Hims & Hers Health, Inc. (NYSE:HIMS) Q3 2022 Earnings Call Transcript

We do see that we do see benefits come in the form of whether that’s higher retention or faster customer acquisition. Over time, what will happen is we expect margins to expand, and then we’ll provide additional clarity around what we expect in 2023 as well as more in the midterm on the next cycle of earnings call.

Jonathan Yong: Okay. Great. And then just in terms of — when we’re thinking about the possible — possibility of a recession, you guys are obviously performing very well against that macro backdrop. Is this actually benefiting you to some extent in terms of, say, the mental health side accelerating more than you previously anticipated? Any color there would be great.

Andrew Dudum: Thanks, Jonathan. I think, generally speaking, what we’re seeing is that, as other players in the market, both competitors and noncompetitors, are obviously pulling back and retreating, it creates a really powerful opportunity for us to take a disproportionate amount of share, mind share, message, voice in the market about the differentiated offering that we have. And so I think we’re really investing from a place of strength despite the macro headwinds. And I think a big part of the acceleration, to your question, is the fact that we’re focusing on conditions and categories and services that are highly emotional, right? These really impact people’s lives on a daily basis when they wake up in the morning, like things like mental health, how you feel in your own mind, how you feel in your own body, how you feel when you look in the mirror, how you feel with relation to your partner and your household.

So I think it’s really the emotional nature of them, the high-sensitivity nature of these conditions that really impact people’s lives. And that’s something that even in recessionary times is proving to be incredibly meaningful to people. And so there’s really no concerning trends that we’ve seen across the base of the business. In fact, as the earnings would suggest, traffic to the platform is really at an all-time high. And so we hope that we continue to invest from a place of strength and, I think, come out of these headwinds in a position where we’ve taken a disproportionate amount of the share compared to the competitive landscape.

Operator: Our next question is from Korinne Wolfmeyer, Piper Sandler.

Korinne Wolfmeyer: Congrats on the quarter. So first, I’d like to just expand on gross margin a bit. Can you just dive a little bit deeper into the puts and takes of what was exactly driving that sequential growth there that you saw on that line item? And then how much of that do you think is expected to continue here into Q4 and then even the early parts of 2023, especially as the wholesale part of the business starts to become a larger mix?

Yemi Okupe: Yes, sure. Thanks for the question, Korinne. There’s a few factors that are driving the gross margin expansion. As you mentioned, a portion of it is just related to the overall mix between the online business and the wholesale channel. Additionally, like what we all said, what you see is we’re receiving a benefit from a couple of things. One is just, as we continue to scale, whether we opt to fulfill through our own affiliated pharmacies or as customers are also opting into longer-duration subscription, there’s the ability to start to bundle the offering and realize gains across those measures as well. And so I would say that a portion of it is definitely related to mix, but a substantial chunk of the gross margin gains are related to more of just the operational and product dynamics that are going on underneath the business.