I'm Maria Ripps , Internet Analyst here at Canaccord Genuity, and it's my pleasure to introduce Yemi Akande, Hims & Hers CFO. Yemi, thank you so much for joining us today.
Great, really excited to be here.
Awesome. Well, first of all, congrats on your strong Q2 results that you just reported last week. It was great to see the continued strength in your core product offerings, as well as robust early momentum with your GLP-1 treatments. We'll dive into sort of the specifics of the business in a few moments here, but can you maybe give us a sort of broad overview of the platform, what you've been able to achieve in such a short period of time? And what are some of the sort of key strategic priorities for the management team these days?
Yeah, absolutely. You know, I think, you know, just taking a step back in terms of, you know, the genesis for Hims and Hers, you know, and why we've seen some of the success and some of the key principles. Really when you look at technology and how it's transformed so many different facets of our lives, from how we move around, how we consume media, how we order goods in e-commerce, the underlying themes across all of those areas has been greater convenience for consumers, greater transparency, greater affordability, customization, and personalization. When you look at healthcare, you know, in general, like, that has largely lagged behind.
And so the genesis for Hims and Hers was to really remove barriers that are preventing people from getting treated, through leveraging technology to bring greater transparency, greater affordability, more personalized products. And so as you look at the platform and what it provides today, it's really those things across five different specialties that tend to be some of the most emotionally resonant conditions for consumers. And so the specialties that we operate in today include mental health, sexual health, men's and women's dermatology, and weight management. And so our ability to leverage our platform, which we can go into a little bit later, to enable consumers to access a provider in hours or a day, as opposed to weeks.
Provide greater transparency around, you know, the pricing for a good upfront, and then more importantly, increasingly, also provide personalization to what are the unique needs to each individual, I think is having phenomenal success, and we're seeing that show up, quarter after quarter, in the results with more and more users coming to the platform.
Got it. So, given sort of recent macro developments, I wanted to ask about sort of the resiliency of your platform in the more challenging economic times. Given that your offerings address sort of emotionally resonant conditions, is it reasonable to expect that those would be sort of last types of expenditures to be cut by consumers?
Yeah, I think across numerous macro environments, we view the consumer as being very durable. Like, as you mentioned, the overall conditions that we treat are incredibly emotionally resonant in nature. These affect how you show up every day, how you feel about yourself, how you engage with your partner. I think there's also a couple other elements that give us confidence across numerous macro environments that the platform and the consumer will be durable. The second element is the specialties that we operate in truly have the ability to impact every household across the country. So this is not segmented to just one given, you know, demographic, whether wealthy or less wealthy. But really, the specialties that we operate in span across numerous demographics, different age ranges, different geographic locations, different income levels, you know, and so forth.
And lastly, I think that what we've really been able to provide with greater efficiency on the platform, is effectively greater affordability. And so on our platform, you have the ability to engage with a provider. You also have the ability to access medical solutions that are personalized to you, all from the convenience of your own home. Oftentimes at price points that when you, you know, collect the deductibles that you would need to do that in a brick-and-mortar environment, are on par, if not at times, even more favorable than what you would get, in a brick-and-mortar setting.
Mm-hmm. So let's dive a little bit deeper into personalization. Could you maybe spend a few minutes talking about the investments you've made in your affiliated pharmacies over the past few years? And maybe walk us through your pipeline of new personalized products that are coming to market.
Yeah, absolutely. So I think that one of the benefits of the platform upfront has been, you know, the fact that the platform was built from the ground up, and so our EMR system was effectively homegrown.
Mm-hmm.
And so, with provider input, over the last several years, we've iterated on that, and continue to do so. One of the key outputs for that, has been the fact that we get a ton of consumer feedback around what are the barriers that are preventing them from potentially getting treated. And so we receive consumer feedback around things like they'd prefer a different form factor, or it'd be great if they could treat multiple conditions, you know, inside of one solution. And so really what we've done, is we've leveraged that feedback you know, from consumers, with our experts, to really hone in and think through what are the characteristics, of our, of our solutions that would really resonate with consumers. And so a couple of years ago, we bought Apostrophe.
