Ladies and gentlemen, thank you for standing by and welcome to the GoodRx First Quarter 2024 Earnings Call. At this time, a reminder today's conference is being recorded. I will now like to introduce your host for today's call; Whitney Notaro, Vice President of Investor Relations. Ms. Notaro, you may begin.

Thank you, Operator. Good morning, everyone, and welcome to GoodRx's earnings conference call for the first quarter of 2024. Joining me today are Scott Wagner, our Interim Chief Executive Officer, and Karsten Voermann, our Chief Financial Officer. Before we begin, I'd like to remind everyone that this call will contain forward-looking statements. All statements made on this call that do not relate to matters of historical 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, our value proposition, our potential for growth, our hybrid retail direct and PBM contracting approach, collaborations and partnerships with third parties, including our integrated savings program, anticipated impacts of the deprioritization of certain solutions under our Pharma Manufacturing Solutions offering and our cost savings initiatives, expected impacts of the sunsetting of the Kroger Savings Club program, anticipated impact of the Change Healthcare outage, our capital allocation priorities, and the amount, timing, and benefits of our share repurchase program. 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 Factor section of our annual report on Form 10-K for the year ended December 31, 2023, and other filings with the Securities and Exchange Commission could cause actual results to differ materially from those indicated by the forward-looking statements made on this call. Any such forward-looking statements represent management's estimates as of the date of this call, and we disclaim any obligation to update these statements, even if subsequent events cause our views to change. In addition, we will be referencing certain non-GAAP metrics 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 there shortly as well. With that, I'll turn it over to Scott.

