Earnings Call: Q2 2021

Aug 11, 2021

Good afternoon and thank you for joining us on today's conference call to discuss Hymsen Hirsch Health Inc. 2nd Quarter 2021 Financial Results. Joining me on the call are Andrew Dudum, our Chief Executive Officer and Spencer Lee, our Chief Financial Officer. On this call, we will be making forward looking statements, including financial guidance and patients for our Q3 fiscal year 2021 growth, expansion into new categories, strategies, Customer Demand and Products. These statements reflect our best judgment based on factors currently known to us and actual events or results may differ materially. Please refer to documents that we filed with the SEC, including the Form 8 ks filed with today's press release. Those documents contain risks and other factors that may cause our actual results to differ from those contained in our forward looking statements. These forward looking statements are being made as of today, and we will disclaim any obligation to update or revise these statements. If this call is reviewed after today, the information presented during this call may not be current or accurate. We will also discuss non GAAP financial measures, which are not prepared in accordance with Generally Accepted Accounting Principles. For historical periods, a reconciliation with GAAP and non GAAP results is provided in the press release filed today with the SEC on an 8 ks and also available on our website. And with that, I'll now turn it over to Andrew Dudum. Welcome, and thank you all for joining our Q2 earnings call. We are proud to share that we've continued our outperformance on both the top line and bottom line of our guidance range this quarter, with revenue of $60,000,000 plus and adjusted EBITDA coming in at a loss of $5,000,000 With the team's steadfast focus on growth and efficiency, We've expanded gross margins to an all time high of 78%, while adding nearly 200,000 subscriptions over the last 12 months. The results this quarter are continued validation of our innovative consumer oriented business model, and we believe we are leading a secular trend that will transform healthcare as we know it. As a newly public company, HIMSS and HERS is in the earliest chapters of our story. And as such, we're excited with each quarter to share more insights into our vision for the years ahead. Hirsch Health. I am confident our unique growth mindset, our commitment to a multiyear time horizon and our proven diligent execution will continue to be the engine for our success. Our vision for the future is simple. We are building HIMSS and HERS into the new front door to healthcare, a new front door that will span dozens of medical specialties, welcoming customers of all demographics into a unified consumer platform that looks and feels and talks to them in a way that gives them confidence they're in the right hands. I strongly believe that the great unlock in telemedicine will be the power of personal. The winners in this emerging category will be providers who offer a level of service, familiarity and quality on par or above that of the relationship you have with your primary care physician. That's why we're putting personal on our strategic agenda as a key pillar of success. For these reasons, I believe the majority of healthcare delivery will begin on a platform like ours in the future. No waiting in lines or jumping through hoops to find clinics, specialists, pharmacies or in network care. I also believe the new front door will have an international entrance and wellness. Shaped by the U. S. Innovation in telemedicine, but quickly followed in dozens of major international markets. International is an area we made important progress during this quarter, which I'll touch on later in my remarks. The opportunity to digitize and consumerize the healthcare system on behalf of everyday people is one of the largest transformations in technology and innovation globally over the next decade. And while many industry veterans have yet to realize this new model will be the primary way in which people engage with healthcare, we are quickly moving ahead, investing in the brand, the experiences, the technology and the capabilities for the future. Given this opportunity, our strategy is long term oriented. Everything we do is in service of an opportunity that will continue to accelerate and grow over years, both in the U. S. And overseas. Our investments in infrastructure, differentiated technology and capabilities and our continued excellence in building long term equity in our brand will be how we win. I've often spoken about our plans for continued specialty expansion, international ambitions and strategic technologies and defensible infrastructure. I'm proud to say this quarter was one where we took large strides in the foundation across all three of these areas. Our investments here are at the crux of our strategy to build a differentiated healthcare platform for consumers. Let me share a little bit about each. As of this quarter, HIMSS is fully rolled out in 4 major specialty categories: sexual health, dermatology, Primary Care and most recently, Behavioral Health. Each specialty is growing quickly, layering and diversity into our business as we scale. And while early categories such as sexual health continue to scale, has the potential to be a meaningful pillar for HIMSS and HERS, offering a differentiated service relative to other providers as we combine psychiatry, live group sessions and individualized therapy within a unified platform. This quarter, we launched our behavioral health dashboard, allowing customers a centralized hub for Flexible and Affordable Mental Health Services. Within their dashboard, patients can coordinate care, select providers, schedule therapy appointments, track their progress, message their psychiatrist and manage their medication, all from 1 mobile first system. From the consumer demand we've seen to date and the early acceleration of that business, We believe this specialty to be a foundational pillar of the company in the future. Differentiated by the comprehensive set of services and offerings