Hims & Hers Health Inc (HIMS) 2021 Q3 法說會逐字稿

Good afternoon, and thank you for joining us today Conference Call to discuss Hims & Hers Health, Inc. Third Quarter 2021 Financial Results. Joining me on today's call are Andrew Dudum, our Chief Executive Officer; and Spencer Lee, our Chief Financial Officer.

On this call, we will be making forward-looking statements, including the financial guidance and expectations for our fourth quarter 2021 and fiscal year 2021 and 2022 growth, expansion into new categories, strategies, customer demand and products. These statements reflect our best judgment based on the factors currently known to us as the actual events or results may differ materially. Please refer to the documents that we filed with the SEC, including the Form 8-K filed with today's press release. Those documents contain risks and other factors that may cause our actual results to differ from those contained in our forward-looking statements. These forward-looking statements are based made as of today, and we will discuss -- disclaim any obligations to update or revise these statements. If this call is reviewed after today, the information proceeding during this call may not be current or accurate.

We will also discuss the non-GAAP financial measures, which are not prepared in accordance with the general accepted accounting principles. For the historical periods, the reconciliations with GAAP and non-GAAP results are provided in the press release filed today with the SEC on an 8-K and also available on our website.

And with that, I'll now turn the call over to Andrew Dudum.

Welcome, and thank you all for joining our Q3 earnings call. This quarter was yet again another quarter where our team's execution was outstanding. Our mission is to make the highest quality, personalized health care accessible to everyone. This quarter, we delivered on that mission at a scale never achieved in the company's history.

Across the board, we exceeded our guidance with revenue coming in at over $74 million, representing 79% year-over-year growth. Subscription members, the underlying driver of our subscription business, grew 95% year-over-year, to over 500,000. This outperformance across the spectrum was driven by continued robust growth in our core Hims categories, where our entrenched brand and trusted products continue to deliver exceptional growth as well as continued acceleration in our newest expansion categories, such as mental health, growing 1,000% year-over-year.

Our fundamentals underpin what I continue to believe is an exceptionally rare opportunity in the public market, a beloved consumer brand that is built upon an enduring subscription membership business model. Approximately 94% of our GAAP revenue was recurring subscription revenue, made possible by robust 88% long-term revenue retention. Hims & Hers brings together the best of high-growth consumer Internet, coupled with the fundamental economics of enterprise SaaS. We believe what we are delivering is different from anything in the market, and our brand approach and execution continues to deliver real, durable, competitive advantages.

While Spencer will spend more time reviewing the quarter in his remarks, I wanted to take the majority of the time today to share what I believe is the most exciting news of the day. Today, we launched our mobile platform, and plan to roll it out fully over the coming weeks and months, to over 500,000 Hims & Hers members. To me, this marks one of the most exciting launches in our company's history, as we continue to further advance our goal of fundamentally reshaping what it will mean to access and experience great modern health care.

I believe that the launch of our mobile platform is significant not just for our company, but for the industry as a whole. The Hims & Hers mobile platform is a major step in visualizing the radically different vision we have for the future of health and wellness. Our members grew up expecting innovative, digitally native and all-inclusive experiences like Spotify, Netflix and Peloton. Those companies structurally changed the fundamental business models of their traditional industry in favor of everyday consumer experiences.

We believe the health care industry is in need of that structural change as well, and we view today's launch as a major step toward Hims & Hers building that future. We imagine a world where the hardest part of accessing treatment options for a health challenge is pushing play on a guided and integrated program, a program led by inspiring and compassionate coaches, backing partnership by leading medical institutions and specialists that brings together streamlined education, original content, community support, treatment and oversight.

We imagine a world where hundreds of programs are available at your fingertips from helping track and improve your cholesterol to navigating the complexities of IVF with their partner. We imagine a world where the concept of scheduling an appointment, coordinating a visit, finding a specialist, or asking about even the smallest health concern is as simple as texting your concierge, who not only knows your name, but ensures someone is available to you 24/7 on call to assist you.

We anticipate that our mobile platform will be the foundation on which we build and invest in this future, further bundling additional value for our members. It's hard to overstate the potential and full extent of how broadly we're thinking about this opportunity over the long term. In the near term, I'm confident what we built will be wildly additive to our existing offerings. In the long term, I believe we may have just introduced a new way entirely to think about the delivery of health care. We're excited to continue pushing the boundaries on behalf of everyday people, unconstrained by the existing entrenched systems of today, and focus solely on how to empower the masses with beautiful, affordable and accessible care.

