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spk04: Ladies and gentlemen, thank you for standing by. My name is Brent and I will be your operator today. At this time, I would like to welcome everyone to the HIMSS and HERS Health second quarter 2022 earnings 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 at that time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star one. Thank you. It is now my pleasure to turn today's call over to Mr. Jay Spitzer, Senior Vice President of Investor Relations.
spk05: Please go ahead. Good afternoon, ladies and gentlemen.
spk07: Welcome to the Hems and Hertz Health Second Quarter 2022 Earnings Call. On the call with me today is Andrew Dudum, 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 cautionary declarations. Certain statements and projections of future results made in this presentation constitute as forward-looking statements that are based on our current market, competitive and regulatory expectations and are subject to the 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 as a result of new information, future events, changes in assumptions, or otherwise. Please see our most recently filed 10-K and 10-Q for discussion of risk factors as they relate 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'll find a link to the webcast and Investor Relations website at investor.4hims.com. After the call, this webcast will be archived on the website for 12 months. And with that, I'll now turn the call over to Andrew. Thanks so much, Jay.
spk08: Good afternoon, everyone, and thank you all for joining us today. It's an exciting time for us here at HIMS and HERS, and I'm thrilled to share our Q2 results with you. Q2 was outstanding across the board, as we execute on our mission to empower everyone to feel great through the power of better health. Our performance this quarter on the heels of our breakout Q1 reflects the power and strength of our model, which is driving robust consumer demand across the business at a pace we believe is unparalleled in the consumer health and wellness space. Revenue, which is predominantly driven by recurring online subscriptions, grew 87% year-over-year to $114 million in the second quarter, with year-to-date revenue up 90% to $215 million. For the second straight quarter, we saw record quarterly growth in the number of net new subscriptions, up 107,000 in the quarter and ending the period at 817,000, as our brand continues to build momentum. Importantly, our planned investments in the quarter drove increased demand and allowed us to capture operational efficiency gains as we leveraged our vertical fulfillment capabilities. The combination of robust consumer demand, strong gross margins, and continued operational leverage enabled us to maintain a modest adjusted EBITDA loss of $7.5 million in the quarter. Underpinning the strong performance and momentum, is our consumer-centric business model and unique flywheel strategy. Our flywheel ignites by creating deep, meaningful, and lasting relationships with a variety of customers. We do this in a powerful way by creating an unparalleled brand and experience via an ecosystem that includes omnichannel retailers, celebrities, innovative products, technology and suppliers, and of course, providers. Each element of this ecosystem can drive success on its own, but we see the most compelling results when they work harmoniously together to deliver a unique and beloved experience. With each passing quarter, my conviction in our strategy grows. I believe this opportunity to redefine consumer health and wellness to be a once-in-a-generation opportunity. I couldn't be more energized by our team's consistent execution and, in turn, how our business is scaling. As we've discussed in the past, the intersection between a trusted brand, innovative technologies and products, and ultimately a world-class consumer experience is how we believe we win long-term. This quarter, we executed with strength across these three long-term pillars, helping lay the foundation for continued value creation and long-term relationships with our customers. Let me begin with our trusted brand. During Q2, we leaned in heavily on planned investments to build greater brand awareness and equity. At a time when many companies were pulling back spending due to a softening demand environment, we took advantage of the marketplace opportunities from a position of strength to reinvest some of our top-line growth into our greatest asset, the HIMSS and HERS brand. We ran multiple diversified marketing campaigns within the quarter, most notably during the NBA Finals. and these investments are delivering immediate results and tailwinds. Across all of our traffic metrics, more consumers than ever before are coming to the Hims and Hers platform. We connect with consumers like nobody else, with an authenticity that normalizes the challenges we all struggle with. These conversations create trusted relationships with a variety of consumers at a formative time in their lives, which we believe paves the way for us to become a long-term partner throughout their health and wellness journeys. We also continue to build brand awareness through our omni-channel distribution strategy. In Q2, we gained traction with two marquee retail partners, CVS and Walgreens. We launched six new women's essential supplements and probiotics, both on our own platform and exclusively in CVS locations nationwide. These new offerings are focused on daily support of general health mental wellness, gut health, digestive health, skin, and libido. In addition, we expanded our presence in Walgreens with the rollout of both HIMS and HERS hair care lines in over 7,000 stores throughout the country. Our strategic presence in the wholesale channel is extending our reach, building increased awareness, and introducing our brands to a broader audience of consumers. Moving now to technology and innovation. Helping people feel great means delivering a health and wellness experience that's different, one where the tools, products, and services are incredible and personalized to each of us. This is where