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

Jack Wallace: Congrats on another really strong quarter. Just wondering if you could — just a follow-up on that last question. Does it — it sounds like the CAC dollars are getting to the, as you’re pointing out, to the scale where awareness is becoming a shift, but it also sounds like there’s incremental investments going on to the underlying business. And as we’re looking forward into next year, is it fair to say some of the growth dollars are shifting outside of the CAC bucket to support a more — a larger platform to be able to ingest the higher level of growth we’ve seen?

Yemi Okupe: Yes. Thanks for the question, Jack. I think, as mentioned, we’re constantly weighing initiatives across a whole host of variety of factors. This year, as mentioned, one of the reasons behind the step-up that you see in marketing throughout the year that we called out was the fact that we really wanted to experiment with new channels and dimensions and as we started to see success, namely, as Andrew mentioned in the long-term development of our brand, really continuing to pull on that thread. I think even the investment that you will see us make will go outside of the marketing bucket. We spent some time talking around some of the product innovation that we’re expecting to do, some of the work on fulfillment. And so really, what we do is we put all of these different investments across our capital allocation framework that meets the key elements we’re generally looking for, very attractive ROIs as well as reasonable payback periods.

And I think the combination of those things, that’s what’s propelling the confidence and the path to profitability that you see while also being able to maintain these investments in the long term. But I would say that the shift this year has already really started to happen towards a variety of different investments, and we’ll continue to look to leverage that so that we’ll continue to just, again, realize greater benefits from economies of scale as well as just the benefits that come from increasing and expanding footprint that we have relative to others in the marketplace.

Jack Wallace: Got you. That’s helpful. And then thinking about the internal fulfillment and R&D capabilities, we’re at 55% fulfillment in the quarter. Just thinking about the different structural puts and takes to gross margins going forward. Also, we’ve got shipping. It didn’t look like it was a big impact on the margin this quarter, but the price of energy and transportation has been going up globally. Just thinking about the different puts and takes structurally on that number, not necessarily trying to pin it to an exact percentage, but just trying to think about the impacts of in-sourcing more production, cost of shipping and potentially some of the higher human capital categories such as mental health, impacting the cost of goods going forward.

Yemi Okupe: Yes, I think it’s a great question. I think what we generally are weighing off at this point is namely around improvements that we can continuously make to the customer experience just to get that stickier. And so the rationale behind investing in things such as our affiliated pharmacies is also around trying to directly extract gross margin expansion, but really more around just taking greater control around the customer experience, which will lead to long-term benefits as well as gross margin expansion both from retention, and there is an efficiency benefit. I think the other lever, you are right, I think that there has been some degree of inflationary costs that have come into the ecosystem. The reality is we’ve been able to offset many of those through continuously conducting assessments for how do we get the overall operation more efficient as well as, again, just given the growth of the business, almost doubling year-over-year.