For all of you visual learners, we've created a destination to see the core experiences within the mobile app. Let me walk you through a few of those core aspects. And for anybody interested, feel free to follow along more visually at the URL app.forhims.com. To begin, let me introduce you to programs.

Programs provide consumers with beautiful and fun, original content journeys for a range of curated health challenges. Programs are led by energetic and compassionate coaches, aiming to help each customer move along their journey of improved health. In partnership with leading medical experts and specialists, each program has been crafted to provide a world-class educational journey at the click of a button. Programs are a new world of access and community for people struggling to take the first step in resolving a health or wellness challenge. We believe programs have the potential to help millions of people take that first step. From helping reduce anxiety and resolve hormonal acne to sleeping better or navigating fertility challenges, we believe programs are an innovative new form factor that will help bring to the masses the best medical expertise. This is a new platform for us, which we will be building and creating on top of, for years to come.

Second, let me introduce you to care. Hims & Hers members will now have full access to care, a simple and unified hub for accessing your entire virtual care team. Within care, customers will have access to support in a variety of ways, from scheduling consultations with licensed medical professionals on video, phone or chat, to leveraging unlimited messaging access to the medical experts that are supporting their treatment plans. Within care, members will also find our new 24/7 concierge, where members will have around-the-clock access to highly trained coordinators helping navigate the ecosystem, coordinate with their virtual care team, or simply help get the answers you need regarding your treatment plan.

And lastly, introducing the member store. The member store is expected to bring together the entirety of the Hims & Hers product portfolio into one simple and personalized space. Consumers will soon have one clickability to purchase at member pricing some of our most highly rated over-the-counter health and wellness offerings. From supplements to support sleep to products tackling hair loss, the member store allows for curated and personalized offerings bundled for easy access to up level daily routines or enhance current plans.

While still early, we believe that what we are building envisions a new future in health care, a single entry point into a beautiful health care world, simplifying the complexity of feeling great and being well. I'm so proud of the team for what they've dreamt up and have executed upon.

Today, our business is stronger than it has ever been. We added more members to our platform in Q3 than any quarter in our company's history. Our products line the shelves at nearly 10,000 physical brick-and-mortar locations nationwide, including most recently a nationwide rollout in Walgreens. From the loyalists of JLO and the irreverent lovers of Miley Cyrus to the Sunday night fans of Rob Gronkowski, Hims & Hers is everywhere in omnichannel strategy to build the first true consumer health care brand.

Enhanced by this brand, our platform capabilities are only growing. And with this latest mobile platform, we feel confident in our abilities to lead in innovating, visualizing and ultimately creating the future of health care. I've said this before, but I feel it's worth repeating, we are a company passionate about building this future. We pride ourselves on being visionary in our sector, sustaining consistent execution and delivering growth, and I feel this quarter is highly reflective of our ability to be the leader in this space. I'm proud of the results we shared with you today, and of our team's dedication to our mission.

At this point, I'll now turn the call over to Spencer for a more detailed review of our results, followed up by Q&A.

Thank you, Andrew. I'm pleased to report another incredibly strong financial quarter for Q3. I'll walk through the details behind our performance for the quarter, then discuss our revised upwards guidance for Q4.

First, let's discuss our Q3 results. In addition to continuing to drive strong growth in both the Hims & Hers brands, we also began integrating the company's first 2 acquisitions, Apostrophe and Honest Health, with both companies on track with integration and go-to-market expectations. Q3 was a quarter with many moving parts. And with this additional complexity, on our last earnings call, we not only provided guidance for revenue and adjusted EBITDA for Q3, but we also discussed several other metrics, including gross margin, marketing expense and AOV.

I'm pleased to report that we met or exceeded our guidance across every metric we provided on our previous call. In Q3, we generated revenue of $74.2 million, up 79% year-over-year, which exceeded the high end of our revenue guidance of $71 million. Q3 included approximately $5 million from Apostrophe, which was at the high end of the guidance we provided. Our strong growth this quarter continues to demonstrate the deep underserved demand of a new generation of experience-driven and brand savvy health care consumers.

Our ability to identify these audiences and deeply connect with them through our brands, and drive engagement and conversion to our unique digital experiences, resulted in Q3 subscriptions growing 95% year-over-year to approximately 551,000. We generated nearly 1 million net orders in the quarter, 968,000 to be precise, which accelerated to 66% growth year-over-year. Year-over-year growth in net orders has accelerated for the last 4 consecutive quarters, which we believe, further demonstrates the deep consumer demand that exists in the market, and our unique ability to capture it.

