, and Carsten Department, Our Chief Financial Officer Raj Barry Our Chief operating Officer will also be joining for the Q&A portion of today's call.
Before we begin I'd like to remind everyone that this call will contain forward looking statements.
All statements made on this call that do not relate to matters of historical facts should be considered forward looking statements.
Including without limitation statements regarding management's plans strategies goals and objectives, our market opportunity our anticipated financial performance.
Going impact of the former grocery issue on our business underlying trends in our business our potential for growth collaborations and partnerships with third parties.
The weighted impact of the de prioritization of certain solutions under our pharma manufacturer solutions offering and our cost savings initiatives are direct contracting approach with retailers realize the ability of our deferred tax assets.
Second the impact of the macroeconomic environment on our business.
These statements are neither promises nor guarantees, but involve known and unknown risks uncertainties and other important factors. These factors may cause our actual results performance or achievements to be materially different from any future results performance or achievements expressed or implied by the forward looking statements.
Factors discussed in the risk factors section of our annual report on Form 10-K for the year ended December 31, 2022 as updated by our quarterly report on Form 10-Q for the quarter ended June 32023, and our other filings with the Securities and Exchange Commission could cause actual results to differ materially from those indicated.
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 subsequent events cause our views to change. 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, which can be found on the over.
Page of our Investor Relations website at investors that good Rx 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 Scott.
Thanks, Whitney and thanks to all of you for joining us today to discuss our second quarter results as I round out My first 90 days of good Rx I can say there is a lot to like here and there is more we can do to further our mission and to build our business.
Over the last few months I've spent time with both key internal and external stakeholders to understand what's working well and where we can improve.
I've been meeting with retail pharmacies, Pbms pharma customers and insurance Payors have been digging in with teams across good Rx to prioritize our biggest opportunities align our teams against them and reignite profitable growth.
<unk> has a number of strengths to build from first our value proposition of saving people money on prescription medication is powerful.
Good Rx's high consumer and provider net promoter scores our ability to drive almost $15 billion of consumer savings annually and the scope of our ppm and retail networks are all evidence of our valuable role in the healthcare ecosystem.
Second our scale and impact is massive over 25 million consumers in over one 5 million prescribers have a patient who have used <unk> over the past 12 months.
Third we have the potential to grow in multiple ways, including driving even more meaningful prescription savings.
Tighter partnerships with retail pharmacies to drive client acceptance expanding our integrated savings programs with funded corporate plans, which now include two of the largest pbms Cvs Caremark and express scripts and growing our pharma manufacturer solutions business.
We are rebuilding momentum in the business financially and operationally with the eye towards compounding growth in 2024 and beyond for the remainder of the call I would like to reiterate our priorities.
Everyone on where we are with each and call up meaningful takeaways for investors.
From a purely financial standpoint, returning to year over year growth is our first important milestone.
Conscious of reaching that milestone in the coming quarters, while prioritizing decisions that can lead the compounding growth and profitability in 2024 and beyond.
At a broad level what good Rx does is drive prescription claims operationally, we're focusing our attention on how we're driving more claims in both our prescription marketplace and in our manufacturer solutions business. There are also things, we're going to change and do less of that we will discuss.
On our last call I highlighted four areas, where I was going to spend my time and good Rx was going to focus.
Our first priority is to ensure that our Rex has the strongest network relationships in retail pharmacy strategy possible, we're having success with our retailer contracting approach having added another grocery pharmacy in the last quarter and we plan to continue down this path.
We're finding retail pharmacies see incredible value in the good Rx brand with.
What retailers want is for good Rx to help them manage to very distinct pricing margin and growth targets now.
How we'll do that we'll different retailer by retailer in terms of contracting dynamics, but the overall goal is to have healthy profitable and growing retail relationships and deliver great value to patients. We're in the process of working through these contracts retailer by retailer and plan to continue to do so throughout the second half of the year.
We believe that we're creating the foundation for long term growth for <unk> that adds value to both retailers and TBM partners alike.
As an example in the second quarter, we entered into a contract with a mid sized grocer, where the admin fees have gone down but is this particular grocery got focused on growth volumes have gone up significantly.
We've now become their leading partner for prescription discounts.
That situation is somewhat unique so overall, we do expect to retail contracting volume versus margin tradeoff that may be a bit of a short term headwind for revenue growth, but we are confident that this is the right approach for the business longer term.
We believe the progress here will help us ensure network stability result in tighter retail relationships with the goal of increasing retailer market share and enable us to add millions of additional claims to the good Rx system over time.
In addition to partnering with retailers, we're continuing to ensure that we're adding value to our pbms as well and working with them to drive long term value for all stakeholders.
Our second priority is to hone our short and medium term growth plans for the core prescription transactions business and align our teams and resources behind it and the second quarter prescription transactions revenue returned to year over year growth in total prescription volume grew approximately 4% year over year despite ongoing.
Headwinds related to last year's grocery issue.
Given the sheer proportion of revenue that was associated with a grocer before the disruption over 20% growing the non grocery volumes sufficiently to return to prescriptions transaction revenue growth is an important step for us.
Looking ahead, we're going to be ruthlessly focused on driving incremental claims we're planning to do that by one increasing our marketing attention to high value patients and conditions.
Improving our conversion flows from every source of traffic three adding product capability to improve our customer experience and refills like our recently announced medicine cabinet feature and four expanding our value proposition to payers and insurers.
So the last point on expanding our value proposition to payers and insurers. We've made a ton of progress we have meaningful programs in place with both express scripts and Cvs Caremark Express scripts price assure powered by good Rx has been successful to date and is already serving millions of lives. This past month, we announced another exciting.
