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

All right. Good afternoon, everyone, and thank you for joining the Hims & Hers Presentation here at the Citi Healthcare Services Conference. This is the last presentation of the conference, and we're saving the best for last, right, Andrew and Yemi? We've got the management team here, Andrew Dudum, the CEO of Hims; Yemi Okupe, the brand-new CFO of Hims & Hers. Welcome, guys. Thanks for joining us here today.

Thanks for having us.

Maybe we'll just jump right in with the key controversy here, and it's one that I get asked all the time. It's around barriers to entry, competition, et cetera. So I'd love to get your thoughts on the moat here. We've seen a proliferation of well-funded DTC virtual health companies come to the market. They're all kind of competing for the same customer base, tech-savvy millennials with disposable income. And I'm interested in how this has impacted you really in 3 ways. The pricing that you're able to achieve, marketing spend and CAC and provider recruitment? So let's take each one in turn. The first one on pricing, are you -- are you in competition with these other folks? Are you having to compete on price at all?

Yes, it's a great question, Dan, because it is a highly funded space. I think at a high level, consumers are really voting with their wallets, right? We're in an environment where competition is fierce. And there are already been major headwinds from a marketing standpoint about privacy dynamics, IRS 14. With all of those things, you still see the company delivering nearly 100% year-over-year revenue growth, nearly 100% year-over-year subscriber membership growth. We've leaned into marketing dollars, 40% from Q1 to Q4 of last year, yet the acquisition costs are flat to down. We've maintained those margins at 75%. We've grown lifetime values to more than they've ever been in history. So the dynamic, I think, is real that there's competition, but what we're offering is something that truly is unique. And I think there's 3 main areas there that are core differentiation. One is the brand. The second is the audience we're targeting. And then third is the experience, right? This is a brand that is in 20,000 retail locations, right? You've got people of all different types of life coming to us, whether it's postmenopausal women suffering from hair loss and Jennifer Lopez is speaking to them on TV about Hers for hair loss. Then you've got Miley Cyrus talking about acne for teenage girls, right? And then you've got Rob Gronkowski talking about depression and anxiety for 30- to 40-year-old men. So the brand is resonating with an audience that's incredibly diverse. And I think that omnichannel presence of both the dot-com and the 20,000 retail locations are building a trusted flywheel that's allowing us to scale. And then I think lastly, the experience is world-class. It's simple, it's transparent, it's priced affordably. So everything that we've seen when it comes to competitive landscape is that, frankly, they're not impacting the core business, and we don't really expect them to be, right? Margins are maintained. Prescriptions are growing. Acquisition costs are getting more efficient than they've ever been and lifetime values are higher than they've ever been. So some of the high-level things we shared in the earnings that I think reflect this are probably in some of the marketing spend dynamics, and this is in some of the supplemental materials we released, but we are now on a cohort basis, paying back on our marketing spend in less than 6 months, right? And this is the fastest payback cycle we've ever had. And these are during times of increased competition, increased fundraises for folks and increased headwinds from marketing privacy IRS 14 dynamic. So there's just something really special happening here. And I think it's those 3 things: brand, audience and experience that are ultimately really differentiating us and allowing us to maintain that margin structure, that price pressure, that price confidence as well as our marketing ability.

Yes, makes sense. And in terms of audience, you've said before that most of the folks who come to your website are getting treatment for the first time. So you're really accessing this latent demand out there that's being ignored or just doesn't want to interact with the health care system. Is that still the case? Are most of your members seeking treatment for the first time.

That is still the case. And I think it's something that's really unique about our business from everybody else in the market, right? This is not a company that is taking market share from traditional brick-and-mortar hospital systems. We're not taking market share from other competitors. We're creating market share, right? We have built a brand and a set of channels and an experience that goes and activates this population of people who were concerned about depression or maybe feeling symptoms of anxiety or maybe they were experiencing sleep issues or hair loss or dermatology concerns, but they weren't really quite ready to go get treated. And I think the destigmatization of the brand, the friendliness, the authenticity of it, the way that we market to them is really energizing them and it's really creating a tremendous amount of market share for what these markets were perceived to have been in size.

