Goodrx Holdings Inc

NASDAQ:GDRX

Earnings Call Analysis

GoodRx's Q2 2024: Revenue Growth, Margin Expansion, and Future Projections

GoodRx’s revenue for Q2 2024 increased 6% year-over-year to $200.6 million, bolstered by a 7% growth in prescription transactions and a 9% rise in Pharma Manufacturer Solutions. However, subscriptions revenue fell 8% due to the Kroger Savings Club's wind-down. Adjusted EBITDA surged 22% to $65.4 million, with a margin increase to 32.6%. Despite Rite Aid’s store closures impacting revenue, GoodRx remains optimistic, projecting Q3 revenue between $193-$197 million and full-year revenue at the lower end of $800-$810 million. They anticipate adjusted EBITDA for 2024 to exceed $255 million, marking an 18% increase from 2023.

Strong Revenue Growth in a Challenging Environment

In the second quarter of 2024, GoodRx reported total revenue of $200.6 million, reflecting a 6% increase year-over-year. This growth was primarily driven by robust performance in the prescriptions marketplace and pharmaceuticals manufacturer solutions, despite challenges presented by the closure of Rite Aid stores. Specifically, prescription transaction revenue grew by 7% to $146.7 million, fueled by an 8% increase in monthly active consumers, showing that demand for its services continues to be strong.

Impact of Strategic Changes and Initiatives

GoodRx has strategically wound down the Kroger Savings Club and restructured its vitaCare offering, which together contributed an approximate $5 million in revenues last year, leading to a tempered growth outlook. In 2024, the revenue from these sources is expected to decrease significantly. However, GoodRx is focusing on expanding its market reach, emphasizing that such short-term challenges could provide long-term benefits as scripts are redirected to other pharmacies and renewals continue.

Promising Outlook Amid Temporary Challenges

Looking forward, GoodRx has provided guidance for the third quarter with expected revenues between $193 million and $197 million, translating to about 3% growth. For the full year, the outlook for revenue adjusted revenue rests at the low end of the $800 million to $810 million range, implying a 5% growth. Management anticipates that the impact of store closures will be temporary, and they expect to recapture some business as medications are transferred to different pharmacies.

Adjusted EBITDA and Margin Expansion

The company's effort to enhance profitability is reflected in an adjusted EBITDA of $65.4 million for Q2, representing a 22% increase year-over-year. The adjusted EBITDA margin reached 32.6%, up 440 basis points. GoodRx is confident in sustaining its operational efficiencies, aiming for a third-quarter EBITDA margin around 32% and an anticipated full-year EBITDA of over $255 million, marking an 18% increase over 2023. The adjustments in the business model towards direct contracting are seen as pivotal in achieving these efficiencies.

Growing Pharma Manufacturer Solutions

Pharma Manufacturer Solutions revenue increased by 9% to $26.5 million, highlighting the company's increasing significance to pharma manufacturers seeking to enhance access to their brand medications. Momentum in this segment is expected to improve further, with management forecasting growth rates of over 20% through to 2025, driven by strong interest in discounted programs and ongoing partnerships with key drug manufacturers. This shift is seen as a critical growth vector for GoodRx.

Resilient Financial Health and Debt Management

GoodRx's financial standing remains solid, with $525 million in cash and cash equivalents at the end of Q2 and $657 million of outstanding debt, primarily from a recently refinanced credit facility maturing in 2029. The prudent capital management indicates that the company is well-positioned to invest in high-return opportunities and maximize shareholder value.

Administrative Stability and Future Orientation

With new board members with extensive healthcare experience and a commitment to enhancing relationships with healthcare professionals, GoodRx is laying the groundwork for future growth. Its focus on improving user experience and accessibility is expected to drive engagement with both consumers and pharmacies, especially independent ones, as the company continues to expand its services.

Earnings Call Transcript 2024-Q2

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the GoodRx Second Quarter 2024 Earnings Call. As a reminder, today's conference call is being recorded.

I would now like to introduce your host for today's call, Aubrey Reynolds, Director of Investor Relations. Ms. Reynolds, you may begin.

[Aubrey Reynolds, executive]

Thank you, operator. Good morning, everyone, and welcome to GoodRx's Earnings Conference Call for the second quarter 2024. Joining me today are Scott Wagner, our Interim Chief Executive Officer; Karsten Voermann, our Chief Financial Officer; and Mike Walsh, our President and EVP of Prescription Marketplace. The team is not in the same location for today's call, but we will do our best to make the Q&A portion as seamless as possible for our audience.

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 plans, strategies, goals and objectives, our market opportunity, our anticipated financial performance, underlying trends in our business and industry, including ongoing changes in the pharmacy ecosystem, our value proposition, our long-term growth prospects, our hybrid retail direct and PBM contracting approach, collaborations and partnerships with third parties, including our integrated savings program, and our capital allocation priorities.

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 financial 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 represents 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 in 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 shortly as well.

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

[Scott Wagner, executive]

Thanks, Aubrey, and thanks to everyone joining us today to discuss our second quarter results. Today, I'd like to remind you of the themes from our recent Investor Day, share a handful of relevant updates that we think investors should care about both in the industry and at GoodRx and talk about Q2 financials and how we see the second half of 2024 evolving.

We appreciate the feedback we received following our first Investor Day. We tried to provide clear context for the healthcare landscape at which GoodRx operates, how GoodRx complements insurance and our priorities for the future.

Right now, we're all seeing the tectonic plates in healthcare continue to shift between PBMs and plans and brand manufacturers and retail.

The good news for GoodRx is that we provide value to practically every part of the pharmacy ecosystem with the consumer or patient right at the start. Consumers use GoodRx to save money in their prescriptions. Healthcare professionals use GoodRx to get patients on the medication they need and save precious time. Pharma manufacturers work with GoodRx to make their brand medications available to more consumers. Pharmacies work with GoodRx to acquire new consumers, reduce friction at the counter and keep people from walking away from the nearly 900 million 30-day scripts that go until every year.

