Q2 2023 Hims & Hers Health Inc Earnings Call
Ladies and gentlemen, thank you for standing by at this time I would like to welcome everyone to the him and her second quarter 'twenty twenty-three earnings conference call.
Please note that this call is being recorded.
All lines have been placed on listen only mode.
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.
Let's draw your question again press Star one.
I would now like to turn today's call over to Alice Law Pato, Vice President of Investor Relations. Please go ahead.
Good afternoon, everyone and welcome to the Haynes and her call second quarter 2023 earnings call on the call with me today is Andrew Dude them, our co founder and Chief Executive Officer, as well as you know Neal Cooper, 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 that could cause actual results to vary materially we take no obligation to.
They publicly any forward looking statements. 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 dot or hidden dotcom.
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 Thank you Allen.
This quarter, we drove excellent results on both the top and bottom line.
Growth remains 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 category, helping lay the foundation for many years of robust growth ahead.
Our more mature offerings within the heritage brands continued to expand with little sign of market saturation as we gain benefits of scale and continue to build a clear market leadership position to capture an 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 improvement.
In lock step, we continue to drive meaningful efficiency gains from our efforts to verbalize, our affiliated pharmacies and optimize our processes, which allowed us to generate $16 8 million in cash flow from operations and $10 6 million and adjusted EBITDA in the second quarter.
This increasingly powerful flywheel model provides us reassured confident in our ability to achieve and surpass our 2025 target of at least $1 2 billion in revenue and over $100 million and 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 performance 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 Die believe it has the potential to meaningfully accelerate the already exciting trajectory and heard it on.
As I've shared in the past I believe hidden hurts us a unique competitive advantage.
Yourself and the rest of the management team in multi year horizon and are not afraid to tackle complex challenges.
While not for many years ahead I wholeheartedly believe most of our management team who 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's services customers across multiple categories requires consumers through some of the most creative channel and has a foundation from which to bring some of the innovative personal.
<unk> products to market.
Looking ahead, the number of lives that we positively impact over the course of the next 10 years in 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.
So look under the Hood I would like to walk you through a few transformative shifts taking place in our business for simplicity, all grouped 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 decision to support these precision treatments.
We recently filed multiple trademark applications for the name Med match and plan on showcasing this AI technology, more specifically and the clinical benefit its delivering next quarter.
Third our new multi action capabilities to enable providers to customized single pill treatment for multi category condition.
And lastly, the exciting new frontiers and offerings, we have recently launched and will be launching soon.
From the earliest years him his and hers delivered on in its simplest form access.
Access to a provider access to clinically appropriate generic treatment and accuracy solutions for singular issued patients were challenged with.
Today that story has become wildly more exciting as initiatives have been in development for years are beginning to come to market.
Our story is no longer one of simple access with a story of bolster capabilities in diagnostics treatment 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 with 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 capability to providers, so that our customers clinical experience and outcome 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 ambition is whenever it is 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 solution.
And lastly, our mission was never limited to enabling treatment of a patient for singular issues.
Rather it can build on human relationships and patient trust.
Could expand into a multi treatment experience that tackles, not only the patient's initial concern.
Key underlying conditions that impact our overall health and ultimately their life.
From a business that delivered on access alone to now a business that is personalizing, the patient experience and treatment opportunity in order to deliver on better results and outcome. We are propelling him one of the most meaningful industry transformation that I had been witness to.
We believe this transformation has massive implications for the future of his and hers.
From a competitive differentiation to enduring growth improved customer lifetime value extensive and deep moat and an offering that can no longer be compared to those end market.
It's a truly unique dig in further let's start with that first bucket the.
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 an 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 category like EDI providers and patients are increasingly turning to personalized solutions made available through hardman and multi action heart support.
In his 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.
Selected get 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 category 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 and pharmacy clinical excellence and platform technology.
As the shift continues to flow through our business, we will enter a world where his and hers is known for the 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.
As mentioned previously we recently filed a trademark application for the name Med match 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 improve data capabilities, our intrinsic to the third bucket, which is our new multi action capabilities to enable providers to customized 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 Kevin.
Heart Health is one of the most meaningful launches since our founding <unk>.
<unk> disease is the number one cause of death for men worldwide and approximately 30% of our male customers have at least one risk factor of developing it.
