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

Absolutely. I think we look at a few things. We look at, I mean, just the overall lift in brand awareness that we're getting. I think oftentimes, we are able to look at the traffic patterns as we roll out campaigns for some of the more digital-oriented media. The direct tracking on that is there. And so at times, it's not hard to attribute everything to you given an individual. But through conservative measurement and assumption, we're able to basically do ROI measurement and figure out how many eyeballs has this resulted in, how many -- how much brand awareness has this resulted in, how many new subscribers in attribution model do we think that this given individual has brought us? And then going back and speaking with consumers around it resonated as well. Having that feedback loop and then doing the financial measurement because we do want to ensure that these are accretive as well is what we generally look to ensure that the celebrities that we bring on are adding value.

So with that said, let's turn to category expansion. I mean this is something that being part of celebrity expansion, part of just other organic growth or inorganic growth with derm. Walk us through the time line of the process from an idea to be on a white board saying we should be in category X to you announcing that you're now in category X.

Yes. I think the short answer is that it's going to vary. I think that we'll provide a little bit of insight into like kind of what does that overall process look like. And depending on the level of complexity, the time frame can vary pretty significantly across categories. I think the first and foremost, as we look at, number one, does a category fit the traditional characteristics where we've demonstrated success? Is it typically chronic in nature? Is it emotionally resonant? And then do we have -- do we feel that we have a unique way to provide some type of value to consumers across that category? The next is like we want to ensure that we're able to bring a clinically safe solution to consumers through a given category. And so the reason why you see, even in the early days of the Hims & Hers platform, we've had a panel of medical advisers and internal doctors that we hire. We then start to go and speak to the specialists around what are they currently seeing in the market? What are the pros and cons? What are some of the areas that we would need to consider as we think around? How would we potentially enter that category? And then we start to then model out what is the true potential of the business look like once we've identified a clinically safe way to do it and then start to test usually in small audiences and then do the real full rollout. That's a pretty extensive process. And that's one of the reasons why we're not going to be the type of organization that goes and launches 5 new categories in a year. Like fundamentally, I think that our confidence and our ability to do that in a safe and effective way. I think we -- create more of a distraction. But we generally can support is in a thoughtful way and ability to go launch up to 1 to 2 categories per year, 2 being at the higher end of maximum just because we want to ensure that we have the full ability to go through and do the full diligence on that process to kind of walk through.

Got it. And so that obviously brings up the question of weight loss in GLP-1. It's, I think, dominating every market discussion across a whole litany of companies at this conference in the market. So -- and you have a peer that has built out its own full population health-oriented pitch of managed weight loss with also the GLP-1 drugs. How do you think about that as a category? Obviously not trying to get ahead of yourself, but it doesn't check a lot of the boxes you mentioned on high-touch model. It resonates from an emotional perspective, somewhere where Hims theoretically could very much add value. One piece you didn't mention is part of that, but typically all generic drugs. This is a branded class. So how much does that factor into the dynamics, especially since it is still a very new and kind of in vogue class growing in the market?

Yes. I don't think that branded drugs are necessarily off limits for us per se. I do think when we look at the weight management category, we're very much excited by it, and we do see ourselves playing in it in some form or fashion. I think because of this one execution that we've had historically, we've not necessarily always had the need to be first. And I think that weight management is such a broad category that's not going away. It is more important for us to enter that category in a thoughtful way with the solution that we have confidence in via a mechanism that is durable. And so I think we're very much in the early days. So a ton of excitement around the current GLP-1 drugs that are in the market. I think, again, weight management is a category that we are excited by and we're thinking through a multitude of ways to do it, and we sent some signals in that in terms of the advisers that we brought on and the messages that we've given. I think that we want to ensure that what we do place into the market is differentiated. It's a durable model that consumers are going to want to be on and can be on if they choose to do so. And we're continuing to monitor what's currently out there. We're also continuing to do our own diligence around what is the best approach for us to offer it. We're confident that we will be in it at some point, but we're going to take our time and be very thoughtful. Again, I think that the reason why the company has been able to execute with the way -- in the way that it has, has been a result of really having that consumer trust. I think it'll also be on us as well. I think also having a platform, particularly the online business that's close to doubling every year affords us the flexibility to be very thoughtful from a growth perspective around where do we go after one.

