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spk04: Good afternoon. My name is Emma, and I will be your conference operator today. At this time, I would like to welcome everyone to the Him and Hers First Quarter 2022 Earnings Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press the star one. Thank you. Jay Spitzer, Senior Vice President of Investor Relations. You may begin your conference.
spk12: Good afternoon, ladies and gentlemen. Welcome to the Hims and Hers Health first quarter 2022 earnings call. On the call with me today is Andrew Budum, co-founder and our chief executive officer, as well as Yemi Okupe, our chief financial officer. Before I hand you over to Andrew, I will, as usual, take you through the legal safe harbor and cost share declarations. Certain statements and projections of future results made on this presentation constitute as forward-looking statements that are based on current market, competitive, and regulatory expectations and are subject to risks and uncertainties that could cause actual results to vary materially. We take no obligation to update publicly any forward-looking statement after this call, whether a result of new information, future events, changes in assumptions, or otherwise. Please see our most recently filed 10-K and 10-Q for discussions of risk factors as it relates to forward-looking statements. In today's presentation, we will use certain non-GAAP financial measures. We refer you to the reconciliation table contained in today's press release available on our Investor Relations website for reconciliations to the most directly comparable GAAP financial measures and related information. You will find a link to the webcast on our Investor Relations website at investors.fordhems.com. After the call, this webcast we archived on the website for 12 months. And with that, I'll turn this call over to Andrew.
spk11: Good afternoon, and thank you all for joining us today. I'm thrilled to share that we kicked off 2022 with breakout performance across all facets of our long-term strategy and financial goals, resulting in a substantially stronger outlook for 2022. Our mission at Hims and Hers is to empower us all to live healthier and happier lives, Today, that mission is more relevant, and we believe more attainable than ever before. This past quarter's financial performance highlights our company's growing ability to break away from the competitive pack with our unique consumer-centric model. All working in unison, our brand, technology, platform, and team are delivering on a differentiated offering customers love. People are voting with their wallets. and we believe the results we will share today are strong proof for the future of our brand and platform. Revenue this quarter grew almost $17 million quarter-on-quarter, surpassing $100 million for the first time in our company's history. This represents a growth rate of 94% year-over-year. Membership subscriptions, the core driver of our recurring revenue model, achieved the largest increase in quarterly growth to date. adding over 100,000 new membership subscriptions, ending the quarter at 710,000. Our operational efficiencies, powered by continued investments in our platform and technology, enabled us to improve adjusted EBITDA margins over 200 BIPs relative to Q4 of last year. As our core flywheel continues to scale, we believe this operational leverage will continue to allow us to invest in long-term growth while marching towards near-term profitability. With the turbulent market conditions we find ourselves in, I want to stop and truly acknowledge our team. Growing at this pace in and of itself is something to be proud of, but doing so while in parallel maintaining costs, improving operational leverage, and investing in defensible future-facing technologies is outstanding. Thank you all for the continued dedication and extraordinary focus. This quarter, we invested heavily in platform infrastructure and technology capabilities. These initiatives are critical for differentiation at the customer experience level, as well as the foundation for continued operational leverage and efficiency in the years to come. One of the largest areas of focus was our verticalization efforts in Ohio and Arizona, our affiliated pharmacy compounding and fulfillment centers. These facilities are now filling the majority of our monthly treatment orders, both pharmaceutical and over-the-counter. This transition away from third-party pharmacy fulfillment centers has taken years of rigorous focus and is now helping to deliver improved operational efficiencies and a major beat to adjusted EBITDA. Our march towards near 100% oral fulfillment verticalization is well on track. One of our most exciting technology initiatives this quarter was the full launch of our new mobile platform, with a broad range of value-added services for our customers. For me, this is one of the most meaningful advancements in the HIMS and HERS platform since we founded the company, as it dramatically expands the value we deliver to our members every day. This platform saw robust organic adoption rates in our rollout test, with nearly 60% of all new patients