This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk06: Ladies and gentlemen, thank you for standing by. At this time, I would like to welcome everyone to the HIMSS and HERS second quarter 2023 earnings conference call. Please note that this call is being recorded. All lines have been placed on listen only mode. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question at this time, please press star followed by the number one on your telephone keypad. To withdraw your question, again, press star one. I would now like to turn today's call over to Alice Lopato, Vice President of Investor Relations. Please go ahead.
spk03: Good afternoon, everyone, and welcome to the Hims and Hers Health second quarter 2023 earnings call. On the call with me today is Andrew Dudum, our co-founder and chief executive officer, as well as Yami Okupe, our chief financial officer. Before I hand it over to Andrew, I need to remind you of legal safe harbor and cautionary declarations. Certain statements and projections of future results made in this presentation constitute forward-looking statements that are based on, among other things, our current market, competitors, and regulatory expectations and are subject to risks and uncertainties, and 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 reports for a discussion of risk factors as they relate to forward-looking statements. In today's presentation, we have 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 investors.forhims.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.
spk13: Thank you, Alice. This quarter, we drove excellent results on both the top and bottom line. Growth remained exceptionally strong with revenue up 83% year over year in the second quarter to 207.9 million. Our platform continues to benefit from diversity of distinct brand categories helping lay the foundation for many years of robust growth ahead. Our more mature offerings within the HIMS brand continue to expand with little sign of market saturation, as we gain benefits of scale and continue to build a clear market leadership position via the capture of increasing share within the competitive landscape. Newer categories in markets, such as mental health and our UK operation, are growing mid-triple digits, and demonstrating strong quarter-over-quarter unit economic improvements. In Mark's step, we continued to drive meaningful efficiency gains from our efforts to verticalize our affiliated pharmacies and optimize our processes, which allowed us to generate $16.8 million in cash flow from operations and $10.6 million in adjusted EBITDA in the second quarter. This increasingly powerful flywheel model provides us reassured confidence in our ability to achieve and surpass our 2025 targets of at least $1.2 billion in revenue and over $100 million in adjusted EBITDA. Indeed, we believe the strength and composition of revenue and overarching durability of the model we're building is pointing towards many years of robust growth and increased profitability ahead. While I am proud of the company's quarterly financial outperformance, I'd like to spend most of today sharing some of what's happening under the hood. With long-standing initiatives, capabilities, and soon-to-launch categories, I believe we have the potential to meaningfully accelerate the RA exciting trajectory HIMSS and HERS is on. As I've shared in the past, I believe HIMSS and HERS is a unique competitive advantage. Myself and the rest of the management team think in multi-year horizons. and are not afraid to tackle complex challenges. While not for many years ahead, I wholeheartedly believe most of our management team will retire with this company. This long-term orientation is based upon the foundational belief that over the long term, we can deliver a platform so differentiated and so valuable that nearly every household in the country will benefit from its existence. Our orientation to the long term has been in our DNA from the start. And it's what's enabled us to get to where we are and build a company that today services customers across multiple categories, acquires consumers through some of the most creative channels, and has a foundation from which to bring some of the most innovative, personalized products to market. Looking ahead, the number of lives that we positively impact over the course of the next 10 years is a key benchmark for how we evaluate our progress and celebrate our successes. We believe that step change gains and long-term shareholder value will be a derivative of this. To look under the hood, I'd like to walk you through a few transformative shifts taking place in our business. For simplicity, I'll group them into four buckets. The first is a material mix shift in consumer preference, moving from generic to personalized treatments. The second is the rapidly accelerating strength of our data platform and AI capabilities. that are enabling individual providers to leverage the collective knowledge of hundreds of providers and millions of historical clinical decisions to support these precision treatments. We recently filed multiple trademark applications for the name MedMatch and plan on showcasing this AI technology more specifically and the clinical benefits it's delivering next quarter. Third, our new multi-action capabilities to enable providers to customize single pill treatments for multi-category conditions. And lastly, the exciting new frontiers and offerings we have recently launched and will be launching soon. From the earliest years, HIMSS and HERS delivered on in its simplest form, access. Access to a provider, access to clinically appropriate generic treatment, and access to solutions for a singular issue patients were challenged with. Today, that story has become wildly more exciting. as initiatives that have been in development for years are beginning to come to market. Our story is no longer one of simple access, but a story of bolstered capabilities in diagnostics, treatments, and care that we believe can deliver truly better outcomes. Our mission to help the world feel great was never just about providing access to the existing system of healthcare. While this is where we began, our true purpose all along has been to transform that system for the better. We want to improve the intelligence and capabilities of providers so that a customer's clinical experience and outcomes are not dependent on the sole experience of an individual provider, but rather the collective knowledge derived from hundreds of thousands or even millions of clinical encounters. Our ambitions were never just to provide access to commonly prescribed medications, but to build capabilities across pharmacy and clinical excellence to establish a new standard of entirely personalized, customized solutions. And lastly, our mission was never limited to enabling treatment of a patient for singular issues, but rather to build on human relationships and patient trust such that we could expand into a multi-treatment experience that tackles not only the patient's initial concern, but key underlying conditions that impact their overall health and ultimately their life. From a business that delivers on access alone to now a business that is personalizing the patient experience and treatment opportunities in order to deliver on better results and outcomes, we are propelling one of the most meaningful industry transformations that I have been witness to. We believe this transformation has massive implications for the future of hims and hers. From competitive differentiation to enduring growth, improved customer lifetime values, extensive and deep moats, and an offering that can no longer be compared to those in market. Something truly unique. To dig in further, let's start with that first bucket. The material product mix shift within our customer base from that of generic treatments to personalized treatment opportunities. Our confidence in personalized solutions is high, based upon insights and feedback from hundreds of thousands of customers on our platform. Feedback is confirming our belief that our innovations on this front are delivering on an unmet customer need that radically changes the relationship with and appreciation of our platform. Category-wide, the personalization of patient treatment by providers has rocketed, reflecting the desire and need for customized treatment of patients. Over 35% of online revenue from customers acquired in the second quarter came from personalized treatments. From our most tenured categories, like ED, providers and patients are increasingly turning to personalized solutions made available