All right, we'll get started. Thank you, all for joining us, for the Hims and Hers fireside chat. My name is Daniel Grosslight. I'm the healthcare technology analyst here at Citi. I'm very pleased to welcome the CFO of Hims and Hers, Yemi O-. I don't want to butcher this. Oku-O-.
Okupe.
Okupe. Sorry. Thanks for joining us, this afternoon.
Thanks for having me, Dan.
I appreciate it. Let's start off with the quarter you just announced on Monday. A very impressive beat and raise, it seems like in a world where there's been some disappointing earnings from telehealth companies. You've kind of stood out from the pack with continued beats and raises throughout the last year. Just to recap for folks in the room who might not be familiar, you introduced guidance that implies around 40% top line growth, and your EBITDA is going to be solidly positive this year. For 2025, a couple of years from now, you plan to reach above $1.2 billion in revenue and above $100 million in EBITDA.
I guess first question for you, can you help us kind of bridge to that growth and margin expansion? What levers can you, can you pull to drive that growth particularly?
Yeah, I think on the growth side, we continue to see very strong momentum, from across multiple areas of the business. I think one of the things that gave us conviction in delivering strong 2023 guidance and beyond is we really see the growth of multiple channels and more and more consumers coming to us. That's really a testament of the flywheel that we speak around working, where as we continue to develop our trusted brand, we see more and more users coming to the platform, providing feedback around the types of products that resonate with them, whether that's in the form of creative formulations, or creative form factors. Then as we've started to increasingly offer more of those personalized products, we just see a greater adherence to the solutions that we offer, which drives higher clinical excellence.
We really saw that flywheel continue to take hold where revenue growth actually started to accelerate in the back half of the year. As a result of those dynamics, we're confident that we're going to continue to see very strong subscriber growth throughout 2023. That's both in terms of bringing more and more users to adopt products on the Hims platform. We continue to see the Hers platform scale in an amazing way, we're very excited to continue to see that grow and scale over the next couple of years. Lastly, as we mentioned, we're going to do it in a very disciplined way. We do expect, you know, over the next couple of years to start to expand the capabilities across categories that we start to offer.
I think between seeing the flywheel come together, a very exciting set of products that are going to start to launch throughout 2023, we're confident not only in the near term, which is this year, but really also what the outlook looks like for the longer term.
Yeah. Yeah, that makes sense. To hit that $1.2 billion target, $100 million of EBITDA, you're going to have to grow outside, I think of what most folks know you for, which is men's health. You started out your ticker is Hims. You know, as we think about you growing, not just in 2023, but reaching that $1 billion plus mark by 2025, how many categories do you have to expand into?
Yep. I think we, you know, we think around it, like less around, you know, the number of categories that we need to be in. I think that when you step back and you look at what is the value proposition, you know, that Hims and Hers really bring, our growth engine and equation is less around an offline to online conversion play. Like we definitely see some of that on the platform. Really, as you think around what are we trying to accomplish and what are we trying to deliver with our mission to help the world feel great through the power of health, it's bringing more and more people into the ecosystem to address whatever their health and wellness challenges are.
I think as a result of that, we're seeing more and more users adopt our products as we start to break down barriers through personalized products, making conditions overall more accessible and approachable. That said, I think we will opportunistically look to expand into potentially 1 of the categories per year at the most. We want to ensure that we do it correctly. We want to ensure that we do it deliberately. Really, even in the TAMs of the categories that we play in right now, there's the ability to basically touch an individual in every household, if not even every individual at some point in their lives. Things like mental health, dermatology and skin, men's health, women's health. These are very broad categories where I think we're just scratching the surface of the TAM on.
Yeah. Yeah, that makes sense. You know, as we think about product and category expansion, at some point you hit a wall because you are DTC, meaning are you kind of confined to conditions that can be treated with cheaper generics? Or is there a strategy in the future to work more closely with insurance companies or perhaps with pharma companies with their co-pay assistance programs?
Yeah. Yeah, I think it's a great question. I think what we see, you know, today is, you know, even in the categories that we're in, we're just scratching the surface. I think for some conditions, something like 90% of individuals are currently not seeking treatment for one reason or the other. Whether it's confusion, whether it's fear, whether it's even the overall approachability of what the solutions in the market look like today. There's a whole host of reasons behind why folks are not getting, you know, treated. Our ability to start to remove some of those barriers gives us a wide runway, you know, that we're confident in, will last multiple years.