This extension enables providers to prescribes compounded formulas that combine the active ingredients found an EDI medications and style like the generics for lipitor, and Crestor, which can reduce the risk of having a heart attack by upwards of 33% and debt by 8%.
In partnership with the American College of Cardiology, and Labcorp, we brought together with him does best innovative products, leading technology and clinical excellence that work together to deliver on our experience in the bending 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 couldnt 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 <unk> 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 ecommerce World. This is a cross sell strategy in our world is a clinical capability that allows patients to access more personalized meaningful care addressing a multitude of issues simultaneously supporting simpler treatment regimen and ultimately increasing the value we are delivering to our.
<unk>.
Multi auction capabilities further deepen the defensibility of our platform and the offerings become more and more customized and inevitable to customers.
It's easy to imagine that many powerful avenues, where this could be beneficial.
Chronic disease management like heart disease, and diabetes to bundled cosmetic capability 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 <unk>.
<unk> health insulin resistance and weight gain.
These multi action capability has opened us up to the last bucket, which are the new frontiers in 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 Hilton Harrahs will launch our comprehensive weight management offering in time for this coming January 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 our customers' 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 gains such as metabolic disorders insulin resistance over eating habits depression and more.
And launched the offerings will include access to treatment formulations that are affordable and that can combine and leverage the active ingredients and proven prescription medications and supplements as well as behavioral and nutritional focused plan.
The platform is being built to support both existing <unk> and future pharmaceutical innovation, but given the instability of the current supply chain inconsistent reimbursement an outstanding safety evaluations. These products like we will not be available at launch.
Dr. Craig <unk> joins us this week as our new medical director in weight management, bringing to our organization nearly two decade optimizing treatment protocol 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.
That means delivering on an offering to a mass market audience with pricing in line with core everyday prices offered across our categories and experienced that streamlined and consistent and our focus on safety and efficacy.
Leveraging widely understood and available treatments sophisticated pharmacy capabilities and deep data driven oncotype matching we hope to deliver exciting treatment efficacy at scale.
Like I said at the start our mission is to make the world field right through the power of better health.
And 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 cost structure versus a pillow 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 <unk>.
Part of this mission and our ambitions 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 offering to make a more personalized subscriptions, even more mass market acceptable.
The pricing rollout, 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 adjustment the ratio of new him hair loss subscribers that selected a personalized offering with a duration of five months or more increased over 25 point during the course of the second quarter.
Our belief is that consumers, making longer upfront commitments for effective and unique product 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.
Full for their commitment to building this platform the right way.
I am 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 will turn the conversation over to Jamie to discuss further financial.
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 <unk>, which we believe reflects the sound execution of our strategy that centers on enabling access to innovative products to 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 with.
The continued addition of subscribers onto the platform was the primary driver of online revenue growth.
<unk> subscribers on the platform increased 74% year over year to $1 3 million subscribers.
This quarter, we expanded the portfolio of our personalized solutions accessible across the <unk> platform.
Notable examples of this include the national rollout of apartments, offering additional hair loss solutions within the <unk> portfolio and the launch of heart health.
Early consumer feedback and reactions indicate a strong user preference for these personalized offerings.
Storage, we have reinvested efficiency gains into marketing as well as the research and development of new solutions with.
With this much more extensive portfolio of personalized and differentiated offerings combined with record level gross margins our investment opportunities have expanded.
Made the strategic decision to reinvest a portion of the efficiency gains that scale and strong execution I provided us into more attractive pricing for a subset of offerings on the platform.
Specifically meaningful changes were made across longer duration him sexual health and HIMSS hair loss subscription plans.
The net effect is it more customers than ever have access to personalized solutions to improve our 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 monthly average online revenue per subscriber declined 4% quarter over 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 35000 existing subscribers switch to a longer duration of 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. We are on a personalized solution.
As a clear signal that consumers are drawn to you and appreciate personalized solutions that are providers can prescribe.
We believe offering unique solutions at attractive price points is a powerful combination that positions us for significant market share gains.
The economies of scale in our operations enable us to do this while maintaining healthy margins any way that you can match.
Our gross margin trajectory in the second quarter with 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 increase efficiency across our provider base 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 extend margins with a truly unique advantage.
Our belief is that this capability to benefit from scale and can currently 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 pharmacy than the second quarter.
Over 70% of orders were fulfilled by escalated pharmacies in the second quarter.
This provides a robust platform how much so seamlessly transitioning the business personalized centric offerings.
