Goodrx Holdings Inc

NASDAQ:GDRX

Ladies and gentlemen, thank you for standing by, and welcome to the GoodRx Fourth Quarter and Full Year 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 Notaro, Vice President of Investor Relations. Ms. Notaro, you may begin.

Thank you, operator. Good morning, everyone, and welcome to GoodRx's earnings conference call for the fourth quarter and full year 2023. Joining me today are Scott Wagner, our Interim Chief Executive Officer; and Karsten Voermann, our Chief Financial Officer.

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, underlying trends in the business, our value proposition, our potential for growth, collaborations and partnerships with third parties, including our integrated savings program, our hybrid retail direct and PBM contracting approach, anticipated impacts of the deprioritization of certain solutions under our pharma manufacturer solutions offering and our cost savings initiatives, expected impact of the wind down of Kroger Savings Club, the amount, timing and benefits of our new share repurchase program, the expected impact of the macroeconomic environment on our business, and the expected impact of recent outages disclosed by UnitedHealth Group.

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, 2023, and our other filings with the Securities and Exchange Commission could cause actual results to differ materially from those indicated by the forward-looking statements made on this call.

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

In addition, we will be referencing certain non-GAAP metrics on today's remarks. We have reconciled each non-GAAP metric to the nearest GAAP metric in the company's earnings press release which can be found on the overview page of our Investor Relations website at investors.goodrx.com. I'd also like to remind everyone that a replay of this call will become available there shortly as well.

With that, I'll turn it over to Scott.

Thanks, Whitney, and thanks to everyone joining us today to discuss our fourth quarter results. Today, I'd like to highlight the meaningful progress we're making on our key priorities, and then Karsten will take you through our Q4 '23 financials and expectations for Q1 and full year 2024.

I'd like to start by framing the fundamentals of what we do. The critical and growing consumer needs we serve and the importance of the GoodRx value proposition, which is saving people money on prescriptions. Over the history of the company, GoodRx has saved consumers approximately $70 billion. And just last year, we saved consumers approximately $15 billion. There's big fundamental value here.

And while health care is highly complex, the role GoodRx plays is pretty simple. Consumers today are facing rising health care costs with plans continuing to increase patient out-of-pocket costs, like deductibles and co-pays and increasing gaps of drug coverage with narrower formularies. We believe these market coverage trends are stronger than they've ever been, and we don't expect them to change.

Think about how Medicaid redetermination alone has limited access to funded benefit plans. We believe this reality makes GoodRx, an essential part of the American health care system is a trusted solution for consumers to access affordable medications in the U.S. Health care providers recognize this which is why we've become a fundamental resource for them and why more than 80% of health care professionals refer their patients to us.

In 2023 alone, over 25 million consumers use GoodRx to achieve approximately $15 billion in prescription savings, making GoodRx, one of the leading consumer-driven digital health care experiences. For those who have been following both GoodRx and the industry in recent years, short-term movements in the industry value chain have created some confusion about our prospects. We believe the market tailwinds are increasing, patient out-of-pocket costs are growing. GoodRx is scale. Our users, our HCP advocacy are growing too, making us confident in the strength of the GoodRx value proposition and our ability to grow our business.

Our financial results continue to improve as we focused on helping our industry partners in the value chain, benefit proportionally from the value that GoodRx creates for our 25 million-plus consumers annually.

In Q4, we continue to see positive momentum in the business, both financially and operationally. Consistent with the preliminary Q4 results we announced in January, our Q4 year-over-year adjusted revenue growth accelerated to 7% up significantly compared to our Q3 growth rate, and our Q4 adjusted EBITDA margin was 29.1%, up 220 basis points year-over-year, with adjusted EBITDA growing 15% year-over-year.

This financial performance is the direct result of our efforts throughout 2023, specifically in 3 areas: first, leading into our relationships with retail partners; second, bringing the fundamental benefit of GoodRx to commercial plans through our integrated savings program for ISP; and third, bringing GoodRx savings to brand drugs through our pharma manufacturer solutions offering. These all reinforce our value proposition and are showing up in the results.

We expect adjusted revenue to continue to grow into Q1 and for the full year 2024 as well. We anticipate adjusted revenue to be about $800 million for 2024 with adjusted EBITDA of approximately $250 million. Karsten will go through our outlook in more detail in a bit.

I will say I'm confident our priorities are the right ones to deliver the growth we're expecting in 2024 and to drive shareholder value over the long term. There are 3 areas of the business I'll highlight today. First, we've been focused on strengthening our retail pharmacy relationships and accelerating the continued success of our hybrid model, which includes retailer direct and PBM contracting.

As a reminder, our retail direct approach is where leading pharmacies like CVS and Walgreens as well as smaller grocers and pharmacies work closely with us to create consumer value while executing against joint revenue and margin targets. In the fourth quarter, our contracting efforts with retailers were a driver of top line performance as we continue to sign direct contracts with new pharmacies and expand the drugs covered by direct contracts within pharmacies.

Today, we have retailer direct contracts with most of our largest retail pharmacy partners and our directly contracted medication volume makes up a growing minority of our overall prescription transaction volume. It's important to remember that GoodRx drives volume and traffic for pharmacies. We do this in 2 ways. First, we estimate that between 20% and 30% of all prescriptions in the U.S. go unfilled each year due to price. By offering lower price points, pharmacies can fill scripts that patients would otherwise walk away from.