our team excels, constantly innovating and raising the bar to create a superior customer experience. At the core of our marketplace is a unique technology platform that connects consumers with providers eager to help them solve their health and wellness challenges. This platform powers the marketplace, helping deliver speedy and trusted results to customers, but also safe, clinically accurate, and rewarding experiences for our providers. Our technology platform is constantly evolving, helping match consumers and providers via marketplace liquidity and ultimately a differentiated experience for customers. In Q2, there was increased focus on routing efficiencies as well as expanding the capability set to enable more comprehensive clinical options for a growing set of categories, such as mental health and dermatology. The benefits of these efforts are widespread, from consumer delight relating to quality of interactions and speed of access, to provider recruiting and retention as a result of provider ease of use and respect for the quality of the platform. In the second quarter, our marketplace powered north of 350,000 medical visits on average per month. As our business continues to grow, we believe the technology fueling these interactions will increasingly deliver differentiated capabilities and ultimately differentiated experiences. In addition to our marketplace technologies, we invested meaningfully this quarter in consumer-centric digital experiences. High engagement experiences, original content and tools are a critical part of creating sticky customer relationships and ultimately drawing users back to our platform. We do this in a variety of ways, and one of the most impactful initiatives has been the introduction of our mobile applications, which have rapidly gained traction. In Q2, we designed and launched two separate apps, one for him and one for hers on iOS, which has enabled us to engage with each audience with increased degrees of authenticity and personalization. As a new destination hub for our consumers, These applications house an expansive catalog of branded content, personalization tools, shopping experiences, and provider engagement. The benefits of these investments have been incredible. Through the app, consumers are engaging with our brand three times more than historically through our website, creating the potential for immense value that can expand past an initial purchase. We're excited to also reach our Android users with similar mobile apps.
spk07: that we expect to launch in the coming weeks.
spk08: In the same way our technology stack drives differentiated consumer experiences, so do our infrastructure capabilities in driving innovative physical products. Providing innovative products customized to our customers' needs is a critical component of our long-term strategy. While the majority of products sold on our platform today are generic formulations in nature, We believe the future is one where proprietary formulations and truly personalized products not available anywhere else makes up the majority of our business. In Q2, we continue to lay this foundation through near-full integration of the Apostrophe compounding facility into our operations, a part of last year's acquisition. Our continued investments in R&D and a trusted partner ecosystem makes us well-equipped to provide truly differentiated offerings. We believe our ability to deliver on these innovations will unlock further customer demand, brand loyalty, and ultimately more valuable relationships. As seen in recent product expansion offerings across dermatology and hair care businesses, these innovative and personalized products are representative of the next wave of consumer-centric care. and are resulting in meaningful improvements to adoption and retention. We made great progress this quarter on these R&D initiatives, including through continued focus on development of our 25,000 square foot compounding facility. We believe these infrastructure capabilities will give us the scale, quality, and efficiencies needed to mass produce these proprietary offerings at an affordable price. The strategies and initiatives I've just discussed are built upon our ever-improving infrastructure capabilities to accept an order, verify treatment safety, and deliver to any door in the nation within days. We continue to make investments in operational excellence at our Ohio and Arizona facilities. I'm happy to report that the majority of our shipments are now filled and shipped via these centers. Our constantly improving capabilities to provide access to such a variety of medical products and formulations, form factors, and bundles is a key driver of our success. Speed, efficiency, and flexibility at scale allows us to own the consumer experience from start to finish. In addition, as seen from improved operational leverage, our continued expansion of internal infrastructure allows for long-term margin efficiencies and competitive pricing advantages. In Q2, we continue to unlock and redeploy these operational gains against the flywheel, further bolstering our brand, technology, and capabilities, which I believe will continue to set us apart and pay long-term dividends. As we look ahead, we feel ideally positioned to build on the momentum we're seeing across the business. This has allowed us the unique fortune to invest for future growth while organically driving our path to profitability. As we announced in today's press release, we're raising our full-year outlook for 2022 revenue and adjusted EBITDA. Importantly, our ability to capture operational efficiency improvements while scaling the business is expected to result in adjusted EBITDA profitability within the next four quarters. Before turning the call to Yemi to discuss the financials, I want to thank our teams across the organization. for their strong execution and dedication to our mission to empower everyone to feel great through the power of better health. I'm incredibly proud of what we have built in just five years' time and look forward to keeping you all updated on our continued progress. Now, over to Yemi.