from psychiatry and live group sessions to individualized psychotherapy, we believe the Hims and Hers mental health platform something truly unique to patients in need. With nearly 80% of our patients leveraging our psychiatric services reporting improvements to their mental health. Our team is more motivated than ever to double down on these initiatives. This new category, only fully released this quarter, is just another data point proving our consumer first business model can and will scale as we continue to introduce more offerings and categories. We expect the future of the company to progress like its past. Rapid expansion into new specialties, slightly doubling the number of core categories we're in by 2025. The same approach, the same model, getting more efficient and delivering more value along the way. As I've mentioned before, we believe Hims and Hers has a unique opportunity to become a consolidator and ultimately the leader in this digital transformation of consumer health. Every month, we see dozens of opportunities to acquire teams, Technologies and Brands help accelerate the reality of our vision. The Hims and Hers brand is an attractive strategic partner for many innovators in the base, providing us ongoing access to deal opportunities. We've looked at 100 of these companies over the last few years, with few generating excitement for management. This quarter, I was thrilled to share that we announced 2 transactions that not only fits squarely into our long term vision, but accelerate our ongoing initiatives, specifically relating to ambitions and investments in differentiated technologies and capabilities. Let me take a moment to provide some color for both of these acquisitions. First, we acquired Honest Health, which accelerates our geographic expansion with operational capabilities to support our long term plans for the U. K. And Western Europe. Led by Sam and Pablo, Honest Health has demonstrated a powerful combination of leadership, passion and innovation in digital health that will further elevate our ability to provide the Hims and Hers experience to a new segment of consumers in the U. K. And beyond. Similar to our commitment to expand into more specialty categories in the coming years, and as such, we will continue to find opportunities to invest both organically and inorganically in teams and infrastructure for that global future. In our 2nd announced acquisition this quarter, we acquired Apostrophe, a leading teledermatology platform and compounding pharmacy in the U. S. As I've shared before, clinical dermatology today stands at a staggering $44,000,000,000 market. Hoegh. However, what is even more staggering is the retail dermatology market, think Sephora, stands at a whopping 1 $150,000,000,000 market. It is my belief shared with the founders of Apostrophe that over the next and A. 5 years innovative platforms such as Hims and Hers and Apostrophe will continue to move market share from retail to clinical. Why pay $50 for an over the counter cream with no studied clinical efficacy when a personalized Bespoke prescription treatment can be compounded for your specific need and delivered to your door within days for the same price. My long term belief in this market transformation is at the core of why we acquired Apostrophe. Built upon their Arizona based compounding pharmacy, Apostrophe has garnered deep love from their consumers, with revenue growing at 120 percent CAGR over the last 4 years and building one of the most loyal and diverse patient population in dermatology. This acquisition was a no brainer for management. The dermatology market is so large and growing so quickly that the front door, as I've spoken about, needs to be broad. Apostrophe widened that door with a new brand entrance for a new segment of consumers. Dermatology was the 2nd fastest year over year category last quarter. The acquisition increases both the volume and variety of our dermatology consumers and even more importantly, its investment in infrastructure is second to none, accelerating many of our existing initiatives. Ben Hulbert, Founder and CEO of Apostrophe, has built a company capable of delivering a range of bespoke clinical compounds for dermatology conditions ranging from melasma to hormonal acne. These custom formulations provide patients with a degree of personalization rarely found in even the most high end dermatology offices. Furthermore, potential for leveraging and wellness compounding infrastructure in new avenues, not only in dermatology, but for future personalized experiences are vast and exciting. These types of capabilities change the game for clinical optionality, patient personalization and ultimately customer delight. Accelerate the expansion of treatments and categories on behalf of customers across the United States. At the core of our success and quick Scale is a differentiated platform for both consumers and physicians and an integrated pharmacy system and medical fulfillment center capabilities and capabilities and services to deliver seamless end to end experience for the customer. As a technologist for the last 15 years, I have a deep belief that defensible infrastructure and software is a significant advantage to our company. Pillar of our long term competitive strategy is differentiated capabilities through proprietary infrastructure and medical capabilities. I believe it streamlines efficiency of the legacy healthcare system and unlocks uniquely seamless consumer experiences. As such, our investments this past quarter are reflective of a modern approach to building a defensible healthcare company. Last year, nearly all of our pharmaceutical delivery, over the counter fulfillment and topical compounding capabilities or outsourced to 3rd parties. Today, just 1 year later, I can report that nearly 50% of our order volume in technology, software and infrastructure with a vision towards non reliance on third parties in a platform suited with unique capabilities. I'm excited to share by year end 2022, we believe nearly 100% of our services and treatments will be filled via verticalized infrastructure, further