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spk08: Good afternoon, and thank you for joining us on today's conference call to discuss HIMSS and HERS Health, Inc. first quarter 2021 financial results. Joining me on the call are Andrew Dudum, our Chief Executive Officer, and Spencer Lee, our Chief Financial Officer. On this call, we will be making forward-looking statements, including financial guidance and expectations for our second quarter in fiscal year 2021 growth, expansion into new categories, strategies, customer demand, and products. These statements reflect our best judgment based on factors currently known to us, and actual events or results may differ materially. Please refer to documents that we file with the SEC, including the Form 8-K filled with today's press release. Those documents contain risks and other factors that may cause our actual results to differ from those contained in our forward-looking statements. These forward-looking statements are being made as of today and we will disclaim any obligation to update or revise these statements. If this call is reviewed after today, the information presented during this call may not be current or accurate. We will also discuss non-GAAP financial measures which are not prepared in accordance with generally accepted accounting principles. For historical periods, a reconciliation of GAAP and non-GAAP results is provided in the press release filed today with the SEC on an 8K and also available on our website. And with that, I'll now turn it over to Andrew Dudum.
spk04: Welcome, and thank you all for joining our first quarter earnings call. Simply put, 2021 is off to an incredible start. Our mission is clear, to make the highest quality personalized healthcare accessible to everyone. We started this year helping more consumers across more conditions than ever before, and the results speak for themselves. Across the board, we exceeded our guidance with the revenue coming in at over 52 million, representing 74% year-over-year growth, and adjusted EBITDA coming in at a loss of 8.6 million, ahead of our guidance range. We also maintained our gross margin of 77%, which remains our highest in any historical quarter. This outperformance across the spectrum was driven by continued, robust growth in our core HIMSS categories, as well as accelerated strength of our HERS brand and across all of our emerging categories. These numbers underpin what I continue to believe is an exceptionally rare opportunity in the public markets. a business that combines a massive multi-generational vision, significant tailwinds, and present-day core fundamentals of robust, diversified growth and efficiency. The truth is we're doing things differently, and it's a real, durable, competitive advantage. We are meeting this younger generation, especially millennials and Gen Z, where they are, building a brand and set of experiences that they love, and leveraging deep consumer expertise and insights to build lasting relationships with the most digitally native generation in the country, the future of the health system, the consumers that matter most. And key to it all, personalization. Tims and Herbs helps consumers develop a healthcare plan of action that is tailored to the exact needs of each individual across a broad range of their conditions and preferences. We believe personalized medicine focused on the consumer is something that's really never been done before at anywhere near this level of reach. And our focus on personalized access is working. In the last year, people's understanding of telehealth has dramatically accelerated. And while many have experienced the simplicity and ease of virtual care, there have been questions as to whether or not the post-COVID environment will drive a shift back to in-person. For our customers and our audiences, the answer appears clear. Last quarter, we added more new subscriptions than any quarter in the company's history, growing subscriptions nearly 80% year over year. For the generation who grew up with cell phones in their hands, the traditional healthcare approach is a way of the past, and we believe hims and hers is the future. Our personalized approach to building a unified and fully verticalized front door to healthcare has served us well in continuing to differentiate and build moats in the landscape. Offering a single destination for personally tailored digital health and wellness, we continue to gain economic advantages and deeper, more valuable customer relationships that are quickly driving real economics. This quarter, our gross profit grew 95% year over year. Despite the historic magnitude of investment in the last 12 months in this sector, our team's execution and our defensible approach continued to drive efficiency throughout the business. And most excitingly, in this last quarter, adoption of new product lines were some of the fastest-growing categories in our business, with revenue from HERS Dermatology, part of an estimated $44 billion market, more than doubling quarter over quarter. As the US healthcare system continues to move towards digital experiences like ours, we will be uniquely positioned to continue capitalizing on expansion, serving more customers in more conditions. Our team's ability to meet this younger generation where they are and deliver a brand and consumer experience that wows our customers will continue to prove a strong competitive advantage in our vertical by vertical expansion strategy. As we progress in our goal to be one of the most transformative digital health companies of the next