Hims & Hers Health, Inc. Q1 FY2021 Earnings Call

Good afternoon, and thank you for joining us on today's conference call to discuss Hims & Hers Health, Inc. First 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 expectations for our second quarter and 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 file with the SEC, including the Form 8-K 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 of GAAP and non-GAAP results is provided in the press release filed today with the SEC on an 8-K 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 first quarter earnings call. Simply put, 2021 is off to an incredible start. Our mission is clear: to make the highest quality personalized health care accessible to everyone. We started this year helping more consumers across more conditions than ever before, and the results speak for themselves. Across the board, we exceeded our guidance with revenue coming in at over $52 million, representing 74% year-over-year growth, and adjusted EBITDA coming in at a loss of $8.6 million, ahead of our guidance range. We also maintained our gross margin of 77%, which remains our highest in any historical quarter. This outperformance across the spectrum was driven by continued robust growth in our core Hims categories as well as accelerated strength of our Hers brand across all of our emerging categories. These numbers underpin what I continue to believe is an exceptionally rare opportunity in the public market. A business that combines a massive multigenerational vision, significant tailwind and present-day core fundamentals of robust, diversified growth and efficiency. The truth is we're doing things differently. And it's a real durable competitive advantage. We are meeting this younger generation, especially millennials and Gen Z, where they are, building a brand and set of experiences that they love and leveraging deep consumer expertise and insights to build lasting relationships with the most digitally native generation in the country, the future of the health system, the consumers that matter most. And key to it all, personalization. Hims & Hers helps consumers develop a health care plan of action that is tailored to the exact needs of each individual across a broad range of their conditions and preferences. We believe personalized medicine focused on the consumer is something that's really never been done before at anywhere near this level of reach. And our focus on personalized access is working. In the last year, people's understanding of telehealth has dramatically accelerated. And while many have experienced the simplicity and ease of virtual care, there have been questions as to whether or not the post-COVID environment will drive a shift back to in-person. For our customers and our audiences, the answer appears clear. Last quarter, we added more new subscriptions than any quarter in the company's history, growing subscriptions nearly 80% year-over-year. For the generation who grew up with cell phones in their hands, the traditional health care approach is a way of the past, and we believe Hims & Hers is the future. Our personalized approach to building a unified and fully verticalized front door to health care has served us well in continuing to differentiate and build moats in the landscape. Offering a single destination for personally tailored digital health and wellness, we continue to gain economic advantages and deeper, more valuable customer relationships that are quickly driving real economics. This quarter, our gross profit grew 95% year-over-year. Despite the historic magnitude of investment in the last 12 months in this sector, our team's execution and our defensible approach continued to drive efficiency throughout the business. And most excitingly, in this last quarter, adoption of new product lines were some of the fastest-growing categories in our business, with revenue from Hers dermatology, part of an estimated $44 billion market, more than doubling quarter-over-quarter. As the U.S. health care system continues to move towards digital experiences like ours, we will be uniquely positioned to continue capitalizing on expansion, serving more customers and more conditions. Our team's ability to meet this younger generation where they are and deliver a brand and consumer experience that wows our customers will continue to prove a strong competitive advantage in our vertical-by-vertical expansion strategy. As we progress in our goal to be one of the most transformative digital health companies of the next generation, we continue to remind ourselves that the future is just around the corner. We are leaders who are constantly anticipating what's next, and it has served us well. As such, we've invested a tremendous amount of time in Q1, prioritizing initiatives we believe will deepen our capabilities and entrench our competitive moats in the years to come. The two largest areas of investment have been in our future mobile platform and insurance. Let me tell you a little bit about both. Today, we have hundreds of thousands of subscriptions on the platform, with almost all platform engagement taking place via mobile devices. What comes next for Hims & Hers is a completely rethought mobile offering. Native to iOS and Android, they'll act as the future front door to all of our health care needs. This platform will showcase the breadth of what our customers are getting as part of the end-to-end Hims & Hers experience. And here again, personalized consumer health will be at the center, stretching across primary care, to content, guided programs, community, and commerce. While still early in our development and design phase, what's clear is that what we are building looks like nothing ever offered in health care. A single entry point into a beautiful health care world, simplifying the complexity of feeling great and being well. In parallel, our team has also begun the work to unlock the power of insurance reimbursement as part of the Hims & 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. A first step in this initiative was opening our affiliated pharmacy, building the last verticalized component to our supply chain. From lab testing to behavioral health and more, we see exciting opportunities to facilitate more affordable access and comprehensive care for our customers via insurance. While early in development, we believe these capabilities will serve our customers well in the years to come. We are a company passionate about building the future of health care. We pride ourselves on being visionary in our sector, sustaining consistent execution, and delivering growth. And I feel this quarter is highly reflective of our ability to be the leader in this space. We are at the forefront of transforming an industry that we all so desperately rely upon. I'm proud of the results we have shared with you today and our team's dedication to our mission. At this point, I will now turn the call over to Spencer for a more detailed review of our results, followed up by Q&A. As a result of an imminently arriving first-born son, I pre-recorded this message and look forward to following up with many of you in the coming days.

