GoodRx Holdings, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q, as well as our audited consolidated financial statements and related notes as disclosed in our prospectus, dated September 22, 2020, filed with the Securities and Exchange Commission (“SEC”) in accordance with Rule 424(b) of the Securities Act on September 24, 2020 (the “Prospectus”) in connection with our initial public offering (“IPO”). This discussion contains forward-looking statements based upon current plans, expectations and beliefs involving risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in Part II, Item 1A, “Risk Factors” and other factors set forth in other parts of this Quarterly Report on Form 10-Q. Glossary of Selected Terminology As used in this Quarterly Report on Form 10-Q, unless the context otherwise requires, references to: • “ we ,” “ us ,” “ our ,” the “ Company ,” “ GoodRx ,” and similar references refer to GoodRx Holdings, Inc. and its consolidated subsidiaries. • “ Co-Founders ” refers to Trevor Bezdek and Douglas Hirsch, our Co-Chief Executive Officers and members of our board of directors. • “ consumers ” refer to the general population in the United States that uses or otherwise purchases healthcare products and services. References to “ our consumers ” or “ GoodRx consumers ” refer to consumers that have used one or more of our offerings. • “ discounted price ” refers to a price for a prescription provided on our platform that represents a negotiated rate provided by one of our PBM partners at a retail pharmacy. Through our platform, our discounted prices are free to access for consumers by saving a GoodRx code to their mobile device for their selected prescription and presenting it at the chosen pharmacy. The term “discounted price” excludes prices we may otherwise source, such as prices from patient assistance programs for low-income individuals and Medicare prices, and any negotiated rates offered through our subscription offerings: GoodRx Gold (“ Gold ”), and Kroger Rx Savings Club powered by GoodRx (“ Kroger Savings ”). • “ Francisco Partners ” refers to investment funds associated with Francisco Partners, including Francisco Partners IV, L.P. and Francisco Partners IV-A, L.P. • “ GoodRx code ” refers to codes that can be accessed by our consumers through our apps or websites or that can be provided to our consumers directly by healthcare professionals, including physicians and pharmacists, that allow our consumers free access to our discounted prices or a lower list price for their prescriptions when such code is presented at their chosen pharmacy. • “ GMV ” represents gross merchandise value, which is the aggregate price paid by our consumers who used a GoodRx code available through our platform for their prescriptions during such period. GMV excludes any prices paid by consumers linked to our other offerings, including our subscription offerings. • “ Monthly Active Consumers ” refers to the number of unique consumers who have used a GoodRx code to purchase a prescription medication in a given calendar month and have saved money compared to the list price of the medication. A unique consumer who uses a GoodRx code more than once in a calendar month to purchase prescription medications is only counted as one Monthly Active Consumer in that month. A unique consumer who uses a GoodRx code in two or three calendar months within a quarter will be counted as a Monthly Active Consumer in each such month. Monthly Active Consumers do not include subscribers to our subscription offerings, consumers of our pharmaceutical manufacturers solutions offering, or consumers who used our telehealth offerings. When presented for a period longer than a month, Monthly Active Consumers is averaged over the number of calendar months in such period. • “ Monthly Visitors ” refers to the number of individuals who visited our apps and websites in a given calendar month. Visitors to our apps and websites are counted independently. As a result, a consumer that visits or engages with our platform through both apps and websites will be counted multiple times in calculating Monthly Visitors, while family members who use a single computer to visit our websites will be counted only once. Additionally, Monthly Active Consumers who use a GoodRx code without accessing our apps or websites (since their GoodRx 18 codes were saved in their profile at the pharmacy), will not be counted as Monthly Visitors. When presented for a period longer than a calendar month, Monthly Visitors is averaged over each calendar month in such period. • “ PBM ” refers to a pharmacy benefit manager. PBMs aggregate demand to negotiate prescription medication prices with pharmacies and pharmaceutical manufacturers. PBMs find most of their demand through relationships with insurance companies and employers. However, nearly all PBMs also have consumer direct or cash network pricing that they negotiate with pharmacies for consumers who choose to purchase prescriptions outside of insurance. • “ savings ,” “ saved ” and similar references refer to the difference between the list price for a particular prescription at a particular pharmacy and the price paid by the GoodRx consumer for that prescription utilizing a GoodRx code available through our platform at that same pharmacy. In certain circumstances, we may show a list price on our platform when such list price is lower than the negotiated price available using a GoodRx code and, in certain circumstances, a consumer may use a GoodRx code and pay the list price at a pharmacy if such list price is lower than the negotiated price available using a GoodRx code. We do not earn revenue from such transactions, but our savings calculation includes an estimate of the savings achieved by the consumer because our platform has directed the consumer to the pharmacy with the low list price. This estimate of savings when the consumer pays the list price is based on internal data and is calculated as the difference between the average list price across all pharmacies where GoodRx consumers paid the list price and the average list price paid by consumers in the pharmacies to which we directed them. We do not calculate savings based on insurance prices as we do not have information about a consumer’s specific coverage or price. We do not believe savings are representative or indicative of our revenue or results of operations. • “ Silver Lake Partners ” refers to investment funds associated with Silver Lake Partners, including SLP Geology Aggregator, L.P. • “ Spectrum ” refers to investment funds associated with Spectrum Equity, including Spectrum Equity VII, L.P., Spectrum VII Investment Managers’ Fund, L.P., Spectrum VII Co-Investment Fund, L.P. Certain monetary amounts, percentages, and other figures included in this Quarterly Report on Form 10-Q have been subject to rounding adjustments. Percentage amounts included in this Quarterly Report on Form 10-Q have not in all cases been calculated on the basis of such rounded figures, but on the basis of such amounts prior to rounding. For this reason, percentage amounts in this Quarterly Report on Form 10-Q may vary from those obtained by performing the same calculations using the figures in our consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. Certain other amounts that appear in this Quarterly Report on Form 10-Q may not sum due to rounding. Overview Our mission is to help Americans get the healthcare they need at a price they can afford. To achieve this, we are building the leading, consumer-focused digital healthcare platform in the United States. Healthcare consumers in the United States face an increasing number of challenges. These include a lack of affordability, transparency, and access to care. Additionally, healthcare professionals’ lack of access to current prescription pricing and out of pocket consumer cost information exacerbate