Item 7. Management’s Discussion and Analysis
Item 7. 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 audited consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. 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 under Part I, Item 1A, “Risk Factors” and in other parts of this Annual Report on Form 10-K. A discussion of the year ended December 31, 2022 compared to the year ended December 31, 2021 has been reported previously in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 1, 2023, under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
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. Copays have continued to trend upward in recent years and we believe as insurance providers continue to shift the cost burden more and more to consumers, consumers are now more than ever searching for sustainable affordable healthcare solutions which, in turn, strengthens our value proposition. We believe our financial results reflect the significant market demand for our offerings and the value that we provide to the broader healthcare ecosystem; however, our financial results for the year ended December 31, 2023 have been materially impacted by certain restructuring related activities undertaken by us during 2023 and the sustained effects of certain events that occurred during 2022.
Late in the first quarter of 2022, a grocery chain took actions that impacted acceptance of discounted pricing for a subset of prescription drugs from PBMs, whose pricing we promote on our platform ("grocer issue"). This had a material adverse impact on our prescription transactions revenue and Monthly Active Consumers, which was partially offset by our ability to shift certain prescription transactions to other retailers. Although the grocer issue was addressed in August 2022 and our discounted pricing has since been consistently welcomed at the point of sale by the grocery chain, beginning in the second quarter of 2022, it has had and will continue to have a sustained adverse impact on our prescription transactions revenue and Monthly Active Consumers due to consumer response to updated consumer pricing and the timing and extent of returning user levels. We have not experienced, and are not aware of, PBM-pharmacy issues at any other large volume pharmacies, with the exception of the grocery chain described above, and we believe our pharmacy and PBM relationships remain strong. For additional information, please see Part I, Item 1A, “Risk Factors – We rely on a limited number of industry participants.”
In addition, but to a lesser extent, the acquisition of vitaCare Prescription Services, Inc. ("vitaCare") in April 2022 also had a negative impact on our net loss, net loss margin, Adjusted EBITDA and Adjusted EBITDA Margin for the year ended December 31, 2023. vitaCare had a higher cost of revenue due to the operational nature of the solutions it supported and had historically generated net losses and negative Adjusted EBITDA.
On August 7, 2023, our board of directors (our "Board") approved a plan (the "Restructuring Plan") to de-prioritize certain solutions provided under our pharma manufacturer solutions offering, including vitaCare, which was substantially completed at December 31, 2023. The Restructuring Plan is part of our continued strategic focus on scaling and re-balancing our cost structure to drive improved profitability. For additional information, see Note 17 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. Our revenue and net loss for the year ended December 31, 2023 have been impacted by costs incurred due to these restructuring activities, which are expected to result in approximately $18.0 million to $22.0 million of annualized run rate cash savings principally related to future cost of revenues. The annualized run rate cash savings are estimates and subject to a number of assumptions, and actual results may differ materially.
For the year ended December 31, 2023 as compared to the year ended December 31, 2022:
• Revenue decreased 2% to $750.3 million (which was impacted by $10.0 million of client contract termination costs incurred in connection with the Restructuring Plan) from $766.6 million;
• Adjusted Revenue decreased 1% to $760.3 million (which represents revenue excluding the $10.0 million of client termination costs incurred in connection with the Restructuring Plan, which was recognized as a reduction of revenue) from $766.6 million;
• Net loss and net loss margin were $8.9 million and 1.2%, respectively, compared to net loss and net loss margin of $32.8 million and 4.3%, respectively; and
• Adjusted EBITDA and Adjusted EBITDA Margin were $217.4 million and 28.6%, respectively, compared to $213.5 million and 27.8%, respectively.
Revenue, net loss and net loss margin are financial measures prepared in conformity with accounting principles generally accepted in the United States ("GAAP"). Adjusted Revenue, Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP financial measures. For a reconciliation and presentation of Adjusted Revenue, Adjusted EBITDA and Adjusted EBITDA Margin to the most directly comparable GAAP financial measures, information about why we consider Adjusted Revenue, Adjusted EBITDA and Adjusted EBITDA Margin useful and a discussion of the material risks and limitations of
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these measures, please see “Key Financial and Operating Metrics—Non-GAAP Financial Measures" included within this Part II, Item 7 of this Annual Report on Form 10-K.
