Chit Chat Stocks - GoodRx (GDRX) | Deep Dive

Episode Date: May 20, 2021

GoodRx Holdings provides information to its customers to help them compare prices and save money on their prescription medications. The company is aiming to make high-quality healthcare more affordable. Listen in as Ian, Brett, and Ryan dive into what the company does and what GoodRx's future may look like. Enjoy the show! Subscribe to 7 Investing with the code "CCM": https://7investing.com/subscribe/ Follow Ian and check out his work on Twitter: https://twitter.com/IanGrayLive Follow us on Twitter: https://twitter.com/chitchatmoney Subscribe to our Youtube Channel: https://www.youtube.com/channel/UCG5Ni-SI-jyrEsoNUhqftNQ Email us: [e-mail] Timestamps Company Background | (2:42) Industry | (6:13) Management & Ownership | (7:50) Valuation | (11:07) Earnings | (11:50) Balance Sheet | (13:56) Our Analysis | (16:39) Disclosure: Chit Chat Money hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Brett Schafer and Ryan Henderson are general partners and portfolio managers at Arch Capital. Arch Capital and its partners may hold securities discussed on this show. Learn more about your ad choices. Visit megaphone.fm/adchoices Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Chit Chat Money. On this show, host Ryan Henderson and Brett Schaefer interview industry experts and riff on the world of investing. As a quick reminder, Chit Chat Money is a CCM Media Group podcast. Ryan and Brett are also general partners at Arch Capital, and Arch Capital may have positions in the securities discussed in this podcast. Anything discussed on Chit Chat Money by Ryan or Brett or any other podcast guests is not formal advice or recommendation. Now, please enjoy this episode. Okay, welcome in. This is the Thursday Deep Dive episode with Ian Gray. I'm looking in front of me for anyone that's on the video. We've got the physical Wall Street Journal here. Ryan is

subscribing to that now. So we got a little, yeah, I don't know. We're going old school. Ryan's going for his old man, old man ways there. I need slippers, but once I get the slippers, my day will become, my whole morning will be completed. Coffee, Wall Street Journal. And then I give you the day olds. So I have a data advantage over you. Yes. And I get the student discount. My life's good right now. Yes. There we go. Ian, you're welcoming, or sorry, you're on the show with us today. What do you think? Wall Street Journal, physical copy. Is this a strange or would you ever subscribe? I would be, I would be tempted to subscribe, but I might be a little too cheap even for the

student discount, but it's, uh, I think you're right. You know, reading the wall street journal, even if it's not giving you good, valuable information, I'm sure it is, but even if it's not, it's at least making you feel like you're sophisticated. Yeah, exactly. Yeah. No notifications on there. It helps, uh, you know, not get distracted by other things when you're reading on like a tablet or something like that, but that's not what the show is about. we're talking GoodRx. They are a healthcare platform. A bit confusing, but I'll introduce it over to Ryan to talk about them. But first, we have to talk about our friends at 7investing. Whose turn is it to pitch it? Me or you, Ryan? I'll go. Friends, partners, comrades.

They just talked about their, you know, they do the research updates they continuously do. You want to talk about that? How that's part of the service? Beyond, I mean, you get your 7Rx a month, but then there is also, I think they did like 50 different articles in May. So if you're subscribing, I might be getting that number wrong, double check it, but it's like casual articles too. And they kind of do research updates on some of the companies that they've wrecked before. So I don't know, a little ad there and you can use our code CCM for $10 off at checkout. Yep. Then that makes it only seven bucks to try it out for the first month. So super easy to try it out. See if you like it. Code CCM. All

right, Ryan, introduce GoodRx. Yeah. So GoodRx, basically the mission is to try to make high quality healthcare more affordable. And so they're doing that in a few different ways, but it started essentially as a price comparison tool. So if, uh, and Ian, I guess we all have good grip on it. So if I'm doing something wrong, feel free to correct me. But, uh, basically if you've got a prescription from your doctor, uh, you can then look up whatever that medicine is on the good RX app. I think they have the second, uh, best or the top, the second on the list of free apps in medical, uh, on the app store there the second. So, um, you can use the app, you look up your medicine, whatever it is, and they're going to give you a price comparison tool of locations