That said, we want the ability to provide treatments and offerings to folks. Whether the Hims or Hers platform as it looks today may or may not be right for them. As a result of that, we've established partnerships with a whole variety of medical groups across the country that enable us to refer, you know, patients out when in an instance the Hims or the Hers platform may not be right for them. There's the ability to point them in the right direction to get treated for someone that has the ability to take care of their needs.
Yeah, yeah. Makes sense. As I look at the components of growth in really from since you've been public to now, you've had most of your growth is driven by subscriber growth, but you've also had a very nice uplift in AOVs. What's driven that uplift in average order values? As we think about growth, this year and beyond, how should we think about that dynamic between subscriber growth, order growth, and AOV growth?
Yep. I think that we expect the majority of our growth to continue to come from bringing new subscribers onto the platform. I think you're correct in that we've also seen, you know, some pretty meaningful gains in AOV. I think in its simplest form, why we've seen that is really just the focus on the customer. The management team does not spend time thinking through how do we optimize AOV and get higher dollar, you know, from a customer on a given order. Really the focus is how do we build long-lasting relationships with our customer base.
I think as a result of that, you've started to see innovative solutions, whether that's in the form of giving customers multi-month offerings, which has, you know, been a driver of AOV, or even just offering more creative, you know, solutions to keep customers on the platform for a longer duration. That focus on the customer is really what's driving them to have longer, deeper relationships with us. We've seen the benefits show up in the form of a higher AOV, more as a derivative of that, as opposed to a focus of it.
Got it. You know, one of the big questions I get from investors on you guys, are you guys just a pharmacy company? If so, how can a pharmacy company have nearly 80% margins, gross margins? You know, two-part question here. One, are you really just a pharmacy? More seriously, how are you able to achieve such good gross margins? You did mention that margins are going to compress a little bit in the future to around mid-70s%, probably. What's driving some of that compression in the future?
Sure. I think the first part of the question, the answer is like a resounding no. I think that what we do is we take the best from the consumer brands. We also take the best from the technology brands and the best from the health and wellness platforms and bring them all together in a unique value proposition. You know, for instance, when you look at the flywheel that we talk about in our strategic pillars, I think that that's one of the reasons why we've executed in such a strong fashion. We put the consumer forefront and center and think around like what's good for them. As a result of that, we're already seeing more and more consumers, more and more providers come to our platform, looking to foster a relationship with us.
They're constantly providing feedback around what are the things that are working, what are the things that concern them that are top of mind for them day to day, and we listen. As a result of that, we incorporate that into, you know, the personalized uniform factors, one of the recent ones being the Hard Mints product that we just launched, as well as some of the innovation that we've done in the men's health category as well. I think as a result of those dynamics, we create a very powerful flywheel where consumers see the value of our platform. I think as a result of that is one of the reasons why the gross margins have been quite healthy.
That said, when you step back and you look at what is the mission for the Hims & Hers platform, and it's really to make the world feel great through the power of health. I think as a result of that, like we really are looking to, you know, do a couple of things across the health and wellness ecosystem. Number one, that's to basically personalize, you know, solutions, and really treat every customer different because every customer has different needs. The second is to increase accessibility to the solutions that we offer. Lastly, we also want to make them affordable. I think as we think around, you know, our long-term EBITDA targets, as we want to expand the TAM, like we don't necessarily need a 80% plus gross margin, you know, to effectively do that.
We'll look to increasingly offer our products to a wider set of customers. I was actually joking with the team earlier a little bit. When I joined last year, we were at a 73% gross margin. The questions were.
Too big.
Were, you know, do you have the ability to keep that? I think that really the strong execution of the team and the innovation has enabled gross margins to drift higher. Really what we wanna do is, again, just to the principle of putting the customer first, we wanna take and reinvest, re-reinvest that to ensure that the customer has an amazing experience, and they keep coming back to us for years to come.