generation, we continue to remind ourselves that the future is just around the corner. We are leaders who are constantly anticipating what's next, and it has served us well. As such, we've invested a tremendous amount of time in Q1 prioritizing initiatives we believe will deepen our capabilities and entrench our competitive moats in the years to come. The two largest areas of investment have been in our future mobile platform and insurance. Let me tell you a little bit about both. Today, we have hundreds of thousands of subscriptions on the platform, with almost all platform engagement taking place via mobile devices. What comes next for hims and hers is a completely rethought mobile offering, native to iOS and Android, that will act as the future front door to all of our healthcare needs. This platform will showcase the breadth of what our customers are getting as part of the end-to-end Tims and Hers experience. And here again, personalized consumer health will be at the center, stretching across primary care to content, guided programs, community, and commerce. While still early in our development and design phase, what's clear is what we are building looks like nothing ever offered in healthcare. a single entry point into a beautiful healthcare world, simplifying the complexity of feeling great and being well. In parallel, our team has also begun the work to unlock the power of insurance reimbursement as part of the Hims and Hers platform. This is a key component to affordability for certain types of care and patient populations, which is core to our mission of expanding access for everyone. A first step in this initiative was opening our affiliated pharmacy, building the last verticalized component to our supply chain. From lab testing to behavioral health and more, we see exciting opportunities to facilitate more affordable access and comprehensive care for our customers via insurance. While early in development, we believe these capabilities will serve our customers well in the years to come. We are a company passionate about building the future of healthcare. We pride ourselves on being visionary in our sector, sustaining consistent execution and delivering growth, and I feel this quarter is highly reflective of our ability to be the leader in this space. We are at the forefront of transforming an industry that we all so desperately rely upon. I'm proud of the results we have shared with you today and our team's dedication to our mission. At this point, I will now turn the call over to Spencer for a more detailed review of our results, followed up by Q&As. As a result of an imminently arriving firstborn son, I've prerecorded this message and look forward to following up with many of you in the coming days.
spk07: Thank you, Andrew. I'm pleased to report our incredibly strong performance in Q1. I'll walk through the details behind our performance and then provide our guidance for Q2 and our revised upwards revenue guidance for the full year. First, let's jump into the Q1 results. In Q1, we generated revenues of $52.3 million, which increased 74% year-over-year and exceeded the high end of our Q1 revenue guidance of $50 million. Growth was driven by strong performance across the entire business from all categories. We delivered on growth in new customer acquisition, continued improvements in customer retention, and continued expansion of average order values. In Q1, we generated 687,000 net orders, which grew 26% year-over-year. Growth in net orders was primarily driven by growth in subscriptions. We ended the quarter with 391,000 subscriptions on the platform, which increased 79% year-over-year, versus 218,000 subscriptions in the year-ago quarter. Subscription growth was driven by both strong new subscriber acquisition and improving retention of existing subscribers. Average order value, or AOV, in Q1 was $74, which increased 42% year over year. AOV has increased for the past nine consecutive quarters as we continue to drive an increased mix of subscriptions towards higher-priced product bundles and multi-month subscriptions. Our revenue performance in Q1 highlights multiple areas of strength in our business, our large and growing addressable markets, strong consumer demand driven by our uniquely positioned brand and clear cash pay value proposition, and our ability to drive growth by increasing subscriber lifetime values. In Q1, we saw the continued rotation in our subscription base into multi-month subscriptions and higher AOV net orders. As this rotation took place throughout 2020, we saw strong sequential growth in AOVs last year offset relatively flat net orders as the mix of multi-month net orders increased throughout the year. However, as we enter our second full year of this rotation, in Q1, we saw strong year-over-year growth across all dimensions, in net orders up 26%, in AOV up 42%, in subscriptions up 79%, and ultimately in revenue up 74%, all contributing to and positively driving growth. In Q1, we generated a 77% gross margin of 800 basis points versus 69% in the year-ago quarter. The combination of strong revenue growth and expanding gross margins compounded to generate even faster gross profit growth, up 95% year-over-year. Our focus over the last two years on expanding unit economics and increasing subscriber lifetime values has not only driven rapid revenue growth, but also year-over-year gross margin expansion at the same time. We've been able to meaningfully expand margins and accelerate gross profit generation because the fundamental quality of our revenue is improving. As we improved