Second, in 2023 alone, we've invested over $200 million in advertising and promotion related marketing, almost all of which is focused on increasing the number of GoodRx users, and which ultimately drives incremental prescription volume to pharmacy. Pharmacy's proprietary affordability solutions, by definition, only impact their customers, while in contrast, GoodRx has the ability to drive incremental retail prescriptions and people into their stores. This is one of the reasons pharmacies have been so receptive to locking in multiyear contracts with us.

I also want to emphasize that as part of these retail direct contracts, GoodRx offers discount card pricing agreements that provide retailers define margins and are informed by acquisition cost-based pricing in a number of key retail pharmacy partners, including CVS Pharmacy. We've seen other large pharmacies work with us to use a combination of pricing models, and that's worked out very well for both of us. We welcome the broader movement to cost-plus reimbursement models in both funded benefit plans and off benefit as it's a great way to align economics between pharmacies, payers and consumers.

Critically, we believe that our retail direct contracting strategy, which takes a cost aligned approach positions us well for sustainable growth in a market with evolving pharmacy reimbursement models. We estimate that over 3/4 of GoodRx users have some form of insurance coverage. That means consumers are comparing prices against co-pays, not exclusively comparing prices between pharmacies. For uninsured users, the opportunity for greater patient affordability is relative to usual and customary cash pricing, which is generally substantially higher than GoodRx pricing.

If there were a scenario where a more cost-focused pharmacy reimbursement model reduces drug price disparity across retail pharmacies, which we don't believe will ultimately be the case since each pharmacy uses pricing strategically to attract different kinds of consumers. We see this trend overall as neutral to GoodRx given we will still be able to deliver significant savings benefit to consumers.

Our second priority has been to hone our growth plans for our core prescription transactions offering, which includes extending the GoodRx benefit to commercial insurance programs or funded plans. We've done this through our integrated savings program, or ISP, with PBM partners like CVS Caremark, Express Scripts, MedImpact and Navitus who aggregate demand for our prescription discounts.

The early traction we're seeing for ISP so far in 2024 is encouraging and its contribution to Q1 revenue is reflected in our growth expectations. ISP is generating incremental year-over-year revenue which is manifesting in line with our expectations. As we mentioned in the past, we believe there will be some level of ramp to the volume that comes through ISP and we're still in the very early days as we work with PBMs to add more types of prescription transactions to the program and to ensure acceptance at retail.

Also, while our PBM partners market these programs to be over 60% of eligible lives in the U.S. that they cover, we're working in parallel with them to educate and inform employers about these programs and accelerate the number of lives we can onboard. Along with increasing lives, we believe we can inflect conversion as well, given we've historically been able to increase GoodRx discounts and lower pricing over time in our non-ISP, direct-to-consumer offerings.

As we do so in the context of ISP, we believe we can beat patients' co-pays more often. Given that ISP is incremental to our direct-to-consumer offering and any evidence of cannibalization has been minimal, we remain focused on accelerating its growth. Based on our learnings from last year, we expect our ISP relationships to create some incremental seasonality with higher revenue during the first half of the year and contributing less revenue in the latter part, since more claims are likely to be routed through GoodRx while consumers are in the deductible phase of their health plans.

That said, our growth expectations are predicated on how ISP has performed for the first few weeks of this year. And if we're successful in driving more types of transactions, and more lives to the program as we help drive more employer sales, we may achieve incremental lift in the coming months and during 2025's patient deductible reset period. We'll update everyone if we see this manifesting.

Third, we're focused on scaling our pharma manufacturer solutions efforts. In Q4, we continue doing the work to build our pipeline and believe we've set ourselves up for year-over-year growth in the first quarter and FY '24. We've been leaning into our access and awareness solutions that we believe will accelerate 2024 growth. And as we mentioned in the past, in 2023, we prioritized deal quality with a focus on foregoing one off deals and instead creating standardized go-to-market programs that we expect to scale sustainably. Our restructuring in this offer, including rationalizing vitaCare is essentially complete, and we're on track to deliver our expected margin accretion in 2024, which Karsten will speak to in more detail.

With that, I'll hand it over to Karsten.

Thank you, Scott. I'll speak briefly to our 4Q '23 financial results, which were consistent with the preliminary Q4 results we announced in January before turning to guidance. In summary, during the fourth quarter, adjusted revenue exceeded the guidance range we provided on our Q3 earnings call in November and adjusted EBITDA margin was in the upper end of the guidance range we provided.

Total revenue and adjusted revenue for the quarter increased 7% year-over-year to $196.6 million primarily driven by organic growth in prescription transactions revenue.

Prescription transactions revenue grew 11% year-over-year to $143.9 million, an acceleration from Q3 growth which was partially driven by quarter-specific favorability related to certain client contracts, which also slightly increased PTR for MAC.

Subscriptions revenue declined 6% to $23.1 million due to the wind down of Kroger Savings Club. Kroger Savings Club revenue was over $1 million less in the fourth quarter of 2023 than in the prior year period. Gold subscription count was up both quarter-over-quarter and year-over-year. In Q4, gold revenue was $21.5 million, and the related sub count was 694,000. We expect the continued wind down of Kroger Savings Club subscribers from now to July and given the relative subscription fee is much higher for GoodRx Gold than for the Kroger subscribers, the wind down should be more impactful to subscription plan count than revenue.