Seasonality
We typically experience stronger consumer demand during the first and fourth quarters of each year, which coincide with generally higher consumer healthcare spending, doctor office visits, annual benefit enrollment season, and seasonal cold and flu trends. For our integrated savings programs, we may experience stronger prescription transactions revenue during the first half of each year since more claims are likely to be routed through GoodRx while plan members are in the deductible phase of their health plans. We may also experience stronger demand for our pharma manufacturer solutions offering during the fourth quarter of each year, which coincides with pharma manufacturers' annual budgetary spending patterns. In addition, this seasonality may impact revenue and sales and marketing expense. The grocer issue and the ongoing impact of COVID-19 may have masked some of these trends in recent periods and may continue to impact these trends in the future.
Recent Developments
On February 27, 2024, our Board authorized a new $450.0 million stock repurchase program. On February 20, 2024, we entered into the Fifth Amendment to First Lien Credit Agreement to amend our Revolving Credit Facility under the Credit Agreement to extend its maturity date from October 11, 2024 to July 11, 2025. See Note 19 in the notes to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Key Financial and Operating Metrics
We use Monthly Active Consumers, subscription plans, Adjusted Revenue, Adjusted EBITDA and Adjusted EBITDA Margin to assess our performance, make strategic and offering decisions and build our financial projections. The number of Monthly Active Consumers and subscription plans are key indicators of the scale of our consumer base and a gauge for our marketing and engagement efforts. We believe these operating metrics reflect our scale, growth and engagement with consumers.
We exited the fourth quarter of 2023 with over 7 million prescription-related consumers that used GoodRx across our prescription transactions and subscription offerings. Our prescription-related consumers represent the sum of Monthly Active Consumers for the three months ended December 31, 2023 and subscribers to our subscription plans as of December 31, 2023.
Monthly Active Consumers
Monthly Active Consumers beginning with the second quarter of 2022 were impacted by the grocer issue.
Three Months Ended
(in millions) December 31,
2023 September 30,
2023 June 30,
2023 March 31,
2023 December 31,
2022 September 30,
2022 June 30,
2022 March 31,
2022
Monthly Active Consumers 6.4 6.1 6.1 6.1 5.9 5.8 5.8 6.4
Subscription Plans
Subscription plans have been impacted by a sequential decline in our subscription plans for Kroger Savings as a result of reduced marketing spend in relation to that offering. We expect our subscription plans for Kroger Savings to continue to sequentially decline through July 2024, the expected sunset of the program. Gold subscription plans increased year-over-year and accounted for 694 thousand as of December 31, 2023.
As of
(in thousands) December 31,
2023 September 30,
2023 June 30,
2023 March 31,
2023 December 31,
2022 September 30,
2022 June 30,
2022 March 31,
2022
Subscription plans 884 930 969 1,007 1,030 1,060 1,133 1,203
Non-GAAP Financial Measures
Adjusted Revenue, Adjusted EBITDA and Adjusted EBITDA Margin are key measures we use to assess our financial performance and are also used for internal planning and forecasting purposes. We believe Adjusted Revenue, Adjusted EBITDA and Adjusted EBITDA Margin are helpful to investors, analysts and other interested parties because they can assist in providing a more consistent and comparable overview of our operations across our historical financial periods. In addition, these measures are frequently used by analysts, investors and other interested parties to evaluate and assess performance.
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We define Adjusted Revenue for a particular period as revenue excluding client contract termination costs associated with restructuring related activities. We exclude these costs from revenue because we believe they are not indicative of past or future underlying performance of the business.
We define Adjusted EBITDA for a particular period as net income or loss before interest, taxes, depreciation and amortization, and as further adjusted, as applicable, for acquisition related expenses, stock-based compensation expense, payroll tax expense related to stock-based compensation, loss on extinguishment of debt, financing related expenses, loss on operating lease assets, restructuring related expenses, legal settlement expenses, charitable stock donation, gain on sale of business and other income or expense, net. Adjusted EBITDA Margin represents Adjusted EBITDA as a percentage of Adjusted Revenue.
Adjusted Revenue, Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP financial 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 costs that are reflected in our consolidated statements of operations that are necessary to run our business. Other companies, including other companies in our industry, may not use these measures or may calculate these measures differently than as presented in this Annual Report on Form 10-K, limiting their usefulness as comparative measures.