In collaboration with Cvs Caremark called Caremark cost Sabre to help lower pharmacy out of pocket drug costs for Cvs Caremark clients members.
This new program will provide Cvs caremark's eligible members with automatic access to good rx's prescription pricing to allow them to pay lower prices when available on generic medications.
Members will also benefit from seamless data integration, allowing for both benefit and clinician data improvements since it's part of their pharmacy benefit it's built into the benefit card with no action required on the consumers' part.
We believe these partnerships are a win win win for good Rx our partners and for patients.
Our ex becomes more deeply integrated into the healthcare ecosystem and can reach a new segment of the prescription savings Tam we.
We can help pbms drive volume and boost visibility into patient behavior, while helping their planned sponsors save money and patients get better pricing on their medication, which can improve both adherence and health outcomes. We expect to start earning revenue from the caremark cost paper program at the start of 2024.
Si considers this year their pilot and we're looking forward to a broader rollout as we look to move beyond the pilot phase with ESI in 2024.
Our third priority is to scale, our pharma manufacturer solutions efforts as we articulated on the first quarter earnings call. We're focusing on our offerings that have a high ROI for our clients and our distinctive to US we have brand access programs that allow manufacturers to hit different price points, and even drive brand drug pricing.
Below generic pricing to drive meaningful incremental transactions.
We can do this for manufacturing partners via outcomes based programs, where we are paid based on performance and through point of sale rebate programs patient navigator co branded content patient resource centers and provider newsletters.
We're bringing the core value proposition of good Rx to brand drugs, we allow manufacturers to present their brand at several different touch points content provider noted pages et cetera, all of which are very close and connected to a patient decision on a drug that's where we add a ton of value given the scope of.
Our consumer network, we believe all consumer oriented brand access and copay programs should really start at good Rx.
I've spent time with customers and our teams it's clear that <unk> is uniquely positioned and capable of creating valuable savings moments I E claims on both generic and brand drugs as a company we're going to spend time, where we are distinctive and look to partner or change our approach where we are.
An area, where we're changing our approach is how we run the higher cost to serve areas of our pharma manufacturer solutions offerings. For example at Vida care. The entity, we purchased in early 2022.
We bought <unk> to provide access and distribution capabilities for specialty drugs. What I have found is that we can deliver on good <unk> core value proposition of creating demand for specialty manufacturers without in flexible high fixed cost infrastructure that Vida care. Currently has we're going to use our most valuable asset.
Our brand to attract HCP prescribing volume and increasingly leveraging third parties for the fulfillment work.
Therefore, we're going to de prioritize our vital care services to reduce cost.
We expect the impacts of these actions will contribute incremental low to mid single digit millions of dollars to our adjusted EBITDA in the second half of the year, while also reducing second half 'twenty three revenue by mid single digit millions of dollars as we migrate high cost to serve clients often vital care, while simultaneously reducing our cost.
<unk>.
On a run rate basis in 2024, we expect to realize at least 150 basis points of incremental margin improvement as a result of this action will.
We will be taking a hard look at other higher cost to serve solutions within our pharma manufacturer solutions offering as well with a focus on growth and profitability and scalability.
Historically, some things we were doing in pharma manufacturer solutions were one off programs in the second quarter, we have deep prioritize these sales efforts and the associated revenue we're leaning in to our offerings in both access and awareness that we believe will drive faster 2020 for growth.
These are programs at the intersection of high ROI for our clients at high margin for Us and we're creating standardized go to market programs that we expect to scale rapidly we.
We see pharma manufacturer solutions revenue growing quarter over quarter throughout the second half of 2023.
We believe our restructuring of this offering and sales focus will help us deliver compounding profitable growth.
Our first priority is to align our teams and people against our biggest opportunities. We've recently made two great executive additions to help us execute with quality and with urgency.
Dorothy Gamble, our new Chief commercial officer is working to drive our manufacturer solutions efforts Dorothy is a highly strategic leader with a fantastic execution.
Our key areas of focus are scaling our great offerings, increasing the ease of engagement with manufacturers and agencies and enhancing our reporting and our metrics. Dorothy has a strong track record that includes having built and run webmd commercial operation and she recognizes the strong value prop of our.
Pharma manufacturer solutions offering is.
As Chief commercial officer. She will also oversee the strategy and operations of good Rx health as well as our HCP offerings.
As part of our effort to drive growth in the core prescription business. We also welcome to Andrew Slutsky back as our new Chief Marketing Officer.
Andrew has a smart creative effective healthcare operator, with a great execution steps, having been one of the first employees at good Rx is a strong belief in our brand and what it stands for.
During Andrew's previous tenure, he led good rx's market facing activities and drove double digit percentage growth at a fraction of today's spent at.
As CMO. He is focused on growing our prescription marketplace and seize doctors' offices and retail point of sale locations as big areas of opportunity for us as well as orienting our performance spending towards high value patients and occasions.
With our recent leadership changes continued investments in pharmacy, and PVM relationships and internal alignment on claims growth.
Laying the groundwork for the business, we believe good R X can be the.
The initial progress is encouraging and there is more we can do.
We've got great people here with a lot of talent and I am excited about the opportunity ahead, I look forward to providing updates to everyone next quarter with that I'll hand, it over to Carsten Carsten.
Thank you Scott I will first speak to our <unk> 23 financial results before turning to guidance in summary during the second quarter, we exceeded guidance on revenue adjusted EBITDA and adjusted EBITDA margin coming in at $189 7 million $53 $5 million and 28 two.
<unk> respectively.
Diving deeper total revenue for the quarter decreased 1% year over year to $189 7 million.