Yes. And on the tax, you mentioned the impressive numbers on payback period within 6 months. So despite some of the challenges there, it does seem like you're able to be more efficient. But I do track the kind of the CPMs for various keywords and they are still at all-time high. So I'm just curious how you're able to do that efficiently while in certain channels, the caps are just incredibly high, particularly for mental health?

Yes, it's a great question. I mean, objectively, CPMs are increasing, right? And I think that will always be the case, right? They've always increased over the long haul. But when you look at our numbers, last year, we grew traffic to the site over 90%. However, our cost per subscriber went down 13%. But that's a crazy concept to be able to invest in growth, expand into that investment, lean into that investment, but actually drop the acquisition cost. And I think it's a few things. One, it's the distribution of our marketing dollars, right? We have an incredible wide variety in the portfolio of which we deploy capital, TV, radio, out-of-home, Spotify, streaming. And then also the digital affiliates, Facebook, Google, that people know. But that diversification allows us to deploy a lot of capital very efficiently. The second is that people know Hims & Hers as one brand, but underneath that brand is actually a dozen completely different businesses with completely different customers selling completely different products. So as I was mentioning that postmenopausal woman struggling with hair loss is one woman that we're targeting. But we're not going to saturate that channel when we're also deploying into the 22-year-old young adults suffering from dermatology issues. So we're able to divide our marketing spend in a way that lets us scale robustly without hitting those saturation points, which is very unique compared to every direct-to-consumer business. And then lastly, we have a retail presence that is creating a real efficiency flywheel, right? 20,000 physical locations, Walgreens, CVS, Walmart, Target, Bed Bath & Beyond, GNC, I mean the brand is everywhere. And I think that omnipresent, omnichannel dynamic actually does drive pretty proprietary efficiency in your aggregate digital marketing that most companies are not going to see without that type of a presence.

And on provider recruitment, you can't go a day without hearing about provider shortages, wage inflation. Are you experiencing any of that? It's certainly not shown up in your margin much, but how are you thinking about the recruitment and the labor pool going forward?

Yes. We've been really lucky that we actually have not seen pressures on that front, whether it's wage inflation, you're not seeing it in the margins, you're not seeing it in the predictions and guidance for next year. And I think it's -- just from a qualitative standpoint, I think it's because the platform is something that is attractive to doctors and providers, right? They see it everywhere, right? They know the brand. And then when they come in-house and they experience the EMR, the technology that they get to use to offer and deliver treatments on the platform, it's really slick. I mean it's a mobile application in most situations. These providers are able to be anywhere in the world, right? They're able to be walking their dog, talking to patients. The technology is beautiful and modern. It's not a traditional Epic EMR. So I think there's a degree of experience and quality that we really do focus on for the providers that has allowed us to continue to attract them and continue to maintain a great pipeline and not see a lot of that price pressure that others have faced.

Yes, Yes. Yemi, I'm going to bring you into the conversation here on your recently introduced '22 guidance or I guess, more correctly, it's an update to some of the high-level guidance that you previously gave for '22, but you raised kind of the growth guidance from 30% on the top line previously given to around 37% at the midpoint from the top line. And frankly, after growing 80% in '20 and '21, it seems a little conservative given you're also going to be having 4 full quarters of some revenue that you acquired in the back half of last year. So can you just bridge us from the growth you experienced in '20 and '21 to how you're thinking about 2022?

Yes, sure. Thanks for the question, Dan. I think it's a great question. Really, our focus is on delivering standard P&L performance, not just for a given year, but across several years. So what we reiterated on the call was the fact that we do see line of sight for not just this year, but 2023 and beyond, the ability to maintain north of a 30% growth rate for years to come. What gives us the conviction in our ability to do that is the fact that we are seeing several seeds that we've planted previously as well as we're currently planting really start to bear fruit. The guidance that we gave is based upon what we have direct line of sight into today. What we have seen in previous years is that sometimes the seeds that we planted do scale a lot more quickly than we anticipated. And so again, I think what we would reiterate is we do have a strong conviction in the guidance we've given. We do have the ability to continue to see the seeds planted, continue to see opportunities to invest in marketing, as Andrew previously mentioned, they just give us the conviction in the ability to repeat the 30-plus percent growth rate for years to come.

Okay. And it seems like for 4Q AOVs have held up nicely. And that's despite some of your acquisitions coming in at a slightly lower AOV than core Hims. For 2022, do you anticipate AOVs staying the same or should we see any kind of uplift or degradation in that line?