The following table presents a reconciliation of net loss and revenue, the most directly comparable financial measures calculated in accordance with GAAP, to Adjusted EBITDA and Adjusted Revenue, respectively, and presents net loss margin, the most directly comparable financial measure calculated in accordance with GAAP, with Adjusted EBITDA Margin:
Year Ended December 31,
(dollars in thousands) 2023 2022
Net loss $ (8,868) $ (32,828)
Adjusted to exclude the following:
Interest income (32,171) (9,274)
Interest expense 56,728 34,243
Income tax (benefit) expense (46,704) 9,597
Depreciation and amortization (1)
107,668 54,177
Other expense (2)
4,008 —
Financing related expenses (3)
— 20
Acquisition related expenses (4)
1,777 26,486
Restructuring related expenses (5)
27,023 6,273
Legal settlement expenses (6)
100 1,500
Stock-based compensation expense 104,820 120,234
Payroll tax expense related to stock-based compensation 1,693 1,882
Loss on operating lease assets (7)
1,353 12,569
Gain on sale of business (8)
— (11,404)
Adjusted EBITDA $ 217,427 $ 213,475
Revenue $ 750,265 $ 766,554
Adjusted to exclude the following:
Client contract termination costs (9)
10,000 —
Adjusted Revenue $ 760,265 $ 766,554
Net loss margin (10)
(1.2 %) (4.3 %)
Adjusted EBITDA Margin (11)
28.6 % 27.8 %
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(1) Depreciation and amortization for the year ended December 31, 2023 included $46.7 million of amortization related to certain intangible assets in connection with the Restructuring Plan, which were accelerated through December 31, 2023, the date the Restructuring Plan was substantially complete.
(2) Other expense represents the impairment loss on one of our minority equity interest investments.
(3) Financing related expenses include third party fees related to proposed financings.
(4) Acquisition related expenses principally include costs for actual or planned acquisitions including related third party fees, legal, consulting and other expenditures, and as applicable, severance costs and retention bonuses to employees related to acquisitions and change in fair value of contingent consideration. Acquisition related expenses in 2022 also included similar transaction related costs for our sale of certain technology assets of
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GoodRx Care and a $18.1 million net change in fair value of contingent consideration related to our vitaCare acquisition.
(5) Restructuring related expenses include employee severance and other personnel related costs in connection with various workforce optimization and organizational changes to better align with our strategic goals and future scale. In connection with the Restructuring Plan, restructuring related expenses for the year ended December 31, 2023 also included (i) a loss of $7.0 million relating to the disposal of certain capitalized software that were not yet ready for their intended use; and (ii) a $10.0 million contract termination payment to a pharma manufacturer solutions client. Substantially all of the restructuring related expenses in 2022 were related to a reduction in force approved by our Board in August 2022 involving approximately 16% of the workforce of our indirect wholly-owned subsidiary GoodRx, Inc.
(6) Legal settlement expenses consist of periodic settlement costs for significant and unusual litigation matters. We believe these costs do not represent recurring expenses arising in the ordinary course of business that are indicative of our overall operating performance. For the year ended December 31, 2023, legal settlement expenses represent the estimated probable net loss with respect to ongoing class action litigations. For the year ended December 31, 2022, legal settlement expenses represent a negotiated settlement with the Federal Trade Commission.
(7) Loss on operating lease assets include, as applicable for the periods presented, losses incurred relating to the abandonment or sublease of certain leased office spaces and disposal of related capitalized costs.
(8) Gain on sale of business represents the pre-tax gain recognized on the sale of certain technology assets of GoodRx Care, LLC, our telehealth platform.
(9) Client contract termination costs represent a payment to a pharma manufacturer solutions client to terminate certain contracts in connection with the Restructuring Plan, which was recognized as a reduction of revenue.
(10) Net loss margin represents net loss as a percentage of revenue.
(11) Adjusted EBITDA Margin represents Adjusted EBITDA as a percentage of Adjusted Revenue.
Components of our Results of Operations
For a description of the components of our results of operations, see Note 2 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
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 pharma manufacturer solutions, our subscription offerings, and our telehealth services. We consider PBMs, pharma manufacturers and consumers of our subscription and telehealth services, for which we have direct contractual agreements, to be our primary customers. We expect pharma manufacturer solutions to continue to grow as a percentage of total revenue in the near to medium term as we continue to scale and expand available services, capabilities and platforms of our pharma manufacturer solutions offering. All of our revenue has been generated in the United States.
