Ladies gentlemen, thank you for standing by. At this time, I would like to welcome everyone to the Hims & Hers First Quarter 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. It is now my pleasure to turn today's call over to Alice Lopatto, Vice President of Investor Relations. Ma'am, please go ahead.

Good afternoon, everyone, and welcome to the Hims & Hers Health First Quarter 2023 Earnings Call. On the call today, our prepared remarks will be presented by Andrew Dudum, Co-Founder and Chief Executive Officer as well as Yemi Okupe, our Chief Financial Officer. Before I get it over to Andrew, I need to remind you of legal safe harbor and cautionary declarations. Certain statements and projections of future results made in this presentation constitute forward-looking statements that are based on among other things, our current market, competitors and regulatory expectations and are subject to risks and uncertainties, and that could cause actual results to vary materially. We take no obligation to update publicly any forward-looking 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 tables contained in today's press release available on our Investor Relations website for reconciliations to the most directly comparable GAAP financial measures and related information. You'll find a link to the webcast and Investor Relations website at investors.forhims.com. After the call, this webcast will be archived on the website for 12 months. Before jumping into our results, I wanted to note that Andrew is currently on paternity leave and our prepared remarks are prerecorded. Following these remarks, Yemi will host the live Q&A. And with that, I'll now turn the call over to Andrew.

Thanks, Alice. Welcome everyone and thank you for joining us. 2023 is off to an incredible start, as we made significant progress towards our mission of helping the world feel great through the power of better health. The momentum of our business model is stronger than ever. Strong execution across our four strategic pillars trusted brands, leading technology, innovative products and services and clinical excellence is enabling us to draw in more consumers and emerge as a leader at the forefront of an immense opportunity. When we look at our market opportunity, there are more than 100 million Americans suffering from a chronic condition, and in some cases as high as 90% of the population, have yet to be treated. These statistics are staggering and they highlight, why our mission is so crucial. Therefore, we are not just focused on providing access to treatments. We are also dedicated to empowering people to take charge of their own health and well-being through a trusted and beloved brand. We believe that, by helping people make positive changes in their lives, we can make a meaningful impact on the health and happiness of millions of people across the world. Now diving into the details of our first quarter results. In the first quarter, we generated revenue of $190.8 million, up 88% year-over-year driven by our growing subscriber base of over 122 million subscribers, up 87% year-over-year. We achieved these strong growth rates, all while increasing adjusted EBITDA, $2.2 million over the fourth quarter to $6.1 million in Q1. These results are in large part due to over 90% of our Q1 revenue, coming from online recurring subscriptions. Our ability to execute on our mission is powered by our four strategic pillars. These pillars create a powerful network effect that starts with our trusted…

Thanks, Andrew. Hello everyone, and thank you for joining us today. I'll start by providing additional color into our financial performance and expand upon Andrew's comments related to our past performance and feature outlook. We are proud of our results in the first quarter, which showcased the power of our flywheel across our four pillars at work and through it, our ability to drive both higher revenue and adjusted EBITDA. First quarter revenue grew 88% year over year to 190.8 million longer tenured offerings and men's health continued to exhibit strong signs of growth with some offerings even experiencing accelerating growth. This indicates that we are just scratching the surface of the opportunity and with continued innovation and execution we believe we have a long runway ahead of us. Additionally, we see many of our more recently launched offerings across our platform continuing to scale. This signals that we have a robust pipeline of newer offerings with significant potential for the foreseeable future as well. Similar to prior quarters, revenue growth was primarily driven by our online channel. In the first quarter, online revenue increased 96% year-over-year to 184.2 million. Growth in our online channel was driven primarily by an increase in our subscriber count. In the first quarter, subscribers grew 169,000quarter-over-quarter to over 1.2 million representing an increase of 87% relative to the first quarter of 2022. Our omni-channel marketing strategy, which includes partnerships with leading retailers and celebrities like Kristen Bell, is enabling us to engage with consumers on more platforms and reach them at earlier stages in their health and wellness journeys. Strong subscriber growth is a signal that the combination of our omni-channel strategy, seamless onboarding, and account management features are working as intended. We look forward to continued innovation across each of these areas. Online…

[Operator Instructions] Your first question is from the line of Jack Wallace with Guggenheim Securities. Your line is open.

