Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q, as well as Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operation” and Part II, Item 8, “Financial Statements and Supplementary Data” included in our 2020 10-K filed with the SEC on March 12, 2021. This discussion contains forward-looking statements based upon current plans, expectations and beliefs involving risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in the "Risk Factors" section of our 2020 10-K and this Quarterly Report on Form 10-Q and other factors set forth in other parts of this Quarterly Report on Form 10-Q and our filings with the SEC.
Glossary of Selected Terminology
As used in this Quarterly Report on Form 10-Q, unless the context otherwise requires, references to:
“we,” “us,” “our,” the “Company,” “GoodRx,” and similar references refer to GoodRx Holdings, Inc. and its consolidated subsidiaries.
“Co-Founders” refers to Trevor Bezdek and Douglas Hirsch, our Co-Chief Executive Officers and members of our board of directors.
“consumers” refer to the general population in the United States that uses or otherwise purchases healthcare products and services. References to “our consumers” or “GoodRx consumers” refer to consumers that have used one or more of our offerings.
“discounted price” refers to a price for a prescription provided on our platform that represents a negotiated rate provided by one of our PBM partners at a retail pharmacy. Through our platform, our discounted prices are free to access for consumers by saving a GoodRx code to their mobile device for their selected prescription and presenting it at the chosen pharmacy. The term “discounted price” excludes prices we may otherwise source, such as prices from patient assistance programs for low-income individuals and Medicare prices, and any negotiated rates offered through our subscription offerings: GoodRx Gold (“Gold”), and Kroger Rx Savings Club powered by GoodRx (“Kroger Savings”).
“GoodRx code” refers to codes that can be accessed by our consumers through our apps or websites or that can be provided to our consumers directly by healthcare professionals, including physicians and pharmacists, that allow our consumers free access to our discounted prices or a lower list price for their prescriptions when such code is presented at their chosen pharmacy.
“Monthly Active Consumers” refers to the number of unique consumers who have used a GoodRx code to purchase a prescription medication in a given calendar month and have saved money compared to the list price of the medication. A unique consumer who uses a GoodRx code more than once in a calendar month to purchase prescription medications is only counted as one Monthly Active Consumer in that month. A unique consumer who uses a GoodRx code in two or three calendar months within a quarter will be counted as a Monthly Active Consumer in each such month. Monthly Active Consumers do not include subscribers to our subscription offerings, consumers of our pharma manufacturer solutions offering, or consumers who used our telehealth offerings. When presented for a period longer than a month, Monthly Active Consumers is averaged over the number of calendar months in such period. Monthly Active Consumers from acquired companies are only included beginning in the first full quarter following the acquisition.
“PBM” refers to a pharmacy benefit manager. PBMs aggregate demand to negotiate prescription medication prices with pharmacies and pharma manufacturers. PBMs find most of their demand through relationships with insurance companies and employers. However, nearly all PBMs also have consumer direct or cash network pricing that they negotiate with pharmacies for consumers who choose to purchase prescriptions outside of insurance.
“savings,” “saved” and similar references refer to the difference between the list price for a particular prescription at a particular pharmacy and the price paid by the GoodRx consumer for that prescription utilizing a GoodRx code available through our platform at that same pharmacy. In certain circumstances, we may show a list price on our platform when such list price is lower than the negotiated price available using a GoodRx code and, in certain circumstances, a consumer may use a GoodRx code and pay the list price at a pharmacy if such list price is lower than the negotiated price available using a GoodRx code. We do not earn revenue from such transactions, but our savings calculation includes an estimate of the savings achieved by the consumer because our platform has directed the consumer to the pharmacy with the low list price. This estimate of savings when the consumer pays the list price is based on internal data and is calculated as the difference between the average list price across all pharmacies where GoodRx consumers paid the list price and the average list price paid by consumers in the pharmacies to which we directed them. We do not calculate savings based on insurance prices as we do not have information about a consumer’s specific coverage or price. We do not believe savings are representative or indicative of our revenue or results of operations.
17
“subscribers” and similar references refers to our consumers that are subscribed to either of our subscription plans, GoodRx Gold or Kroger Savings Club.
“Silver Lake Partners” refers to investment funds associated with Silver Lake Partners, including SLP Geology Aggregator, L.P.
Certain monetary amounts, percentages, and other figures included in this Quarterly Report on Form 10-Q have been subject to rounding adjustments. Percentage amounts included in this Quarterly Report on Form 10-Q have not in all cases been calculated on the basis of such rounded figures, but on the basis of such amounts prior to rounding. For this reason, percentage amounts in this Quarterly Report on Form 10-Q may vary from those obtained by performing the same calculations using the figures in our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. Certain other amounts that appear in this Quarterly Report on Form 10-Q may not sum due to rounding.
Overview
Our mission is to help Americans get the healthcare they need at a price they can afford. To achieve this, we are building the leading, consumer-focused digital healthcare platform in the United States.
Healthcare consumers in the United States face an increasing number of challenges. These include a lack of affordability, transparency, and access to care. Additionally, healthcare professionals’ lack of access to current prescription pricing and out of pocket consumer cost information exacerbate the challenges that healthcare consumers face. GoodRx was founded to solve these challenges. We started with a price comparison tool for prescriptions, offering consumers free access to lower prices on their medication, and have been able to deliver consumers significant value. Based on a study we conducted in June 2021, consumers of our prescription offering saved an average of 79% off retail prices on prescription medication during the year 2020. In that same year, for the 100 most purchased medications, we beat the average commercial insurance copay 55% of the time (89% of the time when ignoring geographic proximity and convenience considerations), and consumers who paid less than the average commercial insurance copay saved on average 52% off the average copays. Today, our expanded platform also provides access to brand medication savings programs, affordable and convenient medical provider consultations and lab tests via our telehealth offerings, GoodRx Care and the GoodRx Telehealth Marketplace, and other healthcare and wellness related content. Whether a consumer is insured or uninsured, young or old, or suffers from an acute or a chronic ailment, we strive to be at the consumer’s side throughout their healthcare journey. We believe that our offerings provide significant savings to consumers, and can help drive greater medication adherence, faster treatment and better patient outcomes that also benefit the broader healthcare ecosystem and its stakeholders. These all contribute to a healthier, happier society.
We believe our financial results reflect the significant market demand for our offerings and the value that we provide to the broader healthcare ecosystem. Our revenue grew 43% in the three months ended June 30, 2021 to $176.6 million, up from $123.3 million in the three months ended June 30, 2020, and grew 31% in the six months ended June 30, 2021 to $337.1 million, up from $256.7 million in the six months ended June 30, 2020. In the three months ended June 30, 2021, net income grew 14% to $31.1 million, from net income of $27.3 million in the three months ended June 30, 2020, and declined 40% to $32.7 million in the six months ended June 30, 2021, from $54.7 million in the six months ended June 30, 2020. Net income in the three and six months ended June 30, 2021 was impacted by $40.7 million and $87.2 million of stock-based compensation expense, respectively, which includes $24.0 million and $54.0 million of stock-based compensation expense, respectively, related to equity awards made to the Co-Chief Executive Officers in connection with the initial public offering ("IPO"). Net income for the respective periods were also impacted by $37.3 million and $49.9 million of income tax benefit, respectively, primarily due to the pre-tax losses in addition to the tax effects of nondeductible officers’ stock-based compensation expense and excess tax benefits related to our equity awards. Adjusted EBITDA grew 11% to $54.6 million in the three months ended June 30, 2021, from $49.4 million in the three months ended June 30, 2020, and grew 4% to $105.6 million in the six months ended June 30, 2021, from $101.2 million in the six months ended June 30, 2020. The continued growth of our business was partially offset by continued investments in product development and technology and sales and marketing spend, an increase in cost of revenue relative to revenue due primarily to growth of our telehealth offering, as well as investments in our general and administrative infrastructure as we started operating as a public company.
Adjusted EBITDA is a non-GAAP financial measure. For a reconciliation of Adjusted EBITDA to the most directly comparable GAAP financial measure, information about why we consider Adjusted EBITDA useful and a discussion of the material risks and limitations of these measures, please see “Key Financial and Operating Metrics” below.