And finally, pharmacy benefit managers work with us to gain incremental volume. We believe that the best proof point of GoodRx's value lies in our scale. In 2023, consumers visited the GoodRx site and app about 350 million times and viewed our drug price page is almost 140 million times, and our patients and consumers are transacting with us with 25 million unique consumers or patients filling prescriptions with GoodRx in 2023, saving about $15 billion.

And it's not primarily an insured folks who thrive with GoodRx. We estimate that about 88% of our users have commercially funded insurance or Medicare and use GoodRx as a complement to their funded benefits. That's because medication accessibility is both narrowing and becoming more complex fueled by three trends: First, insurance benefit design and planned coverage is getting narrowed. It's estimated that the number of formulary exclusions increased almost 40% in the two years through 2022. Second, more utilization management is required to access the medication with prior authorization and step therapy up an estimated 45% in the last three years. Finally, and most importantly, patients continue to bear more of the direct cost of their medication. We estimate that the total out-of-pocket spend for prescription drugs in the first half of 2024, was over $20 billion.

That means our ability to give consumers access to medication at lower prices and ease of use regardless of their insurance status is increasingly relevant and durable. Just like consumers, healthcare professionals value GoodRx too. Doctors offices spent an average of 14 hours every week in 2022, completing authorization, so patients could get the medications they need to be healthier. That's a key reason the GoodRx site and app received almost 750,000 unique visits from healthcare professionals in 2023. They benefit from us just as much as their patients do. Brand drug manufacturers are paying increased attention to affordability and access as well, and they understand the important role that GoodRx's strong platform plays in helping them directly reach consumers.

In 2023 alone, we had 43 million unique brand drug page interactions on our platform and estimate that a staggering 65% of our visitors learned about manufacturer savings programs for the very first time via GoodRx. Our users also support retail pharmacies. In fact, we estimate that a one major retail pharmacy, over half of their consumers purchased front-of-store items when they pick up a prescription with a median spend of $25. This illustrates the GoodRx is an important part of the healthcare value chain and sets the foundation for the 5 priorities we discussed during our Investor Day.

Those 5 priorities are: one, strengthen our value proposition to key constituents in the healthcare ecosystem; two, scale pharma manufacturer solutions; three, grow and deepen our relationship with GoodRx users; four, build distinctive, frictionless end-to-end GoodRx experiences; and five, build a winning team and culture. I'd like to share a handful of recent industry developments in GoodRx news relative to these 5 priorities.

On the first priority, strengthening our value proposition to key constituents in the healthcare ecosystem. We've been centered on solidifying our relationships with both retail pharmacies and the PBM network with most of our efforts and communication with investors centered around our contracting models. Retail pharmacies have been economically pressured and we believe our direct and hybrid contracts can meaningfully help them. As reimbursement rates shifted on funded business, the volumes from our direct contracts can both boost revenue and margins for our pharmacy partners with on prescriptions and on front of store sales.

As we shared at Investor Day, 7 out of 10 of our top pharmacies have contracts with us, either for their full book of business or for some part. We're pleased with our new Kroger agreement and the improving Kroger metrics we've seen to date. At an individual retailer level, these contracts with pharmacies have varied in their impact on GoodRx revenue and implementation and their aggregate impact on volume and revenue date has been neutral to slightly accretive. While we firmly believe this approach is the right answer for GoodRx long term, given it cements our retail relationships and ensures network durability, the immediate contracting results can fluctuate in terms of their impact on GoodRx revenue pacing in the short term.

Structurally, retail pharmacies had a tumultuous summer with Rite Aid announcing additional store closures and Walgreens indicating that their footprint will shrink as well. Store closures impact immediate GoodRx volume and revenue, although scripts do migrate over time. While this closure trend isn't positive in the next few quarters, we do expect that the impact of this trend will normalize in the longer term as a result of such migration. ISP is tracking roughly in line with expectations with incremental lives continuing to join the program through our current PBM relationships. It's important to reiterate that ISP has been a generics-only program to date, focused on integrating GoodRx pricing into the benefit for covered drugs, where the cash price might be lower than the patient's co-pay.

Founded on these successful launches, we continue to expand our PBM partnerships. For example, with that impact and also with Smith & Survey, by offering programs that also wrap around the benefit for noncovered brand medications. This is meaningful as GoodRx's increasing stable of brand-specific cash programs continues to grow and as PBMs and clients strive to balance clinically effective and cost-effective formularies with patient choice. Patients win with less friction and better prices. PBMs win with fills outside their traditional covered life base and retail pharmacies win with attractive reimbursements on these fills. We believe GoodRx is uniquely positioned to offer this program and drive value across different healthcare stakeholders.

On our second key priority, scaling Pharma Manufacturer Solutions, we grew approximately 9% year-over-year in the second quarter. Looking ahead, we're encouraged by the momentum of deals signed in our pipeline in the quarter. We're focused on unique GoodRx affordability solutions, cash, co-pay assistance, enrollment that need big problems for brands and patients where we can potentially have big value. We're working with large brands and clients, and we're building execution speed and muscle. We've signed over half a dozen cash programs for brands in the quarter, and have over 40 signed programs with different brands, up over 50% since the start of 2024. Those include an offering with Boehringer Ingelheim for their Humira biosimilar, which allows anyone with a valid prescription regardless of insurance status to pay an exclusive cash price of $550 with a GoodRx coupon, representing a 92% discount from the HUMIRA list price. This program is a significant step in addressing access and affordability in one of the largest therapeutic categories for the high cost burden for patients.

Some other notable point-of-sale discount deals that we've talked about include for Sanofi Lantus relationship, where claims are up over 5x year-over-year as well as with Dexcom on the device side. We're encouraged by the quality of our pipeline build, and we're working with extreme urgency to sign and implement throughout the second half of 2024 and to build to a 2024 exit rate. From a fundamental investor perspective, the good news in these programs is that they're typically evergreen and a compound over time with new fills and refills.