downloading and engaging with our concierge services provider messaging, and branded content. This contributed to Q1's breakout growth, adding more subscribers than ever before. I believe this platform to be the future of Hens and Herbs. And with such incredibly early adoption rates, over 500 plus five-star reviews, and within days of launch breaking the top 100 medical apps on iOS, it is clear that customers agree. In just a matter of weeks, our mobile platform is already showing signs of increased customer stickiness, improved engagement, retention, cross-sale, and organic adoption. We remain ruthlessly focused on investing in this platform and believe our team's ability to build true consumer experiences customers love and organically adopt to be a unique differentiator in the traditional healthcare landscape. In addition to deep investments in technology and platform, We focused a great deal this quarter on broadening awareness of a key strategic asset, our brand. We believe our brand is one of the most important long-term differentiators. In this past quarter, it delivered meaningful tailwinds as we continue to focus on our omnichannel presence. At my core lies a belief that deep customer awareness and trust will accelerate our organic adoption rates, allow us to continue to scale affordably, and become less dependent over the years on incremental marketing investments. This quarter, we saw exactly those benefits play out as our substantial top-line beat and subscriber growth were coupled with maintained efficiency and robust organic adoption. This quarter, we announced a partnership with Walmart, one of the leading retailers in the nation, and began to see rollout across nearly 1,900 store locations. Across now over 20,000 retail locations, Hims and Hers is becoming synonymous with health and wellness. Our brand is seen and experienced by millions of people daily, helping to deepen our relationship with prospective customers and drive unique long-term flywheel dynamics. In addition to expansion on retail shelves, we also broadened our provider and educational partnerships, deepening the value-added services for our members. These partnerships included Carbon Health, which expands our California retail clinic footprint for higher acuity patient cases, as well as GoodPath, an exclusive provider of educational and medical content for conditions related to MSK issues, pain management, insomnia, GERD, and IBS. These partnerships accelerate our ability to deepen our relationship with customers by strengthening the breadth and comprehensive nature of our platform. This business was founded to solve what I believe to be one of the largest challenges this country faces, access to affordable and excellent healthcare. As prices continue to soar in the traditional healthcare system and as access, convenience, and choice continue to remain limited, we believe that more customers will only increase their demand for alternative solutions. This wave is growing, and we see it in our business and our metrics weekly. Growth has been stronger than at any point pre and during COVID, pointing towards a structural change in customer expectations. The seamlessness of our offering, our breadth of value-added services, and our trusted brand are resonating deeply with new and existing customers, driving unique flywheel dynamics unlike anything I've seen. It is an exciting year for hims and hers, as our mission to empower us all to live healthier and happier lives feels more relevant and more attainable than ever before. And now, I will pass the call to Yemi to further discuss last quarter's performance.
spk06: Thanks, Andrew. I will now take the time to walk through our first quarter results, as well as provide further insight into our outlook for the second quarter and the remainder of the year. The first quarter of 2022 marks another quarter of outstanding performance, and it's the first quarter that we surpassed $100 million of revenue. Revenue was $101.3 million, which reflects a year-over-year increase of 94%. We've achieved a level of scale and growth that has enabled us to start realizing benefits from economies of scale, provides the flexibility to establish the next wave of verticals that will drive continued long-term growth. The underlying factors that we saw in the back half of 2021 have continued to drive strong performance in early 2022. Online revenue growth remained strong, increasing 86% year over year to $94.1 million. Online growth was driven by expansion of our subscription base, which grew 82% year over year to $710,000. Quarterly online revenue per subscription increased slightly year over year to $133. There was a benefit this quarter from a $2 million reduction in deferred revenue, primarily related to orders placed in the fourth quarter of 2021 that shipped in the first quarter of 2022. We continue to see our newer categories gain traction. Establishing a strong foundation in these new categories provides us with greater flexibility to deliver increased value to our overall customer base, opening the opportunity to foster longer and deeper relationships. Solid growth in our wholesale channel continued, with