Earnings Call Transcript - HIMS Q2 2023

Operator, Operator

Ladies and gentlemen, thank you for being here. I welcome you to the Hims & Hers Second Quarter 2023 Earnings Conference Call. Please be aware that this call is being recorded and all lines are in listen-only mode. After the speakers' comments, we will have a question-and-answer session. I will now turn the call over to Alice Lopatto, Vice President of Investor Relations. Please proceed.

Alice Lopatto, Vice President of Investor Relations

Good afternoon, everyone, and welcome to the Hims & Hers Health second quarter 2023 earnings call. On the call with me today is Andrew Dudum, our Co-Founder and Chief Executive Officer; as well as Yemi Okupe, our Chief Financial Officer. Before I hand it over to Andrew, I need to remind you of legal safe harbor and cautionary declarations. Certain statements and projections of future results made in this presentation constitute forward-looking statements that are based on among other things, our current market, competitors and regulatory expectations and are subject to risks and uncertainties, 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. And with that, I'll now turn the call over to Andrew.

Andrew Dudum, CEO

Thank you, Alice. This quarter, we drove excellent results on both the top and bottom line. Growth remained exceptionally strong with revenue up 83% year-over-year in the second quarter to $207.9 million. Our platform continues to benefit from the diversity of the state’s brand categories helping lay the foundation for many years of robust growth ahead. Our more mature offerings within the Hims brand continued to expand with little sign of market saturation, as we gain benefits of scale and continue to build a clear market leadership position via the capture of increasing share within the competitive landscape. Newer categories in markets such as mental health and our U.K. operations are growing mid triple digits and demonstrating strong quarter-over-quarter unit economic improvement. In lockstep, we continue to drive meaningful efficiency gains from our efforts to verticalize our affiliated pharmacies and optimize our processes, which allowed us to generate $16.8 million in cash flow from operations and $10.6 million in adjusted EBITDA in the second quarter. This increasingly powerful flywheel model provides us reassured confidence in our ability to achieve and surpass our 2025 target of at least $1.2 billion in revenue and over $100 million in adjusted EBITDA. Indeed, we believe the strength and composition of revenue and overarching durability of the model we're building is pointing towards many years of robust growth and increased profitability ahead. While I'm proud of the company's quarterly financial outperformance, I'd like to spend most of today sharing some of what's happening under the hood with long-standing initiatives, capabilities and soon-to-launch categories that I believe have the potential to meaningfully accelerate the already exciting trajectory Hims & Hers. As I've shared in the past, I believe Hims & Hers has a unique competitive advantage. My team and I think in multi-year horizons and are not afraid to tackle complex challenges. While it’s not for many years ahead, I wholeheartedly believe that most of our management team will retire with this company. This long-term orientation is based upon the foundational belief that over the long-term, we can deliver a platform so differentiated and so valuable that nearly every household in the country will benefit from its existence. Our orientation to the long-term has been in our DNA from the start. And it's what's enabled us to get to where we are and build a company that today services customers across multiple categories, acquires consumers through some of the most creative channels and has a foundation from which to bring some of the most innovative personalized products to market. Looking ahead, the number of lives that we positively impact over the course of the next 10 years is a key benchmark for how we evaluate our progress and celebrate our successes. We believe that step change gains in long-term shareholder value will be a derivative of this. To look under the hood, I'd like to walk you through a few transformative shifts taking place in our business. For simplicity, I'll group them into four buckets. The first is a material mix shift in consumer preference moving from generic to personalized treatments. The second is the rapidly accelerating strength of our data platform and AI capabilities that are enabling individual providers to leverage the collective knowledge of hundreds of providers and millions of historical clinical decisions to support these precision treatments. We recently filed multiple trademark applications for the name MEDMATCH and plan on showcasing this AI technology more specifically and the clinical benefit it's delivering next quarter. Third, our new multi-action capabilities to enable providers to customize single fill treatment for multi-category conditions. And lastly, the exciting new frontiers and offerings we have recently launched and will be launching soon. From the earliest years, Hims & Hers delivered in its simplest form access. Access to a provider, access to clinically appropriate generic treatment, and access to solutions for singular issue patients who were challenged with. Today that story has become wildly more exciting, as initiatives that have been in development for years are beginning to come to market. Our story is no longer one of simple access, but a story of bolstered capabilities in diagnostics, treatment and care that we believe can deliver truly better outcomes. Our mission to help the world feel great was never just about providing access to the existing system of healthcare. While this is where we began, our true purpose all along has been to transform that system for the better. We want to improve the intelligence and capabilities of providers so that a customer's clinical experience and outcome are not dependent on the sole experience of an individual provider, but rather on the collective knowledge derived from hundreds of thousands or even millions of clinical encounters. Our ambition is not just to provide access to commonly prescribed medications, but to build capabilities across pharmacy and clinical excellence to establish a new standard of entirely personalized, customized solutions. And lastly, our mission was never limited to enabling treatment for a patient with singular issues, but rather to build on human relationships and patient trust, such that we could expand into a multi-treatment experience that tackles not only the patient's initial concern, but key underlying conditions that impact their overall health and ultimately their life. From a business that delivers on access alone to now a business that is personalizing the patient experience and treatment opportunities in order to deliver on better results and outcomes, we are propelling one of the most meaningful industry transformations that I have witnessed. We believe this transformation has massive implications for the future of Hims & Hers, from competitive differentiation to enduring growth, improved customer lifetime values, extensive and deep moats, and an offering that can no longer be compared to those in the market, something truly unique. To dig in further, let's start with that first bucket: the material product mix shift within our customer base from that of generic treatments to personalized treatment opportunities. Our confidence in personalized solutions is high, based upon insights and feedback from hundreds of thousands of customers on our platform. Feedback is confirming our belief that our innovations on this front are delivering on an unmet customer need that radically changes the relationship with and appreciation of our platform. Category-wide, the personalization of patient treatment by providers has rocketed, reflecting the desire and need for customized treatment of patients. Over 35% of online revenue from customers acquired in the second quarter came from personalized treatments. From our most tenured categories like ED, providers and patients are increasingly turning to personalized solutions made available through hard min and multi-action HARP report. In Hims Hair, over 80% of new subscribers in the quarter opted for personalized treatment. The ability to tailor