Q3 gross margin was 74%, and in line with the guidance we provided last quarter. As we indicated on our previous earnings call, the quarter-over-quarter decrease in gross margin was primarily driven by lower margin revenue from Apostrophe and Honest Health. As we continue to integrate our teams and capabilities, we see opportunities for margin expansion for both acquisitions over the medium term.

Q3 marketing expenses were $38 million, right in line with the guidance we provided last quarter. Q3 marketing expenses included the marketing budgets we inherited from Apostrophe and Honest Health, and the upfront investments we made for our celebrity partnerships with Miley Cyrus and Rob Gronkowski.

We are exceptionally pleased with the continued performance and scalability of our marketing. What we've been able to accomplish this year with our marketing efforts, I think, has been really special and quite unique. Like many, we've seen ad rates increase throughout the year. Yet in the face of these rate increases, we have kept our acquisition cost per new subscriber effectively flat the entire year.

From Q1 to Q3, the variance between our highest CAC quarter and lowest CAC quarter has been less than 3%. Another way of saying this is that CAC has essentially been flat all year. Keeping CAC flat in an environment of increasing rates would be impressive by itself. However, we've done this while also scaling subscriptions and exceeding our revenue targets.

Often, when ad rates increase, companies are forced to make the tough choice between maintaining CAC by spending less and having growth decline, or increasing marketing spend at ever-increasing marginal CAC in order to hit growth targets. This is why I think our execution has been so special and unique. Not only have we been able to hold our CAC flat this year, we've done so while also growing revenue 79% year-over-year, and subscriptions 95% year-over-year in Q3.

Throughout the year, we've discussed the underlying drivers of our efficient marketing performance, but I want to take a moment to really emphasize them. First, we have a diversified marketing model, but we are not dependent on any single marketing channel to drive growth. Since the start of the company, we have tested and learned how to scale and drive growth from a broad range of marketing channels, including digital and offline channels.

In Q3, no single marketing channel accounted for more than 25% of total marketing expenses. This expertise and diversification allow us to continuously allocate our budget to the highest performing channels to drive efficiency and growth. Second, our data and analytics capabilities allow us to deeply understand our core audiences, develop assets and campaigns that drive high engagement, and allow us to very effectively identify, target and convert high-intent and high-value consumers. These capabilities have allowed us to exceed our targets for revenue and growth throughout the year, including in Q3, despite price fluctuations across channels.

Adjusted EBITDA loss in Q3 was $9.8 million, in line with guidance. We made several investments this quarter that we expect to provide future tailwinds, including the upfront marketing expenses associated with our Miley Cyrus and Rob Gronkowski partnerships, the close of the Apostrophe acquisition in July, and continued investments in people and capabilities across our core business and new categories.

Now moving on to financial guidance. For Q4 2021, we are raising our revenue guidance to a range of $76 million to $78 million. This includes approximately $2 million from our new wholesale agreement with Walgreens. Excluding Walgreens, we're guiding to a Q4 revenue range that is roughly in line with Q3 revenue. We've provided this guidance that Q4 revenues would be in line with Q3 for the last 7 months, starting on our earnings call in May.

We are reiterating this guidance as it reflects our run rate of Q4 trends and the uncertainty around seasonal ad markets, particularly in light of what we observed last year. I also want to note that we expect gross margins to sequentially decline by approximately 2 points in Q4, driven by a higher mix of wholesale revenue from Walgreens and increased seasonal shipping costs that have been indicated by our shipping carriers. We expect full year revenue of $263 million to $265 million, implying 77% year-over-year growth at the midpoint. For Q4 adjusted EBITDA loss, we are guiding to a range of $12 million to $14 million. For the full year, we continue to narrow the range to an adjusted EBITDA loss of $35 million to $37 million.

And finally, as we are working on our plan and budget for 2022, I wanted to provide some thoughts about next year. In October 2020, we shared an investor presentation during our SPAC process that provided revenue growth projections of 30% for both 2021 and 2022. We've completely outstripped our growth projections for 2021. We're currently guiding to $264 million in revenue at the midpoint for 2021, growing 77%, beating our previous projection by $85 million.

However, our revenue projections from last October are instructive on how management views the long-term growth prospects of the company. But we believe we are addressing numerous multibillion-dollar markets, that we are uniquely positioned to address this new generation of health care consumers with a brand and set of experiences to meet their needs, and that we are well-positioned to be a long-term high-growth business. As we finalize our plans, we expect to provide formal guidance for 2022 on our next call. As we close out this incredibly strong year, we thought it would be worthwhile to share that we continue to feel good about a 30% revenue growth rate for 2022.