wholesale revenue increasing 341% year-over-year to $7.2 million. Demand for our products remains high, with existing partners such as Target, Walgreens, and CVS. Additionally, we welcome new partners such as Walmart, HEB, and GNC that placed their initial orders during this quarter. As a reminder, we feel that our wholesale channel plays a foundational role in helping drive consumer awareness and trust for our brand, which in turn provides benefits to our higher margin online business. Gross margin was 74%, a slight increase to the fourth quarter of last year. We continue to closely monitor the macroeconomy for elements that may impact our supply chain or cost structure. To date, we have not seen any material degradation in our margin structure and remain confident in our ability to continue to navigate through potential challenges. Opportunities to increase efficiency across our operations provide the ability to offset potential pressure that may emerge if current trends change. A few examples that we have observed thus far include the realization of lower product costs as a result of greater economies of scale and lower fulfillment costs from the utilization of our internal distribution facilities. The share of online orders fulfilled through our internal fulfillment centers was over 50% in the first quarter. We are excited to complete the build-out of our new Arizona facility later this quarter and are confident it will provide additional efficiency opportunities later this year. Adjusted EBITDA loss for the quarter was $6.1 million. Adjusted EBITDA margins improved 230 basis points quarter-on-quarter to negative 6%. SG&A as a percentage of revenue declined 5 percentage points quarter-over-quarter to 43%. When excluding stock-based compensation, SG&A as a percentage of revenue declined 5 percentage points quarter-over-quarter to 35%. This reflects leverage that we continue to receive from initiatives driving our current growth trajectory. Marketing as a percentage of revenue declined from 50% to 47% quarter-over-quarter. When excluding stock-based compensation, marketing as a percentage of revenue increased from 45% to 47%. Diversified online acquisition channels, combined with our omni-channel strategy, have enabled us to hold customer acquisition costs per subscriber relatively steady quarter-on-quarter. As we've continued to see attractive payback periods and attractive customer acquisition costs, we've continued to reinvest a portion of efficiency gains in driving greater scale. We feel this will benefit us in the long term as a result of strengthening our position across categories and realizing further benefits from economies of scale. Several expected activities took place this quarter that influenced our cash position. Our cash flow from operations this quarter was negative $19.4 million. Burnout payouts of $30 million related to prior M&A activity, of which $7 million hit cash flow from operations, were paid out this quarter. Additionally, we prepaid our insurance for our directors and officers, which also negatively impacted cash flow from operations by $7 million. A liability of $13 million related to the apostrophe earn-out remains outstanding, which will be paid in the fourth quarter. These payouts reflect the fact that our acquisitions have delivered against their strategic objectives. We exited the first quarter without any debt and a balance of $203 million of unrestricted cash and short-term investments. 2022 is off to an incredible start. We have observed several positive trends continue from last year, some of which include attractive payback periods of newly acquired customer cohorts, which remain at less than a year, 85% year-over-year online revenue retention from customers who have maintained a subscription for at least two years, strong interest from retailers, providers, and other prospective partners, continued operational efficiency gains with line of sight to additional feature gains, an ability to maintain overall market inefficiency in a volatile environment, and a healthy cash position that provides us the flexibility to invest in longer-range initiatives. We are increasing our top-line revenue guidance for the full year to reflect these factors, driven largely by strong execution across the organization. Starting with our outlook for the second quarter, we are anticipating revenue of between $103 to $106 million, representing a year-over-year increase of between 70% to 75%. We are expecting adjusted EBITDA losses of between negative $9 million to negative $7 million, which would reflect an adjusted EBITDA margin of slightly below negative 8% at the midpoint of the adjusted EBITDA and revenue ranges. For the full year, we are raising our prior revenue outlook of $365 to $380 million to $410 to $425 million. Our new guidance range represents an increase over 2021 revenue of 51 to 56%. Our outlook for adjusted EBITDA losses remains at negative $30 million to negative $20 million, which would represent an adjusted EBITDA margin of negative 6% at the midpoint of both ranges. I'd like to take a moment to provide additional color on our assumptions across the year behind these