Congrats on a great quarter and congrats to Andrew and his family. That's amazing news. Yami, just wondering if you could give us some color on how the yields on your CACs spend have trended over the blast, say four to six quarters, and thinking about the mix shift from away from the targeted digital ads towards more brand awareness TV campaigns, and some of the ambassador that you brought online, including Kristen Bell, any color that would be very helpful?

Hey, Jack, Thanks for the question. I think it's natural for -- to fluctuate from quarter to quarter throughout late last year as well as through the early part of this year. We did see CACs become quite favorable. As a result of that, we talked around how we leaned in and the back half of last year. We continue to do that in the first quarter of this year, but really what we're starting to do is now to rectify the number of channels that we're in. And so what you can expect for us to do increasingly over time is to continue to lean more into the ambassadors as well as the brand awareness campaigns. Our belief those are going to generally take a longer time to pay back the more long-term investments. That said, I think collectively we're still competent in our ability to maintain the one year payback period. And so with respect to the environment that we've seen thus far in 2023, it has been quite favorable, but we're proactively leaning into some of the other channels just to bring people earlier in their life cycle. We expect to continue to do that throughout the year while also maintaining the one year payback period.

And then, can you give us an idea for the uptake on the proprietary your products versus, say, some of the legacy your products, you're thinking about existing customers switching where appropriate as well as the mix of products that are being prescribed to do your customers.

Yes, I think that's a great question. I think for some of the longer tenured categories where proprietary products have been present, we do see actually the majority of users opting in for those products and so many of those would be in the dermatology space. In Q1, this is the first quarter that we rolled out the proprietary products in our sexual health category. And for new users, we saw the-- adoption was substantially more faster than we expected. And I think we continue to believe that we'll see the same success not only in sexual health, but in some of the newer offerings we expect to launch throughout the year. Shortly, we do expect this quarter to launch offerings across Hers hair business as well.

Your next question is from the line of Michael Cherny with Bank of America. Your line is open.

This is Dan Clark on from Mike. Just wanted to get a sense we've seen a lot of color from other folks starting season around, any increase in utilization across healthcare. Is there anywhere that you can parse out, like if you saw a benefit from utilization in the quarter, would you say your core products sort of exists? Like outside of that? Thanks.

Yes, I think what we've seen is across multitude of different environments user demand for our products continue to increase. And so, I think our conviction as agnostic to the broader environment, just given how early we are on in the life cycle, users are continuing to offer our product. And so, I think that our belief is -- it really has more to do with the execution across the strategic pillars that we talk about. Building a trusted brand, continuing to enable technology and both access from providers and users to thrive with that technology offering personalized products and clinical excellence. Our belief is that really it's the execution across those elements that are driving the strong growth in users as well as the revenue that we've seen on the platform thus far.

Got it. Thanks. And then just on taking up the 2023 guidance, sort of the change and meaningful change in trajectory, how should we think about the 2025 targets just with the new '23 guide here? Thanks.

Yes, I think that that's a really great question, Dan. I think at this time, like we set the 2025 targets as more of long-term targets. I think that we were pretty explicit for both the revenue target as well as the EBITDA target. The way to think about that it's more of a floor versus a ceiling and so I think with continued quarters like we've seen in Q1, the conviction that we probably have in exceeding those targets increases if we continue to see the performance that we've seen thus far in Q1.

Your next question comes from the line of Glen Santangelo with Jefferies. Your line is open.

I think there's a lot going to be a lot of focus on the margin that you reported and guided for. If you look at your revised fiscal '23 guidance, right? You raised the midpoint of revenues by 75 million, but yet you raised the EBITDA range at the midpoint by only 2.5 million, right? So I think people are going to question, where's the incremental leverage? And I think you sort of touched on it a little bit, talking about incremental operating expenses in the quarters of marketing, improving customer experience. And so, what I'm really trying to get a better sense of is for the remaining three quarters of the year, how should we think about the cadence of gross margins throughout the year versus incremental operating expenses that may be one time or sort of built into the base now to try to sustain the current level of revenue growth. Sort of any commentary around that would be helpful?