Pharma Manufacturer Solutions declined 2% year-over-year to $24.4 million driven by our restructuring of the offering, which included shutting down vitaCare. The prior year quarter included over $2 million of revenue related to vitaCare, whereas in 4Q '23, there was essentially 0.

Net loss was $25.9 million compared to a net loss of $2.0 million in the fourth quarter of 2022. Adjusted net income was $31.1 million compared to $27.4 million in the fourth quarter of 2022. Adjusted EBITDA increased 15% year-over-year to $57.3 million. The primary driver of the year-over-year increase was higher adjusted revenue, along with our cost discipline, increased marketing efficiency and the actions taken to restructure pharma manufacturer solutions, including the deprioritization of vitaCare.

Adjusted EBITDA margin was up 220 basis points year-over-year to approximately 29.1%, which was on the high end of our guidance range. We generated net cash provided by operating activities of $15.9 million compared to $31.9 million in the prior year period.

Our capital allocation priorities are unchanged, and we'll continue to focus on high-return investments and maximizing value for shareholders. Our balance sheet remains strong, and we ended the quarter with $672.3 million in cash and cash equivalents on the balance sheet and $661.8 million of outstanding debt. Significant uses of cash last quarter included approximately $78 million of share repurchases at approximately $5.53 per share on a blended basis. And as we've discussed on prior calls, a nonrecurring approximately $45 million of spend on withholding taxes related to the delivery of shares to our co-founders related to a 2020 equity grant which was defrayed by shares we withheld.

Our revolving credit facility is untapped, except for letters of credit and had $90.8 million of unused capacity as of December 31, 2023, representing total liquidity of $763.1 million. This month, we extended the maturity date of our revolving credit facility to July 11, 2025. Recently, our Board of Directors approved a new stock repurchase program to repurchase up to $450 million worth of Class A common stock.

Now turning to guidance. Our outlook for Q1 revenue and adjusted revenue is $195 million to $198 million, which represents 6% to 8% year-over-year revenue and adjusted revenue growth which includes our current estimate of the impact of recent outages disclosed by UnitedHealth Group that we believe at this early stage despite lasting a couple of days has likely not had a material impact on our financials.

We expect adjusted and GAAP revenue to be identical in the first quarter because we believe the third quarter 2023 adjustment to revenue in relation to the Pharma Manufacturer Solutions restructuring related to vitaCare, with solely onetime and nonrecurring.

For the full year 2024, we also expect revenue and adjusted revenue to be identical at about $800 million representing about 5% growth on an adjusted basis. The anticipated adjusted revenue growth rate is tempered by approximately $15 million of top line impact associated with the deprioritization of vitaCare as part of our pharma manufacturer solutions restructuring as well as the wind down of the Kroger Savings Club.

Our continued investments in consumer incentives will increase contra revenue by approximately $10 million. In aggregate, this $25 million of top line impact is absorbed in our full year $800 million revenue and adjusted revenue guidance. We thought it might also be helpful to provide our current expectations for our prescription marketplace and pharma manufacturer solutions offerings in 2024.

As a reminder, our prescription marketplace is made up of prescription transactions, subscriptions and other revenue. We expect our prescription marketplace contribution to our implied 2024 adjusted revenue growth to be about $25 million to $30 million. The expected growth includes the impact of the previously mentioned headwinds related to increasing contra revenue in the sunsetting of the Kroger Savings Club. This also reflects the current ISP network footprint execution we have today, and we are working to optimize both.

We expect Pharma Manufacturer Solutions to contribute about $10 million to $15 million to our implied 2024 adjusted revenue growth. This implies a year-over-year growth rate for that offering that exceeds the growth rate of the digital pharma ad spend market, which has been in the low teen percentages.

As part of the restructuring of our pharma manufacturer solutions offering, we discontinued vitaCare, which contributed approximately $8 million of adjusted revenue in 2023 and is not contributing to 2024. Considering that, we're pleased with our anticipated 2024 Pharma Manufacturer Solutions growth.

As a reminder, our Pharma Manufacturer Solutions offering has some seasonality to it and so we expect 1Q '24 revenue to be slightly below 4Q '23 revenue. Based on what we've seen historically, we expect there to be seasonality in some quarter-over-quarter variability for our business more broadly. But given our scale relative to very large TAMs for a prescription marketplace and our pharma manufacturer solutions offering, we're confident in the growth trajectory.

From a margin perspective, during the last couple of quarters, we've delivered adjusted EBITDA margins in the high 20% range, and we continue to expect to be in the high 20% range again for the first quarter, potentially up to 30% and to achieve around $250 million of adjusted EBITDA for the full year, up 15% from 2023.

With that, I'll now turn it over to the operator for Q&A.

[Operator Instructions] Our first question comes from the line of Stephanie Davis with Barclays.

First off, it sounds like you're starting to see the direct contracting become a much bigger part of the model. So I wanted to ask about what GoodRx looks not in 2024, but maybe 5, 10 years from now, do you -- do you see that becoming more of the primary model versus the D2C business? Or is this going to be more of a balanced growth on to fully ramp?

