Hims & Hers Health, Inc. (HIMS) Earnings Call Transcript & Summary

All right. Good afternoon, everyone, and thank you for joining the Hims & Hers Healthcare fireside chat here at the Citi Healthcare Services Conference. My name is Daniel Grosslight, and I am the healthcare technology analyst here at Citi. And I'm very pleased to welcome Andrew Dudum, the CEO and founder of Hims & Hers Healthcare to our conference. Now we'll get into a little bit later, Hims is sitting at the intersection of some very interesting and powerful secular themes, namely the growth in consumer-oriented health care and virtual care. So I'm very excited that Andrew can join us today to provide his perspective on the marketing and what he has built up. The goal of this fireside chat is always just to be more conversational to the extent possible. So if you have any questions, feel free to e-mail me at daniel.grosslight@citi.com or on your left-hand side, there should be a box where you can put a question, and I'll be sure to get those answers. All right. So Andrew, before we dig into Q&A, Hims just debuted as a public company, it's been a bit of a wild ride as it has for most kind of growth stocks. I think it would be helpful for those listening in who are less familiar with the story to do a little bit of table setting. So if you could, can you give us a brief intro to the Hims story and the genesis of how you've built this company?

Yes, absolutely. Thanks, Daniel, for having me. So I guess quick background myself, I've been an entrepreneur for about 15 years now. I started when I was an undergrad out of Wharton in Philadelphia. I decided to leave school and move out to San Francisco to join my first startup. It was in early Sequoia Capital video technology, consumer company. I built that business for about 4 years and ended up selling into Telefónica in Spain in 2012. And then starting around 2013, I cofounded and ran Atomic Labs out in San Francisco, which is a $200 million venture studio model where we would incubate and build companies from scratch. And so partnering with our anchor investors there, which were Peter Thiel and Marc Andreessen, over the last 7 or 8 years had the blessing to be cofound north of a dozen companies, probably raised close to an over $1 billion in capital across those businesses. And I thought I'd stick in that type of entrepreneurial studio model for the rest of my career. But starting around 2015, '16, we really fell in love with the health care space. I fell in love with the opportunity to build what I thought was the next-generation health care system for the next generation of payers and patients. So decided to leave the fund to transition out around 2016 to cofound Hims & Hers her full time. And I think the 2 really drivers there when I think about what to build and why to invest 10, 15, 20 years of time building it. As an entrepreneur, there's 2 things. One is the opportunity to impact a large swath of the population. And then 2, the opportunity to build a business that has a very unique set of timing dynamics that allow the opportunity to grow and prosper today in a unique manner. And you have both of those really in an overwhelming amount with Hims & Hers. You have a U.S. health care system, which is a $4 trillion system that hasn't been adjusted or changed really materially for 50 or 60 years. It's a system where half of the population can afford their deductibles, 80% of rural counties don't have doctors within a couple of hours of drives, really a broken system. And then you also, on the timing side, have this unique combination of factors that include societal factors where things like telemedicine are becoming more accepted. You have technology and consumer expectation factors, where this new generation of consumer expects on-demand digitally native, price-transparent, beautiful experiences. All 4 of those things, not often things you hear when talking about the traditional health care system. And then lastly, you have regulatory dynamics that have allowed us in the last couple of years to have 50-state coverage for both synchronous and asynchronous telemedicine, which means people can now pick up their phone from the comfort of their home, click a button no matter where they are in this country and get connected to a specialist for anything ranging from psychiatric issues to dermatology issues, essential health issues. So all of those factors combined, coupled with this opportunity to impact hundreds of millions of people in this country. For me, we're just two of the threads that I think really gave me a great deal of passion and excitement to make that leap and to found this business.

Yes. Yes, it makes sense. And I guess it is a large market that you're tackling and it seems to be that the Hims solution can be applied to most of the extensive wins out there. But I guess you started out in sexual health, hair loss and derm, and now you've moved more into primary care and mental health this year. How do you decide which markets to go into first? And how are you deciding which markets to enter into as you grow the platform?