spk01: Thank you, Andrew. Good afternoon, everyone, and thanks for joining us. I will now provide additional insight into our second quarter performance as well as our outlook for the remainder of the year. I will also provide additional visibility into our expectations around profitability timing. Great execution among our teams allowed us to deliver solid performance across the board. In the second quarter, we continue to see strong momentum within each pillar of our business. Our brand, technology, and seamless experience through operational excellence. Success across these dimensions continues to drive robust performance. Revenue grew 87% year over year in the second quarter, to $113.6 million. We mentioned in the last earnings call that we saw an opportunity to lean into marketing spend to expand our core categories, build awareness of our newer offerings, and start to experiment with additional channels. The outcome from that decision surpassed our expectations. Online revenue increased 85% year over year to $107.5 million. Similar to the first quarter, growth in the online channel came primarily from subscriptions. The number of subscriptions on our platform grew 107,000 from the prior quarter to 817,000, representing an increase of 80% from the second quarter of last year. Subscriptions increased as a result of increased traffic combined with minimal degradation and conversion from the successful rollout of digital and brand campaigns. High appetite for a multi-month subscription feature continues. Quarterly online revenue per subscription was flat quarter over quarter at approximately $132. This indicates an ability to expand our user base and maintain a similar engagement and revenue generation profile. Revenue through our wholesale channel increased 140% from the second quarter of last year to $6.1 million. We saw a revenue decline of $1.1 million relative to the first quarter as a result of lacking initial inventory purchases from larger partners such as Walmart. While we expect revenue growth in this channel to moderate for the next couple of quarters, our wholesale channel remains a critical part of our flywheel, driving higher consumer awareness and trust across our online channels. Gross margin increased 300 basis points relative to the first quarter to 77%. The majority of this gain came from improved efficiency within our operations combined with additional benefit from a greater share of revenue from our online channel.
spk05: To date,
spk01: we have not experienced material supply chain challenges within our operations. In large part due to the recent growth of our business, we have seen many suppliers eager to partner with us to ensure that this dynamic remains. As a further safeguard, we increased the inventory of our most popular products that carry multi-year shelf lives as we head into the second half of the year. SG&A costs as a percentage of revenue declined 170 basis points relative to the first quarter to 41% of revenues. When excluding stock-based compensation, SG&A expenses declined 230 basis points to 33%. These gains are largely a reflection of continued operating leverage from the business. Marketing as a percentage of revenue increased 580 basis points quarter-over-quarter to 53% in the second quarter. When excluding stock-based compensation, marketing expenses as share of revenue increased 570 basis points to 52%. This increases in line with remarks highlighted on last quarter's earnings call. A meaningful portion of the higher investment went toward brand campaigns, which we expect we will continue to benefit from in future quarters. Adjusted EBITDA for the quarter was negative $7.5 million. Despite a significant increase quarter-over-quarter in marketing investment, adjusted EBITDA margins declined modestly to negative 7%. This is a result of stronger gross margins continued leverage on SG&A expenses, combined with the high bar for marketing investments that we hold. We are pleased with the performance of the business in the first half of the year. Several favorable dynamics have fueled solid performance across both revenue and adjusted EBITDA. These include an ability to maintain strong payback periods of less than a year on our marketing investments, a successful introduction of additional marketing campaigns, which has driven growth across several categories in the form of greater audience reach and consumer trust, the rollout and continued adoption of innovative products that consumers are engaging with and adopting, inclusive of our mobile app, new form factor solutions, and new product offerings, and lastly, a rigorous focus on continuing to capture more efficiencies across our business operations. Before getting into the details of our guidance, I'd like to reiterate the key assumptions that we outlined last quarter, all of which remain unchanged, but nonetheless, I think are helpful to add further perspective around how we view the remainder of the year. The first is long-term retention. We've meaningfully increased our customer base over the last two quarters and have seen signals that long-term online revenue retention will remain at least 85%. Embedded in our outlook is that this dynamic continues. Marketing and investment in the second quarter was more aggressive than prior quarters. We saw success with our MBA finals ad campaign, as well as an overall more favorable environment for marketing spend as many companies scaled back. We are anticipating that the environment remains favorable through the third quarter. You can expect marketing as a percentage of revenue in the third quarter to be comparable to the second quarter, if that holds true. Giving to our outlook