It's a 503A facility that really gave us the ability to verticalize and fine-tune compounded treatments. And so we're able to take the feedback that we received from the EMR that consumers were giving us around, "I would prefer a different form factor, a topical solution for my hair loss product versus an oral solution," or, "I want the ability to treat multiple conditions in one." And you're seeing that, you know, show up in the form of the platform, where there's unique form factors of things like mints, gummy bears, you know, in the future, topical solutions for medications that have historically been oral-based. You're seeing more multi-condition treatments, at very, you know, mass market price points. That's really generating a lot of excitement for consumers.
So, you know, recently, you know, we launched the ability to treat men's sexual health and men's hair loss in one solution-
Mm-hmm
at a price point for $49 per month.
Right.
I think that these types of innovations that we continue to bring to the platform are generating more and more consumer excitement. We're now north of 40% of users or subscribers on the platform are opting for a personalized solution. If you rewind, you know, a little over two years ago, that was less than 15%. The strategy of offering high-quality personalized solutions that are able to treat multiple conditions, form factors that consumers prefer, or adjust dosage strength to balance side effect concerns with efficacy levels is really resonating with the consumers.
Mm-hmm. And the affiliated pharmacies have also enabled you to realize operational efficiencies and pass some of those savings to customers in the form of price reductions. How should we think about the company's sort of expected cadence of price reductions, and what are some other ways you're looking to pass value back to consumers?
Yeah, it's a really great question. So overall, I think we are very rigorous with the, you know, with pricing changes that we make to the platform, where oftentimes we'll run experiments for months, if not a couple quarters-
Mm-hmm
before executing on those en masse. I think price, you know, pricing changes and continuing to place those at more mass market prices inevitably are gonna be important. But there are also numerous other ways that we can pass value to consumers that we're increasingly look to do so. That can include, giving consumer more value, within, you know, a product at the same price point. So using the sexual health and hair loss example, the ability to put that at $49 is something that we view as incredibly compelling, where oftentimes if you were to, you know, get those treatments individually, across separate platforms, that could be $100+ dollars.
The other element is, you know, there's value-added services where, you know, the consumers are giving us feedback around, you know, they'd wanna know more information, you know, around themselves, and so through partnerships, we're able to do things like loyalty programs or, you know, effectively, pass value, you know, that way. And lastly, even the prices of products yet to come onto the platform, given the historical operation excellence we've seen on the platform, we have the ability, you know, to do things like, offer the ability to treat multiple conditions for a price point less than $50. We have the ability to, have a weight management offering that, you know, that starts as low as $79 for orals or, 199 for injectables.
The verticalization of the pharmacies, combined with the operational excellence of our teams, really is a strong point that enables us to put forth a compelling value proposition to the consumer.
Mm-hmm. So, let's move on to the topic that I'm sure everyone is anxiously waiting for, which is GLP-1s. On your Q2 call last week, you addressed sort of what has been top of mind for most investors, which is the sustainability of the GLP-1 revenue stream post-shortage. So could you maybe recap for the broader audience, why, sort of, why you're confident that in your ability to continue compounding at scale after semaglutide and other GLP-1 sort of ingredients are no longer on the shortage list?
Yeah, I think it's a really great question, and so, you know, we'll provide a little bit of context around, like, how we're able to do it, you know, today. And so, you know, effectively, what we see is thousands of consumers are coming to us on a daily basis, stating that they're having problems even today, accessing branded medications. And so as a result of that, many of the medications, you know, such as semaglutide, tirzepatide, remain on the FDA shortage list. And so what that enables you to do is compound dosages at the commercially available dosage levels. And so, that's what we've rolled out, to start, you know, for GLP-1s.
But when we look across our other specialties, there's really two foundational principles, you know, that irrespective of a shortage list, like are game changing for the platform, and we believe are unique to Hims and Hers. You know, the first is the aspect of personalization, right? And so, you know, if you step back and you look at the platform, at scale, we're one of the few platforms that has the ability to see the end-to-end journey of a user. Who came onto the platform, who opted to switch to a different medication, who opted to switch to a different dosage, what were the side effect profiles that they ran into, you know, and so forth.
What that enables us to do is leverage technologies like MedMatch, combine that with the technology that we have in the pharmaceutical facilities, to offer personalized dosages. It may be for a subset of consumers that the low dose of a commercially available product may not be strong enough, but the high dose comes with too many side effect concerns.