treatment in dose, form, and composition is giving many of our providers and customers their first real experience with precision medicine. The simple takeaway is that customers are loving it. They select to get more, willing to pay more, engaging with the platform more, adhering to treatment more, and even indicating that they have no desire to return to the world of generic treatment. We expect to have personalized offerings across each of our main categories by the end of this year and anticipate that curated, personalized experiences and treatment will increasingly drive the differentiation of our business in the coming years. This business transformation is a result of years of innovation in pharmacy, clinical excellence, and platform technology. As the shift continues to flow through our business, we will enter a world where Hims & Hers is known for these personalized capabilities, lifting the platform to new levels of customer appreciation and value. Personalization is not possible without our second bucket, which is the massively improved data and AI capabilities that we've spent years building in the background. As mentioned previously, we recently filed a trademark application for the name Med Match and plan on showcasing this AI technology more specifically and the clinical benefits it's delivering next quarter. The move to personalized medicine and dramatically improved data capabilities are intrinsic to the third bucket, which is our new multi-action capabilities to enable providers to customize single pill treatments for multi-category conditions. Our newest offering launched just last week was our first foray into preventive cardiovascular care, Heart Health by Him. Heart Health is one of the most meaningful launches since our founding. Heart disease is the number one cause of death for men worldwide, and approximately 30% of our male customers have at least one risk factor in developing it. This extension enables providers to prescribe compounded formulas that combine the active ingredients found in ED medications and states like the generics for Lipitor and Crestor, which can reduce the risk of having a heart attack by upwards of 33% and death by 8%. In partnership with the American College of Cardiology and LabCorp, we brought together what Hims does best—innovative products, leading technology and clinical excellence—to deliver on our experience in defending the curve of death caused by heart disease. The market for cardiovascular support is massive, with nearly 100 million people suffering from heart disease in the United States alone. And I couldn't be more proud of the team for being patient and strategic in building the foundational capabilities over the last few years in anticipation of this launch. And this is just the beginning of what we will be able to do for our patients. For many years, patients have come to us to solve a single issue, while actually struggling with many. Hims & Hers now offers providers the clinical capability to address multiple conditions in a single treatment, leveraging the demand from high-interest categories to treat other clinical areas for which patients need support. In the e-commerce world, this is a cross-sell strategy. In our world, it's a clinical capability that allows patients to access more personalized, meaningful care, addressing a multitude of issues simultaneously, supporting simpler treatment regimens and ultimately increasing the value we are delivering to our customers. Multi-action capabilities further deepen the defensibility of our platform, as the offerings become more and more customized and inevitably essential to customers. It's easy to imagine the many powerful avenues where this could be beneficial, from chronic disease management, like heart disease and diabetes to bundle cosmetic capabilities for anyone interested in treatments across categories and even to help providers address sometimes stubborn and challenging issues more comprehensively, such as menopause or the interrelated dynamics between mental health, metabolic health, insulin resistance, and weight gain. These multi-action capabilities open us up to the last bucket, which are the new frontiers and categories we can bring to market in a way that's competitive, effective, affordable and attractive to existing and new customers alike. We're excited to announce that Hims & Hers will launch our comprehensive weight management offering in time for this coming January New Year rush to self-improvement. Our weight management category will leverage all of the strengths of our platform. This means access to personalized treatments, customized for customers' clinical needs, powered by our enhanced pharmacy capabilities. This offering will enable providers to more comprehensively address a range of underlying conditions, clinically tied to weight gains, such as metabolic disorders, insulin resistance, overeating habits, depression and more. At launch, the offerings will include access to treatment formulations that are affordable and can combine and leverage the active ingredients in proven prescription medications and supplements, as well as behavioral and nutritional focused plans. The platform is being built to support both existing GLP-1s and future pharmaceutical innovation. However, given the instability of the current supply chain, inconsistent reimbursement and outstanding safety evaluations, these products likely will not be available at launch. Dr. Craig Primack joined us this week as our new Medical Director in Weight Management, bringing to our organization nearly two decades of optimizing treatment protocols for the complex underlying factors driving weight gain. Our weight management offering has been in research and development for over a year. And with nearly 100 million Americans suffering from obesity, we want to ensure it is positioned to make a real dent in this crisis. That means delivering on an offering to a mass market audience, with pricing in line with core everyday prices offered across our categories, in an experience that's streamlined and consistent with a focus on safety and efficacy. Leveraging widely understood and available treatments, sophisticated pharmacy capabilities and deep data-driven archetype matching, we hope to deliver exciting treatment efficacy at scale. Like I said at the start, our mission is to make the world feel great through the power of better health. An often-underappreciated aspect of this mission is the necessity of ensuring our platform can reach as many people as possible. The level of scale that we have, combined with the efficiency of our affiliated pharmacies, enables us to orient users to a model with a treatment-based construct versus a pill-based construct at exceptional value to them. This will continue to become more meaningful, as we move further away from subscribers with one treatment to subscribers with multi-category treatment. As part of this mission and our ambition to reach as many people as possible, we're excited to share that in the past few months we've begun to systematically lower prices for many of our longer duration offerings to make our more personalized subscriptions even more mass market accessible. The pricing rollout, which we expect to continue in the coming months, has been in process while simultaneously expanding gross margins to 82%. As our operational scale and efficiency allows us to accelerate profitability on an adjusted EBITDA basis and also expand market share and access. We are already seeing the signs that these strategic actions are having a strong market impact. After the implementation of strategic pricing adjustments, the ratio of new Hims & Hers subscribers that selected a personalized offering with the duration of five months or more increased over 25 points during the course of the second quarter. Our belief is that consumer making longer upfront commitments for effective and unique products is an equation that provides a path for users to remain on the platform for decades. This quarter's announcement reflects years of hard work from the team and I'm thankful for their commitment to building this platform the right way. I'm confident the methodical nature of our team and their time horizon for investments will have a uniquely meaningful impact on our customers and ultimately our shareholders. With that, I'll turn the conversation over to Yemi to discuss further financials.