results. We expect to retain at least 85% of online revenue from customers that have been on the platform for at least two years. Early signals from our app indicate higher customer engagement, which we feel may facilitate higher retention over time. We believe that we can maintain an overall payback period on our marketing and investments of less than a year. Higher marketing and investment is expected in the second quarter as we start to scale emerging categories that have improved their unit economic profiles. We expect to gain leverage on our marketing and investment at the percentage of revenue in the back half of the year. This is the result of seeing the benefit from investments made in the second half of 2021 and the first half of 2022 compound. Lastly, We expect continued improvement to adjust the EBITDA margins in the back half of 2022 as we continue to gain operating leverage on our cost structure. 2022 is shaping up to be an exciting year for us. We have seen success in our investments across each of our three foundational pillars. Our brand, our technology, and our ability to delight consumers with a seamless experience. A few examples include early successful leading indicators related to engagement with our mobile app. The launch of new partnerships to continue to power our flywheel of increasing customer awareness and trust, which then in turn powers more interest from partners, driving further consumer awareness and trust. And lastly, progress toward the rollout of our new Arizona fulfillment facility. The previously mentioned examples enable us to continue to delight our customer base, which we are confident will result in continued strength and top-line revenue growth. Additionally, we anticipate that these factors, when combined with our disciplined approach to growth and continued efficiency improvements, will enable us to improve 2022 adjusted EBITDA margins by four to six points relative to 2021. I'd like to thank our customers, partners, and employees for helping us continue to deliver such strong results. With that, I will turn it over to the operator to begin the Q&A portion of the call.
spk04: at this time i would like to remind everyone in order to ask a question press star then the number one on your telephone keypad we ask that you limit yourself to one question and one follow-up thank you your first question today comes from the line of daniel grosslight with citigroup your line is now open hi guys thanks for uh taking the question and congrats on a strong quarter here um i want to stick with that 2022 guidance for a second given
spk07: the significant outperformance both on the top and bottom line this quarter, and then the raise, the guidance raise on revenue. I just want to dig into why you're keeping that adjusted EBITDA guidance constant, how much conservatism is built in there. I think you mentioned you're going to increase marketing expenses next quarter, and then you should get some operating leverage after that. But I'm curious on the marketing expenses, how much of that is due to the newer initiatives versus higher CACs that you're seeing in segments like mental health and others that you are growing rapidly in?
spk06: Sure, Daniel. Thanks a lot for the question. I think what I would say is we've actually seen CACs remain relatively stable quarter on quarter relative to the prior quarter. What we do see in terms of, like, the investments that we are making, some of that is going towards the enhancement of newer categories that we do see, as well as other investments. I think if we're just spending a couple minutes around how we think around the allocation of capital as we make these decisions on whether or not to invest and where to invest. What I think we see right now is we do have a line of sight to adjust profitability. And so, given this, much of our focus is shifting toward how we position ourselves in a strong manner for both. healthy long-term economics as well as long-term sustainable growth. And so when we think about how to deploy capital, we're not just looking at the revenue that's going to be delivered across a quarter or even two quarters. But really, we basically zoom out and look at how the investments would perform across several criteria, three of which being, do they have an attractive ROI profile and payback period? Do they position the company well for long-term growth? And then lastly, do they position us for healthy long-term EBITDA margins, given that we do now have the ability to benefit from economies of scale with some of the internal fulfillment capabilities that we do have? So we've seen thus far as many of the investments that we have in front of us have the ability to deliver across all of those things, as well as additionally help us expand our category footprint. So that's some of the reason why you don't see the EBITDA flowing through. We expect to continue to be able to see these opportunities to, again, power that long-term growth profile, as well as position us for a healthy economic footprint.
spk07: Got it. Okay. And just to confirm, the increase in marketing expense isn't coming from an increase in mental health tax sequentially?