Prescription transactions revenue growth was up 2% year over year to $136 $5 million and up 1% quarter over quarter as Scott mentioned returning to year over year prescriptions transactions revenue growth was an important achievement because at the time the grocery share rose the grocery or made up over <unk>.
90% of our revenue we had to fill that gap by growing our prescription transactions offering across all of our other retailers, which we more than accomplished Max increased 5% year over year to $6 1 million and were flat quarter over quarter. The.
The year over year increase in prescription transactions revenue is largely driven by the increase in Max partially offset by the impact of the gross ratio.
Pharma manufacturer solutions revenue declined 8% year over year in the second quarter to $24 3 million.
Focus is on signing deals with high levels of recurring revenue potential. So a <unk> <unk> onetime deals relative to last year. We're pleased with the trajectory of achieved and the quality of campaigns. We are running we remain very optimistic about this offering contribution to growth in the long term.
Turning to subscriptions subscriptions revenue declined 8% year over year to $23 9 billion.
Due primarily to a decrease in the number of subscription plans, where the majority of the decrease is associated with Kroger savings club and partially offset by the effects of the pricing increase for gold subscribers. We ended the quarter with 969000 subscription planned down 14% year over year growth subscription plans were.
Versus prior quarter for the first time since we increased pricing last year.
Cost of revenue was $16 3 million or 9% of revenue versus $18 million or 9% of revenue in <unk> 'twenty. Two the decrease in absolute dollars is related to prior year fulfillment costs for certain solutions provided to customers under our pharma manufacturer solutions offering.
We're associated with nonrecurring deal.
Product development and technology expenses were $31 3 million or 16% of revenue, which compared to $35 4 million or 18% of revenue in <unk> 2002. The decrease was primarily driven by a decrease in payroll and related costs due to lower average head count.
And higher levels of capitalized labor.
Sales and marketing expenses were $77 4 million or 41% of revenue versus $94 3 million or 49% of revenue in the second quarter of <unk> 22. The decrease was driven by a decrease in payroll and related costs, primarily due to lower stock based compensation.
As well as lower advertising expenses.
As we have discussed we are proactively managing marketing spend to better align with our strategic goals and future scale with a focus on finding ways to leverage our brand we're getting higher returns on each dollar invested which led to the year over year and quarter over quarter decreases in sales and marketing both as a percent of revenue.
And in dollar terms.
In the second quarter, we continued to invest in Pos discounts and spent a total of $8 2 million $6 9 million of which was included in sales and marketing and $1 3 million of which was a contra revenue.
General and administrative expenses were $30 2 million or 16% of revenue versus $34 7 million or 18% of revenue in the second quarter of last year. The decrease was primarily driven by a decrease in stock based compensation expense related to the co founders of awards granted.
In connection with our IPO.
Net income was $58 8 million compared to a net loss of $1 $4 million in the second quarter of 2022.
The primary driver of the year over year increase was a release of $55 9 million of our evaluation allowance on our net deferred tax assets based on our recent trends and expected future tax profitability as.
As a result, we recorded this discrete tax benefit which comprises the majority of our net income tax benefit of $46 7 million.
For the quarter.
We anticipate and predictability in our future tax provision or benefit amount, even after the valuation allowance release due to multiple factors, including the tax effects from our equity awards.
This element among others is challenging to forecast as it is generally driven by factors outside our control such as our stock trading price or decisions of individual employees in relation to their equity awards.
This is one of the reasons, we believe presenting adjusted net income provides a useful perspective for investors.
Adjusted net income was $28 4 million.
Compared to $27 2 million.
In the second quarter of 2022.
Adjusted EBITDA increased 13% year over year to $53 $5 million, which was ahead of expectations for relatively flat quarter over quarter. The primary driver of the increase year over year is related to proactively managing our sales and marketing spend adjusted EBITDA margin of approximately 28, 2%.
360 basis points year over year, and down 70 basis points quarter over quarter.
We generated net cash provided by operating activities of $29 9 million compared to $51.0 million in the prior year period.
Our capital allocation priorities are unchanged and we'll continue to focus on higher return investments and maximizing value for shareholders.
Our balance sheet remains strong and we ended the quarter with $762 million in cash and cash equivalents on the balance sheet and $663 6 million.
Handing back our revolving credit facility had $98 million of unused capacity, representing total liquidity of $852 8 million.
Now onto guidance our outlook for <unk> revenue is $186 million to $190 million.
Turning to Q4 and the remainder of 2023, we are balancing business imperatives for 2024 and beyond with immediate results.
As we discussed we're making trade offs and how were running pharma manufacturer solutions, including Veda care, which were deep prioritizing and expect to result in a roughly mid single digit million dollar reduction in second half and particularly fourth quarter revenue.
We're also making volume versus margin tradeoffs in our direct contracting approach with retailers that may lead to a short term headwind for prescription transactions revenue growth as.
As we sit today, we expect our Q4 results to be similar to Q3, perhaps a couple of million dollars higher we're conscious of delivering year over year growth in the second half, which this guide represents from a margin perspective during the last couple of quarters. We've delivered adjusted EBITDA margins in the mid to high <unk> and we.
We're confident we'll continue that into the second half.
Moving onto third quarter guidance by offering <unk> prescriptions transactions revenue of approximately $133 million to $134 million.
We expect subscription revenue of approximately $23 million in the third quarter and while our gold subscription plans increase quarter over quarter in the second quarter and May increase again, we expect our total subscription clients to fall due to declines in subscription plans for Kroger savings club program, we operate.
We expect pharma manufacturer solutions revenue of approximately $25 million to $28 million.
This guidance range reflects our planned rationalization of this offering including for example de prioritizing vital care services, which is anticipated to decrease revenue from that offering.
