Hims is an online healthcare marketplace that conveniently connects patients and providers. Its specialties include sexual health, dermatology, mental health and weight loss.

Hims trades for 32x forward earnings and more likely closer to 27x-28x following this report. EPS is expected to grow by 156% Y/Y this year and by 41% Y/Y next year.

For several quarters, the theme of Hims investor materials has been the power of “personalization.” From the company’s beginning, it set out to create a “proprietary” electronic medical record (EMR) that enabled it to unleash its growing database and innovate with faster velocity. This core can ingest, organize and leverage all structured data to build customer data profiles, personalize touch-points and ensure higher quality care. Whether it’s adding vitamins into prescriptions that a consumer is deficient in, combining prescriptions into single pills, customizing dosing and titration schedules or selecting substitute drugs based on side-effect profiles, data and personalization help a lot. This becomes more true and more precise with scale.

The modern, data-fueled EMR offers more benefits to its ecosystem. Per Hims, the foundation “reduces administrative burden” by automating customer appointment summaries and helping with paperwork. Furthermore, this approach has enabled Hims to debut two additional products to augment the personalization value that it provides:

First, MedMatch is essentially the firm’s automated insight hunter and gatherer. It utilizes GenAI and machine learning algorithms to uncover valuable pieces of information to nudge best provider practices. Whether it’s understanding polypharmacy or other drug interaction issues, comorbidity concerns or something else, the added context makes them more informed and better at their jobs. This tool has been available for about a year, but is only now expanding to weight loss.

The newest tool to support its care personalization aim is called Clever Routing. One of the main value propositions that Hims provides is compelling drug pricing and easier, more convenient access. One of the ways that it can position itself to provide more savings and unique value over time is by making sure its own operations are as efficient and profitable as possible. That’s really where this tool comes into play. Clever Routing pulls from data profiles to route customer journeys based on specific needs. If a patient requires more expensive, real-time access to a provider, it will guide them accordingly. If a patient needs a response to an administrative message sometime in the next week, perhaps a cheaper customer service interaction will be sufficient. Clever Routing knows.

Let's stick with driving greater access and “democratizing” prescriptions for a moment. Hims allows providers to greatly expand their patient networks with modest incremental effort. And again, it gives them impactful data tools to use for their own care quality. This makes it doable for providers to interact with Hims patients a lot more than a traditional primary care physician relationship would allow. For context, patients routinely have text-level access to these providers. This is especially valuable for disciplines like mental health, where consistent interaction is needed. Weight loss is another area where this has a profound impact. Per Blue Health Intelligence, just 42% of GLP-1 patients are still taking the weight loss injectables after 12 weeks. On Hims, it’s 70%.

For the first time, 50%+ of Hims subscribers are now on personalized subscriptions while 65% of all new subscribers went with personalized plans too. These customers boast higher retention and higher lifetime value for Hims, making it clear why this shift is being pursued. And while success here is great, leadership will readily tell you that it’s “very early.” Much more to do across new specialties and combining medications for prescriptions across multiple specialties.

“In some subspecialties of women's dermatology, we are seeing annual retention increase by more than 20 points year over year. The mix of those utilizing a personalized solution increased 40 points year over year to approximately 70%.”

Hims CFO Yemi Okupe

The regulatory environment for GLP-1 drugs remains volatile and fluid. As a reminder, when drugs are on shortage lists, the FDA relaxes rules on compounding substitutes to sell to the public. Popular generic compounds (Dulaglutide, Liraglutide and Semaglutide) are all on that shortage list, which is good for companies like Hims. There is growing concern that supply chains are recovering (especially for Semaglutide) and that shortage designations will be short-lived. That could create new risk for this firm’s ability to sell GLP-1s. Notably, it doesn’t see these shortages being resolved in the near term. It called out 80,000 customers reporting inability to secure access recently and doesn’t see that list shrinking at all. It’s actually growing. Leadership also hinted at thinking it will be allowed to sell GLP-1s following shortage list removal, thanks specifically to the personalization approach it has taken:

“The Food & Drug Administration has long recognized the critical role that compounding plays in meeting the clinical needs of patients. Compounding meds that are not essentially copies of commercially available drugs existed prior to and will continue regardless of the shortage status… The compounding exemption has always allowed for the personalization when clinically necessary… There's very well documented and outlined abstracts of the compounding exemption. We believe that dosing specifically for this type of treatment to mitigate side effects right down the center of what that compound exemption is built for. “

CEO Andrew Dudum

“And we're seeing the number of consumers voicing their frustration increase, not decrease in recent weeks. In fact, on a single day last week, we saw nearly 2,000 indications from individuals that have been unable to obtain name brand GLP-1s.”

CEO Andrew Dudum

There are many rich companies lobbying to get the FDA to clamp down on Hims and others selling copy-cat versions of their branded GLP-1s. Technically, these companies are supposed to have exclusivity windows before generics can compete. This protects their R&D dollars so that biotech discovery isn’t quite as risky. We’ll see how this shakes out.