We have been focused on capital efficiency and delivering on a cash generative monetization model since inception. Cash flow provided by operating activities was $80.4 million in the six months ended June 30, 2021, compared to $83.8 million in the six months ended June 30, 2020.
18
We believe that our performance and future success depend on a number of factors that present significant opportunities for us but also pose risks and challenges. For discussion of these factors, please see our 2020 10-K and this Quarterly Report on Form 10-Q under the sections titled “Risk Factors."
On September 25, 2020, we completed our IPO by issuing 28,615,034 shares of our Class A common stock at a price to the public of $33.00 per share, resulting in net proceeds to us of $886.9 million, after deducting the underwriting discount of $52.5 million and offering expenses of $4.9 million. Additionally, certain existing stockholders sold an aggregate of 11,192,657 shares. On September 25, 2020, we also completed the sale of 3,030,303 shares of our Class A common stock at a purchase price of $33 per share to SLP Geology Aggregator, L.P., resulting in proceeds to us of $100.0 million. SLP Geology Aggregator, L.P. is an investment fund associated with Silver Lake Partners.
Impact of COVID-19
We continue to closely monitor how the spread of COVID-19 is affecting our employees, customers and business operations. The number of Monthly Active Consumers decreased and our prescription offering experienced a decline in activity in the second quarter of 2020 as compared to the first quarter of 2020 as many consumers avoided visiting healthcare professionals and pharmacies in-person, which we believe has had a similar effect across the industry. The number of Monthly Active Consumers then sequentially increased beginning in the third quarter of 2020 and through the second quarter of 2021 as consumers partially resumed their interaction with the healthcare system. Even though we saw improved activity in our prescription offering, we believe COVID-19 continues to have an adverse impact on our prescription offerings and continued improvement in future periods remains uncertain. Any decrease in the number of consumers seeking to fill prescriptions could negatively impact demand for and use of certain of our offerings, particularly our prescription offering, which would have an adverse effect on our business, financial condition and results of operations.
Conversely, pandemics, epidemics and outbreaks may significantly and temporarily increase demand for our telehealth offerings. COVID-19 has significantly accelerated the awareness and use of our telehealth offerings. While we have experienced a significant increase in demand for the telehealth offerings, there can be no assurance that the levels of interest, demand and use of our telehealth offerings will continue at current levels or will not decrease during or after the pandemic. Any such decrease could have an adverse effect on our growth and the success of our telehealth offerings.
Additionally, while the potential economic impact brought by, and the duration of any pandemic, epidemic or outbreak of an infectious disease, including COVID-19, may be difficult to assess or predict, the widespread COVID-19 pandemic has resulted in, and may continue to result in, significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity.
The full extent to which the outbreak of COVID-19 will continue to impact our business, results of operations and financial condition is still unknown and will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the pandemic, new variants of the virus, availability and adoption of effective vaccines, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. Even after the outbreak of COVID-19 has subsided, we may experience materially adverse impacts to our business as a result of its global economic impact, including any recession that has occurred or may occur in the future.
Seasonality
We typically experience stronger consumer demand during the first and fourth quarters of each year, which coincide with generally higher consumer healthcare spending, doctor office visits, annual benefit enrollment season, and seasonal cold and flu trends. This seasonality may impact revenue and sales and marketing expense. The rapid growth of our business may have masked these trends to date, and we expect the impact of seasonality to be more pronounced in the future. In 2020 and 2021 we have seen the impact of the COVID-19 pandemic further disrupt these trends, which may continue in future periods.
Recent Developments
On July 7, 2021, we acquired substantially all of the assets of RxNXT LLC (“RxNXT”) for $14.5 million in cash, subject to customary closing adjustments. RxNXT is a prescription technology platform. The purpose of the acquisition is to help expand our business capabilities, particularly with respect to our prescription offering.
The results of operations of RxNXT will be included in our consolidated results beginning from the date of acquisition.
19
Key Financial and Operating Metrics
Monthly Active Consumers and Subscribers
The numbers of Monthly Active Consumers and subscribers are key indicators of the scale of our consumer base and a gauge for our marketing and engagement efforts. We believe these metrics reflect our scale, growth and engagement with consumers. Beginning in the fourth quarter of 2020, our Monthly Active Consumers number includes consumers we acquired through the acquisition of Scriptcycle in August 2020.
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|
|
|
|
|
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Three Months Ended
|
|
|
June 30,
|
|
March 31,
|
|
December 31,
|
|
September 30,
|
|
June 30,
|
|
|
2021
|
|
2021
|
|
2020
|
|
2020
|
|
2020
|
|
|
(in millions)
|
|
Monthly Active Consumers
|
|
6.0
|
|
|
5.7
|
|
|
5.6
|
|
|
4.9
|
|
|
4.4
|
|
The number of Monthly Active Consumers grew in the three months ended June 30, 2021 to 6.0 million, compared to 4.4 million in the three months ended June 30, 2020.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
June 30,
|
|
March 31,
|
|
December 31,
|
|
September 30,
|
|
June 30,
|
|
|
2021
|
|
2021
|
|
2020
|
|
2020
|
|
2020
|
|
|
(in millions)
|
|
Subscribers
|
|
1.1
|
|
|
0.9
|
|
|
0.8
|
|
|
0.7
|
|
|
0.6
|
|
The number of subscribers grew to 1.1 million as of June 30, 2021, compared to 0.6 million as of June 30, 2020.
Adjusted EBITDA
Adjusted EBITDA is a key measure we use to assess our financial performance and is also used for internal planning and forecasting purposes. We believe Adjusted EBITDA is helpful to investors, analysts and other interested parties because it can assist in providing a more consistent and comparable overview of our operations across our historical financial periods. In addition, this measure is frequently used by analysts, investors and other interested parties to evaluate and assess performance.
We define Adjusted EBITDA for a particular period as net income or loss before interest, taxes, depreciation and amortization, and as further adjusted, as applicable, for acquisition related expenses, cash bonuses to vested option holders, stock-based compensation expense, payroll tax expense related to stock-based compensation, loss on extinguishment of debt, financing related expenses, loss on abandonment and impairment of operating lease assets, charitable stock donation and other income or expense, net. Adjusted EBITDA Margin represents Adjusted EBITDA as a percentage of revenue.
Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP measures and are presented for supplemental informational purposes only and should not be considered as alternatives or substitutes to financial information presented in accordance with GAAP. These measures have certain limitations in that they do not include the impact of certain expenses that are reflected in our condensed consolidated statements of operations that are necessary to run our business. Other companies, including other companies in our industry, may not use these measures or may calculate these measures differently than as presented in this Quarterly Report on Form 10-Q, limiting their usefulness as comparative measures.
20
The following table presents a reconciliation of Adjusted EBITDA to net income, the most directly comparable financial measure calculated in accordance with GAAP:
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|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
(dollars in thousands)
|
|
Net income
|
|
$
|
31,061
|
|
|
$
|
27,337
|
|
|
$
|
32,729
|
|
|
$
|
54,683
|
|
Adjusted to exclude the following:
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|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
(13
|
)
|
|
|
(41
|
)
|
|
|
(29
|
)
|
|
|
(116
|
)
|
Interest expense
|
|
|
5,906
|
|
|
|
6,795
|
|
|
|
11,811
|
|
|
|
15,433
|
|
Income tax (benefit) expense
|
|
|
(37,305
|
)
|
|
|
7,661
|
|
|
|
(49,860
|
)
|
|
|
15,427
|
|
Depreciation and amortization
|
|
|
8,369
|
|
|
|
4,521
|
|
|
|
13,730
|
|
|
|
8,866
|
|
Other income, net
|
|
|
—
|
|
|
|
(16
|
)
|
|
|
—
|
|
|
|
(21
|
)
|
Financing related expenses (1)
|
|
|
58
|
|
|
|
188
|
|
|
|
315
|
|
|
|
1,306
|
|
Acquisition related expenses (2)
|
|
|
3,022
|
|
|
|
780
|
|
|
|
6,070
|
|
|
|
1,243
|
|
Stock-based compensation expense (3)
|
|
|
40,676
|
|
|
|
2,121
|
|
|
|
87,202
|
|
|
|
4,331
|
|
Payroll tax expense related to stock-based compensation
|
|
|
2,016
|
|
|
|
22
|
|
|
|
2,844
|
|
|
|
81
|
|
Loss on abandonment of operating lease assets (4)
|
|
|
780
|
|
|
|
—
|
|
|
|
780
|
|
|
|
—
|
|
Adjusted EBITDA
|
|
$
|
54,570
|
|
|
$
|
49,368
|
|
|
$
|
105,592
|
|
|
$
|
101,233
|
|
Adjusted EBITDA Margin
|
|
|
30.9
|
%
|
|
|
40.0
|
%
|
|
|
31.3
|
%
|
|
|
39.4
|
%
|
(1)
Financing related expenses include third party fees related to proposed financings.