Stephanie, thanks for the question. I think if you roll this forward, it will look like what we're doing today, which is a combination of working with a multi-variant PBM network as well as some form of direct relationships with retailers depending upon the size of the book. And that's really kind of where we are and are in the process of rolling that out into the world.

I don't think that's going to change much because really, we're following a retailer -- retail partner's guidance in some ways, and they all approach this a little bit differently. And so I don't think there's going to be a really transformative difference in the composition of our network. It will literally be more of a similar and more rolled out version of kind of what we're going through right now.

That kind of -- no. I feel there's a lot of questions on the cost-plus model that's been sorted around CVS and Walgreens. I know you do have some relationships there. Is there -- anything you can share on how GoodRx fits into the ecosystem?

Absolutely. And I think the big theme for, let's just say, CVS and Walgreens as well as -- we're really side-by-side with both of them around their own merchandising strategies for the category. So specifically on CVS and cost plus, we're working with them in this manner already today. So the fundamentals of several of our specific drug contracting plus overall is really tied at the hip with CVS, so it works exactly on how we're set up not only with CVS, but really our core benefit today. In Walgreens, an anecdote that I'll share from the fall that I think is just indicative of our working relationship with all the retailers is during cold and flu season, we and Walgreens took a basket of cold and flu drugs and drove 40% savings because that was one of their merchandising goals, and it drove a heck of a lot of incremental activity and traffic was good for Walgreens was good for us. But again, it was really about working with a retail partner to achieve their category goals.

And if you step back and think thematically about what we're doing with this contract approach, it's really that, which is tying them together and working with them to achieve goals.

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

Scott, I want to go back to ISP, and I want to make sure that I heard this correctly. I think you said that there's a 60% opportunity in the books of business for CVS and Express Scripts as far as the opportunity. When I think about that opt-in and then selling them this option into their clients, can you maybe talk about what you're seeing as far as in the first initial phase here? Is it opt in is more of the driver here? Or is it more of utilization?

And when we think about the offerings that you have, how should we think about this over time? I heard you talk about deductibles and that makes sense longer term throughout the year. But is it really going to be utilization that's driving this program over time. So if you can just help me to understand that a little bit.

Yes, thanks. I appreciate and understand the question. I'd first of all, say the rollout at each of our partners, whether it's Caremark, ESI, MedImpact, Navitus, it's still early. And by early, the 60% you described are the total eligible lives that they cover. Right now, the amount of lives that this program is operating under is much less than that 60% coverage universe. It's a much narrower set of that, but it's about a rollout.

And so as we go, the first step to building this program out is expanding more lives, so getting more coverage. And there are a -- it's probably a step change or to level of rollout of just lives covered for where we are today. I don't want to give you specific percentages because it differs by -- it differs by each PBM, but the point is we're in a much narrower universe than that total coverage life.

Then optimization is something that we also believe there's going to be ongoing ways that we can tweak and hopefully help that improve over time. And then the last component to this is how the program is accepted at retail, which is also the final component of this. And so it's early days, I think, is the punchline on particularly the lives covered and acceptance level, and it's in line with our expectations, I'd say, from kind of how we thought this would roll out.

And then can you just remind us of how to think about the margin on ISP versus your traditional business?

Sure. Thanks, Lisa, for the question. This is Karsten. With respect to margin, we think over time, it looks substantially identical to the margin in the rest of our business. The really only distinction as how we capture demand in our direct-to-consumer business, we capture demand by spending CAC, marketing dollars in advance to capture users and then we monetize them over time.

In the ISP context, demand is aggregated by the PBMs. And so we do pay a marketing fee associated with that, but that's on a per transaction basis. So over time, those 2 things converge, the upfront CAC and the margin we paid to the PBM. So we've engineered them to try and keep them very similar.

Our next question comes from the line of Charles Rhyee with TD Cowen.

Just wanted to follow up on Lisa's question. Scott, you just mentioned that some of the factors to consider here is the pace of the rollout and a few other things. Just first on that, I guess, for an example, if, let's say, 10 million lives are going to be covered or signed up for ISP. Does that mean all 10 million got access to it Jan 1? Or is there still a phase rollout where those members will gain access to it over the course of this year?

And then secondly, you kind of mentioned you're also looking at how the program is accepted at retail. My understanding was that someone goes in and the system will automatically adjudicate between the funded benefit price versus the GoodRx price and get the lower of. Where -- isn't that a system function at the PBM level or the retailer kind of will then just see which one they're charging. Can you talk about what retail acceptance means in this instance?

Sure, Charles. This is Karsten. I may jump in on this one first, and Scott may follow. So I think the first point to make is ISP is up about 2x year-over-year, which we're pretty pleased with. I think second point is that while for ESI, this program is now in its second year of existence for Caremark, Navitus, MedImpact, this is the first year and we'll have a ton of lives to contribute to us, given they need this for their own customer relationships with sponsors, with sponsors, employees, et cetera, to be very smooth. We don't believe all of the volume that is potentially available to us it's been loaded on immediately upfront. So that's what Scott was referring to when we say, hey, it's still ramping. I think the second point on retail is much like the PBMs, the retailers are assessing how this impacts their business and also want to make sure it's a good experience for our shared customers, the retail customers and ours. So in that context as well, we see retailers with different levels of energy around trying to attract this ISP business into their stores.

