Deep Dive: GoodRx
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(Ryan) What they do: GoodRx is a company that’s trying to make healthcare more affordable. And they’re doing that in a few ways but it started as essentially a price comparison tool. So if I’m giving a prescription from my doctor, I can then look up whatever medicine I was prescribed on the GoodRx app and it will give me the lowest prices in my area and you can use a GoodRx code at checkout for the discount. Apparently pharmacies have very different prices so if you aren’t paying attention you can get screwed.
Sometimes the deals on the app are even better than insurance co-pays so it’s definitely worth downloading it. Then they get a kickback on the transaction from the pharmacy. It’s a small portion of the overall price.
But it also has few other elements that it has added to its business over the years. It has a telehealth provider now called GoodRx care, it has two subscriptions that it offers (GoodRx Gold and KrogerRx Savings Club) which pretty much guarantees even lower prices and with Gold you can get home delivery. The last part is a pharmaceuticals manufacturing solution. So the manufacturers need to sell their stuff too, but sometimes insurance providers prohibit people from buying the medicine they might need so the manufacturers offer their own affordability solutions. This basically gets those offers in front of the eyes of the customers.
(Ryan) History: GoodRx was founded in 2011 by 3 different people. Doug Hirsch, Trevor Bezdek, and a third guy named Scott Marlette.
Apparently the company started with Doug Hirsch trying to fill a prescription that he found alarmingly expensive. He then shopped around and realized that the prices really vary, and naturally he thought consumers should have a one-stop-shop to compare all prices. Doug was one of the first 30 employees at yahoo and VP of product at FB in 2005.
They acquired HeyDoctor in 2019 (impeccable timing) and have made several other acquisitions. They say M&A will be a big part of the business moving forward. And they IPO’d in August of 2020.
In 10-K they identify an $800 billion TAM
The majority of this is from the core medication/prescription platform
They also identify the telehealth opportunity
Within the prescription price comparison market, they don’t identify anyone with any significant scale (they call it fragmented)
They identify Teladoc, Amwell, and other telehealth companies as competitors
Amazon is a rumored competitor. They bought PillPack but really haven’t done much. Lots of announcements as they tend to do
(Ian) Management and Ownership:
Co-ceos, Trevor Bezdek and Douglas Hirsch
Trevor Bezdek has a degree in Biological sciences from stanford
Owns a little over 1% of the company, but significant option incentives
Douglas was one of the first employees at Yahoo, led product development, left to travel the world, returned to Yahoo, then joined facebook in 2005
Owns a little over 1% of the company, but significant option incentives
High ratings – 96% approve of CEO
All together insiders own about 4%
Silverlake owns 33%
Francisco Partners Management owns 22%
Spectrum equity management owns 12%
Founders IPO awards (valued at $260 mm each), supposed to have some performance goals, but the IPO surpassed every goal so all of the performance goals are already met, not great. Still have time-based awards remaining. Approximate quadruple current stake.
$11.9 billion market cap, ticker GDRX
EV is slightly lower
P/S of 20.6
P/GP of 21.9
P/OCF of 90.7
Around 22 million options and RSUs outstanding vs. 392 million shares outstanding, not crazy bad right after IPO
Watch out for these founder SBC tranches though, they had around $250 mil in SBC per founder in 2020
TTM Revenue of $577.7M
Q1 revenue grew 20% YoY (the slower growth came primarily in the prescriptions category due to the weak cold and flu season and less doctor visits w/ covid) but other revenue grew 154% YoY
Net income of $1.7M for the quarter, down from $27M a year ago
Adjusted net income was $31.8M which was still down from the year prior
OCF of $45M & $43M in FCF
That’s a FCF margin of about 27%
But they spend a ton on SBC. More than they generated in FCF
Guidance was strong, expecting 36% rev growth for the year
Monthly active consumers reached 5.7M, up 17% YoY
And had 931,000 premium subscribers
2nd top free app in the app store for medical
(Ian) Balance sheet and liquidity:
Cash of $991mm
About $700mm in debt
Term loan, accrues interest, effective interest of 4% in 2020, closer to 6% in 2019, variable rate based on LIBO screen rate and net leverage ratio
Goodwill of $261mm, acquisitive.
Major dividend in 2018, probably where some of this debt is from
Product Experience/Anecdotal Evidence:
(Ryan) Refill kickback. Not necessarily a competitive advantage, but just a perk of the business model. Customers only have to use GoodRx once and then for every refill GoodRx still gets that kickback. Makes the customer value a bit higher.
(Brett) GoodRx embedded into physician workflow. They mention this in the 10-K, and if they are the one at the source of recommendation, it is an easy way to onboard new customers
(Ian) Head start on pharmacy and PBM partners. Appear to have a network that is unmatched by anyone else.
Future growth opportunities:
(Ryan) Doordash partnership. This was kind of interesting. Ryan Reeves tweeted out “Would love to see GoodRx partner with Doordash.” He gave 4 reasons “1. Pharmacies are like mini distribution centers for prescriptions. 2. GoodRx could utilize DoorDash’s huge driver fleet. 3. Would decrease the % of people who don’t pick up prescriptions. 4. High predictability for Doordash.” Someone tagged Doug Hirsch in the tweet and on the latest CC, Trevor Bezdek stated “We have recently entered into a few exciting relationships which extend the reach of GoodRx Gold, including new partnerships with Door Dash to offer additional value to drivers in their platform and Groupon.”
(Brett) Kroger partnership. It is one of the largest pharmacies in America, so it gives them an inroad into a lot of customers. This could be repeated with the other big pharmacies across the nation.
(Ian) Telehealth opportunity (an acquisition called HeyDoctor turned into GoodRx Care). Affordable doctor visits integrated with prescription services. In 2020, more than 30% of visits led to incremental revenue through prescription offerings.
Highlights and lowlights:
(Ryan) Highlights: CVP is quite clear. There should be operating leverage if I’m not mistaken. And I like Doug Hirsch and Trevor Bezdek. Lowlights: Maybe I’m understanding this wrong, but if GoodRx is successful and is able to lower prices and drive buyers to the lowest price pharmacy doesn’t that eventually ruin their own value proposition? Another lowlight is just how convoluted healthcare is. I have a hard time understanding stakeholder incentives.
(Brett) Highlights: Margins, value proposition, and track record of growth check out. Love how they are working to embed within the healthcare system, and think the subscription is smart. Lowlights: unknowns to the pharma industry dynamics I believe it would be very difficult to grasp. For example, from risk factors: “Our business is subject to changes in medication pricing and is significantly impacted by pricing structures negotiated by industry participants.” Navitus, MedImpact, and Express Scripts are all 10% or more concentrated customers. Material weaknesses in accounting identified in the 10-K (looks like they just neglected to apply necessary resources)
(Ian) Highlights: A problem worth solving. 80% of transactions are from repeat customers. Great revenue growth, analysts expect it to be above 30% for the next three years. Gross profit outstanding as to be expected. Excluding SBC, profitable…reasonable because of one time grants. Lowlights: Can be massively disrupted by government, and should expect to be. Founders IPO award. Seems to me like more successful they get, the more efficient the market gets, reduces need for them
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Disclosure: The authors and podcast guests are not financial advisors. Brett Schafer and Ryan Henderson are portfolio managers at Arch Capital. Clients of Arch Capital may hold securities discussed on this podcast.