in your area or pharmacies in your area. And the reason that they do this is I didn't know this until I started reading it, but the pharmacies all have different prices, um, which I guess is a problem. The market is very confusing and inefficient. So there's a lot of ways they can help consumers. That's their value proposition. Right. And so they're giving you sort of the cash price. And even sometimes, even if you have insurance, you can still get a lower price with GoodRx at a different pharmacy or something like that. And so they're basically giving that discount and you go to that pharmacy, use their code. It's like a QR code. You scan it and then GoodRx gets a kickback from the pharmacy. And that's basically their revenue. It's a small

portion of the overall price, but obviously they're doing, there's not a whole lot of uh expenses on their side with the transaction except for the software that they have to build but then there's also other elements to the business so uh they've now built out good rx care they actually acquired it um which is like a telehealth provider and then they have two subscriptions so there's good rx gold and kroger rx savings club these basically guarantee even lower prices um and then with gold i think you get home delivery as well but then the last part is a pharmaceuticals manufacturing solution. The manufacturers themselves have to sell their stuff as well. Sometimes, if there's a bad insurance deal or it's restrictive in any way,

they can have trouble selling, so they offer their own affordability solutions. Basically, GoodRx gives them a way to get that in front of more customers. Am I describing that well enough? Are people understanding? I think it's understandable. Yeah, I guess I would mention that the GoodRx is nine books or 10 books a month for a family. It's like six, I think, for an individual. So pretty cheap per month. Yeah. Okay. And a little bit about the history. GoodRx was founded in 2011 by three different people, Doug Hirsch, Trevor Bezdek, and a third guy named Scott Marlett. So apparently the company started because Doug Hirsch was trying to fill a prescription that he found

alarmingly expensive. So then he shopped around, realized the prices really vary. And so he They naturally thought that consumers should have a one-stop shop to compare all the prices. That was sort of the inception of the business. Doug was actually one of the first 30 employees at Yahoo. I know Ian's going to talk about this briefly. He was the vice president of product at Facebook in 2005. Then M&A has kind of been a big part of their history, so they acquired HayDoctor in 2019. I said impeccable timing here.

I can't think of a better time to have bought a telehealth provider than right before the pandemic. but then they made several other acquisitions as well um and they ipo in august of 2020 so i think they've had three quarters as a public company now yeah they got a 10k out so you know all the information should be up to date there's a lot of information out there yeah i'll hit um industry landscape competition in the 10k they identify an 800 billion dollar total addressable market majority this is what their core offering um and i don't know how important that is i think that's just a rough estimate. It kind of shows how large the healthcare industry is, but

when you look at it, they're taking a small, okay, it's kind of like saying someone like Visa or MasterCard or Square or PayPal, it's like identifying the TAM as their GMV number. They're really only going to bring in a small amount of that revenue, but still, it's a large opportunity. Yeah. I think I read a number somewhere where 70% of Americans don't use price comparison tools. So there's obviously still a large market out there. Yeah, they still need to educate the consumer, I guess is how they define it. Yeah. And the majority of this is from that core medication and prescription platform. So and then they have the telehealth stuff in there as well. Well, they identify Teladoc, Amwell and other telehealth

companies as competitors. And they don't really identify anyone as a competitor with the prescription price tools i'm sure and they mentioned this that there's a ton of small players out there they call it a really fragmented market i'm sure people could name competitors out there but there's no one really at the size of uh good rx and then amazon is kind of a competitor they they've been launching some things they bought pill pack they really haven't done much with that but you know amazon like they do they announced a ton of things on that and we'll see if they actually follow through whether this becomes one of their strategic priorities but yeah nothing else on industry um ian do you want to talk about management and ownership yep so as

ryan was mentioning uh trevor bezdek and douglas hirsch were a couple of the co-founders they now serve as co-ceos um which is always we always make take note of it when we see that um it's a little bit double the stock comp that's all that's all i think about yeah definitely the case here um trevor bezdick has a degree in biological sciences from stanford um and he owns about a little over one percent of the company currently uh as you mentioned with some stock comp that could about quadruple um and then douglas hirsch as ryan was mentioning was one of the first employees that yahoo led product development he actually left to travel the world for a couple of years returned to yahoo for a short period of time and then joined facebook