Now it's on us to stack several of these in the coming quarters as we leverage pharma manufacturers' interest in offering cash pay alternatives as well as scaling access to co-pay and deductible assistance programs. In fact, we're seeing increased interest from manufacturers and leveraging the GoodRx platform, trusted brand and user volume to surface, manufacture hub enrollments, co-pay programs and other market assistance tools.

Our third key priority is to grow and deepen our relationship with GoodRx users. We've always been focused on relationships with prescription drug consumers, the patients. And now we're complementing that with an increasing focus on healthcare professions.

We benefit from very strong provider relationships reflected in our 84 Net Promoter Score and 90% awareness amongst HCPs. We've increased our focus on HCP offices by increasing the doctor kits we ship out and putting over 20x more digital marketing assets into HCP offices in the second quarter relative to the first quarter of 2024. Our top decile of HCPs drive about half of our claims. So we believe that unlocking more HCP offices can drive meaningful incremental claims and usage over time.

Our fourth key priority, build distinctive, frictionless and then GoodRx experiences. We've redesigned many of our brand medication pages, increasing visitor session duration, and we've created incremental redundancy to mitigate outage risk. We ended the quarter with 8% year-over-year macro and over 7 million prescription-related consumers.

Finally, our fifth key priority, build a winning team and culture underpins all the others. I'm pleased to announce that we've added senior talent with healthcare experience from Amazon, and we announced during the quarter that we've added 2 new members to our Board of Directors, Ian Clark, former CEO of Genentech; and Simon Patterson, a Silver Lake partner and former Board member of Dell Technologies and Skype. In the future, we plan to add additional healthcare leaders to the passion for patient affordability.

As I hand off to Karsten, a few editorial comments in the financials. As the business has returned to growth over the past few quarters, we're seeing a sizable amount of incremental revenue flow through to adjusted EBITDA growth and adjusted EBITDA margin expansion. That's positive for the long-term growth and profit balance for investors. We promised a year ago that we'd share with investors both what we know today and what we think and focus our guide based on what we know, and we stand by that promise.

I want GoodRx to keep our collective eye on the prize of impactful growth areas available to us and to stack new programs, whether they are more brand deals, additional planned coverage areas or more users to exit 2024 as strong as possible. We laid out some broad growth targets at Investor Day that are appropriate goalpost over the long term for this business and we're going to pursue those with optimistic and extreme urgency.

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

[Karsten Voermann, executive]

Thank you, Scott. I'll review our second quarter financial results before turning to guidance. During the second quarter, revenue and adjusted revenue were above the guidance we provided on our first quarter earnings call in May, and adjusted EBITDA margin was up year-over-year and also quarter-over-quarter, again, just like we expected it to be despite the challenges in the retail pharmacy space exemplified by the Rite Aid closures.

Total revenue and adjusted revenue for the quarter increased 6% year-over-year to $200.6 million due to growth in our prescriptions marketplace as well as pharma manufacturer solutions. As a reminder, the second quarter of last year included revenue from the Kroger Savings Club subscription offering, which we sunsetted in July 2024 and included revenue from our vitaCare offering within manufacturer solutions, which we restructured last fall and did not contribute any revenue to this Q2. To quantify this impact on growth, Kroger Savings Club and vitaCare together contributed approximately $5 million more revenue in the second quarter of 2023 than in the second quarter of 2024.

Moving on to the revenue lines. Prescription transactions revenue grew 7% year-over-year to $146.7 million, which was primarily driven by an 8% increase in monthly active consumers. Subscriptions revenue declined 8%, as expected, to $22 million due to the wind down of Kroger Savings Club. Kroger Savings Club revenue was over $2 million less in the second quarter of 2024 than in the prior year period.

Pharma Manufacturer Solutions revenue increased 9% year-over-year to $26.5 million, driven by organic growth as we continue to expand our market penetration, including ongoing growth in our brand drug point-of-sale discount programs. That growth more than offset the approximately $3 million reduction in revenue relative to the second quarter of last year from vitaCare shuttering.

Net income was $6.7 million compared to net income of $58.8 million in the second quarter of 2023. Additionally, in the second quarter of 2023, we recognized an income tax benefit of $47 million, adjusted net income was $32.4 million, up from $28.4 million in the second quarter of 2023.

Adjusted EBITDA increased 22% year-over-year to $65.4 million. Adjusted EBITDA margin was 32.6% and was up 440 basis points year-over-year. The year-over-year improvement was primarily driven by top line growth and savings from the restructuring of our vitaCare Pharma Manufacturer Solutions offering in the second half of 2023.

We generated net cash provided by operating activities of $9.7 million in Q2 compared to $29.9 million in the prior year period, primarily due to changes in operating assets and liabilities.

Our balance sheet is robust, and we ended the quarter with $525 million in cash and cash equivalents and $657 million of outstanding debt. Our revolving credit facility is untapped, except for letters of credit and had $92 million of unused capacity as of June 30, 2024, representing total liquidity of $617 million.

On the topic of debt, after the end of the second quarter, we successfully refinanced our credit facilities and used approximately $167 million of cash to reduce our gross debt to $500 million maturing in 2029 and extended the maturity on all that $12 million of our existing $100 million revolving credit facility to 2029.

Our capital allocation priorities are unchanged, and we'll continue to focus on high-return investments and maximizing value for shareholders.

With respect to guidance, we're taking a prudent approach and our outlook for the third quarter attempts to account for ongoing changes in the pharmacy ecosystem, including the location closures and pharmacy economic pressures, Scott mentioned. We currently expect to see Q3 revenue and adjusted revenue coming in between $193 million and $197 million, representing approximately 3% adjusted revenue growth.

