Hims & Hers Health - Q1 2023

Transcript

Operator (participant)

Ladies and 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 speaker's remarks, there will be a question and answer session. If you would like to ask a question at that time, simply press star followed by one on your telephone keypad. If you would like to withdraw your question, again, press star one. 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.

Alice Lopatto (VP of Investor Relations)

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 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 statement 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 table contained in today's press release available on our investor relations website for reconciliation 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 pre-recorded. Following these remarks, Yemi will host the live Q&A. With that, I'll now turn the call over to Andrew.

Andrew Dudum (Co-Founder and CEO)

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 brand, 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're not just focused on providing access to treatments, we're 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 1.2 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 brand, which drives consumer demand. Through the growth of our consumer base, we're able to gather insights and feedback to garner better personalized customer care and preferences that help us refine our technology platform, which then informs our product roadmap to deliver access to more personalized products and treatments. All of this done in partnership and collaboration with leading clinical and pharmaceutical specialists enables an experience which we believe is unlike anything available in the market. The development of our trusted brand is critical to our ability to drive and retain consumers on our platform through increased awareness and deep relationships.

It allows us to secure strategic partnerships with leading retailers and celebrities. These partnerships enable us to deploy a powerful omnichannel approach, reaching consumers at multiple stages and in multiple forums during their journey towards improving their health and wellness. In the first quarter, we partnered with Kristen Bell as our mental health ambassador for the Hers platform. Kristen's reputation as a trusted figure and her ability to authentically talk about her mental health struggles resonated with customers and made dealing with mental health challenges more approachable for thousands of people. This, paired with our multi-platform marketing approach, resulted in record-level acquisition in our Hers mental health offering for the first quarter. Our platform has enabled the Hims & Hers brands to scale across numerous offerings, including men's health, women's health, dermatology, and now mental health.

With our diverse offerings, we're able to speak to a broader set of consumers earlier in their health and wellness journey in an efficient manner. Our multi-category campaigns have been instrumental in building awareness of the wide array of solutions on our platform. We're excited to continue this momentum and to create more engaging content that speaks to the needs of our customers across different conditions. As our platform continues to scale, we will deploy our leading technology to leverage unique insights, delivering access to world-class care for our customers and best-in-class tools for our providers. In the first quarter, we made a number of updates to our platform to ensure customers have an easy-to-use, educational, and personalized experience.

The rollout of account management tools made it more seamless for our consumers to get the treatments that they need at the cadence they desire and in a broader variety of form factors to meet their needs. Additionally, we were pleased to see conversion across several offerings increase as consumers experienced more personalized and specialized onboarding experiences. Through the power of scale, our platform generates insights that are enabling us to deliver an expanding number of innovative products and services that customers love. Our over-the-counter products are a great example of this and have become increasingly popular, especially our hair care products. In the first quarter, we added a new anti-dandruff shampoo for Hims customers, which expands on our existing line of men's hair care products and can be bundled with our prescription offerings.

Moving to our more personalized products, we strive to provide customers with access to treatments that fit in their diverse needs. In February, we launched Hard Mints by Hims, a personalized men's sexual health solution, which was met with tremendous consumer response. The ability to obtain a customized treatment, beautiful and discreet packaging, and best-in-class provider services are resonating with our consumers. We feel that personalization of products and services is the way of the future, and you can expect more launches from us throughout the year. In the second quarter, we expect to expand access to personalized solutions for hair regrowth on the Hers side of the business. It's often believed that hair loss is caused simply by factors like aging or stress, and is not necessarily understood as a medical condition that can be treated.

From our customers' feedback, we've learned that this can lead to women feeling anxious and ashamed. We're incredibly proud to be working on future offerings that provide a more personalized treatment to help remove barriers around seeking help. Finally, we view the integrity of clinical excellence on the platform as critical to every decision we make. In the first quarter, we deepened our medical bench with the addition of Dr. Dan Lieberman as our SVP of Mental Health. Dr. Lieberman will oversee our psychiatry and mental wellness strategy, working to ensure this offering continues to maintain high clinical excellence as we work towards more innovative solutions for customers. We are confident in our platform's ability to help users access treatment across a broader set of conditions. Medical expertise to ensure both efficacy and safety is central to our ability to do that effectively.