in 2005 which talk about good timing you're talking about the telehealth acquisition joining Facebook in 2005 was pretty, pretty good timing too. He also owns a little over 1% of the company with again, kind of the opportunity to quadruple that with some options incentives. One of the things to note is this, I don't always cite this number, but Glassdoor had 96 approval or 96% approval rating of the CEO, which is a very high number. Generally on a lot of these sites, the company's getting high marks for culture and the only downsides are or the only complaints are things like it's just growing so fast sometimes someone comes into my lane a little bit and things like that so just kind of as to be expected with a fast-growing company

but very high ratings particularly for a fast-growing company altogether the insiders own about 44 or sorry not 44 percent insiders own about four percent singular four percent Um, and a big, big chunks of the company are owned by, uh, private equity firms. So Silver Lake owns 33%, um, a company called Francisco Partners Management owns 22%, uh, Spectrum Equity Management owns 12%. So a lot of, a lot of, um, big chunks of ownership from a couple of players like that. It will be interesting to see and something to watch is whether those, I'm sure those position sizes will come down from those private equity players, but how fast those come down

will be something to watch. And then the final thing I'll note, and I think we'll talk more about this later, but they had founders IPO awards, which were valued at $260 million a piece that were supposed to have some performance goals. And then it was about two thirds performance goals and about two thirds vesting over time. But the IPO surpassed every performance goal in terms of stock price, which tells me they're pretty weak performance goals. And so all of that two thirds of it's already been met. And now it's just a matter of time vesting for the remainder of it. So not a great governance piece of that, I don't think, but, you know, it is what it is at this point. Yeah. The, the best, or the, sorry, those options that the

founder awards they gave out kind of left me scratching my head when I saw those numbers. I was like, all right, well, we're already hitting that price. Like, I mean, we see even with, I mean, this is inspired by the Tesla one. We've seen a lot of other companies do it. Typically when they start out. It means that they have a time-weighted period and the stock has to go quite a bit over a certain time period to hit that. But yeah, I'll hit valuation. Market cap as of when I saw it, it could be a little different today, was $11.9 billion. Ticker is GDRX. Enterprise value is slightly lower than that, but not by much. Price to sales is about 20.6. Price to gross profit is 21.9. Ryan will get into it, but the margins are really strong

here. And then price to operating cash flow is 90.7. And just to give more context around some of these founder awards, they have around 22 million options and RSUs outstanding versus 392 million shares outstanding. So not crazy bad right after an IPO, but that will come in with some dilution if those best. And yeah, watch out for those founder SBC chances. All right, Ryan, do you want to get earnings? Yeah. And I mean, I didn't even put gross margins in here, but they're north of 90%. It's a pretty asset light business, but their trailing 12 month revenue was $577 or $578 million. And then their Q1 revenue grew 20%, which was a bit of a slow down. And apparently the slower growth came primarily from, there was weakness sort of in

the prescriptions category, which makes up the bulk of their business. And part of that was due to a week cold and flu season, but then there was also just less doctor visits in person, which is where a lot of people get their prescriptions. Everyone's focused on COVID right now. That's kind of the claim. And then, but the other, their other revenue, which is more of the telehealth providers, manufacturing solutions and subscriptions grew 154% year over year. And then net income was $1.7 million for the quarter.

That's down from 27 million a year ago. They're making a lot of investments. and then adjusted net income was $31.8 million. Also down from a year ago, they have around 27% operating cash flow, free cash flow margins, but they spend a ton on stock-based compensation, or at least it looks like that right now. I'm not sure if that's something that's sort of perpetual or IPO related, but even general and administrative marketing related, there was stock-based compensation and all of that. It's not just tied to the executive comp, but guidance was strong they expect 36% revenue growth for the year monthly active consumers

reached 5.7 million up 17% year over year and they had 931,000 premium subscribers and then as I mentioned earlier it's the second top free app in the app store for medical apps pretty pretty solid quarter I guess not what people were expecting I think there was obviously sort of the uh macro factors that played in but yeah it sold off a bit right yeah and guidance still looks strong to me yeah and then i guess the one concern is the that spc stuff again we've hit on it already but that's just kind of the thing to watch out for um ian you want to wrap things up with the balance sheet yep and first on the spc um we might talk about this a little more later but i think the spc is oftentimes i don't like to say it's a one-time hit but this looks like it's it's