spk06: No, we've actually seen cash overall across the portfolio remain relatively stable. And so it truly is to power and position ourselves for long-term growth. And again, just the long-term. Yeah, makes sense. Okay.
spk09: Just to add to Daniel, I think the flywheel dynamic is a pretty unique element taking shape for us, right? The omni-channel presence, the retail distribution and partnerships. I think that brand awareness, that brand trust that is growing nationwide in him's and hers is really providing the tailwinds that we believed it would, which given the competitive landscape and market, and I think a lot of the headwinds that people are facing in the social channels, whether that because of iOS or a dependency on Facebook, whatever it might be, those are tailwinds we've been able to really meaningfully overcome and continue to deliver on in a really stable manner. As Yemi said, keeping CACs relatively flat as we've expanded into these categories. So I think that's something that we're very proud of, but very much focused on. And the brand and the distribution of those partnerships is a big part of that element, allowing us to achieve that.
spk07: Yeah, makes sense. Okay. And then on wholesale revenue, can you help us think through the cadence of that this year as Walmart and some of those other partnerships come online and how that may impact the sequential gross margins if we're going to see some degradation in gross margins, or will you be able to offset some of that wholesale pressure as your owned pharmacy comes online in Arizona?
spk06: Yeah, so we did see many of our large partners come on board this quarter and place large orders. We do expect some of that to normalize as we start to go into the back half of the year. We're not necessarily giving explicit guidance around, you know, the gross margins. Like, we do expect those to, you know, hold relatively steady, and the effect of what we would see would be primarily from the overall revenue mix that we do see. But we do, just again, given the operational, you know, efficiency improvements that we mentioned earlier, have confidence in the ability to retain the healthy gross margin.
spk05: Yep. Very helpful. Thanks, guys. Thanks, guys.
spk04: Your next question comes from Michael Cherney with Bank of America. Your line is now open.
spk03: Hi, this is Charlotte. I'm for Mike. Thanks for taking my question. You mentioned the platform infrastructure investments that you made. Could you just share more on the returns that you're expecting there and how they're going to enhance the consumer experience of the platform?
spk09: Yeah, it's a great question. Thank you. You know, predominantly what we're speaking about is the Ohio and Arizona pharmacy fulfillment centers, as well as the compounding capabilities. And what these do is really allow us to control fully the speed, quality, and experience to the customer. And so in a world where we are operating a full breadth of medications and pharmaceuticals, as well as over-the-counter combinations of products and merchandise kits and bundles, that degree of flexibility and ownership really allows us a speed and curation to the customer. You can imagine, for example, the ability for a patient to open up the mobile app, say they want to add something to the next shipment that's being delivered or adjust a medication or introduce a new offering into their existing membership. All of that customization level and personalized experiences is really only capable with a verticalized center that we can oversee and self-manage. And so that's a really key differentiator for us as we continue to expand the breadth of offerings. It allows us to drive that transparency back to the customer and give them that empowerment and that choice. And so we're very focused on continuing that rollout. This quarter, we are north of 50% of all orders, pharmaceutical and OTC, rolling through those Ohio and Arizona centers, but continuing to push on getting to near 100% as quickly as we can.
spk03: Great. That's really helpful. Thanks. And then just to follow up, when you're thinking about the competitive landscape right now, could you just provide more color on what you view as the key areas where HEMS creates value versus its competitors?