Yes, great question, Glen. I think at this time, like were ally do want to maintain flexibility. Like we're pretty early on in the year, and we just see an immense amount of opportunity ahead for us. And so really, I think as we take more of a longer-term orientation to our investments, we just see so many different facets and opportunities to continue to drive growth across the platform. And so, I think our focus right now is primarily on getting greater scale that comes both in the form of incremental users on the platform, as well as the scope of offerings. And we just see so many different opportunities where we have room to deploy capital, lawful abiding by our capital allocation framework, whether that's in the consumer experience, whether that's marketing, whether it's promoting some of the pipeline of our newer products, or even laying the foundations for new categories. There's a lot of different areas that we would actively look to explore throughout the year. That said, I think one of the reasons why we've given the longer-term targets through 2025 is that also provides clarity for where the platform is going. And so, I think while we'll make those investments through 2023, the confidence in our ability to meet or exceed the $100 million EBITDA target in 2025 still remains unchanged.

Okay, perfect. And maybe if I could just ask one follow up on. So you added mental health here more recently and I think the Company's goal is to add one to two therapeutic categories a year. We probably got a disproportionate amount of questions on sort of weight management. I think in your -- in the prepared remarks, I think Andrew mentioned that, you added experts in the medical board and weight management, menopause and cardio metabolic health. Is that sort of like a precursor to ultimately moving into those categories, and obviously weight management is the one that people are sort of focused on, but given the high price of those drugs doesn't seem consistent with sort of your cash pay model? So I was wondering, if you could just provide some clarity around those comments that would be helpful? Thanks.

Yes, sure. I think as we say, there is several categories that we do view as exciting, whether that's expanding the offering across men's health or women's health. Weight management as a category that we do see is exciting, and then it carries many of the characteristics of the conditions on our platform, chronic in nature. And that's also very emotionally resonant with users on the platform. And so, we do see ourselves eventually entering that category. Again, I think it's pretty early innings and we are going to do so in a very disciplined and thoughtful way that adheres to the standards of our platform. The recruitment of the experts will enable us to at some point enter that category effectively. And we will continue to update you as we get more clarity there.

Thanks for the comments.

Your next question is from the line of Korinne Wolfmeyer with Piper Sandler. Your line is open.

Good afternoon and thanks for taking the question. Yemi, first, I'd like to just touch on as we think about the outlook for the top line for the rest of the year. Can you just kind of expand on the different drivers behind that? How much should we expect that growth to come from that subscriber base versus the monthly revenue per subscriber that seems to be increasing pretty nicely? And then as we think about, like, the cadence of just sequential growth of subscribers throughout the year, can you just touch on how we should be thinking about cadence, and if we should expect some sort of deceleration in sequential growth, as we progress? Thank you.

Yes. So I think on the first element of the equation, I think that we started the year off very strong. And so I think as a result of the momentum that we see in Q1, given the fact that, the vast majority 90 plus percent of the revenues recurring in nature that will naturally cascade into subsequent quarters throughout the year, and so some of the momentum we are going to get just inherently from the strong foundation that we have built in Q1. As we also just look at some of the dynamics that we have seen across many of the categories that we are already in with respect to proprietary products, we have seen an uptick in overall user adoption on that front. And just with some of the new offerings coming across some of the categories that we talked around earlier such as sort of there, we are confident that we can see continued subscriber growth throughout the year. And so that gave us the conviction to elevate the guidance expectations. With respect to subscriber, kind of subscriber count, we don't explicitly guide to that. I think that number will move, but the way to think about it is inherently the primary driver of revenue growth. Throughout the year is going to be primarily on the subscriber, the subscriber growth.

Very helpful. Thank you. And then if I could just touch on the gross margin. I know we touched on this a little bit earlier. But I'd like to dive a bit deeper. You have been talking about adding more innovation on the products and as you do that, that could pressure gross margin a little bit, head into the kind of like the mid 70s range. Could you just touch on when we should start seeing kind of a heavier impact from that? I mean, 80% this quarter is really good. And I mean, are we going to start to see some sort of pressure in later in the year or is that really going to be a '24 '25 event? Thank you.