mostly going to be a one-time hit and they're not going to, at least it's going to be substantially lower than it was. A lot of this was related to the IPO. But as far as the balance sheet, about $991 million in cash, $700 million-ish in debt. The vast majority of that is a term loan, which accrues interest. And then they pay at the end and they pay back a little bit of principal each quarter as well. It has an effective interest rate of about 4% in 2020. It was closer to 6% in 2019 it's a variable rate based on um kind of a base rate and then also uh their net leverage ratio and so the less levered they are than the lower interest rate they get did you see they misspelled libor in the 10k they said ibo i think they misspelled that we gotta get the auditor in

there yeah um you know i guess it happens but um yeah yeah get on get on grammarly guys yeah exactly don't need an auditor for that but um goodwill of about 261 million um they are very acquisitive or at least not very acquisitive but pretty acquisitive they made quite a few acquisitions so the goodwill number is reasonable nothing to to be alarmed about but probably something to keep an eye on as ryan mentioned there's going to be some more acquisitions in the future and then a major dividend in 2018 which i'm suspecting is probably where some of this debt is from so they had a payout of about 1.1 billion i believe in um 2018 that with some of these private equity deals that's not entirely unheard of to see some some cash pulled out of the

business and i think that i think that this debt probably is related to that to some extent um so but not not overly levered by any means it's you know 700 a million in debt on a what did we say 11 12 billion dollar market cap so yes the there's two surprising things about go to rex is one it's very profitable for us like a silicon valley type startup and two it has all this debt typically you know they're just raising money through stock options so i guess you know it's fine but it's just a lot different than a lot of these silicon valley companies santa monica santa monica okay tech companies yeah it's right i guess it's just a silicon beach that's what That's what all my L.A. friends are trying to get started is Silicon Beach down in L.A.

Silicon Beach. Yeah, well, we'll help start the trend. All right. Let's take an ad break and then we'll get back for the second half of the show. Cox Panoramic Wi-Fi includes advanced security to help protect all your connected devices. You'll get real time alerts. Oh, like this one. So you don't have to worry about malware. or when your kid downloads a song from a shady link.

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Did you guys download the app at all? I did. You're welcome. I did not download the app. I went through their website and watched some tutorials, but didn't download the app. Well, if they start touting download numbers, you can thank me because I did download the app. And I also signed in, made an account. I looked up allergy medicine. I have allergies. Gave me a nice price comparison. I might use it if I ever feel the need. Nice. Nice. Yeah. I downloaded it.

seemed like the app looked good uh it was pretty intuitive what i you know needed if i never needed anything it was offering these crazy drugs but i was like all right i guess uh like a platform where they can advertise you know like uh here take this uh i mean it's kind of probably a bad idea but uh better prescriptions you can just advertise medicine yes maybe in a different industry not this one but overall i mean it seemed like the app was good i don't know kind of hard to tell about using it uh but let's hit competitive advantages uh ian what do you have for good rx so my competitive advantage is just kind of it's partly their scale but really their head start on generating these pharmacy and pbm partners which are those are the um pbms are the things

that uh negotiate with the pharmacies and with the drug manufacturers to set prices for insurance companies on the drugs and so they've have a lot of those partners the more partners they have the more price visibility visibility they get into different regions and so they've got a strong network there already that seems to be unmatched by anyone else in the industry like you said there's some small players but it doesn't look like anybody has the scale that good rx has and so it just means all their prices on average their prices are going to be lower than their competitors yeah ryan what do you have yeah well i guess yeah they kept touting that a lot, which was the data advantage, if you will. Mine is less, I guess you could say,

of a competitive advantage, but more of just a perk of the business model itself, the refill kickback. Customers only have to use the GoodRx code once, and then for every refill, GoodRx still gets that kickback. It just makes the customer value a bit higher, especially since they are, I believe, the leading platform for these price comparison tools. Yes. I was trying to identify any competitors. And they said in the 10K, they're the only real competitors right now, at least at that time, were really small. So yeah, I'd assume that's the case. What do you have? I have the