Beginning in late 2022, we began to enter into direct contractual agreements with select pharmacies, referred to as partner pharmacies, to complement the existing contractual agreements with our PBM partners. Partner pharmacies are our customers in these arrangements. We expect to increase direct contractual relationships with more pharmacies in proportion to existing contractual agreements with our PBM partners in the near term.
Prior to December 2023, we provided consumer incentives principally in the form of discounts to a limited number of consumers on a limited number of prescription drugs for a limited time ("limited marketing promotions"). Consumer discounts on prescription drugs with partner pharmacies as our customers were recognized as a reduction of prescription transactions revenue. For consumer discounts on prescription drugs with PBMs as our customers, we evaluate whether such discounts represent payments to a customer, which are recognized as a reduction of prescription transactions revenue if no distinct benefit is received, or whether the discounts relate to limited marketing promotions, which are recognized as sales and marketing expenses. We consider various factors including whether the discounts are made available for a limited time on a limited number of prescription drugs, consumer eligibility requirements, whether discounts are targeted towards consumer transactions with specific partner pharmacies or PBMs, and whether there is involvement or reasonable expectations of our customers with regards to the discounts. In December 2023, we implemented a change in some aspects of our consumer incentives program whereby the incentives are no longer limited marketing promotions and we believe our customers can now reasonably expect to benefit from these incentives. As a result, all consumer discounts subsequent to this change are expected to be recognized as a reduction of prescription transactions revenue.
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Results of Operations
The following table sets forth our results of operations for the years ended December 31, 2023 and 2022:
(dollars in thousands) Year Ended
December 31, 2023 % of Total Revenue Year Ended
December 31, 2022 % of Total Revenue Change ($) Change (%)
Revenue:
Prescription transactions revenue $ 550,738 73% $ 550,536 72% $ 202 0%
Subscription revenue 94,410 13% 96,167 13% (1,757) (2%)
Pharma manufacturer solutions revenue (1)
85,065 11% 99,425 13% (14,360) (14%)
Other revenue 20,052 3% 20,426 3% (374) (2%)
Total revenue 750,265 766,554
Costs and operating expenses:
Cost of revenue, exclusive of depreciation and amortization presented separately below 66,925 9% 65,079 8% 1,846 3%
Product development and technology 135,836 18% 143,137 19% (7,301) (5%)
Sales and marketing 341,328 45% 357,631 47% (16,303) (5%)
General and administrative 125,515 17% 144,792 19% (19,277) (13%)
Depreciation and amortization 107,668 14% 54,177 7% 53,491 99%
Total costs and operating expenses 777,272 764,816
Operating (loss) income (27,007) 1,738
Other expense, net:
Other expense (4,008) 1% — 0% (4,008) n/m
Interest income 32,171 4% 9,274 1% 22,897 247%
Interest expense (56,728) 8% (34,243) 4% (22,485) 66%
Total other expense, net (28,565) (24,969)
Loss before income taxes (55,572) (23,231)
Income tax benefit (expense) 46,704 6% (9,597) 1% 56,301 (587%)
Net loss $ (8,868) $ (32,828)
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(1) Pharma manufacturer solutions revenue for the year ended December 31, 2023 included a $10.0 million contract termination payment to a pharma manufacturer solutions client in connection with our Restructuring Plan, which was recognized as a reduction of revenue. See Note 17 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information.
Revenue
Prescription transactions revenue stayed relatively flat year-over-year, primarily as a result of a 3% increase in the number of our average Monthly Active Consumers, substantially offset by the pricing effects of the grocer issue due to an ongoing shift in the volume of prescription transactions to other retailers, which generally provide lower pricing relative to prescription transactions processed through the grocer involved, and an increase in consumer discounts pertaining to transactions processed through partner pharmacies, which were recognized as a reduction of revenue.
Subscription revenue decreased $1.8 million, or 2%, year-over year, primarily driven by a decrease in the number of subscription plans due to the anticipated sunset of Kroger Savings, resulting in 884 thousand subscription plans as of December 31, 2023, compared to 1,030 thousand as of December 31, 2022, substantially offset by the effects of the pricing increase for Gold subscribers in the first half of 2022. Given the subscription fee is higher for Gold relative to Kroger Savings, we expect the anticipated sunset of Kroger Savings will result in a higher decline in subscription plans relative to subscription revenue.
