Hims & Hers Health, Inc.

Hello, and thank you for standing by. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the HIMSS and HERS second quarter 2025 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 during that time, Simply press star, then the number one on your telephone keypad. I would now like to turn the call over to Bill Newby, head of investor relations. Bill, please go ahead.

Good afternoon, everyone, and welcome to the HIMS and HERS Health second quarter 2025 earnings call. Today, after the market closed, we released this quarter's shareholder letter, a copy of which you can find on our website at investors.hims.com. On the call with me today is Andrew Dudum, our co-founder and chief executive officer, Yemi Okupe, our chief financial officer, and our new chief technology officer, Mo El-Shanawi. 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 risk 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 reports for discussion of risk factors as they relate to forward-looking statements. In today's presentation, we also have certain non-GAAP financial measures. We refer you to the reconciliation tables to the most directly comparable GAAP financial measures contained in today's press release and shareholder letter. You can find this information as well as a link to today's webcast at investors.hims.com. After the call, this webcast will be archived on the website for 12 months. And with that, I will turn the call over to Andrew.

Thanks, Bill. The momentum we saw through the first half of 2025 is proof that our platform is delivering exactly what millions of people have been waiting for, access to personalized, high-quality care that meets people where they are. From the beginning, we have believed that medicine should be centered on the individual, not the system. We're now seeing the market demanding just that. What we have built is working, and it's working at scale. We're seeing it in the momentum of our business, in the results our customers are experiencing, and the growing number of people choosing our platform to optimize their health and realize the benefits of precision medicine. For decades, only the wealthiest have enjoyed access to these benefits. We are now making them accessible to everyone. At the end of the second quarter, we were serving over 2.4 million subscribers on our platform, with nearly 1.5 million collaborating with a provider to receive a personalized treatment. And that number continues to grow each day. We believe we're not just expanding access to care, we're fundamentally improving how it can be delivered. Today, our platform allows subscribers to access a network of nearly 1,500 world-class providers that can diagnose and treat concerns in a fraction of the time it can take in a traditional brick-and-mortar setting. It equips these providers with hundreds of options to address the unique needs of each individual patient, with these options informed by millions of past clinical interactions and customer journeys. and it enables consistent and proactive support to be delivered seamlessly through the HIMSS and HERS apps. We believe this innovative and connected approach is leading to transformative results while also expanding the number of specialties we're positioned to address. I'd like to first touch on the customer successes we are witnessing today before diving deeper into where we're going next. We recently published a white paper containing an analysis of internal data highlighting what we're seeing in our weight loss specialty when care is personalized, holistic, and readily available. The data reflected that customers on a personalized treatment plan, inclusive of a GLP-1 treatment for six months, reported losing on average 10.3% of their body weight. And even more impressive is the number of individuals sticking with their plans. At six months, only 25% of customers on our platform had discontinued treatment. This is particularly encouraging when considering discontinuation rates in certain publicly available studies reached approximately 80% by six months. Our belief is that this strong retention is the result of three key factors. The first is provider access. It is not surprising that consumers are looking for deep engagement with a medical professional when starting and undergoing a new treatment. Our typical weight loss subscriber has six interactions with a provider in the first three months of beginning their treatment. The second is white glove customization. Providers are collaborating with subscribers to manage efficacy and side effects by assessing how subscribers are responding to treatments and then adjusting titration schedules and end dosages if clinically appropriate. The final element is the accessibility and clarity brought by app-based tools. Subscribers have the ability to receive clear treatment instructions and educational content while also accessing tools such as water intake trackers and calorie counters that help them live healthier lives. This approach and the resulting benefits were historically reserved for a privileged subset of the population. Today, we're broadening access to this model despite pushback from traditional incumbents who we believe seek to limit providers' ability to prescribe personalized treatments. Our belief is that these two key principles that have played a significant part in the success of our platform will become the industry standard in the years to come. First, the top priority is and will always be the protection of the consumer's interest. Our platform exists to serve the customer, and we ensure that the providers and the offerings and services that we make available are oriented toward delivering the best quality of care for our subscribers. Second, providers have complete independence in decision making. We empower providers to exercise their own independent clinical judgment in making clinical decisions during each interaction. We've implemented multiple safeguards to ensure providers never feel that they have been coerced or forced in any way to make clinical decisions for business purposes. Over time, we expect more companies will recognize this as the future of healthcare, and the ones who prioritize the customer above all else will be the ones who succeed. We look forward to partnering with those who share that vision. Now moving to where we're going next. As we build upon this vision and embark on our next chapter of growth, we look forward to bringing the same focus into new specialties. We believe these new specialties will expand our ability to address each individual customer and position us to achieve the 2030 targets we set out last quarter of at least $6.5 billion in revenue and $1.3 billion in adjusted EBITDA. Our upcoming launch in hormonal health marks a significant step forward along this path. For men, low testosterone often causes fatigue, decreased libido, and an overall diminished quality of life, while women face menopause challenges like hot flashes, sleep disturbances, and mood swings. Evidence also shows that treatment in these areas can help reduce the risks of heart disease and cognitive decline over the long term. Our approach will provide access to personalized solutions for both men and women to effectively manage these hormonal changes. We're excited to expand our offerings over time to help combat these conditions that are estimated to impact more than 50 million in the US alone and have been under-recognized in traditional healthcare for decades. A key component to addressing the under-treatment of these conditions will be the integration of comprehensive and accessible lab testing. With our recent acquisition of a blood testing lab, we're in the process of verticalizing testing capabilities that will transform how we deliver access to care. Initially, we expect this will support our hormone launch offering, but in the coming quarters, we plan to begin offering lab testing as a standalone service. We expect this will result in a significant category on its own. We live in a country where normal biomarker ranges completely distort the perception of what optimal health looks like, and access to lab testing can be overwhelming, expensive, and intimidating. By offering access to simple, standardized tests tailored to the individual's need, we expect to empower customers to better understand their health and give them the ability to take proactive steps toward optimizing it. As we move into 2026, these insights will provide the foundation for our initial entry into longevity. In recent years, there has been an explosion of innovative treatments across immunity, recovery, and improved metabolic function. We believe that by combining access to comprehensive lab work with a growing network of compounding and peptide facilities, we are well positioned to unlock a broader access to thoughtful, proactive interventions that are not just reacting to certain conditions, but focused on helping individuals live longer, healthier lives. We believe each of these initiatives is laying the foundation for a future where a membership at HIMSS and HERS will cover the majority of conditions that impact an individual's everyday health. Eventually, we expect that we will transform our platform from a destination where customers come to treat issues to one where they come to prevent them. Alongside these opportunities, our teams are developing the technologies and data platform needed to deliver an increasingly comprehensive offering to tens of millions of subscribers. I'm excited to introduce Mo El-Shanawi, our new Chief Technology Officer, who is leading these efforts. Mo's experience in partnering with regulatory bodies to design industry-defining frameworks along with his work scaling AI for life and death decisions, will be crucial in advancing HIMS and HERS technological capabilities. While we'll dive deeper into our technology roadmap at a later date, I'd like to briefly turn it over to Mo to share his vision and approach to making us a truly technology-first healthcare platform.