Similar to my commentary earlier on 2Q '24's results, we expect our 3Q '24 growth rates to be tempered as compared to the prior year period because of vitaCare and the sunset of Kroger Savings Club in July, which together contributed about $5 million more to our top line last year in 3Q '23 versus this year in 3Q '24.

For the full year 2024, we expect revenue and adjusted revenue to be at the lower end of our previously indicated $800 million to $810 million range, representing about 5% adjusted revenue growth and we expect revenue acceleration from the third to the fourth quarter. As Scott said, we're seeing bookings momentum in Pharma Manufacturing Solutions and in the fourth quarter, we expect that momentum to result in accelerating quarter-over-quarter and year-over-year pharma man sol growth.

As we look forward, I want to make sure we're clear on what we're including and not including in our guidance. First, we're assuming Rite Aid store closures will have an approximately $5 million impact on revenue in the second half of 2024 with a couple of million dollars of impact in the third quarter alone. We view the impact as largely transient though. Over time, we expect to recapture some of this volume back into the system as scripts transfer and renewals get back on file. Second, Walgreens has announced store closures as well. Based on the limited amount of information we do know today, we do not anticipate material impact in 2024. Third, we continue to work with our pharmacies, whether direct contracted or not, including by advocating to ensure that economics are sustainable for all parties as pharmacies and PBMs negotiate cash pay medication fill economics.

We are focused on optimizing outcomes for our pharmacies, PBMs and ourselves, including by playing a role in pharmacy PBM cash pay negotiations. As Scott mentioned, immediate contracting results can fluctuate in terms of their impact on GoodRx revenue pacing in the short term.

For those comparing to Investor Day, the full year implied 5% adjusted revenue growth as a percentage point below the target 6% to 12% 3-year compound annual growth rate in part because of the expected roughly $5 million Rite Aid store closure impact, Scott and I mentioned earlier, and we anticipate our adjusted revenue growth rates will accelerate. We're focused on expanding our direct contracting with retail pharmacies to enhance their economics on growing our integrated savings program and including more uncovered and brand medication volume in it as well as continuing bookings momentum of our Pharma Manufacturer Solutions offering.

Finally, as a reminder, we expect full year 2024 adjusted revenue growth to be tempered by approximately $16 million of revenue included in 2023 from vitaCare and Kroger Savings Club which have both been shuttered and which contributed less revenue to 2024. We believe the store closures are a temporary reality we're facing and we're confident about both the expected financial benefit in the second half of the year, branded drug inclusion in ISP and also Pharma Manufacturer Solutions point-of-sale discount momentum, as Scott discussed earlier, which are both included in our guide. We're also pleased with how these can potentially benefit our 2024 exit run rate and compound into 2025. From a margin perspective, we expect adjusted EBITDA margin to be about 32% in the third quarter.

For the full year, we expect over $255 million of adjusted EBITDA, up about 18% from 2023 and based on our expectations of a high degree of adjusted EBITDA flow-through from top line growth and our continued focus on cost structure and efficiency generally. That represents approximately 32% margin up from approximately 29% in 2023. As GoodRx has returned to growth in the past few quarters, we believe we are demonstrating the inherent adjusted EBITDA margin growth potential of this business.

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

[Operator]

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

[Charles Rhyee, analyst]

Scott, just wanted to ask, obviously, there's a lot of vectors for growth here, and it's fair to say you're making good progress across all of these. One thing that you did talk about at Investor Day was the HCP channel. And if I recall correctly, you had mentioned that sort of roughly 50% of your MACs are coming from the top 10 percentile of HCPs and this was a potential channel where if you put more resources in, we could help drive further macro. Just wondering where we are in that and sort of the progress you're making and how we might see that translate more into macro?

[Scott Wagner, executive]

As we said in the script, we've, in the second quarter, surged media assets into a set of HCP locations, and we're focused on a combination of specialization and geography, as you can expect, we can get pretty precise about the kinds of offices that would have the highest return. As of now, we're putting relevant media assets, which is the hard part of the equation and do a lot more HCP offices.

And we expect -- and what we're seeing is this has a little bit more longer cycle return. It's not like you put the assets in and immediately all of a sudden, things are lifting, but we're getting good proof points of individual offices where we're going from handfuls of scripts to, in some cases, 10 to 20x in them but it's still early days. And the way we're going to measure that is really on a cohort return basis.

So that's a lot of context. I think the punch line for you and for the investment community is, we're putting more attention in dollars in the field in a unique channel that, in some ways, is unique to GoodRx. It holds a lot of promise, and we should see that continue to build really as we roll into 2025.

[Charles Rhyee, analyst]

And if I could follow up, maybe Karsten. Obviously, a lot of great momentum here, particularly on the gross margin side. A lot of it seems particularly as you move into direct contracting. Can you remind us sort of is direct contracting is a better margin profile for GoodRx? And then maybe you talked about the number of retailers that you have under direct contracting. Maybe if you can help us kind of size that in terms of PTR, like how much of PTR is under direct contracting versus the traditional PBM model.

[Karsten Voermann, executive]

This is Karsten. To both your questions, first of all, on direct contracting, we strive to maintain margins roughly equivalent to where they are. So we don't see it as something that necessarily lifts or lowers our margin, though as we implement direct contracts, we and retailers work together to assess consumer demand, assess appropriate consumer pricing and the resulting margin levels. And that on any given direct contract can create a little bit of flux retailer by retailer. Each retailer contract is a little different from each other one. But overall, we expect margins to be relatively consistent.

And you'll see that, too, because -- to go to the second part of your question, as direct contracting increases as a percent of revenue, I believe at Investor Day, we talked about it being well over 20% of our volume, and it's grown since then. You haven't seen significant flux in PTR per MAC. You've seen it degrade a little bit period-over-period, like single-digit percentages. And we'd expect to see that potentially continue into the future, but it's more a function of ISP and other factors than it is of direct contracting, I'd say.