That is why we've added five new experts to our medical advisory board that bring expertise across conditions such as weight management, menopause, and cardiometabolic health. We are proud of the execution at the start of this year across our four strategic pillars and the strong performance that has come as a result. This has enabled us to attract talent at all levels of the organization. In our first quarter, we welcomed a new SVP of product and continue to further augment leaders across each of our functions. Christiane Pendarvis joined our Board of Directors. Christiane brings over 25 years of experience leading global consumer and retail brands, including Old Navy and Victoria's Secret, and is a proven customer-centric leader with a track record in helping brands drive growth.

She's currently the Co-President and Chief Merchandising and Design Officer for Rihanna's Savage X Fenty, a revolutionary intimate apparel brand known for its focus on inclusivity. In just a short period, Christiane's expertise has added significant value as we work to help the world feel great through the power of better health. We made significant progress in Q1 across all facets of the business and have tremendous confidence in our ability to continue to expand our market leadership position and drive long-term growth. Given the strong customer demand we're seeing and the scale that we are generating in our model, we are raising our 2023 guidance and now expect to achieve revenue growth of 54%-58% and Adjusted EBITDA profitability of between $25 million and $30 million.

Our platform is scaling in a unique way that is enabling us to leverage economies of scale that we believe few others can. Over 60% of our orders are fulfilled through affiliated pharmacies, and we expect that number to continue to increase as we progress throughout the year. We're excited to reinvest back into the customer experience in a way that drives more value to a broader consumer base in a way that is truly unique. I want to especially thank our teams throughout the organization for their passion and hard work, which is helping us drive robust and consistent results across the business. Equally important, we greatly appreciate the continued support of our customers and shareholders.

We look forward to delivering strong growth and profitability and building increased shareholder value for all of our stakeholders over the long term. I'll turn the call over to Yemi to discuss the financials and provide more detail on our increased outlook for 2023.

Yemi Okupe (CFO)

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 future outlook. We are proud of our results in the first quarter, which showcase 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 in men's health continue 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 169,000 quarter-over-quarter to over 1.2 million, representing an increase of 87% relative to the first quarter of 2022. Our omnichannel 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 omnichannel strategy, seamless onboarding, and account management features are working as intended. We look forward to continued innovation across each of these areas. Online revenue growth also benefited from higher monthly online revenue per average subscriber. Monthly online revenue per average subscriber in the fourth quarter was $55, up 6% relative to the first quarter of last year. Higher revenue per subscriber demonstrates that we're able to continue to expand our subscriber base while also maintaining high subscriber quality. We are pleased to see our user base continue to express interest in establishing long-term relationships with us. The share of multi-month subscribers increased to an all-time high of 75% in the first quarter. Wholesale revenue was $6.6 million, representing a modest decline of 9% relative to the first quarter of 2022.

Efficiency across the organization is at an all-time high. We surpassed 60% of orders fulfilled through our affiliated pharmacies in the first quarter of 2023 and expect over 80% of our orders to be fulfilled via affiliated pharmacies by year-end. The combination of longer duration subscriptions and an ability to capture increased benefits from economies of scale resulted in more than a 1 percentage point quarter-over-quarter increase in our gross margins to 80% in the first quarter. We are pleased by the strong execution of our operations team and expect there is more opportunity to unlock in the future. However, we have actively started to test ways to strategically redeploy a portion of these gains into improving the overall customer experience. As those efforts scale, we expect gross margins to normalize in the mid-70s. Shifting gears toward other elements of our cost structure.

Marketing as a percentage of revenue, excluding stock-based compensation in the first quarter, was 50%, stable with the fourth quarter. Increased investment was made in the first quarter toward educating users earlier in the life cycle around the offerings across Hims and Hers, as well as in our partnership with Kristen Bell. Many of these investments are longer term in nature, but we are pleased by the recent success of our efforts. As such, we'll be investing opportunistically to expand awareness of our newer products and offerings, as well as ensuring our voice is heard across the most culturally relevant moments in society. No change will be made to adherence to our capital allocation model, which calls for a payback period of less than one year on our collective marketing investments.

Operations and support costs as a percentage of revenue, excluding stock-based compensation in the first quarter, came in at 13%, stable with the fourth quarter. Moving forward, we expect to see efficiency gains as a result of greater fulfillment via affiliated pharmacies, benefits from economies of scale, and leverage on overhead. Technology and product development costs as a percentage of revenue, excluding stock-based compensation, came in at 5% in the first quarter, stable to the fourth quarter. We expect investment in this area to expand as we launch new technologies on our platform to provide improved customer experiences and enable us to better incorporate feedback to improve our product and services.