Yes. I think given the strength of the core business that we do have, we do expect AOV to be flat to slightly up. The dynamics that we see from the continued strength in new subscribers in the core business will offset some of the pressure that we mentioned previously around AOV degradation from the acquisitions. Additionally, we're continuing to optimize and look for opportunities to bring the acquisitions to similar economics that we do see in the core business. Those dynamics do give us the confidence that the AOV will be flat to slightly up for 2022.

Okay. So the growth for '22 is really growth in the membership base, perhaps a slight increase of AOV, but mostly membership growth?

Exactly. And I think that that's one of the things that is most exciting about our growth is the fact that we are able to continue to expand the membership base both in the form of bringing new users onto the platform, but then also seeing the continued compounding of repeat customers. And so having the ability for over the past 2 years to grow the repeat customer base at a compound annual growth rate north of 80% gives us significant excitement in our ability to continue to scale the platform through bringing on new subscribers, keeping them engaged and having that drive growth for a period to come.

Okay. And you've previously mentioned, Andrew, that mental health, women's health, especially the hair and derm side of the business is growing rapidly. How should we think about growth in 2022 and maybe 2023 between what I would consider your kind of core businesses and some of these newer items?

Yes, it's a great question. We're seeing very robust growth in both the core categories, and these were some of the traditional Hims categories, men's hair loss, men's sexual wellness as well as triple-digit growth in our emerging categories. And these are, first, psychiatric services, mental health services, dermatology services. And so I think the acceleration in revenue diversification is a big part of what gives us confidence in our ability to raise the guidance this year and deliver, I think, what Yemi was saying is a long-term 30-plus percent robust growth for the company. It's the diversity of that revenue and the scaling of these emerging categories that gives us confidence they're going to be delivering for years to come. And so while we don't share the actual breakdown of the revenue by category, by medical specialty, we can share those emerging categories are the fastest growing with triple-digit growth, and they're really bringing a tremendous amount of energy and excitement to the team, frankly, and what's to come for the years to come.

Got you. Okay. And some of your competitors have struggled recently with retention and some are seeing outsized churn. Obviously, with some of the disclosures that you made during your earnings, it seemed to be at least partially insulated from that. I know you don't disclose churn rates specifically, but I was wondering, if you can give us some guidepost on trends that you're seeing in churn rates. And what are you doing to prevent the churn that some of your competitors are seeing?

Yes. It's a great question. We invest a tremendous amount in the customer experience, and that's kind of one of the things I talked about in the earnings call is this flywheel of driving innovation, driving customer experience and ultimately, that customer experience driving better outcomes, better adherence, longer retention rates, things like the mobile application that we launched just a few weeks ago or a month or so ago. These are new platforms completely new worlds that we can talk about that are huge ecosystems to drive adherence and stickiness and engagement. So -- it's a really core focus of ours. We're incredibly analytical and rigorous in our day-to-day testing. At any given time, there are probably close to 3 or 4 dozen different tests in motion on the platform helping to drive our retention and engagement. How it's actually then manifesting is really phenomenal trends. I think one of the stats that we shared in the last couple of days is that long-term retention. So customers that we acquired prior to 2020, they are retaining from a revenue standpoint at 80% today. So you have an 80% long-term retention rate, which is just astounding, right? And so the dynamic is truly the fact that customers are coming to us for a chronic medical condition. This is not a one-and-done direct-to-consumer purchase. This is a chronic medical condition, that they need to be engaging with the platform, the providers and with the treatment plans on a daily and weekly basis. And so the longevity of these curves, the annuities, the dividends that come from these cohorts is very, very material and is very long lasting. And I think that's why you see us in Q4 and in Q1, as Yemi mentioned, really leaning into marketing, growing marketing 40% from Q1 to Q4 last year, while we're able to lock in these acquisition costs that are flat to down and cycle money in a sub-6-month payback period. It's really just this incredible engine. And a big part of what's unlocking that engine is increased retention rates, increased stickiness, increased lifetime value as a result of a lot of these experiments.

Yes. Got it. On the wholesale side of the business, you touched on it briefly, more analyzed the marketing channel. But it is starting to generate a significant portion of your revenue as well, how should we think about wholesale revenue going forward as a percent of your business?