Thank you, Andrew. I'm pleased to report our incredibly strong performance in Q1. I'll walk through the details behind our performance and then provide our guidance for Q2 and our revised upwards revenue guidance for the full year. First, let's jump into the Q1 results. In Q1, we generated revenues of $52.3 million, which increased 74% year-over-year and exceeded the high end of our Q1 revenue guidance of $50 million. Growth was driven by strong performance across the entire business from all categories. We delivered on growth in new customer acquisition, continued improvements in customer retention, and continued expansion of average order values. In Q1, we generated 687,000 net orders, which grew 26% year-over-year. Growth in net orders was primarily driven by growth in subscriptions. We ended the quarter with 391,000 subscriptions on the platform, which increased 79% year-over-year, versus 218,000 subscriptions in the year-ago quarter. Subscription growth was driven by both strong new subscriber acquisition and improving retention of existing subscribers. Average order value, or AOV, in Q1 was $74, which increased 42% year-over-year. AOV has increased for the past nine consecutive quarters as we continue to drive an increased mix of subscriptions towards higher-priced product bundles and multi-month subscriptions. Our revenue performance in Q1 highlights multiple areas of strength in our business. Our large and growing addressable markets, strong consumer demand driven by our uniquely positioned brand and clear cash pay value proposition, and our ability to drive growth by increasing subscriber lifetime values. In Q1, we saw the continued rotation in our subscription base into multi-month subscriptions and higher AOV net orders. As this rotation took place throughout 2020, we saw strong sequential growth in AOV last year offset relatively flat net orders as the mix of multi-month net orders increased throughout the year. However, as we enter our second full year of this rotation, in Q1, we saw strong year-over-year growth across all dimensions, in net orders, up 26%; in AOV, up 42%; in subscriptions, up 79%; and ultimately in revenue, up 74%, all contributing to and positively driving growth. In Q1, we generated a 77% gross margin, up 800 basis points versus 69% in the year-ago quarter. The combination of strong revenue growth and expanding gross margins compounded to generate even faster gross profit growth, up 95% year-over-year. Our focus over the last two 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. We've been able to meaningfully expand margins and accelerate gross profit generation because the fundamental quality of our revenue is improving. As we improve and expand our product offerings, we are able to reach and target higher value customers. We've been able to validate higher-value customers through their uptake of higher AOV and higher-margin product bundles and multi-month subscriptions. Not only are newer subscribers spending more with us than previous subscribers, but they also have higher retention, which means they are generating more revenue during their lifetimes, all of which generates increased cost leverage from our product costs, provider costs, and shipping costs, thus, leading to a combination of strong revenue growth and expanding gross margins. Our Q1 adjusted EBITDA loss of $8.6 million increased versus a $4.6 million loss in the year-ago quarter and outperformed our Q1 adjusted EBITDA loss guidance of $9.5 million to $11.5 million. We were able to outperform our adjusted EBITDA guidance while also exceeding our revenue guidance because we drove numerous operational efficiencies in the quarter. First, we successfully drove increased customer conversion rates through on-site and customer experience optimizations; second, we increased retention rates through improved customer experience and lifecycle management; and finally, AOVs continued to expand as we drove increased uptake of higher-priced product bundles and multi-month subscriptions. The client efforts across the organization drove strong outperformance on both the top and bottom line. Before I move on to discuss financial guidance, I wanted to touch briefly on the recent pronouncements by the SEC on warrant accounting related to SPACs. In April, the SEC issued a statement on the various accounting considerations for SPAC warrants with respect to liability versus equity classification. Up until that point, almost all SPACs had classified their warrants as equity, including Oaktree Acquisition Corp. Consistent with the SEC's guidance, for Q1, we booked a $33 million liability on our balance sheet related to warrants that were issued by Oaktree Acquisition Corp. prior to the merger with HIMS. We also booked a $2.7 million expense in Q1 in other expenses related to the mark-to-market liability accounting for all of our liability classified warrants. Going forward, we will continue to mark-to-market outstanding warrants and will reflect any changes as other expense or other income in the period. Additionally, we decided to restate Oaktree Acquisition Corp.'s historical financial statements to classify the warrants as liabilities. This included amending and restating the 10-K filed by Hims & Hers in March to correct Oaktree's historical financial statements. The amended 10-K was recently filed with the SEC. Now moving on to financial guidance. For Q2 2021, we are guiding to revenues of $55 million to $57 million and an adjusted EBITDA loss of $10 million to $12 million. For the full year 2021, we are raising our revenue guidance to a range of $221 million to $227 million, an increase of $24 million at the midpoint versus our previous guidance. We are maintaining our guidance for adjusted EBITDA losses of $35 million to $45 million for the year. To provide some additional color on how we are thinking about revenue for the rest of the year, our current internal financial forecast has Q4 revenues roughly in line with Q3. So with Q1 revenues this year at $52 million and the midpoint of our Q2 guidance of $56 million, if you take the midpoint of our full year guidance at $224 million, that implies $58 million per quarter in Q3 and Q4 at the midpoint. As we discussed on our last call, and similar to the guidance we provided for Q1, 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. As new data points become available, we'll continue to update investors in the coming quarters. Finally, I just want to note, in Q1, we incurred stock-based compensation expenses of $34 million, largely driven by the merger transaction in January. This was near the midpoint of the guidance we provided on our previous call. In Q2, we expect stock-based compensation to return to a more normalized level of between $9 million and $11 million. We are exceptionally pleased with the results we were able to deliver in Q1, and our Q1 performance really highlights the core strengths of our business. Our large markets where we treat conditions that consumers really personally care about, a brand that can uniquely harness this deep consumer demand, our offerings and clear value proposition that resonate with consumers, which drive our ability to grow AOVs, net orders, subscription and gross margins all simultaneously. We continue to see strong investment opportunities ahead, which give us the confidence to increase our full-year revenue guidance at both ends of the range, now representing year-over-year growth rates of 49% to 53% for 2021, substantially ahead of the 30% guidance we provided in our public investor presentation last summer. We continue to be disciplined and return-driven with our capital deployment. We continue to be prudent and focused on driving growth at high rates of return, and I look forward to updating you on our performance in the second half of this year. I want to thank our team for their incredible execution last quarter all while managing the difficult transition into a public company. It's really special to watch the dedication and tremendous talent of our people that allow our company to deliver these types of results. I'm proud to share these results on your behalf. With that, we can open the call to questions.