General and administrative costs as a percentage of revenue was 16% in the first quarter, representing a six-point improvement relative to the first quarter of 2022 and flat with the fourth quarter as we ramp up headcount growth. Excluding the impact of stock-based compensation, G&A costs were 10% of revenue in the first quarter, representing a five-point year-over-year improvement from 2022. Given the growth of our platform, the reality is that our organization will also need to grow. However, we will continue to grow in a disciplined and thoughtful way. As such, we see further opportunity for leverage on our G&A expenses in the future. Solid execution and disciplined expense management enabled us to increase Adjusted EBITDA $2.2 million quarter-over-quarter to $6.1 million in the first quarter.

Adjusted EBITDA margins were 3% in the first quarter, representing an improvement of 1 point relative to the prior quarter, a 9-point improvement to the first quarter of 2022. Our Adjusted EBITDA performance enabled us to drive cash flow from operations in excess of our capital expenditures. This resulted in a $4.8 million quarter-over-quarter increase in our cash and short-term investments to $184 million. As previously mentioned, 2023 is off to an incredible start. The strength of our flywheel only continues to increase. More consumers than ever are choosing Hims & Hers as a result of our trusted brand. Our technology enables us to provide them with access to personalized solutions and treatments in direct response to their feedback, which we feel will result in increased adherence and better outcomes.

At a time when others are pulling back, the resilience of our consumer base and durable recurring revenue model enable us to lean in. Strong efficiency across the organization has allowed us to efficiently reinvest, unlocking an ability to establish a leadership position in a market that we feel has substantial opportunity. We see consumers increasingly seeking personalized products and services on our platform and are energized by the pipeline of what is to come. Given the strong performance in the first quarter, the recurring nature of our business model and all of the aforementioned dynamics, our perspective on the trajectory of our business in 2023 has meaningfully changed relevant to last quarter. We've made substantial changes to our 2023 outlook to reflect these dynamics, which I will now walk through.

In the second quarter, we are anticipating revenue in the range of $200 million-$205 million, representing a year-over-year increase of 76%-81%. On the bottom line, we expect Adjusted EBITDA to be between $4 million-$7 million, representing an Adjusted EBITDA margin of 3% at the midpoint of both ranges. For the full year, we are anticipating revenue between $810 million-$830 million, representing a year-over-year growth rate of 54%-58%. The midpoint of our updated range is $75 million higher than our prior range, reflecting the previously mentioned dynamics. We have narrowed our 2023 Adjusted EBITDA range to $25 million-$30 million, reflecting higher top line and increased efficiency, balanced by increased investment to take advantage of market opportunities and improvements to our customer experience.

These Adjusted EBITDA and revenue ranges result in an Adjusted EBITDA margin of 3% at the midpoint of both ranges. The assumptions behind our full year outlook remain unchanged. As a reminder, these are: we are able to maintain long-term retention rates above 85%. We continue to achieve payback periods of under one year on our marketing investments, and we start to see traction with an expanding portfolio of personalized products and services that we expect will continue to launch throughout 2023. We are pleased to kick off the year with such powerful momentum. Our ability to drive strong and profitable growth is a clear signal that our capital allocation strategies and flywheel are forming a magical combination. As the year progresses, we look forward to updating you on our performance and continued progress across our strategic pillars.

Our ability to drive strong results is powered by those that support us. I'd like to thank our customers, partners, and employees for helping us deliver these outstanding results, and we look forward to continuing to update you on our progress. As a reminder, I will be hosting the Q&A this quarter, as Andrew is currently on paternity leave. With that, I'll now turn it over to the operator to open the call to questions.

Operator (participant)

At this time, if you would like to ask a question, press star followed by one on your telephone keypad. Your first question is from the line of Jack Wallace with Guggenheim Securities. Your line is open.

Jack Wallace (Director of Equity Research)

Thank you for taking my questions. Congrats on a great quarter. Congrats to Andrew Dudum and his family. That's amazing news. Yemi, just wondering if you could give us some color on how the yields on your CAC spend have trended over the last, say, four to six quarters. I'm thinking about the mix shift from, you know, away from the targeted digital ads towards more brand awareness TV campaigns, and some of the ambassador that you've brought online, including, you know, Kristen Bell. Any color there would be very helpful. Thank you.