I see. Maybe if I can follow up. Is there a way for consumers to know like, for example, I just went to Walgreens the other day, pick up a generic script, and I asked the pharmacist desk, whether I was getting the ISP price, it didn't seem like they could tell. Is there a way for consumers will they be able to know going into the future if they're like a Caremark number?

That would be the hope, Charles, as we get to the end state, I think the rollout of this is really going through plans and the benefit feature. And so as of right now, that's a communication vehicle that is almost working through your plans. Last, oh, my gosh, Walgreens or CVS is making that a core merchandising element. But thematically, if you think about the benefits at retail pharmacy and what might be different whether it's this or other things we're working on, that's the dialogue that we have with each of our retailer partners, which is how can our value proposition help you achieve your goals. So that doesn't really exist today, but it's not to say that it more in the future.

Our next question comes from the line of Michael Cherny with Leerink.

I think a similar one along the same vein in terms of thinking about the evolving nature of your 2-sided network, both for the PBM relationships as well as on the ISP side of the pharmacies. Obviously, we had the reset from a couple of years back with Kroger. And now as you go forward, you look at the health of the 2-side dynamics of your market where else do you think you see the next important leg of development? Is it adding more partners on the ISP side? Is it more direct pharmacy? Do you feel like you're at homeostasis now across the network? And if not, where do we see the next leg of who the next partner should be?

Yes. Thank you for that. I like the theme of that question. In terms of our retailer partnerships and balance, I would characterize the approach now as the right 1 that can carry us forward for, I would hope, years that is really for the forever work of how do you work with retailers as well as PBMs to deliver benefit and have the economics such that people are feeling good about.

And so I think from a retailer standpoint, I would say we're in the earlier days of working kind of how if you could wave magic wand, you always run this effort. And so I'd say there won't be any probably huge structural differences, but it will continue to evolve over time. What I do believe has a whole another wave of evolution is really the thematic marrying of what GoodRx is, which is the benefit that exists outside of your insurance plan and tying it more closely, right?

I think the big macro context here is 80% of our own users and the vast majority of us is Americans get our health care through our insurance plans, which come through our work. And the macro trends in that are co-pays are going up, deductibles are going up. And as there's a narrower set of drugs that are being covered, that's the zone that we're addressing and operating in. And in a world where approximately 1 billion prescriptions a year, 1 billion with a B are left at the counter due to affordability. The whole industry actually has a heck of a lot of incentive to help people get those medications, and that's the value proposition we're sitting in. What does that mean for our partnerships. It means we're going to continue to work with our PBM partners and then their plans downstream to bring these couple of things together, whether it's corporate funded plans and Medicare.

So I hope not just on behalf of GoodRx, but honestly, the system, you're hearing about continued evolution from us certainly over the coming months, quarters and years to keep marrying those 2 things because it will be good for the system, and it also be good for us.

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

This is Mitchell on for Jack. What have you been seeing lately in the demand environment for pharma manufacturing solutions? And have there been any changes in the pharma decision-making? And then what gives you the confidence that you're going to outperform the market growth rate in that business?

Manufacturer Solutions is approximately a $100 million business that's really anchored in the core of the GoodRx marketplace, which is 25 million people a year coming here searching for a specific drug and the pricing benefit that is surround -- that's reflective of approximately, again, 100 million scripts a year. If you're a brand drug, whether you're a generic, you're a brand, you're an OTC, you kind of want to be in that environment and be in that environment either with a pricing discount depending upon the nature of your brand drug or merely communicating to a user at very low in the funnel.

So we're pretty high-return marketing vehicle in pharma and one that I would say is pretty unique and extremely valuable. So relative to our expectation here, we should be able to outperform a market that grows in the mid-single digits, simply by penetrating more brands that we think have high value with us. And the work we're doing is really getting ourselves in front of brand managers, access teams and agencies, which are different in every single company, but getting our value prop for the right things in front of them and having them sign up and run programs.

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

I want to follow up on your comments around your exposure to the recent system outage disclosed by change, United. Can you elaborate more on the dependencies and integration there? Is it more for your pharmacy partners, more PBM side? I know you said 2 days, but seem systems were down longer than that, I haven't done longer than that, what have been the workaround. And if it does impact your financials, is it more on volume side? Or is it more on the cost side?

Jailendra, this is Karsten speaking here. So I think, first of all, we've been really pleased with the performance of our tech teams. We think they did an amazing job in 2 ways. First of all, creating alternatives for us. So alternatives in the context of what switches we use and being able to shift our volume quite rapidly. That's one of the big reasons we refer to this as being an issue that affected us for a couple of days versus an issue that affected many in the industry for a longer period of time.

And for folks on the call who might not know the issue, it's the issue around the ability to route transactions and pharmacies being able to fill funded or discount card scripts broadly. So from that perspective, I think our much quicker response was helpful to our users and of course, helpful to us because that diminished the impact that would otherwise have manifested in the quarter.