We expect other revenue to be approximately $5 million in the third quarter.
Finally in connection with the changes, we're making within our pharma manufacturer solutions offering for example that Nevada care. We currently expect to incur approximately $65 million to $75 million in total pre tax restructuring charges consisting of future cash expenditures first approximately five.
$10 million relating to various head count reduction and personnel initiatives and second up to approximately $5 million relating to contract termination or restructuring costs.
Associated with rolling off certain high cost to serve clients as well as noncash expenditures of approximately 50 million to $60 million principally related to accelerated amortization of certain intangible assets acquired in connection with via to care and other software abandonment charges.
We expect substantially all of these amounts to be incurred during the third and fourth quarter of 2023. These.
These restructuring activities are expected to result in approximately 18 million to $22 million of annualized run rate cash savings.
With that I'll now turn it over the operator for Q&A.
Thank you as a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one one again.
We ask that you. Please ask one question. Please standby, while we compile the Q&A roster.
Our first question comes from the line of Charles <unk> from TD Cowen.
Yes, thanks for taking the questions.
Scott would love to dive deeper.
Deeper entities Cvs cost save program.
And then obviously the express one as well.
What I'm trying to figure out first a little bit sort of the experience that you're seeing with express scripts.
In this pilot so far how often are you seeing the good R X price being.
Access as the member goes in with a prescription and just trying to think about how that might.
Translate to Caremark next year.
And then as we think about those plans for next year, how is the cost save a program being offered within caremark pharmacy benefits for 'twenty four.
Is that included in the default plan design or or is it an opt in opt out understood just trying to figure it out a little bit here what might be the incremental cost to this plan sponsor or how it's being sold.
On the market currently yes.
Hey, Charles.
Thanks for the thanks for the question appreciate it so on the <unk> of the ESI plan program.
Not going to share the detail of it.
Exactly how and where.
Benefit is showing up however, I can say that.
It's been a pilot for ESI right now.
I think the pilot from our perspective and hope to say for there is.
It's going well and I think from our perspective.
We are getting really nice increments.
So the.
The patient and consumer event that we're addressing is unique.
Obviously, we're pleased with it and I think it's great for ESI also because they are looking for additional benefit into the corporate funded plan then for patients and add on to what they had and I think it's safe to say, if it's incremental activity for us.
Hitting their marks as well and so.
Again, we're looking forward.
Rolling that out.
Into 2020 for Raj barrier COO is here with us.
In terms of the Caremark program.
And some of the things you asked I'm going to hand, it off to arise that give you a little color Raj. Thanks, Scott. Thanks for the question as well and so at a high level, what we're looking to do with both the ESI and caremark programs is to expand our prescription savings beyond cash pay into the insured in the insurance market and so we're really excited about this caremark program.
In terms of how this program will specifically work and then I'll get to.
Specific question you had on the ESI kind of.
Average co pay et cetera. How this program will work is that eligible members will have automatic access to get our <unk> prescription pricing.
When available on generic prices and so they'll get that seamless consumer experience similar to ESI.
But we're also going to see here is that.
To drive more improved savings and service furniture customers in terms of the plan designs are broadly similar in terms of ESI and caremark.
Some of the same principles, but there'll be some differences overall.
We're really excited about though is it really unlocks a new service center serviceable addressable market for US I think the second part of the question was on.
Eligible members.
Is it an opt in design overall, so I think in terms of caremark, how we're looking at it is that members whose planned sponsors have enrolled in caremark cost saver will be part of this program automatically and we're working on the specifics of the plan design.
The third or the last part of the question you asked was around.
The ESI program is performing in terms of how.
How often does it wind so on average it needs average co pay 50% of the time by around 50% plus.
I don't know if anyone else Carson or anything to add to that yes, I can jump in and I'll add to rise, yes, I think the most relevant metric is probably the better analyses a garage quoted a second ago.
Our analyses, we see speeding the average use co pay with good R X prices by over 50%, 50% of the time, we put that out.
About a year ago, we can't get specific about.
Yes.
Caremark, certainly not caremark at this point given its.
The exceptional stage, but that's one of the reasons that we see these programs is valuable and that's one of the reasons that <unk>.
And more importantly, the plan sponsors see them is valuable.
That's indicative, obviously ESI specific but it gives you a sense for why folks are working with us on these kinds of programs generally.
If I could just follow up real quick ESI is there a timeline for when they will decide to.
So from a pilot to full engagement is that a trigger point for that and.
Or is that already built into the contract that pilot will automatically go into full production.
Yes. This is Raj here, so we're really happy with the progress from ESI and obviously now getting into the Caremark partnership right. Now we're really just focused on making both of these work and moving from pilot to a broader rollout as you mentioned and so we're excited in 2024 to kind of continue to work and then ramp is.
Program up as we've mentioned previously the revenue contribution hasnt been material in 2023, but if you look at both ESI and caremark.
The potential for both of them to contribute materially to revenue beyond 2024.
Great. Thank you.
Thank you one moment for our next question.
Yes.
Our next question comes from the line of Jonathan Young from Credit Suisse.
Hi, Thanks for taking the question I want to understand the comments, you're making about the.
Retail pharmacies, and the trade off in volume and revenue and margin.
It sounds somewhat similar to what the Kroger situation was where there was a little bit too much volume and perhaps not as much benefit being derived by the pharmacy.
One is that correct and two it sounds like you need to allow for higher prices going to consumers to reduce the volumes a bit.
So how meaningful is this type of situation, becoming and separately what does this mean for the good Rx brand as consumers kind of see that price point moving up relative to what they had.