I think what you can expect to see is, the same dynamic that we had throughout last year, where there was a whole host of factors that were actually pressuring gross margins, but as the operation got more and more efficient not only did we maintain gross margins, but year over year gross margins have expanded 6 points. We do see that there is still significant opportunity on our operations to continue to get efficient. And so from time to time, the margins will probably it's not going to necessarily be just a straight line down to 75%. It will take us time to proactively identify what are the opportunities that are most complete to the platform. And so this is not something that's necessarily going to happen in a quarter or two. I think it will take place over, over several quarters. I think also just the framework that we use as we think around saving our long-term target targets is we definitely do want to pass by you back to our consumers in a way that's thoughtful and acc creative to the platform. And while doing that effectively that will take some time to do and then the margins will start to come down as we identify those opportunities.

[Operator Instructions] Your next question is from the line of Luismario Higuera with Citi. Your line is open.

This is Luis for Daniel Grosslight. I just wanted to ask, what levers have been pulling to drive additional engagement among your current more tenured subscribers?

I'm sorry Louis. I don't think I caught the question. You cut off for a minute to me.

Yes, sorry about that. My question is like, what levers are you going to be pulling to drive additional engagement -- your current more tenured subscribers?

I think, at this point in time, the current focus is really around how do we bring more subscribers to the platform? I think over time what you can expect is as we start to enable more offerings, particularly that are more personalized in nature across the platform that's why we've seen many subscribers organically start to adopt those as users get more tenured I think that there are creative things that we can do, whether it's bundling offerings, or identifying other ways that might basically pair certain offerings. Again, I think that, that we're probably a little bit of a ways off from doing any of those types of dynamics. Right now, the focus is primarily on driving additional subscribers to the platform as well as just enabling them a broader base of choices. I think as we do that then naturally up-sell opportunities will start to emerge.

Your next question comes from the line of Jailendra Singh with Truist Securities. Your line is open.

This is Jenny on for Jailendra. I wanted to follow up on your weight management category. What will make you change a company's approach considering some of your competitors have been more aggressive there? And can you help us understand how does the economics would work considering they're all these new brand of drugs? Is it all about getting more consumers and subscribers on the platform and color on that?

Yes, so I think that, the elements that that would make us actively go into the category would be number one. I think just as we have the advisors, we're looking for ways to do it in both a, a way that's safe and effective and also ways that way where we can add value to the overall category. Like what we're not after is just to be me too, just because the competitive set is offering it, but we really want to bring the distinct capabilities of the Hims & Hers platform to enable something that's differentiated. And ultimately, we feel we'll drive more consumers to it. I think at this point in time, it's a little bit too early to speak around how the economic specifically would work. It's something that we're researching and diligence, but there are multitude of ways to do it. I think we're very much in the early innings of that story. And so, we feel that we do have the time to ensure that when we do launch it lands with consumers. It adheres to our strategy and framework. And ultimately, we view that that will probably be a more successful path over a longer duration.

Your next question comes from the line of George Hill with Deutsche Bank. Your line is open.

Hi, it's Maxi on for George. Thanks for taking the question. Can you give us an update on your conversation with payers? Are you still planning to incorporate insurance reimbursement into your system and what's the timeline for it? Thank you.

Yes. Thanks, Maxi for the question. I think that, payers and insurance, it's something that we need to continue to explore. I think it goes alongside all of the different avenues that also we could invest in. So, I think at this point in time, we've opted to pursue other avenues of investment, whether that's in the form of some of the branded campaigns, whether that's in the form of exploration of categories or in the form of offering personalized products. I think, it's something that we'll continue to assess quarter-to-quarter, but there's no specific timeline. I think that really what it's going to depend on is how the business case will stack up relative to the other opportunities that we feel that we have in the coming quarters to invest in.

Ladies and gentlemen, thank you for participating. This concludes today's conference call. You may now disconnect.