for the rest of the year. Given the strong fundamentals and patterns we are seeing across the business, we are increasing our outlook for both revenue and adjusted EBITDA for the remainder of the year. For the third quarter, we anticipate revenue of between $129 and $132 million, which would represent 74% to 78% year-over-year growth in the third quarter of 2021. Our expectation is that adjusted EBITDA losses will be between $7 to $9 million, which would represent an adjusted EBITDA margin of negative 6% at the midpoint of our adjusted EBITDA revenue ranges. For the full year, we are raising our revenue outlook to between $470 and $485 million, which represents year-over-year growth of between 73% and 78%. We expect adjusted EBITDA losses of between $27 to $20 million for the year, representing an adjusted EBITDA margin of negative 5% at the midpoint of our adjusted EBITDA and revenue ranges. I'll now take a moment to provide additional color on our expectations for generating positive adjusted EBITDA. We shared with you last quarter that we had direct line of sight to positive adjusted EBITDA. Given the strong underlying momentum of the business, we expect to achieve positive adjusted EBITDA within the next four quarters. Our aim is to continue to focus our investments towards activities that fit within the parameters of our capital allocation framework. As a reminder, these are line of sight to a payback period of less than a year, investments that have an ability to drive long-term growth while capturing economic benefits from greater scale, and significant potential for high return on investment. Exact timing for attainment of this critical milestone is dependent on several factors, including our investment decisions and performance across our emerging categories and channels. Several areas that we have invested in have exceeded our performance expectations by a wide margin. If this trend continues, we could achieve profitability as early as the fourth quarter of this year, as implied by the top end of our adjusted EBITDA outlook. We have seen several elements of our flywheel continue to compound in a meaningful way. Our brand continues to resonate with customers, which has resulted in continued growth and subscriptions on our platform. As a result of new customer growth, key partners are actively engaging with us, whether that be for creative marketing campaigns, new distribution channels, or supply chain relationships. Technology advances continue to delight our users and drive higher engagement across our platform, whether it be through how they engage with our platform or innovative and highly effective form factors. These positive dynamics have enabled us to realize benefits from economies of scale and drive leverage across several areas of our operations. It is clear that our business is evolving. As a result of this evolution, we feel that it is important to provide additional transparency into the underlying cost structure of our business. Starting next quarter, we plan to provide additional disclosures related to our operating expenses. This will provide greater clarity around investment areas and our continued progress at driving efficiencies across our operations. We look forward to sharing that detail with you next quarter in our third quarter SEC filings. I'd like to thank our customers, partners, and employees for continuing to help us achieve such strong results. With that, I will now turn it over to the operator for 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 followed by the number one on your telephone keypad. Your first question comes from the line of Dan Grosslight with Citigroup. Your line is open.
spk03: Hi, guys. Thanks for taking the question, and congrats on another strong quarter here. If I just look at the cadence of your guidance for the remainder of the year, the midpoint gets you to around 15% sequential increase in revenue in 3Q, and then for 4Q, it steps down to around 1% sequential growth. Similarly, it looks like you expect the adjusted EBIT loss to drop from around $8 million in 3Q to $2 million in 4Q. As you mentioned, you could even be positive in 4Q. I'm just curious if you're signaling to us that you're looking to titrate growth down a little in 4Q as you focus more on profitability. And if so, how should we think about that profitability versus growth dynamic heading into 2023?
spk01: Yeah, Dan, thanks for the question. I think with respect to the third quarter guide, what you do see is that many of the investments that we made in the second quarter came at the tail end of the second quarter. And so we do receive a tail end heading into the third quarter. With respect to the profitability versus growth dynamic in the fourth quarter, we continue to look for attractive opportunities to continue to invest and deploy dollars. So it's not as if we're going to scale back our marketing and investment deliberately in any type of meaningful way. Assuming that we still have the ability to invest in initiatives that meet our capital allocation framework, we'll continue to do so. But what we expect to see headed into the fourth quarter really is that the revenue that we pulled from the second quarter and the third quarter cohorts will start to compound. And then I think the other dynamic here is that historically the fourth quarter has been pretty volatile from a marketing investment perspective. We have seen some signals that the environment has remained favorable through the third quarter. Our guidance does not inherently assume that the fourth quarter, that that dynamic will entirely remain. And so that is why we've lost a pretty wide range in the four-year guidance.