Pharma manufacturer solutions revenue decreased $14.4 million, or 14%, year-over year, primarily driven by a $10.0 million contract termination payment to a client in connection with the Restructuring Plan, which was recognized as a reduction of revenue, as well as by our increased focus on prioritizing service arrangements with high levels of recurring revenue potential relative to the prior year and moderation in spending across pharma manufacturers. Due principally to the Restructuring Plan and the related contract termination payment as described above, vitaCare contributed ($2.2) million in revenue for the year ended December 31, 2023 compared to $5.6 million for the same period of 2022. We expect the results of the de-prioritization of certain solutions under our pharma manufacturer solutions offering in connection with the Restructuring Plan will have a sustained adverse impact on our pharma manufacturer solutions revenue in the medium term.
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Other revenue decreased 2% year-over-year. Apart from the Restructuring Plan as discussed above, our acquisitions and dispositions individually and in the aggregate did not materially contribute to the change in our revenue for the year ended December 31, 2023 compared to the same period of 2022.
Costs and Operating Expenses
Cost of revenue, exclusive of depreciation and amortization
Cost of revenue is largely driven by the growth of our visitor, subscriber and active consumer base, as well as our offering mix. Our cost of revenue as a percentage of revenue may vary based on the change in mix of our various offerings.
Cost of revenue increased $1.8 million, or 3%, year-over-year, primarily driven by $4.2 million of personnel related costs in connection with the Restructuring Plan and a $2.5 million year-over-year increase in hosting costs and processing fees. The impact from these drivers was partially offset by a $3.1 million decrease in outsourced and in-house personnel and other costs related to consumer support and a $2.0 million decrease in fulfillment costs for certain solutions provided to customers under our pharma manufacturer solutions offering.
Product development and technology
Product development and technology expenses are primarily driven by changes in headcount and investments to support and develop our various products. We capitalize certain qualified costs related to the development of internal-use software, which may cause product development and technology expenses to vary from period to period.
Product development and technology expenses decreased $7.3 million, or 5%, year-over-year, primarily driven by a $14.7 million decrease in payroll and related costs largely due to higher capitalization of certain qualified costs related to the development of internal-use software and lower average headcount. The impact from these drivers was partially offset by a $8.0 million loss on the disposal of certain capitalized software that were not yet ready for their intended use, principally in connection with the Restructuring Plan.
Sales and marketing
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. We continuously evaluate the impact of sales and marketing activities on our business and actively manage our sales and marketing spend, including investment in consumer acquisition, which is largely variable, as market and business conditions change.
Sales and marketing expenses decreased $16.3 million, or 5%, year-over-year primarily driven by a $27.5 million decrease in advertising expenses as we proactively managed our spend to better align with our strategic goals, partially offset by a $10.7 million increase in third-party marketing and related support services.
General and administrative
General and administrative expenses are primarily driven by changes in headcount and investments to support our compliance and reporting obligations as a public company. General and administrative expenses may vary from period to period based on the timing and extent of business mergers, acquisitions and dispositions, to support our organic growth, and financing activities. Impairments and disposals of long-lived assets may also cause general and administrative expenses to fluctuate period to period.
General and administrative expenses decreased $19.3 million, or 13%, year-over-year, primarily driven by a $24.0 million decrease in stock-based compensation expense related to the equity granted to our Co-Founders in 2020 (the "Founders Awards") and costs incurred in 2022 that did not recur in 2023, including a $18.1 million loss from the change in fair value of contingent consideration and a $11.3 million loss related to the impairment of an operating lease asset, partially offset by a $11.4 million pre-tax gain from the sale of certain technology assets of GoodRx Care, LLC, our telehealth platform business. The year-over-year impact from these drivers was partially offset by a $20.1 million increase in payroll and related expenses principally due to increased equity grants to existing employees in 2023 relative to 2022 as well as a stock option award granted to our Interim Chief Executive Officer in the second quarter of 2023 with a grant-date fair value of $9.6 million that vests in twelve equal monthly installments through April 2024.
Depreciation and amortization
Our depreciation and amortization changes primarily based on changes in our property and equipment, intangible assets, and capitalized software balances and estimates of useful lives.
Depreciation and amortization expenses increased $53.5 million, or 99%, year-over-year, primarily driven by $46.7 million of amortization related to certain intangible assets in connection with the Restructuring Plan, which have been accelerated through December 31, 2023, the date the Restructuring Plan was substantially complete. The year-over-year
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change in depreciation and amortization was further driven by higher amortization related to capitalized software due to higher capitalized costs for platform improvements and the introduction of new products and features.