Thanks, Andrew. I'm excited to be here and join the HIMS and HERS team at what I believe is a critical moment in healthcare. One of the main reasons I joined Hims and Hers is the clear opportunity to drive change in an industry that has seen limited innovation, despite significant advances in technology. The pace of innovation in healthcare has frankly been unacceptable, but Hims and Hers is in a unique position to change that. With a trusted brand, a massive and engaged customer base, and consistent clinical support, we have already established a remarkable pipeline of structured data that providers and customers are benefiting from every day. We believe this will enable us to enhance every aspect of the patient journey, from initial intake to treatment, follow-up, and ongoing care. And with the addition of lab testing capabilities and the eventual planned integration of wearables, we will continue to build on this experience. delivering access to tailored and proactive care that can evolve with each customer. Moving forward, our vision is ambitious. It's to reinvent healthcare by making high-quality, personalized care accessible to everyone, everywhere. In the near term, we will focus on several key pillars as we walk towards realizing this vision. First, We will ensure care is supported by a unified data and intelligence platform. Our multi-source learning system will not only improve and personalize access to care at scale, but also automate key processes like fulfillment, inventory, and routing to increase efficiency. And we believe our systems powered by AI will never plateau and will continuously improve over time. we will be focused on building AI-powered personalized agents that are always on. This will create an end-to-end patient journey powered by AI that will be able to help personalize every interaction and provide 24-7 support to ensure continuous engagement and increase the likelihood of reaching a positive outcome. Third, our entire platform will be designed with global-ready architecture. Calible modular architecture will allow us to continue to expand internationally, adapting different regulatory environments across regions. And we aim to build a secure, cost-effective platform that can seamlessly support millions of customers and begin fostering valuable partnership across the healthcare ecosystem. And finally, we will prioritize AI governance, safety, and ethics. We will foster responsible AI use with human oversight, and bias mitigation, and are committed to developing our technology in an ethical manner. We believe these pillars will lay the foundation for a healthcare system that can learn and improve with each new subscriber that joins the platform. And I could not be more excited for the opportunity to help build what I believe will be the future of healthcare. With that, I'll pass it back to Andrew.

Thanks, Mo. We're looking forward to seeing the impact you and your team will have on how our customers are able to engage in their health on a daily basis. Before passing it over to Yemi, I'd like to touch on one more recent development. In July, we closed our acquisition of Zava, expanding our presence in the UK and establishing a foundation in other strategic markets such as Germany, Ireland, and France. We believe this acquisition and the talent it provides will accelerate our ability to expand into markets beyond Europe. In 2026, we expect to enter Canada with an initial focus on a holistic weight loss program timed to align with the anticipated first-ever availability of generic semiglutide globally. We believe this represents a significant opportunity in a country where two-thirds of adults are overweight or living with obesity. While our initial focus in Canada will be centered on weight loss, we expect to launch additional specialties within the Canadian market over time. We believe our expanded operational and technological expertise establish a strong foundation to extend the benefits enjoyed by our U.S. subscribers to geographies across the globe. It has never been more clear that we are in the early stages of unlocking the full potential of a customer-centric, world-class platform in healthcare. Customers love our approach. They're demanding we do more, and we're meeting that demand with confidence and impact. Our success continues to prove that consumers are better served when healthcare is personalized, accessible, and driven by a relentless focus on putting the customer first. This is the future of healthcare, and we're proud to be building it, person by person, specialty by specialty, and now market by market. With that, I will pass it over to Yemi to walk through the financials.