Yes. It's a great question, Dan. We don't necessarily deliberately manage our target of specific amount of revenue mix between the online and the wholesale channels. I think, as you mentioned, what we truly do believe is that channel is strategic provides value and really helping to foster the online business, which provides the recurring and predictable revenue base that continues to give the benefit that does scale. We do see that was like -- I mean the more traffic that we do have in the wholesale channels that just further goes to reinforce that flywheel and provide more opportunity for consumers to engage with, see our brand, increase the awareness, increase the trust, which shall provide incremental value to our core online business.

Got it. Okay. Okay. On acquisitions, you made 2 pretty substantial acquisitions last year Honest Health, which had a kind of a compounding pharmacy benefit that should support your U.K. expansion and Apostrophe, again, with compounding in the U.S. on the derm side. How are those performing relative to your expectations? And in particular, given they are a little bit lower margin than your core business, have you been able to bring some of those margins up to where your core is operating?

Yes. So at a high level, we're really exceptionally pleased with Honest Health and Apostrophe. Those were strategic acquisitions that give us really proprietary infrastructure and teams, both state side as well as in the U.K. market to accelerate both vertical expansion as well as regional. So the compounding dynamics, compounding infrastructure, this is the type of verticalization that allows us to deliver those experiences I was talking about that really are special and personalized nature of that, that are hard to get in the market today. So really pleased with our performance. The integrations are nearing completion, so expect those to be wrapped up in the next couple of months. So very smooth -- and then I think ultimately, also it's just a phenomenal proof point around how Hims & Hers can be a natural consolidator when it comes to expanding this umbrella and portfolio of brands. So I think we're really excited for what they're achieved -- are able to achieve. I think on the margin side, we've not seen, as you said, huge margin compression in guidance this year. It's really steady margins, which is phenomenal. I do think there's still a broad range of opportunities and efficiencies that Yemi and I are excited about in both of those businesses that over the next couple of years, we'll be able to unlock and traditionally use some of the pattern recognition, some of the testing that we've done on the core Hims platform and take those learnings over to Apostrophe and Honest and drive efficiency and gains and acceleration of revenue, hopefully, as well as a result. So I think still a tremendous amount of opportunity to drive efficiency out of both of those platforms. That work is still really just beginning, but very pleased with the performance to date, what they're going to provide for us in 2021 -- or 2022 and then also the integration speed.

Got it. Okay. And so Honest gives you that toehold in the U.K. market. I suspect though that your model is readily applicable to most countries, at least most English-speaking countries. What are your plans for international expansion? It seems like that would be a huge untapped market, particularly because some of these countries are on nationalized systems where there is a lack of access or easy access.

Yes. That's a great question. I fundamentally believe that what's happening in the U.S. today, this acceleration of access to medical services, the price transparency, the on-demand nature that telemedicine provides. This is a global opportunity. This is a better experience for health care, it's easier, patients love it. Our NPS looks more like Apple's than the traditional health care system. And so there is without question, I think, increased demand globally for this type of an experience. So I think it's fair to expect that in the coming years, we'll make investments in infrastructure, like we did with Honest Health to start to lay the grounding -- the foundation, invest in those systems to accelerate that expansion. What I will say is, right now, we are incredibly energized in what we see as very straightforward opportunities here in the U.S. to drive meaningful growth for quite a number of years. And so it's not something that's at the very top of management's list. It's not something that we feel like is necessary today. But you'll see us doing things like Honest Health where we start to dip our toes and build some of that long-term value and infrastructure to allow us to unlock those when we feel like it's the appropriate time.

Yes. Yes. I think something that's a little more near term and we discussed this on the call the other night is expanding into additional conditions and particularly going up kind of the acuity curve. So how do you think about that expansion in terms of buy versus build? What's the lowest-hanging fruit? And can you help us think about the time line to expanding into those newer conditions?