Yemi Okupe, CFO

Thanks, Andrew. Hello, everyone and thank you for joining us today. I'll start by providing an overview of our second quarter's financial performance and then provide additional details behind our expectations for the remainder of the year. We are pleased to see continued strong momentum across Hims & Hers, which we believe reflects the sound execution of our strategy that centers on enabling access to innovative products through world-class technology with the brand that consumers love and trust. Revenue in the second quarter grew 83% year-over-year to $207.9 million. Revenue growth was primarily driven by a robust performance in our online channel. Online revenue increased 87% year-over-year to $201.2 million in the second quarter. The continued addition of subscribers onto the platform was the primary driver of online revenue growth. The number of subscribers on the platform increased 74% year-over-year to 1.3 million subscribers. This quarter, we expanded the portfolio of personalized solutions accessible across the Hims & Hers platform. Notable examples of this include the national rollout of the Hims & Hers offering, additional hair-loss solutions within the Hers portfolio, and the launch of Heart Health. Early consumer feedback and reactions indicate a strong user preference for these personalized offerings. Historically, we have reinvested efficiency gains into marketing as well as the research and development of new solutions. With this much more expensive portfolio of personalized and differentiated offerings, combined with record level gross margins, our investment opportunities have expanded. We made the strategic decision to reinvest a portion of the efficiency gains that scale and strong execution have provided us into more attractive pricing for a subset of offerings on the platform. Specifically, meaningful changes were made across longer duration and sexual health and Hims & Hers subscription plans. The net effect is that more customers than ever have access to personalized solutions to improve their daily health for as low as $39 per month in some circumstances. These changes resulted in an estimated online revenue headwind of $5 million in the second quarter, as monthly average online revenue per subscriber declined 4% quarter-over-quarter to $53. Already, we have received several strong signals that these changes have the potential to accelerate adoption of personalized solutions across a broader set of users on our platform. Over 35,000 existing subscribers switched to a longer duration or personalized offering in the second quarter. We believe personalized solutions combined with our overall strong value proposition will enable us to retain our users for decades. At the end of the second quarter, over 20% of total subscribers across all of our offerings were on a personalized solution. This is a clear signal that consumers are drawn to and appreciate personalized solutions that our providers can prescribe. We believe offering unique solutions at attractive price points is a powerful combination that positions us for significant market share gains. Economies of scale in our operation enable us to do this while maintaining healthy margins in a way that few can match. Our gross margin trajectory in the second quarter is a textbook example of the power of sound execution combined with economies of scale. Gross margins expanded over 140 basis points quarter-over-quarter to 82% in the second quarter. Gross margin expansion was the result of lower product costs, increased efficiency across our provider base, a move to longer duration subscriptions, and improved efficiency from a migration toward affiliated pharmacies. These dynamics more than offset degradation from our strategic pricing actions. The ability to strategically adjust prices and simultaneously expand margins is a truly unique advantage. Our belief is that this capability to benefit from scale, and can currently offer differentiated products, uniquely positions us to become the leading platform for personalized helping on the solutions. We made meaningful progress on our transition toward affiliated pharmacies in the second quarter. Over 70% of orders were fulfilled by affiliated pharmacies in the second quarter. This provides a robust platform for a systemic transition of the business to personalized centric offerings. Turning toward elements of our cost structure. Marketing, as a percentage of revenue, was flat quarter-over-quarter at 51%. Marketing investments were more heavily weighted toward the back end of the quarter as a result of the timing of new product launches, strategic pricing actions and large brand campaigns. Customer acquisition was slower at the start of the quarter as a result of those dynamics in a somewhat more challenging marketing environment relative to the first quarter. We expect that investments made at the end of the second quarter will provide meaningful customer acquisition tailwinds in the third quarter. Our expectation is for continued investment in marketing as we launched new personalized offerings throughout the year. Similar