Regardless of what happens, Hims is still delivering 40% Y/Y subscriber growth excluding weight loss, so it’s not like growth relies solely on this channel.

More weight loss news:

“We have seen customers lose on average 4.1% of their initial body weight in their 1st 4 weeks, while customers who have reached the 8 week mark have lost 5.5% of their initial body weight.”

Chief Medical Officer Dr. Patrick Carroll

Weight loss is becoming a strong cross-selling tool for existing subscribers. 20,000 weight loss subscriptions during the quarter were from existing subscribers. 20% of total subscribers here are multi-product users. It now has 300,000 total multi-product subscribers, representing about 15% of its base.

HIMS purchased Medisource for its first owned compounding facility. To the company, this represents a single step in its path to vertical integration. It thinks this will yield better margins, more flexibility to pass on savings onto customers and faster innovation.

The Medisource facility is a 503A pharmacy, meaning for custom medications. 503B pharmacies enable large-scale production of medications, and are more efficient and profitable than 503A. As Hims scales and orders per product rise, it will shift to 503B manufacturing to pocket more margin over the long haul.

This was an elite quarter in every sense of the imagination. I have been pretty skeptical of this business model and how it will fend off the slowly growing threat from Amazon and others. Personalization is a great way to insulate them, but I still question if that will be enough over time. I think mega-caps interrupting this compounding party is likely. But for now? Results look fantastic. This team is firing on all cylinders and executing at a level that very few other organizations are matching. There’s no denying that and bulls should be thrilled. There is nothing negative in these numbers to pick at. Congratulations to shareholders.

Palantir is a software company that helps customers get the most out of their structured and unstructured data. Like many others, it pulls from years of AI/ML work to automate insight-gleaning. It utilizes complex neural networks to power anomaly detection, trend forecasting and natural language processing. It works openly with many database vendors for scalable, interoperable storage and low-latency querying, and offers its own tools there too.

Overall, it frees clients to conjoin disparate data sources while utilizing its software to uncover ideas that manual analytics and legacy competition cannot derive. It gives customers a birds-eye view of their operations, with detailed suggestions to help optimize products and workflows. It also lets companies freely test digital twins (a process called Ontology) in zero-stakes environments to actually understand what works and what doesn’t. It’s a similar idea to split testing, but deeper.

Revenue is neatly split into two buckets – “government” and “commercial.” Government clients predominantly use its Gotham product platform, while commercial clients mainly use its Foundry product platform. With Gotham, Palantir routinely builds custom use cases for individual government clients. Foundry was built to be more malleable, with far more pre-built app integrations and developer kits available. That diminishes the need to conduct custom builds for every single private enterprise. It still does a lot more custom building than a typical B2B software firm will.

It also seamlessly leverages the commercial platform to cater to industry-specific needs. By-industry large language models (LLMs) are intuitively named “micro-models.” These are smaller and boast sector-specific use cases with granular, relevant regulatory compliance help. A financial services model from Palantir, for example, may specialize in assessing credit risk or fraud detection.

Palantir Apollo provides continuous integration and continuous delivery (CI/CD) to automate software package building and deployment. It’s a foundational piece of the firm’s ability to collect, utilize and drive value from broad data ingestion. It’s also how Palantir can help operationalize these learnings to introduce valuable products. It rips on other software firms for (it says) building “slide decks” rather than matching this real-world utility.  Apollo ties very closely into Foundry and Gotham as a software enabler for both platforms.

Palantir’s newest and most exciting product is its Artificial Intelligence Platform (AIP). The company compares this to what public cloud vendors did for compute and workload modernization. AWS, Azure and Google provided the environment, tools, storage, security and maintenance needed to grow needed compute capacity without managing it yourself. This made migrations and adoption the rational decision. AIP attempts to do the same thing in terms of pushing enterprises to adopt GenAI. This fully manages expedited model and app building for client deployment. It allows for open collaboration between software developers, data scientists and project managers to ensure effective work. It directly supports Foundry and Gotham by uplifting and augmenting potential use cases to “extract value from GenAI models.” And it does so in a quite compelling way that can craft tools on a by-customer basis.

Considering the lack of finite and structured end products stemming from AIP, I think it helps to hear about some examples of what clients are doing with it: One customer is using it to turn inbound emails into automated inventory decisions, one is using it to automate healthcare documentation for claims and the Department of Defense (DoD) is using it to shrink app creation time from hours to seconds. As leadership will tell you, AIP isn’t just another dime-per-dozen chatbot. It’s an aggregator of data, tools and services needed to actually build valuable apps and to embrace GenAI. It’s how Lowe’s cut overdue task rate by 75% and how General Mills saves $14 million a year in expenses. AIP is where jumbled data, processes and ideas turn into the operationalized, actionable creation of GenAI products.

Initial go-to-market for AIP was its “bootcamps” where it would host events to provide hands-on support and “get clients from 0 to use case in 5 days. It has more recently begun to build out an external sales team to support this segment’s momentum. AIP progress is most noticeable in its impressive U.S. Commercial results.

Palantir EPS is expected to grow by 42% this year and by 21% next year. There are some upward profit estimate revisions certainly coming.