and expanded our product offerings, we were able to reach and target higher value customers. We've been able to validate higher value customers through their uptake of higher AOV and higher margin product bundles and multi-month subscriptions. Not only are newer subscribers spending more with us than previous subscribers, but they also have higher retention, which means they are generating more revenue during their lifetimes. all of which generates increased cost leverage from our product costs, provider costs, and shipping costs, thus leading to a combination of strong revenue growth and expanding gross margins. Our Q1 adjusted EBITDA loss of $8.6 million increased versus a $4.6 million loss in the year-ago quarter and outperformed our Q1 adjusted EBITDA loss guidance of $9.5 to $11.5 million. We were able to outperform our adjusted EBITDA guidance while also exceeding our revenue guidance because we drove numerous operational efficiencies in the quarter. First, we successfully drove increased customer conversion rates through onsite and customer experience optimizations. Second, we increased retention rates through improved customer experience and lifecycle management. And finally, AOVs continued to expand as we drove increased uptake of higher-priced product bundles and multi-month subscriptions. The combined efforts across the organization drove strong outperformance on both the top and bottom line. Before I move on to discuss financial guidance, I wanted to touch briefly on the recent pronouncements by the SEC on warrant accounting related to SPACs. In April, the SEC issued a statement on the various accounting considerations for SPAC warrants with respect to liability versus equity classification. Up until that point, almost all SPACs had classified their warrants as equity, including Oak Tree Acquisition Corp. Consistent with the SEC's guidance, for Q1, we booked a $33 million liability on our balance sheet related to warrants that were issued by Oak Tree Acquisition Corp prior to the merger with HIMSS. We also booked a $2.7 million expense in Q1 in other expenses related to the mark-to-market liability accounting for all of our liability classified warrants. Going forward, we will continue to mark-to-market outstanding warrants and will reflect any changes as other expense or other income in the period. Additionally, we decided to restate Oak Tree Acquisition Corp's historical financial statements to classify the warrants as liabilities. This included amending and restating the 10-K filed by him and hers in March to correct Oak Tree's historical financial statements. The amended 10-K was recently filed with the SEC. Now moving on to financial guidance. For Q2 2021, we are guiding the revenues of $55 to $57 million and an adjusted EBITDA loss of $10 to $12 million. For the full year 2021, we are raising our revenue guidance to a range of $221 to $227 million, an increase of $24 million at the midpoint versus our previous guidance. We are maintaining our guidance for adjusted EBITDA losses of $35 to $45 million for the year. To provide some additional color on how we are thinking about revenue for the rest of the year, our current internal financial forecast has Q4 revenues roughly in line with Q3. So with Q1 revenues this year at $52 million and the midpoint of our Q2 guidance at $56 million, if you take the midpoint of our full-year guidance at $224 million, that implies $58 million per quarter in Q3 and Q4 at the midpoint. As we discussed on our last call and similar to the guidance we provided for Q1, as a young and newly public company, we intend to provide guidance that we are confident in our ability to achieve. based on the current data points we see in the business. As new data points become available, we will continue to update investors in the coming quarters. Finally, I just want to note in Q1, we incurred stock-based compensation expenses of $34 million, largely driven by the merger transaction in January. This was near the midpoint of the guidance we provided on our previous call. In Q2, we expect stock-based compensation to return to a more normalized level of between $9 and $11 million. We are exceptionally pleased with the results we were able to deliver in Q1. Our Q1 performance really highlights the core strengths of our business. Our large markets where we treat conditions that consumers really personally care about, a brand that can uniquely harness this deep consumer demand, our offerings and clear value proposition that resonate with consumers, which drive our ability to grow AOVs, net orders, subscriptions, and gross margins all simultaneously. We continue to see strong investment opportunities ahead, which give us the confidence to increase our full-year revenue guidance at both ends of the range, now representing year-over-year growth rates of 49% to 53% for 2021, substantially ahead of the 30% guidance we provided in our public investor presentation last summer. We continue to be disciplined and return driven with our capital deployment. We continue to be prudent and focused on driving growth at high rates of return. And I look forward to updating you on our performance in the second half of this year. I want to thank our team for their incredible execution last quarter, all while managing the difficult transition into a public company. It's really special to watch the dedication and tremendous talent of our people that allow our company to deliver these types of results. I'm proud to share these results on your behalf. With that, we can open the call to questions. Operator?
