Unidentified Analyst: Great. Thank you.
Operator: Thank you. One moment for our next question, please. And it’s from the line of Sean Dodge with RBC Capital Markets. Please proceed.
Sean Dodge: Yes, thanks. Scott, maybe going back to your comments around ISP being rolled out in increments. When it comes to expanding the new employer’s responses 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 those things that can be kind of phased in increments over the course of a year?
Karsten Voermann: 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.
Sean Dodge: Okay, great. Thank you.
Operator: Thanks. One moment for our next question. And it comes from the line of Allen Lutz with Bank of America. Please proceed.
Allen Lutz: Good morning, and thanks for taking the questions. Karsten, thanks for all the color on the ISP opportunities. I want to follow up on that last question. You mentioned a few different opportunities, adding PBMs, adding incremental members, adding formulary, adding retailers. And I think in response to the last question you said, there’s been some members that have come on since last quarter. Has anything else changed since the update in February? And then, as it relates to retailers that are currently not accepting ISP, is that a lot? Like, what percent of retailers is that? Are there any large retailers in there? And then could retailers come on over the course of 2024? Thanks.
Karsten Voermann: 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 aligned with expectations, hence you saw us performing aligned with the expectations we set are a little more than 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 app as we get, as you know, and I think everyone else in 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 winner conversion rate ends up getting better. With respect to your question about pharmacy acceptance, a significant majority of the big pharmacies, like 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 tale of pharmacies that are smaller that we can continue to pick up on.
Allen Lutz: Great. Thank you.
Operator: Thank you. One moment for our next question, please. And it’s from the line of John Ransom with RJF. Please proceed.
John Ransom: Good morning. So, one kind of CFO type question and one kind of bigger picture question. So looking at PTR per MAC, it’s declined every year since 2018 in your legacy business. Is this just following the natural slope of generic deflation? And we should expect that to continue going forward. I assume that’s the first question. The second question is, I guess I was kind of surprised and a little happy you guys are doing an analyst day, I know you’ve been teasing us out, but what was the catalyst for wanting to do this analyst day next week? And, just maybe highlight the two or three big themes you’re trying to drive home as the story is — certainly the story isn’t transition. And I think there are some points that could lead for better elimination? Thanks.
Scott Wagner: Yes. Hey, 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 goal post between the marketplace and bandsaw [ph] that we haven’t done. And, speaking a little selfishly and for myself that a year in, 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 goal post so 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 a half a day’s worth of time and people actually focused on and able to answer questions. And it’s nice. It’s a nice point that we’re ready to do that. 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 non-linearity and I expect it to be largely flat for the year. You’ll probably see the percentages fluctuate around zero, meaning flat slope, John. So this time was down a couple percent. Next quarter could very well be slightly up. It’s not a metric we actively managed to, but it 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 at trading, we can incent them with a discount on fill 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 MAX reduces PTR per MAC. I think the realities are not spending more. It’s just a matter of it shifting out of marketing and into this 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, 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 one, the contra rev one that is materially impactful. Hopefully that’s helpful. I’ll put in one part. It’s a long commentary of this, but one last plug for next week. I do want to acknowledge and recognize that externally the pacing of the company, which we’ve had feedback from investors on, it’s been harder to follow. People are going to come away from time with us next week and investors will with a very clear understanding of here’s market, here’s the company, here’s what we’re working on, here’s how it translates into financials. And you’ll be able to judge sort of what and how that trajectory is that everybody will come away with transparency and understanding coming out next Wednesday.
John Ransom: Thank you.
Operator: Thank you. One moment for our next question, please. And it comes from the line of John Park with Morgan Stanley. Please proceed.
John Park: Hey, guys. Thank you for taking my question. I’m here for on behalf of Craig. Besides any acceleration on top line growths that would provide operating leverage in the model. Are there any productivity or cost initiatives that would drive margin expansion? I think you mentioned, going away from vital care will help with gross margins, but would love any color on that?
Scott Wagner: I think you’re seeing, it’s Scott, Karsten’s going to jump into. But what you’re really seeing is just the power of the model itself, which is as you return the top line growth, the flow through is great. And the VitaCare was a very specific action on restructuring something that just wasn’t a great use of resources and it’s great for the business and great for investors. Now, if you think about our flow through, just as we return to growth, you’re naturally getting it. And I will say, we’re certainly prudent with resources, but it isn’t that hard. And in some ways we’re looking to lean into things that will continue to drive growth. So, the topic of marketing hasn’t come up on the call, but I will say there are things that we’re finding and doing that we’ll talk about next week where we’ll push the gas out.
And the nice thing for everybody listening in the call is we can do those things and we can do that, whether it’s marketing or surging, engineering effort in certain areas that we are doing and guess what the revenue growth still flows through.
Karsten Voermann: Yes. And in terms of the sort of 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.
John Park: Great. Thank you.
Operator: Thank you so much. One moment for our last question, please. And it comes to the line of George Hill with Deutsche Bank. Please proceed.
George Hill: Yes. Good morning, guys, and thanks for sneaking me in. 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 to 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 as seeing a lot of disruption next year. We’re 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?
Karsten Voermann: Sure. I heard the first part of the question, the second indirect part. Would you mind repeating that one for us, George?
George Hill: So, like, a lot of us are expecting Part D disruption next year. I know that you guys aren’t supposed to have a ton of direct exposure to Part D, but I imagine you probably, there’s probably a lot of beneficiaries who are using the GoodRx card, while either in their deductible or to avoid parts of copays or what have you. But a lot of those people could wind up bouncing around next year. Just wondering how you guys are thinking about what happens in that market?
Karsten Voermann: Sure. So, 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 impacts our forward-looking view. Certainly, over the time periods and reference periods that we’re looking at, so, coming, call it 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 SM [ph] to sort of the couponing or consumer incentives that I mentioned, number one. And number two, the fact that Kroger volume, which is again a little higher margin for us and 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, driving 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.
George Hill: Thank you.
Operator: Thank you. And this concludes the Q&A session. I will pass it back to Scott Wagner for final comments.
Scott Wagner: Thanks so much. Thanks all. Appreciated and most importantly, look forward to spending time with people next week. I think it’ll be super productive just to lay out some more context on the things we’re working on with real color on what they are, what that can, how that can go forward and most importantly for investors on the call, the goalposts at a segment level and an overall level that we think you can think about for the business certainly for the next several years. So, we’re looking forward to it. Thanks, everybody.
Operator: And thank you all who participated. You may now disconnect. Good day everyone.
