And so as a result, what we are seeing is that often times many of these are able to scale at an even faster pace than some of our more tenured categories historically have, just because we’re able to take the learnings across things like marketing, segmentation, messaging, personalization and so forth and embed that into how we operate and run the newer categories.
Jack Wallace: Thank you. That’s helpful. And then, you know, one thing maybe I didn’t hear you, you say explicitly, but I’m guessing is part of the outlook is that there’s going to be the potential for some cross-selling with insider base. And as model jockeys are updating our outlook in response to strong, you know, fourth-quarter results in the guide, just wondering if there’s maybe any change in the growth algorithm between subscriber growth and your revenue per subscriber going forward? Thank you.
Yemi Okupe: Yes. At this time, our focus still remains on expanding the subscriber base. I think as Andrew mentioned in his prepared remarks, as well as I think in one of the questions previously, the overall TAMs across the specialties that we serve are massive. And so, while we’re impressed with having, you know, over 1.5 million subscribers on the platform, the reality is there’s a 100 million users across the country that are suffering from these specialties in some form or fashion. And so the ability to break down barriers and capture those is something that we view we’re very much in the early innings of, and so subscriber growth will be the focus. That said, you are starting to see us innovate with the personalized offerings something like MedMatch, where we’re starting to roll out things like multi-condition treatments.
We’re also starting to think through, you know, what are potential offerings that a user can simply get treated for multiple things. And as we start to do that, I think that there will be a pretty sizable unlock. But the primary focus today remains on ensuring that across each of the specialties, consumers have an amazing experience and subscriber growth is the primary metric.
Andrew Dudum: Jack, maybe I’ll just add one thing there. I think in some ways, you know, as the company’s capabilities at the pharmacy continue to improve, and as Yemi said, we’re launching, you know, dual-action capabilities, triple-action capabilities. We’re treating, you know, for example, on weight loss, many of the underlying conditions or causes of weight gain. You know, it’s the platform, I think is moving a little bit away from the simplistic concept of maybe cross-sell and more towards — you know, more holistic care in that single offering. So we might be treating you for men’s sexual health, but we’re also treating you for cardiovascular risk profile. And that is a personalized offering with dual action capabilities, might not fall as cleanly into a simple cross category cross-sell, but very much is a much deeper relationship with the customer in a way that is offering multiple categories, multiple conditions, and ultimately, we believe it’s a much stickier relationship.
Jack Wallace: Got it. Makes sense. Thank you.
Operator: Your next question comes from the line of Glen Santangelo from Jefferies. Please go ahead.
Glen Santangelo: Hi, yes. Thanks for taking my question. I actually have one for each of you. Andrew, I want to start with you and talk about weight loss a little bit. It sounds like some of the initial exuberance around the potential to eventually sell GLP-1s, that sort of died down. But it sounds like you’re getting a lot of traction here, and I’m kind of curious, could you give us a little bit more in terms of the products that you’re offering here and sounds like you’re doing some personalized treatments. And I’m kind of curious as to how you’re doing that and how you’re pricing for that product because it sounds like it’s been a nice upside surprise for you?
Andrew Dudum: Yes. Thanks, Glen. You know, we’re really excited by the launch. We partnered and brought Dr. Craig Primack into the company a couple of quarters back. And since then have been really refining what we believe is a great clinical offering. That goes under the hood of traditional weight management, and more of what you’d find at a very high-end obesity specialist, right? Somebody who is used to understanding the underlying causes of your weight gain. This could be things like insulin resistance, metabolic disorders, eating habits, depressive binge dynamics, and treating those things directly, which we have great confidence, have a meaningful clinical efficacy in helping people not only shed the weight, but also something that’s sustainable and something that you can stay on repeatedly for a long period of time.