spk08: At this time, I'd like to remind you, if you would like to ask a question, please press star, then the number one on your telephone keypad. Again, to ask a question, hit a star, then the number one. We'll pause for just a moment to compile the Q&A roster. Your first question is from the line of Daniel Grosslight with Citi.
spk05: Hey, Spencer, congrats on the quarter and congrats to Andrew on his expanding family. Can you drill in a little deeper into the revenue beat this quarter and your revenue guide up? What's really exceeding your expectations? Is it subscriptions, AOV? Help us think through those components and really on the top line this year and on that $24 million guidance revision up on top line, why aren't you assuming any incremental EBITDA comes through?
spk07: Hey, Daniel. Yeah, sure thing. So first, in terms of understanding our growth forecast and the beat for Q1, I think it's Yeah, obviously it's important to understand the execution in Q1. So in Q1, we worked really hard on a number of initiatives that fundamentally increased our conversion rates and retention rates, while also continuing to expand AOVs and sustaining our high gross margins. Our business now is just fundamentally a better business today, which gives us the confidence to increase our full year guidance by 24 million at the midpoint. Now, on top of this just fundamentally better business that we have today, we've taken the metrics that we currently see in Q2, and if you run rate those forward, that gives us a high level of confidence in our ability to achieve the Q2 guidance we provided of 55 to 57 million, which is nearly 60% year-over-year growth on the high end of that range. Now, there are obviously a number of new initiatives and business levers we're still working on today. And similar to the guidance we provided in Q1, we'll continue to update investors as we execute on these new initiatives, but we won't bake them into the guidance. And so we've got a high level of confidence in our ability to hit the guidance that we've provided off the backdrop of this work that we did in Q1 that just fundamentally built a better foundation for the overall business. And now, with respect to our EBITDA guidance in light of the raise on the revenue side, overall, we're seeing really great opportunities to invest in growth for context in Q1. If you take our marketing expenses and exclude stock-based comp, our marketing expenses in Q1 increased by about $6 million versus Q4, but revenues increased by $11 million. And again, we're guiding to an additional $24 million in revenue at the midpoint of our guidance. So, you know, we're really happy with the performance and efficiency we're driving through our marketing channels. And with respect to the EBITDA guidance itself, I mean, frankly, we want to preserve our ability to be aggressive when we see really great growth investment opportunities versus having to come back, you know, next quarter or the quarter after to have to explain anything. And honestly, that's the underlying thinking in keeping our full-year Eat the Dog guidance the same, is just to preserve that flexibility to invest when we see opportunities.
spk05: Got it. Okay. And maybe that's a good segue to my follow-up. Can you talk about the rates you're seeing out of your direct response marketing channels and unit economics this quarter? Can you give an update on LTV to CAC? And have you had to shift your customer acquisition strategy at all, particularly in some of the more competitive and faster-growing segments?
spk07: Sure. So with respect to ad rates, in our largest channels in Q1, we actually saw ad rates overall in the quarter decline slightly versus Q4. Although over the course of the quarter in March, we actually saw rates come back to Q4 levels, if not even slightly higher. And so I think with respect to sort of the marketing side of the equation, what was really special about our execution in Q1 was the fact that we were able to increase our marketing expenses, if you exclude stock-based comp, by about 30% quarter over quarter, but new subscriber tax actually decreased. So to repeat, tax in Q1 decreased were lower than what they were in Q4, despite really increasing our marketing budget on a quarter-over-quarter basis. now it's really difficult to materially scale marketing without tax increasing right when you grow traffic you know at the margins you're generally driving incrementally lower intent traffic so what you have to do is fundamentally improve the platform to better capture that demand and increase conversion rates just to keep tax flat you know let alone have them decline And that's exactly what we did in Q1. We materially improved multiple facets of the platform that increased conversion while we also scaled marketing, which means we were able to drive more new subscribers at lower tax. And as a result in Q1, we were able to drive the most new subscribers in the company's history. And again, it's these types of fundamental improvements on the platform that's giving us the confidence to increase our full-year guidance by $24 million at the midpoint. The other side of the equation on the LTV side, we also did a bunch of work on the retention side, and we saw retention continue to improve and LTVs continue to expand. So that unit economic equation for us continues to get better, is allowing us to expand. continued to invest aggressively in growth, where again, we were able to deliver a quarter where we increased marketing by $6 million, again, excluding stock-based comp in Q1, but we're able to grow revenues by $11 million in the same quarter.