Your first question is from Daniel Grosslight with Citi.

Spencer, congratulations on the quarter, and congratulations to Andrew on his growing family. Can you provide more details on the revenue beat this quarter and the increase in your revenue guidance? What aspects are surpassing your expectations? Is it subscriptions or average order value? Help us understand those elements. Also, regarding the $24 million guidance increase for the top line, why are you not anticipating any additional EBITDA from that?

Certainly, Daniel. To address your inquiry about our growth forecast and the Q1 performance, it's essential to consider our execution. In Q1, we focused intently on several initiatives that significantly enhanced our conversion and retention rates while also improving AOVs and maintaining high gross margins. Our business is fundamentally in a stronger position now, which empowers us to raise our full-year guidance by $24 million at the midpoint. Moreover, based on the improved metrics we observe in Q2, we are quite confident in our ability to meet the Q2 guidance of $55 million to $57 million, reflecting nearly 60% year-over-year growth at the upper end of that range.

Got it. Okay. And maybe that's a good segue to my follow-up. Can you talk about the rates you're seeing out of your direct response marketing channels and unit economics this quarter? Can you give an update on LTV to CAC? And have you had to shift your customer acquisition strategy at all, particularly in some of the more competitive and faster-growing segments?

Sure. So with respect to ad rates in our largest channels in Q1, we actually saw ad rates overall in the quarter decline slightly versus Q4. Although over the course of the quarter, in March, we actually saw rates come back to Q4 levels, if not even slightly higher. And so I think with respect to sort of the marketing side of the equation, what was really special about our execution in Q1 was the fact that we were able to increase our marketing expenses, if you exclude stock-based compensation, by about 30% quarter-over-quarter, but new subscriber CACs actually decreased. So to repeat, CACs in Q1 were lower than what they were in Q4, despite really increasing our marketing budget on a quarter-over-quarter basis. Now it's really difficult to materially scale marketing without CACs increasing, right? When you grow traffic at the margins, you're generally driving incrementally lower intent traffic. So what you have to do is fundamentally improve the platform to better capture that demand and increase conversion rates just to keep CACs flat, let alone have them decline. And that's exactly what we did in Q1. We materially improved multiple facets of the platform that increased conversion while we also scaled marketing, which means we were able to drive more new subscribers at lower CACs. And as a result, in Q1, we're able to drive the most new subscribers in the company's history. And again, it's these types of fundamental improvements on the platform that's giving us the confidence to increase our full-year guidance by $24 million at the midpoint. The other side of the equation, on the LTV side, we also did a bunch of work on the retention side, and we saw retention continuing to improve and LTVs continue to expand. So that unit economic equation for us continues to get better is allowing us to continue to invest aggressively in growth where, again, we were able to deliver a quarter where we increased marketing by $6 million, again, excluding stock-based compensation, in Q1, but we're able to grow revenues by $11 million in the same quarter.

Our next question is from the line of Sean Wieland with Piper Sandler.

Let me add my congrats to Andrew on the birth of his baby. So my question, you mentioned in your prepared remarks, new subscribers, you're seeing a higher value customer with higher retention, which doesn't really align with my thinking when you're talking about subscriber CAC decreasing. So it's impressive that dynamic going on. I'd like to better understand that a little bit.