Thanks, Andrew. I'll start by providing an overview of our second quarter financial results before going deeper into our updated outlook for 2025. In the second quarter, we continue to see remarkable success across our platform, signaling that our strategy focus on democratizing access to precision medicine is resonating with consumers. Consumers are increasingly engaging with our platform across all stages of their care journey, from collaborating with providers to address and manage their conditions, benefiting from provider tools to access customized treatments, and utilizing app-based tools and provider access for their follow-up care. We believe we are just scratching the surface of what's possible and over the course of the second quarter have laid an even stronger foundation to elevate the future value we can bring to our subscribers. Our efforts translated into strong results in the second quarter. Revenue grew 73% year-over-year to $545 million, while we simultaneously maintained an adjusted EBITDA margin north of 15%. Expanding access to personalized treatment options and a wide array of tools is allowing us to attract new subscribers to the platform and also resulting in stronger retention. Subscribers increased 73,000 quarter-over-quarter to over 2.4 million, reflecting a year-over-year growth rate of 31%. We see continued robust subscriber growth across our dermatology, oral weight loss, and daily sexual health offerings that all sustain year-over-year subscriber growth rates above 55% in the second quarter. Strong performance across these offerings helped offset headwinds that came from off-boarding GLP-1 subscribers on commercially available dosages, as well as a decline in our on-demand sexual health subscriber base. We expect headwinds from the rotation of our sexual health specialty toward more premium daily offerings for the next couple of quarters. but are excited to see over 40% of total sexual health subscribers and roughly 65% of new sexual subscribers in the quarter benefiting from a daily offering, respectively. We are able to embed an expanding set of capabilities within our daily offerings that are not feasible to incorporate into our on-demand offerings. Today, our daily sexual offerings allow subscribers to partner with providers to treat hair loss concerns, improve their cardiovascular health, support testosterone levels, and optimize vitamin levels. Over time, we expect us to have a meaningful benefit in retention and the customer lifetime value across our sexual health specialty. Continued subscriber adoption of personalized offerings, as well as the success of our weight loss specialty, continue to drive year-over-year growth in our monthly average online revenue per subscriber. However, in the second quarter, we saw monthly average revenue per subscriber decline quarter of a quarter to $74 from $84, primarily as a result of the offboarding of a portion of our GLP-1 subscribers. Now shifting to profitability. The second quarter was an exceptional demonstration of our team's ability to remain agile and deliver on the high standards outlined in our capital allocation framework across even the most volatile environments. Our platform drove 82 million of adjusted EBITDA in the second quarter. The complexity of our platform and future ambitions will necessitate a more nuanced organizational structure. One that is able to move in an even more agile manner and scale globally. In the second quarter, we took action to adjust to that new reality. Adjusted EBITDA was negatively impacted by approximately $7 million in the second quarter as a result of severance payments to former employees and sign-on bonuses used to attract new talent. Leverage on marketing and investment and gross margin expansion were the primary levers that resulted in second quarter adjusted EBITDA margins expanding nearly three points year over year. Marketing as a percentage of revenue was 40%. Investment was slowed at various points throughout the quarter as we saw volatility in marketing efficiency as a result of the onboarding and offboarding of a previous collaboration within the second quarter. Strong performance outside of our non-weight loss offerings as a result of improving retention from adoption of personalized treatment plans and rollout of new offerings was able to offset some of the volatility we observed within our weight loss specialty. Gross margins expanded three points quarter of a quarter to 76% primarily as a result of growth in specialties outside of weight loss. G&A costs were pressured in the second quarter as a result of the onboarding of new executives, as well as additional costs stemming from the decision to reassess our organizational structure. G&A as a percentage of revenue improved one point year over year, but deleveraged four points quarter over quarter as a result of these dynamics. A similar dynamic was seen in operations and support costs. Technology and development cost as a percentage of revenue increased one point year-over-year and two points quarter-over-quarter to 7%, reflecting increased investment in technology talent across the organization. This is an area that we expect to continue to invest in across the coming quarters as we believe it will translate into an even better customer experience and be long-term financially accretive. In the second quarter, we meaningfully strengthened our balance sheet with the completion of a convertible debt offering in May. We ended the second quarter with a cash and short-term investments balance of over $1.1 billion. Meaningful investment was made in the second quarter to expand our ability to offer new form factors, automate processes within our facilities, and strengthen supply chains for significant investment in working capital. Free cash flow for the second quarter was negative $69 million as a result. We expect to return to positive free cash flow generation in the second half of the year. Our balance sheet provides a meaningful opportunity to deploy capital across both organic and strategic M&A opportunities. We will not loosen our capital allocation standards as a result of this flexibility, but have even greater confidence in our ability to accelerate efforts across the strategic growth levers that we believe will shape the future for HIMS and HERS. I'll double-click on the areas that we expect to receive the most meaningful share of investment. First, we expect to continue investing in deeper personalization capabilities which we view as a critical component of our ability to democratize access to precision medicine. Our ambition is to move from a world of hundreds of treatment options to thousands over time. We expect this will unlock greater flexibility for our subscribers across form factors, as well as enable customized treatments to address multiple concerns concurrently, such as vitamin deficiencies and side effects within our specialties. This will necessitate upgraded equipment, additional facilities, and more extensive automation capabilities over time. Second, we intend to invest in capabilities that will enable us to gain deeper insights to better serve our subscribers, while simultaneously increasing investment in our platform to better leverage that data to address subscriber needs. We believe that responsibly harnessing data from potential future capabilities, such as lab testing and wearables, will allow us to better serve subscribers across multiple stages of their treatment journeys, including diagnostics, treatment, and follow-up care. And that investing in our platform will allow us to elevate the subscriber experience through even more expansive tools, such as AI coaches, chatbots, and more dynamic customer support models. Our belief is that these elements will increase demand for our platform as well as drive stronger retention. Lastly, we believe that demand for a consumer-oriented healthcare model transcends borders. Our recent acquisition of Zava provides a foundation to build upon and deliver value to millions of potential featured customers across the globe. With Zava, we have gained the infrastructure to serve consumers across markets such as Germany, France, and Ireland in the second half of the year. Zava will also play a foundational role in supporting our Canadian expansion efforts in 2026. We believe the combination of Zava's platform with our expanding engineering bench sets a foundation that unlocks the potential to expand in Latin American and Asian markets in the coming years as well. We expect our capital investment will buy us toward unlocking new capabilities to drive subscriber value in the coming years. However, a robust balance sheet and strong free cash flow generation allows us to take advantage of moments when we believe the market value of our stock meaningfully disconnects from its intrinsic value. As of the end of the second quarter, $65 million was remaining in our buyback program. With that, I will walk through our outlook for 2025. In the third quarter, we expect revenue to be between $570 to $590 million, representing a year-over-year growth rate of between 42% and 47%. We are anticipating adjusted EBITDA in the range of 60 to 70 million, reflecting an 11% margin at the midpoint. For the full year, we expect revenue to be between 2.3 and 2.4 billion, reflecting a year-over-year increase that ranges from 56 to 63%. We are anticipating adjusted EBITDA in the range of 295 to 335 million, reflecting a 13% margin at the midpoint. Our outlook for the remainder of the year is based on the following assumptions. First, the fulfillment of compounded GLP-1 treatment available through our platform no longer utilizes 503 outsourcing facilities. This will result in a shorter duration shipment cadence for these products and lower revenue recognized per order. We expect temporary headwinds from in-quarter revenue recognized from shipments to subscribers who were previously on a shipment cadence of 90 days or more. Given the strength of the oral offering and the demand for management of side effects through compounded GLP-1s, We remain confident in our weight loss specialty's ability to deliver at least $725 million of revenue this year. Second, we closed our acquisition of Zava in July. Over time, our plan is to integrate our existing UK business with our Zava operation. We are still assessing the impact of this, but expect the Zava acquisition to deliver at least $50 million of net incremental revenue for the remainder of 2025. Third, we expect that we are entering an investment period for at least the next year, particularly in marketing and technology. Augmentation of our engineering talent with expertise in AI development and the scaling of global platforms is expected in the coming quarters. Marketing investment will be higher as a result of seasonality in addition to investment to support the scaling of new geographies and offerings such as labs and hormonal support. We expect that adherence to our capital allocation framework that calls for a payback period of less than a year will enable us to continue driving one to three points of marketing leverage per annum. Lastly, we expect to continue transition toward personalized offerings to be instrumental in helping us drive long-term revenue retention of 85% or higher. Our expectation is that our on-demand sexual health business will continue to experience declines, but the effect will start to meaningfully dissipate in 2026 as we benefit from stronger retention gains from daily sexual health subscribers. We are entering the second half of 2025 with a great deal of momentum. More importantly, we've established a foundation of talent and capabilities that serves as a critical step in our ability to unlock immense value for millions of individuals across the world by democratizing access to precision medicine. We believe we are just scratching the surface of what's possible with a transformative healthcare model, and as a result, see significant opportunity across each of the future growth levers we've laid out. As always, I want to thank our subscribers, our partners, and our employees for their continued support in our mission to help the world build great through the power of better health. Our success would not be possible without their support. With that, I will turn it back to Bill to kick off Q&A with two questions from our retail community.