spk05: Got it. Thank you.
spk08: Your next question is from the line of Sean Wieland with Piper Sandler.
spk01: Thanks so much. And let me add my congrats to Andrew on the birth of his baby. Has he had it yet?
spk07: Yeah. He had the kid over, I think, over this weekend. So, you know, big congratulations to the entire Budum family. A boy or a girl? Little boy.
spk01: A little boy. Well, congratulations, Andrew. I hope you're not listening. So my question, you mentioned in your prepared remarks, new subscribers, you're seeing a higher value customer with higher retention, which doesn't really align with my thinking when you're talking about subscriber CAC decreasing. So it's impressive that dynamic going on. I'd like to better understand that a little bit.
spk07: Yeah. So on the LTV side, what I can say is that versus last year, AOVs are up materially, gross margins are up, retention is up, so LTV is up. And I think it's just been our intense focus on the customer experience side of producing a really the most easy, convenient, flexible platform for customers to get the treatment that they need, providing an array of treatment options where any customer can find the exact right treatment plan best suited for them to treat the condition that they're seeking. And so all of this work, and even on the conversion side, right, just building a continuously more engaging platform that allows more customers to convert into a subscription plan despite continuing to grow the amount of traffic that we're bringing to the platform, you know, it's really that intense focus of execution. You know, it's where we've been focused, you know, over the last, you know, last quarter, certainly, and all of last year. And so, you know, we've been successful in expanding LTVs through that execution. on the tax side of the equation, I mean, it kind of comes from the same place, right? Where as we continue to invest in the platform, make it more engaging, make it more relevant, make the experience better. What we're seeing is that we're able to convert more of that traffic that's getting to the platform And with the higher conversion rate, that will bring down tax over time. So it's that truly focused execution, really through the lens of just customer experience, that's allowed us to increase the numerator and decrease the denominator at the same time.
spk01: Okay, so there hasn't been any shift in channels that you're pursuing or really a definitive change in a marketing strategy?
spk07: No, I mean, it's been relatively consistent in terms of where we're deploying capital.
spk01: Okay. And then just one more question. Just the cadence of the guidance that you gave on revenue throughout the rest of the year, I guess, what are the inputs into that that are driving the big step up into Q3 and then that, I'm sorry, into Q2, and then kind of flat sequentially in the back half?
spk07: Yeah. So I think what we're seeing right now in terms of the core revenue drivers, on the AOV side, we expect AOVs to sequentially increase through to the end of the year, but at a not as steep a rate, if that makes sense. So we expect AOVs to exit this year kind of in the mid-70s, call it in the $75, $76, $77 range. 74 in Q1. The offset on that on the growth side, obviously, is continued growth in net orders. So we expect net orders to continue to grow here sequentially over the next couple quarters, with right now Q4 maybe being roughly in line with Q3 from a net order perspective. largely driven by, you know, I think we've got, you know, sort of two relevant years of historical data in terms of, you know, Q3 and Q4 and what that seasonal dynamic might look like. And, you know, I have an abundance of caution based on sort of the most recent data point we had last year. You know, we're driving our internal forecast right now as having Q4, you know, roughly in line with Q3. Got it. Thanks so much.
spk08: Your next question is from the line of Jay Linder Singh with Credit Suisse.