(2)
Acquisition related expenses include third party fees for actual or planned acquisitions, including related legal, consulting and other expenditures, and as applicable, retention bonuses to employees related to acquisitions and change in fair value of contingent consideration.
(3)
Non-cash expenses related to equity-based compensation programs, which vary from period to period depending on various factors including the timing, number and the valuation of awards.
(4)
Non-cash loss with respect to certain leased office space that was abandoned in the three months ended June 30, 2021. There were no impairment losses in the three and six months ended June 30, 2021 and 2020.
Adjusted EBITDA increased 11% in the three months ended June 30, 2021 to $54.6 million, compared to $49.4 million in three months ended June 30, 2020; and increased 4% in the six months ended June 30, 2021 to $105.6 million, compared to $101.2 million in the six months ended June 30, 2020. This increase was principally a function of the continued growth of our business partially offset by our continued investments in product development and technology, investments in our general and administrative infrastructure as we started operating as a public company, an increase in sales and marketing spend, and an increase in cost of revenue relative to revenue due primarily to offering mix.
Adjusted EBITDA Margin was 30.9% in the three months ended June 30, 2021, a decrease from 40.0% in the three months ended June 30, 2020; and 31.3% in the six months ended June 30, 2021, a decrease from 39.4% in the six months ended June 30, 2020. This decrease was primarily due to an increase in marketing spend relative to revenue compared to the second quarter of 2020, in which we proactively reduced our marketing spend at the onset of the COVID-19 pandemic, as well as continued investments in product development and technology, an increase in cost of revenue relative to revenue due to offering mix, and investments in our general and administrative infrastructure.
We expect our Adjusted EBITDA and Adjusted EBITDA Margin to fluctuate primarily based on the level of our investments in sales and marketing and product development and technology relative to changes in revenue.
We generally expect to continue to invest in sales and marketing in the near-term, but will continue to evaluate the impact of COVID-19 on our business and actively manage our sales and marketing spend, including investment in consumer acquisition, which is largely variable, as market conditions change. We also intend to continue to invest in product development and technology to continue to improve our platform, introduce new offerings and scale existing ones. Additionally, we expect to continue to invest in our general and administrative infrastructure to support our operation as a public company.
21
Results of Operations
The following table sets forth information comparing the components of our results of operations for the periods indicated:
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
(in thousands)
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Prescription transactions revenue
|
|
$
|
144,857
|
|
|
$
|
109,548
|
|
|
$
|
278,918
|
|
|
$
|
232,565
|
|
Subscription revenue
|
|
|
14,316
|
|
|
|
6,358
|
|
|
|
26,323
|
|
|
|
11,998
|
|
Other revenue
|
|
|
17,462
|
|
|
|
7,389
|
|
|
|
31,825
|
|
|
|
12,140
|
|
Total revenue
|
|
|
176,635
|
|
|
|
123,295
|
|
|
|
337,066
|
|
|
|
256,703
|
|
Costs and operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue, exclusive of depreciation and amortization presented
separately below
|
|
|
11,090
|
|
|
|
6,824
|
|
|
|
21,518
|
|
|
|
12,843
|
|
Product development and technology
|
|
|
29,567
|
|
|
|
11,962
|
|
|
|
55,727
|
|
|
|
22,287
|
|
Sales and marketing
|
|
|
88,381
|
|
|
|
51,920
|
|
|
|
168,075
|
|
|
|
115,082
|
|
General and administrative
|
|
|
39,579
|
|
|
|
6,332
|
|
|
|
83,365
|
|
|
|
12,219
|
|
Depreciation and amortization
|
|
|
8,369
|
|
|
|
4,521
|
|
|
|
13,730
|
|
|
|
8,866
|
|
Total costs and operating expenses
|
|
|
176,986
|
|
|
|
81,559
|
|
|
|
342,415
|
|
|
|
171,297
|
|
Operating (loss) income
|
|
|
(351
|
)
|
|
|
41,736
|
|
|
|
(5,349
|
)
|
|
|
85,406
|
|
Other expense, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income, net
|
|
|
—
|
|
|
|
(16
|
)
|
|
|
—
|
|
|
|
(21
|
)
|
Interest income
|
|
|
(13
|
)
|
|
|
(41
|
)
|
|
|
(29
|
)
|
|
|
(116
|
)
|
Interest expense
|
|
|
5,906
|
|
|
|
6,795
|
|
|
|
11,811
|
|
|
|
15,433
|
|
Total other expense, net
|
|
|
5,893
|
|
|
|
6,738
|
|
|
|
11,782
|
|
|
|
15,296
|
|
(Loss) income before income taxes
|
|
|
(6,244
|
)
|
|
|
34,998
|
|
|
|
(17,131
|
)
|
|
|
70,110
|
|
Income tax benefit (expense)
|
|
|
37,305
|
|
|
|
(7,661
|
)
|
|
|
49,860
|
|
|
|
(15,427
|
)
|
Net income
|
|
$
|
31,061
|
|
|
$
|
27,337
|
|
|
$
|
32,729
|
|
|
$
|
54,683
|
|
Components of our Results of Operations
Revenue
Our revenue is primarily derived from prescription transactions revenue that is generated when pharmacies fill prescriptions for consumers, and from other revenue streams such as our subscription offerings, pharma manufacturer solutions, and our telehealth offerings. All of our revenue has been generated in the United States.
Prescription transactions revenue: Consists primarily of revenue generated from PBMs when a prescription is filled with a GoodRx code provided through our platform. The majority of our contracts with PBMs provide for fees that represent a percentage of the fees that the PBM charges to the pharmacy, and a minority of our contracts provide for a fixed fee per transaction. Our percentage of fee contracts often also include a minimum fixed fee per transaction. We expect the revenue contribution from contracts with fixed fee arrangements to remain largely stable over the medium term, and do not expect that changes in revenue contribution from fixed fee versus percentage of fee arrangements will materially impact our revenue. Certain contracts also provide that the amount of fees we receive is based on the volume of prescriptions filled each month.
Subscription revenue: Consists of revenue from our Gold and Kroger Savings subscription offerings. Subscription revenue is disclosed separately from other revenue beginning in the second quarter of 2021. Prior period amounts have been recast to conform with the current period presentation.
Other revenue: Consists primarily of revenue generated from pharma manufacturers for advertising and integrating onto our platform their affordability solutions to our consumers, advertising in direct mailers, and revenue generated by our telehealth offerings that allow consumers to access healthcare professionals online.
22
Costs and Operating Expenses
We incur the following expenses directly related to our cost of revenue and operating expenses:
Cost of revenue: Consists primarily of costs related to outsourced consumer support, healthcare provider costs for GoodRx Care, personnel costs including salaries, benefits, bonuses and stock-based compensation expense, for our consumer support employees, hosting and cloud costs, merchant account fees, processing fees and allocated overhead. Cost of revenue is largely driven by the growth of our visitor, subscriber and active consumer base, as well as our revenue offering mix. Our cost of revenue as a percentage of revenue may vary based on the relative growth rates of our various offerings.