[Operator]

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

[Lisa Gill, analyst]

I just want to follow up with your comments around the store closures for Rite Aid. So when we think about the store closures, is this because this is a direct contract. And so therefore, you're going to lose that volume, you try to have recaptured in some other way because I would think that if it was just a traditional GoodRx user, if they go to the CVS down the street, it would be the same relationship. So one, can you help me to understand that? And then secondly, I just wanted to follow up on your comments on Humira biosimilar. If you could just give us an idea of what you've seen on the uptake on that side would be great?

[Scott Wagner, executive]

Karsten, why don't you take the first and I'll take the second.

[Karsten Voermann, executive]

Lisa, yes, with respect to Rite Aid, one of the priorities we talked about at Investor Day was strengthening our value proposition to key constituents in the health care ecosystem and that's pharmacies in particular. We are doing that through hybrid and direct contracting. So pharmacy economics stay healthy in situations like Rite Aids can be mitigated. That said, the intersection of direct contracting in Rite Aid isn't really the issue here.

We believe the Rite Aid impacts on prescriptions and our revenue will be temporary over the next quarter or two or a few more and will not have a meaningful impact to long-term growth because the same number of scripts are being written and we expect consumers to fill them. What's really happening here is that when store closures occur, it's specific to the kinds of stores that are closing.

And what I mean by that is that different stores are associated with different store closure impacts. We've seen other pharmacy chains, as you know, in particular, larger pharmacy chains, closed stores as well, and those store closures did not have a material impact on GoodRx. Rite Aid is different because of the specific kinds of stores and geographies and mix associated with their closures. So that's the real reason we see a bigger impact emanating from Rite Aid than we would potentially from other pharmacies that might be in a similar situation.

And I think the final thing to say here is that we, over the last few years, undertook significant efforts on consumer engagement. Again, that ties into growing and deepening our consumer relationships that we talked that at Investor Day. The efforts on consumer engagement, including gating users and having them register and building rewards programs are now valuable for us because it allows us to reach out to consumers and redirect them to other pharmacies. So yes, we see the Rite Aid situation in the geographic unique concentrations that they're closing stores in as differential from other situations that might happen?

[Scott Wagner, executive]

Lisa, it's Scott. I'll pick up the second part. And I guess thematically, you're getting the short term, let's call it, slug and then the long term more positivity, which maybe is represented by the BI deal and where we are with brands in general. Specifically with BI, what this biosimilar is anyone with a prescription, regardless of insurance status is going to be able to pay an exclusive cash price of $550 with GoodRx. What's I think nice about this relative to just GoodRx is first, this is our first biosimilar and we do believe that the whole biosimilar category at large is an extremely big opportunity for these kind of cash programs.

And so this is the first biosimilar we would hope and expect there'd be many more to come. And more broadly, we now have over 40 of these brand cash point-of-sale programs in place with different brands, which is up 50% just from where we started in the year is one of those unique things that GoodRx really can do and deliver both directly to consumers to bring an affordable cash price on brands that might not be covered. And we're starting to connect the dots back into the plant themselves as evidenced by the extension of MedImpact in ISP to these uncovered brands. So this was the first biosimilar, but hopefully, there's a lot more to come.

[Lisa Gill, analyst]

Anything you can give us around like a number on the uptake or anything around that, Scott?

[Scott Wagner, executive]

It's super early, Lisa. And this one will, by itself, this isn't going to -- this isn't a tidal wave of change by itself. But again, as you start to build more and more of these kind of programs, they can stack pretty meaningfully. But by itself, this in and of itself isn't what you call a "model changer," but the broad theme of the category in biosimilars certainly can be.

[Operator]

Our next question comes from the line of John Ransom with Raymond James.

[John Ransom, analyst]

When you look at your '24 exit rate, how should we be thinking about that for the three lines of business jumping into 2025? In particular, I'm interested in the manufacturer solutions.

[Karsten Voermann, executive]

This is Karsten speaking. With respect to the lines of business and to your point, manufacturer solutions specifically, we've seen year-over-year growth rates accelerate from last year. But that said, you'll note that the growth rate in year-over-year growth rate in Q1 was about 20% and Q2 is about 9%. We expect that growth rate to accelerate looking into third quarter and fourth quarter and we expect it to be on an exit basis.

When we look at it annualized, we'd expect to see it well into the ranges that we described at Investor Day. So the above 20% growth rates or more specifically the 20% to 30% growth rate. In fact, as we look forward to the end of the year and the implied ramp in revenue growth from third quarter to fourth quarter and the guide we believe pharma manufacturer solutions will be a significant contributor to that growth.

And that's what we're focusing on over the coming 2 quarters, really driving that business hard. As Scott said, in particular, our point-of-sale discount deals around branded medications and devices have been a differentiated sweet spot for us, and we expect to see all those deals that we've signed that Scott talked about over the coming quarters ramping and converting into more revenue that you and others will see.

[Scott Wagner, executive]

I'll just add. I'll editorialize over the top, which is obviously from the year-over-year growth rate of the second quarter to then programs and deals announced in the pipeline. We got to keep signing up more deals both brand programs, co-pay assistance and different ways to reach these into the funded plans between now and the rest of the year, we've got to keep signing a whole bunch of things up to get into that 20% run rate. But we've got a lot of proof points, sort of all the activity and feedback is positive, but we've got to keep nailing them and do it with urgency.

[John Ransom, analyst]

And just my follow-up. If we think about Rite Aid specifically the $5 million bad guy. Does that kind of come with the usual sort of gross margin attach rate, so we should think about that being almost like-for-like EBITDA hit? And so your EBITDA guide is jumping over a $4 million-plus Rite Aid bad guy? Or is there something I'm missing there?

[Karsten Voermann, executive]

I think that's an accurate way to think about it, John. That's the way we're looking at it, too. So we're driving efficiency in the business. And we're seeing flow-through from growth generally that mitigates the bad guy on Rite Aid and leaves us net up on adjusted EBITDA. And I think that's exactly what you said. So hopefully, I'm confirming for you.