GoodRx being embedded into the physician workflow. So they mentioned this in the 10K. And if, so say they're the one source of recommendation, you're at the doctor's office, they help you look it up on GoodRx. They talk about, and the industry is so confusing, they use all these acronyms if you're embedded in the erh which i think is the employee uh something record health thing no electronic records help so i sum along those lines uh where are you looking up acronyms yeah too many acronyms it's very hard to follow it's kind of like the music industry where you're like why are these people in this value chain but they're still you know having them being embedded within the physician workflow where they're you know giving out whatever this

prescription or however it works if they're not going to take 10 of these type of things if good rx is solving the issue they're going to stick with them and it's a very easy way to onboard new customers without having to spend a ton on marketing on like facebook or google or something like that yeah and also i i watched a few uh youtube videos on it and it was like doctor based youtube videos kind of explaining what good rx does and a lot of them were sort of testing for the product because they're judged on performance right and so if they're uh the doctors yeah and so if the clients are sitting there not taking the prescriptions then that's on them and it reflects poorly on them so they want to give the best access accessibility that

they can so they're probably going to try to recommend stuff like this and a lot of them were recommending good rx at least on these youtube videos even though it's anecdotal evidence but all right all right uh future growth opportunities and for me i want to focus on the telehealth opportunity you mentioned the acquisition um originally it was called hey doctor they turned it into they rebranded it as good rx care um this provides affordable doctor visits integrated with their prescription services so they can do um basically someone can sign up to have a doctor visit talk about whatever's going on and then perhaps get prescribed um something to help with that issue. And so they say in 2020, more than 30% of visits led to incremental revenue

through prescription offerings. So a good chunk of those are leading to additional revenue. And one interesting thing about them is instead of, as most of the telehealth providers work through insurers, GoodRx actually works directly with the patients. And so patients just, they don't have to go through their insurer at all. They're just directly through GoodRx and sign up for um appointments on their own basically and paying for them on their own so um it kind of an interesting strategy but seems to work well with their prescription offerings yeah it seems like that's interesting especially if they can get that uh delivery service up and running which i guess kind of kicks over to your future growth opportunity right ryan yeah i was gonna talk about

script cycle but uh honestly i didn't totally understand what they were doing with it it sounded like it was basically the same model as GoodRx. So maybe it was just acquiring the customers, I guess. But the one I'm going to choose instead is the DoorDash partnership. So this is kind of interesting. I saw Ryan Reeves tweet out once that he would love to see a GoodRx partner, would love to see GoodRx partner with DoorDash and gave four reasons. He said, one, pharmacies are like mini distribution centers for prescriptions. Two, GoodRx could utilize DoorDash's huge driver fleet, three, would decrease the percentage of people who don't pick up prescriptions, and four, there's high predictability for DoorDash. Someone tagged

Doug Hirsch, who's one of the co-CEOs, in the tweet, and on the latest conference call, Trevor Bezdek stated, we have recently entered into a few exciting relationships which extend the reach of GoodRx Gold, including new partnerships with DoorDash to offer additional value to drivers in their platform and Groupon. Now, I don't know if Ryan Reeves is responsible for this are you ryan nice but um it makes sense and then the i also saw another it was a tweet with a picture on it where they were someone the door dash driver was coming home or dropping something off and was like do you want me to stop at walgreens or whatever so it sounds like they've kind of integrated this i'm not exactly sure what the details of the partnership are but it makes

sense it would help with delivery make it faster and yeah i guess these you know these pharmacies are a bit like mini distribution centers i just think is how many companies are going to be in this in this supply chain at this point are we just going to get every company in the world until we get to the consumer i don't know but it makes sense there were some concerns about like yeah you know what i don't want some random doordash driver touching my prescription yes but and i assume there's ways to sort of safeguard that maybe and that's probably on doordash so yeah you go it's fine for good rx you know if doordash has to spend money on that but yeah i'll have my future growth opportunity it's the kroger partnership ryan mentioned that they have the

subscription integration with people who are uh customers at kroger's pharmacies so it's one of the largest in america i think it was fourth and it gives them an inroad to a lot of customers with the partnership i believe this could easily be repeated with a lot of large pharmacies across the nation i'm not sure if someone like cbs or walgreens are anti-gooder x i don't know if it screws up their business model at all i don't know enough about the industry to kind of know whether that's the case but it seems like those partnerships should be coming at some point um but i'm not sure maybe cbs will buy them i don't know you know you know what i mean it seems like this is a perfect acquisition for either cvs or walgreens but uh but who knows yeah i agree