unlocking efficiencies and capabilities consumers are looking for. In addition to the purchase of Honest in the U. K, the strategic acquisition and integration of Apostrophe and their compounding capabilities and the quick rollout of our Ohio based pharmacy and fulfillment services. We also have been investing deeply this quarter and our anticipated mobile platform and insurance offering. Every day, consumers search for Hims and Hers across the iOS and Android app stores. Our brand and consumer awareness drives people to find us across all of their devices, and we're working hard to build what we believe will be an exceptionally unique experience for them. One should look for exciting announcements regarding our mobile platform in the coming quarters. Our teams are hard at work designing and building what I believe to be the future home for Hims and Hers' members, a home that helps drive deeper engagement and ultimately healthier lives. In addition, Our team continues the integration of insurance reimbursement as part of the HIMSS and HERS platform. This is a key component to affordability for certain types of care and patient populations, which is core to our mission of expanding access for everyone. And wellness. Expect to hear more about this rollout in the second half of this year. While early in our company's life, the road ahead is as clear as day. More specialty conditions that consumers love, like our newest offerings in psychiatry, more investments in personalization and bespoke treatment capabilities like Apostrophe and more laying the global groundwork to take this model. So clearly, the healthcare model of the future to more markets overseas, all in service of delivering personalized healthcare at Scale that people love. I've said this before, but our organization is made up of people passionate about building the future of healthcare. We pride ourselves on being visionary in our sector, sustaining consistent execution and delivering growth, and I feel this quarter is again highly reflective of our ability to be the leader in this transformation. With that, I want to thank everyone on our team whose continued unwavering focus on our vision is driving such outperformance and welcome the teams at Apostrophe and Honest Health to the family. We couldn't be more excited about our future together. I'll now turn the time over to Spencer, who can share more about this past quarter's results. Thank you, Andrew. I'm pleased to report another incredibly strong financial quarter for Q2. I'll walk through the details behind our performance for the quarter, provide some high level details on our recent acquisitions and discuss our revised upwards guidance for Q3 and the full year. First, let's jump into the Q2 results. From my perspective, Q2 was another 3 months of the continued long term secular trend Hirschfeld. There has always been deep consumer demand for treatments, but numerous barriers in market, including accessibility, price, stigma, trust and especially experience have prevented or deterred consumers from actually seeking the treatment they want. In the last 12 months, we've met with numerous investors, and we often get the question, won't consumers just go get your products and services for cheaper somewhere else? Our results, especially in Q2, provide a definitive answer. Absolutely not. These types of questions fundamentally assume that experience doesn't matter to people, which is ironic to assume or expect that in healthcare experience doesn't matter. This attitude in healthcare that ignores consumer experience is why so many are frustrated with the healthcare system and is why it's one of the lowest NPS industries in the country. And this has been our opportunity. We are laser focused on building and constantly improving a set of experiences that consumers love that motivate and inspire people to seek the treatment they need. We have demonstrated that subtle improvements in experience and drive meaningful increases in conversion and retention, demonstrating that for healthcare consumers, experience truly matters. We've also built and heavily invested in a brand that people trust and love. We have unlocked and mobilized an audience that is clearly seeking an alternative to the traditional healthcare system. When we survey our customers who purchase medication on our platform, 80% tell us they are purchasing the medication for the first time. The combination of a world class experience aimed at a shockingly underserved audience wrapped in a beloved and trusted brand. This has allowed us to harness the deep underserved demand that lives in the market. Consumers are voting with their wallets and they are clearly voting for Hims and Hers. As a result, in Q2, we added nearly 200,000 subscriptions to the platform versus Q2 of last year, and wellness services. In our most recent investor presentation that we filed in June, We showed that within our oldest subscriber cohort, we are driving 88% long term revenue retention in year 3 as compared to year 2. The combination of continuing to capture deep consumer demand, driving strong new customer growth and strong retention feeding the high end of our Q2 revenue guidance of $57,000,000 In Q2, we generated 786,000 net orders, which accelerated to 37% year over year growth. Growth in net orders was primarily driven by growth in subscriptions and strong retention of existing customers. Average order value or AOV in Q2 was $74 which increased 28% year over year. AOV was in line with Q1, which was expected as we are now well into our 2nd year of uptake into bigger bundles and multi month subscriptions, as we discussed on our previous earnings call. In Q2, we generated a 70 8% gross margin, up 700 basis points versus 71% in Q2 of 2020. The combination of strong revenue growth and expanding gross margins compounded to generate even faster gross profit growth, up 84% year over year. Our focus over the last 2 years on expanding unit economics and increasing subscriber lifetime values has not only driven rapid revenue growth, but also year over year gross margin expansion at the same time. In our