Obviously, and what that mean turn at the competitive landscape. Thanks.
Yes. This is Scott.
I think this is a matter this is us just being proactive.
About working with retailers.
Going.
Each of our retail partners and looking at certainly us, but it's really the whole category.
And being able to say what how do you want to show up from a price point in margin perspective, and we're helping them get to that point.
So I would actually.
Let's say it's different than the.
Situation that we were describing before and this is us about being proactive about our relationship with retail.
Okay. Thanks, I'll keep it at one.
Thank you one moment for our next question.
Yes.
Our next question comes from the line of Joe lenders sang from <unk> Securities.
Thank you and good morning, everyone I wanted to focus on your plans to deep <unk> solutions into the pharma manufacturer solutions, including right up here.
This business was when you acquired what's make up less than 1% overall revenue and really.
Lower EBITDA like low single digit million did that business significantly underperformed since the acquisition.
And also broadly can you comment on what Youre seeing from a spending environment from your pharma clients has that changed in any way as what you communicated on the last earnings call.
Thanks, Phil go ahead sorry.
Sorry. This is Scott I think on the former as you asked about Vida care.
I think I'll, let Kirsten talk about some of the specific numbers around it.
But.
Big point is we thought we were getting.
This patient access capability.
Over the last year, we've learned that there's just different ways to service our customers who are trying to assign brand transactions to go to <unk>.
And the reality is there is just a more effective and efficient way for us to do this period point stop so Carson if you want to add on any more about site of care and then.
I can come back and talk about.
<unk> in general.
Perfect.
Great to speak with you again, so yes, when we bought Veda just to recap it sounds like you've got it nailed but in case others don't.
We've talked about it contributing.
Somewhere around a little bit less than a percent to revenue. It's back at that time would have been high single digit millions of dollars in costing US a couple of percent of margin, which implies something more like high teens to $20 million as of the time, we bought it of course, we indicated that the business was not profitable.
Since then we've been able to add to revenue.
That part of the business has increased in size.
Flip side of the cost structure aspects of it were not evolving in a direction that led us to be able to meet our commitment to all of our investors and internally to push the business towards breakeven without cost structure work as well so given that we've made the commitment to get to breakeven by the.
The end of this year 2023, we focus now on on top of revenue side efforts taken cost side actions as well in the interest of increasing the probability of making sure that happens.
Scott you are going to jump in on mental.
Particularly relative divided care or this is just we have a value proposition for brand manufacturers, that's really strong and it's about demand generation and being able to put them really close to the point of transaction.
In unique ways and we're focused on that.
The Vida care action is near.
Merely a way to service customers and clients that are working across our properties in a much more frankly efficient way for that and then it has to it happens to be really good business and margin enhancing for us.
Thank you one moment for our next question.
Our next question comes from the line of George Hill from Deutsche Bank.
Yes. Good morning, guys. Thanks for taking the question I guess, Scott what is kind of a big picture question is that you guys are now both going to market trying to serve the pbms as well as tightened retail pharmacy relationships.
I guess I thought about this before but can you talk about like how exclusive or the retail pharmacy relationships or are there other vendors trying to compete in that space as well and kind of like how do you get the retailers comfortable.
You are so closely aligned with the Pbms, especially the two largest.
They feel comfortable tightening the relationship with <unk>.
So I think the really important point to make up your question is.
We don't think and we don't find that thats, an either or relationship that you have to say you're wearing a PVM had are you aware in the retail and <unk>.
Again.
Still approaching I think my 100 day here, but this is a network in our system and truly we think there is a role in the ecosystem, where we can partner with both now.
Now when we look at our relationship, particularly with retail the dynamics of how we're specifically contracting them maybe different.
Retailer by retailer, whether it's a grocer whether it's.
Traditional drugstore chain et cetera.
But the objectives that we're trying to solve for the sandwiches.
One.
Have a very tight relationship around how they're realizing relative price points consumer savings and margin targets.
And given our demand generation, we're in some ways the big footprint in the category and this is about taking our customer base, our user base and being a really good partner at retail.
None of these actions mean that the pbms.
A one for one relationship and we continue to be able to work with multiple pbms.
We believe that can be so into the future.
Thank you.
Thank you one moment for our next question.
Our next question comes from the line of Stan Berenson time from Wells Fargo Securities LLC.
Hi, Thanks for taking my questions.
Back on the Caremark deal thinking about the mechanics here. So in this situation that could potentially result in lower out of pocket cost to fill a script through good Rx PVM network partner rather than through Caremark is there anything that prevents caremark from price matching our price, beating and effectively keeping the prescription.
So within its PVM, rather than outsourcing to fill through good Rx television network partner.
Yes.
Hey, Stan this is Carson talking here. Thanks for the question. So I think your question ultimately goes to whether pbms have an incentive to fill through when they enter into programs like ESI is prejudice or cost saver.
<unk>.
Caremark, where they have an incentive to fill through their own PJM on the backend and without getting into the specifics of the agreements.
We aren't seeing a material proportion of claims and the program. That's live today routing back to rolling back to the specific <unk> that would be a <unk>.
Significant anomaly from the pattern we've seen today.
Thank you.
One moment for our next question.
Our next question comes from the line of Sandy Draper from Guggenheim.
Okay.
Thanks, very much just wanted to circle back to the manufacturer solutions business.
And sort of come back to one of the questions is asked one of your competitors last night.
They thought the market growth had slowed by as much as half versus what they originally expected. This year would love to get your thoughts on that but also.
The idea that pharma customers are looking for more technology enabled.
Buying opportunities as opposed to salespeople coming and seeking the office call notebook program, Hey, I just wanted to go to the dashboard and click for things and lots of my program.