to prior periods, we intend to do so while maintaining a one-year payback period. Operations and support costs as a percentage of revenue, excluding stock-based compensation in the second quarter, came in at 14%, stable with the first quarter. We see potential for continuing modest gains in this area through the year as we benefit from economies of scale and continue to make efficiency gains on the cost structure for personalized products. Technology and product development costs as a percentage of revenue, excluding stock-based compensation came in at 6% in the second quarter, stable to the first quarter. Continued investment is expected in this area through 2023 as we augment data science capabilities and expand upon capabilities available to providers on the platform. General and administrative costs as a percentage of revenue were 15% in the second quarter, representing a 5-point improvement relative to the second quarter of 2022 and a one-point improvement relative to the first quarter. Excluding the impact of stock-based compensation, G&A costs were 9% of revenue in the second quarter, representing a 4-point year-over-year improvement from 2022. Adjusted EBITDA increased 73% quarter-over-quarter to $10.6 million in the second quarter. Gains from efficiency improvements and economies of scale offset the estimated $5 million headwind from strategic pricing actions I discussed earlier. In the second quarter, we made considerable investments into the affiliated pharmacies that will set the foundation for greater personalization capabilities in the future. Capital expenditures related to the purchase of property, plant, equipment and intangibles were $4.7 million in the second quarter. We are pleased to see our balance sheet continue to strengthen while we can currently build future capabilities. Cash and short-term investments increased $8.7 million quarter-over-quarter to $193.1 million in the second quarter, as cash flow generated from operations continued to exceed capital expenditures. Momentum has remained strong in 2023 as we rapidly evolve our platform's capabilities across a level of breadth and depth that we feel is currently unmatched. We are excited to continue to make significant strides in our transformation from an access-oriented platform toward one that offers personalized solutions with the potential for better adherence and outcomes. Equally exciting is the pace at which we continue to drive efficiency across the platform, which allows us to enable unique personalized and compelling solutions at affordable prices. We are confident this will seal a market leadership position, as well as, more importantly, the ability to improve millions of lives. Our updated outlook for the remainder of 2023 reflects these dynamics. In the third quarter, we are expecting revenue of between $217 million to $222 million, which represents a year-over-year increase of between 50% to 53%. On the bottom line, we expect adjusted EBITDA of between $10 million to $13 million, representing an adjusted EBITDA margin of 5% at the midpoint of both ranges. For the full year, we are raising our outlook for revenue to $830 million to $850 million translating to a year-over-year increase of between 58% to 61%. The midpoint of our updated range is $20 million higher than our prior range. We are also increasing our outlook for 2023 adjusted EBITDA to $35 million to $40 million, reflecting continued efficiency gains across the business. These adjusted EBITDA and revenue ranges resulted in an adjusted EBITDA margin of 4% at the midpoint of both ranges. No material contributions from Weight Management or Cardiovascular Health are assumed in 2023. Generally, we expect new categories to take at least 12 to 18 months from launch before they meaningfully contribute to the business. Reflected in our guidance is an assumption that the extremely favorable marketing environment that emerged in the back half of 2022 does not repeat in the back half of 2023. Additionally, our guidance incorporates a negative impact of between $12 million and $18 million in the second half of the year for both revenue and adjusted EBITDA, as a result of the strategic pricing changes previously discussed. We believe these strategic moves will drive both stronger retention and acquisition dynamics in the future as customers have the ability to access a unique and differentiated set of solutions on our platform that are less readily available with standard generic solutions. We have high conviction that gains in efficiency from strong execution and economies of scale will enable us to continue to expand our adjusted EBITDA margins over time. Our ability to deliver these strong results is the result of efforts from hundreds of employees across Hims & Hers who work hard each day to help the world feel great through the power of better health. I'd like to thank them as well as all of our customers and partners that support us in our mission. With that, I will now turn it over to the operator for questions.

Operator, Operator

Our first question comes from Daniel Grosslight with Citi. Your line is now open.