Thanks, Yemi, and thank you to all the investors who sent in questions over the weekend. We received quite a few on the recently announced acquisition of Zava and our growing efforts to expand internationally. This is a multi-part question from the Hems House community. Why was now the right time to expand internationally, and what made Zava the right company to acquire? There are investors that are questioning the size of the opportunity here, given the presence of government-run healthcare systems and the complexity that comes with operating across multiple countries. How would you respond to those concerns and the potential that this could distract from scaling the U.S. business?

Yeah, thanks, Bill, and thank Tim House for the question. You know, from my perspective, I think it's a really powerful opportunity to take a leadership role in bringing what we believe is a personalized, high-touch, affordable, precision medicine consumer experience globally. And so I think the acquisition of Zava was the first step in us taking a leadership position in replicating this model in the key markets. Now, I think with Zava specifically, we felt that the team and their ability to build a platform that has been scalable in unique markets with unique regulatory challenges with a testament to their execution and operational abilities. It's a team that we believe can continue to expand into new markets, helping us to launch in Canada in 2026, as well as in markets like Brazil, You've got new generic semi-blue ties going live in the new year. So their ability to replicate, scale, and have flexibility with the technology platform with the range of regulatory environments we felt was incredibly powerful. And I think, you know, we've had the privilege of seeing dozens of companies that have tried this. And so the pattern recognition of what truly was unique was really there. Ultimately, you know, we believe the international market is a focused effort, right? It's not a spray and pray model. We don't believe that there are dozens of markets that are required for a substantial revenue footprint. I think long term, we believe there's a multibillion dollar revenue opportunity in just a handful of key markets. And I think you'll see us in the next, you know, one to three years going after those focused markets.