Thanks, Whitney, and thanks to everyone joining us today to discuss our first quarter results. Today I'd like to highlight the meaningful headway we've made over the last 12 months and more specifically in the first quarter. Then Karsten will take you through our Q1 financials and expectations for Q2 and full year 2024. I'd like to open by saying that we'll be keeping our prepared remarks focused during this call. Because as many of you are likely aware, we announced our first Investor Day, which is taking place next Wednesday, May 15. We hope those of you listening today will join us for that event, which will be webcasted via our Investor Relations website. We'd like to use that opportunity to discuss several things. First, the market context in which we operate, specifically the persistent and growing need for prescription affordability solutions, including ours. Second, the power of the GoodRx value proposition, elements that make us the preferred destination for consumers and healthcare professionals to find affordable prescriptions. Third, GoodRx's position within the healthcare value chain, details on the strength and durability of our pharmacy network as we focus on rebalancing pharmacy and PBM economics with our own, while incentivizing joint growth with our retail partners. Fourth, our expected growth levers including our B2B integrated savings program that allows us to aggregate prescription demand efficiently as well as continued growth in Pharma Manufacturer Solutions. Fifth, our financial trajectory and growth prospects; our plan is to lay out medium-term revenue expectations for both our prescription marketplace and manufacturer solution segments, as well as earnings flow-through. And finally, growth incentives, additional upsides, and opportunities that aren't in our base trajectory, but give us the opportunity to accelerate growth by leveraging our existing and differentiated assets to enable extensions of the offerings that we have today. We look forward to our Investor Day and using this as an opportunity to increase our transparency for all of those in the investor community. While I look forward to discussing these further, I do want to take a moment to discuss my views on my first year at GoodRx and what I see as our significant accomplishments during that time. When I arrived here a year ago, there were a number of questions about the company's position in the broader healthcare ecosystem. At the outset, I worked with the team to establish a set of clear priorities that reinforce our core value proposition: saving people money on prescriptions, with the goal of strengthening the durability of our business model and reigniting growth. Looking back, I'm encouraged and energized by the strides we've made. First, we've strengthened our retail pharmacy relationships and accelerated the uptake of our hybrid model, which includes both retail direct and our historical PBM contract. Our retail direct approach is where some of the largest pharmacies as well as smaller grocers and other retailers work closely with us to offer consumer savings while we help retailers manage their revenue and category profitability. We believe this is complementary to our existing PBM relationships and creates significant additional value for retail pharmacies. Opening up the potential for GoodRx as a true marketing platform and reducing friction both for consumers and for pharmacies themselves. During Q1, we continued to sign direct contracts with new pharmacies and expand the drugs covered by direct contracts. In Q1 2023, approximately 5% of our claims were through retail direct contracts and in Q1 2024 they made up over 20% of our clients. Our second priority has been to hone our growth plans for our core prescription transaction offering, which includes extending the benefit of GoodRx to commercial insurance programs or funded plans. We've done this through our integrated savings program or ISP with PBM partners like CVS Caremark, Express Scripts, MedImpact and Navitus who efficiently aggregate demand for prescription discounts, driving real value with payers and their members by seamlessly lowering the cost of their prescriptions automatically at the point of sale. We're quickly becoming a leader in the commercial market for integrated benefits. And while our programs are currently only available to a subset of our partner PBM eligible members, these PBMs do cover over 60% of eligible U.S. lives. So the market opportunity remains a key area of focus for us. We estimate that the patients and prescriptions filled in ISPs have negligible overlap with those in our direct to consumer offering, which means that our ISP product line is almost entirely SAM expanding. So far this year, ISP is tracking in line with our expectations and the traction that we're seeing is exciting as we continue to gain more lives and types of transactions. We look forward to working to continue to ramp this program over time with both our PBM partners and retailers and types of prescription transactions in the program. Third, we've been bringing GoodRx savings to brand drugs through Pharma Manufacturer Solutions. In 2023, we prioritized deal quality with a focus on forgoing one-off deals and instead creating standardized go-to-market programs that we expect to scale sustainably. The restructuring of our Pharma Manufacturer Solutions offering, including the rationalization of vitaCare, is complete. We've already begun to see margin increasing in the first quarter of 2024, which we expect will continue. Over the last year, we've also strengthened our management team and organized ourselves to execute effectively. More specifically, we've made a great executive addition with Dorothy Gemmell as our Chief Commercial Officer. And we welcomed Andrew Slutsky back as our Chief Marketing Officer and promoted several high-performing executives including Mike Walsh, who's now our President and EVP of Prescription Marketplace. These are all fantastic executives who are helping the business execute with speed and quality. Our team has a nice balance of healthcare and consumer internet expertise, a combination that I believe enables us to create elegant and distinctive experiences for our 25 million plus consumers and add real value in healthcare. During the first quarter, we continued to see positive momentum in the business, both financially and operationally. Q1 year-over-year adjusted revenue growth accelerated to 8%, up compared to our Q4 growth rate and our Q1 adjusted EBITDA margin was 31.7%, up 280 basis points year-over-year with adjusted EBITDA growing 18% year-over-year. This financial performance is the direct result of our efforts in executing against our priorities over the last 12 months. Looking ahead, we expect adjusted revenue growth to continue into Q2 and for the full year 2024. We anticipate adjusted revenue to be between $800 million and $810 million for the full year 2024, with adjusted EBITDA of over $250 million. We believe we're gaining momentum from a top line and adjusted EBITDA standpoint. We're expecting high flow-through from incremental top line growth to cash flow, which we believe puts us on track to return to a Rule of 40 company. Karsten will speak to our outlook in more detail. However, I will say confident that our priorities are the right ones to deliver growth and contribute to shareholder value creation. With that, I'll hand it over to Karsten.