I'll also add, we're still evaluating it. But sort of like with the winter storm, when volume drops, you often see a significant portion of that volume come back. And that's one of the reasons the impact has been not as large as it would otherwise have been. I also want to point out that it is reflected in our Q1 guide. We contemplated this based on the data we had to date and our expectations for how the issue would evolve and included in the growth rates.

Our next question comes from the line of Jian Li with Evercore ISI.

Great. This is Jian for Mark Mahaney. A couple of questions. One is maybe just going back to the ISP, what's the go-to-market that GoodRx can do? Because it sounds like it's the -- it's sort of dependent on the ISP partners ramping up the benefit plans on it. So anything that GoodRx is doing to increase that penetration? And maybe related to that, I think you guys mentioned sort of ramping up marketing. What channels are you testing? What -- like where is the dollar spend?

Yes. It's -- again, in the vein of early days. Right now, our effort is working with our PBM partners to then present this capability into their plan and their own client base. And so the nature of your question of, "Oh, what are we do? And right now, we're working with our partners. And then over time, this question of, hey, how do you educate not only the corporate clients, but probably the brokers and consultants who are -- probably the real decision-makers and influence in this. We'll again work with our partners to figure that out.

So that will be part of the things that we'll work on through this year. And we do believe that there's more that we can and should do, not necessarily even for our own benefit, but just for the success of the product to that audience, but we'll figure it out with our partners.

Then your second question on marketing. So the nice thing about GoodRx and our value prop is if there's an individual and we know what their condition is and what kind of insurance they have, you could pretty much map the savings benefit that we can do to that individual to a super precise amount. And for a marketer, what that means is you can and should be able to hone in on audiences that are particularly valuable in a precise way, not an incredibly one-to-one way, but we can get pretty focused on here are the high-value people that we're going to add a lot of benefit to. So it's less about channel per se as much as mapping our messaging and where GoodRx shows up towards these individuals that we just know we're going to save them $800, $1,000, $5,000, right? You can kind of do that mapping, and that's really what the marketing team has been working on.

Along with this ongoing realization of recognition that health care professionals who legitimately love GoodRx. Coming in, that was one of my biggest surprise delights about what's here is the fact that you walk into a health care professional's office and whether it's a doctor or a nurse or the office administrator, they absolutely love GoodRx because we're helping people get on beds and stay on beds and get better.

And so that audience is a huge advocate for us in a super natural way. When we look at our marketing, we're really focused on how and where can we help that audience continue to advocate for us in this totally natural way.

Our next question comes from the line of Allen Lutz with Bank of America.

Scott, it sounded like direct contracting may actually be contributing a little bit more than ISP. Can you break down the relative growth in 2024 from direct contracting and ISP? And then regarding the ramp in ISP, is there any way to frame how many more lives could be on the platform by 4Q versus the start of the year?

The parsing of relative growth, one versus the other. I might come at that a little differently, which is -- in the quarter, revenue grew 7%. You can look at the marketplace growth. And I think what you're seeing is now the performance of GoodRx in the context of the system. And so you see a retail network at a, we'll call it, a stable place, but really working forward. And so -- now right now, you're basically just seeing the GoodRx operating in the way that we can within the system. So it's not retail contracting versus ISP. This is back to the fundamentals of number of people who are using GoodRx to get a benefit, and you're now seeing that grow nicely in the now what's mid- to high single digits. And that is, I think, higher than the average prescription volume growth rate and of our category, and the number of things that we have underway, the nice thing is if we keep landing them, we should be able to continue to drive that growth above category rates. Hopefully, we can.

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

On direct contracting, you've previously noted that it might be a slight headwind to PTR for MAC, just given those contracts generally have lower admin fees. So I'm curious, as I look at your 4Q numbers, you had a very nice sequential improvement in PTR for Mac. But for 2024 and beyond, how should we be thinking about that metric given direct contracting will become a bigger part of your business?

Thanks for the question. This is Karsten. With respect to PTR for MAC, you're right, we are pleased to see that as a really a reflection of the relationships we have and the value we add when we deliver prescriptions to our customers, our PBMs and our pharmacies. So from that perspective, it's really a reflection of what we do and how well we do it.

I think with respect to the future, we're not expecting any nonlinearity in the trends. So we think it's not going to move very much at all as we go into 2024 now that direct contracting is already a significant minority of the volume coming through.

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

Scott, just circling back to Pharma Manufacturing Solutions. I know you've been meeting with pharma companies as well. Any particular feedback that you're hearing in terms of as your strategy evolved there and then you look to target growth in this market? What's resonating versus what are some things you're working on to drive that growth?

Yes. Thanks for the question. I think what's resonating is, number one, the unique role GoodRx has in the ecosystem again, which is 25 million people who are a high intended audience around prescriptions. I mean in other categories, you might call this Google right? These -- outside of health care, there's low funnel marketplace areas that marketers and those industries absolutely recognize, love, appreciate. Health care is a little different where this position that we have as a vehicle to reach people who are really thinking about a specific drug or their condition, and not just people but doctors, it is a unique and valuable one.

And so we're at this place where a couple of companies and brands who are working with us are leaning into all the unique ways that they can work with GoodRx to, again, propagate their brand messaging, whether it's to reach an audience or to end up having some unique performance deals around a cash price that are working, which is great.