spk03: Thanks, and congrats, Andrew, on the new addition to your family. Spencer, I was wondering if you look at your 2021 revenue guidance of $221 million, $227 million. You're almost at the $233 million the company had for 2022 when you did the de-SPAC process. I know you're talking about various initiatives and you have been putting in place. Just trying to understand, if you had to highlight some one or two key drivers you have seen over the past six months or initiatives you have put in place that you are trending well ahead of your expectations you had at the D-SPAC process. And keeping that in mind, all the momentum you had in 2021, when we think about the business longer term, What would you say that in terms of these initiatives having long term implications on the business for more sustainable growth rate going forward?
spk07: Sure. So, I mean, that's a really good point, Jalindra. So, you know, last summer when we had provided investors a forecast for 2021 and 2022, we had provided a forecast for 2022 of $233 million in revenue. And at the high end of our current guidance, we're already guiding to $227 million in revenue. So we're pretty close to the guidance we provided in 2022 just last summer. And so effectively, you know, we've packed two years of execution into 12 months, right? So we've really accelerated things. And, you know, that execution I characterized in 2021 as, you know, not a continuation of the continued focus and execution that you've seen out of the business over the last couple years, right? You know, the intense focus around just building relationships an amazing customer experience, a super engaging customer experience that people love and that people are seeking in terms of how they want to consume healthcare, particularly for this new generation of technology-first, mobile-first consumers. And I think you've really seen that come through in the metrics in Q1 with improved retention rates, improved conversion rates, and just us continuing to deliver higher margin, higher LTV customers. And I think that work is very foundational. This is building a business whose fundamental economics, whose fundamental performance has improved over time. So as we launch new products, and expand into new categories, you know, all of those new products and categories are being launched against and built on top of this, you know, just fundamentally, foundationally better business. I think the second side of it is our continued launch of new products, right? You know, as Andrew mentioned, we're seeing really strong performance on the HR side with, you know, the largest categories more than doubling on a quarter-over-quarter basis in Q1. Behavioral health continues to perform really well, and we are seeing great positive early signs in that business and are optimistic about its performance. And even all of these newer categories, the strength that we're seeing there has given us the additional confidence of taking up our guidance for the remainder of this year. And on a longer-term basis, I think all of this is just a continuation of the same trend. We've got really exciting new categories that are growing quickly, which should continue to be accretive to growth in the long term. We've got this really solid foundation and this platform. of a business that continues to be better at capturing demand, converting demand, and retaining customers. And going forward, as we continue to launch into new products and categories, all of this combined we think is a fantastic foundation to continue to drive growth into the foreseeable future.
spk03: So just to make sure I kind of make sure I understand. So you are not saying that there was anything in 2021. We will say that cannot be, will not repeat next year because some of the people, some investors think that there could be some COVID-related tailwinds in your business. That's probably not the case here. And all the initiatives and benefit you are seeing in 2021 can very well, will likely repeat again in the future period, right?
spk07: Yeah, I would say the guidance that we're providing for 2021 is being driven by the execution and the metrics we're seeing in the company. With respect to COVID, I think if you look at our performance historically over the last several years, we were delivering consistent sequential growth before COVID. We were delivering consistent sequential growth through COVID. And now we're providing guidance of consistent sequential growth after COVID. And we're not seeing anything in the business that suggests any kind of secular slowdown driven in the business this year as a result of COVID. And I think our guidance really supports this view. If you think about our go-to-market strategy, I mean, from day one, right, our audience has been this digitally native, mobile-first, younger demographic. Now, this audience wasn't switching from brick and mortar to telemedicine because of the pandemic, because they were kind of never at brick and mortar to begin with. So unlike other companies that may have benefited from some kind of switching behavior, our audience didn't really get any bigger because of COVID. 80% of our customers were already telling us, that they were purchasing the medication for the first time from us. So our opportunity has always been around, you know, our ability to harness the enormous demand from this digitally native audience and provide an amazing experience to them. And I think our Q and results and our guidance suggest that, you know, this opportunity continues to be massive for us.