Where are you guys in terms of technology does that maybe I'm, just thinking about <unk>, a little bit different thats, a very service oriented solution and just trying to think do you also see customers pushing more for more for technology enabled solutions and the ability to buy technology as opposed to having to.
Our long face to face meetings with sales reps.
Thanks, Yes.
Thanks for the question so first relative to other people in the world, we're not going to comment or have a perspective on.
On others, I'd say from our position.
We're just at this point where.
Our value proposition is.
Unique in a little different than all these traditional health care media companies.
And for US. This is about just leaning into what makes us unique and different so remember good Rx what makes us.
Zinc.
Kind of unique and powerful for these manufacturers are.
We are at this point between the consumer or patient and the Doctor.
It's pretty unique and it's around the transaction.
And so our assets whether they're awareness like.
A patient navigator.
Some of our health content.
Usually deeper in the funnel than most of these other companies and then the second is.
Our ability to put programs around the transaction, whether it's cash back or co pay or some performance.
Things that we're starting to build up.
And honestly, we're just leaning into that and so if you think about.
What that means.
The market, obviously impacts us like it impacts other people, but really we're just focused on us and still introducing these solutions to customers and so we're just in some ways earlier in our evolution and life stage.
Which means our ability to build up the business and the market really has more to do with us than it does to do with market dynamics. So I think what I'd want to leave everybody with is hey.
<unk>.
Honestly, you should be able to continue to build up this business from our standpoint pretty healthily because this is still about introducing.
<unk> solutions to the market.
Great. Thanks.
Thank you one moment for our next question.
Our next question comes from the line of Daniel <unk> from Citi.
Hi, Thanks for taking the question I would like to go back to the camera and.
And also ESI and really focus on how these deals may change your business as it rolls out more generally in 2024.
And Im sure the others out there it seems like a no brainer for sponsors to opt into these programs.
If you have the vast majority of commercial members with access to these plans and youre, beating co pays 50% of the time youre going to attract a whole bolus of new members to the platform as this rolls out with importantly, no incremental marketing spend because it's all done kind of in the background. So as you think about 'twenty four and marketing spend.
And I suppose it's also relates to hiring of Andrew Slutsky as well.
How should we think about your go to market approach in terms of marketing you're still spending around 40% of revenue on marketing is that going to drop dramatically. If we see the uptake of these programs and then I guess in conjunction with that are there going to be some negative knock on effects to the farm.
<unk>, so because youre, attracting less eyeballs to the good Rx.
Platform.
You simply don't need to do it if youre doing everything on the backend.
Awesome, Scott you covered a lot of ground there, but let me.
So first on <unk>.
Marketing.
And relative to Cvs, caremark, and ESI et cetera.
These actually arent tradeoffs their hands. So first big point is these are not not in or in a tradeoff, but at AAN.
Our marketing from our marketing standpoint this is.
Good.
Analytically based measurement business around.
Our rollout and a lot of the focus again in my first 100 days has been.
Where what and where are we able to access good 12 months plus ROE as points of savings whether they result in a new customer it's reactivating our base.
Point from our marketing spend is that.
We measure it its effective and our ability to both bring in <unk>.
New patients from our marketing relationships as valuable it's important it's really good.
We're going to continue to do it with Andrew coming back what's great is.
I believe and we believe that there's ways that we can lean into higher value patients and occasions, perhaps more than we have even been doing.
So taking a step back if you told me.
For an individual what their condition, what their drug mix and what their insurance profile is we can absolutely map the quantum of savings and as a direct marketer thats like total goal.
And so if you think about our marketing strategy, it's really honing our performance been deeper into that deeper into that funnel.
Which again is just good tactics around building building the business. So point is marketing is important we're going to continue to market and do so in a highly sophisticated way.
And then back to the payer programs, it's just incremental and you did point out the nice thing for US is that there isn't that CAC, it's a new audience, it's something thats, adding value and honestly, we think both of these two things can coexist.
Got it thank you.
Daniel you had a couple of other things in there so I'm going to jump in real quick here I think the first one with the.
The first other thing.
Tied to the uptake rates and again I want to caution here a little bit while we beat the co pays on average for Americans as a whole quite successfully.
As I referenced that a little earlier.
Specific to the ESI and caremark programs, we've been talking about.
Jim.
We can't talk about those very specifically second point.
With respect to your concept around pharma menthol unfolds coming to the platform or not I think that that's something I really want to make clear is not a fear that we have today at all we've looked at the overlaps between users.
Medications more importantly, and the medication overlap is incredibly low.
The profile of cash pay medication purchases relative to funded are pretty darn different and thats whats really driving the lack of overlap.
I think the only way you can really describe it as.
De minimis at the drug level as we look at the top 10 drugs are cash pay in the proportionate. They makeup of today ESI program and one would anticipate in future Caremark program. It's almost nothing hopefully that's helpful and hopefully that gives you the confidence that we're not particularly worried about.
Your users hitting our platforms or the non ESI and caremark user accounts frankly being impacted by this very much at all.
Yes, very very.
Excuse me very interesting Scott thanks for the color.
Thank you one moment for our next question.
Our next question comes from the line of Mark Mahaney from Evercore ISI.
Great. Thanks for taking the question this is Jan for Mark Mahaney.
I wanted to kind of go back to clarify the comment on the volume versus margin tradeoff.
<unk> is the idea that kind of the near term revenue impact really just.
Kind of the time that it takes for the volume to ramp up and also maybe in a kind of medium to longer term how does this structure.
Because with volume versus margin hit of it kind of implies that there is a margin impact is that kind of the right assumption, what's kind of the longer term margin impact thanks for time.