the challenges that healthcare consumers face. GoodRx was founded to solve these challenges. We started with a price comparison tool for prescriptions, offering consumers free access to lower prices on their medication. Today, our expanded platform also provides access to brand medication savings programs, affordable and convenient medical provider consultations and lab tests via our telehealth offerings, HeyDoctor and the GoodRx Telehealth Marketplace, and other healthcare related content. Whether a consumer is insured or uninsured, young or old, or suffers from an acute or a chronic ailment, we strive to be at the consumer’s side throughout their healthcare journey. We believe that our offerings provide significant savings to consumers, and can help drive greater medication adherence, faster treatment and better patient outcomes that also benefit the broader healthcare ecosystem and its stakeholders. These all contribute to a healthier, happier society. We believe our financial results reflect the significant market demand for our offerings and the value that we provide to the broader healthcare ecosystem. The Gross Merchandise Value generated by our prescription offering, which is the aggregate price paid by our consumers who used a GoodRx code for their prescriptions, was $2.5 billion in 2019. Our revenue grew 44% in the nine months ended September 30, 2020 to $397.2 million, up from $275.0 million in the nine months ended September 30, 2019. In the nine months ended September 30, 2020, net income was $4.7 million, compared to net income of $50.8 million in the nine months ended September 30, 2019. Net income in the nine months ended September 30, 2020 was impacted by $98.1 million of stock-based compensation related to equity awards made to the Co- 19 Chief Executive Officers in connection with the IPO . Adjusted EBITDA was $15 4 . 4 million in the nine months ended September 30, 2020, up from $117.8 million in the nine months ended September 30, 2019. We have been focused on capital efficiency and delivering on a cash generative monetization model since inception. Cash flow provided by operating activities grew 7 4 % in the nine months ended Septem ber 30, 2020 to $1 16 . 5 million, up from $66.8 million in the nine months ended September 30, 2019. Adjusted EBITDA is a non-GAAP financial measure. For a reconciliation of Adjusted EBITDA to the most directly comparable GAAP financial measure, information about why we consider Adjusted EBITDA useful and a discussion of the material risks and limitations of these measures, please see “Key Operating Metrics and Non-GAAP Financial Measures” below. Impact of COVID-19 GoodRx continues to closely monitor how the spread of COVID-19 is affecting its employees, customers and business operations. The outbreak has resulted in authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter-in-place orders, and business shutdowns. In particular for our business, governmental authorities have also recommended, and in certain cases, required, that elective or other medical appointments be suspended or cancelled to avoid non-essential patient exposure to medical environments and potential infection. These and other measures have not only negatively impacted consumer spending and business spending habits, they have adversely impacted and may further impact our workforce and operations and the operations of healthcare professionals, pharmacies, consumers, Pharmacy Benefit Managers (PBMs) and others in the broader healthcare ecosystem. Although certain of these measures are beginning to ease in some geographic regions, overall measures to contain the COVID-19 outbreak may remain in place for a significant period of time, and certain geographic regions are experiencing a resurgence of COVID-19 infections. The duration and severity of this pandemic is unknown and the extent of the business disruption and financial impact depend on factors beyond our knowledge and control. Various government measures, community self-isolation practices and shelter-in-place requirements, as well as the perceived need by individuals to continue such practices to avoid infection, have generally reduced the extent to which consumers visit healthcare professionals in-person, seek treatment for certain conditions or ailments, and receive and fill prescriptions. Consumers may also increasingly elect to receive prescriptions by mail order instead of at the pharmacy, which could have an adverse impact on our prescription offering. In addition, many pharmacies and healthcare providers have reduced staffing, closed locations or otherwise limited operations, and many prescribing healthcare professionals have reduced or postponed treatment of certain patients. The number of Monthly Active Consumers decreased and our prescription offering experienced a decline in activity in the second quarter of 2020 as compared to the first quarter of 2020 as many consumers avoided visiting healthcare professionals and pharmacies in-person, which we believe has had a similar effect across the industry. The number of Monthly Active Consumers increased in the third quarter of 2020 as compared to the second quarter of 2020 as the number of physician visits increased and as consumers partially resumed their interaction with the healthcare system. Even though we saw improved activity in our prescription offering in the third quarter of 2020, continued improvement in future periods remains uncertain. Any decrease in the number of consumers seeking to fill prescriptions could negatively impact demand for and use of certain of our offerings, particularly our prescription offering, which would have an adverse effect on our business, financial condition and results of operations. Conversely, pandemics, epidemics and outbreaks may significantly and temporarily increase demand for our telehealth offerings. COVID-19 has significantly accelerated the awareness and use of our telehealth offerings, including demand for our HeyDoctor offering and the utilization of our GoodRx Telehealth Marketplace. While we have experienced a significant increase in demand for the telehealth offerings, there can be no assurance that the levels of interest, demand and use of our telehealth offerings will continue at current levels or will not decrease during or after the pandemic. Any such decrease could have an adverse effect on our growth and the success of our telehealth offerings. Additionally, while the potential economic impact brought by, and the duration of any pandemic, epidemic or outbreak of an infectious disease, including COVID-19, may be difficult to assess or predict, the widespread COVID-19 pandemic has resulted in, and may continue to result in, significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity. The full extent to which the outbreak of COVID-19 will impact our business, results of operations and financial condition is still unknown and will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or treat its impact, and 20 how quickly and to what extent normal economic and operating conditions can resume. Even after the outbreak of COVID-19 has subsided, we may experience materially a dverse impacts to our business as a result of its global economic impact, including any recession that has occurred or may occur in the future. For additional information, see Part II, Item 1A, “Risk Factors—Risks Related to Our Business—A pandemic, epidemic or outbreak of an infectious disease in the United States, including the outbreak of the novel strain of coronavirus disease, could impact our business.” Initial Public Offering On September 25, 2020, we completed our IPO by issuing 28,615,034 shares of our Class A common stock at a price to the public of $33 per share, resulting in net proceeds to us of $886.9 million, after deducting the underwriting discount of $52.5 million and offering expenses of $4.9 