That offering, I think, is something we’re excited by in addition to because it’s also a mass-market offering, right? We’re pricing that in the range of $70 per month, which is a simple cash price that has the holistic care of the platform, the obesity specialist access, constant interaction and adjustment to your treatment, as well as the personalized compounded treatments delivered to your door. So we think it’s incredibly valuable. We think the holistic offering, including the mobile application and the content is really compelling and has a role of efficacy. And it’s not to say that, you know, we’re not still excited by the GLP-1. We very much expect those to be on the platform and would expect in the coming years for those to contribute very meaningful growth to the business.
It’s — I think, very energizing to see the efficacy of those. But we are also pretty excited by the model that we brought to market as a first iteration and plan to continue to expand the portfolio and expand the offering and believe ultimately, this category is going to be a massive contributor to growth. And I think we are very encouraged by the response thus far that allows us to say that. With the amount of people struggling, it’s very clearly a really big opportunity to help a lot of people.
Glen Santangelo: That’s super helpful. Thanks for the detail. Hey, Yemi, I just wanted to ask about the monthly online rev per subscriber. It ticked down a little bit sequentially. But if you look at the average order value, that was up pretty meaningfully year-over-year, and also pick up sequentially. So I’m wondering if you could just sort of reconcile those two data points maybe and give us a sense for is anything changing with respect to mix or subscription duration or price or anything that would reconcile those two data points?
Yemi Okupe: Yes, I think it’s a great question, Glen. I think it’s a combination of the factors that you had outlined. I think that we see really, as customers tend to go to longer duration subscriptions. Those tend to have higher average order baskets, but also come with an exchange for a longer-term commitment. Generally a lower monthly rate. And so you sign up for more at once so you get a lower monthly rates. So we are seeing, as a result of some of the pricing changes that we made in Q2, a greater share of users opting for subscriptions that are longer duration in nature. And then there’s just from quarter-to-quarter, there is adjustments that happened the overall product mix. But we would say just looking at a lot of the movements that we’re seeing are — tend to be within the course of normal and it’s been relatively stable over the last couple of quarters.
Glen Santangelo: Thank you.
Operator: Our next question comes from the line of Jailendra Singh from Truist Securities. Please go ahead.
Jailendra Singh: Thank you and thanks for taking my questions and congrats on a strong quarter end guide. My first question around balance sheet and cash flow trend. Just wondering if you’re willing to share your 2024 free cash flow expectations. And related to that, I just wanted to get your thoughts on the capital deployment, $220 million cash and short-term investments on your balance sheet? How do you think of deploying cash? You talked about internal investments, just curious if you have any plans to get back in the mix on M&A and if there are certain capabilities or areas you plan to focus when it comes to M&A?
Yemi Okupe: Thanks for the question, Jailendra. I think that we do like the optionality that cash provides on the balance sheet. That said, I think the reality is like we are seeing the operating cash flow that we’re generating as well as the free cash flow that we’re generating, accelerate pretty meaningfully with north of $70 million of operating cash flow, delivered last year. I think in terms of how we think around the priorities, as mentioned, we do see meaningful opportunity to introduce new capabilities into the affiliated pharmacies both in the form of additional capacity, as well as a broader set of personalized offerings across the ecosystem. And then what we also do then see is there is the opportunity for M&A. We’re going to hold a high bar for that.
I think the types of profiles of deals that we would look to potentially consider would be somewhat of what we’ve done in the past, where it’s extending a new capability or expanding a new opportunity, similar to what a posture be provided, but that probably would be the order where we would leverage the balance sheet for capabilities/capacity, personalized offerings, followed by some of the automation efforts that we talked around to increase the overall efficiency across the pharmacies. And then lastly, I think that we will be opportunistic with M&A, but it’s going to be primarily centered around the expansion of new capabilities as opposed to the acquisition of revenue.
Jailendra Singh: That’s helpful. And then my follow-up is related to your comments around remaining flexible around incremental pricing adjustments in future. Can you help us with some of the key trends or metrics you will focus on with respect to your decision to do these adjustments in the future? I’m also trying to better understand your assumptions around the competitive environment as part of your ’24 guide.