Thank you, Scott. I'll speak briefly to our 1Q '24 financial results before turning to guidance. In summary, during the first quarter, revenue and adjusted revenue were in the upper end of the guidance range we provided on our Q4 earnings call in February, and adjusted EBITDA margin was a beat, exceeding the guidance we provided. Total revenue and adjusted revenue for the quarter increased 8% year-over-year to $197.9 million primarily driven by organic growth in prescription transactions revenue, including the expansion of our integrated savings program as well as growth in Pharma Manufacturer Solutions. I'll also note that the first quarter of last year included more revenue from the Kroger Savings Club subscription offering, which we are sunsetting in July 2024 as compared to this year's Q1. And Q1 2023 also included revenue from our vitaCare offerings and Manufacturer Solutions, which we restructured last fall and did not contribute any revenue at all in this Q1. To quantify this impact on growth, Kroger Savings Club and vitaCare together contributed approximately mid-single-digit millions of dollars more revenue in the first quarter of 2023 than in the first quarter of 2024. The point here is that on a like-for-like basis, growth is even stronger. Moving on to the revenue lines. Prescription transactions revenue grew 8% year-over-year to $145.4 million, which was primarily driven by a 10% increase in monthly active consumers. On our 4Q '23 earnings call, we discussed that an immaterial impact from the Change outage was incorporated in the Q1 guidance we provided. At the time of the call, we've had a couple of days of impact. While we were back up and running quickly, the outage persisted more broadly across the industry for multiple weeks, impacting benefit plans, pharmacies, and others. On our 4Q '23 earnings call, we discussed the immaterial effects of the Change outage, which were incorporated in the Q1 guidance we provided. We were back up and running quickly and having now had time to evaluate the continuing impact, we believe the full year 2024 quantification is likely to also be immaterial in the low single-digit millions of dollars, including the outage's effect on refills. Subscriptions revenue declined 6% as expected to $22.6 million due to the wind down of Kroger Savings Club. Kroger Savings Club revenue was almost $2 million less in the first quarter of 2024 than in the prior year period. And our own Gold offering was essentially flat quarter-over-quarter. As I mentioned a moment ago, we expect the continued wind down of Kroger Savings Club subscribers from now to July and given the relative subscription fee is much higher for GoodRx Gold than for the Kroger Savings Club, the wind down will be more impactful to the total number of subscription plans than subscriptions revenue. Pharma Manufacturer Solutions increased 20% year-over-year to $24.5 million, driven by organic growth as we continue to expand our market penetration, including continued growth in our point-of-sale programs, which more than offset the low single-digit million dollar reduction in revenue from vitaCare. Net loss was $1.0 million compared to a net loss of $3.3 million in the first quarter of 2023. Adjusted net income was $32.6 million compared to $29.5 million in the first quarter of 2023. Adjusted EBITDA increased 18% year-over-year to $62.7 million, and the adjusted EBITDA margin was 31.7%, up quarter-over-quarter and up 280 basis points year-over-year. The year-over-year improvement was primarily driven by top line growth and run rate 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 $42.6 million compared to $32.3 million in the prior year period. Our capital allocation priorities are unchanged, and we'll continue to focus on high-return investments and maximizing value for shareholders. Our balance sheet remains strong, and we ended the quarter with $533 million in cash and cash equivalents on the balance sheet and $658 million of outstanding debt. During the quarter, we executed approximately $155 million of share repurchases at an average price of approximately $7.26 per share on a blended basis. As of March 31, 2024, we had $295 million of unused authorized share repurchase capacity under our $450 million share repurchase program approved by our Board of Directors during the first quarter of 2024. Our revolving credit facility is untapped, except for letters of credit and had $92 million of unused capacity as of March 31, 2024, representing total liquidity of $625 million. Now turning to guidance. Our outlook for Q2 revenue and adjusted revenue is approximately $200 million, representing approximately 5% year-over-year growth. We expect revenue and adjusted revenue to be identical in the second quarter because we believe the third quarter 2023 adjustment to revenue in relation to the Pharma Manufacturer Solutions restructuring related to vitaCare was one-time and non-recurring. Similarly to my commentary earlier on 1Q '24's results, we expect our 2Q '24 growth to be tempered because of the vitaCare offering we restructured last fall and Kroger Savings Club, which we're sunsetting in July, which together contributed approximately mid-single-digit millions of dollars more revenue in the second quarter of 2023 than they will contribute in the second quarter of 2024. For the full year 2024, we continue to expect revenue and adjusted revenue to be identical and expect to come in between $800 million and $810 million, representing approximately 6% growth on an adjusted revenue basis at the midpoint. Like 1Q '24 and 2Q '24, the anticipated full year 2024 adjusted revenue growth rate has been tempered by approximately $15 million of full year top-line impact associated with the deprioritization of vitaCare, which contributed to revenue and adjusted revenue in 2023, but is not contributing at all in 2024 as well as the anticipated sunset of the Kroger Savings Club. Also, we expect contra revenue related to consumer incentives to increase by almost $10 million this year. In aggregate, this $25 million of top-line impact is reflected in our full year $800 million to $810 million revenue and adjusted revenue guidance as is the ongoing full-year effect of the Change outage with its low single-digit million dollar impact I mentioned earlier. We expect our Prescription Marketplace portion of our anticipated 2024 adjusted revenue growth to be about $25 million to $35 million. As a reminder, our Prescription Marketplace is made up of prescription transactions, subscriptions, and other revenue. We expect Pharma Manufacturer Solutions to contribute about $10 million to $20 million to anticipated 2024 adjusted revenue growth. This implies a year-over-year growth rate for our Pharma Manufacturer Solutions offering that exceeds the growth rate of the digital pharma ad spend market, which has been in the low-teen percentages the last few years. Based on what we've seen historically, we expect there to be seasonality and some quarter-over-quarter variability in each of our Prescription Marketplace and Pharma Manufacturer Solutions offerings and potentially in our business more broadly. That said, given our scale relative to very large TAMs for our Prescription Marketplace and our Pharma Manufacturer Solutions offering, we're confident in the anticipated 2024 growth trajectory and our guidance of $800 million to $810 million in revenue and adjusted revenue. From a margin perspective, during the last few quarters, we've delivered adjusted EBITDA margins in the high 20% range and most recently in the low 30s in Q1. We expect adjusted EBITDA margin to be in the low 30% range again in the second quarter and expect to achieve over $250 million of adjusted EBITDA for the full year, up 15% from 2023 based on our expectations of a high degree of adjusted EBITDA flow-through from revenue growth and our continued focus on the cost structure and efficiency generally. With that, I'll now turn over to the operator for Q&A.