highlights low lights ian uh some highlights for me i think it's a problem worth solving um you you know, prescriptions for many people are too high and it's an inefficient market as we've been talking about. Um, a lot of repeat customers, which just shows the strength of the product and a great revenue growth. I think analysts expected to be above 30% for the next three years, which you don't see all that often. So it's, um, good revenue growth in the past for looking looks to be on a good trajectory. Um, some low lights. One of the big low lights for me with this is just how confusing this whole healthcare industry can be, and how involved government is and might continue to become in this industry. And so I think that this is a company

that should expect to be disrupted by the government by either changes to current plans, or if we started getting more towards some sort of single payer healthcare system in the United States, I think, you know, that, that really kind of eliminates GoodRx's business model. And so I that's something to be there's just enough there's a lot of macro risk here um the founders ipo award seemed a little bit excessive you know but yeah i do like those i like those pricing things that people do but why so low why so low we were looking at some company the other day what company was it that had um oh things set up like that um but it was like squarespace wasn't squarespace they named it squarespace and it was like you know they had to the stock had to go up

like 500 or something to hit the top goal right and it was like staggered across there and that made sense right but when you're when you're ipoing and immediately hitting all of the performance goals uh that's a little bit a little bit concerning and then the last thing i'll say is um and this will kind of lead into some of what ryan wants to talk about too i think but it's they're trying to fix an inefficient market and i'm worried that at the end game for this business that that might they might be like making if they make the market more efficient then there's no need for good rx in their core business does the arbitrage go away i mean ryan you want to talk about that too yeah it's my low light um and maybe i'm just not i mean maybe

there's good returns between point a well maybe the arbitrage can stay around forever who knows yeah but i mean just like if you think about it their goal is to make is to grant for or accessibility to low prices and so if you're driving all the like let's say you play it out and it's successful and they achieve their mission and everyone starts going to the low-cost providers either the big pharmacies uh struggle because of that and they whatever cease to exist or everyone competes on the same price then there's no value for good rx right so that's like it's sort of a catch-22 like the better you do the worse off your odds are in the future um and then my other low light would just be the convoluted system i have a hard time understanding what the incentives

are for the various stakeholders well who holds the value who holds the value i understand consumers are getting a better price and that makes sense but who is holding the who is holding the leverage here um yeah that's where i'm i guess i mean if pharmacy benefit managers or whatever never budge on price and maybe arbitrage is there forever there's just this sustained and efficient market, but it's just convoluted. I don't quite understand it. That's my low light. But the highlights for me, the customer value prop is very clear. There should be operating leverage if I'm understanding it right. I mean, I think it's already there to be right. You know, it's been there forever. Yeah. And I thought Doug Hirsch and Trevor

Bezdek were some of the better executives we've studied in recent months. They seem top notch and they seem like they're actually despite the uh egregious compensation that they got from the ipo it seems like they're in it for the right reasons because they were doing just fine they got skin in the game now you know i guess that's a positive that's the other side of that coin um yeah sorry you have anything else no that's it i would say yeah i think the one thing that could save them from this you know those efficiencies you guys are talking about the worry about that is the subscription. If it changes to that, we're like, all right, that's the ecosystem where we get people on there. It feels like that's where they want to go, and it's growing really fast. That

could be saving them from that issue down the line, but who knows? If they are able to diversify before whatever that terminal date is when they've made the system efficient, whether it's through telehealth, through the subscription, delivering the DoorDash or delivery, then I think it's a viable business in the long run. Or you just get Teladoc to buy you out for a ton of stock, just like every other tech healthcare company. But I'll hit my highlights. Margins are phenomenal. I think there's probably a path to 40% operating margins unless the business changes materially. Value proposition, like you guys said, that's probably my favorite part. I mean, the consumers are saving tons of money. I think their stat is consumers have saved over $30