Aside from Microsoft and ServiceNow, there is no software company in the world showing this kind of GenAI financial impact. Why is this happening we may ask? The answer is actually quite simple: It delivers real, tangible return on investment and financial gains for customers using its GenAI tools. That has been a cliché of concern surrounding earnings season for a few quarters now, and Palantir is among best-in-class in its ability to show real results.

Associated Materials used AIP to raise on-time delivery rate from 40% to 90%; Trinity Rail used it to pocket $30 million in annual OpEx; Mount Sinai used it to find $13 million in new revenue opportunities; The U.S. government cut a critical intelligence sharing process from 3 days to 3 hours; a major insurer cut underwriting workflows from 2 weeks to 3 hours. The list goes on and on… and it’s this list that builds proof of concept and allows the dominos of large GenAI contracts to keep falling. Palantir is providing real value and so it’s understandable why it’s enjoying real results.

Leadership spoke a lot about large language model (LLM) commoditization and tanking model inference prices. That is a good thing for Palantir. Unlike Nvidia or Broadcom on the infrastructure layer and OpenAI or Cohere on the foundational model layer, Palantir presides within the app layer. Its specialty is crafting products to “extract more value” out of models to drive differentiation, and tangible value creation through software. It also does so with smaller models discussed in the 101 section; this allows it to season algorithms with hyper-relevant data to train these assets based on what’s optimal for a client, rather than a one-size-fits-all approach. That’s important to emphasize. As the intro briefly alluded to, Palantir is more willing to customize products for clients. It will do that work for a client if that’s preferred, or let it use software development kits to customize themselves. It doesn't want “10,000 clients that all hate them” as Karp puts it. They want fewer, deeper, higher value relationships.

As a reminder, the external sales team is still ramping for AIP. A lot of this success is still coming from inbound requests and its boot camps. That will be another growth outlet to enjoy down the road.

“What will differentiate the AI haves from the have-nots is the ability to maximally leverage these models in production by capitalizing upon the rich context within the enterprise. This is Palantir's focus.”

Chief Revenue Officer Ryan Taylor

Palantir’s app-level positioning means GenAI growth without more CapEx directly coinciding. It is partnering with the hyper-scalers, rather than playing the game of who can find the most Nvidia GPUs and offer the biggest training cluster. So? More growth… more margin… not more CapEx. That is rare today and unequivocally positive.

Palantir has worked hard to become a better partner recently. Whether that’s through its FedRamp program to help others gain needed accreditation or new software developer kits, it wants to be known as more of a team player. And? It’s now enjoying a lot of its biggest customers directly advertising that they work with Palantir. That used to be unheard of for this company, and now it’s routine.

Large deals highlighted included three seven-figure wins with sales cycles of 90 days or less and with all three customers exploring large expansion deals following early success. On the government side of things, the same is true. Growth for the U.S. segment is “surging” as customers “embrace AI.”

Karp was highly complimentary of U.S. industry leaders and regulators in his letter. He sees the U.S. market as being the fastest to embrace this rapidly moving GenAI revolution; he thinks that warm welcome will position this market to power PLTR’s growth engine for the foreseeable future. Europe continues to move very slowly and arguably over-regulate. He was critical of that, and urged lawmakers from across the pond to loosen their grip on European companies so they too can win in this new age.

Visual Navigation (VNAV) is an autonomous drone tool that offers connectivity guarantees in GPS-compromised areas. The Maven Smart System (AI platform to help with military targeting) allowed the 18th Airborne unit to match the most efficient U.S. military targeting cell (Operation Iraqi Freedom (OIF)) with 20 team members. This compares to 2,000 people needed for OIF.

15% Q/Q growth for the U.S. government segment was its fastest rate in 15 quarters, as the Department of Defense delivered 21% Q/Q growth. This follows a new 5 year Maven contract for all U.S. military services.

Operation Warp Speed is a modern industrial operating system (OS)” that equips companies and governments with cutting edge enterprise resource planning (ERP), product lifecycle management (PLM) and a manufacturing execution system (MES). It’s a fully managed way to rapidly allow manufacturers to fix how they build things, with AIP integrated right into it to ensure use cases can be as malleable as needed. L3 Harris, “2 other big defense primes,” Anduril and Shield AI are all part of this program early on.

Phenomenal. More sequential revenue growth acceleration and explosive operating leverage while it remains in the early innings of AIP selling. More obvious evidence of this being one of three software companies in the world effectively accelerating financial success through GenAI monetization. More elite execution from a world-class team. Karp may speak differently than buttoned-up CEOs… he may be a bit polarizing to some… but that doesn’t really matter when Palantir is delivering these results. Again, simply phenomenal.

The valuation is the only thing keeping me out of owning this one. I can’t get comfortable with 40x sales just like I couldn’t get comfortable with 30x sales. I will continue to root for this special company from the sidelines and hope you all keep making more money. That’s my favorite part of having a “long only, never short” rule (not that I’d short a thriving firm solely on valuation). I get to root for every company’s success and I get to root for all of you. Take a bow, you earned it.