Our ability to identify those users, offer them a, you know, a personalized treatment, you know, we view that as being fundamental, you know, to the platform, irrespective of the shortage list and will be truly compelling.
And, you know, the compounding laws that enable personalization this is not a new phenomenon. These laws have existed for decades, and so historically, they've been honored by all the players in the industry, and so we're confident that, you know, they will continue to do so. What that does do is in a post-shortage world, the, you know, swim lanes for, the commercially available products, those products will go away, and the subset of users will opt to switch for personalized products. That does narrow the, you know, the addressable population, but in an environment where 100 million people across the country are suffering from weight-related challenges, our view is that there are still millions of users or potential consumers that would benefit from personalization.
The second aspect, you know, that again holds true across all specialties, is really the concept around having a breadth of holistic options. And so if you look across all of our specialties, you'll notice that, and in our view, weight management is not gonna be any different. To start with the category, we launched oral-based solutions. That business, in the span of seven months, scaled to north of $100 million. We'll continue to iterate on that product. We'll also look to, you know, bring on the personalized dosages like we talked around. As supply becomes sustainable, branded products will also be an option. And lastly, there are, you know, other GLP-1s, such as liraglutide, you know, that are nearing the ends of their patent lives. We'll also look to bring many of those onto the platform.
I think in summary, you know, similar to what we've done in other specialties, irrespective of a shortage environment, the concept of pairing personalization with breadth of choice has been the winning formula, and we don't view weight management as any different.
Got it. And can you maybe talk about the halo effect of the GLP-1 offering on your platform overall?
Yeah, I would say that I think that there's our platform, and there's, like, the broader society. And so I think we saw this when we launched the oral medication-
Mm-hmm.
you know, kits, is that GLP-1s have made it socially acceptable to view weight management as a medical condition versus purely lifestyle. And so I think the platform, even when it was just oral, oral-based solutions, benefited from that immensely. Like, that's been one of our fastest scaling specialties-
Right.
because GLP-1s have elevated the awareness that weight management can be a medical condition. I think with respect to GLP-1, specifically on our platform, I think it's a little bit of a symbiotic relationship, where because we offer it, that has generated more eyeballs on the platform. But also, I think that, you know, well, we saw this in the oral solution as well, there are a ton of people that are suffering from weight-related challenges, and they are looking for a solution. I think that Hims & Hers has also benefited from years of building a trusted brand, years of becoming known for personalization and quality, where GLP-1s are a success on the platform as a result of those investments. Users, you know, tend to associate our products with high quality and trust.
So as a result of having that, they're more amenable, you know, to taking the offering and trusting, you know, that the offering will be of high quality.
Got it. So you also announced the acquisition of a 503B outsourcing facility to support sort of scaling this offering. Talk to us about some of the operational efficiencies and productivity sort of gains that this should unlock.
Yeah, we'll definitely go into, you know, some of the productivity gains. I think we're very excited there. But even just, you know, strategically, what that facility will enable us to do, is pretty powerful. So when we acquired the 503A, that accelerated our ability to do many of the personalized products that we do today, years early. And so the 503B facility sets the foundation for interesting product and specialty expansion in the future. As we look to offer things, you know, such as hormonal therapy, or other specialties that require sterile facilities, the 503B will be instrumental in, accelerating the path to, offer some of those broader specialties.
You know, secondarily, you know, the ability, what we've seen in personalization and verticalization is the ability to listen to the consumers and have that go all the way down the supply chain shows up in the form of many different benefits. One is being able to respond faster to consumers to give them exactly what they want. The second shows up in things that may be counterintuitive, on you're able to get more efficiencies on things like customer support costs, 'cause you're able to iterate further up the stream. And then lastly, I think just we've seen this across how the teams have executed.
If you look at Q4 of 2021 to Q4 of 2023, gross margins on the platform expanded 10 points, just as a result of the operations teams looking for ways to optimize processes, looking through how do we bring on more verticalization and realize benefits from economies of scale? We're confident that they'll be able to do something very similar with the 503B facilities for injectables-
Mm-hmm
which is one of the reasons why we felt comfortable placing, you know, the price point as low as $199, which is truly compelling for users.