[Operator]

Our next question comes from the line of Stephanie Davis with Barclays.

[Stephanie Davis, analyst]

I was hoping to ask a little bit more about the biosimilar contract since it looks a bit more embedded than the prior contract in your website. So how should we think about your forward look and feel as you get some of these deals with manufacturers and could it eventually become fully embedded versus the current transfer to the brand website. I'll deal with a few more clicks.

[Scott Wagner, executive]

Stephanie, it's Scott. 100%. I mean right now, we're -- each of these experiences may have a few more steps. It may have some handoffs around them. And again, if you're talking about embedding not just cash programs, but again, co-pay assistance and hub enrollments if one walks through each of these flows and thinks about them from an e-commerce standpoint. There's a whole bunch of simplicity that we can add and that we're trying to work with each manufacturing partner to keep adding into the system. So we'll keep trying to make those as seamless as possible, both not just with BI, but with every single one of these brand programs.

[Stephanie Davis, analyst]

And Scott, what's the biggest headwind or a friction point in getting you guys to have more embedded construct? Is it just trying to get the deals faster to market? Or is there some sort of ownership that the brands would want to have that maybe prevent you from having this be a little bit more good or [estimated]?

[Scott Wagner, executive]

I think it's a little bit of brand by brand and how -- what level of integration capability they have. In tech speak, that would be how API ready both either they are or in some cases, they have partners who they used to outsource some of this, and we're working to not only make that as easy as possible to take out stuff. So sometimes that can happen right out of the jump and sometimes we work towards it over time. I do think -- yes, go ahead...

[Stephanie Davis, analyst]

No, no. Continue.

[Scott Wagner, executive]

So I was going to say, I think thematically, these really co-pay assistance programs and hub enrollments is a lot of the promise when you start to talk about embedding workflow. If anybody is actually ever sort of tried to navigate that world if you go from one brand to another brand, it's certainly not a clean experience.

And part of the promise of GoodRx is that we could take all kinds of that, either enrollment qualification assistance and just embedded into us. So I'm obviously talking a little longer term, but with our brand partners, one of the big things that they are interested and really want to work with us on is our capability and our platform to do that because we really are the place that people are going to look at any kind of affordability programs.

[Operator]

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

[Jailendra Singh, analyst]

This is Jailendra Singh from Truist Securities. As we are in the heart of the employer selling season, I was curious if you can share any feedback you've got from our PBM partners on the interest level in ISP from potentially new employers in addition to any feedback from your existing employer clients who are currently on platform and their willingness to expand the program across the population, across more drugs on formularies. And on the same topic, has there been any change to your 35 million of ISP-related contribution expected this year?

[Scott Wagner, executive]

It's a topical one. It's interesting. BI, part of the partnership with BI is that they're going to be introducing us to employers that want to integrate into our biosim deal. So that's a flavor of what we're doing with BI that is going to be additive and hopefully can honestly be repeated many times over, not just with BI, but not only our current, but also potential cash partners.

So if you think about the potential of these cash programs for non-formulary drugs, we're having a nice first step where BI is actually starting to make some of those introductions or awareness generation with their own employers and quite frankly, in some of our other discussions with pharma partners, they are thinking along those lines as well.

[Karsten Voermann, executive]

And just to jump in on this stage Jailendra and Scott, this is Karsten speaking. To your ISP-specific momentum question, we had talked earlier about growth vectors for ISP. Those include bringing more PBMs on, bring more employers on and more live. One of the other dimensions we talked about was increasing the formulary.

And Jailendra, I think it's important to note here, in case it didn't come out clearly in the script, that we've now signed incremental deals with MedImpact among the other PBMs we announced in the prepared remarks, to do what we call ISP wrap and this concept is important because traditional ISP was focused on automatically routing a PBM member to the lower of their co-pay or the GoodRx price on covered formulary wrapped at something incremental that's very exciting, which is it does the same automated routing for off-formulary medications.

So maybe a brand drug that gets prescribed and isn't in your formulary you as a consumer can now get that at a lower price or even a generic that might be off formulary because that's happening more and more of that step therapy or other hurdles are put in place or that even generics can be just, frankly, off formulary.

So that's an expansion to ISP that we foresee that will have impacts going forward. Now we just signed these deals. So we don't see a lot of 2024 impact, just given where we are in the year, people's deductible phases, et cetera. But with respect to ISP and the momentum that you asked about, this is an important step.

[Jailendra Singh, analyst]

A quick follow-up on especially related to a GLP-1 with these weight loss drugs coming off the shortest list now. And given your consumer demand and your relationship with pharma companies like Novo, how do you think about your positioning there? Are you expecting some tangible actions from these manufacturers to push their branded product more aggressively into marketing, given all the noise on compounding? And how do you see your PMS business positioning in that environment?

[Scott Wagner, executive]

This is Scott. Well, first of all, again, this category is certainly one of, if not the most innovative, I'd call it, consumer product category in a long, long time, maybe since the iPhone and right now, the Lilly and Novo, obviously, their biggest problem is fulfillment and manufacturing which is obviously opening the door to compounding.

Right now, we're spending our time working with Novo and Lilly because we do really believe in working hand-in-hand with the brands themselves. It's a nice business for us right now. And as both of those companies start to think about unique ways to go direct to consumers, gosh, that's GoodRx. And we're in business with both these companies today and as they start to think through how and what they may want to do direct, we're obviously a great constituent, and we think we can add a ton of capability for them.

[Operator]

[Operator Instructions] Our next question comes from the line of Scott Schoenhaus with KeyBanc.

[Scott Schoenhaus, analyst]

I believe you mentioned in the prepared remarks that ISP volumes were healthy and maybe running a little bit ahead of expectations. What's driving this? Is this more a function of better cohort of employers that have less robust insurance coverage? Or is it continued volumes into the rest of the year when you thought maybe it would be more seasonal from a deductible standpoint in 1Q?

