Q3 2023 GoodRx Holdings Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the good Rx third quarter 2023 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 Massaro, Vice President of Investor Relations Madam you may begin.
Thank you operator, good morning, everyone and welcome to good our access earnings conference call for the third quarter 2023, joining.
Joining me today are Scott Wagner, our interim Chief Executive Officer, and Christian Doberman, Our Chief Financial Officer Raj Barry Our Chief operating Officer will also be joining 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 fact should be considered forward looking statements, including without limitation statements regarding management's plan strategies goals and objectives, our market opportunity our anticipated financial performance the ongoing impact of the former grocery issue on our business underlying.
Trends in our business our potential for growth collaborations and partnerships with third parties anticipated impacts of the prioritization of certain solutions under our pharma manufacturer solutions offering and our cost savings initiatives.
Direct contracting approach with retailers realize ability of our deferred tax assets and the expected 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 September 32023, and our other filings with the Securities and Exchange Commission could cause actual results to differ materially from that.
Kitted 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 addition, we will be referencing certain non-GAAP metrics that today's remarks, including adjusted revenue, which we define as revenue excluding client contract termination costs associated with our previously announced pharma manufacturer solutions restructuring we exclude these costs from revenue because we believe they are not indicative of past or future underlying performance of the business.
We have reconciled each non-GAAP metric to the nearest GAAP metric in the company's earnings press release, which can be found on the overview page of our Investor Relations website at Investor <unk>.
Dot com.
I'd also like to remind everyone that a replay of this call will become available shortly there as well with that I'll turn it over to Scott.
Thanks, Whitney and thanks to everyone for joining us today to discuss our third quarter results today I'd like to highlight the meaningful progress, we're making against our top priorities and then Carsten will take you through the Q3 results.
We've been working to rebuild momentum in the business, both financially and operationally with an eye towards compounded growth in 2024 and beyond.
On our Q2 call we set our first financial milestone was returning to year over year revenue growth.
Happy to report that in the third quarter. We achieved this important milestone on an adjusted revenue basis, we expect year over year adjusted revenue growth to continue with modest acceleration into Q4, we expect our full year 2023, adjusted revenue to be $752 million to $758 million.
Adjusted revenue for Q3 and fiscal year 'twenty, three is $10 million higher than GAAP revenue because GAAP includes a $10 million reduction related to a onetime nonrecurring contract termination payments. So we elected to make to a vital care customer to end the relationship as part of our pharma manufacturer. So.
<unk> restructuring that we announced last quarter, which will yield substantial ongoing savings.
The adjusted revenue guidance is within the prior fiscal year 'twenty three GAAP revenue guidance range, we provided of $750 to $760 million.
We anticipate our Q4 adjusted EBITDA margin to be in the mid to high 20% range, which implies a range in our full year margin guidance.
Carsten will go through our outlook in more detail.
I'd like to highlight our progress in three areas of the business, which will be particularly valuable as we turn our sights to 2024 and beyond.
First we continue to execute our hybrid retail pharmacy strategy, specifically structuring PVM and retail agreements that we believe are positive to both parties transitioning to this model allows us to help members of our retail network drive increased volume and margins.
<unk> was originally built in partnership with Pbms, who enabled broad distribution across 70000 pharmacies and good Rx brought to bandwidth double digit millions of annual consumers seeking savings on prescription medication.
We're now complementing these PVM relationships with several significant retailer partnerships that can help retailers with their traffic and margin priorities, while continuing to deliver great affordability to consumers.
For example in September we launched the direct program with Walgreens at nearly 200 medications that drove significant incremental claim volume for Walgreens and helped a huge number of consumers save money on their medication. We've also created drug specific pricing programs at several other large retail pharmacies in the <unk>.
<unk> as a marketplace, where not just creating pricing transparency and value for consumers, but also marketing and merchandising opportunities for our retail partners.
We plan to continue strengthening and expanding our relationships retailer by retailer over the coming quarters. We believe the continued progress here will help us ensure network stability provide more value to retailers and TBM partners alike, and allow us to drive consumer demand and proactively help retailers with.
Price and margin optimization.
Our second priority has been to extend the good Rx benefit to commercial insurance programs called funded plans and industry Lingo.
As we all know commercial insurance plans continue to get more complex with an increasingly wide range of copay deductible benefit coverage options, even within the same company.
Companies are constantly trading off what they can afford in terms of health care expenses with providing benefits and coverage for their employees and the result is often an increasing proportion of healthcare costs falling on individuals.
Majority of good Rx's consumer base and transaction volume has come from people, who already have third party payer coverage. We believe there's a huge opportunity to seamlessly bring on and off planned benefits together for both patients and their employers.
In tandem with several of our PVM partners, we've created a product called integrated savings program.