spk03: Great. And a quick follow-up on, you talked about kind of favorable trends retention rate just wondering if you can provide some more color like where was your monthly churn rate trend in the quarter how did it compare compared to the churn rate trend at mid single digit you talked about in fourth quarter and what were the key drivers there and what are you assuming in your outlook with respect to the churn rate trends for rest of 2021 yep
spk07: So monthly turn in Q1 decreased versus Q4. And I characterize the monthly turn rate in Q1 as still in the mid single digits. You know, we expect churn to continue to decrease over time as an increasing percent of our subscriptions are repeat customers versus new subscribers. And that's continued to play out, you know, over the last several quarters. With respect to the guidance that we provided for the year, and, you know, like I previously mentioned, you know, we're essentially one rating the churn rate that we're seeing, you know, currently through to the rest of the year. So we're not really baking in or taking any, credit of any further optimization on the retention side. Okay. Thank you.
spk08: Your next question is from the line of Ivan Feinseth with Tigris Financial.
spk00: Thank you for taking my question, Spencer. Congratulations on another quarter of great results and great progress, and also congratulations to Andrew, on the birth of his son. On the growth you're seeing, you know, in some of the new product categories besides hers, skin care, you say emerging categories, where are you seeing some of the growth drivers?
spk07: Yeah, so, you know, for the quarter, we saw – really strong sequential growth really across the board, right? So this wasn't any one category or one product line. It spanned from our core IMS categories, which produced exceptionally strong sequential growth in the HRS brand, as Andrew mentioned, within behavioral health and really sort of all of our products across the board, we saw really strong performance in Q1. And yeah, I'd say combination of several things, right? The optimization work that we've done and that we did in terms of improving conversion rates, improving retention rates, expanding LTDs, That foundational work wasn't unique to any one product or any one category. Again, it was foundational to the platform, which improved the business overall. Some of the marketing efficiency that we saw where we were able to, as a result of increasing conversion rates and our ability to lean into marketing more aggressively at higher LTVs and you know, generating $11 million of sequential revenue growth, you know, while only sequentially spending roughly $6 million more on the marketing side. Again, that level of execution benefited, you know, all categories and all products.
spk00: And then it looks like, so in Andrew's prepared remarks, that your gross margin, your gross profit increased more than on a percentage basis your gross than your revenue, which means your margin expanded, right?
spk07: That's right. So on a year-over-year basis, you know, our gross margins expanded by roughly 800 basis points, which to your point compounded to actually have gross profit grow by almost 100% last quarter.
spk00: And what were the drivers of the increasing margin? Are you sourcing better as your volumes increase or what's leading to that?
spk07: Yeah, so I think we're just able to a number of things. We're getting more operating leverage out of the business as we continue to scale. And just the core fundamentals of our revenue has just been we're driving higher quality revenue this year than we were last year, where with the uptake of Higher-priced bundles, you know, more extensive treatment plans, and multi-month subscriptions. You know, that uptake is combined to produce, you know, additional operating leverage across our product costs, shipping costs, and provider costs. And, you know, we're seeing, you know, margins expand as a result.
spk00: And then, you know, you normally are seeing, right, you get a customer that buys one product, they tend to buy more. And as you add customers, so shouldn't you have some expected growth in the second half of the year because of as you penetrate, as you add customers and penetrate your existing customers?
spk07: Yes. So, you know, I think that's exactly right. And we're seeing, you know, that increase. that type of behavior, you know, within the base. I think, you know, with the guidance that we've provided, and I think, you know, what I mentioned earlier was, you know, we're obviously working on a number of, you know, initiatives today that we expect to continue to improve conversion rates, improve retention, expand LTVs, you know, drive cross-selling. But we haven't baked any of that into the forward guidance. And so, based on the work that we've been able to do in Q1 and sort of this fundamentally better business that we've got today, we've put out guidance that I think we are confident in our ability to hit, and as we continue to execute and the data changes are our ability to forecast miraculously will provide updates to guidance in the second half of the year as we continue to execute.
spk00: Okay. Thanks again, and congratulations again.
spk07: Thanks.
spk08: Your next question is from the line of Sandy Draper with Truist Securities.
spk06: Hi, this is Mitchell on for Sandy. Thanks for taking the question. Just one housekeeping one. Can you please walk us through what the fully diluted share count is and how to get there? Thanks.