Yeah. Yeah. You, you mentioned kind of the long-term EBITDA targets here. I think you spelled those out at around 20%-30% on-once you reach scale. You know, if you've got 75% gross margins, and let's say you spend around 20-ish% on SG&A, and R&D, that leaves around 30% to spend on marketing to hit those margins. Are we thinking about that correctly? And how quickly do you think you can ramp to those margins?
I think to hit the first part of that question, you know, on SG&A support, R&D collectively, you know, you're correct that we're in the 30s today. We feel that there's still a ton of runway that we have on G&A costs. We also believe that there is a ton of runway that we still have on the operations and support. Over time, we will continue to get leverage. That's one of the reasons why we have the conviction and confidence to say that we would deliver $100 million of EBITDA for 2025. As we look to the long term, one of the reasons why the platform has enjoyed the scale that it has been that we've been at the forefront of experimenting across a variety of different marketing channels.
What you're seeing from us now, you know, as well as the route 2022, is really leaning into the long-term development of the brand. I think over the long haul, we do expect benefits for that to accrue. We will start to see, you know, leverage on the marketing spend over the long term. There's not necessarily a, you know, similar to when we hit profitability, a set timeline that, you know, the teams are gunning for and optimizing for. Really what we see is through the organic leverage the platform gets and it accrues will naturally drift there over time. I think to hit the 20%-30% targets, it's gonna be probably roughly in the 5 to 10-year horizon. Again, we just have a substantial runway for the TAM ahead of us.
We want to continue to basically operate and optimize for that.
Yeah. Yeah. Turning back more towards the near term, and you've mentioned this a couple times already, the customized products are a big part of your strategy. You just launched those mints, for example. How are you driving growth in your customized products and what does that do to margins? Is that accretive to your margins?
I think with respect to the personalized products, I think that, you know, even in the early days for the products that we just recently launched, we see, you know, an immense amount of demand. I think as you personalize solutions to customers, they have a way of finding it pretty quickly. You know, particularly if it works as well, and if it also is, you know, meets the desired feedback they've given us. I think that because we're at the forefront of this type of innovation, that gives us substantial control of our own destiny for how do we price it, what do the margins look like.
Again, I think just stepping back to our mission of building the customer trust and making the world feel great through the power of health, you know, we're very thoughtful around the types of premiums, you know, that we do put on it. We don't think it's gonna cause, you know, substantial gross margin, you know, dilution, but we have the ability to, you know, to be creative there.
Yeah. Yeah. What about retention? I would assume that if people are getting customized products that are only being compounded by you guys, it really improves that churn, the retention rates as well.
Yeah. I think we view that as a substantial differentiator. It's definitely part of a much broader ecosystem, I think that again, just going back to our first principles, really the things that we do is to just make the overall customer experience better. We roll out the customized products, which we do feel over the long term will just differentiate us from many of the other players out there. Even just removing, you know, friction around that exists in the current ecosystem, I think when you combine that with an amazing experience, personalized solutions, technology, easily accessible, and friendly, you know, end-to-end experiences, that's gonna continue to drive meaningful retention on the platform.
Yep. Let's turn to mental health, because that's been a bit of a controversial, I guess from a macro standpoint, issue more recently, because there were some scrupulous companies out there that grew a ton during the pandemic by prescribing Adderall, Xanax, Benzos. I'm just curious to get your thoughts on how the market broadly is gonna shape up. Obviously, you didn't touch those products, which was great to see, and what kind of growth you're experiencing within that segment specifically.
Yeah. I think we've made the conscious choice to not offer controlled substances on the platform. One of our strategic pillars is clinical excellence. Another key strategic pillar is a trusted brand. I think that those two things go, you know, hand in hand, so I think each decision that we've made around the decisions that we've made across the last couple of years have been in the spirit of ensuring that we are abiding and living up to those strategic standards. We have a team of medical advisors that's constantly advising us. We brought back Dr. Pat Carroll to the company as well. There's a whole host of, you know, different levers, you know, that we do pull there to ensure that we are driving high clinical excellence, and that consumers can trust us.
I think as a result of that, we've seen consumers adopt multiple products on the platform. We're very excited by the growth trajectory of mental health amongst many of the other emerging categories, such as dermatology and others. We do view that as we continue to execute across those strategic pillars, customers are gonna keep coming back to us for more and more. I think it really just speaks to the power of the platform.