Yes. On the LTV side, I can say that compared to last year, average order values are significantly higher, gross margins have increased, and retention is better, leading to an increase in LTV. This improvement stems from our strong emphasis on enhancing the customer experience by providing an easy, convenient, and flexible platform for customers to access the treatments they need, along with a variety of treatment options that allow each customer to find the most suitable plan for their specific condition. All these efforts, including enhancing our platform's engagement to help more customers subscribe, have been our focus over the past quarter and throughout last year. We've successfully increased LTV through this execution. On the CAC side, we're seeing similar benefits. By continuously investing in the platform to make it more engaging and relevant, we are able to convert more of the traffic coming to the platform. With this higher conversion rate, CAC will decrease over time. This focused execution centered around customer experience has allowed us to improve our metrics simultaneously.

Okay. So there hasn't been any shift in channels that you're pursuing or, really, a definitive change in marketing strategy?

No. I mean, it's been relatively consistent in terms of where we're deploying capital.

Okay. Can you explain the guidance you provided on revenue for the remainder of the year? What factors are contributing to the significant increase in Q2 and then a stable performance in the latter half?

Yes. Currently, we anticipate that average order values will gradually increase until the end of the year, although at a slower rate. We expect average order values to close the year in the mid-70s, around the $75, $76, or $77 range, starting from $74 in the first quarter. On the growth front, we also foresee a continued increase in net orders. We expect net orders to rise sequentially over the next couple of quarters, with the fourth quarter estimated to be similar to the third quarter in terms of net orders, influenced by two relevant years of historical data for Q3 and Q4 and the expected seasonal patterns. Given recent data from last year, we are adjusting our internal forecast to reflect that the fourth quarter will likely mirror the third quarter.

Your next question is from the line of Jailendra Singh with Crédit Suisse.

Congrats, Andrew, on the new addition to your family. Spencer, I was wondering, if you look at your 2021 revenue guidance of $221 million, $227 million, you're almost at the $233 million the company had for 2022 when you did the de-SPAC process. I know you're talking about various initiatives you have been putting in place. Just trying to understand, if you had to highlight some one or two key drivers you have seen over the past six months or initiatives you're putting in place that you are trending well ahead of your expectations you had of the de-SPAC process. And keeping that in mind, all the momentum you had in 2021, when we think about the business longer term, what would you say that in terms of these initiatives having long-term implications on the business for more sustainable growth rate going forward?

Sure. So I mean that's a really good point, Jailendra. So last summer, when we had provided investors a forecast for 2021 and 2022, we had provided a forecast for 2022 of $233 million in revenue. And at the high end of our current guidance, we're already guiding to $227 million in revenue. So we're pretty close to the guidance we provided in 2022 just last summer. And so effectively, we've packed two years of execution into 12 months, right? So we've really accelerated things. And that execution, I'd characterize, in 2021, as not a continuation of the continued focus and execution that you've seen out of the business over the last couple of years, right? The intense focus around just building an amazing customer experience, a super engaging customer experience that people love and that people are seeking in terms of how they want to consume health care, particularly for this new generation of technology-first, mobile-first consumers, and I think you've really seen that come through in the metrics in Q1 with improved retention rates, improved conversion rates and just us continuing to deliver higher margin, higher LTV customers.