Product development and technology: Consists primarily of personnel costs, including salaries, benefits, bonuses and stock-based compensation expense, for employees involved in product development activities, third-party services and contractors related to product development, information technology and software-related costs, and allocated overhead. Product development and technology expenses are primarily driven by increases in headcount required to support and further develop our various products. We capitalize certain qualified costs related to the development of internal-use software, which may also cause product development and technology expenses to vary from period to period. We expect product development and technology expenses will increase on an absolute dollar basis as we continue to grow our platform and product offerings.
Sales and marketing: Consists primarily of advertising and marketing expenses for consumer acquisition and retention, as well as personnel costs, including salaries, benefits, bonuses, stock-based compensation expense and sales commissions, for sales and marketing employees, third-party services and contractors, and allocated overhead. Sales and marketing expenses are primarily driven by investments to grow and retain our consumer base and may fluctuate based on the timing of our investments in consumer acquisition and retention. Over the near to medium term, we expect to increase our spending on sales and marketing.
General and administrative: Consists primarily of personnel costs including salaries, benefits, bonuses and stock-based compensation expense for our executive, finance, accounting, legal, and human resources functions, as well as professional fees, occupancy costs, other general overhead costs, and as applicable, change in fair value of contingent consideration and charitable donations. We have incurred, and expect to continue to incur, additional general and administrative costs in compliance, legal, investor relations, insurance, and professional services related to our compliance and reporting obligations as a public company. We have incurred, and also expect to incur, additional general and administrative costs in connection with the vesting and settlement of restricted stock units (“RSUs”), including the grant of restricted stock unit awards covering an aggregate of 12,316,533 shares of Class B common stock to each of our Co-Chief Executive Officers in connection with our IPO (the “Founders Awards”) in particular. We also anticipate that as we continue to grow as a company our general and administrative costs will increase on an absolute dollar basis.
Depreciation and amortization: Consists of depreciation of property and equipment and amortization of capitalized internal-use software costs and intangible assets. Our depreciation and amortization changes primarily based on changes in our property and equipment, intangible assets, and capitalized software balances.
Other Expense, Net
Our other expense, net consists of the following:
Other income, net: Consists primarily of miscellaneous income that are not core to our operations and, as applicable, third-party transaction expenses related to modifications of our debt facilities.
Interest income: Consists primarily of interest income earned on excess cash held in interest-bearing accounts.
Interest expense: Consists primarily of interest expense associated with the First Lien Credit Agreement (as defined below), including amortization of debt issuance costs and discounts.
Income Tax Benefit (Expense)
Our income tax benefit (expense) consists of federal and state income taxes. We calculate income taxes in interim periods by applying an estimated annual effective income tax rate to (loss) income before income taxes and by calculating the tax effect of discrete items recognized during the period. Our effective income tax rate generally differs from the U.S. statutory tax rate of 21.0% primarily due to U.S. federal and state research and development tax credits, non-deductible officers’ stock-based compensation expense, state income taxes, and excess tax benefits from our equity awards.
23
Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Change
|
|
|
|
2021
|
|
|
2020
|
|
|
$
|
|
|
%
|
|
|
|
(dollars in thousands)
|
|
Prescription transactions revenue
|
|
$
|
144,857
|
|
|
$
|
109,548
|
|
|
$
|
35,309
|
|
|
|
32
|
%
|
Subscription revenue
|
|
|
14,316
|
|
|
|
6,358
|
|
|
|
7,958
|
|
|
|
125
|
%
|
Other revenue
|
|
|
17,462
|
|
|
|
7,389
|
|
|
|
10,073
|
|
|
|
136
|
%
|
Total revenue
|
|
$
|
176,635
|
|
|
$
|
123,295
|
|
|
$
|
53,340
|
|
|
|
43
|
%
|
Prescription transactions revenue for the three months ended June 30, 2021 increased $35.3 million, or 32%, compared to the three months ended June 30, 2020, driven primarily by a 36% increase in the number of our average Monthly Active Consumers, partially offset by lower contribution-per-consumer due solely to the acquisition of Scriptcycle. Scriptcycle active consumers are included in our Monthly Active Consumers number beginning in the fourth quarter of 2020, the first full quarter post its acquisition. We believe prescription transactions revenue continues to be impacted by COVID-19.
Subscription revenue for the three months ended June 30, 2021 increased $8.0 million, or 125%, compared to the three months ended June 30, 2020, driven primarily by an increase in the number of subscribers to 1.1 million as of June 30, 2021, compared to 0.6 million as of June 30, 2020, as well as a favorable change in subscription plan mix.
Other revenue for the three months ended June 30, 2021 increased $10.1 million, or 136%, compared to the three months ended June 30, 2020. This increase was primarily due to an increase in revenue from our pharma manufacturer solutions offering and an increase in telehealth revenue.
We expect the percentage growth in subscription and other revenue to continue to outpace our prescription transactions revenue as we continue to scale the capabilities and platforms of our subscription, pharma manufacturer solutions and telehealth service offerings.
Costs and Operating Expenses
Cost of Revenue, Exclusive of Depreciation and Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Change
|
|
|
|
2021
|
|
|
2020
|
|
|
$
|
|
|
%
|
|
|
|
(dollars in thousands)
|
|
Cost of revenue, exclusive of depreciation and amortization
|
|
$
|
11,090
|
|
|
$
|
6,824
|
|
|
$
|
4,266
|
|
|
|
63
|
%
|
As a percentage of total revenue
|
|
|
6
|
%
|
|
|
6
|
%
|
|
|
|
|
|
|
Cost of revenue for the three months ended June 30, 2021 increased $4.3 million, or 63%, compared to the three months ended June 30, 2020. This increase was primarily driven by a $1.6 million increase in outsourced and in-house personnel related consumer support expense to support our growth and a $1.7 million increase in hosting expenses, merchant fees and allocated overhead.
Product Development and Technology
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Change
|
|
|
|
2021
|
|
|
2020
|
|
|
$
|
|
|
%
|
|
|
|
(dollars in thousands)
|
|
Product development and technology
|
|
$
|
29,567
|
|
|
$
|
11,962
|
|
|
$
|
17,605
|
|
|
|
147
|
%
|
As a percentage of total revenue
|
|
|
17
|
%
|
|
|
10
|
%
|
|
|
|
|
|
|
Product development and technology expenses for the three months ended June 30, 2021 increased by $17.6 million, or 147%, compared to the three months ended June 30, 2020. This increase was primarily due to increases in product development payroll and related expenses of $13.8 million due to higher headcount and an increase in stock-based compensation expense and payroll taxes related to awards made in connection with and after our IPO. The increase in product development and technology expense was also due to an increase in allocated overhead of $2.2 million in support
24
of our product development efforts and an increase in third-party services and contractor expenses related to product development of $1.5 million.
Sales and Marketing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Change
|
|
|
|
2021
|
|
|
2020
|
|
|
$
|
|
|
%
|
|
|
|
(dollars in thousands)
|
|
Sales and marketing
|
|
$
|
88,381
|
|
|
$
|
51,920
|
|
|
$
|
36,461
|
|
|
|
70
|
%
|
As a percentage of total revenue
|
|
|
50
|
%
|
|
|
42
|
%
|
|
|
|
|
|
|
Sales and marketing expenses for the three months ended June 30, 2021 increased by $36.5 million, or 70%, compared to the three months ended June 30, 2020. This increase was primarily due to a $24.4 million increase in advertising expenses and a $9.5 million increase in sales and marketing payroll and related expenses due to higher headcount and an increase in stock-based compensation expense and payroll taxes related to awards made in connection with and after our IPO.
We continue to evaluate the impact of COVID-19 on our business and actively manage our consumer acquisition spending according to market conditions.
General and Administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Change
|
|
|
|
2021
|
|
|
2020
|
|
|
$
|
|
|
%
|
|
|
|
(dollars in thousands)
|
|
General and administrative
|
|
$
|
39,579
|
|
|
$
|
6,332
|
|
|
$
|
33,247
|
|
|
|
525
|
%
|
As a percentage of total revenue
|
|
|
22
|
%
|
|
|
5
|
%
|
|
|
|
|
|
|
General and administrative expenses for the three months ended June 30, 2021 increased by $33.2 million, or 525%, compared to the three months ended June 30, 2020. This increase was primarily due to $24.0 million of expense related to the Founders Awards made in connection with the IPO as further described in Note 10 of our condensed consolidated financial statements. The increase in general and administrative expense was also due to a $5.9 million increase in other executive and administrative payroll and related expenses due to higher headcount and an increase in stock-based compensation expense and payroll taxes related to other awards made in connection with and after our IPO, and a $1.9 million increase in acquisition related and other professional service fees to support our growth and operations as a public company after our IPO.