Thanks, Andrew. We also received a number of questions on the new capabilities and specialties that we'll be bringing to the platform in the coming quarters. Here's another multi-part question from Ander G. How does the launch of at-home lab testing improve the business and support the broader mission of HIMSS and HERS? What impact do you expect it to have on the development of new business verticals? And do you expect this will allow you to introduce membership options that are more widely accessible, similar to what's been done with Amazon, Netflix, and Costco?

Yeah, thanks, Andrew. That's a great question. You know, altruistically, I have a real passion to get people access to this type of information at as low a cost as possible. I think it's absolutely critical when you think about transitioning the American healthcare system as well as the global healthcare system from one where patients are coming into the system to treat an issue versus coming to the platform to take advantage of preventable options. And I think admin testing is going to be absolutely foundational across all of our categories going forward, as well as opening up membership opportunities, like you mentioned. I think the simplification of not only what tests truly matter and when for a patient, but also really what gold standard optimized biomarkers looks like is really critical for this offering. We live in a country where the majority of us die from preventable disease. And so there's a massive disconnect in access and education with regard to what these test outcomes should be. you know, being the average or being the median in the United States on your lipid profile where, you know, the majority of us die from a heart attack is not great. And so I think there's going to be incredible opportunities to educate patients on what tests are necessary so it's not massively overwhelming, make those tests incredibly affordable and accessible and not intimidating, and also educate patients based on who they are, their age, their dynamics, what those optimal outcomes and metrics can be. Now, ultimately, I think we can then not only get them that data, but help them with the next steps. And I think you'll see in these offerings that we bring to market that the lab testing is just the beginning. It's the beginning of then an opportunity to have very seamless abilities to treat and optimize your core risk areas. I think this will be ultimately a foundation infrastructure, as you can imagine, that then allows for a Grime-like or Costco-like healthcare membership, right? That transitions patients from coming to us for a single condition all the way to moving them towards ultimately a goal of preventative health. I think you can see this in the steps that we are taking, not only in the testing roadmap that we've been outlining, but also in the recent leadership additions, like Nader Kabbani from Amazon, as well as Deirdre, who led product at Robinhood and owning her, you know, the membership platform over there. You know, I think we're staffing both the technology, the infrastructure, the raw capabilities in our facilities, as well as the team to go after what we think is a broad membership that sets a new standard for what healthcare ultimately should be for everybody globally.

Thanks, Andrew, and thanks again to everyone who sent in questions. With that, I will pass it back to the operator to begin the regular way analyst Q&A.

At this time, if you would like to ask a question, press star, then the number one on your telephone keypad. To withdraw your question, simply press star one again. We kindly ask that you limit your questions to one and one follow-up for today's call. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Maria Ripps with Canaccord. Please go ahead.

Great. Thanks so much for taking my questions. First, can you help us understand a little bit better sort of some of the core dynamics between your core business and weight loss segment, both in Q2 and sort of expectations for Q3? So I know you reiterated your weight loss target for this year, but anything you can add in terms of sort of underlying trends within your personalized GLP-1 offering? And then I have a quick follow-up.

Yeah, thanks for the question, Maria. Maybe I can start. So I think that what we saw quarter per quarter in Q2, there's obviously some pretty material headwinds in the GLP-1 footprint as we off-boarded. The folks that run commercially available dosages Across the weight loss specialty, we see continued success within our oral offering as well as personalized. But when we look at kind of like the core business, I think we've spoken around this a couple of times before. What we're seeing is really, you know, there's a drag coming from the sexual health on demand. component of the business. And that's really a conscious effort. What we've observed over the last couple of quarters is as we've expanded the sexual health daily offering, that continues to grow north of 55%. We also do see very strong retention across the daily relative to the on-demand business. And so if you pull out the on-demand sexual health business, many other specialties such as our dermatology business, the oral weight loss, the sexual health daily are all growing north of 55%. We're doing a conscious effort just to make the overall base of our sexual health customer a lot healthier. As we start to lap these dynamics in 2026, we would actually expect to receive a benefit both from lapping, but also the stronger retention on the daily health users. And so really, I would say it's like the area where we're seeing the most softness, obviously, quarter on quarter has been the GLP-1 side of the house, mainly employing not commercially available vestiges. But then there's also just the dynamic of the sexual health on-demand business. Outside of that, we're seeing strong growth across many of our other specialties.

That's very helpful, Yemi. Thank you. And then secondly, with the generic JLP1 sort of expected to launch in Canada next year, could you maybe talk about some of the sort of cross-border dynamics that we should keep in mind Are there any certain sort of legal nuances that sort of could make implications feasible from a consumer or provider perspective?