Thanks.
Thank you.
Youre getting the right general sense, but.
If we.
At any specific retailer.
If admin fee is changing a little bit of debt effectively is revenue for us.
Our unit economics again may have some.
Impact on our relative share of those unit economics that day, one in the media and then you are right.
As we then.
Work with that retailer around different areas of growth both market market share showing up at the retail point of sale.
The volume stacks and builds over time.
I think thats the right.
The right concept and I'm not sure I'd call it volume versus margin as much as.
Having.
Tight relationship with retail with the goal of <unk>.
Long term stability platform stability.
So that we can continue to stack volume in multiple ways, whether it's partnership at retail and share gain in the category.
Then layering on additional volume through corporate payer programs, two and then three layering on brand drug programs on top so really the strategy around this is about <unk>.
Continued stability in partnership at retail.
And then frankly, taking the scope and distinctiveness of our network and stocking different ways that we can add more patients and serve more savings events, which for all the investors in the world that shows up as volume.
I think I may jump in on this one too real quick John I think.
As we've talked about in the prepared remarks, we don't see this happen.
Certainly in all of our direct contracting that we've talked about significant volume gains.
Mid sized retailer, we recently contracted with out of the gate.
The thing that folks need to remember there are multiple variables here Wednesday admin fee we pay.
Obviously with form part of our revenue, but the other consumer price elasticity generally and as retailers look to balance consumer pricing.
The admin fees that we'd be etcetera.
Opportunity that we really have here by partnering with the retailers to optimize much more carefully when it's just us.
<unk> when it is just us selling admin fee independently or are the retailers, having consumer price independently. The interplay of all of US working together and our immense amount of data around elasticity curve specific to an individual consumer to an individual medication allows us to add a material amount of value in <unk>.
Terms of them getting more margin without hurting us hopefully that's useful.
Got it thanks, that's helpful color.
Thank you one moment for your next question.
Our next question comes from the line of Craig heading back from Morgan Stanley .
Yes, Hi, this is Macquarie on for Craig Thanks for taking the question.
Just wanted to dig a little bit deeper into the marketing spend.
Question. It seems like kind of some of the discretionary marketing spend that you thought you might spin at the beginning of the year isn't going to flow through this year.
Just kind of want to know whats going right with marketing spend I know you guys have a number of initiatives to kind of.
Prioritize where youre spending, but just wanted to hear what you guys are seeing work this year and thats kind of not having that kind of come in this year. Thanks.
Thanks, So much and I appreciate the question I think first of all.
Yes, I think the overarching message.
We are watching cost structure inclusive of marketing certainly more carefully than we have in the past and you've seen that manifest in a variety of ways you can see that manifest.
Getting spend drop as a percentage of revenue you have seen a manifest absolute Q over Q drop since then two as you look back over the last few quarters.
<unk> seen it in the form of other parts of our business become more efficient as well.
<unk> adjusted EBITDA generally going up over again in the last few quarters.
That we've been operating in I think with respect to marketing specifically.
We have.
I have been able to drive efficiencies there as well.
And while those efficiencies have manifested and we didn't spend as we preserve capacity to do in our guide over the last couple of quarters I think now the <unk>.
Marketing leadership has evolved.
Now that we're in a position where we feel like we can leverage incremental experience.
It very well may do that in the second half of the year, particularly as we ramp up into new plan years for consumers, which is generally a great sort of selling season for us. So from that perspective, I think we are preserving the capacity to do it even though we didn't necessarily spend up as much as we might have anticipated earn.
Earlier in the year I would love to add.
Higher level point on marketing, which is our brand and our approach to marketing as an asset.
Again being still new.
Spending time with awareness from a patient and Doctor perspective, not just a good <unk>, but the category in general.
Still a ton of Greenfield broadly about peoples awareness that there is ways to save money on prescriptions.
And.
One of the biggest assets of <unk> is the fact that we actually have a brand and a network of people who refer other people to us.
But.
Awareness of the category of the savings event in general.
It's still it's still out there and so our marketing is design number one will be going forward in unique ways around content and savings events that.
I believe and we believe we will not at the upper funnel require a lot of money, but is unique to content is unique to savings.
Particularly doctors that I think it is going to be a way to get awareness and then lower funnel performance.
Activity in spend that we're going to have is really driving hard towards higher value patient syndication. So.
Probably a whole bunch of detail there, but the broad point being.
Marketing and our brand is an asset we're going to continue to work.
On effectiveness number one.
And I think as you well point out that if we're efficient with fantastic great.
Thank you one moment for our next question.
Our next question comes from the line of Andrew Warren from D. A Davidson <unk> company.
Okay.
Hey, sorry, I think we have misread Richard this is Robert Simmons.
Thanks for taking the question.
No.
And whether it's kind of too buzzy topics pop up a lot recently.
Two months in tech and healthcare.
Guys or both.
And weight loss drugs can you talk about what youre doing in AI and also what the impact of those drugs are having on your business if any.
Sorry, its Scott could you give me could you repeat the question there was a little muffled not to make you repeat the whole thing, but I didn't quite catch I didn't quite catch catch it.
Alright.
Okay.
Yes, exactly what youre doing.
In AI and then also what impact you're seeing from the from the weight loss drugs.
Thank you sorry, Okay AI. So we have a team like everybody you're not if you're not leading into this in any form of consumer tech you're probably not doing your job. So we're we do have a team not only of data scientists, but AI that are focused on particularly.
What we would call pricing, but it's really the value equation and ways again as Carsten, we're talking about relative price points.
There's again a lot of sophistication that we can bring to bear around just that savings or that number one.
Second as we think about content.