Our first question comes from Michael Cherny with Leerink Partners.

Congrats on a good quarter here. Maybe if I can just ask a question on ISP. As you think about the ramping effects, think about the integrations that you've had so far with the PBMs you're working with, where have been the greatest opportunities where you've seen the contribution? And in terms of the guidance for the rest of the year, how do you see ISP ramping in the percent of volumes, percent of growth? Any other additional color we can look into as you think about where this goes over time would be great.

Michael, it's Karsten speaking here. I think there are two parts to your question. The first part was where we see the opportunity and how do we see the rest of the year. With respect to both of those matters, I think we see the opportunity in four major areas. The first major area is continuing to add incremental PBMs. The second area is to add incremental plan sponsors from each PBM. The third area is formulary expansion. So the inclusion of, for example, completely off formulary medications. And then the final area of expansion is that there are still certain retailers who haven't been elected to participate in ISPs. Of those for us, the really big ones are around expanding the number of sponsors associated with particular PBM and formulary and, of course, adding new PBMs because that creates a big positive effect indeed even though we already have PBMs covering approximately 60% of U.S. lives. With respect to the trajectory through the rest of the year, traditionally, we would see ISP be expected to shrink in its contribution as the year progresses because folks hit their deductibles, for example, and have less need for ISP at certain points in the year. I think what we're noticing now is that that is probably going to be less of an effect in 2024 because of the growth vectors I described, namely PBMs continuing to add members in that formulary, in particular, that are in our already existing PBM base of business today. So I think the seasonality that we've historically talked about will likely be less pronounced, or not that pronounced at all this year relative to what we would have expected and saw, for example, last year. Hopefully, that's helpful.

And it's from Jailendra Singh with Truist Securities.

First, a quick clarification around Change Healthcare. You guys call impact ongoing. I just want to make sure, is there a risk that impact would be higher than low single-digit in millions? But then my main question is that MAC and PTR per MAC trends in the quarter, MAC were ahead, and PTR per MAC was slightly below compared to at least Street expectations. Just curious, how would you describe trends on those metrics compared to your internal expectations? And any color you can provide around PTR per MAC in the quarter? Were there any puts and takes from ISP impact or direct contracting pharmacy? And how should we think about the trend there for us of the year?

Hi, it's Scott. Thanks. Regarding Change, we don't expect this to be a long-lasting issue for the rest of the year. However, compared to our last update, there was an outage. Our service is back up, but Change has affected the industry longer than anticipated throughout the quarter. There were ongoing impacts mainly in Q2 related to the system and the industry as a whole, and this included some effects on the number of cards stored with retailers. In summary, as we move into the second half, this shouldn't be a significant issue, though it has had a notable impact on the industry in Q2. I'll let Karsten address your MAC and PTR question.

Hi Jailendra, on PTR per MAC, I think we did see some small single-digit degradation in Q1 on a year-over-year basis. But you saw, for example, in 4Q that it was up by a similar amount. I think PTR per MAC has been relatively linear over the past few quarters. It's gone up a little in some, down a little in some. I think there's no specific driver related to ISP or direct contracting that I necessarily point to on that. Both of those things have been in effect for several quarters now as the PTR per MAC has continued to fluctuate within a very narrow range.

And it's from the line of Stephanie Davis with Barclays.

You mentioned talking to those midterm targets at the upcoming Analyst Day. And if I do the math and I scrub out some of the headwinds that you've had in the quarter and year-to-date, you get to a low double-digit growth rate. Is there any reason to think there is something unique in this year or this quarter that would make that higher than your longer-term trend?