I think the broader context around it is we're still in a spot where when we look at the top 50 brands that we've gone through and said, we have a lot of traffic here relative to the brand itself. There's unique things we can do for them, it's sweet spot value. We're working with a very small number of those 50. And so the effort really throughout this year is just getting ourselves in front of the decision makers and then getting campaigns loaded up. But if I could literally level magic want to get in front of access people and brand managers at each of these companies, maybe not all 50 would sign up, but we think there's a value prop for these that would happen kind of right away. Well, that's the work for our teams and for us to go do, which is to get ourselves in front of them, present a value proposition and hopefully have them start growth.

Our next question comes from the line of Scott Schoenhaus with KeyBanc.

Most of my questions have been asked. But Scott, I wanted to follow up on your comments around the ISP. You said you're generating incremental year-over-year revenue in line with expectations and those will ramp throughout the year. But then you also talked about sort of seasonality in this business longer term, you'll have more in the first half due to the deductible. How should we be thinking about the back half of this year as these new clients ramp given that probably some of them have already reached their deductibles by that time, the employees. Can you just like walk us through the moving parts of all that? And then my second question is, you talked about the the revenue per transaction on the direct retailing side. Can you comment on the ISP side, how that's affecting that part of the business?

Actually, I might jump in first, Scott, and great to speak with you again. This is Karsten. I think there are 2 parts to the question. One is around seasonality of ISP. And on that dimension, we have 2 factors that, to some degree, are offsetting. On the one hand, you're quite right for lives that comes on at the beginning of the year, you'd expect ISP to be more valuable to them earlier in the year for the reasons you cited.

I think the other effect, though, is that we also anticipate that not only will we be picking up some incremental lives during the year, but we'll be picking up incremental types of transactions during the year as well that we might not have from a given PBM at the start of the year. So while in a steady state, you would see primarily the former effect, meaning the seasonality of people hit deductibles. I think in this year, that will be attenuated by in-year expansion of the people/lives, medications, et cetera, that we pick up.

With respect to economics, the economics look very similar. The only real delta for the primary real delta might be a better way of putting it is how we acquire users, meaning in our direct-to-consumer business, we pay the tax upfront. And then they pay back over time, still consistent with what we've always said in the past, sort of in the sub 8-month time frame. In the ISP context, it's a little different because there we're paying as we go in terms of marketing fees to the PBMs who aggregate the demand on our behalf. But that's all sort of below the revenue line for the most part.

In terms of revenue per transaction or revenue per users, I don't think we see -- I don't think we see substantial differences there at all, Scott.

Our next question comes from the line of Stan Berenshteyn with Wells Fargo.

On direct contracting, are any of your direct contracting agreements exclusive? And do any of the directly contracted pharmacies advertise GoodRx savings to consumers at the point of sale?

Yes, thanks. No, they're not exclusive, but I think the way to frame that is, again, GoodRx working with retailers and then how do retailers broadly, each of the retailers think about discount cards. And I think the -- if you zone out a second, we GoodRx, if you're in the world, if you think about cash discount card or any benefit that lives off an insurance plan. We're obviously far and away the leading company in that space. We're the only one that drives fundamental demand relative to our marketing efforts and has what I'd call a pure relationship at retail where we're above the board with every interaction we have with our retail partners without anything going to individual pharmacists. And so this category, I would say, has GoodRx and then a whole long tail of kind of small, little card companies. And if you think about us, when we talk about direct contracting and work with retail, what this really is, is the category working with each retailer in an effective way. I hope from a standpoint over a couple of years that that's going to result in us continuing to gain share just in a natural way because we can do things with a retailer to build their business that legitimately these other companies just can't do.

Our next question comes from the line of Kevin Caliendo with UBS.

This is Dylan Finley on for Kevin Caliendo. So on ISP, in year 2, 3, 4 as Caremark and the others offer the program to more and more plans and that in turn gets pushed out to more lives. I guess what is the reason that there's not going to be any overlap with the existing GoodRx customer lines that you already have today? I guess it's possible that there wasn't much overlap in the pilot pool that you saw last year at Express Scripts. But I guess what's your conviction that as it continues to grow, there isn't much overlap with your existing base?

Sure. This is Karsten. Yes, I think the best evidence we have is not just from last year with ESI, but even what we're seeing this year, we've continued to evaluate this. Again, we worked with ESI last year to really assess the benefit of the program for GoodRx as well as for our counterparties before increasing its magnitude this year, and we did that in large part because it's noncannibalistic like low single-digit overlap on top medications or consumers.

And we continue to evaluate, obviously, now that we've added MedImpact, Navitus and Caremark. And in that context, nothing has changed. We're still seeing that incredibly low single-digit overlap on top 10 drugs, on consumers, et cetera. So what we're really finding here is that this is a SAM expanding opportunity for us, meaning there are a bunch of folks who might never have used GoodRx for a bunch of medications that they might not have used GoodRx for in the past, who are doing it when it is automated and part of their benefit, and that's exactly what we hope to see happen, and it is happening.

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

Scott, I had a question about what I think about is like tail risk. And I'm following like the J&J lawsuit around the [ Arista ] rules and the Consolidated Appropriations Act. When we probably get to a point in the future where PBMs have to do a better job of matching drug rebates with purchase prices at the point of sale. And I'd just be interested in how you think or expect into that process and if there's a way for you guys to either facilitate that process or whether or not that serves as a risk?