When you step back and think about the strategy for the business, it was and continues to be to build what we believe is really the next generation of a digital health care experience. And when you talk to people in health care, you asked questions in hospitals, what percentage of the U.S. health care system do we think can move through a platform like Hims & Hers in the next 5 and 10 years, it's probably north of 75% to 80%, right? You can have a digital telemedicine first type experience. And so the strategy of building for the future means you need to build for where the puck is going, right? And by identifying the fact that there is such a divergent set of expectations between the demographic in this country that is sick today in the 50s, 60s and 70s and the demographic that is yet to engage with the health care system in their teens, 20s and 30s, it made it very clear to us we had to go get a young demographic, right? They have unique expectations that are so different from even those in the 40s and 50s that you really need to build for them and build for them in mind. That means a brand that resonates with them. So people have probably seen our brand. It's -- It looks and feels like a consumer brand, right? In a lot of ways, it's irreverent, and it's destigmatizing of these conditions, but it's something that's authentic to this young demographic. It's a business that's built entirely through digital native technologies because they want to pick up their phone and have that direct access. And then when you think about to your question, what conditions you need to start with, you need to start with the conditions that really affect with high prevalence in that community. So when you go and talk to people around this country and their teens, 20s, 30s, what are the issues that they wake up every day, they're struggling with, it's things like dermatology. It's things like mental health, it's things like sexual health. It's things like sleep, right? It's those types of conditions that we felt were incredibly highly prevalent. And as a result, we need to start there and build loyalty and trust with them. Now when you look 3, 4, 5 years from now, where do we go, the beautiful part of this business is there's not a lot of creativity or risk when it comes to product road map. We see thousands of patients every day, and we know what conditions they're struggling with. So we're able to lay out every year for the next 5 to 10 years, new conditions every year that we launch. Now we know the patients that come to us, the hundreds of thousands of them that are being treated on a monthly basis, where we should go next, what they need most? And then very simply roll that out to them with a high cross-sell high engagement rate. And so that's a little bit of how we think about why we started where we did and how we think about where we go next.

Yes. And I think one thing that differentiates you from the other telehealth players out there is you're going direct to your consumer, right? You're bypassing the traditional gatekeepers in health care, you're bypassing the employer, the health plan, the provider. Well, I just started out going direct to consumer rather than those other channels. And as you grow and go up the acuity chain as this core demo ages, do you think you're going to have to start integrating more with those traditional B2B channels?

I think the reason we started direct to consumer is really simple, which is we felt it was the only way possible to build an experience that qualified as something that we would look at and feel like it was excellent and felt like it was beautiful. And it was seamless. It was priced affordably and it was efficient. And it was something that people would love and talk about, right? We have Hims & Hers an NPS of 65. This is compared to an NPS for traditional health systems and providers of 9, right? And so by verticalizing the entire experience, we've rebuilt the front entrance point, we've built the provider network, our own EMR, our own telemedicine platform, our own cloud pharmacy out in Ohio as well as a network of pharmacies. We were able to rip out so much of the perverse incentive that exists in -- what I've heard we called the industrial -- the health care industrial complex, rip out those inefficiencies, rip out those costs and build it in a way that was just seamless. And so for a cash pay price of $20 to $30 outside of the traditional system, you get all of that. And for most people, that's cheaper than their co-pays on their insurance plan. And so when you think about our engagement with the traditional health care system as we scale, there will definitely be engagement, right? There are thousands of people that come to us every week and every month, then need to get connected with people in person for more specialty care. So we've been building out a network of hospitals such as Privia and Sinai and Ochsner to be able to get patients into specialty in-person provider groups so that they get the care they need. And just like the condition expansion, there will be conditions that will require insurance as an example, right? And so you'll see us do that as necessary. But at a high level, it's all about building a system that consumers really love. And we felt in order to get that baseline where it needed to be, we'd have to build it outside of the traditional system.