Depreciation and Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Change
|
|
|
|
2021
|
|
|
2020
|
|
|
$
|
|
|
%
|
|
|
|
(dollars in thousands)
|
|
Depreciation and amortization
|
|
$
|
8,369
|
|
|
$
|
4,521
|
|
|
$
|
3,848
|
|
|
|
85
|
%
|
As a percentage of total revenue
|
|
|
5
|
%
|
|
|
4
|
%
|
|
|
|
|
|
|
Depreciation and amortization expenses for the three months ended June 30, 2021 increased by $3.8 million, or 85%, compared to the three months ended June 30, 2020. This increase was due primarily to a $1.6 million increase in capitalized software amortization due to higher capitalized costs for platform improvements and the introduction of new products and features and a $1.6 million increase in amortization related to acquired intangible assets.
25
Other Income, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Change
|
|
|
|
2021
|
|
|
2020
|
|
|
$
|
|
|
%
|
|
|
|
(dollars in thousands)
|
|
Other income, net
|
|
$
|
—
|
|
|
$
|
(16
|
)
|
|
$
|
16
|
|
|
|
(100
|
)%
|
As a percentage of total revenue
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
|
|
|
|
Other income, net was not material in the three months ended June 30, 2021 and 2020.
Interest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Change
|
|
|
|
2021
|
|
|
2020
|
|
|
$
|
|
|
%
|
|
|
|
(dollars in thousands)
|
|
Interest income
|
|
$
|
(13
|
)
|
|
$
|
(41
|
)
|
|
$
|
28
|
|
|
|
(68
|
)%
|
As a percentage of total revenue
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
|
|
|
|
Interest income was not material in the three months ended June 30, 2021 and 2020.
Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Change
|
|
|
|
2021
|
|
|
2020
|
|
|
$
|
|
|
%
|
|
|
|
(dollars in thousands)
|
|
Interest expense
|
|
$
|
5,906
|
|
|
$
|
6,795
|
|
|
$
|
(889
|
)
|
|
|
(13
|
)%
|
As a percentage of total revenue
|
|
|
3
|
%
|
|
|
6
|
%
|
|
|
|
|
|
|
Interest expense for the three months ended June 30, 2021 decreased by $0.9 million, or 13%, compared to the three months ended June 30, 2020 primarily due to lower average debt balances and lower interest rates.
Income Tax Benefit (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Change
|
|
|
|
2021
|
|
|
2020
|
|
|
$
|
|
|
%
|
|
|
|
(dollars in thousands)
|
|
Income tax benefit (expense)
|
|
$
|
37,305
|
|
|
$
|
(7,661
|
)
|
|
$
|
44,966
|
|
|
|
(587
|
)%
|
Effective income tax rate
|
|
|
597.5
|
%
|
|
|
21.9
|
%
|
|
|
|
|
|
|
For the three months ended June 30, 2021, we had an income tax benefit of $37.3 million, compared to income tax expense of $7.7 million for the three months ended June 30, 2020 and an effective income tax rate of 597.5% and 21.9%, respectively. The change in our income tax benefit (expense) was primarily due to the change from pre-tax income to loss in addition to the tax effects of nondeductible officers’ stock-based compensation expense and excess tax benefits related to our equity awards. The pre-tax loss for the three months ended June 30, 2021 was partially driven by the $24.0 million of stock-based compensation expense related to the Founders Awards made in connection with our IPO.
26
Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
Change
|
|
|
|
2021
|
|
|
2020
|
|
|
$
|
|
|
%
|
|
|
|
(dollars in thousands)
|
|
Prescription transactions revenue
|
|
$
|
278,918
|
|
|
$
|
232,565
|
|
|
$
|
46,353
|
|
|
|
20
|
%
|
Subscription revenue
|
|
|
26,323
|
|
|
|
11,998
|
|
|
|
14,325
|
|
|
|
119
|
%
|
Other revenue
|
|
|
31,825
|
|
|
|
12,140
|
|
|
|
19,685
|
|
|
|
162
|
%
|
Total revenue
|
|
$
|
337,066
|
|
|
$
|
256,703
|
|
|
$
|
80,363
|
|
|
|
31
|
%
|
Prescription transactions revenue for the six months ended June 30, 2021 increased $46.4 million, or 20%, compared to the six months ended June 30, 2020, driven primarily by a 26% increase in the number of our average Monthly Active Consumers, partially offset by lower contribution-per-consumer due solely to the acquisition of Scriptcycle. Scriptcycle active consumers are included in our Monthly Active Consumers number beginning in the fourth quarter of 2020, the first full quarter post its acquisition. We believe prescription transactions revenue continues to be impacted by COVID-19.
Subscription revenue for the six months ended June 30, 2021 increased $14.3 million, or 119%, compared to the six months ended June 30, 2020, driven primarily by an increase in the number of subscribers to 1.1 million as of June 30, 2021, compared to 0.6 million as of June 30, 2020, as well as favorable change in subscription plan mix.
Other revenue for the six months ended June 30, 2021 increased $19.7 million, or 162%, compared to the six months ended June 30, 2020. This increase was primarily due to an increase in revenue from our pharma manufacturer solutions offering and an increase in telehealth revenue.
We expect the percentage growth in subscription and other revenue to continue to outpace our prescription transactions revenue as we continue to scale the capabilities and platforms of our subscription, pharma manufacturer solutions and telehealth service offerings.
Costs and Operating Expenses
Cost of Revenue, Exclusive of Depreciation and Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
Change
|
|
|
|
2021
|
|
|
2020
|
|
|
$
|
|
|
%
|
|
|
|
(dollars in thousands)
|
|
Cost of revenue, exclusive of depreciation and amortization
|
|
$
|
21,518
|
|
|
$
|
12,843
|
|
|
$
|
8,675
|
|
|
|
68
|
%
|
As a percentage of total revenue
|
|
|
6
|
%
|
|
|
5
|
%
|
|
|
|
|
|
|
Cost of revenue for the six months ended June 30, 2021 increased $8.7 million, or 68%, compared to the six months ended June 30, 2020. This increase was primarily driven by a $2.7 million increase in outsourced and in-house personnel related consumer support expense to support our growth, a $1.8 million increase in provider cost related to our telehealth offerings driven by an increase in the number of online provider visits, a $1.4 million increase in hosting expenses, a $1.2 million increase in merchant fees and a $0.8 million increase in allocated overhead.
Product Development and Technology
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
Change
|
|
|
|
2021
|
|
|
2020
|
|
|
$
|
|
|
%
|
|
|
|
(dollars in thousands)
|
|
Product development and technology
|
|
$
|
55,727
|
|
|
$
|
22,287
|
|
|
$
|
33,440
|
|
|
|
150
|
%
|
As a percentage of total revenue
|
|
|
17
|
%
|
|
|
9
|
%
|
|
|
|
|
|
|
Product development and technology expenses for the six months ended June 30, 2021 increased by $33.4 million, or 150%, compared to the six months ended June 30, 2020. This increase was primarily due to increases in product development payroll and related expenses of $26.2 million due to higher headcount and an increase in stock-based compensation expense and payroll taxes related to awards made in connection with and after our IPO. The increase in product development and technology expense was also due to an increase in allocated overhead of $3.8 million in support
27
of our product development efforts and an increase in third-party services and contractor expenses related to product development of $3.5 million.