most recent investor presentation filed in June On Page 13, we showed the incredible impact our execution has had on our subscriber unit economics. In our 2020 subscriber cohort, We meaningfully improved retention as evidenced by the increasing slope of the cohort curve compared to prior cohorts. We also increased monetization through larger product bundles and multi month subscriptions, which increased AOVs such that the average subscriber acquired in 2020 generated $3.63 in revenue in their 1st 12 months compared to $191 for the average subscriber in 2018. That's a 90% improvement. In fact, the average subscriber in 2020 generated nearly the same amount of revenue in their 1st 12 months as the average subscriber in 2018 generated over the course of 3 years, dollars 3.63 compared to $3.84 respectively, all while also delivering on long term revenue retention of 88% in our oldest subscriber cohort. All of our hard work, improving and expanding our product offerings, enhancing the user experience and developing marketing campaigns and brand assets that connect with our audience, all that serve to increase retention, increase AOVs, expand LTVs, drive broader awareness, increased traffic and improved conversion. Higher LTVs effectively make our marketing more efficient, which has allowed us to drive incredibly efficient growth. In Q2, our adjusted EBITDA loss was $4,700,000 meaningfully outperforming our Q2 loss guidance of $10,000,000 to $12,000,000 In Q2, our marketing expenses increased by less than $1,000,000 quarter over quarter, while revenues increased by $8,400,000 over the same period. This level of growth efficiency further highlights the impact that improving the fundamental customer experience that drive higher engagement, conversion and LTVs can have on both growth and efficiency. I want to note that in Q2, we expensed $2,900,000 in costs related to the acquisitions of Audis Health and Apostrophe in SG and A, which we've added back to adjusted EBITDA. I also want to note that Honest Health closed on June 11 and had an immaterial impact on our Q2 financial results, contributing less than $100,000 in revenue for the period. Speaking of Honest Health, in June, we acquired Honest held for $10,000,000 primarily in stock with over half of the purchase consideration deferred and to be paid out over time. We also completed the acquisition of Apostrophe in July for $150,000,000 of which approximately $50,000,000 was paid in cash in July. Apostrophe also includes an additional earn out component of $50,000,000 to be paid in cash upon the achievement of certain future revenue targets. Had the Apaspreet transaction closed in Q2, pro form a for the cash used in the transaction, we would have had to generate between $4,000,000 to $5,000,000 in revenue. We also expect our consolidated gross margins to be between 74% and 76% in Q3, which is driven by continued steady margins from HIMSS and HERS and the weighted average impact of lower margins from Apostrophe. We also expect AOVs to decrease slightly in Q3 to $72 to $73 as a result of the acquisitions. Overall, as Andrew mentioned, we are incredibly excited about the tremendous opportunity both of these acquisitions represent. They provide key assets and leadership to take more share, address massive markets and accelerate growth in important strategic areas. It's early days for both Honest Health and Apostrophe, and we see the same opportunities to enhance unit economics, expand margins and drive efficient growth that we saw at HIMSS and HERS not too long ago. Now moving on to financial guidance. For Q3 2021, we are raising our revenue range to $69,000,000 to $71,000,000 and are guiding to an adjusted EBITDA loss of $9,000,000 to $11,000,000 I want to note for Q3, we expect to spent approximately $4,000,000 to $5,000,000 in additional costs associated with the Honest Health and Apostrophe acquisitions, which will be expensed through SG and A and added back to adjusted EBITDA. We also expect marketing expenses to increase by $9,000,000 to $11,000,000 quarter over quarter, driven by: 1, inheriting the ongoing marketing expenses of Honest Health and Apostrophe and 2, costs associated with celebrity endorsement agreements, including Miley Cyrus, and wellness expenses, which will include approximately $2,000,000 to $3,000,000 in stock based compensation expenses within marketing expense, in addition to other cash based expenses. We expect total stock based compensation expenses for Q3 to be between $12,000,000 to $14,000,000 For the full year 2021, we are raising our revenue guidance to a range of $251,000,000 to $255,000,000 an increase of $29,000,000 at the midpoint versus our previous guidance. We are narrowing the range for adjusted EBITDA losses to $35,000,000 to $40,000,000 for the year. Similar to last quarter's guidance, our current internal financial forecast has Q4 revenues roughly in line with Q3. Our Q4 revenue guidance can be implied from our full year guidance at $69,000,000 to $71,000,000 As I mentioned on our last call, as a young and newly public company, we intend to provide guidance that we are confident in our ability to achieve based on the current data points we see in the business. Given the data points we have from last year, we feel like it is appropriate to keep our Q4 revenue guidance in line with Q3. Finally, I wanted to provide a brief update on our share count given that both our announced warrant redemption and the Apostrophe acquisition happened after quarter end. As of sixthirty, we had approximately 193,000,000 common shares outstanding, 8,000,000 warrants, 17,000,000 options and 4,000,000 RSUs for a gross total of 222,000,000 shares. The warrants and options include a weighted average strike price of $10.89 $3.28 respectively. We expect warrant redemptions to eliminate 7,600,000 warrants and to issue approximately 2,000,000 shares of common stock through the redemption. We issued 8,100,000 shares and 700,000 RSU in July in connection with the Apostrophe acquisition. Pro form a for these two transactions, we would have had approximately 203,000,000 common shares outstanding, 