Before I pass the call back to the operator, I wanted to quickly reflect on 2021. We continue to be an exceptionally fast-growing company, guiding to a 77% revenue growth this year, which is basically maintaining our 80% growth rate from last year. We are growing at this rate, while on track to generate well over $0.25 billion in revenue this year, reaching this incredible scale in roughly our fourth year of operation.

On our first earnings call as a public company this past March, we guided to a full year adjusted EBITDA loss of $35 million to $45 million. We've continued to converge on the low end of this original range every quarter, while continuously exceeding our revenue estimates. Our current adjusted EBITDA guidance for the year means we are losing, on average, only about $3 million per month, which seems very reasonable given our exceptional growth, impressive scale and the fact that we have over $250 million in cash and investments on the balance sheet.

2021 is turning out to be an unbelievably strong year. I couldn't be more proud of what we've achieved.

Operator, I'm happy to open up the call for questions.

(Operator Instructions) For our first question, we have Jailendra Singh from Credit Suisse.

This is Adam on for Jailendra today. Congrats on the quarter. Just a quick follow-up on the Walgreens contribution in 4Q with this $2 million of expected contribution. Going back to what was going on with Target, I know there were some one-time in-store marketing and advertising benefits that the Target deal had? Is that a similar dynamic towards Walgreens? And I guess how should we expect that to transition in 2022, as the partnership kind of rolls off the early transition?

Nothing to speak of right now in terms of special marketing arrangements with Walgreens, particularly not for Q4. I think for Q4 in particular, with the Walgreens agreement, the POs that we've received for Q4, are actually only for a subset of the product assortment that will ultimately be in Walgreens. So next year, I think, we can expect to see higher volume POs than what we've seen in Q4, as the full assortment rolls out over the course of next year.

Got it. That's very helpful. And then maybe just within this mobile app, obviously, very exciting there to have rolled that out. It's just -- can you touch on how you're thinking about this platform in terms of retention on existing members as well as just serving as a jumping off point for additional solutions around other areas of care that you might be looking to enter into in the future?

Thanks. I think the mobile app is exactly focused on those 2 things, right? It's a platform and a home base for our over 0.5 million monthly subscription members. And so part of that really lives in this care and programs world where it's guided handheld journeys and original content to better engage, activate and make sure that these patients are getting the right clinical outcomes, and then also give them access to that 24/7 concierge experience where they have essentially a doctor in their pocket, right? And so I think that high-touch concierge experience and I would say focus on clinical efficacy is really at the core of this.

And so we do believe it has really material potential to impact retention long term. When you look at retention for this business, as Spencer and I have shared, there's incredible long tail, right, 88% long-term retention. But most of that churn really takes place in the first couple of months of the consumer and patient getting acquainted with their medication, and building that habit, and building the daily process and experience of taking that regimen. And so this world of these programs, we think, are a phenomenal innovation, frankly, in bringing health care to consumers in a digestible way that is just going to make the engagement so much higher. So really excited about the impacts it could have for those 500,000 numbers.

And then, also just really excited for what it means for the future, right? You can imagine a world very naturally, when you take a look at programs, where there are literally hundreds of programs. And so when we talk about the front door of health care system, this visually is a representation of that, quite literally, right? You can imagine scrolling through a category for heart health, and clicking a button to start a program around understanding your cholesterol levels, understanding where you sit, and whether or not something like improved diet or a statin is appropriate for you.

You can imagine the whole fertility section, right, for people who are trying to navigate IVF for adoption. So I think it's a foundation that really changes our ability to build innovation for consumers. And so in that way, when you're talking about cross-sell, when you're talking about customers better understanding what lives, and it's bundled in your experience as a member, the ability to explore, the ability to one-click purchase, all of those things are enhanced dramatically in this type of a world.

And so we think this is arguably one of the most important things we've probably ever built as a company in that it's really going to be the foundation of what we continue to build on over the next 5 and 10 years.

For our next question, we have Daniel Grosslight from Citi.

Congrats to the quarter. Great to see the results. I understand you're not formally guiding for '22, but the 30% growth does imply a pretty steep step down to the growth that you saw in 2021, which mainly was not anticipated. So I'm curious, was there some pull-through in 2021 from 2022? Is that just conservatism at this point in the year? How should we think about some of the drivers of 2022?