Stephanie, I think the dynamic of a marketplace just inherently says that in a given quarter, growth rate might bounce around in a range, and that's kind of what we're going to lay out for everybody with more detail than 30 seconds or a minute on a conference call. So we'll lay that out, but appreciate the math and what it means for us. But I think to specifically answer your question, it could be just the dynamics of a marketplace where you just do have some degree of variance in lapping year-over-year things that can happen. But over a longer term, that's the zone or the goalpost that the business can operate in.

And it's from the line of Daniel Grosslight with Citi.

Scott, I think you mentioned that now over 20% of the volume is coming through direct contracts. I'm curious where do you think that trends over the next year or so? Do you think you'll ever get to kind of the majority of volume flowing through direct contracts? And maybe if you can comment on how that might change your relationships or dynamic with the PBMs?

I think the most important point to note is that we're following our retail partners as we go through this journey. And what that dynamic means is that in some cases, we're going to have a portion or all of the volume being direct. And in some cases, we're going to work in our hybrid model. And it's going to be both. And again, the point being we're following where retailers are going and meeting the needs of, frankly, the value chain in general. And so I don't want to throw out a number because I think, again, this is something where we're kind of following the value chain as it goes, which is great, and there's going to be both in the system for a long, long time. I think that's the biggest point to think about on it. And relative to your PBM commentary or question, the PBMs, we're going to have a business relationship with the PBMs for a long, long time for all the reasons we had one at the inception of this business, which is it's a way of working together, adding incremental lives. ISP is obviously a new evolution where the GoodRx benefit, which is really off insurance is being brought closer to plans, not just in integrated savings, but I do think and hope that over the next, not just quarters but couple of years, integrated savings is going to evolve into a series of different efforts that sort of bridge that gap, and we're going to do that hand-in-hand with our PBM partners.

And it comes from the line of Lisa Gill with JPMorgan.

I want to clarify a few things regarding retail. In your comments about growth in ISP, you mentioned retail participation. Are there currently any retailers that aren't involved? Additionally, large companies like CVS have indicated a shift towards cost-plus reimbursement. How does this impact your model, if at all, as they progress? Lastly, I’d like to confirm that the EBITDA was $6 million above consensus for the quarter. Was this different from your internal projections? I'm considering the implications of this beat for the rest of the year compared to the Street in the first quarter.

Thank you, Lisa. I’ll address your points starting with the EBITDA results, which exceeded expectations and signify our return to growth and effective management. The strong EBITDA reflects positive developments in our business. Regarding the cost-plus pricing model, as you know, it's an alternative pricing method for retail pharmacies in relation to Pharmacy Benefit Managers, but the demand for value from insurance remains consistent. Our own value proposition, and that of GoodRx, lies in addressing the existing gaps in insurance, which may even be improved in certain retail environments under cost-plus arrangements. I’d like to hint at our upcoming Investor Day, where we will illustrate this further. For example, when you check prices for various medications on GoodRx across different retailers, you’ll find options under both cost-plus and traditional pricing models, and many consumers may not notice the difference, showcasing the universal advantages of GoodRx. We will explore this topic in more depth next week. Regarding retail participation, several retailers are currently navigating the complexities of ISP, which mainly relates to their funded contracts rather than the ISP itself. Our team, along with our PBM partners, is collaborating with retail to address these factors, and there's negligible difference between the retailers involved or not; it primarily revolves around program balance with respect to the funding involved.

And it is from the line of Charles Rhyee with TD Cowen.

I wanted to ask a little bit more. I think you talked about some of the big areas for growth, particularly in ISP is among them, right, the types of transactions, particularly all formulary generics. Can you talk about sort of what the process is with the various PBMs on how those decisions are made? And maybe if you have an estimation of what percentage of the formularies you are being used for today. Is there a formal process in there? Or is it just as they are testing through it? And just trying to get a little bit more sense on that. And then just a clarification, I think when you read it, the guidance for EBITDA, $250 million, did I hear that you expect greater than $250 million for the year? Just to clarify that.

Charles, I hope I addressed your question regarding our collaboration with the PBMs. This process involves teamwork between several people on both sides, analyzing various aspects, including pricing data. We are making progress together, implementing an incremental rollout as we have communicated, and we are guided by our PBM partner in this endeavor. Essentially, we are approaching this in a systematic, step-by-step manner. I’ll let Karsten provide clarification on the EBITDA question.