through hard mint and multi-action heart support. In him's hair, over 80% of new subscribers in the quarter opted for personalized treatments. The ability to tailor treatment in dose, form, and composition is giving many of our providers and customers their first real experience with precision medicine. The simple takeaway, customers are loving it. They're selecting it more, willing to pay more, engaging with the platform more, adhering to treatment more, and even indicating that they have no desire to return to the world of generic treatment. We expect to have personalized offerings across each of our main categories by the end of this year and anticipate that curated, personalized experiences and treatment will increasingly drive the differentiation of our business in the coming years. This business transformation is the result of years of innovation in pharmacy, clinical excellence, and platform technology. As the shift continues to flow through our business, we'll enter a world where HIMSS and HERS is known for these personalized capabilities, lifting the platform to new levels of customer appreciation and value. Personalization is not possible without our second bucket, which is the massively improved data and AI capabilities that we've spent years building in the background. As mentioned previously, we recently filed a trademark application for the name MedMatch and plan on showcasing this AI technology more specifically and the clinical benefits it's delivering next quarter. The move to personalized medicine and dramatically improved data capabilities are intrinsic to the third bucket, which is our new multi-action capabilities to enable providers to customize single pill treatments for multi-category conditions. Our newest offering launched just last week was our first foray into preventative cardiovascular care, Heart Health by HIMSS. Heart Health is one of the most meaningful launches since our founding. Heart disease is the number one cause of deaths for men worldwide, and approximately 30% of our male customers have at least one risk factor of developing it. This extension enables providers to prescribe compounded formulas that combine the active ingredients found in ED medications and statins, like the generics for Lipitor and Crestor, which can reduce the risk of having a heart attack by upwards of 33% and death by 8%. In partnership with the American College of Cardiology and LabCorp, we've brought together what Henle does best, innovative products, leading technology, and clinical excellence that work together to deliver on experience in defending the curve of deaths caused by heart disease. The market for cardiovascular support is massive, with nearly 100 million people suffering from heart disease in the United States alone. And I couldn't be more proud of the team for being patient and strategic in building the foundational capabilities over the last few years in anticipation of this launch. And this is just the beginning of what we will be able to do for our patients. For many years, patients have come to us to solve a single issue while actually struggling with many. PIMS and HERS now offers providers the clinical capability to address multiple conditions in a single treatment. leveraging the demand from high-interest categories to treat other clinical areas for which patients need support. In the e-commerce world, this is a cross-sell strategy. In our world, it's a clinical capability that allows patients to access more personalized, meaningful care, addressing a multitude of issues simultaneously, supporting simpler treatment regimens, and ultimately increasing the value we are delivering to our customers. Multi-action capabilities further deepen the defensibility of our platform as the offerings become more and more customized and inimitable to customers. It's easy to imagine the many powerful avenues where this could be beneficial, from chronic disease management, like heart disease and diabetes, to bundled cosmetic capabilities for anyone interested in treatments across categories. and even to help providers address sometimes stubborn and challenging issues more comprehensively, such as menopause or the interrelated dynamics between mental health, metabolic health, insulin resistance, and weight gain. These multi-action capabilities open us up to the last bucket, which are the new frontiers and categories we can bring to market in a way that's competitive, effective, affordable, and attractive to existing and new customers alike. We're excited to announce that HIMS and HERS will launch our comprehensive weight management offering in time for this coming January's New Year rush to self-improvement. Our weight management category will leverage all of the strengths of our platform. This means access to personalized treatments customized for a customer's clinical needs. Powered by our enhanced pharmacy capabilities, This offering will enable providers to more comprehensively address a range of underlying conditions clinically tied to weight gain, such as metabolic disorders, insulin resistance, overeating habits, depression, and more. At launch, the offerings will include access to treatment formulations that are affordable and that can combine and leverage the active ingredients in proven prescription medications and supplements, as well as behavioral and nutritional-focused plans. The platform is being built to support both existing GLP-1s and future pharmaceutical innovations. But given the instability of the current supply chain, inconsistent reimbursement, and outstanding safety evaluations, these products likely will not be available at launch. Dr. Craig Primack joins us this week as our new medical director in weight management, bringing to our organization nearly two decades optimizing treatment protocols for the complex underlying factors driving weight gain. Our weight management offering has been in research and development for over a year, and with nearly 100 million Americans suffering from the disease of obesity, we want to ensure it is positioned to make a real dent in this crisis. That means delivering on an offering to a mass market audience with pricing in line with core, everyday prices offered across our categories, an experience that's streamlined and consistent, and a focus on safety and efficacy. Leveraging widely understood and available treatments, sophisticated pharmacy capabilities, and deep data-driven archetype matching, we hope to deliver exciting treatment efficacy at scale. Like I said at the start, our mission is to make the world feel great through the power of better health. An often underappreciated aspect of this mission is the necessity of ensuring our platform can reach as many people as possible. The level of scale that we have combined with the efficiency of our affiliated pharmacies enables us to orient users to a model with a treatment-based construct versus a pill-based construct at exceptional value to them. This will continue to become more meaningful as we move further away from subscribers with one treatment to subscribers with multi-category treatments. As part of this mission and our ambition to reach as many people as possible, we're excited to share that in the past few months, we've begun to systematically lower prices for many of our longer duration offerings to make our more personalized subscriptions even more mass market accessible. Pricing rollouts, which we expect to continue in the coming months, have been in process while simultaneously expanding gross margins to 82%. as our operational scale and efficiency allows us to accelerate profitability on an adjusted EBITDA basis and also expand market share and access. We are already seeing the signs that these strategic actions are having a strong market impact. After the implementation of strategic pricing adjustments, the ratio of new HIMS hair loss subscribers that selected a personalized offering with a duration of five months or more increased over 25 points, during the course of the second quarter. Our belief is that consumers making longer upfront commitments for effective and unique products is an equation that provides a path for users to remain on the platform for decades. This quarter's announcement reflects years of hard work from the team, and I'm thankful for their commitment to building this platform the right way. I'm confident the methodical nature of our team and their time horizon for investments will have a uniquely meaningful impact to our customers and ultimately our shareholders. With that, I'll turn the conversation over to Yemi to discuss further financials.