[Karsten Voermann, executive]

Yes, I can probably hop in on that one, Scott. Thanks for the question, Karsten here. On ISP, it's running roughly in line with our expectations. I wouldn't say necessarily ahead. So I think we were pretty accurate in our forecasting of what we expected to see happen for this year, though we are seeing a significant number of lives associated with the program. And that's been something that's been a plus for us as the year has progressed.

[Scott Wagner, executive]

And I'll just come in over the top of Karsten and Karsten made this point a little earlier, but it's an important one. Relative to ISP, it's been generics only to date. And you saw with MedImpact for the first time, our expansion of coverage to nonformulary brand drugs, which gosh, we're hopeful that, that has a big opportunity for the system. It's certainly something for the brands, for patients, for the system itself. It's a whole category that we think this is adding a ton of value and we're excited about.

[Operator]

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

[Stanislav Berenshteyn, analyst]

I'd like to maybe dig into the mechanics of the Rite Aid impact. So if I'm thinking about it correctly, if you have a GoodRx card on file and the store is closed, is the implication that the Rx, the number doesn't get routed to a different location. And so essentially, you need the consumer to reengage with a different pharmacy using the GoodRx discount card. Is that correct?

[Karsten Voermann, executive]

Yes, that is not always the case with all pharmacy closures. And one of the reasons I answered Lisa Gill's question the way it did and said that this is -- a lot of the headwind is tied to Rite Aid's specifically in the store mix that they're closing is because of this issue. If you're associated with some of these Rite Aid stores and the geographies they're in, you actually do likely need to switch to a different pharmacy chain. And while in some cases, I think Rite Aid talked about selling some of their consumer data or shifting it to other pharmacies.

That's not a one-for-one 100% effective process. So while we do recapture a significant number of the users, we don't recapture all of them because some of them need to go through the process you described, which is presenting their GoodRx card at the new pharmacy where they're going to fill their scripts stand. And again, we see that as pretty Rite Aid unique given the mix of stores and the geographies they're shutting down. We haven't seen the same kind of impact in store closures by other chains.

[Operator]

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

[Kevin Caliendo, analyst]

I understand that the changes that we've seen in NADAC pricing on the Medicaid side don't directly affect you in your business necessarily, although if you want to clarify that in any way, that would be helpful. I'm just wondering, you were talking about how you are involved in negotiations between PBMs and pharmacies around cash pay reimbursement.

And I'm wondering if PBMs in any way are using what's happening with NADAC to affect any of their other pricing in the marketplace. I don't know if any of it's tied to NADAC pricing or not and how they negotiate it. Just interested to know if it's having any other wider effect on how PBMs are behaving.

[Mike Walsh, executive]

Yes, I can jump in here. This is Mike Walsh speaking. So I think to clarify, we do have agreements with retail pharmacy partners that are predicated on NADAC. So that is an industry-wide benchmark that pharmacies and GoodRx can use to establish pricing that helps pharmacies get adequate reimbursement and helps us grow and is a really nice benchmark for us to work off of. So to your point, there have been some fluctuations in the market with NADAC pricing that has impacted ourselves and our retail partners.

But I think the good news is that we're kind of -- we're all in this together, I would say, and so we're working through it with them. And although there was a temporary chop, I think we've gotten to a point where we're evening out and getting to steady state. And along that note, the second part of your question around PBM agreements, yes, there are certain PBM pricing agreements as well within our network that are based on NADAC. I think it really has become a standard benchmark to set pricing across the industry. So it is something that we do both directly and we've seen with our PBM partners as well.

[Karsten Voermann, executive]

And yes, to come in over the top, Kevin, a little on that. GoodRx pricing doesn't directly move with or equivalently to NADAC pricing just given the sort of ratio of agreements and how our prices get set number one. And number two, we did see, as Mike said, some choppiness to NADAC earlier in the year. But if you look at it from beginning of the year to today, the movement is actually not very significant at all. So this is not a big factor in our guide or in any of the numbers that we're putting out as we look forward into the future, not a big impact at all.

[Operator]

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

[Allen Lutz, analyst]

I want to start with something, Scott, said around the ISP wrap. If a drug isn't on your PBM's formulary, can you talk about what the win rate would be relative to the PBM's rate? I would assume that it's close to 100% when it's all formulary. So can you provide any type of context on how much higher the win rate will be there?

And then as a quick follow-up, I appreciate all the commentary on Rite Aid and the specifics around their business. If there were Walgreens store closures, would you need the same type of dynamic you're seeing with the Rite Aid business where you would need to see the consumers reengage if their script goes to a different pharmacy?

[Karsten Voermann, executive]

I can probably take those to start and then Scott will probably jump in. On wrap, first of all, we just signed the wrap deals very recently. As you saw, we essentially announced them on this call. So from that perspective, we don't have a ton of trajectory. But to your point, if something is off formulary, we anticipate that the win rate could be quite healthy indeed.

To your second point around Walgreens, store mix and the chain that's doing the closures matters a lot. Like we've already seen in the case of another non-Walgreens and non-Rite Aid pharmacy, a large number of store closures this year and we haven't seen that materially impact our business.

It really is store-specific and geography specific to know how much impact there could possibly be. So at this point in time, for Walgreens, there isn't enough specific information on things like locations, number of stores or timing to be able to assess the impact with a ton of specificity. But based on our work so far, we think that will -- we've taken a prudent approach to guidance and left some room in the guide for it. We don't think at this point that will have a material impact.

Scott, I think you want to get into.

[Scott Wagner, executive]

Back to your first part, Allen, there's a little a flywheel between these cash programs with brands and this kind of noncovered formulary program with the PBM. So for example, we'll get a look, our cash price will be offered to every non-covered or non-formulary brand drug. And then as we bring more affordable cash programs into that, that our conversion rate will be higher, right? We'll get a look at all of them depending upon the cash price, there might be some consumer walkaways. But as we do more and more of these cash programs, obviously, that should increase our conversion rate pretty meaningfully.