Yeah. Do you think, the fact that we have seen this crackdown on some of those other platforms, do you think that will be a tailwind for you as you see patients churn off there and look for treatment, in other places?
I think it definitely has the potential. I think again, I don't think that there's very few patients out there that don't want a high degree of clinical excellence. I think as we become recognized by that, I think we'll continue to see patients come to our platform. I think we'll also see the best in class providers come to our platform as well. I think these two things work in unison. I think we're very excited, not just in the mental health space, but many of the other, you know, categories. I think for some of the increased regulation, I think we just welcome it. I think it's better for the broader industry to just hold everyone to a higher bar.
Yeah. You mentioned on your earnings call that a few categories were growing triple digits. Is mental health still in that triple digit growth area?
Yeah, I think we, you know, that's not necessarily a change. We do still have, you know, several categories that are growing, you know, in the triple digits. We're excited by mental health. We're also excited by dermatology. We're also excited by even some of the emerging categories, you know, that we have yet to launch that we spoke around in our, you know, investor materials as well.
Yeah. Yeah. let's talk about marketing because it is such a big portion of your spend, in DTC health. In general, it's very important. We've seen CACs in this segment really remain pretty persistently high. How have you changed your marketing strategy or developed your marketing strategy amid, you know, some pretty difficult costs pressures?
Yeah, I think it's being creative from the start. I would say that we've benefited through some pretty choppy periods through really enjoying the benefit of a few key things. You know, the first is when you look at the breadth of the offering on the platform, the number of different conditions, you know, that we have, we're able to rotate capital dynamically across each of those conditions. The second is pretty early on in the company's life cycle, we had a diverse set of marketing channels, right?
When you know, step back and you look at the retail partnerships that we've established, the celebrity partnerships, being one of the first adopters of leveraging alternative channels such as TikTok, Instagram, that other players are coming into, I think the creativity to be at the forefront of those things enabled us to navigate some of the CAC dynamics that you're talking around. Now, what you see us increasingly do is we're investing more into the long-term development of the brand. We feel that the benefits of that are going to accrue over the long term in a pretty meaningful way.
Yep. Yep. You know, and I think one of the interesting things about you guys too is despite, you know, the high marketing costs and your ability to offset that, your retention rate remains pretty high, 85%. Your payback period is pretty efficient, less than one year. How has that been trending recently?
Mm-hmm.
Is that kind of a new development or have you always kinda been pretty steady at 85% and less than 1 year payback?
In 2019, the payback period was over a year. We actively did a ton of execution and activities to bring that down over time. We saw in 2021, that came down to less than a year, roughly 6 months. As we look at the early 2022 cohorts that are now hitting, you know, a year, those have also had a payback period, you know, roughly in the 6-7-month timeframe. I think that we increasingly just see very strong strength across the customer cohorts that really is just a testament to how customers value our platform.
Yeah. Where do you think those can go? Are you at your target? Do you think it can get lower realistically?
Yeah. I mean our target is less than 1 year and, you know, we're currently sitting well below that. I think that we're going to continue to release capital and deploy capital in a judicious way. I think that it's not as if we're looking to force those targets any lower. I think a payback period of less than 1 year is very strong and very ambitious. Really I think what we're after is we're going to continue to very much invest in a disciplined way, but continue to grow and chew at that larger runway for the TAM that we mentioned.
That really, that's our focus is how do we bring in more and more customers into the ecosystem, get them to know the Hims platform, get them to know the Hers platform, and continue to just make a broader set of people feel great.
Yeah. Yeah. directly related to the payback period is churn.
Mm-hmm.
How has churn trended recently? I assume it's very similar to your payback period. When people do churn off, where are they going?
Yeah, it's a great question. It's hard to know exactly like where folks are going. I think the way that we define, you know, churn is even if there's an exogenous event and someone leaves the platform temporarily, then it comes back in the period, they'd technically be classified as churn. I think there's all kinds of interesting dynamics where we actually do see a healthy number of users call what we call internally reactivate. I think that that's one of the things that gives us, you know, conviction in the long-term durability of the platform. I think increasingly what you also see is even upfront, customers are wanting to establish longer and longer relationships with us.
When you look at the number of customers that have signed a multi-month relationship with Hims, north of 70% of subscribers are opting for multi-month conditions, which again, just speaks to the value that our platform is bringing to them.