spk10: Thanks, Andrew. Hello, everyone, and thank you for joining us today. I'll start by providing an overview of our second quarter's financial performance and then provide additional details behind our expectations for the remainder of the year. We are pleased to see continued strong momentum across hims and hers, which we believe reflects the sound execution of our strategy that centers on enabling access to innovative products through world-class technology with a brand that consumers love and trust. Revenue in the second quarter grew 83% year-over-year to $207.9 million. Revenue growth was primarily driven by robust performance in our online channel. Online revenue increased 87% year-over-year to $201.2 million in the second quarter. The continued addition of subscribers onto the platform was the primary driver of online revenue growth. The number of subscribers on the platform increased 74% year-over-year to 1.3 million subscribers. This quarter, we expanded the portfolio of personalized solutions accessible across the HIMSS and HERS platform. Notable examples of this include the national rollout of the Hartman's offering, additional hair loss solutions within the HERS portfolio, and the launch of Heart Health. early consumer feedback and reactions indicate a strong user preference for these personalized offerings. Historically, we have reinvested efficiency gains into marketing as well as the research and development of new solutions. With this much more extensive portfolio of personalized and differentiated offerings combined with record-level gross margins, our investment opportunities have expanded. We made the strategic decision to reinvest a portion of the efficiency gains that scale and strong execution have provided us into more attractive pricing for a subset of offerings on the platform. Specifically, meaningful changes were made across longer duration HEMS sexual health and HEMS hair loss subscription plans. The net effect is that more customers than ever have access to personalized solutions to improve their daily health for as low as $39 per month in some circumstances. These changes resulted in an estimated online revenue headwind of $5 million in the second quarter as monthly average online revenue per subscriber declined 4% quarter of a quarter to $53. Already, we have received several strong signals that these changes have the potential to accelerate adoption of personalized solutions across a broader set of users on our platform. Over 35,000 existing subscribers switched to a longer duration or personalized offering in the second quarter. We believe personalized solutions, combined with our overall strong value proposition, will enable us to retain our users for decades. At the end of the second quarter, over 20% of total subscribers across all of our offerings were on a personalized solution. This is a clear signal that consumers are drawn to and appreciate personalized solutions that our providers can prescribe. We believe offering unique solutions at attractive price points is a powerful combination that positions us for significant market share gains. Economies of scale in our operation enable us to do this while maintaining healthy margins in a way that few can match. Our gross margin trajectory in the second quarter is a textbook example of the power of sound execution combined with economies of scale. Gross margins expanded over 140 basis points quarter over quarter to 82% in the second quarter. Gross margin expansion was the result of lower product costs, increased efficiency across our provider base, a move to longer duration subscriptions, and improved efficiency from a migration toward affiliated pharmacies. These dynamics more than offset degradation from our strategic pricing actions. The ability to strategically adjust prices and simultaneously expand margins is a truly unique advantage. Our belief is that this capability to benefit from scale and concurrently offer differentiated products uniquely positions us to become the leading platform for personalized health and wellness solutions. We made meaningful progress on our transition toward affiliated pharmacies in the second quarter. Over 70% of orders were fulfilled by affiliated pharmacies in the second quarter. This provides a robust platform from which to seamlessly transition the business toward personalized-centric offerings. Turning toward elements of our cost structure, marketing as a percentage of revenue was flat quarter over quarter at 51%. Marketing and investments were more heavily weighted toward the back end of the quarter as a result of the timing of new product launches, strategic pricing actions, and large brand campaigns. Customer acquisition was slower at the start of the quarter as a result of those dynamics and a somewhat more challenging marketing environment relative to the first quarter. We expect that investments made near the end of the second quarter will provide meaningful customer acquisition tailwind in the third quarter. Our expectation is for continued investment in marketing as we launch new personalized offerings throughout the year. Similar to prior periods, we intend to do so while maintaining a one-year payback period. Operations and support costs as a percentage of revenue, excluding stock-based compensation in the second quarter, came in at 14% stable with the first quarter. We see potential for continued modest gains in this area through the year as we benefit from economies of scale and continue to make efficiency gains on the cost structure for personalized products. Technology and product development costs as a percentage of revenue, excluding stock-based compensation, came in at 6% in the second quarter, stable to the first quarter. Continued investment is expected in this area through 2023 as we augment data science capabilities and expand upon capabilities available to providers on the platform. General and administrative costs as a percentage of revenue was 15% in the second quarter, representing a five-point improvement relative to the second quarter of 2022 and a one-point improvement relative to the first quarter. Excluding the impact of stock-based compensation, G&A costs were 9% of revenue in the second quarter, representing a four-point year-over-year improvement from 2022. Adjusted EBITDA increased 73% quarter-by-quarter to 10.6 million in the second quarter. Gains from efficiency improvements in economies of scale offset the estimated 5 million headwinds from strategic pricing actions I discussed earlier. In the second quarter, we made considerable investment into the affiliated pharmacies that will set the foundation for greater personalization capabilities in the future. Capital expenditures related to the purchase of property, plant, equipment, and intangibles were 4.7 million in the second quarter. We are pleased to see our balance sheet continue to strengthen while we can currently build future capabilities. Cash and short-term investments increased 8.7 million quarter-by-quarter to 193.1 million in the second quarter as cash flow generated from operations continue to exceed capital expenditures. Momentum has remained strong in 2023 as we rapidly evolve our platform's capabilities across a level of breadth and depth that we feel is currently unmatched. We are excited to continue to make significant strides in our transformation from an access-oriented platform to one that offers personalized solutions with the potential for better adherence and outcomes. Equally exciting is the pace at which we continue to drive efficiency across the platform, which allows us to enable access to unique, personalized, and compelling solutions at affordable prices. We are confident this will fill a market leadership position, as well as, more importantly, the ability to improve millions of lives. Our updated outlook for the remainder of 2023 reflects these dynamics. In the third quarter, we're expecting revenue of between 217 to 222 million, which represents a year-over-year increase of between 50 to 53%. On the bottom line, we expect adjusted EBITDA of between 10 to 13 million, representing an adjusted EBITDA margin of 5% at the midpoint of both ranges. For the full year, we are raising our outlook for revenue to 830 to 850 million, translating to a year-over-year increase of between 