Sales and Marketing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
Change
|
|
|
|
2021
|
|
|
2020
|
|
|
$
|
|
|
%
|
|
|
|
(dollars in thousands)
|
|
Sales and marketing
|
|
$
|
168,075
|
|
|
$
|
115,082
|
|
|
$
|
52,993
|
|
|
|
46
|
%
|
As a percentage of total revenue
|
|
|
50
|
%
|
|
|
45
|
%
|
|
|
|
|
|
|
Sales and marketing expenses for the six months ended June 30, 2021 increased by $53.0 million, or 46%, compared to the six months ended June 30, 2020. This increase was primarily due to a $30.6 million increase in advertising expenses and a $17.6 million increase in sales and marketing payroll and related expenses due to higher headcount and an increase in stock-based compensation expense and payroll taxes related to awards made in connection with and after our IPO.
We continue to evaluate the impact of COVID-19 on our business and actively manage our consumer acquisition spending according to market conditions.
General and Administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
Change
|
|
|
|
2021
|
|
|
2020
|
|
|
$
|
|
|
%
|
|
|
|
(dollars in thousands)
|
|
General and administrative
|
|
$
|
83,365
|
|
|
$
|
12,219
|
|
|
$
|
71,146
|
|
|
|
582
|
%
|
As a percentage of total revenue
|
|
|
25
|
%
|
|
|
5
|
%
|
|
|
|
|
|
|
General and administrative expenses for the six months ended June 30, 2021 increased by $71.1 million, or 582%, compared to the six months ended June 30, 2020. This increase was primarily due to $54.0 million of expense related to the Founders Awards made in connection with the IPO as further described in Note 10 of our condensed consolidated financial statements. The increase in general and administrative expense was also due to a $11.4 million increase in other executive and administrative payroll and related expenses due to higher headcount and an increase in stock-based compensation expense and payroll taxes related to other awards made in connection with and after our IPO, and a $4.4 million increase in acquisition related and other professional service fees to support our growth and operations as a public company after our IPO.
Depreciation and Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
Change
|
|
|
|
2021
|
|
|
2020
|
|
|
$
|
|
|
%
|
|
|
|
(dollars in thousands)
|
|
Depreciation and amortization
|
|
$
|
13,730
|
|
|
$
|
8,866
|
|
|
$
|
4,864
|
|
|
|
55
|
%
|
As a percentage of total revenue
|
|
|
4
|
%
|
|
|
3
|
%
|
|
|
|
|
|
|
Depreciation and amortization expenses for the six months ended June 30, 2021 increased by $4.9 million, or 55%, compared to the six months ended June 30, 2020. This increase was due primarily to a $2.8 million increase in capitalized software amortization due to higher capitalized costs for platform improvements and the introduction of new products and
28
features and a $1.5 million increase in depreciation of property and equipment driven by the completion of the build of our new headquarters in Santa Monica, California.
Other Income, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
Change
|
|
|
|
2021
|
|
|
2020
|
|
|
$
|
|
|
%
|
|
|
|
(dollars in thousands)
|
|
Other income, net
|
|
$
|
—
|
|
|
$
|
(21
|
)
|
|
$
|
21
|
|
|
|
(100
|
)%
|
As a percentage of total revenue
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
|
|
|
|
Other income, net was not material in the six months ended June 30, 2021 and 2020.
Interest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
Change
|
|
|
|
2021
|
|
|
2020
|
|
|
$
|
|
|
%
|
|
|
|
(dollars in thousands)
|
|
Interest income
|
|
$
|
(29
|
)
|
|
$
|
(116
|
)
|
|
$
|
87
|
|
|
|
(75
|
)%
|
As a percentage of total revenue
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
|
|
|
|
Interest income was not material in the six months ended June 30, 2021 and 2020.
Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
Change
|
|
|
|
2021
|
|
|
2020
|
|
|
$
|
|
|
%
|
|
|
|
(dollars in thousands)
|
|
Interest expense
|
|
$
|
11,811
|
|
|
$
|
15,433
|
|
|
$
|
(3,622
|
)
|
|
|
(23
|
)%
|
As a percentage of total revenue
|
|
|
4
|
%
|
|
|
6
|
%
|
|
|
|
|
|
|
Interest expense for the six months ended June 30, 2021 decreased by $3.6 million, or 23%, compared to the six months ended June 30, 2020 primarily due to lower average debt balances and lower interest rates.
Income Tax Benefit (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
Change
|
|
|
|
2021
|
|
|
2020
|
|
|
$
|
|
|
%
|
|
|
|
(dollars in thousands)
|
|
Income tax benefit (expense)
|
|
$
|
49,860
|
|
|
$
|
(15,427
|
)
|
|
$
|
65,287
|
|
|
|
(423
|
)%
|
Effective income tax rate
|
|
|
291.1
|
%
|
|
|
22.0
|
%
|
|
|
|
|
|
|
29
For the six months ended June 30, 2021, we had an income tax benefit of $49.9 million, compared to income tax expense of $15.4 million for the six months ended June 30, 2020 and an effective income tax rate of 291.1% and 22.0%, respectively. The change in our income tax benefit (expense) was primarily due to the change from pre-tax income to loss in addition to the tax effects of nondeductible officers’ stock-based compensation expense and excess tax benefits related to our equity awards. The pre-tax loss for the six months ended June 30, 2021 was partially driven by the $54.0 million of stock-based compensation expense related to the Founders Awards made in connection with our IPO.
Liquidity and Capital Resources
Overview
Since our inception, we have financed our operations primarily through net cash provided by operating activities, equity issuances, and borrowings under our long-term debt arrangements. Our primary requirements for liquidity and capital are to finance working capital, capital expenditures and general corporate purposes. Our principal sources of liquidity are expected to be our cash and cash equivalents and borrowings available under our $100.0 million secured asset-based Revolving Credit Facility. As of June 30, 2021 we had cash and cash equivalents of $894.7 million and $90.9 million available under our Revolving Credit Facility.
We believe that our net cash provided by operating activities, cash on hand and availability under our Revolving Credit Facility will be adequate to meet our operating, investing and financing needs for at least the next 12 months. Our future capital requirements will depend on many factors, including our revenue growth, the timing and extent of investments to support such growth, the expansion of sales and marketing activities, and many other factors as described in the section entitled “Risk Factors” of our 2020 10-K and this Quarterly Report on Form 10-Q. We historically have not had any off-balance sheet arrangements nor do we currently have any off-balance sheet arrangements as defined under SEC rules.
If necessary, we may borrow funds under our Revolving Credit Facility to finance our liquidity requirements, subject to customary borrowing conditions. To the extent additional funds are necessary to meet our long-term liquidity needs as we continue to execute our business strategy, we anticipate that they will be obtained through the incurrence of additional indebtedness, additional equity financings or a combination of these potential sources of funds; however, such financing may not be available on favorable terms, or at all. In particular, the widespread COVID-19 pandemic has resulted in, and may continue to result in, significant disruption of global financial markets, reducing our ability to access capital. If we are unable to raise additional funds when or on the terms desired, our business, financial condition and results of operations could be adversely affected.
In light of the large number of RSUs subject to the Founders Awards that were granted in connection with our IPO in September 2020, we have incurred and anticipate that we will incur substantial additional stock-based compensation expense and expend substantial funds to satisfy tax withholding and remittance obligations as these RSUs vest over time. The grant date fair value of the Founders Awards was $533.3 million. All of the stock price goals with respect to the performance vesting portion of the Founders Awards (the “Performance-Vesting Founders Awards,” see Note 10 of our condensed consolidated financial statements) were achieved in October 2020. As a result, all 16,422,044 Performance-Vesting Founders Awards vested in 2020, and we recognized a total of approximately $373.0 million of stock-based compensation expense related to the Founders Awards during 2020. During the three and six months ended June 30, 2021, we recognized an additional $24.0 million and $54.0 million of stock-based compensation expense, respectively, resulting in a cumulative total of $427.0 million of stock-based compensation expense recognized related to the Founders Awards as of June 30, 2021. The unrecognized stock-based compensation expense associated with the time vesting portion of the Founders Awards of $106.3 million as of June 30, 2021 is expected to be recognized over the weighted average remaining service period of 1.7 years. In addition, as a result of the Founders Awards, and the Performance-Vesting Founders Awards in particular, a large number of shares of Class B common stock will be issued on the applicable settlement dates. On the settlement dates for the RSUs, we plan to withhold shares and remit taxes on behalf of the holders of such Founders Awards at applicable statutory rates, which we refer to as net settlement, which may result in substantial tax withholding obligations. As an employee earns compensation, both the employer and the employee are liable for some portion of Social Security taxes and Medicare taxes (collectively referred to as “FICA” taxes) on the compensation. FICA taxes are generally due in the period when the substantial risk of forfeiture lapses. As the Performance-Vesting Founders Awards vested in October 2020, we accelerated the settlement of 0.7 million RSUs during the fourth quarter of 2020 sufficient to satisfy FICA tax withholding obligations due in the year of vesting. The remaining non-accelerated 15.7 million Performance-Vesting Founders Awards shares will not be issued until October 2023 or, if earlier, a change in control event, as defined in the RSU agreements governing the Founders Awards.