We've got all this unique data.
The real asset that not only in the pricing models, but in the outside world. We're starting to experiment with which is a marketer is kind of exciting so.
And then just a GOP ones.
Broad point.
Yes.
It's an opportunity we're working with several of the manufacturers today.
Which is great.
And we think that category has a ton of promise as we think about <unk>.
Our network.
Being able to provide.
Savings events that can go directly from a brand manufacturer to consumers, particularly on drugs.
That may or may not be covered in corporate plans are in government funded plans and so that value proposition is square to the heart of <unk>, we're working with.
Several of the top <unk> brands, it's obviously, a fast growing category.
We're we're looking forward to growing our programs with them because again I think we're unique in our ability to actually put a price point in front of consumers.
That makes us, particularly valuable.
Yes.
Thank you one moment for our next question.
Our next question comes from the line of Sean Dodge from RBC capital markets.
Hey, Good morning. This is Thomas Keller on for Sean Thanks for taking the question.
I wanted to go back to manufacturing solutions, you talked about focusing on recurring revenue rather than one time deals are you all getting longer multiyear contracts and I guess, maybe what kind of visibility do you expect to have on menthol revenue and when you start to hear for example versus maybe what you've had in the past. Thanks.
Yes. Thanks.
My.
Broad comment from <unk>.
Is that were still.
This is almost a business unit that it's in its pre teen phase, which is ton of potential we're learning and figuring out our sweet spots, where we are uniquely different and then it's building the organizational muscle to scale.
And what that.
What that means on multi year contracts as we're we generally don't have multiyear contracts.
Just not how any of the media programs work, but again because we are.
Close to the transaction into the event.
We are working we renew and so I think the when we speak about one time versus not.
What we're what we're doing is creating specific programs a half dozen programs that we can go to both agencies and manufacturers RIN slather repeat.
And they'll work and then if things work.
Turning to renewals and they build over time and so.
That's really what we're what we're focused on doing when we go into the year.
Like any ad business.
Probably the visibility and the two thirds you would hope now what we're booking and working on for 24.
Is that youre going to go into the year with approximately two thirds of your business, that's renewals that stack plus bookings that happened now.
As media planning goes into the year and then you are filling in the remainder of the third.
Okay. That's helpful. Thanks again.
Thank you one moment for our next question.
Our next question comes from the line of Eric Sheridan from Goldman Sachs.
Thanks, So much maybe I'll ask two bigger picture questions. If that's okay first when you're thinking about implementing the strategy and the mix of businesses. You are now trying to sort of align for the platform going forward. What would you see as sort of the key investments or critical developments that are necessary to executing on that strategy looking out.
The next six to 12 months to put a final point on some of the commentary from earlier in the call and then second when you think about where you are trying to go from a mix shift standpoint.
Dated views on longer term margin structure, and how we should we think about some of the headwinds and tailwind to margin looking out over the next couple of years. Thanks, So much take care.
Thanks in terms of investments I would call.
I would I would call it.
Supporting capability.
That.
Reflects what we're trying to do and so I'd call. It a couple of things. One is this dynamic of retail partnerships and actually making the retail point of sale clean.
There is both product and engineering work on our part to make a.
Coupon and a savings event really clean at the point of sale.
Seamless customer experience and so there is.
Product and engineering work.
That is not only in the good Rx side, but what we can do on behalf of retail partners that we're leaning into and so thats Big point number one.
Point number two from an investment standpoint, I would say is mobile and data.
The real one of the big assets of this company is data again in a super secure.
Protected way.
But is the data around a transaction event that can again.
Being secure.
And exactly the right way, but then can have real insight around it and so we're leaning into both of those areas data one in mobile too because inherently the suite as a mobile experience.
While we have a super capable mobile team, it's something that we really want to lean into.
I'd say those are really the big areas of callout.
And naturally in things like.
Manufacturer solutions, we will add.
People will go to market capability, but it.
It's aligned to revenue growth.
And so really the big areas of investment are around.
The retail point of sale and how we think about data and mobile from an experience standpoint, I'm going to hand, it off to.
Carsten to talk about the margin structure, yes, Eric Thanks for the question and great to talk to you again.
I'm a margin perspective, I think the overarching concept that it's important for folks to understand.
Our gross margins are extraordinarily high and our variable costs.
On any aspect of our business other than Medicare and Medicare already talked about we've taken care of that variable cost is very very low. So when you look at our emergence going back to before the grocer in Sudan, or adjusted EBITDA margins were pretty deep into <unk>.
Then the grocery incident happened that was over 20% of PPR revenue.
So a significant amount of revenue that dropped out and that flowed through again, given the gross margin profile almost entirely what you are seeing US do now has returned to growth in the prescription <unk> business.
And this last quarter and the implication of the guide we put out.
We will likely see growth overall.
Third and fourth quarters relative to last year, the nice thing about that growth, especially when combined with number one a relatively more fixed cost structure and number two addressing and taking out the costs associated with the variable.
Vida care area means that we see margins continuing to accrete up in years to come.
And we see that happening potentially at an accelerating rate and with that I'll turn it over to Scott give you a few thoughts on this too.
Carsten was hitting the point I'd like to just come in strong that there is a lot of incremental flow through as we grow so as you see the business returned to growth.
We absolutely see the possibility for high incremental flow through that growth.
Down to margin and the decision on how much to either reinvest in go to market or not.
It will be a good one but the potential for incremental flow through is really high.
I think thats the last question.
Thank you everybody for the questions for being with US we look forward to next quarter.
Giving everybody an update on where we are thanks so much.
This concludes today's conference call. Thank you for participating you may now disconnect.
Yes.
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