58% to 61%. The midpoint of our updated range is $20 million higher than our prior range. We are also increasing our outlook for 2023 adjusted EBITDA to $35 million to $40 million, reflecting continued efficiency gains across the business. These adjusted EBITDA and revenue ranges result in an adjusted EBITDA margin of 4% at the midpoint of both ranges. No material contributions from weight management or cardiovascular health are assumed in 2023. Generally, we expect new categories to take at least 12 to 18 months from launch before they meaningfully contribute to the business. Reflecting in our guidance is an assumption that the extremely favorable marketing environment that emerged in the back half of 2022 is not repeating the back half of 2023. Additionally, our guidance incorporates a negative impact of between 12 to 18 million in the second half of the year for both revenue and adjusted EBITDA as a result of the strategic pricing changes previously discussed. We believe these strategic moves will drive both stronger retention and acquisition dynamics in the future as customers have the ability to access a unique and differentiated set of solutions on our platform that are less readily available than standard generic solutions. We have high conviction that gains in efficiency from strong execution and economies of scale will enable us to continue to expand our adjusted EBITDA margins over time. Our ability to deliver these strong results is the result of efforts of hundreds of employees across HIMS and HERS that work hard each day to help the world grow great through the power of Better Health. I'd like to thank them, as well as all of our customers and partners that support us in our mission. With that, I will now turn it over to the operator for questions.
spk06: At this time, I would like to remind everyone, in order to ask a question, please press star, then the number one on your telephone keypad. Our first question comes from Daniel Grosslight with Citi. Your line is now open.
spk15: Hi, guys. Congrats on the quarter. Thanks for taking the question here. Just a couple quick ones on the new weight loss category that you're expanding into. So it sounds like there's going to be like a behavior modification aspect to it, maybe nutrition coaching, fitness coaching, as well as some type of either nutritional supplement or prescription along with it. But it also seems like the GLP-1s aren't going to be available at first. So, I was wondering if you can just dig in a little more on what kind of treatment away from the behavior modification and fitness nutrition. What kind of treatments you're going to provide with this new weight loss category?
spk13: Thanks, Dan, Xander. Yeah, so I think what we're going to start with is a wide range of likely generic options and personalized treatments that are going after some of the underlying factors of weight gain. So this could be metabolic resistance, hormonal issues, could be underlying mental health concerns such as depression or unhealthy eating habits. Dr. Craig Primack who joined as our weight management medical director has, you know, a couple decades of experience, specifically leveraging, I think, this wide range of treatment offerings to go after what is often a multi-prong issue for weight gain. And I think that's what the approach is going to be. It's going to be built on, I think, a lot of phenotype and archetype data of understanding this patient really well in partnership with these clinical advisors in a way that we can leverage some of those dual-action and multi-action treatment capabilities that we recently launched with the Heart Health launch and leverage those same abilities with the weight management category. So really simple protocols, but from a patient standpoint, highly personalized and hoping to go after a lot of those underlying conditions and ultimately have great efficacy, but with affordable and well-tested and safe options.
spk15: Yeah, makes sense. And then this quarter, AOV growth was really strong. It came in around 22% or so this quarter, year over year, which would be the fastest growth since 2021. Just curious what's driving that AOV growth this quarter, given you're lowering prices on some treatments and revenue per subscriber is dropping a little bit.
spk10: Yeah, Dan, this is Yemi. Thanks for the question. Really, there's a few factors. And so I think one of the reasons behind why we made the strategic price and actions is really to start to make both longer duration subscriptions attractive for users as well as the proprietary products attractive to users. And so what we saw as we made those is both new users coming in as well as existing users started to switch to longer duration proprietary products that come with a larger commitment upfront. And so you have more people that are on long duration plans as they pay for those upfront. that really is the factor driving AOV and the fact that more customers, as Andrew mentioned previously, are also switching to the proprietary products, which still come at a bit of a premium to the Unarcs.
spk02: Yep, makes sense. Thanks for the comment.
spk06: Your next question comes from Jack Wallace with Guggenheim. Your line is open.
spk14: Hey, congrats on the quarter. And Andrew, congrats on the birth of your second child. We've got two questions here. One on the cardiovascular entry. So this is statins. We just think that this would help you target maybe an even older demographic, maybe that is outside some of the younger millennial demo that you play so well in. Is that part of the TAM expansion thought process? And then second, are we expecting any attractive pricing with this? Or how should we think about pricing with that combined product? Thank you.
spk13: Thanks, Jack. So, on the cardio side, this is one we're really excited about, because I think it does a couple of things. One, it does, to your point, massively expand, I think, the value and differentiation of the platform for that older demographic, right? There's a tremendous overlap with erectile dysfunction and cardiovascular disease. In fact, as we've shared in the release last week, erectile dysfunction is often an early indicator of cardiovascular disease. So the ability to expand in that older audience is something we're really thrilled by. But also in general, we are seeing tens of thousands of men on the platform today, of which we've shared 30% of those men are at risk of heart disease. And so they could be a couple of years away from a heart attack or stroke, and most of them are completely unaware of it. And so this launch, I think, brings together really what we do best, which is partnering with great clinical excellence, the American College of Cardiology and LabCorp, innovation with this dual capability, which allows our providers to personalize treatment with these statins that are incredibly well-tested and safe with base ED medications. And you can imagine that this heart support could eventually be added on to other categories, mental health or hair care or women's products as well for people at risk. And ultimately I think meaningfully increase adherence to this preventative treatment. And ultimately I think actually hopefully save tens of thousands of heart attacks from happening and eventually tens of thousands of lives. And so from a pricing standpoint to kind of round this out, our aim is to make this as accessible as possible. I think as Yemi shared, we've been able to meaningfully lower prices in the last couple of months and aim to continue to do so for some of our higher value product bundles while still maintaining and expanding to record high 82% gross margins. So the operational efficiency and excellence within the business is really humming in a way that's allowing us to take a lot of this value and innovation and pipe it right back into the customer's wallet in a way that allows us to capture more and more competitive market share. And so with Heart Health by Hands, this will be priced at a premium from the core base treatments that are personalized, but at a slight premium. There'll be still very mass market, very accessible. And our aim is to make it such that price is never the reason why you're choosing, you know, the treatment that is truly right for you versus the one that might be a little bit cheaper.