Mm-hmm. So let's switch to marketing for a couple of minutes here. Marketing expense as a % of revenue was at 46% in Q2, and has been sort of moving lower over the past couple of quarters. You are expecting a modest step up in the second half, largely to support the GLP-1 offering. Maybe longer term, talk about sort of the company's framework for driving 100-300 basis points of annual marketing leverage as you kind of look forward.
Yeah, really great question. And so I think on a quarter-to-quarter basis, marketing investment is going to, you know, ebb and flow, but we're confident on an annual basis, we'll get one to three points of leverage. I think really where we tend to lean into marketing is when there is a new event, you know, on the platform. And so in the back half of the year, we expect a few things. One is we will have multi-condition treatments across our core specialties. We will also have additional form factors, and so educating users on those new benefits is definitely something that we're gonna wanna do.
As you mentioned, as GLP-1s go into national coverage, weight is such a broad category that there is the ability to make specialty-related investments in marketing that we've historically, you know, on a mass market basis, have not done. So if you look at a Hims & Hers TV ad, it's usually speaking about multiple specialties and the benefits of coming to the platform for mental health, sexual health, men's dermatology or women's dermatology, respectively. Weight is such a broad category, and the solutions are so expansive that there really is the ability to start to invest in unique education campaigns around that holistically as a specialty, and we're very excited by that. As we look to where is leverage going to come from on marketing, I think there's a few factors that give us conviction.
One is the conditions that we treat are chronic in nature, and most of the marketing dollars go towards the acquisition of new consumers. So each cohort of consumers that you bring basically provides a platform for greater and greater leverage. The second element is we've seen a ton of success with personalization, that you know, we're now north of 40% of users are opting for a personalized product. Historically, what we've seen for personalized products is that comes with stronger retention, and so you get the compounding effect of more cohorts coming in with stronger retention as they opt for more personalized products. That inherently provides more leverage as well.
The final element is, and we're really seeing this, and we've observed, you know, this dynamic, is for categories that are visible in nature: hair, skin, weight, there's a component of word of mouth and organic acquisition, that we typically see out there-
Mm-hmm
that we expect to benefit from. And so organically, Reddit communities have popped up for a weight management offering, where users are speaking to the success that they're seeing. My wife utilizes the hair loss platform, and she tells everyone about the success that she's seen. In our historical categories, like men's sexual health, you typically wouldn't see, you know, that word of mouth or folks telling their friends about it, you know, for obvious reasons. Whereas in more visible categories like dermatology, both hair and skin, as well as weight, those are things that are very visible, and so people are more open to speak to those. And so we're seeing the benefit of those categories scale quite rapidly with word of mouth and lower cost channels.
Mm-hmm.
And so the combination of stronger organic acquisition, a shift towards more personalization, which carries stronger retention, and the seasoning of cohorts, is what gave us the conviction to, you know, commit, to having line of sight to 1 to 3 points of leverage on marketing, for the next or the remainder of the decade.
Got it. That makes sense. Let's shift to a couple of financial questions before we wrap up. You raised your full year guidance by nearly 10% last week. How conservative would you say this sort of the updated outlook may be, sort of given the momentum with your core offerings as well as GLP-1s, sort of as a nd also, I feel like you have several new products coming?
Yeah.
to market later this year.
Yeah. So I think it's, you know, I think particularly in a rapidly scaling environment, guidance is always, you know, a tough, a tough one, and particularly-
Right.
you know, change when you're increasing it, you know, $75 million to $80 million quarter-over-quarter. You know, I think that from our vantage point, our philosophy is to set guidance based upon, you know, what we currently see and what's in front of us. We've been pleasantly surprised in the past by products that were a greater hit, you know, than we thought. Things like Hard Mints, you know, on the platform, or the topical solutions for hair, where at times we've beaten. If that trend were to hold true for GLP-1s, you know, there is potential upside there, but generally, the philosophy for guidance is to try to be as close to the penny as possible. With innovation, you know, comes, you know, inherent volatility, though.