P for short that helps align these corporate funded programs more closely with good Rx.
It's simple and elegant the employee presents their employer provided benefit card and pays the lower of their funded benefit price for a prescription or the good R X price as is often the case.
During the third quarter, we announced two more <unk> partners net impact and evidence to add to our existing programs with Cvs Caremark and express scripts. These.
These programs further strengthen our relationships with each of the four pbms, who combine cover over 60% of U S lives.
Now there are two questions investors have frequently asked us about these integrated savings programs. The first is whether the programs are cannibalizing or creating pricing risk somehow.
Second is how big they can get and how fast.
So the first question on cannibalization, we've noted that the top 10 medications in our direct to consumer prescription savings offering.
Only make up a small low single digit percentage of the medications, we see consumers accessing through integrated savings.
With respect to pricing risk, we don't believe there are any material issues.
In terms of sizing the opportunity we're optimistic about Isps potential.
With over 60% of U S lives covered by the Pbms who've adopted the program the opportunity could be significant at this stage, though our programs are Nathan and only available to a subset of eligible members through these PBS.
Given changes in plan designs employers and other sponsors may make around year end, we're going to want a tracker trajectory into the coming quarter in Q1 before we quantify how big we think the program will be in 2024, let alone.
These are programs that we think every pbms should be doing with US. We believe these partnerships are a win win win for good Rx or PVM partners and for consumers and the company has been employ them.
First good R X becomes more deeply integrated into the healthcare ecosystem and can reach an incremental segment of the prescription savings Tam.
Second Pbms access incremental volume, while helping Theres plan sponsors save money third and most importantly, consumers get access to better prices and their medications, which can improve adherence and health outcomes.
These programs also create a more seamless experience for health care providers at the point of prescription as well as pharmacists at the pharmacy counter helping both of them save time and relieve administrative burden.
Some of these integrated savings programs are already live and are expected to scale going forward and the Cvs caremark and that impact programs will benefit eligible members. Once the expected rollout takes place in January 2024.
Our third priority has been to accelerate our affordability and access solutions for branded medications, which show up its pharma manufacturer solutions and our P&L.
Our unique ability to increase affordability for brand drugs drives direct claims impact and we're seeing that play out across a large number of brand drugs and conditions.
For example, we're working with Santa Fe, a global leader in diabetes care to offer a new way for people living with diabetes to access their most prescribed insulin lantus for only $35 for contact Stephen with government initiatives to lower the cost of insulin earlier. This year. The implementation has been slow and a.
Number of consumers, who have actually not been able to access the low price point due to structural issues within the health care system.
When pharma companies like Santa Fe collaborate with good Rx, they're able to leverage our reach and scale and our direct to consumer relationships.
Effort to broaden access and affordability for their medications.
Now any consumer with a prescription regardless of insurance status can access scientists for $35 using good R X across 70000 retail pharmacies in the U S.
Affordability is becoming one of the key issues for brand pharma marketers due to its impact on adherence. The <unk> partnership is a clear demonstration of the unique role that good Rx plays in the healthcare value chain to enable affordability and access to tens of millions of Americans regardless.
Their insurance status or prescription drug coverage.
Good Rx's consumer reach and brand strength, both for patients and health care professionals as well as our direct connection to the prescription transaction itself or what sets <unk> apart from others in the health care marketing ecosystem.
Bottom line is it good Rx was able to connect brand marketers to patients and prescribers right at the point of prescription.
This can translate into a highly effective return for brands.
We're finding several brands achieving five to 10 X increases in volume on <unk> via our access and buy down programs and others are achieving best in class rates on industry metrics like cost per new patient start.
In terms of go forward financial performance, we expect pharma manufacturer solutions revenue to grow quarter over quarter in Q4, we're.
We're continuing to focus on our access and awareness solutions that we believe will accelerate 2020 for growth. These are distinctive programs at the intersection of high ROI for our clients and attractive margin for us to build on good rx's core value proposition of providing savings on prescription medications.
We've mentioned this year, we've been prioritizing deal quality foregoing, one off deals and instead, creating standardized go to market programs that we expect to scale rapidly.
Our restructuring announced last quarter, which includes vital care is ahead of schedule and we're on track to deliver our expected savings in 2024.
Carsten will speak to this in more detail.
There's great work underway by teams across the organization and we have exciting things in flight, which should lead to year over year adjusted revenue growth in 2024, I like where we're headed and look forward to providing updates to everyone next quarter with that I'll hand, it over to Carsten.
Thank you Scott first Victoria, <unk> 'twenty three financial results before turning to guidance in summary, during the third quarter adjusted revenue adjusted EBITDA and adjusted EBITDA margin or each in the upper end of our ranges.
Total revenue for the quarter decreased 4% year over year to 180.0 million.