billion since gutter x's founding and with only 5.7 million customers as of now that's really impressive and then now we could grow substantially and the track record of growth while staying profitable is really impressive as well uh i do like how they're trying to embed themselves within the health care system and i think that subscription part is pretty smart uh low lights you know there's unknown dynamics to the pharma industry i mean maybe i just watched that uh purdue pharma documentary on hbo there i just don't like saying we have this giant tan to give people a bunch of opiates i don't know kind of weird to me it feels a bit off uh there was also another red sorry there was a red flag that they started talking about the backlog because people weren't going to the

doctors yeah i i don't wait the backlog doesn't make sense like if they don't get their medication that they either die or they didn't need it. Right. I guess it's like time sensitive. So maybe I'm wrong. Maybe there's like people that are just waiting and it's not something that's going to people who, or it's people who can like survive without it, but their life gets better with it. Right. It's kind of those, those quality of life type medicines. I don't know, maybe the farm, you know, the pharmaceutical industry obviously isn't all bad, but after watching that Purdue pharma documentary, I just kind of realized in the wrong way, anything associated with the industry. Um, and then also I saw this in the risk factors,

this is a direct quote from them our business is subject to changes in medication pricing and is significantly impacted by pricing structure negotiated by industry participants i am not sure what industry participants they're claiming i think it's those pbms like you were mentioning ian but that makes it seem like to me that goodrx is relying on them acting cordially um you know does good over time could goodrx get the operating leverage within that relationship maybe but whenever you see a company with high profit margins i think the one thing i think about it is all right how defensible are these things that's the most important thing so that's kind of you know that's kind of why i think we're harping on this is because all right they have

these fat margins could they go away um let's see i guess the other thing that really matters here is they identified a material weakness in accounting identifying the 10k looks like they really just neglected applying the necessary resources there so i don't think that's a big deal it wasn't anything egregious then identify like anything that was faked but still material weakness is never great but yeah that's it lots of like few concerns as well um all right let's hit more or less interested ian what are your thoughts on good rx here i'd say i'm a little bit more interested i think the business model like the margins you just explained like it's It's just a, it's a good business model, clear customer value proposition.

I just would like to understand the industry a little bit better and the dynamics and what really could change their advantage right now. And what would, what would cause them to, I think there's some factors at play that could, that are outside of their control that could seriously harm the business. And I'd like to understand those before I started a position myself. Yeah, that makes sense. Brian. I'm going to go a little less interested. I know,

i know it's really easy to just throw it in the too hard pile but i think it's worse to pretend that i understand the space um and even if i try to i'm not sure who holds the power within that industry um so it's going in the too hard pile for now yeah it reminds me we covered the last few months a lot of these fashion platforms and stuff like that and after doing all of them it made me realize that all us all us guys on fin twit probably don't understand the industry that much i think health care in a more general sense a lot of people don't understand so that totally makes sense i mean i would say i'm more interested slightly you know the financials like i think pretty clearly were stood out for us it was great yeah the valuation isn't bad either yeah i was

looking at them relative to companies that have similar gross margins and operating margins i mean it reminds me a lot of adobe and autodesk and facebook and stuff like that that trade in the teen sales ratios, just because they do have, you know, those phenomenal operating margins. But again, I mean, I think it would take me a long time to read up on the industry. I tried once to read a book on the healthcare industry. It was like, read this book, you'll understand how everything works in America and how everything's screwed up and all that stuff. I got through like 10 pages and fell asleep. It was so boring, so many acronyms, so many things that I didn't understand. So it's a tall task to get this right. Although I do like when something

trades down on an amazon and on an amazon announcement has uh played out pretty well if you end up betting on those companies so that's honestly been half bar half bar investments in the past and stuff like that and those those have those have all worked out i guess again you know this there's no okay would you be surprised if this is a hundred billion dollar business in 10 years no you probably won't it's just a lot of uncertainty yeah yeah and a lot of unknowns like there might be a risk that we're not even considering so yeah yeah for sure all right ian what's the stock for next week for next week i think we're gonna do carparts.com ticker prts pretty self-explanatory carparts.com but an e-commerce place small cap under a billion

dollar market cap um we'll get into it more next week awesome nice that sounds fun all right that's gonna do it for this episode thank you all for listening or watching remember we are not financial advisors. Anything we say on the show is not formal advice or recommendation. Ryan and I are general partners at Arch Capital. Arch Capital clients may hold securities discussed in this podcast. Again, thank you all for listening. We'll see you next week.