So just to confirm my understanding, you are not suggesting that there was anything in 2021 that will not happen again next year. Some investors believe there could be lingering COVID-related advantages for your business, but that's likely not the case here. The initiatives and benefits you experienced in 2021 will likely occur again in future periods, correct?

Yes. I would say the guidance that we're providing for 2021 is being driven by the execution and the metrics we're seeing in the company. With respect to COVID, right, I think if you look at our performance historically over the last several years, we were delivering consistent sequential growth before COVID, we are delivering consistent sequential growth through COVID and now, we're providing guidance of consistent sequential growth after COVID. And we're not seeing anything in the business that suggests any kind of secular slowdown-driven in the business this year as a result of COVID. And I think our guidance really supports this view. If you think about our go-to-market strategy, I mean, from day one, right, our audience has been this digitally-native, mobile-first, younger demographic. Now this audience wasn't switching from brick-and-mortar to telemedicine because of the pandemic because they were kind of never at brick-and-mortar to begin with. So unlike other companies that may have benefited from some kind of switching behavior, our audience didn't really get any bigger because of COVID. 80% of our customers were already telling us that they were purchasing the medication for the first time from us. So our opportunity has always been around our ability to harness the enormous demand from this digitally native audience and provide an amazing experience to them. And I think our Q1 results and our guidance suggest that this opportunity continues to be massive for us.

Great. I just wanted to follow up on the favorable retention rate you mentioned. Can you share more details about your monthly churn rate trend in the quarter? How did it compare to the mid-single digit churn rate you discussed in the fourth quarter? What were the key drivers behind this, and what are your expectations for churn rate trends for the rest of 2021?

Yes. So monthly churn in Q1 decreased versus Q4. And I characterize the monthly churn rate in Q1 is still in the mid-single digits. We expect churn to continue to decrease over time as an increasing percent of our subscriptions are repeat customers versus new subscribers, and that's continued to play out over the last several quarters. With respect to the guidance that we provided for the year, and like I previously mentioned, we're essentially run rating the churn rate that we're seeing currently through to the rest of the year. So we're not really baking in or taking any credit of any further optimization on the retention side.

Your next question is from the line of Ivan Feinseth with Tigress Financial.

Spencer, congratulations on another quarter of great results and progress. Also, congratulations to Andrew on the birth of his son. Regarding the growth you're observing in the new product categories aside from Hers skin care, what emerging categories are driving some of that growth?

For the quarter, we experienced strong sequential growth across the board. This was not limited to a specific category or product line. Our core Hims categories showed exceptional sequential growth, particularly in the Hers brand, as Andrew noted, especially within behavioral health. Overall, we observed robust performance in Q1 across all our products. This success can be attributed to several factors, including the optimization work we've done to enhance conversion rates, retention rates, and expanding lifetime values. This foundational work was not tied to any one product or category; rather, it was essential to the platform, which improved the overall business. Additionally, the marketing efficiency we achieved allowed us to increase conversion rates, enabling us to invest more in marketing at higher lifetime values and generate $11 million in sequential revenue growth while only increasing our marketing spend by roughly $6 million. This level of execution benefited all categories and products.

In Andrew's prepared remarks, you mentioned that your gross profit increased at a higher percentage than your revenue, indicating that your margin has expanded.

That's right. So on a year-over-year basis, our gross margins expanded by roughly 800 basis points, which, to your point, compounded, actually have gross profit grow by almost 100% last quarter.

And what were the drivers of the increase in margin? Are you sourcing better as your volumes increase? Or what's leading to that?

Yes. We're seeing improved operating leverage as we continue to scale the business. The core fundamentals of our revenue are stronger this year compared to last year, driven by an increase in higher-priced bundles, more comprehensive treatment plans, and multi-month subscriptions. This growth has contributed to additional operating leverage across our product, shipping, and provider costs, resulting in expanding margins.

You typically see that when a customer purchases one product, they are likely to buy more. As you acquire more customers, shouldn’t there be an expected growth in the second half of the year due to the increased engagement with both new and existing customers?