spk07: Yeah, so in Q1 because the merger transaction closed in January. On a weighted average basis across the quarter, the weighted average share count is a little understated relative to what the expected future share count will be. With respect to calculating gap EPS, our total fully diluted shares outstanding in Q2, again, to calculate EPS on the income statement, you know, should come in, you know, in and around, call it 192-ish million total shares, you know, for this quarter.
spk06: Got it. Thank you. And then just one more question. Do you think we could get some more color around the average order value? Like, is more of the growth attributed to multi-month order growth, or is it a more expensive product mix? or is it just both? Thanks.
spk07: Yeah, so we've discussed this in the past, and I think in the past I've mentioned that in terms of our AOV expansion, you know, roughly half of that expansion has been a result of customers opting into more expansive, higher-priced product bundles, and the other half of the expansion is related to customers opting into multi-month subscriptions. And, you know, the growth of AOVs in Q1, I'd say, you know, roughly sort of had this similar dynamic where, again, roughly half can be attributable to higher-priced bundles and the other half to multi-month subscriptions.
spk06: Great. Thank you.
spk08: Your next question is from the line of David Larson with BTIG.
spk02: Hi. Congratulations on a good quarter. Can you talk a little bit more about the advertising rates? I would have thought with the presidential elections going on last year, the ad rates would have improved fairly significantly this quarter. but it seems like they may have improved just slightly. And then I think I heard you also mention that those ad rates are actually coming back up towards the end of calendar 1Q. How are they trending now relative to expectations? Just any more color around that would be helpful. And then have you disclosed what portion of your ad spend is going into television versus online resources like Facebook or other online resources? Thank you so much.
spk07: Sure. Yeah, so last Q4 in the October-November timeframe, we did see ad rates run up fairly substantially as a result of the presidential election and a return of advertisers aggressively into the holiday season. As we rolled into Q1, we did see rates come down fairly substantially starting in January. And then kind of at a trough, you know, in maybe the late January timeframe, we saw rates start to incrementally increase throughout February and March, whereby late March ad rates had returned to levels that we saw, you know, kind of at their peak in Q4. In April and May, we're continuing to see ad rates stay fairly robust. I think with advertisers now coming out of COVID looking to drive demand, I think we're just seeing people bid fairly aggressively across the board on multiple marketing channels. But I'd say even despite that dynamic in March and what we're seeing here early in Q2 is that we've been able to continue to drive growth and acquire new subscribers at a very you know, call it attractive rate because of the fundamental work that we've done in Q1 and, you know, throughout last year of continuing to work on the user experience, you know, engagement on our site and conversion on our site, where, again, in Q1, our tax decreased, you know, versus Q4. With respect to our marketing mix, We actually have a very diversified marketing budget across a number of channels, including digital direct response and more branded channels like TV, radio, streaming TV, out-of-home direct mail, and so on. In terms of our marketing mix, there is no one channel that makes up the majority of our budget. And frankly, the largest channel, depending on the month or quarter, might make up only 20% to 30% of the overall spend in the current quarter. So our strategy has always been and continues to be to have a very diversified marketing channel mix within our budget.
spk02: Okay, great. That's very helpful. Thanks so much. And it sounds to me like the customer acquisition cost improvement is due mainly to the quality of the user experience and the platform itself. It's not like there were any changes that happened at the start of the year, like when somebody signs up for the first time, they're registered as a year-long subscriber, whereas previously they were treated as like a one-time purchase subscriber. It's nothing like that. It's more simply the overall user experience. Is that correct?
spk07: That's exactly right. I mean, we just laser focused on making that user experience as, you know, seamless and easy and convenient as possible and unlocked, you know, a performance improvement that allowed, you know, conversion rates to increase and allowed caps to come down. Okay. Thanks very much. Congrats and a good quarter.
spk08: And there are no further questions at this time. I'd like to turn it back over to the company for closing remarks.
spk07: Yeah, I want to just thank the entire team again for helping to execute such an amazing quarter and allowing us to put forth such strong guidance for the rest of the year. And finally, just want to send congratulations again to the entire Duden family and look forward to providing additional updates here in the second half of the year.
spk08: And that does conclude today's conference. Thank you for participating. You may now disconnect.
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