600,000 warrants, 17,000,000 options and 4,600,000 RSU's for a total gross count of approximately 225,000,000 shares. We are exceptionally pleased with the results we are able to deliver in Q2. The strength of our financial performance in the first half of the year and the strong guidance for the second half, really highlight the power of our core differentiation across audience, brand and experience. We are absolutely resonating with and delivering on all fronts for a generation of technology first and experience oriented buyers seeking help for deeply personal medical conditions. We continue to see strong investment opportunities ahead, including our partnerships with Jennifer Lopez and now Miley Cyrus, which all further validate the quality and power of the brand that we fill and our ability to uniquely reach an audience of brand savvy consumers. Our full year revenue guidance now represents year over year growth rates of 69% to 71% for 2021. In fact, The midpoint of $253,000,000 in revenue is now substantially ahead of the 2022 revenue guidance of $233,000,000 we provided last year. It feels pretty good to deliver over 2 years' worth of growth in just 12 months. I look forward to a strong second half of the year. With that, We can open the call to questions. Operator? Your line is open. Hi. This is actually Adam on for joining us today. Thanks for taking the question and congrats on the quarter and the 2 acquisitions you guys have now closed. I want to take a step back and just ask about some other developments in the marketplace, but specifically around Optum. So curious to get your take on solutions the Optum's rolling out in the Optum store. I know it's early since their launch, plus they have some more solutions coming out. But health. I guess just how do you think about a large scale player such as Optum entering the markets and making the market more competitive at this point? Thanks, Alan. It's a great question. I think we look at what they've done and I think there's a number of players that are starting to think about moving towards this type of an operation. I think where really we think of ourselves as different is this ability to build truly a beginning to end experience for the consumer that people love, right? And this is not traditional healthcare talk, this is traditional consumer Internet talk actually right at its core. And so from the moment people come to us and get educated about a specific condition to that comfort in knowing they're meeting with a Specialists and then all the way down funnel when they're getting a personalized treatment delivered to the door that was actually made exactly for them, right, and built for them by their provider and their and their physician groups. That is really special. I think it's really unique. And so, I'm excited that there are investment Earth moving into the space because frankly a lot of people need help in this country. But I think the reality is, is you've got a $4,000,000,000,000 market, of which I think about 80% of healthcare delivery is going to be moving towards essentially delivery service that looks like Hims and Hers in the next 5 or 10 years. And so this market is massive. I think one of the things that is practically around reality is that There have been a tremendous amount of investments in this space in the last couple of years, especially going into COVID. And none of these external factors have frankly impacted our core business at all, right? We've got increasing revenue growth, accelerating 70% upward guidance this year, subscriptions growing incredibly, gross margins growing to an all time high as we expand and innovate into new categories and new services. And I haven't seen these external factors affect us to date nor do I expect frankly for any of these elements to affect us in the future. I think we have a ridiculously focused vision of delivering a world class consumer experience from start to finish. And I think that's really different frankly than most things in the market. Got it. And then as a follow-up, I just wanted to go the mix of growth coming from AOVs and net orders. So with Apostrophe and Honest Health coming on board, how should we be thinking about The opportunity there for AOBs to accelerate once you're able to refine their existing pricing, subscription types and alongside any launch of new products? Thanks. Yes. So I think for both acquisitions in the near term for Q3, I mean, We've guided to a little margin compression and slightly lower AOVs in Q3. And frankly, that opportunity that you're describing is was one of the main strategic reasons why we were so excited about these acquisition opportunities. It's early days for Honest Health and Apostrophe and their businesses are in a fairly similar place where we were a couple of years ago. And we have executed on that playbook, Have unlocked a ton of value in terms of expanding margins, growing AOVs, improving unit economics, growing LTVs. And we see that exact ensure this opportunity and unlock this value here in the near term. Got it. Thank you. We have your next question from Daniel Grossleit with Citi. Your line is open. Hi, guys. Thanks for taking the question and congrats on another strong quarter here. Some of your competitors have seen pretty dramatic increases in CAC, particularly on the mental health side of the business. It doesn't appear that you've seen quite as a dramatic increase. I'm just curious how you've your business or marketing campaigns to offset some persistently high direct response to ad rates? And as I think kind of in relation to mental health in Hoegh would be very helpful. Yes, that's a great question, Daniel. And I think the ability to maintain efficiency on the acquisition side is a part of the engine and expertise that I think we've built in the last few years, specifically on mental health, but I think it's very unique about that category for us. And it's similar to all the other categories in our business. Close to 100 percent of those patients coming to us are first time buyers, right? These are people who are being activated by the brand, we're being