Yeah, Marie, I can take that question. You know, generally speaking, our approach with bringing the generic semi-glutide to market in Canada is going to be very, vary by the book, right? And so there will be, from our perspective, no cross-border dynamics between the Canadian markets and the U.S. Shipments will be sent to Canadian addresses. They will be through partnerships with large generic manufacturers who are manufacturing and bringing them into the Canadian market. So there should be no cross-border dynamics that we will be expecting from our standpoint.

Got it. Thank you, Andrew. Thank you, Annette.

Appreciate the call. Your next question comes from Craig Hettenbach with Morgan Stanley. Please go ahead.

Yes, thank you. A question on the HERS business, whether it's a rough percentage of revenue or subscribers, just kind of an update on how that business is performing and some of the key growth drivers you're seeing on the HERS side.

Yeah, thanks for the question, Craig. You know, we still see the HRSS business continuing to grow at a very robust pace. It's primarily benefiting from the dermatology business, both in terms of skin as well as hair. We're also seeing a strong demand for the weight loss offering specialty continue as well as our mental health offering. And then in the latter half of this year, I think we're very excited to bring on hormonal support for menopause in the HRS category as well. And so we do still see several catalysts continuing to drive a strong outlook for the HRS business.

Got it. And then just a follow up question and appreciate the color on kind of the near term investment cycle specific to AI. Can you talk about how you're approaching that, whether it's the returns you expect to get on that or just reasonable timeline of that having an impact on the business as you move forward?

Yeah, Craig, thanks for the question on that. We aim to build the AI strategy in such a way where you're making very tangible and tactical improvements very quickly. I think in the age of the AI explosion, we are really benefited by the fact that our platform touches tens of thousands of patients every single day. And that allows for us to build use cases for both providers and patients or pharmacists that we can see nearly immediately driving results. And so I think there's going to be, you know, an agent-centric model here that delivers on-demand, 24-7 access and support across the stack, whether it's the provider side, the patient side, the pharmacist side, etc., But we aim in the next three to six months to be building out technologies that are immediately improving efficiency, improving engagement, providing support across the staff.

That's helpful. Thank you.

Your next question comes from the line of Eric Percher with Nephron Research. Please go ahead.

Thank you. Appreciate the incremental disclosure in the queue around the GLP-1 value. And I want to make sure I'm understanding, you know, we see a value of $190 million this quarter down from $230. Sounds like there's some revenue headwinds. Should we assume that there's a pretty significant continued decline in Q3 and Q4 as we're modeling out the year?

I think it's a great question, Eric. We saw the meaningful step down primarily as a result of off-boarding folks that were on commercially available dosages of GLP-1s. I think what's remaining for the duration of kind of Q3 and the rest of the year are products that we intend to tap on the platform, whether that's the oral weight loss product or personalized semi-glutide. So our expectation is to see renewed and continued growth. There are some revenue recognition dynamics that will result in a steep acceleration in the fourth quarter. We're just shipping in smaller batches, which also carries implications for the revenue recognition. But on a go-forward basis, we see very strong demand for the weight loss specialty holistically. And as of now, we're expecting that to continue.

And we should think of the 725 inclusive of oral, which you've stated is over 100 million. Is that the right way to think about the balance of these components?

Yeah, correct. Like the 725 is holistic across all of the weight loss components. So it's the full holistic weight loss offering.

Appreciate the detail.

And Eric, that includes, you know, Liraglutide, branded medications, oral, personalized, et cetera. It's the whole specialty.

Your next question comes from the line of Ryan McDonald with Needham and Company. Please go ahead.

All right. Thanks for taking my questions. Um, maybe first on the Canadian expansion, are you intending to expand in Canada under the homes and hers brand or the Zava brand, uh, given sort of the acquisition there. And as we think about the opportunity with generic semaglutide, um, in Canada, um, pricing for the branded already is that, you know, fairly affordable price, the 200 to $400 range. You expect a sort of a similar magnitude of sort of unlocking of that market. at the generic price point relative to the difference in pricing in the U.S. we saw from branded versus compounded? Thanks.

Yeah, Ryan, great question. We will be leveraging a lot of the expertise of the Zava team and technology stack that has already proven to be able to replicate a lot of diversity and models across regulatory environments. But the actual presentation of the offerings in Canada will be the HIMSS and HERS brands, both brands independently. On the second question, so right now, the average pricing we're seeing in the Canadian market for the branded pharmaceuticals, as you said, range from 200 to 400. We see it most of the time in the mid-300s to 400 range. Given the conversations we've had with the major generic manufacturers, of which there's quite a few who are going through the process with Health Canada to get their generic approved, we expect the consumer price point to be around $75 to $100, so upwards of a third or so of the current branded price. So we do think there's going to be really structural access on loss with that type of pricing distinction. And in the Canadian market where roughly two-thirds of the population is struggling with weight loss or struggles with obesity, we think that reduction is going to be incredibly material.

Super helpful clarification there. Thanks, Andrew. Maybe follow up for Yemi. In your prepared remarks around the outlook for the remainder of the year, did you say that average revenue recognized per order will be down in the second half versus first half? And if so, Does that imply an acceleration in subscriber growth expectations on a quarter-over-quarter basis? Thanks.

Yeah, thanks for the question, Ryan. I think we were, you know, when we were, you know, stating that there would be a change where we recognize or we would have lower revenue recognized per order. That was specifically to the personalized GLP-1 component, just given the regulatory dynamics there of the pivot towards 503As. For that specific specialty, what will happen is you'll have on each order a lower amount of revenue recognized, but then the order velocity will be more frequent. And so that's why you see an acceleration also happening in Q4 is that there's just greater compounding of orders over time as you progress the course.