And I guess just along those lines, whether it's weight management or some other category, are there any bottlenecks that you run into as you expand those categories? I mean one I could think of would be, if you're in a category, you need specialist docs. Is recruiting those doctors to get on the platform something that ever becomes a bottleneck? Or are there anything else that I'm missing in terms of other than just being measured and prudent how you approach the category?

I think it's -- yes, I wouldn't say that we necessarily had any bottlenecks. I think it's really around being just fundamentally thoughtful. So at times, we may move in a more measured way, but we view that the long-term value of that accrues. I think also as a result of that, the trust works on both sides of the marketplace, right? So if we're able to build a trusted brand, historically, we've traditionally engaged directly with the consumers. But I think, again, just using the mental health and the controlled substances as an example. You rewind back at 12 to 18 months ago, that was a popular topic that was generating a lot of excitement. A lot of companies were seeing a lot of growth around it. They think they're being very thoughtful and even opting to forgo the growth that could have come with that and avoid doing that. That also enables trust with providers. And so we see our ability to recruit providers, both in the form of the technology that we provide them, it makes them more efficient and their lives easier as well as the trust that we established with both the provider and consumer community is one that doesn't necessarily create a challenge with going out and recruiting providers.

I want to spend a little time on the long-term guidance, the '25 targets you put out on the 4Q earnings call because I don't think I was really expecting you to. You did, and obviously it was comfortably above consensus expectations. Maybe give a sense on the comfort factor you had in building to those numbers and now, too, that you increased your guidance by, I think, almost $100 million in revenue. I apologize, my maths getting little fuzzy at the end of the day. But that gets you a heck of lot closer to $1.2 billion in terms of that bridge. So walk through the stepping stones you get to as part of that build to $1.2 billion.

I think, first and foremost, I think that the way that the guidance was positioned for 2025, I think it's important to just anchor around, we set that as at least number. So all the numbers are more floors versus ceilings. And so those targets were at least $1.2 billion of revenue by 2025 and at least $100 million of EBITDA. I think what gave us the conviction in that is when we looked at the pipeline of current products that we have and some of the aspects on the Hims side around personalization and what we're seeing there, we have the conviction that we continue to scale the current categories that we're in. Traditionally, we also saw a very strong pipeline on the Hers side in the categories that we're already in to continue to scale those and through enabling a similar playbook to what we've seen on the Hims side and taking those learnings and applying them to Hers, we see a ton of potential. And we're very much in the early innings for Hers. I think that we do expect clearly over the next 2 years to enter additional categories. There's so much white space that we can have. Embedded in the guidance, though, is the effect of needing to go into a new category as more de minimis in nature. We view that as really setting the foundation for in a post-2025 world, how do we continue to have strong growth, continue to have the platform scale. The newer categories that we expect to come in over the coming years will be more for that. But even the orientation around scaling Hers and continuing to innovate on the core categories that we're in today, which we're very much in the early innings of the TAM we feel, I think will enable us to get to those targets.

And you've been using those numbers as a floor, which is perfectly fine with me. That still also gives you a pretty nice uptick in EBITDA margins. Your first 2 quarters of EBITDA positive. How do you think about the growth versus investment trade-off that builds -- bridges that '25 number? And I guess, second question for all the ones. But what does that mean from a cash flow generation perspective alongside that $100 million of EBITDA?