Turning toward elements of our cost structure.
Marketing as a percentage of revenue was flat quarter over quarter at 51%.
Investments were more heavily weighted toward the back end of the quarter as a result of the timing of new product launches and 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.
We expect that investments made there at 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 launched new personalized offerings throughout the year.
Similar to prior periods, we intended 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.
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 cost as a percentage of revenue excluding stock based compensation came in at 6% in the second quarter stable to the first quarter.
Continued investment as 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 EBIT increased 73% quarter over quarter to $10 6 million in the second quarter.
Games from efficiency improvements and economies of scale offset the estimated 5 million headwind from strategic pricing actions I discussed earlier.
The second quarter, we made considerable investment until 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 concurrently built future capabilities.
Cash and short term investments increased $8 7 million quarter over 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 the level of breadth and depth that we felt was currently unmatched. We're 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 unique personalized and compelling solutions at affordable prices.
We are confident this will fuel 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 million to $222 million, representing 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.
Our outlook for revenue to $830 million to $150 million translate into 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 range has resulted in an adjusted EBITDA margin of 4% at the midpoint of both ranges.
No material contributions from weight management, our 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.
Reflected in our guidance is an assumption that the extremely favorable market environment that emerged in the back half of 2022 does not repeat in the back half of 2023.
Additionally, our guidance incorporates a negative impact between $12 million 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 a 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 or less readily available, but the standard generic solutions.
We have high conviction that gains and 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 as a result of efforts of hundreds of employees across his and hers work hard each day helped the whirlpool greatly the power better health.
I'd like to thank them as well as all of our customers and partners that support us in our mission.
I will now turn it over to the operator for questions.
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 gross site with Citi. Your line is now open.
Hi, guys congrats on the quarter and thanks for taking the question here.
Just a couple quick ones on the new weight loss category that you are expanding into so it sounds like theres going to be like behavior.
Behavior modification aspect to it maybe nutrition coaching fitness coach Inc. As well as some type of.
Either a nutritional.
Supplement or prescription along with it.
So it seems like the <unk> ones aren't going to be available at least 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 youre going to provide with this new weight loss category.
Thanks, Dan.
Yes, so I think what we're going to start with is <unk>.
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 <unk>, who joined as our weight management Medical director has a couple of decades of experience specifically leveraging I think just wide range of treatment offerings to go after what is often.
Our multi prong issue for weight gain and I think that's what the approach is going to be it's going to bill you built on I think.
A lot of phenotype in archetype data or understanding that patient really well in partnership with Disney clinical advisors in a way that we can leverage some of those dual action in multi action treatment capabilities that we've recently launched with the heart health.
Launch and leverage those capabilities with the weight management category, So really simple protocols, but from a.
From a patient standpoint, highly personalized and hoping to.
Go after a lot of those underlying conditions and ultimately have great efficacy.
With affordable and well tested and safe options.
Yes makes sense and then this quarter <unk> growth was really strong it came in around 22% or so this quarter year over year, which would be our fastest growth since 2021, just curious what's driving that.
Growth this quarter, given you are lowering prices on some treatment.
Revenue per subscriber is dropping a little bit.
Yeah, Dan This is Jeremy Thanks for the question really there's a few factors and so I think one of the reasons behind why we made the strategic pricing actions is really to start to make both longer duration subscription was attractive for users as well as the proprietary products attractive to users and so what we saw as we made those needs.
Neither is coming in as well as with some users started to switch to <unk>.
The longer duration proprietary products that come with a larger commitment upfront and so you have more people that are long long duration plans as they pay for those upfront.
That really is the factor driving <unk> and the fact that more and more customers with Andrew mentioned previously are also switching to the proprietary products, which still come at a better premium to the index.
Yes, it makes sense thanks for the color.
Your next question comes from Jack Wallace with Guggenheim. Your line is open.
Hey, congrats on the quarter and.
Andrew Congrats on the breadth of your second child.
Two questions here one on the cardiovascular.
Sheila entry. So this is a.
Patents.
I would just think that this would help you target maybe.
Maybe an even older demographic maybe that is outside some of the young.
Young millennial demo that you play so well and is that part of the kind of the Tam expansion thought process.
And then second is are we expecting any.
Attractive pricing with this or how should we think about pricing with that combined product. Thank you.
Thanks Jack.