Okay, so average monthly order or average revenue per subscriber is not necessarily going to be down sequentially.

Yeah, not necessarily. It's specifically in reference to the one offering.

All right, thanks for the clarification.

Your next question comes from the line of Brian Fink-Quillett with Jefferies. Please go ahead.

Hey, good afternoon, guys. Maybe just to follow up to some of the discussions, as I think about just the marketing spend that you're planning for the back half of the year, how should we be thinking about patient or client acquisition costs per person basis, per cabinet basis? I mean, how are you trying to manage that?

Yeah, thanks for the question. We do intend to invest in a pretty robust fashion in the second half. That said, I think we still are going to hold to our standard in our capital allocation framework, so we do expect to be able to manage a payback period well below a one-year period. That said, I think we are looking to, as we progress through the year and launch new specialties, have the firepower to lean in those. The environment in Q2 was volatile, as we mentioned in the prepared remarks, and so really giving the teams the ability to learn in the third quarter with a more stable product suite, particularly in weight, is something that we're excited by. But then kind of what you see happen as we turn the corner around these investment periods, the benefits accrue pretty quickly. And so you kind of see that taking place in the second quarter where we were able to maintain very robust growth while also holding back investment, particularly in the core categories for a period of time. And so if you kind of You know, look at how quickly the margins expanded to, you know, north of 15%. We expect that, you know, to be our ability to be able to do that again in the future as well. But really, in the second half, we're leaving flexibility for marketing of new specialties as well as newer geographies. the ability to learn within some of our existing specialties, and then also just talent acquisition. As Andrew mentioned, we do expect to lean into AI and realize returns there very quickly. That also does come with a cost to talent, and that's reflected in our guidance assumption in the back half of the year.

Okay, that makes a lot of sense. Maybe just to follow up on inventories, pretty steep increased quarter over quarter. So just curious how we should be thinking about inventory levels going forward and their specific drivers pushing that or that drove that increased quarter over quarter. Thank you.

Yeah, I think just as we, you know, historically look to, I think there's a couple of factors. As we historically look to launch new specialties, we want to ensure that there is a durable supply of inventory available. Then as we also just look at the strength of our balance sheet, you know, some of the volatility occurring around the world right now with the tariff uncertainty, the ability to, you know, leverage the balance sheet and the free cash flow now to take advantage of predictability, which is something that the management team opted to want to lean into right now at the moment. It's not to say that we're going to have similar step-ups in inventory each quarter. This is more probably of a quarter where there's a little bit of an anomaly, just as we look to strengthen our supply chain across several of the specialties, given some of the dynamics going on there.

Awesome. Thank you.

Your next question comes from the line of George Hill with Deutsche Bank. Please go ahead.

Yeah, good afternoon, guys, and thanks for taking the question. I mean, you kind of leaned into where I was going with your last answer, but I guess I wanted to talk about the front end of the SEMA franchise, and I guess, can you guys confirm that you kind of source all your SEMA API from high-quality FDA-inspected CGMP-type facilities? And if it's coming from overseas, I was going to ask if you could talk about the tariff risks, particularly if it's coming from China, and if any, that's an issue. And then I had a very quick follow-up, which is, what's the right way to think about your 503A capacity, given how quickly the business is ramping I don't know if the right way to think about it is in dollars and doses. Would love any commentary on that. Thank you.

I think we're going to take the first half and then go to the second. We have a number of API suppliers across the stack, both domestically and overseas, that we leverage to serve all the customers on the platform. I think to your point, the most important question there is all of these are through FDA-registered facilities, CGMP. They undergo rigorous testing for things like potency, identity, and are all verified with third-party testing, which I think gives our team, our safety team, and our patients a great deal of confidence.

And then to get back to your questions around the tariff and capacity, like at this moment, we don't see any meaningful pressure coming and embedded in our outlook is that there will not be any meaningful pressure coming from the tariffs. Capacity, I think we, you know, have found numerous different ways to ensure that we do have the capacity to be able to support the buildup of subscriber base, not just for, you know, this year, but over the coming years. And so the CapEx investments and, you know, other vehicles, you know, that we've laid give us the confidence that we'll have the ability to fulfill all of our customers' needs for years to come.

Thank you. Your next question comes from the line of Jonna Kim with TD Cohen. Please go ahead.

Question. Last quarter you mentioned the 2030 target. Just wanted to get a sense of the mix of international and the U.S. business in that long-term target, if you can give us any color about how big the international business could be over time. And then just a follow-up question, any changes in your marketing strategy? Do you plan to still focus more on the weight loss side or the core offering? We'd love to get any color there. Thank you very much.