spk09: You know, I think there's really three different elements, the brand, the technology platform, and ultimately how that delivers into the experience. You know, we built HEMS and HERS from the very beginning to be synonymous with health and wellness, a broad breadth of conditions a message that resonates, that's in some situations provocative, that starts conversations and builds really deep, trusted relationships with people and really focuses on emotionally resonant conditions, right? So that we can have that depth of relationship. I think that brand is a very unique strategic asset. And so you see us spending a lot of time with partnerships and distribution to build that brand awareness and build that trust. I think the platform Secondly, it is a tremendous asset and a key differentiator. You have mobile application platform that went live this quarter that's seeing 60% organic adoption of all new customers coming onto the platform. And this platform allows you to have 24-7 concierge services, encrypted and safe ability to access and discuss with your provider and physician. adjust your treatment, watch hundreds of videos of original content that help onboard and activate you relating to whatever treatment or services you might be interested in. This level of breadth as a platform is delivering, I think, a very unique portfolio of value-added services that is really different from what you can get in market. And so I think customers know that. I think in combination with the brand, that technology platform, the capabilities we were talking about on the pharmacy and the fulfillment side is actually allowing us to deliver a customer experience that is incredible, right? It's just delighting customers. And I think that flywheel is really what we're seeing with continuation of kind of the acceleration of adoption of new customers and word of mouth. You know, I kind of think it's across all of those axes, right? The brand, the technology, the platform, and ultimately how that manifests itself into a very seamless and unique customer experience.
spk03: Great. Thank you, and congrats again on the quarter.
spk10: Thank you.
spk04: Your next question comes from the line of Jack Wallace with Guggenheim. Your line is now open.
spk10: Hey, thanks for taking the questions and great job with the quarter.
spk08: Wanted to touch a little bit on the growth in the quarter. Think of what's called the core therapeutic areas, sexual health and hair loss. How are those growth rates relative to some of the emerging categories? And then as part two, as we're thinking about the investments being made in the second quarter, How should we think about the split between incremental CAC spend versus let's call it incremental infrastructure associated with team creating content and new ad programs? Thanks.
spk09: Thanks, Jack. Maybe I'll take the first half of that, and Yemi, why don't you take the second? I think one of the things that's really energizing us and giving us confidence to very materially raise guidance for the full year is that we're seeing incredibly robust growth, both from the core as well as the emerging categories. We're seeing improving unit economics on the emerging categories, as Yemi talked about, which is giving us that confidence to invest further there. But you're seeing very robust growth on the core, and you're seeing continued triple-digit growth on the emerging. And so the team, I think, has a wealth of opportunity in front of us, and I think is charging really hard at both of those. But But I think it's that diversity in revenue and that breadth of services that is giving us the strong conviction, really, in raising that guidance for the rest of the year.
spk06: Yeah, and I think relative to the questions around CAC, we've actually seen CACs be able to be held relatively steady over the previous quarters. A lot of the expansion that we're expecting in terms of the investment that we referred to earlier, or just primarily, we do put CACs around when we'll invest in a category as it expands. And as those gates are primarily around, what is the unit economic profile for a given category? What we are seeing and we're very pleased to see is that many of our newer categories have started to improve the unit economics, as Andrew had mentioned. And so what that does is it provides us the ability to unlock investment for those. And so much of the investment that we refer to in Q2 would be primarily related to The expansion of that, as I mentioned earlier in the prepared remarks, we do expect to inherently start to get leverage on marketing as a percentage of revenue in the back half of the year. Really just because the recurring nature of the business, We're not just necessarily investing and then receiving a transaction, but we foster a relationship with customers over many quarters. And so as that starts to compound, we continue to get leverage. And so that's what gives us the conviction to make some of the investments that we made in Q2 with the conviction that it will deliver meaningful benefit in the future course.
spk05: Gotcha. That's helpful. Thank you. And again, congrats on the quarter. Thank you. Thank you.
spk04: Your next question comes from the line of George Hill with Deutsche Bank. Your line is now open.
spk13: Yeah, hi. It's Maxine for George. Congrats on a great quarter. There has been an increased focus on combining behavioral and dispensing in the space with companies like Cerebral gathering a lot of attention. Does it make you listen to our approach to behavioral? And when should we expect behavioral to be a material contributor to revenue?