So on the cardio side. This is one we're really excited about it 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 tremendous overlap with erectile dysfunction in cardiovascular disease in fact, as we've shared in the release.
Just last week erectile dysfunction is often an early indicator of cardiovascular disease.
The ability to expand and that our 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 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 to personalized treatment with the standards that are incredibly well tested and safe with base <unk> medical.
<unk> and you can imagine that this heart support could eventually be added onto other categories mental health or hair care or women's products as well for people at risk and ultimately I think meaningfully adhere increase adherence to this preventative treatment and ultimately I think actually hopefully save 10.
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 <unk> 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.
Our 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 hand.
This will be priced at a premium for 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.
The treatment that is truly right for you versus the one that might be a little bit cheaper.
Got it that's all.
Helpful. Thanks, and then.
You mentioned that the marketing and Brian It was a little difficult in the front half of the quarter.
Elevation of investments in the back half.
When you mentioned that the difficult marketing environment and I'm thinking about this in the context of the price changes.
Was there any tick.
Pick up in churn rates that you are also responding to or was it just simply some of the.
Some of the key areas you plan with marketing dollars, just got more expensive, where the consumer is pulling back a bit just trying to get a better understanding for the.
Let's call it.
An environment dynamics. Thanks.
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.
Surprising favorability that was unanticipated.
Before we make pricing changes, we do a lot of research and experimentation and so those changes were effectively months in the making and just because we do want to use price was more of a precise tool versus a block full answer that too.
Very much disconnected.
Effectively what we do look to when we.
Institute pricing changes.
Consumers.
Those changes changes.
We have a very liquid.
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 first launch products mass market. Because the objective is really to have our users for a period of decades.
Got it.
Awesome. Thank you guys.
Thanks Chuck.
Your next question comes from Michael Cherny with Bank of America. Your line is open.
Good afternoon, and thanks for taking the question, maybe if I can go back to weight management, and we talked about GOP, one products not being available off the bat, but how are you thinking about the characterization of.
And then maybe how it makes up a weight management to Plano, given the high demand for the products as well as the logistics that come with them.
Areas such as cold storage for example in GOP ones that you may not be as focused on today.
Thanks, Brian Great question I think.
Tremendous amount of excitement internally relating to <unk> in both the existing products that are in market as well as frankly, the dozen or two dozen that are in the pipeline today and finishing up clinical trials that I think will likely bring to market.
And oral semi glu tide and ones that have hopefully improved efficacy.
Without question. These are these are here to stay and the platform is being built in such a way that enables it.
<unk> 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.
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 youre 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 of those individuals eligible to actually get reimbursed are actually achieving reimbursement.
The fact that in the last couple of months.
Tremendous amount of new side effect profiles that are coming out. The reality is the medicines are only nine months to 12 months old.
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 and deliver a seamless effective and safe offering for patients.
And right now I just don't think we have that confidence. So works are 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 there will be a part of.
The platform in some form in the future.
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.
Understood and appreciate the perspective, there Andrew and then maybe as a second question.
Fully appreciate if it's one that's hard to answer it but being of the year. He gave the 'twenty five targets.
About $50 billion $100 million of revenue.
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 raise on a pacing perspective, you're tracking well ahead of their needs 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 are now also <unk>.
Banding your near term path.
Yeah, Mike. Thanks, so much for the question I think when we expect the 2025 target that was given around line of sight for really what we had at the end of last year.
We're 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 do not give a range or set a ceiling just because theres. So much exciting going on in the business right now with the launch of new categories.
We've been pleasantly surprised by the.
Some of the newer personalized offerings taking off.
Appointment at the time, we still believe those are the floors for 2025 as we get closer.
2025, and we see the full potential for some of these matters and we will look to update but at this time again I think we can talk with those are floor is not selling.
Okay. Thanks, guys.
Your next question comes from Glen Santangelo with Jefferies. Your line is open.
Yes, thanks for taking my questions I just wanted to follow up on some of your prepared remarks. It it kind of sounds like Andrew that you decided that it was the right move to make some <unk>.
<unk> and pricing and if I heard you correctly and kind of.
It sounds like Thats going to cost in $12 million to $18 million in both revenue and EBITDA and 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 are doing that now youre seeing an increased duration of your average customer. So I was wondering.
Putting all of 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've seen as a result of that investment in price.
Thanks, Tom that's a great question I'll take maybe the first half.