spk03: Yeah, yeah, that makes sense. And I guess, you know, dovetailing off that a little bit in the volatility in the fourth quarter, I think recession and the impact of the consumer seems to be on everyone's mind this quarter. So just curious how you factor that into your guidance of potential recession. And then do you think that you could see some offsetting strength during a recession because more consumers are actually off of their employee insurance and need to go outside of the
spk08: the typical uh visit and couldn't you know migrate to you guys yeah thanks for the question you know i think generally speaking we feel really well positioned uh you know not only to thrive in a kind of recessionary dynamic but also to really take meaningful share and i think this quarter is a great example right we leaned in aggressively to a fish to efficient marketing where where it was working um as others were pulling back. And then also remember the categories that we're operating in are very emotionally challenged, top-of-mind customer needs that when these customers are waking up looking in the mirror, they're the things they're thinking about. And so you really feel like we've got a diversified set of customers that are coming to us with deep emotional relationships for things they care about. And ultimately, that's just a really sticky relationship that I think is really different from most in markets.
spk05: Got it. Thanks for the cover. Your next question comes from the line of Michael Turney with Bank of America.
spk04: Your line is open.
spk12: Hi, this is Charlotte. I'm from Mike. Thanks for taking my question. Congrats on the great quarter and your comments on profitability. Could you just provide some more color around your expectations for wholesale in the back half of the year, just going off of what you mentioned earlier?
spk01: Hi, Charlotte. Thanks for the question. I think we don't provide explicit guidance for the wholesale channel. What we do expect is for moderate growth to continue through the back half of the year. Again, what I would reiterate around our wholesale channels, we do view that as a critical channel that's part of our flywheel to generate eyeballs for our online channel. But we do expect more of a moderate pace of growth in the back half of the year.
spk12: Got it. Thank you. Just a second question. On your facilities in Ohio and Arizona, just if you could provide any more details on the efficiencies you're seeing coming out of that part of the business.
spk08: Yeah, so at a high level, the things we're really excited about there is the flexibility and the customization that can come from that verticalization, right? As we brought in the bundles that we offer on the platform, the innovative products, the combinations of those products, being able to allow customers to, in real time, adjust, in real time, add or subtract, change frequencies of deliveries and cadences, we feel like really unlocks the level of personalization that benefits the long-term relationship with the customer. And this is something that's just really difficult to do when you're talking about a third-party pharmacy or fulfillment center. So that's something that we feel is really critical differentiation. At this point, as we mentioned, You know, the majority of our monthly treatment orders are being delivered through these facilities, so we expect to continue to make that transition to near 100%. And as we're also seeing on the margin front, you know, there's incremental benefits from an efficiency and leverage standpoint as we bring those more in-house.
spk05: Great. Thank you. Your next question is from the line of Jessica Tassin with Piper Sandler.
spk04: Your line is open.
spk09: Hi. Thanks so much for taking my question, and congrats on the quarter. I was hoping you could just kind of remind us how you define long-term customer retention, and then just if that 85% long-term customer retention rate persists, how should that impact What I think you mentioned was an average order value per subscription of around $135. And then what does that mean for AOV over the next couple of years?
spk01: Yeah, thanks for the question, Jessica. To answer your question around how we define the long-term retention, effectively what that is is it's the online revenue coming from customers that have been on the platform for at least two years. And then basically what occurs is we retain 85% of the revenue from those customers on a go-forward basis. With respect to how that can evolve and influence the revenue per subscription with the metric that we gave, we don't provide explicit guidance around that. What we do expect is to hold to some of the similar trends that we've seen with respect to AOV in prior quarters, where we'll see moderate to slightly up up year-over-year AOVs from the prior year.
spk09: Thank you. That's helpful. And then just maybe any commentary you could give on just AOV trends in the back half of the year. And I think just any color on what is driving kind of this really very consistent AOV, at least on a sequential basis. And that's it for me. Thanks.