Yes, it's a good question. On the buy versus build, my honest thought is that we have a team that is incredible in execution. And I think we've proven this in the last 4 years. The company is less than 5 years old, right? And so the team loves to build, they love to innovate. This is how we've been able to accelerate growth and maintain these margins and efficiencies just focus internally. And so the bar is incredibly high when it comes to a company that we would buy because we believe we can build almost anything, right? And so there has to be a real reason to go out and buy something very unique, a unique team, a unique relationship with customers, a proprietary set of offerings or infrastructure. So of the hundreds of companies that we have evaluated, there's been just 2, Honest and Apostrophe in the last couple of years where we felt like they met that bar. With that said, the brand is a natural consolidator, right? It is a brand that people know and love and trust, and we get a tremendous amount of deal flow from companies saying, "Hey, we think we'd be a great part of the portfolio of Hims & Hers." And so I think we have a unique deal flow. We are opportunistically always evaluating and looking at those opportunities to see if we can find one of the diamonds in the rough. But I would say it is under that type of a lens, right? It's looking for the diamond in the rough because there's so much growth and opportunity inside our walls that we're really not looking externally to go and find that. So I think that's kind of a high level on the M&A side of the house. On the category expansion, it's this combination of always testing and introducing new categories that is at the core of how we're going to maintain a phenomenal growth rate for years to come, right? Mental health, dermatology, these are things we invested in, in the last year that I'm now starting to pay dividends for our company, and we'll continue to accelerate those dividends in the next couple of years. So we're always, as Yemi said, planting new seeds. What I think you can expect from us is to be launching 1 to 2 new major categories every couple of quarters, right? A couple are here that our new audiences, new treatment plans, new provider groups that are bringing something really special to a completely different customer that is not currently coming into the Hims & Hers ecosystem. It's not a company or a mentality where we're going to be throwing a dozen against the wall and see what sticks. That's not how we operate. We like to be very selective with the categories that we believe will drive huge value on our platform, really understand those customers and then go build it and build it right. And so I think that systematic 1 to 2 new categories every couple of years is what you can expect. And I think the types of categories because I know, Dan, you want to know that question, where are we making? Where are we looking? I can't give you specifics or time line or anything like that, but categories that we get excited about and that we believe are well suited for the platform are things like pain management, insomnia, weight management, nutrition, fertility, chronic conditions like hypertension and hyperlipidemia. These, to no surprise, are also the biggest and the most impactful categories probably in the country, right? These are the things that have the highest prevalence from a medical standpoint and influence our lives the most. And so it's both a desire to help the most people as possible and also try to change the dynamics of some of these large medical conditions and see how we can improve the outcomes for people.

Yes. Got you. And I can imagine that as you kind of go up that acuity level, you'll need to integrate more within personal care. You already have partnerships with folks at Privia and Mount Sinai. Can you explain how you're currently using those relationships, integrating with those in-person providers and how that's going to evolve over the next couple of years?

Yes, those types of provider partnerships are really key for us to be able to say to a customer, you can come to the Hims & Hers platform. We are at the front door at health care, and we will help you get the care you need, right? That is the ultimate statement. That is the goal. We will be able to help guide you through whatever care is necessary. Now some of that care we will deliver ourselves, right, on our platform with providers that are in the system with treatment plans and programs that have been built by our organization. And in some situations, that patient will need to be treated by somebody else. And so by partnering with players like Privia and Sinai and Providence and others in this coming year, we'll be able to expand the range of services from a geographic standpoint to be able to truly say no matter where you are in the country, come in and if we can't take care of you, we have a nice handoff relationship with a partnership that's seamless and simple where we can make sure you get the care you need from the specialist that can provide it. And so it's really about being able to deliver that holistic care on the platform, whether or not we're ourselves delivering it or through partnership.

Got it. Okay. And what's the revenue model there? Is it simply kind of a branding type of relationship where you can attract customers because you have these highly branded systems? Or is there some economic benefit that you get from directing folks to different systems?

Yes. We don't comment on the specific relationships there. I would say, for the most part, though, it's really a value benefit that we see for our customers, right? Customers know that they can come to our platform and get the holistic care they need. And so we're not out there signing deals to drive revenue from health care systems, and that's not a core part of our strategy. It's really about how can we bring the right teams, the right brick-and-mortar, the right retail, the right clinics, the right specialists into a platform so we can more confidently say to customers we have what you need, we can help you with what you need, and you can feel safe in our world. And I think that's really the way we think about those deals.