Some of the some of the quantifiable things, we've been seeing because it really isn't moving some of those numbers.
Yes, it was really a strategy to leverage the strengths of where the business is at right now as you saw in this quarter, we hit kind of a record 82% gross margins I think there is 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 right. We have we said this in the past we believe we can build a platform and a value prop that as such where every household in the country as a member and as satisfied and loved this business and brand and it's 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 cusp.
<unk> pocket right that is a clear in an aggressive way for us to go take meaningful market share with an offering that we know to believe a note to be very sticky.
And very accretive and in adult 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.
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 might be cost it outside of the range of of an opportunity.
And then just just to add to that building upon what Andrew said I think thats 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 would really come through faster than we anticipated.
We really started to look for additional ways given that we have just an entirely different construct them out in the market, where we're no longer competing on access. We're also competing on personalized products. When you really combine those things and as we start to bring those in.
<unk> increasingly more and more mass market market prices it becomes a really powerful and what we've also observed as the more scale, we get the more efficiency, there, which I'm trying to weigh that.
And is it really basically being able to.
And in about firewall in a way that.
Benefits us as well as our consumers.
I think if you're going to be really powerful to come.
Okay. Thanks for the comments.
Thanks, Brian . Your next question comes from John Kim with Cowen Your line is open.
Thanks for taking my question just from a macro standpoint.
17, the market have you seen any changes in the consumer behavior and maybe any notable changes quarter to date.
Okay.
So it does provide more colors on and another question I had was around marketing strategy looks like you're kind of investing behind marketing around new launches how will that be different versus what you currently have.
I think they are more color you can give around marketing strategy going forward. Thank you so much.
Yes, so I can take the first one John on them.
It off to Andrew for the second one I.
I think we've not seen.
No really any pressure on the consumer I think we've spoken to how the overall consumer side 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 as we started to rollout the personalized construct and then also take some strategic pricing actions.
<unk>.
We really saw behavior.
New consumers as well as some consumers really start to lean in and take actions that we feel are signals.
Stronger retention stronger ltvs in the future and 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 have if anything I've seen.
Stronger consumer as a result of the actions both in terms of the product assortment as well as the pricing attractiveness that we've taken.
Yes, John on the on the marketing strategy side I think it will be a really similar go to market that what you've seen from us in the last four or five years, which is.
Very omnichannel strategy, leveraging a very diverse set of channels and campaigns to educate consumers where they are today in the comfort of their home across both social TV out of home.
Streaming.
With a really straightforward stigmatizing.
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 in value with the brand.
And so I think that will be what it looks like I think will also include a lot of the.
Kind of best in breed ASP.
Aspects of historical campaigns as well, whether that's influencers, our celebrity partnerships such as with Kristen Bell for the mental health campaign on her.
Those have also been incredibly powerful and building.
The awareness of these conditions and the prevalence of these conditions and I think youll.
Youll see us leverage those same tactics in the future.
Alright, thank you.
Your next question comes from Jonathan Young with Credit Suisse. Your line is open.
Hey, Thanks for taking the question just on the cardiovascular expansion I imagine most consumers are utilizing <unk> for some level of privacy away from their traditional PCP, but stepping in cardiovascular.
Cardiovascular area. It may bring the traditional PSTN. So I guess how are you thinking about this aspect that there is some friction if any from your perspective.
Thanks, John Thats, a great question.
One of the unique things that we noticed about this business and it continues to be true is overwhelmingly 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 how our relationship with this is overwhelmingly the case.
For people in their <unk>, <unk> and even <unk>.
And so in many ways. What we're 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 <unk>.
Carbon health in 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 and a lot of ways that issued doesn't come up for us.
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 with him his 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.
Okay I appreciate the answer there and then just on the pricing headwinds that you talked about the $12 million to $18 million.
Is there a disproportionate impact on <unk>, because it looks like based on your guidance for Q revenue could actually be down sequentially from <unk> and then as we think about 2024 should we think of.
The lingering impact is maybe one to two point.
Headwinds to growth thanks.
Yeah, Jonathan I think it's a great question I think that really the impacts will be spread across Q3 Q3 Q4.
Our guide in anticipating as Andrew mentioned, we're going to be very precise with these changes we still do want to retain the flexibility to potentially newer categories rollout and efficacy more efficiency.
And of those again I don't think we're going to use pricing as a black hawk.