Yes. So I think that's exactly right. And we're seeing that type of behavior within the base. I think with the guidance that we've provided, and I think what I mentioned earlier was we're obviously working on a number of initiatives today that we expect to continue to improve conversion rates, improve retention, expand LTVs, drive cross-selling. But we haven't baked any of that into the forward guidance. And so based on the work that we've been able to do in Q1 and sort of this fundamentally better business that we've got today, we've put out guidance that, I think, we are confident in our ability to hit. And as we continue to execute and the data changes our ability to forecast more accurately, we'll provide updates to guidance in the second half of the year as we continue to execute.

Your next question is from the line of Sandy Draper with Truist Securities.

This is Mitchell on for Sandy. Just one housekeeping one. Can you please walk us through what the fully diluted share count is and how to get there?

Yes. So in Q1, because the merger transaction closed in January, on a weighted average basis across the quarter, sort of weighted average share count is a little understated relative to kind of what the expected future share count will be. With respect to calculating GAAP EPS, our total fully diluted shares outstanding in Q2, again, to calculate EPS on the income statement, should come in, in and around, call it, 192-ish million total shares for this quarter.

Got it. And then just one more question. Do you think we could get some more color around the average order value? Like, is more of the growth attributed to multi-month order growth? Or is it a more expensive product mix? Or is it just both?

Yes. So we've discussed this in the past. And I think in the past, I've mentioned that in terms of our AOV expansion, roughly half of that expansion has been a result of customers opting into more expensive, higher-priced product bundles, and the other half of the expansion is related to customers opting into multi-month subscriptions. And the growth of AOVs in Q1, I'd say roughly sort of had a similar dynamic where, again, roughly half can be attributable to higher-priced bundles and the other half to multi-month subscriptions.

Your next question is from the line of David Larsen with BTIG.

Congratulations on a good quarter. Can you talk a little bit more about the advertising rates? I would have thought with the presidential elections going on last year, the ad rates would have improved fairly significantly this quarter, but it seems like it may have improved slightly. And then I think I heard you also mention that those ad rates are actually coming back up towards the end of calendar 1Q. How are they trending now relative to expectations? Just any more color around that would be helpful. And then have you disclosed what portion of your ad spend is going into television versus online resources like Facebook or other online resources?

Sure. Yes. So last Q4, in the October, November timeframe, we did see ad rates run-up fairly substantially as a result of the presidential election and a return of advertisers aggressively into the holiday season. As we rolled into Q1, we did see rates come down fairly substantially starting in January. And then kind of at a trough in maybe the late January timeframe, we saw rates start to incrementally increase throughout February and March. Whereby late March, ad rates had returned to levels that we saw kind of at their peak in Q4. In April and May, we're continuing to see ad rates stay fairly robust. I think with advertisers now coming out of COVID, looking to drive demand, I think we're just seeing people bid fairly aggressively across the board on multiple marketing channels. But I'd say even despite that dynamic, right, in March and what we're seeing here early in Q2 is that we've been able to continue to drive growth and acquire new subscribers at a very, call it, attractive rate because of the fundamental work that we've done in Q1 and throughout last year of continuing to work on the user experience, engagement on our site and conversion on our site, where, again, in Q1, our CACs decreased versus Q4. With respect to our marketing mix, yes, we actually have a very diversified marketing budget across a number of channels, including digital direct response and more branded channels like TV, radio, streaming TV, out-of-home, direct mail, and so on. In terms of our marketing mix, there is no one channel that makes up the majority of our budget. And frankly, the largest channel, depending on the month or quarter, might make up only 20% to 30% of the overall spend in the current quarter. So our strategy has always been and continues to be to have a very diversified marketing channel mix within our budget.

Okay. Great. That's very helpful. And it sounds to me, like, the customer acquisition cost improvement is due mainly to the quality of the user experience and the platform itself. It's not like there were any changes that happened at the start of the year, like, when somebody signs up for the first time, they're registered as a year-long subscriber, whereas previously, they were treated as like a one-time purchase subscriber. It's nothing like that. It's more simply the overall user experience. Is that correct?

That's exactly right. I mean, we just laser-focused on making that user experience as seamless and easy and convenient as possible and unlocked a performance improvement that allowed conversion rates to increase, and it allowed CACs to come down.

And there are no further questions at this time. I'd like to turn it back over to the company for closing remarks.

Yes. I want to just thank the entire team, again, for helping to execute such an amazing quarter and allowing us to put forward such strong guidance for the rest of the year. And finally, just want to send congratulations, again, to the entire Dudum family. And yes, look forward to providing additional updates here in the second half of the year.

And that does conclude today's conference. Thank you for participating. You may now disconnect.