Other Expense
Other expense increased by $4.0 million year-over-year, due to an impairment loss on one of our minority equity interest investments.
Interest Income
Interest income increased by $22.9 million year-over-year primarily due to higher interest rates earned on cash equivalents held in U.S. treasury securities money market funds.
Interest Expense
Interest expense increased by $22.5 million, or 66%, year-over-year, primarily due to higher interest rates partially offset by lower average debt balances.
Income Taxes
In 2023, we had an income tax benefit of $46.7 million compared to an income tax expense of $9.6 million in 2022 and an effective income tax rate of 84.0% and (41.3%), respectively. The year-over-year change in our income taxes was primarily due to the tax benefit from the release of our valuation allowance against our beginning of the year net deferred tax assets in excess of tax amortizable goodwill, partially offset by a decrease in our U.S. federal and state research and development tax credits. For information regarding our valuation allowance analysis, see Part II, Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates— Income Taxes—Valuation of Deferred Tax Assets" and Note 11 in the notes to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Liquidity and Capital Resources
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 principal sources of liquidity are our cash and cash equivalents and borrowings available under our $100.0 million secured revolving credit facility which expires on October 11, 2024. As of December 31, 2023, we had cash and cash equivalents of $672.3 million and $90.8 million available under our revolving credit facility. For additional information regarding our revolving credit facility and our term loan, see Note 12 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Our primary short-term and long-term requirements for liquidity and capital are to finance working capital including our noncancelable operating lease obligations, interest and principal payments related to our outstanding debt arrangements, share repurchases, capital expenditures, general corporate purposes, and business acquisitions and investments we may make from time to time.
Based on our current conditions, we believe that our net cash provided by operating activities and cash on hand will be adequate to meet our operating, investing and financing needs for at least the next twelve months from the date of the issuance of our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K. Our future capital requirements will depend on many factors, including the growth of our business, the timing and extent of investments, sales and marketing activities, and many other factors as described in Part I, Item 1A, “Risk Factors.” For additional information regarding our cash requirements from noncancelable operating lease obligations, terms and commitments under our debt arrangements including our term loan and revolving credit facility, and other commitments and contingencies, see Note 10, Note 12 and Note 13 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K, respectively.
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 current economic uncertainty, including rising inflation and socio-political events, has resulted in, and may continue to result in, significant disruption of global financial markets, including rising interest rates, 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.
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Holding Company Status
GoodRx Holdings, Inc. is a holding company that does not conduct any business operations of its own. As a result, GoodRx Holdings, Inc. is largely dependent upon cash distributions and other transfers from its subsidiaries to meet its obligations and to make future dividend payments, if any. Our existing debt arrangements contain 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 our debt arrangements as of December 31, 2023. 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 Note 18 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for condensed parent company financial information of GoodRx Holdings, Inc.
Cash Flows
Year Ended December 31,
(in thousands) 2023 2022
Net cash provided by operating activities $ 138,292 $ 146,780
Net cash used in investing activities (55,766) (210,498)
Net cash used in financing activities (167,395) (120,226)
Net change in cash and cash equivalents $ (84,869) $ (183,944)
Net cash provided by operating activities
Net cash provided by operating activities consists of net loss adjusted for certain non-cash items and changes in assets and liabilities. The $8.5 million decrease in net cash provided by operations in 2023 compared to 2022 was due to $24.0 million decrease in net loss, offset by a decrease of $30.8 million in non-cash adjustments and an increase of $1.6 million in cash outflow from changes in operating assets and liabilities. The net decrease in non-cash adjustments was primarily driven by changes in deferred income tax year-over-year as a result of the release of our valuation allowance in 2023, a year-over-year decrease in stock-based compensation expense due to the Founders Awards and a decrease in the change in fair value of contingent consideration that was recognized in 2022. The impact from these drivers was partially offset by an increase in depreciation and amortization due to amortization of certain intangible assets that were accelerated in 2023 and losses on the disposal of capitalized software that were not yet ready for their intended use as a result of the Restructuring Plan, as well as related to an impairment of a minority equity interest investment. The changes in operating assets and liabilities were primarily driven by the timing of income tax payments and refunds, as well as by the timing of payments of accounts payable and accrued expenses and collections of accounts receivable.