Adjusted revenue for the quarter increased 1% year over year to $191 million.
Adjusted revenue excludes $10 million, one time nonrecurring contract termination payment to avaya to care clients associated with our pharma manufacturer solutions restructuring announced last quarter, which was recognized as a reduction of revenue.
This $10 million payment has been excluded from our adjusted revenue calculation since we do not believe it is indicative of <unk>.
Past or future underlying performance and we do not anticipate any incremental client contract termination costs going forward.
Moving on to prescription transactions revenue, we're pleased to have had another quarter of growth with pizza or up 3% year over year to $135 4 million.
Mac's increased 5% year over year to $6 1 million and were flat quarter over quarter the year over year increase in prescription transactions revenue is largely driven by the increase in Max partially offset by lower fees per transaction was primarily decreased as a result of our ongoing shift to a hybrid model as.
Well as contra revenue related to our customer incentive program.
As we continue leaning into our retailer relationships were seeing volume increases offsetting slightly lower fees per transaction.
Pharma manufacturer solutions revenue was $15 9 million in the third quarter and was impacted by $10 million in contract termination costs, which are treated as a reduction of revenues from say related to a payment to our clients as I mentioned earlier, we do not believe this $10 million payment is indicative of past.
Future underlying performance as it was made in connection with our pharma manufacturer solutions restructuring and we do not anticipate any incremental client contract termination costs near term.
Growth in the underlying farmer manufacturer solutions offering partially offset the impact of the $10 billion client contract termination payment.
Based on the trajectory and the quality of campaigns, we are running where we remain very optimistic about this offering is contribution to adjusted revenue growth.
Turning to subscriptions subscriptions revenue declined 12% year over year to $23 $2 million.
Due to a decrease in the number of subscription plans, where the decrease was primarily associated with Kroger savings club, which formed minority and declining portion of total subscription count as well as a change in the mix of gold plans towards more single user plans and away from family called plans.
Inclusive of the impacts of Kroger's savings club, we ended the quarter with 930000 subscription plans down 12% year over year, our own good Rx gold subscription plans, however were up both year over year and quarter over quarter, continuing the momentum from last quarter's Q O Q growth.
Cost of revenue was $18 7 million.
Versus $17 4 million and <unk> 22.
The increase in absolute dollars is related to personnel costs arising from the restructuring of pharma manufacturer solutions.
I won't comment on costs and expenses as a percentage of revenue during this call since the 10 million dollar client contract termination payments in connection with our pharma manufacturer solutions restructuring that was recognized as a reduction of revenue makes those percentages and congruent with percentage as discussed on prior calls.
Please reference slide 14 in our Q3 earnings presentation for tabular information relating to percents of revenue, including our adjusted view that we believe may be more informative given our restructuring and other impacts in the third quarter.
Okay.
Product development and technology expenses were $39 $6 million.
Compared to $35 9 million and <unk> 22, the increase was primarily driven by the loss on the disposal of certain capitalized software principally in connection with our pharma manufacturer solutions restructuring, partially offset by a decrease in payroll and related costs due to lower average head count.
Sales and marketing expenses were $91 6 million.
Versus $86 2 million in the third quarter of 2022, the increase was driven by our payroll and related costs, primarily due to higher stock based compensation as well as higher third party vendor fees.
In the third quarter, we continued to invest in consumer incentives, including our point of sale discount program and spent a total of $7 4 million $5 6 million of which was included in sales and marketing and $1 8 million of which reduced revenue.
General and administrative expenses were $35 3 million versus $49 5 million in the third quarter last year. The decrease was primarily driven by a $16 6 million change in fair value of contingent consideration related to the Veda care acquisition in the third quarter of <unk>.
<unk> 22, which elevated the comparable periods expenses.
Depreciation and amortization expenses were $33.0 million versus 14.0 million.
In the third quarter last year, primarily driven by an increase in amortization related to accelerated amortization of the acquired intangible assets and capitalized software in connection with our pharma manufacturer solutions and restructuring.
Net loss was $38 5 million compared to a net loss of $41 $7 million in the third quarter of 2022.
Adjusted net income was $25 5 million.
Compared to $29 9 million in the third quarter of 2022.
Adjusted EBITDA increased 3% year over year to $53 $5 million, which was ahead of expectations. The primary driver of the year over year increase as higher prescription transactions revenue adjust.
Adjusted EBITDA margin of approximately 28, 1% was up 30 basis points year over year.
Cost savings related to the restructuring of our pharma manufacturer solutions offerings are ahead of plan, including the shifting of more high cost to serve clients off Vita care sooner than originally anticipated.
Because of this rapid client Onboarding, we expect an approximately $1 million revenue impact decreasing <unk> 'twenty three revenue and adjusted revenue, which is reflected in our guidance.