Yes. Now is there any strategy to go into the employer like through an EAP program or something like that? And what's your strategy kind of in that market in particular?

At the moment, we feel like the consumer experience and the consumer demand is so strong that we're not running to go to that side of the house, we actually feel like the deep relationships with the consumers actually are in a lot of ways, a more advantaged relationship, right? Because when you ask people in health care, where do you really monetize, it's the patient and if they're willing to pay you out of pocket. There's something really powerful there. With that said, we hear a lot of demand from employers and from companies that say, we want an efficient, affordable plan for our employees that they actually appreciate and actually use, right? So many of these traditional telemedicine platforms have incredibly low utilization, right? Most of the people that come to Hims & Hers are insured. They have Teladoc. They have Amwell. They have these platforms yet they still come and pay out of pocket for Hims & Hers. And so being able to bundle these services that we offer, which are high utilization services for everybody, right? Dermatology, sexual health, sleep, anxiety, depression. These are things that people use very, very frequently and be able to roll that out with, of course, we think is a really great and unique opportunity. And we think employers, frankly, see a differentiated offering there because of the brand loyalty that people have for the business and the fact that the offering is really, in a lot of situations, cater specifically to the needs of their employees.

Yes. It definitely shows how strong that brand loyalty is when you kind of look at your model and look at the financials. But I'm wondering, in the DTC market, we kind of have this renaissance of new companies coming to market. So it seems like it's becoming more and more competitive every day. How do you stay competitive there? How do you make sure that you have the best branding, that best relationship with the patient? And do you think this is a market that can support multiple DTC platforms?

I think the market -- I think the market is massive, right? You're talking about a $4 trillion space that for all of the timing reasons I talked about a little earlier, is just really now getting unlocked from a digital innovation standpoint, right? The traditional telemedicine models, which were more pick up the phone, talk to a doctor. We're not leveraging modern technology. We're not leveraging asynchronous telemedicine. We're not employing the use of a digital mobile app for the provider or the patients. It was more of a simple experience. But with this new regulatory unlock, with this new consumer expectation, it's a massive market and it's just starting. So yes, you're seeing a tremendous amount of excitement and investment in the space. And I think to be honest, if I were to take a bet in 5 or 10 years from now, I think there could be 10 or 15 companies the size of Teladoc today that do exactly the types of things that we do because there are so many conditions that need to be moved to a digital-first, consumer-oriented manner. And there are so many different consumers that need them different segment types. And I think the market is massive. And I think we have a leg up to be a leader in that space and then venture a consolidator in that space. And I think the way we've done that today is being ruthlessly focused on the consumer, making sure we understand them well. We understand how to monetize them perfectly, understanding what they need and where they're going and being able to get them in front of them quicker and faster than anybody else. And I think that's really been key to how this company has gone from founding to IPO in just over 3 years.

Yes. And here's a question that just came in via e-mail. Who is your #1 competitor? And what do they do better?

Yes. So right now, almost all of the patients that come to Hims & Hers are first-time buyers of these conditions. So it's north of 80% of our patients are not competing with another service, they're not using another service. They are simply unengaged with the health care system. And for a lot of reasons, it's price. A lot of reasons, it's lack of education around offerings. And so where we spend most of our time with regard to how you build this business is focused on how you engage that population because that's where you're creating massive market -- market share, right? You're not taking from GoodRx, right? None of our patients look like GoodRx patients. They don't look like there's competitors in the private space. They don't look like most of their patients from an age or demographic standpoint. Our patients are young, and they're completely outside of the system. And so that, I would say, really is our biggest competitor is how you get to them first, how you educate them about Hims & Hers and how you make sure you build a deep relationship with them.