million, $3.1 million of which has yet to be paid. Additionally, certain existing stockholders sold an aggregate of 11,192,657 shares. Private Placement On September 25, 2020, we completed the sale of 3,030,303 shares of our Class A common stock at a purchase price of $33 per share to SLP Geology Aggregator, L.P., resulting in proceeds to us of $100.0 million. SLP Geology Aggregator, L.P. is an investment fund associated with Silver Lake Partners. Key Factors Affecting Our Performance We believe that our performance and future success depend on a number of factors that present significant opportunities for us but also pose risks and challenges. For discussion of these factors, please see “Key Factors Affecting Our Performance” in the Management’s Discussion and Analysis section of our prospectus, dated September 22, 2020, and in Part II, Item 1A, “Risk Factors” of this Quarterly Report on Form 10-Q for the quarter ended September 30, 2020. Components of our Results of Operations Revenue Our revenue is primarily derived from prescription transactions revenue that is generated when pharmacies fill prescriptions for consumers, and from other revenue streams such as our subscription offerings, from pharmaceutical manufacturers and affiliates, and our telehealth offerings. All of our revenue has been generated in the United States. • Prescription transactions revenue : Consists primarily of revenue generated from PBMs when a prescription is filled with a GoodRx code provided through our platform. The majority of our contracts with PBMs provide for fees that represent a percentage of the fees that the PBM charges to the pharmacy, and a minority of our contracts provide for a fixed fee per transaction. Our percentage of fee contracts often also include a minimum fixed fee per transaction. We expect the revenue contribution from contracts with fixed fee arrangements to remain largely stable over the medium term, and do not expect that changes in revenue contribution from fixed fee versus percentage of fee arrangements will materially impact our revenue. Certain contracts also provide that the amount of fees we receive is based on the volume of prescriptions filled each month. • Other revenue : Consists primarily of subscription revenue from our subscription offerings, including Gold and Kroger Savings, revenue generated from pharmaceutical manufacturers for advertising and integrating onto our platform their affordability solutions to our consumers and advertising in direct mailers, and revenue generated by our telehealth offerings that allow consumers to access healthcare professionals online. Expenses We incur the following expenses directly related to our cost of revenue and operating expenses: • Cost of revenue: Consists primarily of costs related to outsourced consumer support, healthcare provider costs for HeyDoctor, personnel costs including salaries, benefits, bonuses and stock-based compensation expense, for our consumer support employees, hosting and cloud costs, merchant account fees, processing fees and allocated overhead. Cost of revenue is largely driven by the growth of our visitor and active consumer base, as well as our 21 telehealth offerings. Our cost of revenue as a percentage of revenue may vary base d on the relative growth rates of our various offerings. • Product development and technology: Consists primarily of personnel costs, including salaries, benefits, bonuses and stock-based compensation expense, for employees involved in product development activities, third-party services and contractors related to product development, information technology and software-related costs, and allocated overhead. Product development and technology expenses are primarily driven by increases in headcount required to support and further develop our various products. We capitalize certain qualified costs related to the development of internal-use software, which may also cause product development and technology expenses to vary from period to period. We expect product development and technology expenses will increase on an absolute dollar basis as we continue to grow our platform and product offerings. • Sales and marketing: Consists primarily of advertising and marketing expenses for consumer acquisition and retention, as well as personnel costs, including salaries, benefits, bonuses, stock-based compensation expense and sales commissions, for sales and marketing employees, third-party services and contractors, and allocated overhead. Sales and marketing expenses are primarily driven by investments to grow and retain our consumer base and may fluctuate based on the timing of our investments in consumer acquisition and retention. Over the near to medium term, we expect to increase our spending on sales and marketing. • General and administrative: Consists primarily of personnel costs including salaries, benefits, bonuses and stock-based compensation expense for our executive, finance, accounting, legal, and human resources functions, as well as professional fees, occupancy costs, change in fair value of contingent consideration, and other general overhead costs. We expect to incur additional general and administrative costs in compliance, legal, investor relations, insurance, and professional services related to our compliance and reporting obligations as a public company. We have incurred, and also expect to incur additional general and administrative costs in connection with the vesting and settlement of restricted stock units (“RSUs”), including the grant of restricted stock unit awards covering an aggregate of 12,316,533 shares of Class B common stock to each of our Co-Chief Executive Officers in connection with our IPO (the “Founders Awards”) in particular. We also anticipate that as we continue to grow as a company our general and administrative costs will increase on an absolute dollar basis. • Depreciation and amortization: Consists of depreciation of property and equipment and amortization of capitalized internal-use software costs and intangible assets. Our depreciation and amortization changes primarily based on changes in our property and equipment, intangible assets, and capitalized software balances. Other Expense (Income) Our other expense (income) consists of the following: • Other expense, net: Consists primarily of third-party transaction expenses related to the modification of our debt facilities. • Loss on extinguishment of debt: Consists of losses recognized due to extinguishment of debt. • Interest expense : Consists primarily of interest expense associated with the Credit Facilities (as defined below), including amortization of debt issuance costs and discounts. • Interest income : Consists primarily of interest income earned on excess cash held in interest-bearing accounts. Income Tax Benefit (Expense) Our income tax expense consists of federal and state income taxes. Our effective income tax rates for the three and nine months ended September 30, 2020 were 26% and (113%), respectively, and for the three and nine months ended September 30, 2019 were 23% and 22%, respectively. The changes in our effective income tax rate for the three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019 were primarily due to tax effects of nondeductible officers’ stock-based compensation expense and excess tax benefits related to the exercise of stock options. Our effective income tax rate differed from the U.S. statutory tax rate of 21% primarily due to U.S. federal and state tax credits, officers’ compensation limitations, state income taxes and stock-based compensation tax deductions. Seasonality We typically experience stronger consumer demand during the first and fourth quarters of each year, which coincide with generally higher consumer healthcare spending, doctor office visits, annual benefit enrollment season, and seasonal 22 cold and flu trends. This seasonality may impact revenue and sales and marketing expense. The rapid growth of our business may have masked these trends to date, and we expect the impact of seasonality to be more pronounced in the future. However , in 2020 we have seen the impa ct of the COVID-19 pandemic further disrupt these trends, which may continue in future periods. Results of Operations The following table sets forth information comparing the components of our results of operations for the periods indicated. Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 (dollars in thousands) Revenue: Prescription transactions revenue $ 124,385 $ 95,795 $ 356,950 $ 260,114 Other revenue 16,068 5,950 40,206 14,854 Total revenue 140,453 101,745 397,156 274,968 Costs and operating expenses: Cost of revenue, exclusive of depreciation and amortization presented separately below 7,540 3,396 20,383 9,420 Product development and technology 15,846 7,844 38,133 19,480 Sales and marketing 65,113 44,950 180,195 122,639 General and administrative 108,479 4,102 120,698 10,165 Depreciation and amortization 5,160 3,609 14,026 9,355 Total costs and operating expenses 202,138 63,901 373,435 171,059 Operating (loss) income (61,685 ) 37,844 23,721 103,909 Other expense (income): Other expense (income), net 1 (4 ) (20 ) (3 ) Interest income (24 ) (271 ) (140 ) (580 ) Interest expense 6,264 12,773 21,697 39,452 Total other expense, net 6,241 12,498 21,537 38,869 (Loss) income before income tax expense (67,926 ) 25,346 2,184 65,040 Income tax benefit (expense) 17,894 (5,727 ) 2,467 (14,219 ) Net (loss) income $ (50,032 ) $ 19,619 $ 4,651 $ 50,821 Key Financial and Operating Metri cs Monthly Active Consumers The number of Monthly Active Consumers is a key indicator of the scale of our consumer base and a gauge for our marketing and engagement efforts. We believe that this metric reflects our scale, growth and engagement with consumers. The number of Monthly Active Consumers grew 29% in the three months ended September 30, 2020 to 4.9 million, compared to 3.8 million in the three months ended September 30, 2019. Adjusted EBITDA and Adjusted EBITDA Margin Adjusted EBITDA and Adjusted EBITDA Margin are supplemental measures of our performance that are not required by, or presented in accordance with, U.S. GAAP. We define Adjusted EBITDA for a particular period as net income before interest, taxes, depreciation and amortization, and as further adjusted for acquisition related expenses, stock-based compensation expense, payroll tax expense related to stock-based compensation, loss on extinguishment of debt, financing related expenses and other expense (income), net. Adjusted EBITDA Margin represents Adjusted EBITDA as a percentage of revenue. Adjusted EBITDA is a key measure we use to assess our financial performance and is also used for internal planning and forecasting purposes. We believe Adjusted EBITDA is helpful to investors, analysts and other interested parties because it can assist in providing a more consistent and comparable overview of our operations across our historical 23 financial periods. In addition, this measure is frequently used by analy sts, investors and other intere sted parties to evaluate and assess performance. Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP measures and are presented for supplemental informational purposes only and should not be considered as alternatives or substitutes to financial information presented in accordance with GAAP. These measures have certain limitations in that they do not include the impact of certain expenses that are reflected in our consolidated statement of operations that are necessary to run our business. Other companies, including other companies in our industry, may not use these measures or may calculate these measures differently than as presented in this Quarterly Report on Form 10-Q, limiting their usefulness as comparative measures. The following table presents a reconciliation of net income to Adjusted EBITDA, the most directly comparable financial measure calculated in accordance with GAAP. Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Net (loss) income $ (50,032 ) $ 19,619 $ 4,651 $ 50,821 Adjusted to exclude the following: Interest income (24 ) (271 ) (140 ) (580 ) Interest expense 6,264 12,773 21,697 39,452 Income tax expense (benefit) (17,894 ) 5,727 (2,467 ) 14,219 Depreciation and amortization 5,160 3,609 14,026 9,355 Other expense (income), net 1 (4 ) (20 ) (3 ) Loss on extinguishment of debt — — — — Payroll tax expense related to stock-based compensation 323 5 404 143 Financing related expenses (1) — 85 1,306 85 Acquisition related expenses (2) 2,481 685 3,724 1,659 Stock based compensation (3) 106,873 956 111,204 2,692 Adjusted EBITDA $ 53,152 $ 43,184 $ 154,385 $ 117,843 Adjusted EBITDA Margin 37.8 % 42.4 % 38.9 % 42.9 % (1) Financing related expenses include third party fees related to proposed financings. (2) Acquisition related expenses include third party fees for actual or planned acquisitions, including related legal, consulting and other expenditures, retention bonuses to employees related to acquisitions, and change in fair value of contingent consideration. (3) Non-cash expenses related to equity-based compensation programs, which vary from period to period depending on various factors including the timing, number and the valuation of awards. Adjusted EBITDA grew 23% in the three months ended September 30, 2020 to $53.2 million, compared to $43.2 million in the three months ended 2019 as our business continued to grow. Adjusted EBITDA margin decreased from 42.4% to 37.8% due to an increase in cost of revenue relative to revenue due primarily to growth of our telehealth offering, continued investments in product development and technology, as well as investments in our general and administrative infrastructure as we prepared for our IPO and to operate as a public company. We expect our Adjusted EBITDA and Adjusted EBITDA Margin to fluctuate on a quarterly basis primarily based on the level of our investments in sales and marketing and product development and technology relative to changes in revenue. We generally expect to continue to invest in sales and marketing in the near-term, but will continue to evaluate the impact of COVID-19 on our business and actively manage our sales and marketing spend, including investment in consumer acquisition, which is largely variable, as market conditions change. We also intend to continue to invest in product development and technology to continue to improve our platform, introduce new offerings and scale existing ones. Additionally, we expect to continue to invest in our general and administrative infrastructure to support our operation as a public company. 