We generated net cash provided by operating activities of $63 million.
Compared to $33 7 million in the prior year period.
Our capital allocation priorities are unchanged and we will continue to focus on high return investments and maximizing value for shareholders.
Our balance sheet remains strong and we ended the quarter with $794 $9 million in cash and cash equivalents on the balance sheet and $661 $8 million of outstanding debt.
Revolving credit facility had $98 million of unused capacity, representing total liquidity of $885 7 million.
Now onto guidance.
We're transitioning our Q4 and full year 2023 revenue guidance to be reported on an adjusted revenue basis.
Our outlook for <unk> adjusted revenue is $188 million to $194 million.
Which represents mid single digit year over year, adjusted revenue growth as well as growth acceleration from the third quarter.
We expect adjusted and GAAP revenue to be identical in the fourth quarter, because third quarter adjustment to revenue in relation to the pharma manufacturer solutions restructuring related to Veda care was solely onetime and nonrecurring.
Previously our full year GAAP revenue guidance range was $750 million to $760 million after adding back the 10 million dollar client contract termination payment to GAAP revenue. We continue to expect we will be within that range with adjusted revenue between $752 million.
$758 million.
From a margin perspective during the last couple of quarters, we've delivered adjusted EBITDA margins in the high <unk> and we're expecting to be in the mid to high 20% range again in the fourth quarter, which implies high 20% adjusted EBITDA margin for the full year above our prior guidance of mid to high 20 <unk>.
<unk>.
Moving on to fourth quarter guidance by offering we expect prescription transactions revenue of approximately $133 million.
To $136 million.
We expect pharma manufacturer solutions revenue of approximately $27 million to $30 million. This guidance range reflects our continued rationalizing of this offering including de prioritizing a vital care services.
We expect subscription revenue of approximately $23 million from the fourth quarter are good Rx gold subscriber counts have been increasing and we anticipate that they may increase again in Q4. However, we expect total subscription plans to continue to fall due to declines in subscription plans for Kroger savings club program, we operate.
Good.
We expect other revenue to be approximately $5 million in the fourth quarter.
Also as a reminder, we released the remaining shares related to our co founders performance RSV grants in October of this year. The performance conditions were met as of 2020 and delivery took place and <unk> 23 as anticipated.
As we mentioned in previous quarters, we withheld shares to cover the tax liability due in connection with delivery of the Grand and expanded good or ex cash to pay the taxes. This cash expenditure related to the co founders performance or a few grants was approximately $44 5 million incur.
<unk> incurred in October 2023.
Many of you have asked about our perspective on 2024 during prior calls we're currently in the ordinary course of planning for 2024 and are confident that the priority as Scott discussed or the right focus areas for the business.
These priorities catalyze growth in the third quarter, and we anticipate that adjusted revenue trend continuing in the mid single digit percentage range as previously indicated for <unk> 23.
While we are continuing to refine our views on 2024, including assessing the uptake in our new initiatives like ISP for those of you building models, we feel good about the business growing next year at a roughly similar rate to the growth rate implied in the <unk> 23 guide and we expect adjusted EBITDA margins to meet or exceed.
Those are <unk> 23 into 2024.
Similar to prior years, we expect to provide more detailed 2020 forward guidance on our next earnings call following our annual planning cycle.
With that I'll now turn it over to the operator for Q&A.
Okay.
Yes.
Thank you as a reminder to ask a question you will need to press star one one on your telephone to remove yourself from the queue. You May Press Star. One again, we ask that you limit yourself to one question and then re queue.
Please standby, while we compile the Q&A roster.
Okay.
Our first question comes from the line of Charles <unk>.
Cohen.
Yes, Thanks for taking my question and good morning, guys.
Wanted to ask obviously, a lot of information here and I appreciate all the details.
Sure.
This is sort of the first quarter, we've kind of gotten past the.
The.
Kroger situation and I guess really you've done a lot of work in kind of partnering and more directly with retailers I know you announced the Walgreens partnership.
A few months back as well maybe can you give a sense on how you're feeling about that retail network stability.
And your confidence that we're not going to have these dishes anymore and I guess in that sense.
What percent of retailers or at least the ones that are most important to you within in PTR do you now have sort of a direct relationship.
And what kind of progress do you expect to make over the next let's say coming months towards that.
Charles It's Scott Great question I appreciate it.
I'm happy.
With the progress.
We're.
I would say working through.
Our relationship with retailers on a retailer by retailer basis.
Such that we've.
Hovered in finalized plans with several others in.
In discussion with the framework of where I think we're both going to want to land.
<unk> defined as we go into 2024 and each retailer is different but the themes are the same which is.
We're working more closely both contractually and operationally to really help our retailers with their.
Volume and margin targets.
<unk>.
I am happy with it.
And again, what it's doing is enabling us.