Yemi Okupe: Yes, it’s a great question. So I think in our shareholder letter, we did provide some visibility into some of the competitive dynamics that we are seeing. And we’re quite pleased by — many of the actions that we took in 2023 that enabled us to effectively draw new users into the ecosystem, which resulted in greater market share capture. As we look to make pricing decisions, like we consider several factors. But ultimately, at the end of the day, like what we are looking for is does it yield a higher net present value across the category, and that comes in the form of a higher LTV on each individual user where retention more than likely goes up to offset the pricing degradation or were able to draw a different user mix or more users in the ecosystem.
And so the changes that we saw in the second quarter of last year really were a reflection of a couple of quarters of testing to get that right. And so we’re continuously experimenting now to identify like what is the right mix to pass through some of that value to consumers. But it generally is expected to be those actions NPV accretive to any given specialty that we have.
Jailendra Singh: Great, thanks a lot.
Operator: Your next question comes from the line of George Hill from Deutsche Bank. Please go ahead.
George Hill: Hey, good evening guys and thanks for taking the question. I kind of wanted to piggyback on Jailendra’s line of questions there, which is as we think about the pricing action that you guys are looking to take and are taking, I guess, I mean, is there any way to talk about like what should we think of as the benchmark, I guess, I’m just try I’m trying to get more color on how you guys evaluate the pricing action, so we can evaluate kind of the market dynamics the same way that you guys do? I don’t know if it’s comparable prices at retail pharmacies. Is it cash prices? Is it like what’s happening with underlying generic drug costs? I guess just would just love any more information that you could give us around like kind of the inputs in the pricing decisions.
Yemi Okupe: Yes. I think it’s less around — I think it’s less around what’s happening with the external environment. And I think it’s really more around running experimentation across the ecosystem. I think now with the — the model is having 1.5 million subscribers on the platform. That gives us the ability to run several experiments at any given point in time. From that, we’re able to determine what the changes are those resulting in the types of behavioral patterns that we did see. And then we’re also able to estimate with our data science teams, is that likely to be long-term accretive and how much. And so I think it’s really more of experimentation of opportunities across our platform and then really leaning into that versus trying to compare to external factors because the offering that we are increasingly bringing to market is so different. And Andrew, not sure there’s anything you wanted to also out there as well.
Andrew Dudum: No, I think that’s right. I mean, I think, George, there’s really not a lot of focus with regard to maybe specific drug pricing or cost to generics or costs for cash paid. Because as Yemi said, the holistic offering that patients are getting from access to provider visits constant iteration and treatment, the delivery of the treatment content, that whole thing is really incomparable to a specific drug treatment. I think in addition to the experimentation and optimization of kind of a longevity lifetime value analysis, which Yemi was speaking to. I think there’s also just a very first principle perspective around understanding that in the core specialties we operate in, there are 100 million-plus people suffering.
And so when you don’t want to go after a mass-market opportunity, right, where we don’t aim to bring 500,000 new subs on the platform, we aim to bring 5 million or 10 million new subs on the platform. There’s just an understanding that as you can leverage your scale and efficiency and bring that back into a customer’s pocket, you are unlocking different demographics and segments. And I think as we expand the portfolio of offering, you’ll see be expanding both on the high end for more of the premium experience as well as more on the mass market experience to give people that flexibility and welcome them into the tent.
George Hill: That’s super helpful. If I could just have a quick follow-up, Yemi. Just do you guys know what percentage of users pay for the subscription with either an HSA card or FSA card?
Yemi Okupe: I don’t think we have that direct visibility at this time. I think the vast majority of our users, as we stated previously, do you have insurance. And so — but I don’t think we have the direct split of how many are using an HSA or FSA card.
George Hill: Thank you very much. Thanks, guys.
Operator: Your next question comes from the line of Korinne Wolfmeyer from Piper Sandler. Please go ahead.