Daniel Grosslight, Analyst

Hi, guys, congrats on the quarter, and thanks for taking the question here. Just a couple of quick ones on the new weight loss category that you're expanding into. So, it sounds like there's going to be a behavior modification aspect to it maybe nutrition coaching, fitness coaching, as well as some type of either nutritional supplement or prescription along with it. But it also seems like the GLP-1s aren't going to be available initially. So, I was wondering if you can just dig in a little more on what kind of treatment, away from the behavior modification and fitness and nutrition, what kind of treatment you're going to provide with this new weight loss category?

Andrew Dudum, CEO

Thanks, Dan. It's Andrew. Yeah. So I think what we're going to start with is a wide range of likely generic options and personalized treatments that are addressing some of the underlying factors of weight gain. So this could be metabolic resistance, hormonal issues, or underlying mental health concerns such as depression or unhealthy eating habits. Dr. Craig Primack, who joined as our weight management medical director, has a couple of decades of experience specifically leveraging this wide range of treatment offerings to go after what is often a multi-pronged issue for weight gain. And I think that's what the approach is going to be. It's going to be built on, I think, a lot of phenotype and archetype data of understanding this patient really well in partnership with the clinical advisors in a way that we can leverage some of those dual-action and multi-action treatment capabilities that we recently launched with the Heart Health launch and leverage those same abilities with the weight management category. So really simple protocols, but from a patient standpoint, highly personalized and hoping to go after a lot of those underlying conditions and ultimately have great efficacy, but with affordable and well-tested and safe options.

Daniel Grosslight, Analyst

Yeah, makes sense. And then this quarter AOV growth was really strong. It came in around 22% or so this quarter year-over-year which would be the fastest growth since 2021. Just curious what's driving that AOV growth this quarter given your lowering prices on some treatments and revenue per subscriber is dropping a little bit?

Yemi Okupe, CFO

Yeah, Dan, this is Yemi. Thanks for the question. Really there's a few factors. And so I think one of the reasons behind why we made the strategic pricing actions is really to start to make both longer-duration subscriptions attractive for users as well as the proprietary products attractive to users. And so what we saw as we made those is both users coming in as well as existing users started to switch to longer duration proprietary products that come with a larger commitment upfront. And so you have more people that are on long duration plans as they pay for those upfront. That really is the factor driving AOV and the fact that more customers, as Andrew mentioned previously, are also switching to the proprietary products which still come at a bit of a premium.

Daniel Grosslight, Analyst

Yeah, make sense. Thanks for the color.

Operator, Operator

Your next question comes from Jack Wallace with Guggenheim. Your line is open.

Jack Wallace, Analyst

Hey, congrats on the quarter. And Andrew, congrats on the birth of your second child. We've got two questions here. One on the cardiovascular entry. So, this is a statin. We just think that this would help you target maybe an even older demographic maybe that is outside some of the younger millennial demographic that you placed so well in. Is that part of the kind of the TAM expansion thought process? And then second is—are we expecting any attractive pricing with this, or how should we think about pricing with that combined product? Thank you.

Andrew Dudum, CEO

Thanks, Jack. So on the cardio side, this is one we're really excited about because I think it does a couple of things. One, to your point, it massively expands the value and differentiation of the platform for that older demographic. Right? There's a tremendous overlap with erectile dysfunction and cardiovascular disease. In fact, as we've shared in the release last week, erectile dysfunction is often an early indicator of cardiovascular disease. So the ability to expand in that older audience is something we're really thrilled by. But also, in general, we are seeing tens of thousands of men on the platform today, of which we've shared that 30% of those men are at risk of heart disease. And so they could be a couple of years away from a heart attack or stroke and most of them are completely unaware of it. And so this launch, I think brings together really what we do best which is partnering with great clinical excellence, the American College of Cardiology and LabCorp innovation with this dual capability, which allows our providers to personalize treatment with these statins that are incredibly well tested and safe with base EV medications. And you can imagine that this heart support could eventually be added on to other categories, mental health or hair care or women's products as well for people at risk. And ultimately, I think meaningfully increase adherence to this preventative treatment and ultimately I think hopefully save tens of thousands of heart attacks from happening and eventually tens of thousands of lives. And so from a pricing standpoint to kind of round this out, our aim is to make this as accessible as possible. I think as Yemi shared, we've been able to meaningfully lower prices in the last couple of months and aim to continue to do so for some of our higher value product bundles, while still maintaining and expanding to record high 82% gross margins.

Jack Wallace, Analyst

Got you. That's helpful. Thanks. And then Yemi, you mentioned that the marketing environment was a little difficult in the front half of the quarter and there was an elevation of investments in the back half. When you mentioned the difficult marketing environment and thinking about this in the context of the price changes, was there any pickup in churn rates that you're also responding to, or was it just simply some of the key areas you play in with marketing dollars just got more expensive or the consumer is pulling back? Just trying to get some— a better understanding for the—let's call it the environment dynamics. Thanks.