30
Assuming an approximate 47% tax withholding rate and stock price of $65.00 per share at vesting and settlement, for the 15.7 million Performance-Vesting Founders Award shares that vested as described in the preceding paragraph, we estimate that our cash obligation on behalf of our Co-Founders to the relevant tax authorities to satisfy tax withholding obligations would be approximately $481.7 million, and we would deliver an aggregate of approximately 8.3 million shares of our Class B common stock to net settle these awards, after withholding an aggregate of approximately 7.4 million shares of our Class B common stock. Cash payments for income tax withholdings are due upon the settlement date of the RSUs which is the third anniversary of the applicable vesting date or, if earlier, upon a qualifying change in control event. The actual amount of the tax obligations and the number of shares to be delivered could be higher or lower, depending on the price of our Class A common stock upon settlement and the applicable tax withholding rates then in effect. We also anticipate expending substantial funds to satisfy tax withholding and remittance obligations for other equity awards granted to our employees as they vest over time.
First Lien Credit Agreement
Our first lien credit agreement (the “First Lien Credit Agreement”) provides for a term loan with an original amount of $700.0 million (the “First Lien Term Loan Facility”). We also have a line of credit with a maximum amount of $100.0 million (the “Revolving Credit Facility”) associated with the First Lien Credit Agreement.
The Revolving Credit Facility and the First Lien Term Loan Facility under the First Lien Credit Agreement are collateralized by substantially all of our assets, including our intellectual property, and 100% of the equity interest of GoodRx, Inc.
The First Lien Credit Agreement that governs the Revolving Credit Facility and the First Lien Term Loan Facility contains certain affirmative and negative covenants, including, among other things, restrictions on indebtedness, liens, fundamental changes, repurchases of stock, dividends and other distributions. GoodRx, Inc. is restricted from making dividend payments, loans or advances to GoodRx Intermediate Holdings, LLC and GoodRx Holdings, Inc. In addition, GoodRx, Inc. is subject to a financial covenant whereby GoodRx, Inc. is required to maintain a First Lien Net Leverage Ratio (as defined in the First Lien Credit Agreement) not to exceed 8.2 to 1.0. At June 30, 2021, we were in compliance with the covenants under the First Lien Credit Agreement.
Revolving Credit Facility
Loans under the Revolving Credit Facility bear interest at a rate per annum equal to the LIBO Screen Rate (as defined in the First Lien Credit Agreement) plus a variable margin rate, which is based on our most recently determined First Lien Net Leverage Ratio (as defined in the First Lien Credit Agreement), that ranges from 2.50% to 3.00%. The Revolving Credit Facility has a variable commitment fee, which is based on our most recently determined First Lien Net Leverage Ratio (as defined in the First Lien Credit Agreement), and ranges from 0.25% to 0.50% per annum. In addition, the Revolving Credit Facility has a fixed fronting fee of 0.125% per annum of our aggregate undrawn and disbursed but unreimbursed letters of credit. The Revolving Credit Facility expires on October 11, 2024. As of June 30, 2021, there was no outstanding principal balance under our Revolving Credit Facility.
Under the terms of a lease agreement entered into during September 2019, GoodRx, Inc. assigned to the landlord drawdown rights against the Revolving Credit Facility for up to $9.0 million to meet the contractual line of credit requirement in the lease agreement. The landlord can draw on the Revolving Credit Facility in the event of our default on rent or damages to the building. The assigned rights to the landlord will be held for the initial three years of the lease term, and subject to certain conditions, the letter of credit will decrease thereafter by up to 10% per year based upon the original amount to no less than $2.0 million. This outstanding letter of credit to the landlord reduces our available borrowings under the Revolving Credit Facility by an amount equal to the value of assigned rights. There were outstanding letters of credit issued against the Revolving Credit Facility for $9.1 million as of June 30, 2021, which reduces our available borrowings under the Revolving Credit Facility to $90.9 million.
First Lien Term Loan Facility
The First Lien Term Loan Facility accrues interest at a rate per annum equal to the LIBO Screen Rate (as defined in the First Lien Credit Agreement) plus a variable margin rate, which is based on our most recently determined Net Leverage Ratio (as defined in the First Lien Credit Agreement), that ranges from 2.75% to 3.00% per annum. The First Lien Credit Agreement requires quarterly principal payments through September 2025, with any remaining unpaid principal and any accrued and unpaid interest due on the maturity date of October 10, 2025.
The effective interest rate on the First Lien Term Loan Facility was 3.39% and 3.83% for the three months ended June 30, 2021 and 2020, respectively and 3.39% and 4.33% for the six months ended June 30, 2021 and 2020, respectively.
31
The carrying value of the First Lien Term Loan Facility was $664.9 million, net of unamortized debt issuance costs and discount of $12.7 million, as of June 30, 2021.
Holding Company Status
We are a holding company that does not conduct any business operations of our own. As a result, we are largely dependent upon cash distributions and other transfers from our subsidiaries to meet our obligations and to make future dividend payments, if any. The First Lien Credit Agreement contains covenants restricting payments of dividends by our subsidiaries, including GoodRx, Inc., unless certain conditions are met. These covenants provide for certain exceptions for specific types of payments. Based on these restrictions, all of the net assets of GoodRx, Inc. were restricted pursuant to the terms of the First Lien Credit Agreement as of June 30, 2021. Since the restricted net assets of GoodRx, Inc. and its subsidiaries exceed 25% of our consolidated net assets, in accordance with Regulation S-X, refer to our audited consolidated financial statements included in our 2020 10-K for condensed parent company financial information of GoodRx Holdings, Inc.
Cash Flows
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
(in thousands)
|
|
Net cash provided by operating activities
|
|
$
|
80,411
|
|
|
$
|
83,825
|
|
Net cash used in investing activities
|
|
|
(142,416
|
)
|
|
|
(8,319
|
)
|
Net cash (used in) provided by financing activities
|
|
|
(14,883
|
)
|
|
|
25,069
|
|
Net change in cash, cash equivalents and restricted cash
|
|
$
|
(76,888
|
)
|
|
$
|
100,575
|
|
Net Cash Provided by Operating Activities
Net cash provided by operating activities was $80.4 million for the six months ended June 30, 2021 consisting of $32.7 million of net income, adjusted for $104.9 million of non-cash expenses, made up primarily of stock-based compensation of $87.2 million, including $54.0 million of stock-based compensation related to the Founders Awards made in connection with the IPO, partially offset by $57.2 million of net cash used as a result of changes in operating assets and liabilities. The changes in operating assets and liabilities were primarily driven by an increase in income tax receivable due to our second quarter tax benefit as well as increases in accounts receivable due to our growing operations.
Net cash provided by operating activities was $83.8 million for the six months ended June 30, 2020 consisting of $54.7 million of net income, adjusted for $19.3 million of non-cash expenses and $9.8 million of net cash provided by changes in our operating assets and liabilities. The changes in operating assets and liabilities were primarily driven by increases in accounts receivable, prepaid expenses and other current assets and accrued expenses and other current liabilities due to our growing operations.