spk09: Thank you so much for the question. You know, I can't really speak to what Cerebral is doing in specific. I don't have insight into that business. I know that recently there's quite a lot of attention relating to controlled substances in particular and the dispensing prescribing of those controlled substances. That's something just to be clear that we explicitly do not have on the platform and don't intend to have on the platform. And so, you know, when it comes to the fulfillment side, I actually think the ability to kind of verticalize the experience from the provider down to the delivery is an incredible way to drive real value and speed and price transparency to the customer. So we're really energized by the efforts there in Ohio and Arizona and are really going to continue to drive that. Mental health continues to be a huge need in this country, right? There's more and more reports every single week coming out. particularly with patients in our focused age demographic, right? People in their 20s, 30s, and 40s that have some of the highest brand awareness metrics when it comes to hims and hers nationwide. And so I think we have a very special and unique opportunity in front of us to help a lot of those people. We continue to see that being one of the strong contributors of the emerging category growth, as I mentioned, growing over 300%. And so it was a very big contributor um uh to the breakout performance and and you know the beating of the top line this quarter and we think it will continue to be a large contributor going forward so i think we're already seeing the early signals that that category is um not only you know very much in need from a from a market standpoint but also that what we're delivering in particular with the access to psychiatrists, the access to therapists, a mobile platform with original content, 24-7 access to these providers and concierge services. This whole breadth of portfolio relating to mental health, I think, is very much delivering on helping people feel better and hopefully improve that condition.
spk13: Thanks. That's very helpful. I just have a quick follow-up. You talked about the plan to add one to two major categories every couple of quarters. Are we still looking at the target and your outlook to improve margins in the second half of the year? Is it already accounting for potential category launching or no?
spk09: I'll take the first half. So absolutely can continue to expect that cadence. We have historically for the four to five years since we founded the business been on that cadence of one to two major new categories. You'll see from Q1, we announced a number of new partnerships. One of them was with GoodPath, which is an incredible company focused on educational specialty for MSK pain management, insomnia, GERD, IBS. And so we continue to build out the robust partnerships, provider excellence, and then the technology as well to build a platform on top of which we can continue to release these one to two. I believe you can expect that from us on a similar cadence to what you've seen from us in the last couple of years.
spk06: Yeah, and then with respect to your second question, the short answer is we do have a high degree of confidence in the ability to improve even a margin in the back half of the year. What gives us that conviction and confidence is, first, the allocation model that I mentioned earlier, where we really do hold new categories to a high bar before we start to really lean in investment results in a very fast payback period that we generally see typically less than a year. The other element is the recurring nature of the business. 90% of the revenue is recurring. And so what effectively happens is we may invest in one quarter. In the subsequent quarters, as those users start to mature and deliver value, we see the continued benefit for the future. And so, despite the fact that we've made investments over the last 12 months, what you actually do see between now and relative to Q1 of last year, a 10-point improvement in EBITDA margins. And so, if we do continue to be able to hold a new category to that high bar, which we're confident we can, We expect to be able to continue to preview the margins despite the fact that we might need to invest in some of these categories.
spk05: Thanks. Congrats again.
spk10: Thank you so much.
spk04: Your next question comes from the line of Jonathan Young with Credit Suisse. Your line is now open.
spk01: Hey, guys. This is Nate on for Jonathan. Thanks for taking my question. I guess one question I had was advertising spend has spiked from some of your larger peers, causing them to pull back. Have you seen this in your channels and any thoughts on the outlook on this? And I guess as a follow-up to that, to the extent that you are able to see this, how is this relationship with CVS and Walgreens gone? And have you seen it driving subscriber volume or other benefits?
spk10: Yeah, I can take the beginning.