Precise towards all the data that we collect.
Really what we expect to see us.
The marketing team.
Tim continue to tune their acquisition methods as well as as we start to.
Heading into kind of the Q2 timeframe of 2024, you'll start to get the benefits on both the acquisition as well as you know we.
We felt all signals point to even higher retention that we'll have across our base and so there might be some pressure early in early 2024, but really we expect to start to lock that in Q2, and then kind of yes.
See the full strength of if you factor in Q3 Q4.
Thanks.
Your next question comes Joel.
With Securities Your line is open.
Okay. Thank you and thanks for taking my questions I, just wanted to stick with us.
Just talk big about pricing changes impacting in.
In the quarter and the year guidance just trying to reconcile.
<unk> with strong trends in the <unk> you talked about that earlier are you seeing that just because it lowered the prices on longer duration. All thing you saw more adoption in that globe.
And if that's the case, then audiophile $5 million headwind in the quarter and 12 to 18 million headwinds for the year is that before.
That benefit is it.
We benefit.
Yes, thanks for the question.
I would reiterate that while we provide statistics management is definitely not optimizing on I think we're really.
Really optimizing for the total share of the customer which comes in the form of the monthly average online revenue.
Basically what is the total LTV for our cumulative customer look like.
That said the AAV dynamic as well.
When a customer makes a commitment upfront their monthly rate.
What they pay per month may be lower but because theyre committing to more months upfront.
That in essence starts to drive that higher and so I think that the guidance that we gave in the 12 to 18.
Million headwind range is fully comprehensive all the different puts and takes on that.
Okay and then my follow up on all this focus on personalized treatment, let me talk a lot a little bit more about the investments youre doing not only technology and platform point of view, but also in terms of providing the training of new providers youre, bringing on your platform.
Related to that I was wondering if you can spend some time on yields relationship structure with <unk>.
Polluted medical groups given all the recent confusing and concerns on that partnership has been.
Thank you Linda Yes, there is a lot of.
A lot of education that goes into this platform across the var. So we leverage a lot of the.
And a 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 that is truly innovative and for heart health. As an example, partnering with the American car to car cardiology was critical in an underlying.
Identifying the underlying risk factors that these patients are having so there is 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 in.
The treatment ranges it allows providers to go after treating patients more holistically.
Alright, thanks, guys.
Your next question comes from George Hill with Deutsche Bank. Your line is open.
Yes, good evening, guys and thanks for taking the question I have one for Andrew and one for you I mean, I guess, Andrew first I'm going to kind of take the opposite tack on the new cardio products with the launch of the cardio product in the behavioral initiatives you guys are getting into more disease states that are not self diagnose hipple are not typically considered self diagnose <unk>, 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 this is just kind of a housekeeping question is the 12 I wanted to first pieces here is the $12 million to $18 million headwind in the back half of the year.
Solely the.
Headwinds 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 thats kind of splitting out it's a little bit but would appreciate any color.
Thanks, George Great question.
I think youre exactly right. This is 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 kind of predictive analysis in the consultation flow to be able to identify patients at risk involve 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 more completely allow providers to identify these patients at risk and that actually treat them.
The infrastructure that we've put in place with this.
This launch is one that can be replicated quite easily actually.
Thank replicated in most of the remaining categories from a healthcare system standpoint that plagued the country that we are not in so this could be a metabolic disorders. This can be insulin resistance disorders as can be diabetes. This could be.
Things like menopause and hormonal balancing.
We've already we already obviously spoken quite a bit about weight management.
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 hands, 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 personalized treatment.
And even in this situation a single pill treatment with a multi category benefit and we think thats going to massively improve adherence and engagement and retention and truly value for these patients. So.
Yes.
I've said this from the beginning I think the business is capable of attacking upwards of 70 or 80% of the traditional.
Health care system.
I think more and more as these 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, youll be able to more sophisticated we treat these patients on the go leveraging truly best in class clinical guidelines at the platform.
Platform level, and then offer a really data oriented and ml capabilities to better prescribing diagnose and treat these these individuals'. So I think that's where we're running towards we mentioned.
We filed a number of <unk>.
Provisional trademarks around the name med match 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.
The diagnosis and the appropriate treatment to help providers.
Make more informed and clinically appropriate decisions.
And then George I think the back half of your question the $12 million to $18 million range exclusively.