Korinne Wolfmeyer: Hey, good afternoon, guys. Thanks for the question and congrats on a really good quarter. I want to touch a bit on the gross margin, again and kind of what you’re embedding into expectations here for 2024. So you have taken some pricing actions that you’re also seeing some scale benefits and other things that are offsetting. So is it fair to assume that gross margin should maybe still be expanding in ’24? And then start contracting and moving down towards that 75% long-term that you’re talking about? Or how should we be thinking about the trajectory there?
Yemi Okupe: Yes. So I think the path to kind of the mid or the mid-70s that we’ve guided to is definitely going to be probably more of a multiyear journey like that’s not going to happen over the course of like a couple of quarters. We do see some pretty amazing opportunities in front of us to also continue to drive efficiency, whether that’s in the form of GIST, volume negotiated rates that we have across our supply chain ecosystem or continued process improvements like looking to get more and more efficient around those as well as just the ability to automate from scale. We’ll continue to evolve that over the course of several quarters last year. But then as mentioned, like we’re actively looking for ways to give back to consumers.
But like that does take time to identify what are the most optimal opportunities, and we’re going to take our time to do that. And so the past to 70 is not going to happen over the course of one or two quarters or even a year, it’s likely to be a multiyear journey.
Korinne Wolfmeyer: Got it. Very helpful. And then is there any color you can provide on the wholesale revenue this quarter? I know it’s a small piece of the business, but it did grow pretty notably. So anything to call out there? And then as we look forward and model forward, is Q4 kind of the proper run rate to build off of? Or should it be a little bit weaker going forward? Thanks.
Yemi Okupe: Yes. I think the wholesale channel is one that remains more strategic in nature for us. I think it’s a relatively small percentage of the business. We do still be very much a strategic for us bringing eyeballs to the platform, but as we started to have found other mechanisms, namely in the form of brand spend, while still important, the impact of that is not necessarily to the same degree that it historically was. And so I think that the guidance that we can provide is that we’re not necessarily actively looking to expand that channel proactively. That said, there are periods where a new merchant or a new supplier might want to be one of our offerings and system of what we saw in Q4 as a result of that. But that is not an active channel that we’re seeking to rapidly expand.
Korinne Wolfmeyer: Very helpful. Thank you.
Operator: Your next question comes from the line of Ivan Feinseth from Tigress Financial Partners. Please go ahead.
Ivan Feinseth: All right. Thanks for taking my questions, and congratulations on another great quarter and year and the great outlook. As you start to work with patients that are using GLPs as people start to reduce — significantly reduce their food and caloric intake, it’s going to create nutritional and even protein deficiencies. How do you feel — what do you feel your opportunity is to introduce products to help them manage that? And how would you foresee, let’s say, the adviser for the doctor or the provider cross-selling or recommending products like these?
Andrew Dudum: Thanks, Ivan. I think it’s a great question. We — I think we holistically believe that we can bring to market for each of these categories the true necessities of what is needed for success. And I think each of the categories likely has a different set of components for that. I think in obesity management, to your point, there’s a pretty wide range. There’s often pharmaceutical intervention that helps make it easier. There’s very clear caloric and nutritional necessities. There’s basic movement necessity. There’s water intake. There’s mental health and sleep. There’s protein supplementation. You think about a business like Weight Watchers that’s been around for a very long time, and it’s that north of 3 million subscribers for decades, right?
I think that business approached it with a couple of the components. I think — we have the privilege as a consumer-oriented brand and really building these offerings ourselves holistically to be able to go to market in a wide range. So I could absolutely imagine Hims & Hers having supplementation offerings, having food replacement offerings as part of the core obesity offering that we launched, there’s a fairly holistic recipe nutritional information and guidance. So I think this category is one where you really need all hands on deck and there’s often five or six components to what makes that puzzle really come together and be successful. And so I think you’ll see us as we continue to scale this to evolve the offering and expand the offering to fill a lot of those different needs.
Ivan Feinseth: Then one more question. Congratulations on the great year-over-year subscriber growth. Do you have any kind of data you could share as far as how you see once the subscriber joins, how they ramp up their purchases, how — what the percentage year-over-year change is how much a subscriber when they go from one to products to two products, et cetera?