Right. Right. So, let's talk about gross margins, and, you guided to 300-400 basis points of gross margin compression in the second half of this year, versus the first half, as you sort of support the GLP-1, investments. You expect to recoup some sort of margin compression over, sort of in the medium term as operational efficiencies are sort of achieved. But, sort of, how should we think about price reductions, sort of coupled with sort of, I guess, how, how do price reductions kind of feed in your overall sort of, view of gross margins over the next few years?
Yeah, absolutely. So I mean, I think just like, you know, kind of setting the stage for the question, you know, aspiration of the company is not to be, you know, an 85% gross margin business with 6 or 7 million users on the platform. The aspiration is to have tens of millions of users on the platform. And so with that, we are willing to, you know, give up some gross margin to have greater scale. That said, I think we can still do that while also maintaining a path to EBITDA margins north of 20%.
In terms of how we intend to give some of that value back to consumers, I think you're starting to see this show up in the form of prices, you know, that we place some of the products at, whether they're multi-condition treatments or the GLP-1 offering. And so I think that, you know, over the next couple of years, what we would expect is gross margins to, you know, ebb and flow. You know, there are gonna be periods of time where it goes up. Our operations teams, you know, as I mentioned earlier, have demonstrated extreme excellence. I think that is a strength of the company at being able to identify efficiencies, capture them, and then we'll look to be very disciplined and thoughtful at returning some of that value back to consumers.
That can come in the form of value-added services. It can come in the form of more aggressive pricing for newer offerings. I think what you're also likely to see is, you know, historically, we've played in the spectrum of, you know, price point around $50. And it's been, you know, more of a premium offering, so that's very, you know, compelling. But I think that we've operated more on a better or a best model. As the platform evolves to tens of millions of users, there's likely to be a good, better, best model-
Mm-hmm
that carries a broader spectrum of price points and margin points. And so you can envision a world where in order to get tens of millions of users, you have a broader spectrum of products, you know, that we're, you know, very excited to roll out in the coming years. And so that's really where, you know, the margins will ebb and flow. So periods of time will go up when we get efficiency, but as we broaden the spectrum of products, as we also look to pass value back to consumers, whether it's pricing or value-added services, over the long term, we expect to be in the mid-70s%.
Mm-hmm.
While still maintaining an EBITDA margin north of 20%, but having much greater scale, you know, in tens of millions of users on the platform.
Got it. That makes sense. I want to pause here and see if we may have any questions from the audience. All right, so we have maybe a minute or so left. So, as we sit here today, are there any sort of aspects of your platform, business model, or opportunity that you think investors may not fully understand or sort of appreciate at this point?
Yeah, I think there's really two aspects, and so I'll start with kind of the more straightforward one. And I think that, you know, there's been a lot of excitement around GLP-1s, and that is likely to be an accelerant to what's an already phenomenal trajectory. But I think in that excitement, folks, you know, still, like, lose sight at times of what the core business has done, right? And so I think in advance of GLP-1s, you know, Hims & Hers was able to deliver GAAP profitability, be free cash flow positive, have guidance that has $1.2 billion of revenue, $100 million of EBITDA, which was our 2025 floor, is pulling that forward a year early in the absence of GLP-1s. And so, while we're super excited by GLP-1s, I think the core is performing phenomenally well.
I think that, you know, the second, you know, element shows up in the form of many different things, where you know, investors will ask: "Well, what are you? Are you consumer? Are you healthcare? Are you technology?" You know, and so forth. And I think that a lot of that confusion stems from the simple fact of we're doing something new, right? So I think the concept of leveraging technology to bring a personalized experience to a set of users is something that's new and does not look like anything out there, and it currently is flipping the healthcare system on its head. This is not the first time the industry has undergone change, and so I think with change creates confusion.
So if you look at the most valuable companies, you know, in technology today, many of them underwent a similar revolutionary change for consumers, whether that's how we move, whether it's how you rent a property, whether it's how you consume media. There's been questions anytime, you know, you've revolutionized a platform for consumers. But with that has come a great benefit to society. With that has also come a great benefit to the shareholders of folks that held onto those companies. And so our aim for Hims and Hers is to basically follow a similar process for the greater good of consumers in the healthcare space.
Got it. Well, with that, we're out of time. That was great, Yemi. Thank you so much for joining us.
Perfect. Thank you so much, Maria.