Yemi Okupe, CFO

Yes, Jack. I think it's a great question. I think it was—the environment was in line with what we expected for Q2. And in Q1 we definitely saw some surprising favorability that was unanticipated. Before we make pricing changes, we do a lot of research and experimentation. And so, those changes were effectively months in the making, just because we do want to use prices as more of a precise tool versus lots of conservative pricing strategies. We’re very much disconnected effectively like what we do look to when we institute pricing changes as a few consumers basically value those changes. They're very likely to retain on the platform for a longer period of time. And then lastly, because we have so many different cohorts of users that are selecting different products, we're really able to dial in what are the highest lifetime value products. As we started to see the benefits from scale and our gross margin started to expand, we made the decision to put some of that back into additional customer value. As Andrew mentioned before, we're really looking to make the first lot products mass market because the objective is really to have our users for a period of decades.

Jack Wallace, Analyst

Yes. Awesome. Thank you, guys.

Operator, Operator

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

Michael Cherny, Analyst

Good afternoon. Thanks for taking the question. Maybe if I can go back to weight management. I know you talked about GLP-1 products not being available off the bat. But how are you thinking about the characterization of maybe health of the weight management 2.0, given the high demand for the products as well as the logistics that come with an area such as cold storage, for example, on GLP-1s that you may not be as focused on today?

Andrew Dudum, CEO

Thanks, Michael. Yes, a great question. I think there's a tremendous amount of excitement internally relating to GLP-1s. And both the existing products that are in the market as well as frankly the dozen or two dozen that are in the pipeline today and finishing up clinical trials that I think will likely bring to market an oral version, some might say blue ties or ones that have hopefully improved efficacy. So without question, these are here to stay and the platform is being built in such a way that further enables it, including the affiliated pharmacy operational side, as you mentioned the cold storage necessity. That's something that we don't feel will be a concern with our operational side. I think the real reason, just being really transparent, is just the consistency of being able to deliver a world-class experience to our patients and our customers just doesn't feel quite there yet with this offering. And I think you're seeing that from peers in the market, who are pulling back on this offering or turning it off as a result of inconsistent supply chain issues or the fact that I think it's 1% or 2% of all those individuals eligible to actually get reimbursed are actually achieving reimbursement. The reality is that the medicines have only been nine to 12 months old and have only been studied for that duration. And so we hold clinical excellence and the trusted brand pillars in the highest regard in the company. That's our greatest asset here over the long haul and we want to make sure that everything we bring to market is going to deliver a seamless, effective and safe offering for patients. And right now, I just don't think we have that confidence. So we're staying close to it. We're working with our clinical advisors to make sure that we are up to speed on how things are evolving. Without question, they will be a part of the platform in some form in the future as a lot of these issues get worked out, likely won't be available at launch by the end of this year.

Michael Cherny, Analyst

Understood, and I appreciate the perspective there, Andrew. And then maybe as a second question I fully appreciate if it's one that's hard to answer. But beginning of the year you gave the 2025 targets, $1.2 billion, $100 million of revenue. And I very much understand the emphasis on at least which I think was underlined and bolded in your presentation, so I get that. And that being said, this is the second straight quarter of being raised on a pacing perspective. You're tracking well ahead of there and that's before market expansion. So, I guess what should we think about in terms of when you plan to update that one way or the other or discuss further changes based on the fact that you're now also expanding your near-term TAM?

Yemi Okupe, CFO

Yes, Mike. Thanks so much for the question. I think when we set the 2025 targets that was given with line of sight for really what we had at the end of last year. We were seeing so many different things that were compelling in the business that that gave us the conviction to set the floors of $1.2 billion in revenue, $100 million in EBITDA. I think we deliberately did not give a range or set a ceiling just because there's so much exciting going on in the business right now with the launch of new categories. We've been pleasantly surprised by some of the newer personalized offerings taking off. But at this time, we still leave those as the floors for 2025. As we get closer clearly to 2025, we see the full potential for some of these matters then we'll look to update. But at this time again we can call that those are our floors not going below.

Operator, Operator

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

Glen Santangelo, Analyst

Yes, thanks for taking my questions. I just want to follow up on some of your prepared remarks. It kind of sounds like Andrew that you decided that it was the right move to make some investments in pricing. And if I heard Yemi correctly, it kind of sounds like that's going to cost you $12 million to $18 million in both revenue and EBITDA in just the back half alone. So, it seems like kind of a significant investment, but it doesn't sound like it was related to churn. And it kind of sounds like you're doing that now you're seeing an increased duration of your average customer. So, I was wondering—and I'm putting all this in the context of the fact that you just raised guidance as well. So, I was wondering if you could just flesh out that decision a little bit more and the ramifications of what you've seen as a result of that investment in price.