spk14: Got you. That's helpful. Thanks. And then, Yemi, you mentioned that the marketing environment was a little difficult in the front half of the quarter, and there's an elevation of investments in the back half. When you mentioned the difficult marketing environment, and I'm thinking about this in the context of the the price changes. Was there any take-up in churn rates that you're also responding to, or was it just simply some of the key areas you play in with marketing dollars just got more expensive or the consumer's pulling back? Just trying to get a better understanding for the environment dynamics. Thanks.
spk10: Yeah, Jack, I think it's a great question. I think it was the environment was in line with what we expected for Q2. I think Q1, we definitely saw some, you know, surprising favorability that was unanticipated. Before we make pricing changes, we do a lot of research and experimentation. And so those changes were, you know, effectively months in the making, just because we do want to use prices more of a precise tool versus a blunt tool. And so the two were very much, you know, disconnected. Effectively, like what we do look to when we institute pricing changes is, A, do consumers basically value those changes? B, are they very likely to reach in on the platform for a longer period of time? And then lastly, because we have so many different cohorts of users that are selecting different products, we're really able to dial in what are the highest LTV products. As we started to see the benefits from scale and our gross margin started to expand, we made the decision to put some of that back into additional customer value. As Andrew mentioned before, we're really looking to make the personalized products mass market because the objective is really to have our users for a period of decades.
spk02: Awesome. Thank you, guys. Thanks, Jack.
spk06: Your next question comes from Michael Cherney with Bank of America. Your line is open.
spk11: Good afternoon, and thanks for taking the question. Maybe if I can go back to weight management, and we talked about GLP-1 products not being available off the bat, but how are you thinking about the characterization of maybe weight management 2.0, given the high demand for the products as well as the logistics that come with an area such as cold storage, for example, on GLP-1 that you may not be as focused on today?
spk13: Yeah, great question. You know, I think there's a tremendous amount of excitement internally relating to GLP-1s and both the existing products that are in market as well as, frankly, the, you know, dozen or two dozen that are in the pipeline today and finishing up clinical trials that I think will likely bring to market, you know, an oral semi-glutide and ones that have hopefully improved efficacy. Without question, these are here to stay and the platform is being built in such a way that enables it, including the affiliated pharmacy operational side, as you mentioned, the cold storage necessity. That's something that we don't feel will be a concern with our operational side. I think the real reason just being really transparent is just, you know, the consistency of being able to deliver a world class experience to our patients and our customers just doesn't feel quite there yet with this offering. And I think you're seeing that from peers in the market who are pulling back on this offering or turning it off as a result of inconsistent supply chain issues, or the fact that I think it's one or 2% of all those individuals eligible to actually get reimbursed or actually achieving reimbursement. The fact that in the last couple of months, tremendous amount of new side effect profiles that are coming out. You know, the reality is that the medicines are only nine to 12 months old and have only been studied for that duration. And so we hold clinical excellence and the trusted brand pillars kind of in the highest regard in the company. That's our greatest asset here over the long haul and want to make sure that everything we bring to market is going to deliver a seamless, effective and safe offering for patients. And right now, I just don't think we have that confidence. So we're staying close to it. We're working with our clinical advisors to make sure that we are up to speed on how things are evolving. Without question, they will be a part of the platform in some form in the future as a lot of these issues get worked out and hopefully the next generations as well, but likely won't be available there on launch by the end of this year.
spk11: I understood and appreciate the perspective there, Andrew. And then maybe the second question, fully appreciate this one, it's hard to answer, but at the beginning of the year, you gave the 25 targets, $1.2 billion, $100 million of revenue. And I very much understood the emphasis on at least, which I think was underlined, bolded in your presentation. So I get that. And that being said, this is the second straight quarter of beaten race on a pacing perspective to tracking well ahead of there and that's before market expansion. So I guess, what should we think about in terms of when you plan to update that one way or the other or discuss further changes based on the fact that you're now also expanding your near-term TAM?
spk10: Yeah, Mike, thanks so much for the question. I think when we set the 2025 target, that was given around line of sight for really what we had at the end of last year. We were seeing so many different things that were compelling in the business. That gave us the conviction to set the floors of $1.2 billion of revenue, $100 million of EBITDA. I think we deliberately did not give a range or set a ceiling just because there's so much exciting going on in the business right now with the launch of new categories. We've been pleasantly surprised by some of the newer personalized offerings taking off. But at this point in the time, we still will leave those as the floors for 2025. As we get closer, you know, probably to 2025, and we see the full potential for some of these matters, then we'll look to, you know, update. But at this time, again, I think we can call it that those are floors not filling.
spk02: Thanks, Kevin.
spk06: Your next question comes from Glenn Santangelo with Jefferies. Your line is open.
spk01: Oh, yeah. Thanks for taking my questions. I just want to follow up on some of your prepared remarks. It kind of sounds like, Andrew, that you decided that it was the right move to make some investments in pricing. And if I heard Yemi correctly, it kind of sounds like that's going to cost you 12 to 18 million in both revenue and EBITDA on just the back half alone. So it seems like kind of a significant investment, but it doesn't sound like it was related to churn. And it kind of sounds like you're doing that now you're seeing an increased duration of your average customer. And I'm putting all this in the context of the fact that you just raised guidance as well. So I was wondering if you could just flesh out that decision a little bit more and the ramifications of what you're seeing as a result of that investment in price.