Yes, that's an easy one, Charles. On the EBITDA side, yes, we did say we expected to achieve over $250 million of adjusted EBITDA, so approximately greater than 15% year-over-year.

And it's from the line of Stan Berenshteyn with Wells Fargo Securities.

Maybe on Pharma Manufacturing Solutions, you have called this out as an area of focus. It seems like Q1 was a bit stronger than what you had guided for. Anything to call out in terms of upside to expectations what drove that? And then perhaps related to this, can you just give us some updates on the sales pipeline here, the type of traction you're seeing within the segment?

Yes. That's great. And I look forward to going into more detail on this whole area next week. I think what you're seeing is the results of the efforts that we were talking about at the end of last year, we're going to hone in on what we're really good at and distinctive at with these brand partners. And in pharma land, that's access solutions in the parlance, which is there's all of these co-pay and patient assistance programs that every brand runs, and they all act differently when you embed that workflow into GoodRx, the whole system works better, right? In many cases, we get 5 to 15x the organic page views at a brand than the natural brand does. And so if you think about us being the destination for affordability, boy, there's real value for each brand, connecting their affordability programs through GoodRx. And when we talk about access, that's pretty much what it is. And the effort last year was really honing our discussions with marketers on those things, and it's starting to bear fruit. To think by the numbers, Q1 was up 20% year-over-year. Obviously, this is a selling cycle. So the growth rates are going to bounce around a little bit. But I believe because I've been in conversations with not only our teams but a lot of these brand pharma companies over the last quarter, there's real value we had here. There's real value we add that's scalable, and I would hope that this trajectory is going to continue.

And it's from the line of Scott Schoenhaus with KeyBanc.

So I want to talk about gross margins. They really accelerated here at almost 94%. We haven't seen that since the grocer issue 2 years ago. And you called out in the press release the restructuring impact on the pharma man sol. Should we expect these kinds of gross margins going forward? And is there any more room to squeeze out of more cost savings out of the pharma man sol business?

I'm going to make two points on that. I'm going to tie on to Scott's last point on pharma man sol because it directly connects to this point. So Scott was talking about the pharma man sol growth rate at sort of 20%. And I think whatever needs to remember is that on a like-for-like basis, last year's quarter included revenue from vitaCare, which we restructured out that's not in this year. So on a like-for-like, you see a growth rate that, if anything, on a forward-looking basis might be a bit higher. Second point I'd make is with respect to gross margin, it ties in too because the cost of revenue that went away, went away in connection with that vitaCare restructuring as well. That is now gone. So again, revenue gone on a like-for-like basis, but costs also gone. And that's one of the reasons Scott, I and the rest of the team elected to undertake the restructuring is because we felt like it would be a perpetual, not just a one-time, increase in gross margin as cost of revenue drops.

Is that something that we should expect structurally to continue throughout the rest of the year?

Absolutely, yes. Is the short answer. Like that cost of revenue generating offering is gone. So the answer is absolutely yes then.

And I'll pile on just that question in Karsten's comments. I think you are seeing the value of GoodRx relative to brands now, which is starting to show up in the numbers financially, both growth rate trajectory and margin flow-through and the ability to help this accrete to profitable growth that it's nice to be at this point.

And it's from the line of Jack Wallace with Guggenheim Partners.

This is Mitchell on for Jack. So you bought back over 21 million shares and have $295 million of repurchase authorization remaining. Just trying to understand how you're thinking about capital deployment for the rest of the year? And is repurchasing shares opportunistically still at the top of the list? And is there anything else you're considering?

Sure, I'll address that. This is Karsten. You’re absolutely correct about the share repurchases. We are very focused on seizing opportunities where we believe the stock is undervalued. That has been a foundation for our past actions. Looking ahead, I interpret your question as inquiring about other ways we might deploy capital. Currently, Scott, the team, and I are not considering any mergers or acquisitions nor any significant investments that would impact our ability to generate cash flow for our investors. Therefore, looking to the future, the two aspects that may persist are our willingness to act if we find the stock remains undervalued and our opportunities to pay down debt. With rising interest rates, we are carefully evaluating these considerations in the context of refinancing.

And it's from the line of Sean Dodge with RBC Capital Markets.