spk09: It's definitely a tough landscape out there, right? You're seeing a lot of the players and competitive categories really struggle with headwinds, whether it be from iOS privacy changes or the Facebook platform, or just purely the amount of dollars deployed into the space. I think, frankly, we have really fared quite well. As Yemi said, our efficiency on marketing has continued to remain incredibly strong. um you know remaining with payback periods sub one year which we've been able to keep consistent um relative to to last quarter very much stable um i think a big part of this is the omni channel presence the strategy around kind of that retail distribution building brand partnerships brand awareness you know i think what is very unique about hims and hers is we started as a as a consumer brand right this is something that has been entrenched in our business and our values and what we believe is a strategic asset from the day that we launched this company. And so I think a lot of players that maybe were initially B2B enterprise businesses now coming into the consumer space might not have the same DNA that we do that I think is really a differentiated approach. And I think you see that across these dynamics, right? The retail channels, the breadth of offerings, the original content, you know, the mobile platform gathering, you know, a tremendous amount of organic adoption. all of these things are really contributing to pretty rapid adoption of the platform in a way that really can only be generated with a consumer lens. And so I think that's a key part of the strategy here. And I think when times get tough in competitive markets, that's really when you see breakout performance. And I think this quarter, near 100% revenue growth, 80, 90% membership growth, maintaining efficiency, This is, I think, a breakout performance for us, and I think it's really very much driven from the flywheel that we talked about.
spk06: Yeah, and to answer the second part of that question, we do see continued growth across the board in our wholesale channel, this quarter increasing more than 340% year-on-year, and much of that is being driven by the flywheel effect that Andrew had mentioned, where as consumers see us in the stores of many of these leading retailers, that in turn fosters interest for other products in our online channel. And then as we start to build consumer awareness and trust in that channel, that only then in turn empowers more interest from our partners. And so we continue to be very pleased by the performance across the board in our wholesale channel.
spk05: Thanks, guys. Thank you.
spk04: Your last question comes from the line of Jessica Tassin with Piper Sandler. Your line is now open.
spk02: Hi, thanks so much for taking the questions and congrats on a great quarter. Can you guys just first off verify that you don't anticipate any sort of changes in the way the business works alongside the expiry of the PHE in what seems like it could be the end of July? And then just Secondly, maybe, can you talk about the traction of the app so far and any difference in customer behavior in transactions that originate or are ultimately consummated on the app relative to your kind of traditional desktop customers? Thanks.
spk09: Thanks, Jessica. For the first question, you're talking about the Ryan hate laws, things of that sort, ending with the pandemic. Is that what I caught?
spk02: Yeah, so I think, again, just on the sort of cerebral and scheduled substances comp, I know that a couple of those guys are going to have issues just with returning to in-person visits prior to being able to meet with the person. But just making sure that there's nothing that would change the way your business works alongside the SRA.
spk09: No, that's correct. That's correct. We currently operate in a way where when all those dynamics go back in place in the kind of mid to end July that nothing will change from our side. So a major part of that is, you know, controlled substance dynamic, which we don't engage with, but great question and no, nothing will change. On the app side, so we launched the app fully in Q1, so we've had really a couple of months to watch it and a couple of weeks to start tracking retention and stickiness and engagement. You know, the thing I'm most excited about here is you really brought in the range of value-added services that customers can experience, right? They're able to have 24-7 concierge experiences, talk to their providers, update their medications, watch hundreds of videos of original content, cross-sell, purchase. And so within just a couple of weeks of seeing this, we are already seeing those dynamics take place, right? A stickier customer, a higher engaged customer, you know, with 60 plus percent of all all of our new patients downloading this application. And this is done really organically, right? We're not forcing this or pushing it. It's just kind of happening. It's very clear that there's a broad need for kind of a comprehensive set of solutions that we're offering. And they're then coming into the app and they're engaging at a very high rate with all of those different offerings. And so we really believe that this platform is the future home where patients are going to be spending a lot of time I think this was a pretty big contributor as we kind of unpack the stickiness, the improved retention dynamics, the adoption for kind of the performance of this quarter. I think we'll continue to be one. And so we are ruthlessly focused on this. This is where a lot of my time is spent. It's where a lot of the team's time is spent. We think it's one of the biggest points of leverage we have for the company.
spk05: And so we plan to continue to remain focused on it. Got it. Thank you. There are no further questions.
spk04: This concludes today's conference call. Thank you for attending.
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