To help our retailers first and foremost.
But also to deliver on our value proposition of affordability on medication.
To tens of millions of Americans.
And I feel pretty good about it.
And we'll just see overall you have is that relationships do you feel like the direction, where as Glenn So even those retailers you don't have a direct relationship with yet to contracting.
Yes.
Do you feel like there is a different sense with them when you speak with them.
In sort of the value proposition that you bring them because I know that in the past pharmacies.
We're very excited about good rack, sometimes right because they would lose out maybe on a on a full cash paid drug.
Yes, 100% so.
I think what Youre seeing is.
Examples.
You track back to the last.
Probably three to five months.
Individual.
Missing relationships that are happening with some big chains, and I won't comment specifically, but.
And the world Youre seeing more.
Individual execution, it's both great for retails are tailors in our core value prop and importantly. These are also good for pbms to right because they are a part of this network also so youre seeing an exact examples of this slide.
The important point for everybody is this is in some ways forever work.
That isn't one and done on a single contract basis. This is about how.
Our marketplace works with its partners on either side of both supply and demand fulfillment and so.
It's not just the contracting effort, but im both pleased and then we are all mindful of the work underway on <unk>.
Pricing engineering sort of higher selves really closely.
With our retailer partners. So that we can continue to add value of an ongoing basis and again the broad point for everybody Who's that's forever work.
Okay. Thank you.
Thank you.
Our next question.
It comes from the line of.
<unk> zinc of truest.
Thank you and good morning, everyone.
So first a quick clarification, Scott I think you mentioned that.
ISP programs with XI more volumes with Bbs I really wouldn't call it because theres no cannibalizing happening, but why will I mean I'm, assuming these goods already flowing through be BS VI will be but I will just see more volumes may be clarified that but my main question is on 2020 for revenue growth expectations.
2% to 5% I understand it's preliminary but the big delta compared to where consensus is.
So I know you are not quantifying ISP contribution yet, but can you confirm if youre, reflecting any benefit there.
Would be incremental to that outlook, maybe talk about some of the headwind tailwind because I mean, given all the headwinds you're facing this year and ISP, we were expecting goods to be at these higher than 2% to 5% maybe clarify more.
Yeah.
Thanks, Andrew I'll start off this is Raj and I'll start off with the ISP question and pass onto Carsten.
First of all we're really thrilled about.
The ISP program is growing.
In line with multiple partners, including ESI, and we're going live with others on Caremark next year I think on the cannibalization question in volume question, I think where it comes down to is there are for Pbms. There are claims that would not happen because.
The insurance price was.
Hi, Hi, co pay with too high in those claims were just not going into their ecosystem at all and now with the ISP program, what Youre seeing if theres another option for them and on those ones. The cost price. There is really attractive and so that's a claim that is now staying within the ecosystem and so it's incremental.
Onto Carsten.
Thank you.
Yes. Thanks for the question I think with respect to 2020 forward to the second part of your question.
And we're expecting growth aligned with Q4, so lower mid to mid single digit growth I think the important thing here is we are still assessing some of our growth levers, including ISP in pharma menthol in particular the guidance is really based on what we see and what we know not what we believe or what.
We hope for it might anticipate and from that perspective, I think that's an important distinction.
King.
<unk> is very positive and we look forward to continued farmer Mac's solid growth, but they are also in their early stages at this point and we will know a lot more as we get into the new plan year.
As we have more of our ISP partners begin to ramp going into 2024, and that's why we said on the call that we provided more detail information when we normally guide as opposed to providing me indication now in response to a lot of questions we've been getting.
Thank you.
Our next question.
Comes from the line of Scott Schonhaus of Keybanc.
Hi team. Thanks for taking my question just following up on <unk> and kind of more of a broader question.
As pharma manufacturing solutions revenue.
What are you seeing currently in the market has something changed that would.
Yes.
Cause you to adjust your outlook or be more cautious with that 24 revenue initial guidance just trying to kind of piece together the moving parts on that end market. What your customers are saying about budgets for next year. Thanks.
Got it thanks for the question.
There is.
I think in the industry you are hearing a bunch of commentary about budgets really for us in some ways we're budget independence.
And our effort right now is.
Getting the good R X value proposition still in front of.
The right brand marketers and their agencies again for context as businesses three years, a little less than three years old.
The value proposition of good Rx for brand marketers as really a transaction engine to match patients and physicians with the transactions kind of no brainer marketing related.
And there's a whole bunch of brand drugs.
Now that I've been in the business for six months I looked at it and say gosh, we should be the first move of marketers, which is eight months of your brand drug page in all your access programs that run through <unk> and <unk>.
We have to go through now the pick and shovel work.
Getting that in front of the right people and running.
Running those pilots through budgets and getting them ramped up.