Mm-hmm. Have you kinda tapped out on your multi-month orders, 70%? That's, you know, a portion of folks are always gonna be the single-month order, but where can that 70% go to?
Yeah. I think it has the potential to go higher, but really what we're after is putting forth the right offering for the right consumer and what they want. You know, for the consumers that want multi-month offerings, we wanna ensure that it's compelling and that they have that opportunity. If the consumer wants to go, you know, month to month as with us as well, where that makes sense, we also want to offer them that opportunity. Really it's a matter of fulfilling what the consumers want and need, but we do think that there's additional potential there.
Yeah. Yeah. That makes sense. Turning to one of the controversies in the DTC health space, there was a Consumer Reports article, a few months ago, Wall Street Journal article a few months ago on this as well. The, the utilization of patient data for marketing, not just kinda the direct marketing, but also using, you know, Meta Pixel and some performance marketing through Google, by using, patient data. How are you guys using patient data for marketing? Are you know, are you, again, sharing data with Facebook and the other performance marketers that might be considered sensitive?
Yeah, I think it's a really great question. I think, what I'd first point to and reiterate is, you know, in our strategic pillars, the four that we talk around, two of those are again, the trusted brand and the clinical excellence. We take the trust of our consumers incredibly seriously. I think as a result of that, we generally, you know, are not using any type of data for nefarious purposes. Any type of consumer data that we do use to drive the feedback that they give us to increase the consumer excellence. The short answer is, we abide by all of the state, federal, and platform regulations, you know, that we're required to.
By the same token, we're really looking to just drive high degrees of clinical excellence for our customers. We take the trust of our customers very seriously. Any data using the platform fully anonymized, again, just 'cause we take the trust of brand very seriously.
Got it. Has this intense scrutiny, even though you might not be, you know, running afoul of any of these regulations?
Mm-hmm.
But has any of this intense scrutiny changed how you're thinking about marketing and/or performance marketing in general?
I think the shorter answer is it really hasn't. I think from day one, we've always looked to protect the customer data. We've always looked to, ensure that we are building that trust. I think just having that in our DNA, has enabled us to not have to make a hard pivot, that you're seeing others potentially have to make.
Got it. Good. Let's talk about your app. You recently launched a Hims & Hers app. It was, I think, November of 2021. Can you share any data around the utilization of that app and, you know, what it does to your retention and churn?
Sure. I think that we see the majority of consumers, new users on the platform adopting the app, as they come on board. Really, the intention of the app is to provide consumers with access in whatever modality that they choose to engage with the platform. To some degree, we even see some consumers engage with us at multiple touchpoints, whether it's both web and app, at any given point in time. I think through offering consumers more choice, more touchpoints to engage with their providers, that enables us the ability to, again, increase the durability of those relationships over the long term.
Yep. Yep. Let's talk about the macro environment a little bit. Still a bit iffy. You know, if we're gonna see a hard landing, soft landing recession. Days like this, it feels more like a hard landing than anything. I'm curious how you've positioned yourself in the event that we do have a recession.
Mm-hmm.
Are you seeing more as discretionary nature by your customers? If so, how have you sought to increase utilization among a potential weakening environment?
Sure. I think while the company, you know, is relatively, you know, young in its tenure, less than six years old, we've been through a variety of different environments over the last, you know, six years from the pandemic, the throes of the pandemic, leaving it, to even some of the choppiness that started to emerge last year. I think what we've seen across all those environments, the platform continue to grow. There's a few reasons behind that. I think first and foremost, the offering that we have of the end-to-end optimized experience really does resonate with consumers, and provides them with solutions for some of the most emotionally resonant conditions, you know, that they're facing. How they look and feel every day, how they're showing up, what their mental health is, you know, and so forth.
I think as a result of that, we view the resilience of the model to be quite high. I think the second element, you know, that is also important is, you know, we don't cater to one specific demographic. The diversity of demographics of users on the platform is pretty vast, from income levels, geographic locations, gender, you know, so forth. You name it. I think that diversity has enabled us to really be able to navigate through a variety of different environments. Again, I think we're confident that we can build a long-lasting and durable business in whatever environment emerges.