Yes, thanks. That's a rich question. I hope -- this is -- I'll answer in a hopeful way, which is there should be a future where that, in some ways, reflects the foundation of how we fit in the ecosystem, which, again, is you have this dynamic of health care plans, which rebates, plan design, benefit, right, that's a complex system that entails plans, PBMs and the drug manufacturers and the economics flowing through all of them.

But appropriately, there's this mix of what do companies pay for as part of paying for insurance coverage and then what do we push on to people to ourselves. And that's going to be a balance, and that's going to be continuing to be a balance.

And I think as planned design continues to evolve, there's going to be different kinds of plans for different segments, different companies, all within the same place. And I think what you're seeing with ISP is our -- the industry partners and GoodRx try to address this need that's outside of your plan, but still allowing for affordability to create people to get access to their medications. And there should be, should be continuing ways for us to work with that corporate funded plan universe to create benefit for companies who are paying for insurance plans and most importantly, they're people like it is, again, with the 1 billion scripts plus that don't get filled for affordability and people's uncertainty about is this covered or not and what's it going to look like that calls for a need for an independent marketplace that's covered across the retail universe that creates transparency relative to their insurance and relative to other pricing options. And that's kind of the value prop that we have and what we're trying to fulfill.

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

Before we ran out of time. Maybe 2 just following up on topics we've talked about so far this morning. In the subscription business, can you help maybe give a little more granularity on some of the headwinds and tailwinds in the subscription business as 2024 proceeds? And how some of it might be more pronounced on either the subscriber side versus the revenue side, as we think about sort of bringing your forecast back to our models, that would be number one.

And on the Manufacturer Solutions side, understood some of the key points made so far on the call, but can you almost better understand some of the execution going forward? Is that just broader adoption of manufacturer solutions and continue to execute against the opportunity? Or there's still building blocks you feel like you're putting in place to drive sort of sustained revenue momentum around that business?

Sure. It's great to speak to you again, Eric, Karsten here. I'll take the first part and Scott may hop in on the second part. On the first part relating to subscriptions, yes, the reality is that our Kroger Savings Club users are a lot less economically interesting for us than our gold users. Even if you just look at the pricing for the 2 groups, our gold users are paying just shy of $10 a month, the Kroger Savings Club individual users are paying $36 a year, which is split with Kroger. So if you compare that, they're about 1/6 is valuable, right? So as Kroger Savings Club rolls off, we will see subscription -- subscriber counts decrease, but the revenue impact is much, much more diminished.

Just to put it in perspective as well, the revenue impact of Kroger Savings Club along with the vitaCare restructuring that we did together, those things were around $15 million worth of impact. So you can get a sense for the fact that there's not an awful lot of revenue there. Our own gold users are growing, which we talked about in our prepared remarks, and we're quite pleased with that because it does reflect the value proposition that we offer to them and their interest in it, which is something we're very pleased with.

With respect to Pharma Manufacturer Solutions, do you want to hop in, Scott?

Yes, sure. I like that question. Thanks, Eric. I'd say, first, we have line of sight to our value prop and particularly the kinds of brands where we have high value. So at its fundamentals for everybody here at hey, there's some places we really do work.

Now then to your question of where are we in matching yourself to all those opportunities from an execution capability standpoint, there's still a bunch of things that we're building, particularly around the flexibility and the GoodRx experience to have a marketer show up in different points and match it with data that for anybody who's been in performance marketing before it's things like data and have platform and all these things that honestly, walking in on a scale of 1 to 10, we were like a 2. And I'd say now we're to 5. And that's not difficult intellectual work, you just have to do it.

And so I -- we absolutely have work to do to continue to make a highly flexible data metric ecosystem that we can, at scale, run hundreds of different brands in an intelligent way that you think about as a best-in-class marketing platform. But we'll get there, like that's just pick and shovel work.

And then I think from an awareness standpoint, on, again, the same 1 through 10 scale, we're probably like a 3. And I take comfort from that because our single biggest opportunity is just getting in front of the decision-makers within each company that sit either in brands and access teams or agencies and we just have to keep doing that work. But we have a good team in place now that has done these kinds of things before and are in the market having these conversations. Hopefully, that helps.

I'd now like to turn the call back over to Scott Wagner for closing remarks.

Yes. Thanks. Thanks, everybody, for joining. I appreciate the questions, and thanks for joining us today, too. I think maybe to wrap a little bit. I hope what people are seeing and hearing is progress -- seeing the visible progress against things that we started talking about in April and May that we said we were going to do, around bringing not just balance to the network, but partnerships to retail, thinking about ways to take this benefit and build it out over time, which is the integrated savings. And we were talking about those things last year. And -- they don't -- they needed time to bake into our financial results, and I'm encouraged by the fact that now you're seeing the visible signs of progress that's a return to growth not just on the top line, but obviously, nice incremental scaling profitably to the bottom line.

So it's great to see those 2 things reflected. And now going forward, through 2024, what we're doing with our own teams and what you'll get to see alongside of us is the work to continue to scale each of those efforts. And we'll share that progress with everybody as we go throughout the year. Thanks for joining.

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