Net Cash Used in Investing Activities
Net cash used in investing activities of $142.4 million for the six months ended June 30, 2021 was related to $125.7 million in cash consideration, net of cash acquired, related to acquisitions, $13.6 million for capitalized software and $3.1 million of capital expenditures, due primarily to leasehold improvements and furniture and fixtures related to the completion of our new office facility in Santa Monica, California. In May 2021, we entered into a non-cancelable lease agreement to lease additional space adjacent to our new office facility in Santa Monica, California. We anticipate that we will invest in additional capital expenditures with respect to the expanded leased space principally in 2022, which is the earliest we expect to gain access to and control of the expanded leased property.
Net cash used in investing activities of $8.3 million for the six months ended June 30, 2020 was related to $6.5 million for capitalized software and $1.8 million for capital expenditures.
Net Cash (Used in) Provided by Financing Activities
Net cash used in financing activities of $14.9 million for the six months ended June 30, 2021 was related to $26.0 million of payments for employee taxes related to net share settlement of equity awards, $3.5 million in long-term debt principal payments related to our First Lien Term Loan Facility and $0.8 million payment for contingent consideration related to the acquisition of Scriptcycle, partially offset by $15.4 million in proceeds from the exercise of stock options.
32
Net cash provided by financing activities of $25.1 million for the six months ended June 30, 2020 was primarily related to $28.0 million in proceeds from our Revolving Credit Facility, $1.9 million from the exercise of stock options, partially offset by $3.5 million in long-term debt principal payments related to our First Lien Term Loan Facility and payments of $1.3 million of debt issuance costs related to increasing the amount of our line of credit in May 2020.
Contractual Obligations and Commitments
Other than as described in Note 8 to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q, there have been no material changes to our contractual obligations and commitments compared with those described in our 2020 10-K.
Critical Accounting Policies and Estimates
During the three months ended June 30, 2021, there have been no significant changes to our critical accounting policies and estimates compared with those disclosed in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2020 10-K.
Recent Accounting Pronouncements
Refer to Note 2 to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.
Item 4. Controls and Procedures
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our co-principal executive officers and principal financial officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, and as a result of the material weaknesses described below, our co-principal executive officers and principal financial officer concluded that, as of June 30, 2021, our disclosure controls and procedures were not effective at the reasonable assurance level.
Material Weaknesses
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual and interim financial statements will not be detected or prevented on a timely basis.
In connection with the preparation of our consolidated financial statements for 2019, we identified certain control deficiencies in the design and operation of our internal control over financial reporting that constituted material weaknesses. The material weaknesses are:
We did not design or maintain an effective control environment commensurate with our financial reporting requirements. We lacked a sufficient number of professionals with an appropriate level of accounting knowledge, training and experience to appropriately analyze, record and disclose accounting matters timely and accurately. Additionally, the limited personnel resulted in an inability to consistently establish appropriate authorities and
33
responsibilities in pursuit of our financial reporting objectives, as demonstrated by, amongst other things, insufficient segregation of duties in our finance and accounting functions.
We did not effectively design and maintain controls in response to the risks of material misstatement. Specifically, changes to existing controls or the implementation of new controls have not been sufficient to respond to changes to the risks of material misstatement to financial reporting, due in part to acquisitions and other changes to our business.
These material weaknesses contributed to the following additional material weaknesses:
We did not design and maintain formal accounting policies, processes and controls to analyze, account for and disclose complex transactions.
We did not design and maintain formal accounting policies, procedures and controls to achieve complete, accurate and timely financial accounting, reporting and disclosures, including controls over the preparation and review of business performance reviews, account reconciliations and journal entries. Additionally, we did not design and maintain controls over the classification and presentation of accounts and disclosures in the financial statements.
We did not design and maintain effective controls over certain information technology (“IT”) general controls for information systems that are relevant to the preparation of our financial statements. Specifically, we did not design and maintain: (i) program change management controls to ensure that IT program and data changes affecting financial IT applications and underlying accounting records are identified, tested, authorized, and implemented appropriately; (ii) user access controls to ensure appropriate segregation of duties and that adequately restrict user and privileged access to certain financial applications, programs and data to appropriate company personnel; (iii) computer operations controls to ensure that critical batch jobs are monitored and data backups are authorized and monitored, and (iv) testing and approval controls for program development to ensure that new software development is aligned with business and IT requirements.
These material weaknesses resulted in adjustments identified by our independent registered public accounting firm and recorded by us primarily related to goodwill, capitalized software, leases, debt extinguishment, revenue recognition and sales allowances. These material weaknesses could result in a misstatement of our accounts or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.
Remediation Measures
We are compiling the system and processing documentation necessary to perform the evaluation needed to comply with Section 404(a) of Sarbanes-Oxley Act and we are taking steps to remediate the material weaknesses. Management, with the participation of the audit committee and the board of directors, is engaged in remedial activities to address the material weaknesses described above. As of June 30, 2021, substantially all remediation efforts planned to address the material weaknesses have been designed and implemented by management. These implemented controls and procedures are subject to ongoing testing including their operating effectiveness over a sustained period of financial reporting cycles. The finalization of our remediation measures is ongoing and includes the following:
We have prepared our remediation plan for each of the material weaknesses and trained process owners, evaluated the design of controls and are monitoring the results of our testing.
We have engaged third party professionals to advise management in connection with the remediation of each of the material weaknesses including testing the operating effectiveness of controls.
We have hired additional accounting, human resources, payroll and IT personnel to bolster our technical reporting, transactional accounting and IT capabilities. We have more than doubled our finance and accounting personnel since the beginning of 2020 through June 30, 2021. We implemented controls to formalize roles and review responsibilities to align with our team’s skills and experience and implemented formal controls over segregation of duties. We continue to evaluate our staffing needs and plan to hire additional resources as necessary to support our operations.
We have implemented procedures to identify and evaluate changes in our business and the impact on our controls.
We completed the implementation of software solutions in the second quarter of 2021 to support our ability to monitor, assess, and remediate segregation of duties related issues, as well as support our ongoing compliance efforts with Section 404(a) of Sarbanes-Oxley Act.
34
We have formally assessed, and will continue to formally assess, complex accounting transactions and other technical accounting and financial reporting matters including controls over the preparation and review of accounting memoranda addressing these matters. During the third and fourth quarters of 2020, we implemented controls to identify complex accounting transactions and to require that the accounting implications of such transactions are formally assessed, documented and reviewed by a relevant senior member of our accounting team. In addition, we have engaged third party subject matter experts to advise us with respect to certain complex non-routine transactions in addition to management’s review of such transactions, where appropriate.
Since the beginning of 2020, we implemented several new information systems including a new enterprise resource planning system. We are continuing the process of designing and implementing controls over these systems to, among other things, automate certain controls, enforce segregation of duties and facilitate the review of journal entries.
We have formalized critical accounting policies to achieve complete, accurate and timely financial accounting, reporting and disclosures. Moreover, we have implemented formal processes, policies, and procedures supporting our financial close process, including creating standard balance sheet reconciliation templates, establishing and reviewing thresholds for business performance reviews, and formalized procedures over the review of financial statements. We have implemented an external financial reporting function within our existing finance team to support our regulatory external financial reporting objectives.
We continue to enhance our IT governance processes, including automating components of our change management and logical access processes, enhancing role-based access and logging capabilities, implementing automated controls, enhancing testing and approval controls for program development, and implementing more robust IT policies and procedures over change management and computer operations.
We believe we are making progress toward achieving the effectiveness of our internal control over financial reporting and disclosure controls and procedures. The actions that we are taking are subject to continued testing, ongoing senior management review, as well as audit committee oversight. We will not be able to conclude whether the steps we are taking will fully remediate these material weaknesses in our internal control over financial reporting until we have completed our remediation efforts and subsequent evaluation of their effectiveness. We may also conclude that additional measures may be required to remediate the material weaknesses in our internal control over financial reporting, which may necessitate additional implementation and evaluation time. We will continue to assess the effectiveness of our internal control over financial reporting and take steps to remediate the known material weaknesses expeditiously.
Changes in Internal Control Over Financial Reporting
We are taking actions to remediate the material weaknesses relating to our internal control over financial reporting. Other than the changes to our internal control over financial reporting described in “Remediation Measures” above, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended June 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
35