Yemi Okupe (CFO)

Yeah. Hey, Jack. Thanks for the question. I think it's natural for CAC 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, you know, we talked about how we leaned in in the back half of last year. We continue to do that in the first quarter of this year. Really what we're starting to do is now just diversify the number of channels that we're in. What you can expect for us to do increasingly over time is to continually lean more into, you know, the ambassadors as well as the brand awareness campaigns. Our belief is those are gonna generally take a longer time to pay back. They're more long-term investments.

That said, I think collectively, we're still confident in our ability to maintain the one-year payback period. 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.

Jack Wallace (Director of Equity Research)

Actually, that's helpful. 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 new customers. Thank you.

Yemi Okupe (CFO)

Yeah, 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. 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. 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 that we expect to launch throughout the year. Shortly, we do expect this quarter to launch offerings across our Hers hair business as well.

Jack Wallace (Director of Equity Research)

Excellent. Thank you. Congrats again. I'll hop back in queue.

Yemi Okupe (CFO)

Great. Thanks, Jack.

Operator (participant)

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

Dan Clark (Equity Research Associate)

Hi. Thank you. This is Dan Clark on for Mike. you know, just wanted to get a sense, we've seen a lot of color from some other folks this earnings season around, you know, an increase in utilization across healthcare. Is there any way that you can parse out, like, if you saw a benefit from utilization in the quarter? Would you say your core product sort of exists like outside of that? Thanks.

Yemi Okupe (CFO)

Yeah. I think what we've seen is across, you know, a multitude of different environments, user demand for our products continue to, you know, increase. I think our conviction is agnostic to, you know, the broader environment, just given how early we are on in the life cycle. Users are continuing to opt for our product. 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, you know, 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.

Dan Clark (Equity Research Associate)

Got it. Thanks. Then just on taking up the 2023 guidance or the annual change in trajectory, you know, how should we think about the 2025 targets just with the new 2023 guide here? Thanks.

Yemi Okupe (CFO)

Yeah, I think 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 is it's more of a floor versus a ceiling. 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.

Dan Clark (Equity Research Associate)

Great. Thank you.

Operator (participant)

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

Glen Santangelo (Managing Director)

Thanks for taking my question. Yemi, I think there's gonna 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, yet you raised the EBITDA range at the midpoint by only $2.5 million, right? I think people are gonna question, you know, where's the incremental leverage? I think you sort of touched on it a little bit talking about incremental operating expenses in the quarter, some marketing, improving customer experience.

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, you know, 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, you know, the current level of revenue growth? Sort of any commentary around that would be helpful.

Yemi Okupe (CFO)

Yep. Great question, Glenn. I think at this time, like we really do want to maintain flexibility. We're pretty early on in the year, and we just see an immense amount of opportunity ahead for us. Really, I think as we take, you know, 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. 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.

We just see so many different opportunities where we have room to deploy capital whilst still 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 foundation for new categories. There's a lot of different areas that we, you know, 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. I think while we'll make those investments through 2023, the confidence in our ability to, you know, meet or exceed the $100 million EBITDA target in 2025 still remains unchanged.

Glen Santangelo (Managing Director)

Okay, perfect. Maybe if I could just ask one follow-up on. 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 gotten a disproportionate amount of questions on sort of weight management. I think in the prepared remarks, I think Andrew mentioned that you added experts to the medical board in weight management, menopause, and cardiometabolic health. You know, is that sort of like a precursor to ultimately moving into those categories? Obviously, weight management is the one that people are sort of focused on, but, you know, given the high price of those drugs doesn't seem consistent with sort of your cash pay model. I was wondering if you could just provide some clarity around those comments. That'd be helpful. Thanks.

Yemi Okupe (CFO)

Yep, sure. I think we've you know, we said I think there's several categories that we, you know, do view as exciting, whether that's expanding the offering across men's health or women's health. Weight management is a category that we do see, you know, as exciting, and it carries many of the characteristics of the conditions on our platform, chronic in nature, and then it's also very emotionally resonant with users on the platform. We do see ourselves, you know, eventually entering that category. Again, I think it's pretty early innings, and we're gonna do so in a very disciplined and thoughtful way that adheres to the standards of our platform.

The recruitment of the experts, you know, will enable us to, you know, at some point enter that category effectively, and we'll continue to update you as we, as we get more clarity there.

Glen Santangelo (Managing Director)

Thanks for the comments.

Operator (participant)

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

Korinne Wolfmeyer (Senior Equity Research Analyst of Beauty and Wellness)

Hey, good afternoon, 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 expand on, you know, the different drivers behind that? You know, 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. As we think about, like, the cadence of sequential growth of subscribers throughout the year, can you just touch on, you know, how we should be thinking about cadence and if we should expect some sort of deceleration in that sequential growth as we progress? Thank you.