spk01: Sure. I think with respect to AOV, I think it largely holds true to the commentary that we gave earlier. We do expect AOV to be slightly up year over year. With respect to what's driving the AOV dynamics, largely what that is, it's a function of product mix. Consumers are coming to the platform and ordering a mix of baskets that tends to carry higher order values, both in the terms of the duration of subscriptions that they're choosing, as well as in terms of the types of products that they're choosing.
spk05: Your next question is from the line of George Hill with Deutsche Bank. Your line is open.
spk10: Hi, it's Maxine for George. Thanks for taking the question. I want to start with marketing spend. You mentioned the environment continues to be favorable. Can you provide some more color on what you're seeing on ad spend and the rates? Are costs going up or down? How do you plan to exploit the changes in the market? Thanks.
spk01: Yeah, sure. So, you know, I think maybe I'll start. What we have seen across the board is generally for the majority of our categories, we did see customer acquisition costs come down. What we did opt to do, you know, this quarter is tilt some of the investment towards some of our emerging categories. Additionally, as I mentioned, a lot of the investment that we had was back-end weighted, really as we started to see the environment start to shift later in the second quarter. Our expectation is that that will continue in Q3. The final element here that we did do is, I think as Andrew's mentioned previously, we oftentimes explore with a variety of channels. One of the channels that we did lean in more aggressively with this quarter was just our overall brand spend. What you do see are activities like us placing ads in the NBA finals. Our belief is that while we saw some pretty sizable returns on that immediately, many of those gains will start to accrue over the long run.
spk08: I think just to add color there, we're really looking for opportunities to lean in here because during these recessionary times, to Dan's earlier point, we are seeing the competitive landscape tighten their belts and start to retract from a lot of these channels, which creates an opportunity for us to really capture a disproportionate size of the market in the next coming quarter. So while we have the advantages in front of us, and as the operational leverage increases internally, we feel like it's really an incredible move to lean in where we can and to capture the growth of that subscription base while it's on the table.
spk10: Okay, that's very helpful. I have a quick follow-up. Are you seeing any rises in that for birth control and related drugs since the regulatory change, and do you expect to see any benefit on the results from it? Thanks.
spk08: You know, we have seen some increased demand on the HRS side of the business specifically for the near dozen contraception options that we have on the platform. We haven't seen a huge amount of inbound relating to other related services, which I know is a very hot topic in the news right now. It is something we're looking at and we're evaluating the legal landscape to see if there is an opportunity for us to help women in different circumstances. But at this point, most of that balance an increase in demand has really come from the contraception side of the business.
spk05: Your next question comes from the line of Jack Wallace with Guggenheim Securities. Your line is open. Hey, thanks for taking the questions.
spk02: And Andrew, I guess we all should have listened when you mentioned breakout performance, I think, five times in the prior call. And this really was another breakout performance for you guys. Just want to touch on some of the topics that were previously addressed here. If I'm hearing you correctly, it sounds like the ad environment from a cost standpoint is moving your direction. So you're spending more there and getting some nice returns, but in In turn, and that would be for more, let's call it near-term growth, but you're reinvesting those gains for larger and longer-term brand building. Is that a good way to think about the way the dollars are being reinvested on the whole? And then obviously there's some targeted spend for some of the emerging categories. Thanks.
spk01: Yeah, sure. I think, Jack, that definitely is a fair way to think about it. I think that we... In the capital allocation framework that we have, we choose a variety of different mechanisms. One side of the equation is around more experimentation. We were very pleased with the brand results that we saw throughout the second quarter. And so we'll look to kind of continue to experiment and evolve our brand in additional channels in the third quarter. But really, you know, as was mentioned earlier, the investments that we do take, we view them, you know, less around getting an individual transaction in a quarter, but really more around building a long-term relationship with our customer base that does pay back, you know, dividends, not just in the current quarter, but for several quarters down the road. And so that's one of the reasons why we do feel, you know, such comps are so confident in our path to profitability within four quarters. despite the investment, just given the recurring nature of the footprint and the longevity of what we're seeing in our customer base, gives us that confidence.