Net cash used in investing activities
Net cash used in investing activities primarily consists of cash used for software development costs, capital expenditures, and acquisitions and investments that we may make from time to time. The $154.7 million decrease in net cash used in investing activities in 2023 compared to 2022 was primarily related to a $171.9 million decrease in cash paid for acquisition of businesses and minority equity interest investments in privately-held companies, partially offset by a $16.6 million decrease in proceeds from the sale of certain technology assets of GoodRx Care.
Net cash used in financing activities
Net cash used in financing activities primarily consists of payments related to our debt arrangements, repurchases of our Class A common stock, and net share settlement of equity awards, partially offset by proceeds from employees' exercise of stock options and from our employee stock purchase plan. The $47.2 million increase in net cash used in financing activities in 2023 compared to 2022 was primarily related to an increase of $44.8 million for payments related to net share settlement of equity awards, of which $44.5 million related to the Founders Awards, and a decrease of $3.2 million of proceeds from the exercise of stock options.
Recent Accounting Pronouncements
See Note 2 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further information on certain accounting standards adopted in 2023 and recent accounting announcements that have not yet been required to be implemented and may be applicable to our future operations.
Critical Accounting Policies and Estimates
Our audited consolidated financial statements and the related notes thereto included elsewhere in this Annual Report on Form 10-K are prepared in accordance with GAAP. The preparation of consolidated financial statements also requires us to
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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. An accounting policy is deemed critical if it is both important to the portrayal of our financial condition and results and requires us to make difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain. An accounting estimate is deemed critical where the nature of the estimate is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change, and the impact of the estimate on our financial condition or operating performance is material. We believe that the accounting policies described below involve a significant degree of judgment and complexity. Accordingly, we believe these are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations. For further information of the below critical accounting policies and estimates and our other significant accounting policies, see Note 2 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Revenue Recognition
Revenue recognition represents an important accounting policy to the understanding of our financial condition and results of operations. Our revenue recognition does not involve any critical accounting estimates. For information regarding our revenue recognition accounting policy, see Note 2 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Business Combinations
We recognize tangible and intangible assets acquired and liabilities assumed in a business combination at fair value at the acquisition date in accordance with Accounting Standards Codification 805, Business Combinations . Any excess consideration over the fair value of assets acquired and liabilities assumed is recognized as goodwill. Contingent consideration arising from a business combination, if any, is included as part of purchase consideration and recognized at fair value as of the acquisition date. Contingent consideration arrangements are remeasured to fair value at each reporting period subsequent to the acquisition date until the contingency is resolved.
The valuations of intangible assets and contingent consideration use different valuation methods depending on the asset acquired and underlying nature of the contingency and may include significant estimates and judgments. Our critical accounting estimates are primarily those relating to forecasts of revenue and margins and estimates of royalty and discount rates, as applicable, used in the valuation of developed technology and customer relationships intangible assets and the contingent consideration receivable.
For developed technology and customer relationships intangible assets, our revenue and margin forecasts include assumptions about future industry conditions, macroeconomic events, our ability to renew contracts in a competitive bidding process including the necessary resources and investments to support these contracts, among other factors. The discount rates focus on rates of return for equity and debt and are calculated using public information from selected guideline companies. The magnitude of the discount rates reflects the perceived risk of each investment, which requires significant judgment. A change in the estimated risk of the acquired companies' cash flows would change the discount rates applied, which in turn could significantly affect the valuation of our acquired developed technology and customer relationships intangible assets.
For certain acquisitions, the fair value of developed technology is estimated using the relief-from-royalty method, an income approach which estimates the cost savings that accrue to the owner of the intangible assets that would otherwise be payable as royalties or license fees on revenues earned through the use of the asset. A royalty rate is applied to the projected revenues associated with the intangible asset to determine the amount of savings and requires significant judgment. Our estimates of the royalty rates are based on comparable licensing agreements in the market. A change in the royalty rate selected could significantly affect the valuation of our acquired developed technology intangible asset.
In 2022, we acquired vitaCare which included a contingent consideration receivable. For the contingent consideration receivable at the acquisition date, our revenue forecasts include assumptions relating to the fair value of services expected to be provided to the seller which includes specific assumptions about the seller’s ability to continue to order such services given the seller’s liquidity position, among other macroeconomic and industry factors. The discount rate focuses on the level of risk of achievement of the forecasts and the credit and financial stability of the seller including its financial wherewithal for future payment of the receivable, which requires significant judgment. A change in the seller's liquidity position and future outlook would change the revenue forecasts and discount rate applied and our estimate of the realizability of the contingent consideration receivable, which in turn would affect the valuation of the contingent consideration receivable.