24 Three Months Ended September 30, 2020 Compared to Three Months Ended September 30, 2019 Revenue Three Months Ended September 30, Change 2020 2019 $ % (dollars in thousands) Prescription transactions revenue $ 124,385 $ 95,795 $ 28,590 30 % Other revenue 16,068 5,950 10,118 170 % Total revenue 140,453 101,745 38,708 38 % Prescription transactions revenue for the three months ended September 30, 2020 increased $28.6 million, or 30%, compared to the three months ended September 30, 2019, driven primarily by a 29% increase in the number of our Monthly Active Consumers. We believe prescription transactions revenue continues to be impacted by COVID-19, as many consumers continue to avoid physician visits. Other revenue for the three months ended September 30, 2020 increased $10.1 million, or 170%, compared to the three months ended September 30, 2019. This increase was primarily due to an increase in subscription revenue as a result of an increase in the number of subscribers in the three months ended September 30, 2020 compared to the three months ended September 30, 2019, an increase in revenue from our pharmaceutical manufacturers offering, and an increase in telehealth revenue driven by HeyDoctor and the launch of the GoodRx Telehealth Marketplace in March 2020. Costs and operating expenses Cost of revenue, exclusive of depreciation and amortization Three Months Ended September 30, Change 2020 2019 $ % (dollars in thousands) Cost of revenue, exclusive of depreciation and amortization $ 7,540 $ 3,396 $ 4,144 122 % As a percentage of total revenue 5 % 3 % Cost of revenue for the three months ended September 30, 2020 increased $4.1 million, or 122%, compared to the three months ended September 30, 2019. This increase was primarily due to a $2.1 million increase in provider cost related to our telehealth offerings driven by an increase in the number of online provider visits, a $1.0 million increase in outsourced and in-house personnel related consumer support expense to support our growth, and other increases in hosting and cloud expenses, merchant fees, and allocated overhead. Product development and technology Three Months Ended September 30, Change 2020 2019 $ % (dollars in thousands) Product development and technology $ 15,846 $ 7,844 $ 8,002 102 % As a percentage of total revenue 11 % 8 % Product development and technology expenses for the three months ended September 30, 2020 increased by $8.0 million, or 102%, compared to the three months ended September 30, 2019. This increase was primarily due to increases in product development related personnel expenses of $6.4 million due to higher headcount and an increase in stock-based compensation related to awards made in connection with our IPO. The increase in product development and technology expense was also due to an increase in third-party services and contractor expenses related to product development of $1.1 million, and an increase in allocated overhead of $0.5 million to support our product development efforts. 25 Sales and marketing Three Months Ended September 30, Change 2020 2019 $ % (dollars in thousands) Sales and marketing $ 65,113 $ 44,950 $ 20,163 45 % As a percentage of total revenue 46 % 44 % Sales and marketing expenses for the three months ended September 30, 2020 increased by $20.2 million, or 45%, compared to the three months ended September 30, 2019. This increase was primarily due to a $13.3 million increase in advertising expenses and a $5.6 million increase in sales and marketing related personnel expenses due to higher headcount and an increase in stock-based compensation related to awards made in connection with our IPO. We continue to evaluate the impact of COVID-19 on our business and actively manage our consumer acquisition spending according to market conditions. General and administrative Three Months Ended September 30, Change 2020 2019 $ % (dollars in thousands) General and administrative $ 108,479 $ 4,102 $ 104,377 * As a percentage of total revenue 77 % 4 % *Not meaningful General and administrative expenses for the three months ended September 30, 2020 increased by $104.4 million compared to the three months ended September 30, 2019. This increase was primarily due to $98.1 million of stock-based compensation related to the Co-Chief Executive Officers award made in connection with the IPO, as further described in note 9 of our condensed consolidated financial statements. The increase in general and administrative expense was also due to a $3.2 million increase in other executive and administative related personnel expenses due to higher headcount and an increase in stock-based compensation expense related to awards made in connection with our IPO, and a $2.3 million increase in professional and other fees to support our growth and preparation for our initial public offering. Depreciation and amortization Three Months Ended September 30, Change 2020 2019 $ % (dollars in thousands) Depreciation and amortization $ 5,160 $ 3,609 $ 1,551 43 % As a percentage of total revenue 4 % 4 % Depreciation and amortization expenses for the three months ended September 30, 2020 increased by $1.6 million, or 43%, compared to the three months ended September 30, 2019. This increase was due primarily to a $0.7 million increase in intangible assets amortization as a result of intangible asset additions from our 2019 and 2020 acquisitions, and a $0.7 million increase in capitalized software amortization due to higher capitalized costs for platform improvements and the introduction of new products and features. Interest income Three Months Ended September 30, Change 2020 2019 $ % (dollars in thousands) Interest income $ (24 ) $ (271 ) $ 247 * As a percentage of total revenue (0 %) (0 %) *Not meaningful 26 The decrease in interest income was primarily due to higher interest rates during the three months ended September 30, 2019, compared to the three months ended September 30, 2020. Interest expense Three Months Ended September 30, Change 2020 2019 $ % (dollars in thousands) Interest expense $ 6,264 $ 12,773 $ (6,509 ) (51 %) As a percentage of total revenue 4 % 13 % Interest expense for the three months ended September 30, 2020 decreased by $6.5 million, or 51%, compared to the three months ended September 30, 2019 primarily due to the November 2019 amendment to increase the amount of the First Lien Term Loan Facility in order to repay all amounts outstanding under the Second Lien Term Loan Facility, which bore interest at a higher rate than the First Lien Term Loan Facility, as further described below, and as a result of lower interest rates. Income tax benefit (expense) Three Months Ended September 30, Change 2020 2019 $ % (dollars in thousands) Income tax benefit (expense) $ 17,894 $ (5,727 ) $ 23,621 * Income tax effective rate 26 % 23 % *Not meaningful For the three months ended September 30, 2020, we had an income tax benefit of $17.9 million, compared to income tax expense of $5.7 million for the three months ended September 30, 2019. This difference was due primarily to a decrease in pre-tax income primarily due to $98.1 million of stock-based compensation related to the Founders Awards made in connection with the IPO, the tax effects of nondeductible officers’ compensation, and excess tax benefits related to the exercise of stock options. Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019 Revenue Nine Months Ended September 30, Change 2020 2019 $ % (dollars in thousands) Prescription transactions revenue $ 356,950 $ 260,114 $ 96,836 37 % Other revenue 40,206 14,854 25,352 171 % Total revenue $ 397,156 $ 274,968 $ 122,188 44 % Prescription transactions revenue for the nine months ended September 30, 2020 increased $96.8 million, or 37%, compared to the nine months ended September 30, 2019, driven primarily by a 35% increase in the number of our Monthly Active Consumers. Prescription transactions revenue was negatively impacted in the nine months ended September 30, 2020 due to the impact of COVID-19, as many consumers avoided visiting healthcare professionals and pharmacies in-person in the second and third quarters of 2020. Other revenue for the nine months ended September 30, 2020 increased $25.4 million, or 171%, compared to the nine months ended September 30, 2019. This increase was primarily due to an increase in subscription revenue as a result of an increase in the number of subscribers in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, an increase in revenue from our pharmaceutical manufacturers offering, and an increase in 27 telehealth revenue following the acquisition of HeyDoctor in the second quarter of 2019 and the launch of the G oodRx Telehealth Marketplace in March 2020. Costs and operating expenses Cost of revenue, exclusive of depreciation and amortization Nine Months Ended September 30, Change 2020 2019 $ % (dollars in thousands) Cost of revenue, exclusive of depreciation and amortization $ 20,383 $ 9,420 $ 10,963 116 % As a percentage of total revenue 5 % 3 % Cost of revenue for the nine months ended September 30, 2020 