spk13: Thanks, that's a great question. I'll take maybe the first half and you have me add some of the quantifiable things we've been seeing because it really is moving some of those numbers. It was really a strategy to leverage the strength of where the business is at right now. As you saw in this quarter, we hit kind of record 82% gross margins. I think there's an incredible amount of efficiency and operational excellence that's taking place under the hood, allowing us to deliver on the mission, which is to help the very mass market. We've said this in the past. We believe we can build a platform and a value proposition that is such where every household in the country is a member and is satisfied and loves this business and brand and is getting real value. And I think in doing so, we want to find as much efficiency as we can within the business and bring that back into the customer's pocket, right? That is a clear and aggressive way for us to go take meaningful market share with an offering that we know to be very sticky and very creative in individual's life. And so that was really the strategy behind this and I think continues to be the strategy. Big investment to be able to do so, but I feel like it's a powerful one given the brand's opportunity to go after a big chunk of the market that otherwise might be costed outside of the range of an opportunity.
spk10: Yeah, just to add to that, building upon what Andrew said, Glenn, I think that really the objective is how do we make it as easy as possible for as many users as possible to stay on the platform for decades? Given the efficiency gains that we are seeing and how the benefits of scale have really come through, fashionably anticipated, we really started to look for additional ways, given that we have just an entirely different construct now in the market where we're no longer competing on access, but we're also competing on personalized products. When you really combine those things and as we start to bring those into increasingly more and more mass market prices, it becomes really powerful. And what we've also observed is the more scale that we get, the more efficiency that we generally get. And so really basically being able to, you know, lean into that flywheel in a way that, you know, benefits us as well as our consumers, I think it's going to be really powerful to come.
spk02: Okay.
spk01: Thanks for the comments.
spk06: Your next question comes from Jonna Kim with Cowen. Your line is open.
spk04: Thanks for taking my question. Just from a macro standpoint, as there's uncertainty in the market, have you seen any changes in the consumer behavior and maybe any notable changes quarter to date that you can sort of provide more colors on? And another question I had was around marketing strategy. going to be investing behind marketing around new launches? How will that be different versus what you currently have? And just curious if there are more colleagues you can give around marketing strategies going forward. Thank you so much.
spk10: Yes, I can take the first one, Jonah, and then, you know, hand it off to Andrew for the second one. I think we've not seen, you know, really any pressure on the consumer. I think we've spoken to how the overall consumer set is diversified across so many aspects from gender, age, income, but really we've seen success in a multitude of environments. I think what we actually saw is as we started to roll out the personalized construct and then also take some strategic pricing actions, we really saw behavior from both new consumers as well as existing consumers really start to lean in and take actions that we feel are signals of stronger retention, stronger LTVs in the future. This includes everything from selecting longer duration products, selecting the personalized products. The early feedback on this is coming quite strong. And so generally, we, if anything, have seen a stronger consumer as a result of the actions, both in terms of the product assortment, as well as the price and attractiveness that we've taken.
spk13: Yeah, and then, John, on the marketing strategy side, I think it will be a really similar go-to-market than what you've seen from us in the last four or five years, which is a very omni-channel strategy, leveraging a very diverse set of channels and campaigns to educate consumers where they are today, right? In the comfort of their home, across both social, TV, out of home, streaming, with really straightforward, destigmatizing, straight talk, authentic marketing. I think this is really what resonates with the audience we're going after. It's something that people have really come to appreciate and value with the brand. And so I think that will be what it looks like. I think we'll also include a lot of the kind of best in breed aspects of historical campaigns as well, whether that's influencers, or celebrity partnerships, such as with Kristen Bell for the mental health campaign on hers. You know, those have also been incredibly powerful in building the awareness of these conditions and the prevalence of these conditions. And I think you'll see us leverage those same tactics in the future.
spk02: All right. Thank you.
spk05: Your next question comes from Jonathan Young with Credit Suisse.
spk06: Your line is open.
spk12: Hey, thanks for taking the question. Just on the cardiovascular expansion, I imagine most consumers on ED are utilizing some level of privacy away from their conditional PCP. But stepping into cardiovascular, it may bring the traditional PCP in. So, I guess, how do you think about this aspect that there is some friction, if any, from your perspective?
spk13: Thanks, John. That's a great question. You know, one of the unique things that we've noticed about this business, and it continues to be true, is overwhelmingly that the patients that come to the platform every day are first time customers. And what that means is they often do not actually have a primary physician for which they know the name and have a relationship with. This is overwhelmingly the case for people in their 20s, 30s, 40s, and even 50s. And so in many ways, what we are doing is bringing individuals that are outside of the health system today into the health system for the first time. And so we believe we can be that first point of contact in partnership with these organizations such as the American College of Cardiology and building great clinical protocols into the platform. And then as we continue to expand through a lot of the brick and mortar partnerships we've had, such as Ochsner and Carbon Health and Sinai, continue to expand that network so that from a geographical footprint standpoint, we can hand off patients that are necessary to be seen in the brick and mortar and in person. And so in a lot of ways that issue doesn't come up for us and it's because those that are coming to us for the most part do not have a deep relationship with an individual provider and are having their first major relationship with HIMS and HERS directly. So I think it's a real opportunity actually to expand market share of those engaging with the system and ultimately get those people to the right outcome.
spk12: Okay, I appreciate the answer there. And then just on the pricing headwinds that you talked about, 12 to 18 million, is there a disproportionate impact on 4Q? Because it looks like based on your guidance, 4Q revenue could actually be down sequentially from 3Q. And then as we think about 2024, should we think of the lingering impact as a maybe one to two point headwinds growth? Thanks.