I'm hopeful on on our behalf, but as we go into 2024 really this work is in our control.
And less susceptible to macro is doesn't matter. These are things that we should be able to.
We do on our own.
Okay.
Yes.
Thank you.
Our next question comes from the line of Lisa Gill of JP Morgan.
Thanks, very much and good morning, Scott I wanted to go back to ISG for a minute and just make sure that I understand something.
The way I understand it and talking to the Pbms.
Because we're talking about primarily high deductible plan, so going back to your comment people not being able to escalate the drug many times they forgo the drug but my understanding from the Pbms is that each quarter, we will have to opt into this program and that's what's going to take time. So as we think about plan design for 2024 will day notice.
You say in the next couple of months and we will have an idea when you give guidance in 2024 or will this be kind of plans rolling on as we move throughout 2024.
My first question and then secondly, when I think about the margin.
Is it similar to what you see today, an Rx transaction.
Thanks for the thanks for the question in terms of rollout.
The opt in or opt out is a little different.
For each of the Pbms.
So.
It's a little different and again thats one of the things that as we get into January and roll through the first quarter.
It'll help us come back to all of you.
With a tighter range for what to expect.
Youre right Thats, the essence of the arena, but again.
There is really nice.
I think uptake and discussion around the value prop themselves certainly not only from the pbms, but.
As they are bringing this out.
All of their payer payer customers so.
That's kind of how it will work, let me hand, it off to.
Roger Carsten.
On the economics question.
Yes, I think more generally when we think about ISP from an economics perspective, it mirrors, our PCR business essentially identically, meaning that as a claim comes and it flows through the multi PVM model.
The <unk> was the best price at that particular pharmacy in that particular geography will generally win so from an economic perspective, and our prescription cutbacks in revenue line.
Sure.
Economics of the transaction look substantially identical from a revenue perspective.
Thank you.
Our next question.
Comes from the line of Eric Sheridan of Goldman Sachs.
Thank you so much for taking the question maybe also going back to the forward commentary could you better help us understand what you see as some of the headwinds and tailwind to margin. Both in terms of the way you are building. The guide for Q4, and how we should think about some of those headwinds and tail of evolving next year, because it seems like youre imply.
We should take Q4 margins and sort of run those out but I wonder if there is variability in that that we should be aware of or mix shift dynamics that are underpinning that thank you.
Eric It's Scott.
Thank you.
Yes.
Broadly as you think about not only Q4, but going into next year.
We're in a nice spot to have really nice flow through from incremental revenue growth.
I think what Youre seeing is a nice balance right now that as the business returns back to revenue growth.
We're in a good position to be able to flow through a sizable amount.
To the bottom line one two what we've described.
And are going through with vital care again will create a nice little.
Help to margins.
And that's going to let us invest in the areas to continue to rebuild grew as well.
We get a signal on what works whether it's <unk>.
More go to market on things like ISP or.
Brands pharma manufacturer solutions on brands, then we haven't talked a lot about marketing, but again in the same way our marketing engine has really nice return today and Theres things underway that we're doing to try to spend in a different way to get in front of us.
Of our consumers and patients.
At retail in doctors' offices, which is a little different than we've been in the past discuss signal that I think we've given ourselves a nice room to lean into that as we see what works.
Thank you.
Our next question.
Comes from the line of Craig head embark of Morgan Stanley.
Yes. Thanks, just wanted to come back to the pharma manufacturing solutions and Scott It sounds like you're kind of being more focused as you evaluate the opportunity set.
As you look out over time, how do you see kind of the growth opportunity, even if its a range or what what could this market grow to in the coming years.
Yes, thanks for.
Thanks for that question I think broadly.
That will absolutely be something when we get everybody together in the first quarter at a more fulsome.
<unk> Investor day, not only for 2024, but kind of lay out some goalposts for.
For the opportunity on a multiyear basis.
I would say however that.
Business is less than three years old its a $100 million of revenue.
Yes.
The brand pharma companies spend five.
<unk> billion dollars on the market access programs that today, only 3% of patients actually access.
And.
When I look at what the.
That means for somebody like good Rx, where tens of millions of lives right at the point of the prescription taking brand drugs and matching them to generics and logical way it feels like most access programs should startup <unk>. So if you think about the potential for this on a multiyear basis.
It absolutely.
<unk>.
It seems significantly and it should be significant because we work and we should work.
Thank you our next question.
Comes from the line of Stan Bernstein.
Wells Fargo Securities.
Hi, Thanks for taking my questions.
On the ISP.
ROE, but can you maybe give us a sense of how this program has been deployed thus far.
Is it for prescriptions that sometimes flawed side of the formulary for the Pbms.
And instead of going into our cash pay type of situation.
You end up selling out like what kind of the use cases that you've seen thus far and the deployment here.