activated by our destigmatization campaigns, by the fact that we're partnering with celebrities to talk authentically about different issues they're struggling with. And then they're coming to us getting educated on our blog. They're talking to the psychiatrist and they're learning about options and then down funnel converting. And I think that's a really different experience from traditional players in mental health. So I think worth mentioning because I think that's really where an expertise exists within this company, which is targeting customers who we know could use help, leveraging a bridge to give them a trusted place to be exposed and to be vulnerable and connect them with education that makes them feel like they're in the right place and then ultimately health and downstream. And I think that's been a really big part of across all of our categories, how we've been able this year to frankly spend tremendous amounts of marketing at a more efficient rate. Usually, it's the opposite, right? You're spending warrants going in the wrong direction. And I think That capability, that engine, that expertise we spent a lot of time on. And I think in mental health in particular, it's an extra focus. The other thing I would add there that I think has been a huge advantage to ours is the comprehensive services provided within our mental health offering. This is not just simple group therapy conversations. It's not just simple text based chat with a therapist. It's not just psychiatric. It's all of that. It's live group sessions for core topics such as grief management or anxiety and depression or parenting during COVID. And all of these services together in one place creates an incredible amount of efficiency and leverage at front door, right? If you think about it, you can message and market a unified home and hub for all of offerings and then downstream convert appropriately into the right selection. And so I think that differentiated, I think more comprehensive set of offerings compared to what the market has also created a tremendous amount of leverage when you think about efficiency and driving acquisition on the VR side of the house. And Spencer, I'll let you add anything else there. Yes. I mean to put a finer point on our Q2 performance, I mean Q2 was an incredibly efficient quarter. Our tax in Q2 were roughly in line with where they were in Q1. So others in market to the extent that they're seeing upwards pressure we've been able to maintain and Q1 for us was already an arguably very efficient cat quarter. I think where this manifests itself is the fact that in Q2, our marketing expenses increased by less than $1,000,000 quarter over quarter, but revenue increased by $8,400,000 over the same period. So the level of efficiency that we're able to generate and strategically investing in brand and driving organic traffic and having a broad diversified marketing mix as our budget strategy as you can see beginning to pay off in the broad efficiency that we've been able to generate year to date. Got it. Very helpful. And as we look at implied adjusted EBITDA guidance for 4Q, looks like you're assuming at the midpoint around $4,000,000 of sequential EBITDA degradation. What's driving that degradation in 4Q? Should we think about gross margins kind of stabilizing in that mid-70s range and You're just making some more investment in the back half of the year. Yes. So with adjusted EBITDA, I mean, I think high level. The quarter that we just put up, right, demonstrates just the level of efficiency and leverage that we have in the business, Right. In Q2, effectively, our monthly EBITDA loss was about $1,500,000 per month. So I think there is a clear path to profitability for us just given the performance that we put up in Q2. I think in the for the rest of the year, for the second half of the year, we're really excited about the investment opportunities and ability to drive efficient growth that we're seeing in the second half of the year. I mean, 1, investing in a big new market like the U. K. With Honest Health, investing in a $40,000,000,000 category and continuing to take share in that massive dermatology category with a brand like Apostrophe and investing in behavioral health, which is already the fastest growing business line in the whole company. So there's just tremendous opportunities that we're seeing in the second half of the year to continue to invest in growth and invest efficiently. And that's what we're guiding to. Got it. Thanks, guys. We have your next question from Michael Cherny with Bank of America. Your line is open. Hi, this is Charlotte on for Mike. Thanks for taking my question. I was just wondering if you could provide some more color on how you're thinking about category expansion? Hi, thanks so much for the question. I think at a high level, the way you should think about it is fairly what we've seen in the past, right? I think the future will look relatively simple or similar, which is probably systematic expansion in the specialty categories that we know our patients absolutely need. So when we started the business, there was a core focus on hair care, on sexual health for men. We then launched dermatology, psychiatric services, and it's these 4 categories along with Primary Care that are the core of the business today 3 to 4 years in, right, since we founded it. I think it's our expectation that you can expect to see that number of categories likely double by 2025. And I think we have immense amount of connectivity and relationship with these patients, frankly, to understand where to go next. I think that was a big part of how we got to the psychiatric service offering and ultimately why it's one of the fastest growing categories within the business. It's because we understand these patients and we're treating them on a daily basis. And so I think you should expect the same kind of systematic expansion. We're not the type of team, just to be honest, that's throwing a tremendous amount of things against the wall and seeing what sticks. That's not who we are. I think we want to understand the fundamentals of an existing