spk10: Yeah, Jonathan, I think it's a great question. I think that really the impact will be spread across Q3, Q3, Q4. Our guide anticipates, as Andrew mentioned, we're going to be very precise with these changes. We still do want to retain the flexibility to potentially, as newer categories roll out and if we see more efficiency, to lean into those. Again, I don't think we're going to use pricing as a blunt tool. We'll use it as a very precise tool with all the data that we collect. Really what we expect to see is as the marketing teams continue to tune their acquisition message as well as as we start to, you know, head into kind of the Q2 timeframe of 2024, you'll start to get the benefits on both acquisition as well as, you know, we feel all signals point to even higher retention that we'll have across our base. And so there might be some pressure, you know, in early 2024, but really we expect to start to lock that in Q2 and then kind of, you know, see the full strength of the effects in Q3, Q4. Thanks.
spk06: Your next question comes with securities. Your line is open.
spk09: Thank you. And thanks for taking my questions. I just want to stick with this last topic about pricing changes impacting in the quarter and the year guidance. Just trying to reconcile with that with strong trends in AOV. You talked about that earlier. Are you saying that just because you lowered the prices on longer duration offering, you saw more adoption and that drove AOV higher? And if that's the case, then, Are your 5 million headwinds in the quarter and 12 to 18 million headwinds for the year, is that before that benefit on AOV or is it a net of AOV benefit?
spk10: Yeah, thanks for the question, Jalindra. You know, I would reiterate, you know, that while we provide AOV statistics, management is definitely not optimizing on AOV. I think we're really optimizing for, you know, the total share of the customer, which comes in the form of the monthly average online revenue. as well as basically what does the total LTV for a cumulative customer look like. That said, the AOV dynamic is when a customer makes a commitment upfront, their monthly rate with what they pay per month may be lower, but because they're committing to more months upfront, that in essence starts to drive the AOV higher. And so I think that the guidance that we gave in the 12 to 18 million headwind range is fully comprehensive of all of the different puts and takes on that.
spk09: Okay, and then my follow up on, you know, all this focus on personalized treatment, let me talk a little bit more about the investments you're doing, not only technology and platform point of view, but also in terms of provider training or new providers you're bringing on your platform. And related to that, I was wondering if you can spend some time on your relationship structure affiliated medical groups, given all the recent confusion and concerns on that partnership has been.
spk13: Thanks, Jalendra. There's a lot of education that goes into this platform across the bar. So we leverage a lot of the kind of best in class clinical and academic partnerships outside of our walls, as well as our medical directors, to bring together what those protocols should be. Because a lot of this is truly innovative. And for heart health, as an example, partnering with the American Cardiology was critical in identifying the underlying risk factors that these patients are having. So there's a big coalition building aspect of this that then gets consolidated down and actually built into the EMR and into training programs. So the teams are able to get fully informed about these guidelines, and then providers are able to make those independent choices and clinical best practices that they feel are appropriate for the patient. And generally, this is how the platform has always worked. And as we expand these capabilities and expand the pharmacy relationships and the treatment ranges, it allows providers to go after treating patients more holistically.
spk02: All right. Thanks, guys.
spk06: Your next question comes from George Hill with Deutsche Bank. Your line is open.
spk13: Yeah, good evening, guys, and thanks for taking the question. I have one for Andrew and one for Yemi. And I guess, Andrew, first I'm going to kind of take the opposite tack on the new cardio product. With the launch of the cardio product and the behavioral initiatives, you guys are getting into more disease states that are not self-diagnosable or not typically considered self-diagnosable. So I'd love to hear how you think about, like, what other disease states that the company feels like it can go into for market growth? And then, Yemi, this is just kind of a housekeeping question. Is the 12, I want to parse pieces here, is the 12 to 18 million headwind in the back half of the year solely the headwind from the repricing initiatives, or is there a way to parse out the repricing from the expectations on a tough comp in the back half of the year? And kind of like, I know that's kind of splitting atoms a little bit, but would appreciate any color. Thanks, George. Great question. I think you're exactly right. This is one of the first categories, I think, that we're launching into where it requires a coalition of outside collaboration. It requires deep integration of predictive analysis in the consultation flow to be able to identify patients at risk. It involves third-party partnerships, such as the one we announced with LabCorp, to be able to gather that data set in a way that can more completely allow providers to identify these patients at risk and then actually treat them. I think the infrastructure that we put in place with this launch is one that can be replicated quite easily, actually. And I think replicated in, you know, most of the remaining categories from a healthcare system standpoint that plague the country that we're not in. So this could be metabolic disorders. This could be insulin resistance disorders. This could be diabetes. This could be things like menopause and hormonal balancing. We've already obviously spoken quite a bit about weight management. But, you know, I think a lot of the chronic conditions that the business has yet to launch into have similarities in the diagnosis the validation and then the ongoing treatment relationship with patients as the launch of Heart Health by HIMSS. And so that I think is a template for us that we believe in the coming years can be replicated. We think it's a really innovative platform given the simplicity for customers, the ease of it, the leveraging of other categories that a patient might be more interested in learning about, but then the ability to diagnose and treat those patients for possibly even riskier conditions they were unaware of. And then ultimately that innovation on the pharmacy side to deliver a personalized treatment and even in this situation, a single pill treatment with a multi-category benefit, we think that's gonna massively improve adherence and engagement and retention and truly value for these patients. So, I've said this from the beginning, I think the business is capable of attacking upwards of 70 or 80% of the traditional healthcare system. I think more and more as the third-party integrations, whether it's through LabCorp or through diagnostic testing at home or through tracking systems on the individual or Apple Watches, et cetera, you'll be able to more sophisticatedly treat these patients on the go, leveraging truly best-in-class clinical guidelines at the platform level, and then offer a really data-oriented and ML capabilities to better prescribe and diagnose and treat these individuals. So I think that's where we're running towards. We mentioned, you know, we filed a number of provisional trademarks around the name MedMatch and are going to be sharing a lot of that AI technology in the next quarter. But a big part of this is the ability to predict you know, the diagnosis and the appropriate treatment to help providers, you know, make more informed and clinically appropriate decisions.