Thanks, Dan for the question there, yes, I think again as Scott mentioned.
It's a little bit different <unk> I think there are definitely examples of those cases, where they're either high deductible cash may fall out of the formulary that these are.
Medications that are not.
Actually staying within that pbms ecosystem and that forms.
Selling use case for them to work with us overall.
We're actually also seeing is that.
The mix of drugs is very different than the drugs that we see in our consumer cash offering.
Overall, and so when we look at that type of.
Mix, we're not seeing it cannibalize at all and we see that there is a lot of covered drugs for maintenance meds better life sustaining and so for that reason for us, it's really expanding the serviceable addressable market.
See this is really really great instrumentality and Thats why we want to roll it out to as many lives as possible and so it's a win win for Pbms, we're capturing and this new revenue stream and it's a win win for US as we are capturing new consumers.
Thank you.
Our next question comes from the line of Daniel <unk> of Citi.
Hi, guys. Thanks for taking the question.
You've mentioned that direct contracting could be a bit of a revenue headwind or at least a PTR per Mac headwind given the lower admin fee.
Curious if this quarter volume has offset some of this admin fee headwind and your direct contracts volume its drive broadly by senior direct contracts that volume offset the lower admin fee and then as we think about.
Fiscal 'twenty four do you anticipate the mix shift to.
They continue to mix shift I should say to direct contracting will be a headwind.
Hi, This is Carson and thanks for the question now.
From our perspective first of all yes, I think we have seen volume benefits when we look at our Mac counts year over year for example.
They grew quite significantly in the higher single digits.
That was offset to some degree by.
Our our PCR per Mac, which drifted down ever so slightly.
When you look at that at our wire wire <unk> for that matter. So from those perspectives. The two things offset to some degree and part of the drivers for the PTR per Mac changes are number one.
As we indicated on prior calls and in our filings we do have a contra Rev component to a portion of what would otherwise be marketing expense.
Number two I think the direct contracting effects that we have there there can be.
<unk> gain versus.
A slight drop in.
<unk> revenue component to it.
As I said at the beginning of the call and Youre looking at PCR per Max Q over Q.
It's barely down at all.
Thank you.
Our next question.
Comes from the line of Robert Simmons of D. A Davidson.
Hey, Thanks for taking the question so.
I was wondering how much of a revenue headwind and will the customer et cetera related to that $10 million payment be going forward I know the $10 million itself is one off but how much business are you walking away from.
Yes.
Thanks for the question I'll take that one the food Karsten again.
I think what's really important to note here is that this is a onetime event and nonrecurring in our view, which is why we do.
Drove it into and what led to the adjusted revenue metric.
We really elected to make the payment to accelerate when particular come.
Customers transition off our manufacturer solutions and specific arvada care services that we're restructuring.
Medicare had an ongoing services obligation to this customer who is a big one for us and important to us as well and as part of accelerating the wind down and reaping. The savings we wanted to make sure that customer is in good shape with the transition because we continue to earn revenue from in other areas and the payment was part of it.
During that they are in good standing.
That they were supportive of the transition that we're asking them to make.
And that they are able to set themselves up in a new environment successfully it really allowed us to benefit from our <unk> restructuring more quickly and to fully reap our expected rewards from that restructuring.
Starting at the very beginning of 2024 and our anticipation.
Thank you.
Our next question comes from the line of Parker Snook of Raymond James.
Hey, good morning, and thanks for the question. This is Parker on for John Ransom.
Just following up on that previous question I, just wanted to understand the mechanics of it.
Why it was a revenue write down versus a cost line item was this essentially like a prior period adjustment to revenue like was this revenue previously booked and is now being not fulfilled and that's why it's a revenue write down I'm just trying to get at.
Thanks for the kind of mechanical understanding of why it was contra revenue and not considered necessarily a cost line item and then just kind of building off of that is this $26 million kind of run rate in the pharma Mansell business a good run rate to build off of going forward or is there going to maybe be a slight step down given that you are walking away from some of this business.
I'll take those in reverse order I think thanks for the question partner on the on the 26 I think that is absolutely a good base and one of the reasons, we made the payment of the <unk>.
Customer is quite happy with the way things have worked out for them I think to the first part of your question.
So reason that this is contra Rev is because it's a payment to a customer and payments to customers under there.
Some effects are inherently contour Rev accept them extraordinarily limited circumstances.
From that perspective payments customer equals Contra Rev. There was no revenue, but that's being reversed or anything of that sort at all thats simply a matter of the cash expenditure that went to a customer and the guidance indication of how that should be treated.
Thank you.
Our next question.
Comes from the line of George Hill of Deutsche Bank.