Scott, maybe going back to your comments around ISP being rolled out in increments. When it comes to expanding to new employers or sponsors or expanding the drugs included or covered under the ISP, are those changes PBMs want to make more around the beginning of plan years? Or are those things that can be kind of phased in, in increments over the course of a year?

I'm going to grab it first if that's okay, Sean. It sort of both is the short answer. I think we originally anticipated that we'd see significant impacts at the start of the year. But in my commentary related to the ISP seasonality question being less pronounced than we might have expected historically, one of the reasons for that is exactly this point that we continue to see lives come on, for example, and other benefits of ISP occur even during the year. So that was the basis for my comment that seasonality is flatter, less downward sloping than we might have otherwise expected on ISP.

And it comes from the line of Allen Lutz with Bank of America.

Karsten, I appreciate the insights on the ISP opportunities. I would like to follow up on your last point. You mentioned various opportunities, including adding Pharmacy Benefit Managers, increasing membership, expanding formulary, and onboarding more retailers. In response to the last question, you indicated that some members have joined since last quarter. Has anything else changed since the February update? Regarding retailers that are currently not accepting ISP, what percentage does that represent? Are there any major retailers in that group? Additionally, could we expect some retailers to join throughout 2024?

Sure. Thanks. First of all, the performance of ISP is largely consistent with our modeling. So grateful to our FP&A team on that. It's coming in line with expectations. Hence, you saw us performing aligned with the expectations we set or a little more in the business overall, including in PTR. I think in terms of levers, probably the one I didn't mention earlier that I think is a great area of inflection for us too and that I might not have expected as much a quarter ago is our ability to win transactions. So the win rate associated with the ads we get. As you know, and I think everyone else on the call knows, the way ISP works is a member as a funded benefit goes to the pharmacy, and it goes to the lower cost of GoodRx or what that member might otherwise pay to their funded benefit plan. And as we work with all of the constituents in the value chain to optimize ISP, that winter conversion rate ends up getting better. With respect to your question about pharmacy acceptance, a significant majority of the big pharmacies, I'm trying to think back. I mean I get this perfectly right, but pretty much all of them are in. But we do have a tail of pharmacies that are smaller that we continue to pick up on.

And it is from the line of John Ransom with RJ.

I have two questions. First, regarding the decline in PTR per MAC in your legacy business since 2018, is this trend simply reflective of ongoing generic deflation that we should expect to continue? My second question relates to the upcoming Analyst Day, which I was pleasantly surprised to hear about. What prompted you to organize this event next week? Additionally, could you highlight two or three key themes you intend to emphasize, especially as your narrative is evolving and there are points that could be better clarified?

Yes, John, it's Scott. Well, I think the logic for getting together with everybody is to spend three hours laying out, hey, the need we serve, value prop, go through detail in each of the areas that we're doing, lay out financial goalposts between the marketplace and manufacturer solutions that we haven't done. And speaking a little selfishly and for myself, but at year-end, everybody outside was asking for all those things. We were doing it ourselves internally. We're ready to do that with consistent with some visibility on, hey, here's the opportunities and the growth levers that we're working on now. Here's a set of secondary things that these are going to lead into as they continue to work and some financial goalposts that we can communicate to everybody that we have high confidence in. And so the point is the business is ready. And it's nice to be able to do that with half a day's worth of time and people actually focused on and able to answer questions. And it's nice to be at this point.

And with respect to the PTR per MAC question, I think there are a couple of concepts that are pretty important. We don't expect any sort of nonlinearity, and I expect it to be largely flat for the year. You'll probably see the percentages fluctuate around zero, meaning flat slope down. So this time, it was down a couple percent. Next quarter it could well very well be slightly up. It's not a metric we actively manage to. But I will point out two things. One thing is that we have increased our use of consumer incentives in order to drive consumers to take action. For example, their first fill or, for example, if we see them fill a few times in a chronic script and then look like they might be a trading, we can incent them with the discount on film number x to bring them back into the fold. That is contra revenue in the same sense that for CPG brands, coupons are contra revenue. So you see a drag this year that's up sort of, call it, low double-digit millions with respect to increased contra revenue that reduces revenue and therefore, when divided by MAC reduces PTR per MAC. I think the reality is we're not spending more. It's just a matter of shifting out of marketing and into the sort of consumer incentives arena. I think the second point is that when you look back over the time horizon you're talking about, that's also the time horizon when one of our retail partners, where we made quite nice margin. I'm thinking of Kroger here, constituted a significant amount of our business, like 24%-ish, 25%-ish of PTR volume. And so I think that was the other factor that created a headwind. But now that that's fully flowed through, right? It's just the latter when the contra revenue one that is materially impactful. Hopefully, that's helpful.