As described in Note 3 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K, the contingency associated with the vitaCare contingent consideration receivable was resolved in the year of acquisition which reduced its fair value to zero. As a result, the remeasurement of the contingent consideration receivable to fair value at December 31, 2022 was no longer a critical accounting estimate.
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Income Taxes—Valuation of Deferred Tax Assets
Deferred tax assets represent amounts available to reduce income taxes payable on taxable income in future years. Such assets arise because of temporary differences between the financial reporting and tax basis of assets and liabilities, as well as from net operating losses and tax credits. We evaluate the recoverability of deferred tax assets by assessing all available evidence, both positive and negative, to determine whether, based on the weight of that evidence, a valuation allowance for deferred tax assets is needed. A valuation allowance is established if it is more likely than not that all or a portion of deferred tax assets will not be realized. The determination of whether a valuation allowance should be established, as well as the amount of such allowance, requires significant judgment and estimates, including estimates of future earnings. Accordingly, the valuation of our net deferred tax assets is a critical accounting estimate.
In evaluating the realizability of our net deferred tax assets, we perform an assessment each reporting period of both positive and negative evidence. As of December 31, 2022 and 2021, we maintained a full valuation allowance against our net deferred tax assets in excess of amortizable goodwill as the objectively verifiable negative evidence outweighed the positive evidence. We determined it was more likely than not that our deferred tax assets would not be realized. Objectively verifiable negative evidence at the time primarily included (i) the existence of fiscal and trailing three-year cumulative tax losses (pre-tax earnings or losses adjusted for permanent book to tax differences) principally generated in 2021 and 2020; and (ii) the existence of substantial stock options granted prior to our initial public offering ("IPO") that remain outstanding. The tax losses in 2021 and 2020 were attributable to substantial excess tax benefits realized from the exercise of stock options granted prior to our IPO. Stock options granted prior to our IPO contained substantially lower exercise prices compared to the closing prices of our Class A common stock as reported on the Nasdaq Global Select Market in 2021 and 2020, which when exercised, resulted in significant excess tax benefits to us. In 2022 and 2023, the excess tax benefits realized substantially decreased relative to 2021 and 2020 due to a decline in the closing prices of our Class A common stock. Accordingly, relative to 2021, the weight of the negative evidence related to substantial excess tax benefits to be realized in future tax periods declined in recent periods.
In 2023, positive evidence reviewed included sustained tax profitability (pre-tax earnings or losses adjusted for permanent book to tax differences), which was objective and verifiable, and anticipated future earnings. The sustained trend of tax profitability realized began in 2022 and continued through the end of 2023. Additional positive evidence reviewed included (i) stock options granted that will expire 10 years from the date of grant if unexercised; and (ii) an indefinite carryforward period for certain deferred tax assets. Although we still have a significant number of outstanding stock options granted prior to our IPO available to be exercised in future tax periods, which may generate incremental excess tax benefits if they are exercised, the degree of excess tax benefits that will be realized in the future will depend on many factors outside of our control, including the closing prices of our Class A common stock in the future and stock option exercises being initiated by employees. Further, we have granted additional equity awards to our employees since our IPO at various closing prices of our Class A common stock which when vested or exercised, could offset, partially offset or supplement the incremental excess tax benefits to be realized from the exercise of stock options granted prior to our IPO in future tax periods.
We apply judgment to consider the relative impact of negative and positive evidence and the weight given to negative and positive evidence is commensurate with the extent to which such evidence can be objectively verified. Based on our evaluation of all available positive and negative evidence, and by placing greater weight on the sustained tax profitability achieved since 2022, which was objectively verifiable, and anticipated future earnings, we believed that a valuation allowance against the majority of our net deferred tax assets was no longer required and released $54.6 million of our valuation allowance as an income tax benefit during 2023. As of December 31, 2023, we continue to believe that our net deferred taxes with the exception of certain standalone tax filings' net deferred tax assets will be realized. Our judgment regarding the need for a valuation allowance may reasonably change in future reporting periods due to many factors, including changes in the level of tax profitability that we achieve, changes in tax laws or regulations, and price fluctuations of our Class A common stock and its related future tax effects from our outstanding equity awards.
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