Yes. Yes. And it's interesting you mentioned GoodRx because if you compare prices on GoodRx, they tend to be cheaper than what you can get at Hims or any of these other DTC platforms. But as you mentioned, you're not really competing for that same customer. But curious, GoodRx now has a doctor. And I suppose they could develop something very similar to what Hims is doing, but via kind of a coupon type model. How are you about folks like GoodRx that rely on the traditional PBM relationship or even Amazon moving deeper into this into this space? And how do you prevent leakage of your current customers from the Hims pharmacy to CVS or another online pharmacy?

Yes, it's a great question. I think the data point that we look at with regard to leakage is around do we see patients coming to Hims & Hers buying the bundle of services that you get for that $20 to $30 and then taking the prescription and leaving, right? And then going and fill that on an online pharmacy, which has existed for a decade, right? There have been the ability to get cheap medications online, even Costco, incredibly affordable way to buy in bulk. And the reality is that almost no patients have ever done that, right? And we powered thousands of visits per day, and we don't see that happen. And for the most part, the reason that is, when you talk to patients and when you actually look at our platform, people aren't buying just medicine with Hims & Hers, they are buying a full personalized experience that really is not apples-to-apples in any way with the competitors in the market. Especially not the online pharmacies, right? The PillPack or the GoodRx models. What they're buying with that is a specialist provider for the condition they're worried about 24/7 access to that specialist like mobile app, send a message, update your prescription, personalization of your treatments and have that take place at any point. So let's say you're taking a compounded for acne, and it's slightly too strong. You can have that updated and we sent to your door within a few days, right? So you're getting all of this catered experience, and a lot of it is service, right? It might be on the mental health side. The fact that you can talk to your psychiatrists whenever you want, and that's built into the pricing or you can join any of the free anonymous group therapy classes about brief or anxiety management or parenting. But people overwhelmingly are not buying just that script. And so I think that's a really important part of the Hims & Hers' mission is how do you comprehensively solve something people are worried about. Let's take this condition and let's think about all of the services, the expertise, the treatment, the personalization, and bundle that into something that's incredibly affordable but comprehensive to really make sure that they have the outcomes that are desired. And I think that's really why we don't see leakage at all to those types of platforms. And I think in a lot of ways, it's very much apples to oranges in a comparison sense.

Yes. Yes. Very interesting. All right. So turning to the financials now. You had a great 2020, at least the first 3 quarters, looking forward to that fourth quarter earnings call soon. But looking forward into 2021 and beyond in your proxy, you think you can grow around 30% year-over-year on revenue. How much of that growth is going to come from your core markets versus these newer markets like mental health and primary care, which really accelerated during COVID? And how much of that growth is coming from new member acquisition versus increasing the basket, the average order value?

Out of, I think, immense conservatism, we put that 30% year-over-year growth out. And that really is representative of what we feel the core markets that we're in today can deliver, right? Over the next 3, 4, 5 years, the core industry is that we specialize in the dermatology space, the sexual health space, the conditions that we've had and optimized for the last couple of years, we think those can deliver that 30% year-over-year. Now we, as you said, spent a tremendous amount of time investing in new growth, in new verticals. And I think every year, our strategy is to identify the 1 or 2 that have high prevalence within our customer base and to build that experience beautifully and to launch and expand. And so we think there is a lot of excitement on top of that core business. We're investing a tremendous amount in a lot of those new categories and I think will on an ongoing basis. But I think out of conservatism, that 30% really is representative of the core markets that we have out there today.

Okay. Okay. And apologies if I missed it, but the member acquisition versus basket size?

I think it's a mix of both, right? What you see from historicals is both very robust expansion of AOV, right? As you expand into new conditions, you have increased cross-sell dynamics, which is organic cross-sell dynamics. As you specialize even within a condition, let's say, dermatology, you go from offering 1 product such as a compounded pharmaceutical cream to having complete bundles that include personalized moisturizers, personalized cleansers, masks with the pharmaceuticals, so we're able to expand in that way. So it will definitely be dealing on both sides, the bundle expansion, the cross-sell dynamics of new categories and, of course, new customer growth.