category, understand why there's so much friction in it, understand why patients aren't seeking care, how to remove costs, how to remove stigma, how to remove all of the elements getting in the way and then really thoughtfully launch it in a way we know it's going to be received exceptionally well. And I think that's really what you've seen on the derm side of the business as well as the psychiatry side of the business. And I think that's what you should expect in the next few years. Great. Thank We have your next question from Jessica Tassane with Piper Sandler. Your line is open. Hi, thank you for taking the question and congratulations on the quarter. So I guess maybe just building off the question just prior, how are you thinking about maybe the trade offs between expanding into new specialties and then just building kind of density of providers in your existing specialties? And then further to that, how are you employing the providers and within each of their specialties today? Are they independent contractors or employees? How does that work? Awesome. That's a great question. I think I kind of touched on this in the last question, but we believe that each of the core categories we're in today, sexual health, dermatology, psychiatric Services Primary Care. These are deep, deep categories. Let's take dermatology as an example and it's related to Apostrophe, an acquisition we made this quarter. So that's a $40,000,000,000 clinical dermatology market. I think what's most interesting about this market and it's similar to a lot of the other markets we're talking about. There's a $150,000,000,000 retail dermatology market, think Sephora. I think in the next 5 years, there's going to be rapid dollars shifting from retail to clinical dermatology because if you can get an affordable prescription that's compounded and spoke exactly for your skin that works with clinical efficacy, why would you then spend the same amount of money on something that really doesn't have that clinical efficacy. So I think all of these categories that we're in today are going to continue to be rapidly expanding. I think that's why as Spencer put forward in guidance raised to 78% year over year. We believe there's very robust growth within them. And then when you look at the pharmaceutical side of the house, essentially the percentage of these patients suffering in the U. S. Who are actually getting treated in each of these conditions, it's 1% to 2% penetration, right? These are massive markets, very underpenetrated. And so we think there's years of continued robust growth within them. And so for that reason, the expansion is systematic, right. We are introducing new categories that we believe are capable of being pillars in the company in the next 5 10 years. And so and safety. A lot of focus internally, a lot of strategic focus on maybe 1 or 2 new categories every single year, but it's weighted just for some color context, it's weighted in that type of a manner because of the robust amount of opportunity we see in the core experiences that we have today. And with respect to how our providers are employed, the vast, vast majority are 10.99 contractors and paid on an hourly basis. Thank you. That's helpful. If I could just follow-up with one quick one. So just on the ramp of the Pharmacy Fulfillment Center in Ohio. What are kind of the incremental ongoing cost of operating that facility and where would we find those in the Q and to run the facility, our run through SG and A effectively. And a lot of the fixed costs are already in place. So the biggest chunks of this are things like rent expense, the CapEx that we've already spent to build out the facility and install old machinery, which is flowing through the P and L through depreciation expense in SG and A. The primary variable expense that exists going forward as we ramp this up is essentially labor, right? So staffing up the warehouse staff, staffing up the pharmacist as we increase volume through the facility. But the fixed costs already exist in the P and L today. And as we ramp up volume, we're just going to wind up amortizing all of these fixed costs over a larger order base, essentially getting operating leverage out of G and A as we increase volume over time. And over time, I think we shared this in a few calls at this point, but we expect in the long run that we'll be able to get an additional 1 to 2 points of operating margin as we scale this and sort of fully utilize the facility. Got it. Thank you. We have your next question from Ivan Feinsett with Tigress Financial Partners. Your line is open. Hi, thanks for taking my call and congratulations on another great quarter and the ongoing progress. Can you guys give a little bit more detail of your M and A strategy and your product development like where do you see the opportunity to acquire or how do you measure the opportunity to acquire versus development your own line of products like you did with Apostrophe as an example? Yes, that's a great question. Thank you, Vlad. I think at a high level, and I think we've shared this in the past, the core business on HIMSS and HERS is continuing to grow extremely fast, right? And so from a focus standpoint, the vast majority of focus is internal. We believe those categories, per last question, are massive. We believe they're accelerating. We believe the adoption rates are increasing. We believe they're going to take more share. And we believe we can and so most of those efforts internal. I think what we have realized And just to find color on the strategy is that Hims and Hers is incredibly strategic partner for Armada Innovators. I think they look to us as a partner they're excited to work with. They look to us as an opportunity to find leverage in their business as Spencer was talking about with an apostrophe. There's an operational capability that we have that can help unlock accelerated efficiency on their behalf. And so while 100 of these opportunities and it's been quite literally 100 of these come through Spencer and I inbox and guess to find unique talent, unique capabilities or experiences or unique infrastructure