Yep. One of the biggest questions that we get on you guys also, apart from the question about your margins, sustainability of those gross margins, is just competition, and I guess it's related. We have seen some big, big players like an Amazon come in with a solution that seems very similar to yours, Amazon Clinic. They just acquired One Medical, and there's other players too, that have come up as well. Can you talk a little bit about the competitive dynamic with a specific focus on some of these very large new entrants that might come into into play?
Yeah, sure. I think that the entry of the large players that you're mentioning, it really is a testament to how big this opportunity is. Stepping back, I think that, you know, health and wellness space has largely gone and optimized when you think around how technology has touched so many different facets of a consumer's lives, you know, here in the U.S. You know, health and wellness, I think we still definitely have a long way to go. It's one of the largest verticals in the nation. I think as a result of that, I think it would be naive for us to believe that we're gonna be the only players in this space. We think that strong execution across the four pillars is gonna enable us to be a leader in this space.
Building a brand that consumers, you know, again, trust, providing them with, leveraging technology to provide them with innovative services and solutions, and establishing a high degree of clinical excellence, when you package that in a, you know, relatively frictionless end-to-end amazing experience, we feel that that's going to enable us to be market leaders, in what's likely to be one of the largest opportunities remaining in the country.
you know, I know you don't really have this tracked in detail, but when you do lose a customer, you're not seeing them necessarily go to a competitor like Amazon or. Has there been any data out there on where customers are going if they go to a competitor?
To our knowledge, you know, there's not. I think usually what we oftentimes see is there's an exogenous event, you know, that oftentimes will result in a customer temporarily leaving the platform. What we also do see that gives us conviction is that we see a lot of customers, you know, as I mentioned before, come back and reactivate. I think that, you know, for instance, there might be you know, periods in time, like where if you're taking a vacation or, you know, if you're on our sexual health platform and you potentially lose your partner. Those are all reasons, you know, that are necessarily within the control of Hims or Hers, you know, to retain a customer.
Again, we want to do what's right by them, so we're not going to, you know, push our products on them in an environment where it doesn't make sense. Usually I think like what we're competing with is more of an exogenous event. I think that the platform that we provide, the value that it brings when the consumers recognize it, I think what also gives us the conviction that we're not losing share to others is the fact that for consumers that do leave the platform, we oftentimes see many of those users come back.
Let's talk about your provider network. That's been one of the difficulties for a lot of telehealth platforms out there just because there's so much demand for providers now. State licensing rules are pretty onerous as you know, and they're probably gonna get more onerous after the PHE expires. How are you managing your provider network? Have you had any issues with recruitment, retention and compensation?
Yeah. We've not had any issues with, you know, the recruitment of providers. I think that we, you know, have an amazing platform. We also provide them with an amazing set of tools that help drive efficiency, better outcomes, remove some of the administrative burden, you know, that they face. I think through having a world-class EMR tool that providers can interact with enables us, you know, the ability to draw some of the best providers out there. I think also being known to have a trusted brand and making very conscious decisions and protecting that not only helps us acquire consumers, but also helps us to draw on providers as well, which are a very critical and important part of that flywheel in ensuring that we establish the high clinical excellence that we hold ourselves to.
Yeah. All of your providers are 1099 contractors, right?
Yeah, the majority of the providers are, you know, 1099 contractors on the platform, for flexibility. It's not 100%, but the vast majority are.
Yep. Yep. Makes sense. Well, I do wanna leave some time for some Q&A if folks, wanna ask questions. Before I do that, anything that you think is particularly misunderstood about Hims or anything you want to say before we wrap it up?
Yeah. No, I would just, you know, say that I think 2022, you know, is definitely a phenomenal year for us, crossing 1 million subscribers, hitting over $525 million of revenue, generating our 1st quarter of adjusted EBITDA profitability. I think while 2022 was definitely an outstanding year, I think what excites myself and the broader management team and the entire company really is the future. I think that we are just scratching the surface of this opportunity, and there's so much more to come and so much more excitement. I think that we firmly believe that we'll be at the forefront of that.
Great. Let's open it up to Q&A. I believe we have some mics here if folks wanna ask a question. All right. If no questions, we'll wrap it up a little early. Really appreciate your time, Yemi.
Thanks so much, Dan.