Yes. I think what I'd point to there is the capital allocation framework that we have in place looks at a few things. First and foremost, we're going to go after things that are high degree of NPV and we feel will generate ROI returns on the platform. We've also opted to invest in is -- and this is what we're benefiting from today is setting the foundation for, as you see the platform continue to scale, the benefits in the form of leverage directly accrue. And so when you look at something like rewind several years ago and you look at the affiliated pharmacies that are on the Hims & Hers platform, at the moment, that did require investment. When you look at the efficiency that we're having now around being able to offer personalized products, but then also now moving towards a world where the most recent quarter, north of 60% of the products were fulfilled with the affiliated pharmacies, that's the type of investment that has more of a longer-term orientation that we're benefiting from now, but it was years in the making. We view kind of the concept in 2023 around the same thing. We've seen opportunity to capture broader awareness across a multitude of our categories for users early in their journey. We've seen the ability to bring forward the pipeline for personalized products that are clearly resonating with users. And so embedded in our guidance is the appetite to take those as well as having the flexibility to do so. What you saw like last year as we were still investing in marketing with the levers that we got in the business, given the recurring nature of the business, was 8 points in a year. And so if you kind of take the points in 2025, we still have a lot of flexibility to get there and that we're assuming that from where we're at today, it'd be roughly 5 points of expansion kind of at the floors above those points. And so we are solid in our conviction to do that. I think that there are going to be periods of time where we do have CapEx investment over kind of the long term though. You see EBITDA track pretty closely to what our cash flow less our investment in capital expenditures looks like. And so we do expect over time to converge, but there would be some lumpiness in between as we really start to lean into some of the areas that we -- that I mentioned before.

I want to turn back to the competitive environment just because there are a number of other virtual-enabled pharmacies from new startup companies and then also stuff like the Optum store. So I guess maybe a very simplistic question from a competitive perspective, what worries you and Andrew most?

I think that there's not a competitor out there that we worry about. When you look at the breadth of offering that we have on the platform today across a number of categories, being able to speak to the Hims & Hers audience in a unique way, also just being able to execute across that full flywheel ecosystem that we mentioned. I struggle to kind of identify one competitor that's doing all of those things. I think also the TAM in this space is so incredibly large that I think that we have the confidence that if we continue to execute the way that we are across those pillars, we will be in a leadership position. I think given that health care is one of the largest verticals in the U.S., it would be a naive to believe that we're going to be the only player in the space, I think, what keeps myself and Andrew up more at night, I think, thus far. The reason behind why the company is successful is we've been able to do the right things in the right order at the right time. I think the vigor that you get, there are so many different opportunities that I'm not really concerned around what is the next opportunity that we're going to go get or where is growth going to come from. Increasingly, where a lot of the time goes, when we do the annual planning processes, having the debates across the executive team for what do we view is going to be the right move to do next, having the discipline to not do too many things at once. And I think that as we continue to hopefully have success on that front, I think being able to really have the internal compass to continue to basically execute and dial on things that matter, I think it's really going to be what differentiates us. And so that's a focus of Andrew and myself to fundamentally ensure that the organization is focused on delivering against the mission of making consumers feel great.

And I think this is going to be probably the last question. I hate to end it on a downward question, but I'm going to go there anyways. Hims & Hers wasn't around during the last recession. So we don't have proof points on how the business evolves during a recession. How are you framing whether we go into recession or recession-like conditions over the next 1 year, 1.5 years, how are you framing the up-down risk weightings for your business and the potential changes in customer behavior in the event that macro conditions worsen?

Yes, I think that we consistently stress test the model. And what I would just kind of caution around that is when you look at the course of the company's histories, we are relatively young. But there are moments definitely in 2020 where the world looked very different and the consumer behavior got choppy for a variety of different companies, Hims & Hers grew through that period of time. In more of the post-pandemic world where many telehealth companies saw a rapid tick through in the pandemic, but then rapidly decelerated, we continued to grow through that time. Even last year, there were certain points where a lot of consumer-oriented brands are having to pull back because the consumer -- there's talk around the consumer getting weaker, we continue to see record growth during those times. I think that there's a few underlying reasons behind that. One is, I think that we are fundamentally adding value to consumers in a way that is fundamentally differentiated from what's out there. The second element is increasingly that the consumer prototype that's coming to our platform is pretty diverse. We have different age demographics, income demographics, geographic conditions and so forth. And lastly, I think that we're serving some of the most emotionally resonant conditions to consumers. How you look every day, how you feel every day, how you engage with your partner, I think fundamentally, what we've observed thus far even in the company's short history, some of the murkiest moments from a macroeconomic perspective, consumers have still come to our platform in record levels. If anything, given the strong unit economic advantages that we're seeing and continuing to grow our platform, we view our ability to operate in the environment, but there's also upsides where we can capture opportunities in a recessionary environment as well.

I appreciate that. We hit the red light. So we'll wrap it there. But Yemi, thanks so much for being here. Thanks everyone for joining us.

Thanks a lot, Mike.