increased $11.0 million, or 116%, compared to the nine months ended September 30, 2019. This increase was primarily due to a $4.9 million increase in provider cost related to our telehealth offerings following the acquisition of HeyDoctor in 2019, a $2.5 million increase in outsourced and in-house personnel related consumer support expense to support our growth, a $0.9 million increase in merchant fees, a $0.8 million increase in hosting and cloud expense, and other increases in processing fees and allocated overhead. Product development and technology Nine Months Ended September 30, Change 2020 2019 $ % (dollars in thousands) Product development and technology $ 38,133 $ 19,480 $ 18,653 96 % As a percentage of total revenue 10 % 7 % Product development and technology expenses for the nine months ended September 30, 2020 increased by $18.7 million, or 96%, compared to the nine months ended September 30, 2019. This increase was primarily due to increases in product development related personnel expenses of $13.9 million due to higher headcount and an increase in stock-based compensation related to awards made in connection with our IPO. The increase in product development and technology expense was also due to an increase in third-party services and contractor expenses related to product development of $2.5 million, and an increase in allocated overhead of $2.3 million to support our product development efforts. Sales and marketing Nine Months Ended September 30, Change 2020 2019 $ % (dollars in thousands) Sales and marketing $ 180,195 $ 122,639 $ 57,556 47 % As a percentage of total revenue 45 % 45 % Sales and marketing expenses for the nine months ended September 30, 2020 increased by $57.6 million, or 47%, compared to the nine months ended September 30, 2019. This increase was primarily due to a $45.3 million increase in advertising expenses and a $9.3 million increase in sales and marketing related personnel expenses due to higher headcount and an increase in stock-based compensation related to awards made in connection with our IPO. After reducing advertising spend in certain channels in the second quarter of 2020 due to the impact of COVID-19 as many consumers avoided visiting healthcare professionals and pharmacies in-person, we increased our advertising spend in the third quarter of 2020 as more consumers resumed their interaction with the healthcare system, which increased our sales and marketing expense. We will continue to evaluate the impact of COVID-19 on our business and actively manage our consumer acquisition spending according to market conditions. 28 General and administrative Nine Months Ended September 30, Change 2020 2019 $ % (dollars in thousands) General and administrative $ 120,698 $ 10,165 $ 110,533 * As a percentage of total revenue 30 % 4 % *Not meaningful General and administrative expenses for the nine months ended September 30, 2020 increased by $110.5 million compared to the nine months ended September 30, 2019. This increase was primarily due to $98.1 million of stock-based compensation related to the Founders Awards made in connection with the IPO, as further described in note 9 of our condensed consolidated financial statements. The increase in general and administrative expense was also due a $6.9 million increase in professional and other fees to support our growth and preparation for our initial public offering, and a $6.0 million increase in other executive and administative related personnel expenses due to higher headcount and an increase in stock-based compensation expense including awards made in connection with our IPO. Depreciation and amortization Nine Months Ended September 30, Change 2020 2019 $ % (dollars in thousands) Depreciation and amortization $ 14,026 $ 9,355 $ 4,671 50 % As a percentage of total revenue 4 % 3 % Depreciation and amortization expenses for the nine months ended September 30, 2020 increased by $4.7 million, or 50%, compared to the nine months ended September 30, 2019. This increase was due primarily to a $2.6 million increase in intangible assets amortization as a result of intangible asset additions from our 2019 and 2020 acquisitions, and a $1.7 million increase in capitalized software amortization due to higher capitalized costs for platform improvements and the introduction of new products and features. Interest income Nine Months Ended September 30, Change 2020 2019 $ % (dollars in thousands) Interest income $ (140 ) $ (580 ) $ 440 * As a percentage of total revenue (0 %) (0 %) *Not meaningful The decrease in interest income was primarily due to higher interest rates during the nine months ended September 30, 2019, compared to the nine months ended September 30, 2020. Interest expense Nine Months Ended September 30, Change 2020 2019 $ % (dollars in thousands) Interest expense $ 21,697 $ 39,452 $ (17,755 ) (45 %) As a percentage of total revenue 5 % 14 % Interest expense for the nine months ended September 30, 2020 decreased by $17.8 million, or 45%, compared to the nine months ended September 30, 2019 primarily due to the November 2019 amendment to increase the amount of the First Lien Term Loan Facility in order to repay all amounts outstanding under the Second Lien Term Loan Facility, which 29 bore interest at a higher rate than the First Lien Term Loan Facility, as furt her described below, and as a result of lower interest rates. Income tax benefit (expense) Nine Months Ended September 30, Change 2020 2019 $ % (dollars in thousands) Income tax benefit (expense) $ 2,467 $ (14,219 ) $ 16,686 * Income tax effective rate (113 %) 22 % *Not meaningful For the nine months ended September 30, 2020, we had a income tax benefit of $2.5 million compared to income tax expense of $14.2 million for nine months ended September 30, 2019. This difference was due primarily to a decrease in pre-tax income primarily due to $98.1 million of stock-based compensation related to the Founders Awards made in connection with the IPO, the tax effects of nondeductible officers’ compensation, and excess tax benefits related to the exercise of stock options. Liquidity and Capital Resources Overview Since our inception, we have financed our operations primarily through net cash provided by operating activities, equity issuances, and borrowings under our long-term debt arrangements. Our primary requirements for liquidity and capital are to finance working capital, capital expenditures and general corporate purposes. Our principal sources of liquidity are expected to be our cash and cash equivalents and borrowings available under our Revolving Credit Facility (as defined below). As of September 30, 2020 we had cash and cash equivalents of $1.1 billion and $62.9 million available under the Revolving Credit Facility. In October 2020, we repaid the $28.0 million previously drawn under the Revolving Credit Facility. We believe that our net cash provided by operating activities, cash on hand and availability under the Revolving Credit Facility will be adequate to meet our operating, investing and financing needs for at least the next 12 months. Our future capital requirements will depend on many factors, including our revenue growth, the timing and extent of investments to support such growth, the expansion of sales and marketing activities, and many other factors as described in Part II, Item 1A, “Risk Factors.” If necessary, we may borrow funds under our Revolving Credit Facility to finance our liquidity requirements, subject to customary borrowing conditions. To the extent additional funds are necessary to meet our long-term liquidity needs as we continue to execute our business strategy, we anticipate that they will be obtained through the incurrence of additional indebtedness, additional equity financings or a combination of these potential sources of funds; however, such financing may not be available on favorable terms, or at all. In