Got you. Okay. We're running up on time here, but I do want to ask you about your strategy in the enterprise market and in the health plan market. Obviously, right now, I think folks would probably prefer to just go direct to you for some of your core products rather than go through an employer or something like that. But as you, and again, move into these newer conditions, how are you thinking about selling into the employer market and into the health plan market?

I think it's an exciting opportunity, right? I think if our vision is to help deliver world-class personalized care to as many people as possible in this country, right? We want to help as many people as possible. Then the bundling and the distribution is merely a mechanism to tackle, right? It's not a different strategy. It's just a different implementation. And so as we continue to invest in the membership experience on Hims & Hers, the mobile application programs, our members now have 24/7 concierge access in the mobile app, right, just membership benefits, discounts on OTC products, right? As we invest in that ecosystem and drive more and more value into being a member of the Hims & Hers platform, I think there's a very natural and logical expansion to then go take that and bring it to the enterprise and allow them to offer that care to their employees. And so this is not something we are running at right now, but we do see a very clear path to that being an incredibly compelling offering for the enterprise. And it is something we've talked about with a number of organizations. Right now, entirely focused on investing in that membership, making it just stickier, more valuable for anybody that joins the platform. But then at that point, I think there is an interesting strategic question about how you get access to more and more people and give them that benefit.

Yes. All right. Last one for me, and it's going to be a little bit of a tricky one. As I see your performance throughout kind of your life as a public company, you've continually beat and raised, yet your stock price hasn't reflected, I think, some of your core performance. And I know as a management team, you're not watching the kind of stock price you're focused on executing. But clearly, there's something that the market doesn't understand about your -- or isn't fully comprehending. So in the last couple of minutes here, what do you think is most misunderstood about you guys? And why do you think we've seen some of these concerns more recently?

Yes, it's a great question. I would say that the overwhelming amount of time that we place is on creating the long-term shareholder value, right? And so as a builder of companies, Yemi has done this across Uber and Google and PayPal and many others. The markets often, right, are disconnected from fundamentals of a company. And the company is not the stock. The stock is not the company. And so we spend our time, heads down, building infrastructure, experiences, relationships with customers that are going to pay dividends for a very long time. And customers will drive that value and investors will ultimately see that value. Now when you look at the macro markets, I think there are a couple of things that have been influencing the company that are quite obvious and straightforward, right? You've got, one, a massive pandemic that accelerated in an inorganic fashion a tremendous amount of growth for many of the telehealth players, right? You're now seeing that growth come back down, decelerate into more normalized rates on an ongoing basis. And as a result, the excitement and the stock is recovering back to a normalized rate. So thematically, when people think about Hims & Hers, we're a fairly young company, a lot of digital health investors say, well, I assume Hims & Hers probably benefited from the pandemic. They probably grew incredibly quick and now that the pandemic hopefully is coming to a close, they're probably going to slow down, just like everybody else. Now the reality is, is that we are growing faster than we've ever grown, right? Margins are better, lifetime value is better. We're investing more on growth. The efficiency is better. That flywheel is working better than ever. And it's because the audience we were targeting was an audience that was always using telemedicine, right, a young, tech-savvy audience. So we didn't see any type of inorganic acceleration during the pandemic that is now going away. We've had very robust steady growth the whole time. So I think it's going to take a while for people to really understand the nuances of our business and how they may or may not be thematically bucketed into telemedicine. So I think that's the first bucket. Second, I think, for better or worse, we went public in a reversed merger through SPAC, right? Many of those companies have put forward numbers that they are not hitting, right? And they are not achieving, and that's just the reality. And so there is investing strategy and concern around the SPAC cohort in general. I think it's going to take people time for them to dig through each of these companies individually, understand the differences of them and why or why we may not be like the others. The reality is that we are hitting our guidance, we're beating our guidance and we're delivering, I think, incredible value, incredible growth and great efficiency rates. Now at a high level though, people, I think, in the first year probably have bucket us into the SPAC bucket. So I think you've got a lot of dynamics taking place in the market. There's been more issuances than ever before in the last year. And so I just think it's a matter of time for everybody to catch up to the real value that's actually being delivered by the company.

Yes. Makes sense. All right. We're out of time now. Andrew, Yemi, thank you so much for sharing your perspective and your story with us this afternoon. Have a great...

Thanks, Dan.