Andrew Dudum, CEO

That's a lot, that’s a great question. I'll take maybe the first half and let Yemi add some of the quantifiable things we've been seeing because it really is moving some of those numbers. It was really a strategy to leverage the strength of where the business is at right now. As you saw in this quarter, we hit kind of record 82% gross margins. I think there's an incredible amount of efficiency and operational excellence that's taking place under the hood allowing us to deliver on the mission which is to help the very mass market, right? We have—we've said this in the past, we believe we can build a platform and a value prop that is such where every household in the country is a member and is satisfied and loves this business and brand and is getting real value. And I think in doing so we want to find as much efficiency as we can within the business and bring that back into the customers' pocket, right? That is a clear and aggressive way for us to go take meaningful market share with an offering that we know to be a note to be very sticky and very accretive in individual life. And so that was really the strategy behind this and I think continues to be the strategy.

Yemi Okupe, CFO

Yes, I mean just to add to that building upon what Andrew said Glen, I think that really the objective is how do we make it as easy as possible for as many users as possible to stay on the platform for decades. Given the efficiency gains that we are seeing and how the benefits of scale have really come through faster than we anticipated. We really started to look for additional ways given that we have just an entirely different construct out in the market where we're no longer competing on access, but we're also competing on personalized products. When you really combine those things and as we start to bring those into increasingly more and more mass-market prices it becomes really powerful. And what we've also observed is the more scale that we get, the more efficiency that we generally get and so really basically being able to lean into that flywheel in a way that benefits us as well as our consumers, I think it's going to be really powerful to come.

Glen Santangelo, Analyst

Okay. Thanks for the comments.

Operator, Operator

Your next question comes from Jungwon Kim with Cowen. Your line is open.

Jungwon Kim, Analyst

Thanks for taking my questions. Just from a macro standpoint as there is uncertainty in the market, have you seen any changes in consumer behavior and maybe any notable changes quarter-to-date that you can sort of provide more color on? And another question I had was around marketing strategy. It looks like you're kind of investing behind marketing around new launches. How will that be different versus what you currently have? And just curious if there are more colors you can give around marketing strategies going forward? Thank you so much.

Yemi Okupe, CFO

Yes, so I can take the first one, Jungwon, and then hand it off to Andrew for the second one. I think we've not seen really any pressure on the consumer. I think we've spoken to how the overall consumer set is diversified across so many aspects from gender, age, income, but really leasing success in multiple different environments. I think what we actually saw is as we started to roll out the personalized construct and then also take some of the strategic pricing actions, we really saw behavior from both new consumers as well as the existing consumers really start to lean in and take actions that we feel are signals of stronger retention, stronger lifetime values in the future. This includes everything from selecting longer-duration products, selecting the personalized products. The early feedback on those is coming quite strong. And so generally we—if anything have seen a stronger consumer as a result of the actions both in terms of the product assortment as well as the pricing attractions that we've taken.

Andrew Dudum, CEO

Yes. And then, Jung, on the marketing strategy side I think it will be a really similar go-to-market than what you've seen from us in the last four, five years, which is a very omnichannel strategy leveraging a very diverse set of channels and campaigns to educate consumers where they are today right in the comfort of their home across both social, TV, out-of-home, streaming with really straightforward destigmatizing straight talk authentic marketing. I think this is really what resonates with the audience we're going after. It's something that people have really come to appreciate and value with the brand. And so I think that will be what it looks like. I think it will also include a lot of the kind of best-in-breed aspects of historical campaigns as well, whether that's influencers or celebrity partnerships such as with Kristen Bell for the mental health campaign on Her. Those have also been incredibly powerful in building the awareness of these conditions and the prevalence of these conditions. And I think you'll see us leverage those same tactics in the future.

Jungwon Kim, Analyst

All right. Thank you.

Operator, Operator

Your next question comes from Jonathan Young with Credit Suisse. Your line is open.

Jonathan Young, Analyst

Hi. Thanks for taking the question. Just on the cardiovascular expansion, I imagine most consumers on ED are utilizing hands for some level of privacy away from their traditional PCP. But stepping into cardiovascular, it may bring the traditional PCP in. So I guess, how are you thinking about this aspect that there is some friction, if any, from your perspective?

Andrew Dudum, CEO

Thanks, Jon. It's a great question. One of the unique things that we've noticed about this business and it continues to be true is overwhelmingly, the patients that come to the platform every day are first-time customers. And what that means is they often do not actually have a primary physician for which they know the name and have a relationship with. This is overwhelmingly the case for people in their 20s, 30s, 40s and even 50s. And so in many ways, what we are doing is bringing individuals that are outside of the health system today into the health system for the first time. And so we believe we can be that first point of contact in partnership with these organizations, such as the American College of Cardiology, and building great clinical protocols into the platform. And then as we continue to expand through a lot of the brick-and-mortar partnerships we've had such as Ochsner and Carbon Health and Sinai, continue to expand that network. So that from a geographical footprint standpoint, we can hand off patients that are necessary to be seen in the brick-and-mortar and in person. And so in a lot of ways, that issue doesn't come up for us as those that are coming to us for the most part do not have a deep relationship with an individual provider and are having their first major relationship with Hims & Hers directly. So I think it's a real opportunity, actually, to expand market share of those engaging with the system and ultimately get those people to the right outcome.