that can unlock some type of world class next level customer experience, right. And so when you look at Apostrophe, when you look at Honest Health, what those teams have done is built a degree of infrastructure and capabilities capable of creating bespoke personalized treatments for patients that are incredibly rare to find, even at the most expensive dermatology office or hair care office specialist. It's incredibly hard to find. And if you do, it is 100 of dollars and they've built an infrastructure capable of delivering that at scale. And so that was one of the few diamonds in the rough, so to speak. I think we are opportunistically keeping our eyes open, right? We have a vision for what we believe is a 5 10 year plan to transition the vast majority of healthcare delivery to a platform like Hims and Hers. I strongly believe that's going to happen. And so there will be opportunistic opportunities to accelerate expertise with team, accelerate the brand entrances, more front doors into this health System that treat different customer segments or provide and integrate differentiated capabilities and infrastructure that give us more defensible more defensible optionality and better treatments, more personalized treatments on behalf of the market. So maybe that's a little bit of color as how we think about the trade off there and the focus there. Very good. And you said earlier that you kind of are going to let your Want to see additional services or products? Where we see demand is Fairly straightforward when you understand this patient population, right? And we have a very unique patient population. It's First time buyers. These are not patients that have been treated by chronic care specialists for a decade and are trying to fill a prescription, and fill a prescription cheaply online. That's not our customer. Our customer is a first time buyer. They're young, they're millennial, in their 20s or early 30s, and they're concerned about something. And they come to us, I think, with that anxiety, right? They come to us concerned and self conscious and looking for somebody to tell them they're in the right place and tell them that we can help them navigate to feeling better. And The psychiatric services, that was something we heard loud and clear for a very, very long time. So tremendous amounts of investment in the past and in the future in that category. Exceptionally common. So I think you should expect us to get more invested in that category. What you also see frankly is people concerned about more chronic conditions, but not necessarily sure how to go and get treated or establish baseline. So you have a lot of patients that are in their 30s, they're kind of coming of age into their 40s and they're concerned about weight management. They're 30, £40 overweight or they're concerned about diabetes because it's in their family or they're concerned because the last blood test of their annual was a high cholesterol, high lipids profile. So you're starting to identify patients, I think, that are at that crux in life when they're becoming aware of the more chronic nature condition. But they're looking at a platform like ours who can seamlessly onboard them and educate them and take care of it. And so I I think those are also categories we really believe are widespread within our customer base and is an opportunity for us to grow with these patients and increase the lifetime value with these patients in the next 5 10 years. Then on geographic expansion, like you expanded into Europe with the acquisition of Honest. What other geographies do you think create the best opportunities for you? And how do you go about entering those? Do you think it will be through an acquisition or you can just what kind of You think it will be through an acquisition or you can just what kind of barriers to entry are there for international expansion? Yes, it's a great question. We're exceptionally excited about Honest and I think it's reflective of the type of international expansion you should expect for us, whether that's an organic Investment or inorganic, which is you have a market in the U. K. And also in Western Europe where you have similar consumer dynamics, patients' consumer frustrations with the healthcare market, right, the same type of frictions exist and high costs exist, the same type of delay it might take with NHS, it might take weeks for you to schedule an appointment or even months to meet with a therapist. And so I think we look for markets where there's similar consumer dynamics, but also similar regulatory, right? I think we're in the early days in the last, let's say, 3 to 5 years of the U. S. Really coming to a point where it's accepting the synchronous and asynchronous modalities for telemedicine. I mean, I think COVID really helped accelerate people's awareness of the benefits of these types of dynamics. And so I think the international markets are catching up. I think you see in the U. K, in Australia, in Germany, in Canada, a lot of these markets are starting to get to a place where it makes a lot of sense for us to take a look. And then also 2 years ago pre COVID, spent a lot of time in the Middle East meeting with their health systems and meeting with their governments and regulation teams. And they are also looking at the U. S. Innovation in trying to figure out when they can do the same thing. And so I think in key Asian markets and Middle East, you'll also have that coming just probably a couple of years behind those others that we first mentioned. Thank you and congratulations on the great results again. Thank you, Evan. I'm showing no further questions at this time. I would now like to turn it back to Mr. Andrew Didum for any closing remarks. Thank you. And thank you all for joining today, and thank you for the great questions. I want to send a special thank you to our team, To apostrophe to honest, we're exceptionally excited and proud of everything that you guys have accomplished today and then looking forward to sharing more with you all very soon. So everyone, please have a great day. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.