[Operator]

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

[Unknown Analyst]

This is Jay on for Craig. With ISPs now further ramp into the year and since those claims will flow into the MAC count as well, I'm curious to how has ISPs influenced PTR per MAC so far? And how do you expect those trends to evolve as -- if the programs are sure with the expansions and all?

[Karsten Voermann, executive]

I'll take this one. From a PTR per MAC perspective and from a MAC count perspective as well, you've seen Y-o-Y MACs up about 8% and you've seen PTR per MAC be relatively stable. Y-o-Y PTR per MAC is effectively flat right now, but up Q-over-Q. First of all, I think I'll make the point that we do see PTR per MAC potentially drifting down a little bit over time. And that can be a function of ISP due to contribution from ISP being both higher in the first half versus the second half of the year as people hit their deductible phase, certainly in the long term as ISP reaches a stasis level. And then secondly, because some of our users who use GoodRx regularly outside ISP may have more claims in a particular period than ISP user as well.

So the effects of ISP effectively, I think, from our perspective would be that the numerator of PTR per MAC the numerator might be a little smaller because of reduced number of claims per MAC and the denominator, of course, increases with ISP as more users come on. But as I said, for now, we've seen PTR per MAC be flat, though going forward, we do potentially see it drifting down in the low single-digit percentage points like you've seen, for example, in previous quarters.

[Operator]

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

[Daniel Grosslight, analyst]

I wanted to go back to employer receptivity to ISP. We've seen now the second lawsuit filed against the self-insured employer for mismanaging their drug benefit? And what are the lawsuits out there actually took screen shots from GoodRx to show how much lower you guys are versus the funded benefit? So I'm curious if you're hearing increased chatter in the market about adopting ISP directly from employers, given you would think that, that might shield them from some of these lawsuits that have popped up about mismanaging the drug benefit.

[Scott Wagner, executive]

Daniel, it's Scott. Well, maybe consider this a plug to every employer to just offer GoodRx as a complement to their insurance -- to their commercial benefit. I think it's certainly showing the value prop. What we're doing today is working with PBM partners to hopefully bring this as a complement to the commercial benefit. And honestly, there should be no reason that, that can't become almost more like a structural sidecar in the industry.

To date, we have not had direct discussions with employers and there's certainly no cost to them. We've not done that to date, but that will be something that we're spending some time thinking about and how that can complement the existing ways, the plans and PBMs introduced these to employers were thinking through how and what maybe we should be doing on our own.

[Operator]

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

[Jack Wallace, analyst]

So we could just kind of get a better context for the retail pharmacy closure issue. Thanks for quantifying the impact of the Rite Aid stores for this year. Remind us how much of your maybe distribution is through the stand-alone retail pharmacies versus, say, a co-located or owned outright by a grocery chain? And then you're just thinking about the general shrinkage of the retail pharmacy footprint, the last couple of years, and it appears to be a consistent trend going forward. How much, if any, impact from store closures baked into your guidance that you laid out at the Analyst Day, the multiyear guide?

[Karsten Voermann, executive]

This is Karsten. On the first prong which is grocer versus retail pharmacy. Post the Kroger issue, we don't really have significant over under-indexing of different retailers relative to their market share and prescriptions generally. We have one large retailer that's a bit heavier for us. But for the most part, the over/under-indexing that you saw during the Kroger here has largely gone away. So I think that probably helps with the first question.

With respect to the second part of the question, on our Investor Day and closures. I think the reality is, is when our Investor Day happened, we didn't have a lot of the specific information we do now. It's really post June and when the Rite Aid bankruptcy petition was accepted by the courts that the specific lists of stores, locations, timing came out and that's also in store closures accelerated a lot.

And those 2 dimensions mean for us, that's really the new information that happened since Investor Day. We did at our Investor Day in May, would have been nice to have that information then, but the reality is that all happened about a month later in June/2nd part of June. So that's what we're distinguishing here.

[Operator]

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

[George Hill, analyst]

Most of my questions have actually been answered as it relates to the big box pharmacies. I guess my follow-up would just be, can you comment on your initiatives to partner or help out independence and kind of non-large retail, non-big box channels to accept more GoodRx or use more GoodRx, given that they are likely to be share gainers given the retrenchment by the large chains?

[Scott Wagner, executive]

This is Scott. There's -- we're spending more time on it. And to date, we've run a couple of pilots with independent pharmacies that are pretty active in the independent association. And historically, GoodRx hasn't done with a lot with independents. There's no reason we can't and I would throw out the marker to us and then the industry as we go into next year to have a couple of simple program flavors of pricing that would allow independents to absolutely access all of the GoodRx benefit at their locations.

And do it in an economically productive way. And so to date, obviously, independents haven't been a big part of the GoodRx platform, but there's no reason that they shouldn't be -- that we shouldn't be good for independents and that independent shouldn't have a vibrant, thriving position on GoodRx. So maybe we can take that as a collective challenge to get there really quickly as we go into next year.

[Karsten Voermann, executive]

The only thing I'd add, George, is that particularly some of the things that Scott talked about relating to brand drug and brand drug buydowns have a margin and profit profile for pharmacies that can be quite attractive as brand manufacturers create incentives for all of us in the system to help drive volume in medically appropriate situations on their behalf. So once again, I think we see the brand drug man sol, manufacturer solutions part of our business as something that has the potential to swage historical independent pharmacy concerns to a degree.

[Operator]

Thank you. Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back to Scott for closing remarks.

[Scott Wagner, executive]

Thanks, operator. Thanks, everybody, for joining us today. Thanks for the questions. We appreciate it, and we look forward to speaking with some of you individually and then everybody else next quarter. Thanks a bunch. Bye all.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.