Hey, good morning, guys and thanks for taking the questions I kind of have two quick ones. All lumped together on the Q2 Q2 call you guys talked about the ESI relationship being in the pilot stage would just love to hear what you've learned as the rollout has continued and then second I wanted to come back to Charles's question on.
As it relates to retail partnerships.
And again, we know the use of the discount cards tends to be a headwind for the retailers I guess anything that you could share about kind of the economics of what's the value prop for the retailer in these relationships.
I think it would be helpful. Thank you.
Yes, Scott let me do the second part of your question first year.
100% right.
And frankly, how the.
Industry has worked.
In terms of demand and workload on retailers and what it means.
And broadly part.
The focus of what we're orienting towards doing it's not just from an economic from an economic standpoint, but.
But its really business practices and workflow with retailers to lean in and make that better and so one example.
<unk>.
Doing that with a retail partner.
Was some pricing action that we've done with Walgreens.
Four months, where there was a whole set of drugs that Walgreens.
Wanted to.
<unk> emphasized in spike so we help them absolutely do that and that had a meaningful impact on both volume of drugs and the traffic that they were trying to drug Theres also offsets to that where certain things are with attention being able to help them manage margin.
And this is where when I call it forever work earlier.
Building the tooling.
Both from an API standpoint, and how we manage pricing and doing that in a real time basis with models is how this should work.
That's not how it works today, but it is how it should work and therefore, we're investing time energy resourcing with our retail partners to get to that standard.
I'm going to hand, it off to Raj to answer your first the first part of your question. Yes. Thanks, Scott Yeah on ESI, we're actually really really happy about how the ESI rollout has gone and we anticipate this evolving into a much bigger and broader initiative overtime and why we are happy about it is first of all ESI is really happy about how.
It's really beneficial to their members and their employer plans and for US. This is really just incremental volume and incremental business for us and is really expanding our addressable market and so this year. We've been focused on successfully ramping the program out and we expect to be transitioning to a broader rollout in 2024 and what that means is.
How can we work to get even more member eligible members into the program and how can we work with ESI to optimize conversion.
Overall in terms of.
The financials as we've mentioned before it represents a tiny single digit percentage of our 2023 revenue we expect it can be materialized.
Material as we move beyond 2024.
This is Scott again, one point that threads between the two parts of your questions as the.
The degree to which good Rx.
Yes.
Credible value to the system with insight into pricing and pricing and the dynamics across different drugs within a category.
It's something where our reach and scope.
Add a ton of distinctive value and our ability both for pbms and for retailers.
Match pricing strategy, depending upon what they wanted to do and so if you think about <unk> relative to others in the ecosystem part of what's distinctive for US is our ability to do that both with insight with tooling et cetera, and so underneath this comment of our ability to do it relies frankly.
Sophisticated team and one that we're spending more time energy and resources on run pricing sophistication and the engineering to support this across the system.
Yeah.
Okay.
Thank you.
Our next question comes from the line of Jack Wallace of Guggenheim Partners.
Hey, Thanks for taking my questions and sorry, I came on here late so apologies if these have already been asked.
Quickly on the pharma advertising business, yet I guess, what are you seeing so far in <unk> in terms of.
Seasonality of spend there.
Conversations with pharma clients.
How should we think about the impact of some of the budget realignment that's going on there impacting the business potentially next year. Thank you.
We're deep right now in the planning for 2024 with.
Rfps and just discussions with clients and agencies and.
So thats happening really as we speak.
To what I said earlier from our standpoint selfishly at <unk>. Those are opportunity is far more about just getting in front of the right people and designing and developing programs and getting them going into 2024, we're still new enough.
<unk>.
Getting the first what I would call.
Brand brand or the.
Foundation.
In certain divisions certain companies.
Entirely is the thing that then lets us expand to other brands and so are where we are in our evolution. It is still go get more beachhead brands.
Access and awareness on those and then enroll them so.
The nice thing is that Thats.
We're certainly always affected by macro and budgets.
Our ability to do that is mostly in our control.
Okay.
Okay.
Yeah.
Thank you as there are no further questions in queue I would now like to turn the conference back to Scott Wagner for closing remarks, Sir.
Hey, everybody. Thanks for joining us thanks for the questions, which were great. We all appreciate it.
Maybe to hit a couple of themes.
Before we sign off.
Nice that we have hit a really important financial milestone of year over year growth in our auto pacing to continue to do that and our focus is on a set of priorities.
Are incredibly important for going to Iraq, they match, our value proposition and should have.
Compounding benefits as we get into 2024.
We will definitely.
As we get into the year and on our next quarter calls give specifics around 2024 and we're in the process of trying to set a date in the first quarter to have a more fulsome investor day with everybody.
So again, thanks for the time and we'll talk to everybody in a couple of months. Thank you.
This concludes today's conference call. Thank you for participating you may now disconnect.
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