particular, the widespread COVID-19 pandemic has resulted in, and may continue to result in, significant disruption of global financial markets, reducing our ability to access capital. If we are unable to raise additional funds when or on the terms desired, our business, financial condition and results of operations could be adversely affected. In light of the large number of RSUs subject to the Founders Awards that were granted in connection with our IPO in September 2020, we have incurred and anticipate that we will incur substantial additional stock-based compensation expense and expend substantial funds to satisfy tax withholding and remittance obligations as these RSUs vest over time. The grant date fair value of the Founders Awards was $533.3 million, of which $98.1 million was recognized during the three months ended September 30, 2020. Given the Company’s stock price for the post IPO period, all of the stock price goals with respect to the performance vesting portion of the Founders Awards (the “Performance-Vesting Founders Awards”) (see note 9 of our condensed consolidated financial statements) were achieved in October 2020. As a result, all 16,422,044 Performance-Vesting Founders Awards vested, resulting in recognition of approximately $232.1 million of stock-based compensation expense for the fourth quarter of 2020. The unrecognized compensation expense associated with the time vesting portion of the Founders Awards of $203.1 million as of September 30, 2020 is expected to be recognized over the remaining service period of 2.1 years, with $43.0 million expected to be recognized in the fourth quarter of 2020, bringing the total expense related to the Founders Awards in the fourth quarter to approximately $275.1 million. In addition, as a result of the Founders Awards, and the Performance-Vesting Founders Awards in particular, a large number of shares of Class B common stock will be issued on the applicable settlement dates. On the settlement dates for the RSUs, we plan to 30 withhold shares and remit taxes on behalf of the holders of such Founders Awards at applicable statutory rates, which we refer to as net settlement, which may result in substantial tax withholding obligations. The amount of tax withholding obl igations will depend on the price of our Class A common stock, the actual number of RSUs for which the vesting conditions are satisfied over time and the applicable tax withholding rates then in effect. Notwithstanding the vesting in October 2020 of all of the Performance-Vesting Founders Awards , the associated shares will not be issued until three years from the vesting date or, if earlier, a change in control event, as defined. Assuming an approximate 50% tax withholding rate and stock price of $55.00 per share at vesting and settlement, for the 16.4 million Performance-Vesting Founders Award shares that vested as described in the preceding paragraph, we estimate that our cash obligation on behalf of our Co-Founders to the relevant tax authorities to satisfy tax withholding obligations would be approximately $447.8 million, and we would deliver an aggregate of approximately 8.2 million shares of our Class B common stock to net settle these awards, after withholding an aggregate of approximately 8.2 million shares of our Class B common stock. Cash payments for income tax withholdings are due upon the settlement date of the RSUs which is the third anniversary of the applicable vesting date or, if earlier, upon a qualifying change in control event. The actual amount of the tax obligations and the number of shares to be delivered could be higher or lower, depending on the price of our Class A common stock upon settlement and the applicable tax withholding rates then in effect. Credit Facilities In October 2018, GoodRx, Inc., our wholly owned subsidiary, as borrower, and GoodRx Intermediate Holdings, LLC, entered into a first lien credit agreement with various lenders (the “First Lien Credit Agreement”). The First Lien Credit Agreement provided for a $40.0 million secured asset-based revolving credit facility, or the Revolving Credit Facility, and a $545.0 million senior secured term loan facility (the "First Lien Term Loan Facility” and, together with the Revolving Credit Facility, the “Credit Facilities”). In November 2019, the First Lien Term Loan Facility was amended to increase the amount of the facility to $700.0 million. Additionally, in May 2020, the Revolving Credit Facility was amended to increase the amount of the facility to $100.0 million. The Revolving Credit Facility and the First Lien Term Loan Facility under the First Lien Credit Agreement are collateralized by substantially all of our assets, including our intellectual property, and 100% of the equity interest of GoodRx, Inc. The First Lien Credit Agreement that governs the Revolving Credit Facility and the First Lien Term Loan Facility contains certain affirmative and negative covenants, including, among other things, restrictions on indebtedness, liens, fundamental changes, repurchases of stock, dividends and other distributions. GoodRx, Inc. is restricted from making dividend payments, loans or advances to GoodRx Intermediate Holdings, LLC and GoodRx Holdings, Inc. In addition, GoodRx, Inc. is subject to a financial covenant whereby GoodRx, Inc. is required to maintain a First Lien Net Leverage Ratio (as defined in the First Lien Credit Agreement) not to exceed 8.2 to 1.0. At September 30, 2020, we were in compliance with the covenants under the First Lien Credit Agreement. Revolving Credit Facility Loans under the Revolving Credit Facility bear interest at a rate per annum equal to the LIBO Screen Rate (as defined in the First Lien Credit Agreement) plus a variable margin rate, which is based on our most recently determined First Lien Net Leverage Ratio (as defined in the First Lien Credit Agreement), that ranges from 2.50% to 3.00%. The Revolving Credit Facility has a variable commitment fee, which is based on the Company’s most recently determined First Lien Net Leverage Ratio (as defined in the First Lien Credit Agreement), and ranges from 0.25% to 0.50% per annum. In addition, the Revolving Credit Facility has a fixed fronting fee of 0.125% per annum of our aggregate undrawn and disbursed but unreimbursed letters of credit. The Revolving Credit Facility expires on October 11, 2024. As of September 30, 2020, the outstanding principal balance under the Revolving Credit Facility was $28 million, which we repaid in October 2020. Under the terms of a lease agreement entered into during September 2019, GoodRx, Inc. assigned to the landlord drawdown rights against the Revolving Credit Facility for up to $9.0 million to meet the contractual line of credit requirement in the lease agreement. The landlord can draw on the Revolving Credit Facility in the event of the Company’s default on rent or damages to the building. The assigned rights to the landlord will be held for the initial three years of the lease term, and subject to certain conditions, the letter of credit will decrease thereafter by up to 10% per year based upon the original amount to no less than $2 million. This outstanding letter of credit to the landlord reduces our available borrowings under the Revolving Credit Facility by an amount equal to the value of assigned rights. 