spk10: And then, George, to hit the back half of your question, the 12 to 18 million range, you know, exclusively correlates to pricing. Effectively, that is the impact of repricing the majority of the existing base that were already on some of those SKUs. with the updated pricing and as those books start to renew, they will get the updated pricing. There will be some mitigation, you know, just from new users starting to select a different mix of products that we expect will skew more towards the personalized and longer duration offerings, as well as the continued upgrades for some of the existing users that are switching from generic solutions or shorter duration solutions in the back half of the year.
spk13: Okay, maybe just a quick follow-up here. I mean, did you, are you guys willing to communicate kind of like what's the net impact of the price cut from a percentage perspective? Like what's the price mark down on the hair products?
spk10: Yeah, I think it varies. Like I don't think we're going to go SKU by SKU. You know, we did it in a very precise way. The overall package is relatively complex, particularly as we get into sexual health, but it's the general genesis behind what we did. Number one, we wanted to remove the concept of having a pill-based offering and move to a treatment-based offering. So for many of the SKUs, we started to remove premiums on things like stronger dosages and things of the sort, truly just to ensure that customers are able to get to the solution that they need. Additionally, what we also did is we started to just make the price points for the personalized SKUs more attractive. And so, in some instances, for a longer duration SKU, the price cuts could be north of, you know, 25 to 30%.
spk02: Very helpful. Thank you very much.
spk06: Your next question comes from Corinne Wolfmeyer with Piper Sandler. Your line is open.
spk07: Hey, good afternoon, guys. Thanks for the question, and congrats on a quarter, on the good quarter. I'll just stick it to one question. I'd like to kind of break down the outlook for the gross margin going forward. And I know you guys have talked a little bit about kind of that 75% plus range longer term. And I think the slides have had that as well. You know, at what point are we going to start seeing more gross margin degradation? I know you're taking pricing down a bit. You've talked about adding more innovation. that's going to press pressure margins, but we're still not seeing that yet. So just how should we be thinking about that growth margin going forward over the next couple of quarters and into 2024? Thank you.
spk10: Yeah, I think we continue to unlock additional efficiencies across the board. And so I think that From our vantage point, we still see that there's meaningful efficiency gains in front of us, whether that's in the form of lower product costs, opportunities on shipping, a whole host of things that as we get bigger, I think we'll continue to optimize. I think we're going to be very thoughtful. We're not going to give up gross margin points just to do it. We're going to run experiments and be very precise. And really, the investment can come into a multitude of things as we look forward. That can be pricing, bundled offerings, loyalty programs. how we think around the category assortment, I think we'll start to weigh all of those different factors. That's going to take at least a couple of quarters to really identify those things. And so it's not going to necessarily be just a linear line down to the midpoint. As we're testing things and as we're getting efficiency, there might be periods of time somewhere that this quarter where it actually goes up, remains steady. But I do think that the way to think around it is there are definitely efficiency gains in front of us. But at the same time, we also are very thoughtful and in a precise way, we'll love to continue to give value back to the customer.
spk05: Thank you.
spk06: Your next question comes from Ivan Feinseth with Tigress Financial Partners. Your line is open.
spk08: Thanks for taking my questions and congratulations on another great quarter and ongoing success and the birth of your second son too. That's great news. Can you go into a little more detail on some of the platforms you're going to have for the weight loss management? And also for heart health, like for example, it looks like it would be a great opportunity to partner with more traditional providers because a lot of, you know, heart health diagnostics, things like EKGs are very pricey and you would need your insurance to cover that as part of the diagnostic. But also, do you envision like a subscription platform to track your weight, track, you know, food, and things like that so you can kind of learn your eating habits and help to get modification. And, you know, there are some products that are on subscription that I think would lend itself for you to create a great subscription-based product. And then further, with all of the data you have, you know, what kind of applications of AI to kind of glean like you said, if you have erectile dysfunction, it is, you know, a lot of times an indication of heart health.
spk13: Thanks, Adam, for the question and the congratulations as well. I think on the, you know, on the both parts of that question were things we're really excited by. So, on the subscription offering side, you know, Yemi spoke about how these pricing changes move from a pill-based construct to a treatment-based construct. And what that allows us to do is offer more kind of membership level and subscription level pricing and value for that single price point, right? And so when you think about weight management, there's a really holistic approach here. There's the necessity for great nutrient and great calorie intake, right? There's the necessity to move your body, right? Five, seven, 10,000 steps per day. There's a physiological requirement to get great sleep. I mean, you could be doing all of these things, but if you're not sleeping well, you will not shed those pounds. And so it is comprehensive. And I think Dr. Gromek on the weight management side of the house has been able to educate us and our outside partners have been able to inform us on kind of the necessity of all of those factors. You should absolutely expect that over the coming quarters, you'll see the mobile app, which has increasingly become the core dominant destination for customers, expand to represent content, nutrition, tools, tracking, et cetera, such that we can more appropriately and holistically get you to a great outcome. And that could be on weight management, that could be on dermatology related issues, that could be on cardiovascular health, because each of these really does require a broad set of approaches. So absolutely on the subscription and the comprehensiveness, that's something we're really excited by and spending a lot of time investing in. And then on the AI side of the house, there's just a tremendous amount of opportunity for us to better inform patients, better educate patients, ultimately get them to a better outcome. This could be on the diagnosis and treatment side of the house as we expand more personalized treatment options using AI to help providers make really, really great informed decisions about which specific treatment and which specific dose are going to result in great outcomes. That's a little bit of what we talked about already with MedMatch. But also on the post-treatment side of the house, once you've actually started a treatment, what are the things you can do to really drive better efficacy and adherence and ultimately better outcomes? And there's a lot of predictive abilities that we can build and are currently building to help inform patients and get the right content in front of patients. such that they can have the best outcome possible. So it's very early days on this front, but it's frankly I think one of the things we're most excited about as a business because it can overarchingly improve the experience from diagnostic to treatment to eventual adherence and ultimately increase medical efficacy quite dramatically.
spk08: I'm excited for you because obviously, heart health and weight management, weight management and heart health go hand in hand. So this sounds like it brings up like a tremendous new platform of opportunities.
spk02: So congratulations. Thanks.
spk05: This will conclude today's conference call. Thank you for joining us today. You may now
Disclaimer