Correlates to pricing effectively that is the impact of re pricing the majority of existing based on already on some of those skus.
What the updated pricing.
So start to renew.
We will get the updated pricing there will be some mitigation from new users starting to select a different mix of products that we expect will skew more towards the personalized and longer duration offering.
Well as the continued upgrades for some of the.
The existing users that are switching from generic solutions or shorter duration solutions in the back half of the year.
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 cuts from a percentage perspective like what's the what's the price markdown on the hair care hair products.
Yes.
It varies like I don't think were going to go SKU by SKU.
<unk>.
We did it in a very precise way.
Okay.
The overall package is relatively a top us, particularly as we get into a sexual health, but the general Genesis beyond what we did so number one we wanted to remove the concept.
Having appropriate offering and matrix based offering for many of the Skus, we started to remit premiums on things like stronger dosages.
<unk> 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 question of our skews more more attractive and so in some instances.
The longer duration skewed the price cuts can be north of 25% to 30%.
Very helpful. Thank you very much.
Your next question comes from Karen <unk> with Piper Sandler Your line is open.
Hey, good afternoon, guys. Thanks for taking the question and congrats on a quarter.
Good quarter I'll, just stick it to one question I'd like to kind of breakdown.
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 slide deck had that as well.
At what point are we going to start seeing more gross margin degradation I know youre, taking pricing down about you've talked about adding more innovation, that's going to pressure margins, but we're still not seeing that yet. So just how should we be thinking about that gross margin.
Going forward over the next couple of a couple of quarters and then into 2024. Thank you.
Yes, I think we continue to.
<unk> additional efficiencies across the board and so I think that from our vantage point, we still see that there is a meaningful efficiency gains in front of us whether that's in the form of lower product cost opportunities on shipping.
So things that as we get bigger I think we'll continue to optimize I think we're going to be very thoughtful, but we're not going to give up gross margin points just to do it we're going to run experiments can be very precise.
And really the investments in your comments you have a multitude of things as we look forward that can be pricing bundled offerings loyalty programs. How do 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 repeat as to when you're lying down too.
The mid point as we're testing things that we are gaining efficiency there might be periods of time similar to this quarter, where it actually goes up remained steady.
Do you 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 will look to continue to get value back to the customer.
Thank you.
Your next question comes from Ivan Fine Seth with Tigress Financial Partners. Your line is open.
Alright, Thanks for taking my questions and congratulations on another great quarter and ongoing success in the birth of your concern too that's great news.
Can you go into a little more detail on some of the platform. So you're going to have to put 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 E K Gs and.
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 out food.
Logs and things like that so you can kind of learn you're eating habits and help to get modification and you know there are some.
Products that are on subscription that.
Would lend.
Lend itself for you to create a great subscription based product and then further with all of the data you have.
What kind of applications of AI to.
Clean.
Patterns like you said, if you have erectile dysfunction. It is you know a lot of times.
An indication of heart health.
Thanks, David for the question.
Congratulations as well.
I think on the.
Yeah on the.
Both both parts of that question why are things, we're really excited by it so on the subscription offering side, yes, I mean, you spoke about how this <unk>.
Pricing changes.
Move from a hill based construct to a treatment based cost structure.
And what that allows us to do is offer more.
Membership level in subscription level pricing and value for that.
That single price point, right and so when you think about weight management.
There is a really holistic approach here there is the necessity for great nutrient and great calorie intake right. There is the necessity to move your body right five 710000 stacks per day.
Theres, 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. <unk> on the.
On the waste management side of the houses.
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. So you should absolutely expect that.
Over the coming quarters, Youll 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 gets 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 is 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 in which specific dose are going to result in any great outcomes and that's a little bit of what we talked about already with med matched but also on the on the.
Post.
Treatment side of the house once you've actually started to treatment. What are the things you can do to really drive better efficacy and adherence and ultimately better outcomes.
And Theres 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 its frankly I think one of the things. We're most excited about as a business because it can overarching we improve.
The experience from diagnostic to.
Treatment to eventual adherence.
Ultimately increase medical efficacy quite dramatically.
I'm excited for you, because obviously heart health and weight management weight management and card helps go hand in hand, so there's it sounds like it was up like Mendez.
Mendes new platform of opportunities so congratulations.
Thanks, Adam.
This will conclude today's conference call. Thank you for joining US today you may now disconnect.
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