spk08: Yeah, I think to add on to that, you know, Jack, the ability to leverage the benefits of the established categories and reinvest that as well on the emerging, to your point in particular, I think it's a really valuable part of this business that has created a degree of defensibility and diversity of audience and channel and categories that really is hard to find in other businesses. We are literally marketing to dozens of different types of customers, dozens of different types of offerings on a dozen different types of channels. And so that matrix allows us to flex up and down in different ways and to carry over profitability in one very core and flywheeling category to the next category that's accelerating. And so I think not only is the recurring nature of that And the diversity of that, to Yemi's point, giving us confidence in the profitability timeline. But I think that's also giving us increased confidence and is a big part of the raise in guidance this quarter in the ability for us to have a really great long-term high-growth trajectory. There's multiple engines underneath the brands, hims and hers. each of which are great businesses. And so our ability to continue to unlock those at scale we think is a real asset to the company.
spk02: That's really helpful. Thank you. And then are there any KPIs or maybe some kind of overarching commentary you can give us about how your customers will interact and potentially purchase more products if they have downloaded the mobile app versus if they're solely engaging through the website? Thank you.
spk08: Yeah, it's a great question, Jack. So the mobile app has really been one of the most impactful initiatives that we've released this past quarter and have very, very strong beliefs that this platform and this kind of healthcare hub that we're creating ultimately will draw users back to the platform, drive stickier engagements, higher customer values. We launched this quarter two separate apps, one for him and one for hers, that has allowed us a degree of personalization and kind of authenticity in that experience that's paid a lot of dividends. The metric that we've disclosed, which I think is a really important metric and one that we're starting to really track is the increase in engagement with the platform. So through the app, consumers are now engaging with our brand three times more than historically they were on our web properties. which we believe is creating the potential for immense value that takes place after that initial purchase. So as we continue to expand offerings on the platform, as we continue to roll out in the mobile application, more catalog of original content, personalization tools, shopping experiences, provider engagement options, the ability to message them and talk to them at any point 24-7, we think this is only going to increase And ultimately, we think it's a really big part of the differentiated offering that customers are paying for with the HIMSS and HERS service.
spk05: Actually, that's helpful. Thanks again, and great quarter. Thanks, Jack.
spk04: Your next question is from the line of Ivan Feinseth with Tigris Financial. Your line is open.
spk00: Thank you. Thank you for taking my questions. Congratulations on another quarter and the ongoing success. Thanks, Ivan. From the accelerated marketing spend, where did you get the most impact? What lines of products did the best, and what products and things surprised you with the response?
spk08: Yeah, it's a great question. You know, we had a lot of success in Q2, both in the core categories, which are the traditional men's hymns categories, such as dermatology, you know, hair loss, sexual health, premature ejaculation, a lot of those original categories continue to scale very, very well. And so, you know, a lot of capital deployed there. Also seeing, you know, continued explosive growth on the emerging categories, specifically in the HRS side of the house. These categories, as we've shared, last quarter and can share again this quarter, these are growing at triple digit revenue growth. So they are the fastest parts of the business that are accelerating and growing. The economics of those businesses starting to look a lot like our best in class core categories and are generating pretty meaningful scale at this point. And so we put a lot of dollars into those two engines and saw great returns. And then as Yemi said, I think we're also really surprised, frankly, at the the outperformance of a lot of our brand spend. We deployed meaningful dollars into very high visibility spots, such as the NBA finals, that we know have long-term tailwinds associated, but we also saw very near-term benefits across all of our channels and raising the efficiencies of those channels. And so it was really this kind of convergence of the trifecta of those areas, the core categories really doing their job, to continue to build the oven or engine, the emerging categories starting to accelerate in a way that it's starting to make up a larger percentage of revenue, and then this halo of the brand dynamic, you know, that I think, again, is creating tailwinds both immediately and long term.
spk00: And what of your marketing initiatives have you seen that drives the biggest repeat, you know, where customers sign on and continue to buy after their initial purchase?
spk08: You know, we actually look on a channel basis, by category basis, and then actually target those categories with specific acquisition goals, right? And so as Yemi said, we've got a very disciplined approach to paid marketing and to our marketing spend. We want a very clear payback period within six to 12 months and the ability to generate very positive returns on those investments. And so across all of our channels, they're optimized on a per-customer basis and a per-channel basis. for their most optimal payback period. And so it's, you know, not one channel is better than the other, depending on the customer and the condition, it really quite ranges.
spk00: Thank you, and congratulations on the accelerating path to profitability.
spk05: Thanks, Ivan.
spk04: Again, if you would like to ask a question, press star followed by the number one on your telephone keypad. Your next question comes from Joy Zhang with SVB Securities. Your line is open.