Jonathan Young, Analyst

Okay. I appreciate the answer there. And then just on the pricing headwinds that you talked about, the $12 million to $18 million. Is there a disproportionate impact on Q4 because it looks like based on your guidance, Q4 revenue could actually be down sequentially from Q3? And then as we think about 2024, should we think of the lingering impact as maybe a one to two-point headwind to growth? Thanks.

Yemi Okupe, CFO

Yes, Jonathan, I think that's a great question. I think that really the impact will be spread across Q3 and Q4—our guide anticipating as Andrew mentioned, we're going to be very precise with these changes. We still do want to retain the flexibility to potentially, as newer categories roll out and if we see more efficiency only into those. Again, I don't think we're going to use pricing as a blunt tool. We use this as a very precise tool of all the data that we collect. Really, what we expect to see is as the marketing teams continue to their acquisition message as well as we start to head into kind of the Q2 timeframe of 2024, you'll start to get the benefit on both acquisition as well as we feel all signals point to even higher retention that we'll have across our base. And so there might be some pressure in early 2024. But really, we expect to start to lock that in Q2 and then kind of see the full strength of the effects in Q3, Q4.

Jailendra Singh, Analyst

Yes, thank you and thanks for taking my questions. I just want to stay with this last topic about pricing changes impacting the quarter and the year guidance. Just trying to reconcile that with strong trends in AOV. You talked about it earlier. Are you saying that just because you lowered the prices and longer duration offering, you saw more adoption and that drove AOV higher, and if that's the case then are you—$5 million headwind in the quarter and $12 million to $18 million headwinds for the year is that before that benefit on AOV, or is it net of AOV benefit?

Yemi Okupe, CFO

Yes. Thanks for the question, Jailendra. I would reiterate that while we provide AOV statistics, management is definitely not optimizing on AOV. I think we're really optimizing for the total share of the customer which comes in the form of the monthly average online revenue as well as basically what the total lifetime value for a cumulative customer looks like. That said, the AOV dynamic is when a customer makes a commitment upfront, their monthly rate what they pay per month may be lower, but because they're committing to you for more months upfront, that in essence starts to drive the AOV higher. And so I think that the guidance that we gave in the $12 million to $18 million range is fully comprehensive of all of the different puts and takes on that. Yes. I think it varies. Like I don't think we're going to go SKU by SKU. And we did it in a very precise way. So the overall package is relatively complex particularly as you get into sexual health. But at the general genesis, given what we did, number one, we wanted to remove the concept of having a pill-based offering to your treatment-based offering or many of the SKUs we started to remove premiums on things like stronger dosages and things to start truly just to ensure that customers are able to get to the solution that they need. Additionally, what we also did is we started to just make the price point for the personalized SKUs more attractive. And so in some of the instances for a longer duration SKU the price cuts can be north of 25% to 30%.

George Hill, Analyst

Yeah. Good evening, guys, and thanks for taking my questions. I have one for Andrew and one for Yemi. And I guess, Andrew, first, I'm going to kind of take the opposite tack on the new cardio product with the launch of the cardio product and the behavioral initiatives you guys are getting into more disease states that are not self-diagnosable or not typically considered self-diagnosable, so I'd love to hear how you think about like what other disease states that the company feels like it can go into for market growth. And then Yemi this is just kind of a housekeeping question. Is the $12 million to $18 million headwind in the back half of the year solely the headwind from the repricing initiatives or is there a way to parse out the repricing from the expectations on a tough comp in the back half of the year? And kind of like I know that's kind of splitting it out a little bit, but would appreciate any color.

Andrew Dudum, CEO

Thanks, George, great question. I think you're exactly right. This is one of the first categories I think that we're launching into where it requires a coalition of outside collaboration. It requires deep integration of kind of predictive analysis in the consultation flow to be able to identify patients at risk. It involves third-party partnerships such as the one we announced with LabCorp to be able to gather that data set in a way that can more completely allow providers to identify these patients at risk and then actually treat them. I think the infrastructure that we put in place with this launch is one that can be replicated quite easily actually, and I think replicated in most of the remaining categories from a health care system standpoint that play in the country that we are not in. So this could be metabolic disorders. This could be insulin-resistant disorders. This could be diabetes. This could be things like menopause and hormonal balancing. We've already obviously spoken quite a bit about weight management. But I think a lot of the chronic conditions that the business has yet to launch into have similarities in the diagnosis, the validation, and then the ongoing treatment relationship with patients as the launch of Heart Health by Hims. And so that I think is a template for us that we believe in the coming years can be replicated.

Yemi Okupe, CFO

And then George, at the back half of your question, the $12 million to $18 million range exclusively correlates to pricing. Effectively, that is the impact of repricing the majority of the existing base that are already on some of those SKUs with the updated pricing, and as those folks start to renew, they will get the updated pricing. There will be some mitigation just from new users starting to select a different mix of products that we expect will skew more towards the personalized and longer duration offering as well as the continued upgrades for some of the existing users that are switching from generic solutions or shorter duration solutions in the back half of the year.

Operator, Operator

This will conclude today's conference call. Thank you for joining us today. You may now disconnect.