Yemi Okupe (CFO)

Yep. I think on the first, you know, the first element of the equation, I think that we started the year off very, very strong. I think as a result of the momentum that we see in Q1, given the fact that the vast majority, 90%+ of the revenue is recurring in nature, that will naturally cascade into subsequent quarters throughout the year. Some of the momentum we're gonna get just inherently from the strong foundation that we've built in Q1. As we also just look at some of the dynamics that we've seen across, you know, so, you know, many of the categories that we're already in with respect to proprietary products, we've seen, you know, an uptick in, you know, overall user adoption on that front.

Just with some of the newer offerings coming across, you know, some of the categories that we talked around earlier, such as Haircare, we're confident that we can, you know, see, you know, continued subscriber growth throughout the year. That gave us the conviction to elevate the guidance expectations. With respect to 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, you know, throughout the year is going to be primarily on the subscriber growth.

Korinne Wolfmeyer (Senior Equity Research Analyst of Beauty and Wellness)

Very helpful. Thank you. 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've been talking about adding more innovation in the products, and as you do that could pressure gross margin a little bit, head into the kind of like the mid-70s range. Can 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 gonna start to see some sort of pressure in later in the year, or is that really gonna be a 2024 or 2025 event? Thank you.

Yemi Okupe (CFO)

I think that's a great question. Thanks for the question, Korinne. I think that what you can expect to see is, you know, the same dynamic that we had throughout last year where, you know, 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 six points. We do see that there is still significant opportunity on our operations to continue to get efficient. From time to time, like the margins will probably. You know, it's not gonna necessarily be just a straight line down to 75%. It will take us time to, you know, proactively identify what are the opportunities that are most accretive to the platform.

This is not something that's necessarily going to happen in a quarter or two. I think it will take place over several quarters. I think also just, you know, the framework that we use as we think around setting our long-term targets is we definitely do wanna pass value back to our consumers in a way that's thoughtful and accretive to the platform. While doing that, you know, effectively, that will take some time to do, and then the margins will start to come down as we identify those opportunities.

Korinne Wolfmeyer (Senior Equity Research Analyst of Beauty and Wellness)

Awesome. Thanks so much.

Operator (participant)

Again, if you would like to ask a question, press star followed by the one on your telephone keypad. Your next question is from the line of Luis Mario Higuera with Citi. Your line is open.

Luis Mario Higuera (Senior Equity Research Associate)

Hey, thanks for taking a question. This is Luis on for Daniel Grosslight. I just wanted to ask, what levers are you employing to drive additional engagement among your current more tenured subscribers? Thank you.

Yemi Okupe (CFO)

I'm sorry, Luis. I don't think I caught the question. You cut out for a minute for me.

Luis Mario Higuera (Senior Equity Research Associate)

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

Yemi Okupe (CFO)

Yep. Thanks for the question. I think at this point in time, the current focus is really around, you know, 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, you know, thus far 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 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, naturally, upsell opportunities will start to emerge.

Luis Mario Higuera (Senior Equity Research Associate)

Thank you.

Operator (participant)

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

Speaker 10

Hi, this is Jenny on for Jailendra. I wanted to follow up on your weight management category. What will make you change your company's approach considering some of your competitors have been more aggressive there? Can you help us understand how does the economics really work considering the all these new branded drugs? Is it all about getting more consumers and subscribers on the platform? Some color on that. Thanks.

Yemi Okupe (CFO)

Yeah. I think that, you know, the elements, you know, that would make us, you know, 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 way that's safe, you know, and effective, and also ways that way where we can add value to, you know, the overall category. Like, what we're not after is just to be a me too, just because the competitive set is offering it. We really wanna bring the distinct capabilities of the Hims & Hers platform to e-enable something that's differentiated. Ultimately, you know, 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 economics specifically would work.

It's something that we're, you know, researching in diligence, but there are a multitude of ways to do it. I think we're very much in the early innings of that story. 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. Ultimately, we view that that will probably be a more successful path over a longer duration.

Operator (participant)

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

Speaker 9

Hi, it's Maxine 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.

Yemi Okupe (CFO)

Yep. Thanks, Maxine, for the question. I think that, you know, payers and insurance is something that we, you know, continue to explore. I think it goes alongside all of the different avenues that also we could invest in. I think at this point in time, we've opted to, you know, 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 gonna 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.

Operator (participant)

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