31 First Lien Term Loan F acility The First Lien Term Loan Facility accrues interest at a rate per annum equal to the LIBO Screen Rate (as defined in the First Lien Credit Agreement) plus a variable margin rate, which is based on the Company’s most recently determined Net Leverage Ratio (as defined in the First Lien Credit Agreement), that ranges from 2.75% to 3.00% per annum. The First Lien Credit Agreement requires quarterly principal payments from March 2019 through September 2025, with any remaining unpaid principal and any accrued and unpaid interest due on the maturity date of October 10, 2025. The effective interest rate on the First Lien Term Loan Facility was 3.42% and 5.56% for the three months ended September 30, 2020 and 2019, respectively, and 4.03% and 5.79% for the nine months ended September 30, 2020 and 2019, respectively. The carrying value of the First Lien Term Loan Facility was $667.9 million, net of unamortized debt issuance costs and discount of $15.0 million, as of September 30, 2020. Second Lien Term Loan Facility Concurrent with the above First Lien Credit Agreement, GoodRx, Inc., as borrower, and GoodRx Intermediate Holdings, LLC entered into a second lien credit agreement with various lenders (the “Second Lien Credit Agreement”). The Second Lien Credit Agreement provided for a $200.0 million secured term loan facility (the “Second Lien Term Loan Facility”) that accrued interest at a rate per annum equal to the LIBO Screen Rate (as defined in the Second Lien Credit Agreement) plus a margin of 7.50% per annum. In connection with the amendment to increase the amount of the First Lien Term Loan Facility in November 2019, we repaid all amounts outstanding and owed under the Second Lien Term Loan Facility, using the proceeds from the amendment to the First Lien Term Loan Facility and existing cash resources, including $200.0 million in principal amount outstanding, approximately $0.1 million of accrued interest and a $2.0 million prepayment penalty. Holding Company Status We are a holding company that does not conduct any business operations of our own. As a result, we are largely dependent upon cash distributions and other transfers from our subsidiaries to meet our obligations and to make future dividend payments, if any. The First Lien Credit Agreement contains covenants restricting payments of dividends by our subsidiaries, including GoodRx, Inc., unless certain conditions are met. These covenants provide for certain exceptions for specific types of payments. Based on these restrictions, all of the net assets of GoodRx, Inc. were restricted pursuant to the terms of the Credit Facilities as of September 30, 2020. Since the restricted net assets of GoodRx, Inc. and its subsidiaries exceed 25% of our consolidated net assets, in accordance with Regulation S-X, refer to our audited consolidated financial statements included in our Prospectus for condensed parent company financial information of GoodRx Holdings, Inc. Cash Flows Nine Months Ended September 30, 2020 2019 (in thousands) Net cash provided by operating activities $ 116,491 $ 66,771 Net cash used in investing activities (81,807 ) (35,285 ) Net cash provided by (used in) financing activities 1,017,190 (6,400 ) Net change in cash $ 1,051,874 $ 25,086 Net cash provided by operating activities Net cash provided by operating activities was $116.5 million for the nine months ended September 30, 2020 consisting of $4.7 million of net income, adjusted for $134.3 million of non-cash expenses, made up primarily of stock-based compensation of $111.2 million, including $98.1 million of stock-based compensation related to the Co-Chief Executive Officers award made in connection with the IPO, partially offset by $22.4 million of net cash used as a result of changes in operating assets and liabilities. The changes in operating assets and liabilities were primarily driven by an increase in income tax receivable due to our third quarter tax benefit and increases in accrued expenses, accounts receivable, accounts payable, and prepaid expenses due to our growing operations. 32 Net cash provided by operating activities was $ 66.8 million for the nine months ended September 30, 2019 consisting of $ 50.8 million of net income, adjust ed for $ 16. 1 million of non-cash expenses and $ 0.2 million of net cash used as a result of changes in operating assets and liabilities. The changes in operating assets and liabilities were primarily driven by increases in accounts receivable, accounts paya ble, accrued expenses , and prepaid expenses due to our growing operations , as well as a decrease in our lease liabilities. Net cash used in investing activities Net cash used in investing activities of $81.8 million for the nine months ended September 30, 2020 was related to $55.8 million in cash consideration, net of cash acquired, related to the acquisition of ScriptCycle, $15.7 million for capital expenditures, due primarily to leasehold improvements and furniture and fixtures related to our new office facility in Santa Monica, and $10.3 million for capitalized software. Net cash used in investing activities of $35.3 million for the nine months ended September 30, 2019 was related to $31.3 million in cash consideration, net of cash acquired, related to our 2019 acquisitions, $3.0 million for capitalized software, and $1.0 million for capital expenditures. Net cash provided by (used in) financing activities Net cash provided by financing activities of $1.0 billion for the nine months ended September 30, 2020 was related to $890.0 million in net proceeds from our IPO, $100.0 million in proceeds from our private placement in September 2020, $28.0 million in proceeds drawn down under the Revolving Credit Facility and $5.1 million from exercise of options, partially offset by $5.3 million in long-term debt principal payments and payments of $1.3 million for debt issuance costs related to increasing the amount of our line of credit in May 2020. Net cash used in financing activities of $6.4 million for the nine months ended September 30, 2019 was primarily related to $10.1 million in long-term debt principal payments offset by $3.7 million from exercise of options and issuance of common stock. Contractual Obligations and Commitments There have been no material changes to our contractual obligations from those described in the Prospectus. Off-Balance Sheet Arrangements We did not have any off-balance sheet arrangements as of September 30, 2020. Critical Accounting Policies and Estimates Our consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q are prepared in accordance with GAAP. The preparation of consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from our estimates. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. Our critical accounting policies are described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in the Prospectus and the notes to the audited consolidated financial statements appearing elsewhere in the Prospectus. During the three months ended September 30, 2020, there were no material changes to our critical accounting policies from those discussed in our Prospectus. Recent Accounting Pronouncements Refer to Note 2 to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q for a discussion of accounting pronouncements recently adopted and recently issued accounting pronouncements not yet adopted and their potential impact to our financial statements. 33 Item 3. Q uantitative and Qualitative Disclosures about Market Risk We only have operations within the United States and therefore do not have any foreign currency exposure. We are exposed to market risks in the ordinary course of our business, including the effects of interest rate changes. Interest rate risk Our exposures to market risk for changes in interest rates relate primarily to the Credit Facilities which bear floating interest rates and a rising interest rate environment will increase the amount of interest paid on these loans. A hypothetical 100 basis point increase in interest rates would have increased our interest expense by $3.5 million for the nine months ended September 30, 2020. Impact of inflation We do not believe that inflation has had a material effect on our business, results of operations or financial condition. Nonetheless, if our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs. Our inability or failure to do so could harm our business, financial condition and results of operations.