spk11: Hey, guys. Congratulations on the strong corridor, and thank you for taking my question. My first question is on the brand side. Can you just talk to what you see as advantages or disadvantages of being a multi-product brand spanning many specialty areas versus American competitors who are solely focused on one area, like care loss or behavioral health? And relating to that, how do you maintain your brand value when some of the emerging competitors are using very similar aesthetics and advertising channels to market their products?
spk08: Thanks, that's a great question. You know, from the brand perspective, we've always had the philosophy that long-term brand equity will really compound if you can put numerous highly emotional, highly resonant categories under one umbrella. And that's why we named the company HIMS and HERS from the beginning, because it speaks to a customer and says, hey, we're here for a long time. We're going to build a deep and trusted relationship with you. And as you scale, and as you age, and as more things pop up, we're going to do the same thing side by side holding your hand. And so what we see with the HIMS brand and the HERS brand is both the same, a huge advantage of being able to speak to one message around health, wellness, empowerment, feeling great, that really resonates across the five or ten major categories that make up the majority of what people say is primary care. The reason you're going into a doctor's office, the things that are making you feel better are things like sleep, your relationships with your partner, your mental wellness, your anxiety, your depression, how you feel about yourself and your own skin, your weight, your skin, your hair. And so the focus on core emotionally relevant categories, but having that broad set umbrella on top has been a huge asset. It allows us to deploy one key message to customers and their brain to capture that airspace in their mind of him's or hers as their health and wellness partner, and then over the course of years build with them and expand with them. And I think we've seen that in the data, and we've seen that be a massive advantage. On the protection of the brand, what I would say is that there's really three components that drive the success of what's happening under the hood right now. It's the unique and authenticity of the brand. It's the innovative technologies and the products we're actually offering. And then ultimately, it's the seamlessness, the beauty, and the functionality within the experience. And so while other brands might take a peach color tone and put it on the background of an ad and feel like they're going to try to get the benefits of the HIMSS platform or the HERS platform, It's just frankly not the reality. In order to scale at these levels, to deploy this amount of marketing efficiently, to retain close to a million subscriptions on a monthly basis with a deep relationship, you actually have to have the trifecta of all of those three. And so we spend a lot of time investing in the brands in an omni-channel way across 20,000 retail locations with different partnerships and celebrities and suppliers. We invest a tremendous amount in the technology platforms. the original content in the mobile applications, the one-click ability to buy, talk to a doctor 24-7. All of this is what makes the experience world-class and ultimately delivers something that is truly better and unique than anything in market. And it's that flywheel that's delivering the outsized and kind of record-breaking returns. It's not the simplicity of maybe how an ad looks on a marketing channel.
spk11: That's super helpful. Thanks for that. And as a follow-up, you've always had a 100% cash pay model, and that's worked very well so far. Given the recessionary environment going forward, do you see any opportunities in engaging with managed care companies for certain higher-priced product lines, or do you expect to remain under that cash pay model?
spk08: Yeah, that's a great question. I think it's really important to remember that the business was founded – to solve for many of the inefficiencies that customers increasingly face during recessionary times. So in healthcare, you're talking about poor access to healthcare. The majority of non-urban kind of suburban areas are considered primary care deserts. There's not primary care physicians easily accessible within an hour or two. There's low convenience, and ultimately there's high prices. So while the majority of customers on our platform have insurance, the majority of them have a very high deductible plan. And so I think what is actually maybe counterintuitive is that during recessionary times, cash pay options where patients can pay $20 or $30 for the complete experience, the access to the specialty, the access to the products and all of that delivered to their door is actually increasingly beneficial. And so we continue to create and look to create opportunities where customers get really affordable options. We continue to evaluate insurance as a benefit where it might be beneficial. But with that said, the cash pay prices we're delivering, and I think mostly because of the verticalization of what we've built and the leverage we're able to get out of the system, those cash pay prices are better than the copay prices. And time and again, we're seeing that. We're continuing to look to your point and we're always very open to find those opportunities where insurance might benefit our customers, but in the categories we're operating in today and the categories we're most excited about, we actually think we can deliver cash pay prices that are easier and more beneficial.
spk05: Super helpful. Congrats again. Thank you.
spk04: There are no further questions at this time. Ladies and gentlemen, thank you for your participation. This concludes today's call. You may now disconnect.
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