I wanted to make one final point for next week. I acknowledge that the company's pacing has been difficult for investors to track. After spending time with us next week, investors will have a clear understanding of the market, the company, and what we are focusing on. They will see how this translates into financials, allowing them to assess our trajectory. Everyone will leave with a transparent understanding after next Wednesday.

And it comes from the line of John Park with Morgan Stanley.

I'm here on behalf of Craig. In addition to any acceleration in top line growth that could provide operating leverage in the model, are there any productivity or cost initiatives that would contribute to margin expansion? I believe you mentioned that moving away from vitaCare will improve gross margins, but I would appreciate any additional details on that.

I think you're seeing the strength of the model itself. As we return to top line growth, the flow-through is impressive. vitaCare was a specific action aimed at restructuring something that wasn't an efficient use of resources, benefiting both the business and investors. As we continue to grow, the flow-through naturally increases. We're being careful with our resources, but it's not overly difficult. In fact, we're looking to invest in areas that will further drive growth. While we haven't discussed marketing on this call, I can say we have initiatives that we'll elaborate on next week where we plan to increase our efforts. The good news for everyone on the call is that we can execute these strategies, whether in marketing or ramping up engineering efforts in certain areas, and the revenue growth can still be realized.

Yes. And in terms of the quant part of your question, I think there are areas where we've, over the past few quarters, shown some efficiency. Like, for example, if you go back and look over a multi-quarter sort of longitudinal perspective, you see incremental marketing efficiencies even adjusting for the contra revenue that I talked about with respect to John Ransom's question. You see on product development technology that as folks shift from maintenance mode to really being deployed against building new growth-oriented technology and platform attributes, that the capitalization rate on that goes up too, right? So there are certain dynamics in the business that we would expect to allow us to continue to accrete margin incremental to just the flow-through, particularly as we look forward on a multi-year basis, and we'll talk about that more next week, as Scott alluded to.

One moment for our last question, please. And it comes from the line of George Hill with Deutsche Bank.

I guess two quick ones. One, Karsten, is, are you able to unpack from a gross margin perspective for us the impact of 20% of scripts going through retail direct from 5% in the year-ago period? I think a lot of us are trying to do the gross margin impact here. And then Scott, I think a lot of us that are kind of drug supply chain wonks are looking at the Part D program and seeing a lot of disruption next year. I was just wondering if you guys would kind of quantify your exposure to that? I know you're not supposed to have a lot of direct exposure but maybe a lot of indirect and kind of how you're thinking that could impact the business next year.

Sure. In the interest of time, I'll try and be quick here. To the Part D question, I think the reality is that as we continue to analyze all of the potential changes, we haven't found any that we anticipate and that we view at this point as impactful to us and material to us. So I don't think on that dimension, it impacts our forward-looking view, certainly, over the time periods and reference periods that we're looking at, so coming, call it, a couple, three years. So not just next year. So I think on that dimension nothing really to add. With respect to direct contracting and margins, the direct contracting hasn't had any kind of a negative material effect on our margins like we talked about a little with John on PTR per MAC. There has been a slight downward slope to that over time, but that downward slope isn't really direct contracting. The downward slope is primarily driven by the contra-revenue aspects of marketing shifting from slam to sort of the couponing or consumer incentives that I mentioned, number one. And number two, the fact that Kroger volume, which was again a little higher margin for us than some other retailers that the Kroger volume decreased. So I think from that perspective, we view direct contracting as effectively materially neutral to us. So good thing because retailers like it more. And from our perspective, we're happy to help them merchandise drive incremental volume, et cetera. For us, it's all about the dollars of EBITDA and the dollars of gross margin, and that's exactly what direct contracting helps us drive.

And this concludes the Q&A session. I will pass it back to Scott Wagner for final comments.

Thank you very much. I appreciate everyone here. Most importantly, we are excited to spend time with people next week. I believe it will be very productive to provide more context on what we are working on, offering clear details about our plans and how we envision moving forward. For the investors on the call, we will outline the key goals at both the segment and overall business levels that you can consider for the next several years. We look forward to it. Thank you, everyone.

And thank you all who participated. You may now disconnect. Good day, everyone.