Yeah, thanks for the question, Jenna. So I think that we see several future growth levers to achieve or exceed the 2030 targets. you know, international will definitely be a component, but we also still see an immense amount of opportunity here in the U.S., whether that's in the form of the new capabilities or specialties, you know, that Andrew went through in his prepared remarks. There's not necessarily an exact split that we're getting right now, but each of the elements and growth levers that we are currently investing in, we believe, you know, are billion-dollar-plus opportunities, you know, individually. So whether that's new geographies internationally or, you new accommodation of the specialty that we're going into, or continuing to invest and deepen the breadth of personalization offerings and consumer experience on the platform. All of those are things that we believe have the ability and the potential to have outsized returns. And so that gives us the conviction to be able to release a target that's about five years out. With respect to the investment in marketing, I think we are going to continue to hold a very high bar on the spend and look for the one-year payback period or less. That said, I think over the last couple of quarters, we've received several learnings across the investments, and so you will see us do specialty-specific investments, both across the core offerings as well as multi-condition, you know, marketing as well. We'll continue to iterate and look to calibrate that spend, but, you know, really, I think as we're doing that, we do expect to still hold to the capital allocation framework that calls for the payback period of a year or less.

Got it. Thank you. Your next question comes from the line of Daniel Groflight with Citi. Please go ahead.

Hi. Thanks for taking the question. You mentioned launching hormone therapy in the coming months. I was hoping maybe if you could put a bit of a finer point on that. Is that more of a 4Q launch now? And if you can dig in a bit more on what investments you need to make ahead of the launch and the cadence of that, both from a CapEx and OpEx standpoint. And if you're going to be compounding these offerings in your own pharmacies. Thanks.

Thanks, Daniel. I can take some of that. Probably can't give you too much on the specific date where the communications team might be a little bit frustrated with me, but would expect it relatively soon. The offering, I think, is going to have a really wide range of treatments, inclusive of compounded generics, and I think eventually, you know, branded and specialty offerings through a network of partners and offerings, which we're really excited by. And this will be delivered predominantly through our facilities long term, as well as through partner facilities in the beginning, both across perimenopause, menopause, and then low testosterone on the men's side of the business. And Yemi, if there's anything on the financial preparation that you want to reference?

Yeah, I think a lot of it we've actively done and we're continuing to do. And so the embedded in our guidance is all the investment around needing to prepare for the new launches.

Okay, got it. And maybe if I can just tackle the core revenue with my follow-up. You know, the revenue at XGLP-1 was down slightly sequentially. Yemi, you mentioned derm, oral weight loss, and daily sexual health is growing 55% plus. I suppose much of that was offset by the on-demand sexual health rotation. Is that right? Can you just dig in a little bit more on why we aren't seeing more sequential growth outside of GLP-1s?

Yeah, I think that's a fair interpretation. You know, I think the second quarter also had the nuance of it was the first quarter where... You know, the apostrophe business was no longer president, but the vast majority of the headlines that we're seeing is the result of the deliberate rotation. Toward a higher quality consumer. I think over time we expect a few things to happen as you hit 2026. One is you just get the benefit of what we have already observed to be inherently stronger retention of that user base. The second is the pivot as the business subscribers contract starts to wind down and wane. And so I think that this is probably a conscious multi-quarter transition, but as we kind of hit the back half of 2026, we would expect it to be creative and probably the right long-term move for the business. Got it. Thank you.

Your next question comes from the line of David Larson with BTIG. Please go ahead.

Congratulations on the good quarter. Can you talk a bit about the 503A revenue growth rate year over year? I'm assuming last year, a good portion of the GLP-1 revenue was personalized. So just any sense for what like the 503A growth was year over year? It seems to me like you're guiding to 100 million of GLP-1 revenue in 3Q and 100 million in 4Q. which would be a significant decline. Maybe I'm being sort of overly conservative with my view there, but just thoughts on the 503A growth going forward would be helpful. Thank you.

Yeah, so I think that the concept of 503 versus 503 is not really, you know, nuances there as a result of the shortage dynamics that were present last year. The revenue was filled out of a 503 partner. And so I think that, you know, the way that we more think around it is the weight loss specialty, you know, in aggregate, and then the various components, you know, underneath that. We expect to see continued robust quarter growth across each of the components of the weight loss specialty, the oral side, and the GLP-1 throughout the duration of the year.

Okay, great. And then, Andrew, I think you were talking about preventive care, things like perhaps counting steps, counting calories, looking at your food intake, your water intake. I love the sounds of that. It sounds like it's all natural. We've had some growth in some new businesses in that area. Saying more color therapy is very helpful.

Yeah, absolutely. This is something that I think the platform is really uniquely positioned to build around. You know, when we think about personalized treatment plans, it's not just about personalized medicine, right? It's personalized content, personalized agents, personalized gamification and technology that they're able to use. stay adherent and to stay motivated. You can imagine, for example, an individual who's getting treated with a personalized medication for weight loss also having access to an on-demand 24-7 nutritionist agent, right, who knows everything about them, who is right there with them, checking in on them throughout the day, helping them with recipes, helping proactively count their calories with photos of the foods that they're eating. Same thing on the mental health platform, right? Patients that are struggling with sleep, you can imagine an agent that is on demand, available with advanced cognitive behavioral therapy training to help that patient improve their insomnia. So I think there's a real technology-forward approach. transition that the company is making right now, led by Mo Al-Shanawi, our new CTO, and there's a reason we brought him in for this exact reason. But we believe a lot of the future unlocks the stickiness of the platform, the benefits of the platform are going to be in the layering of technology across the stack that then enhances the personalized medications you're getting.

Fantastic. Thanks very much.

Ladies and gentlemen, we have reached the end of the question and answer session. This will conclude today's call. Thank you all for joining. You may now disconnect.