Sure thing. So yes, I mean, I think, if you look back to our October presentation from 2020, obviously for '21, we've grown way past the revenue forecast that we provided for '21. And again, as I mentioned, I think the 30% growth rate that we provided during the SPAC process are instructive in understanding management's perspective, right, that these -- that we are addressing massive multibillion-dollar markets, that we have a unique set of experiences and brand that is resonating with this underserved new generation of health care consumers.

And I think with the 30% growth that we are, in some way, reaffirming here our confidence in for 2022, is just a signal around our continued conviction at the size of these markets, with the resonance of our brand, and how underserved these audiences are and our unique ability to address these audiences. And at a 30% growth rate for next year, I mean, that means we'd be adding up to $80 million of additional revenue next year against our current 2021 guidance. And so an additional $80 million of revenue, I think, further signals our confidence in the size of the markets, and just the strong demand that exists out there.

Yes. That makes total sense. Okay. And we've heard a lot about labor cost issues on the provider side more recently. I'm curious -- obviously, it's not showing up in your gross margin currently. But as you look ahead and lay out your kind of hiring plans or contracting plans on the provider side, have you noticed anything in terms of wages that you need to pay, or shortages, particularly as you have seen so much growth in the mental health side of the business, which tend to have the most shortages out there?

Thanks, Daniel. It's a great question. We really haven't seen any material adjustments or necessity to change contracting or wages or pay in aggregate across the provider groups. And I think a big part of that is, frankly, when you talk to the physicians on our platform, right, I think at this point it's over 300 to 400 physicians, they really, truly enjoy practicing on the platform. And I think it's because it's a completely new first-generation technology build, it's a digitally native and mobile experience for a lot of them. These people are interfacing with beautiful technology to treat their patients, and have that flexibility to do it as they are walking their dog, right, around their block. And so I think the systems we've built, the technology and the interfaces that they are using, when they come to practice on the Hims & Hers platform is actually just really energizing, and makes their life seamless.

And so we've had really no massive changes or no material difficulties in the hiring, recruiting, or retaining of the provider groups. And that's really been the case since the beginning. But I frankly think that's likely the realities on a go-forward basis as well.

And for our next question, we have Michael Cherny from Bank of America.

This is Charlotte on for Mike. And congrats on the quarter. My first question was just around updates on category expansion. I know in the past, you've called out doubling the number of categories you're in by 2025. If you could just provide any color here on the steps you're taking? And what really seems to be top of mind?

Yes. Thank you so much for the question. I think we've definitely shared that this business is scaling exceptionally quickly because of the unique ability to both build a grant and execute on expansion categories, right? So as we mentioned previously in the re-recorded transcript, mental health is growing as 1,000% year-over-year, right? So these dynamics are really contributing to very meaningful revenue and growth across the spectrum.

And you see that, obviously, where our marketing dollars have deployed as well, right? We've got Miley Cyrus talking about women's dermatology. We have Jennifer Lopez talking about women's hair loss, Rob Gronkowski talking about mental health. So huge belief that this differentiation combo of the brand and the expansion breadth is creating huge value. And so what I think you can expect from us is that continued expansion, every quarter, every 2 quarters, the launch of new major categories.

Ones we've talked about in the past include things like sleep, weight management, fertility, hypertension, hyperlipidemia. We believe these categories are incredibly well-suited and can be safely treated on the Hims & Hers platform, as built today. So I think when you look at that, and then you also take a look at the mobile platform that was announced earlier, and the introduction of programs in that world on which you can build very catered journeys for very specific new categories, I think it lends itself very naturally to that long-term vision of a broad ecosystem of care options all under this membership. So I think you can expect us to continue to launch those categories toward the end of this year and into Q1, and frankly expect that to take place on an ongoing basis for the 3 to 5 years ahead.

Great. And then just a follow-up question. You called out last quarter that you were expecting to see some compression in AOVs, driven by the recent acquisitions, but it seems like those are the same sequentially. Could you just provide some color on what was driving that performance?

Yes. So AOVs came in a little bit stronger than expected and primarily driven by mix shift. I mean I think we had some positive mix shift in the core Hims business that offset some of the AOV compression that we thought that would have happened as a result of our acquisitions. Going forward in Q4, I think what we're sort of seeing in the business right now is AOVs that will likely be in line with Q3 or slightly down, depending on how sort of mix shift plays out on the core Hims business over the next couple of months. But not any material movements, but in line to maybe slightly down in Q4.

(Operator Instructions) For our next question, we have Jessica Tassan from Piper Sandler.

And nice quarter. So I think early in the call, Andrew, you highlighted an impressive 88% long-term retention rate. Can you just help us understand what that number is referring to? What does it maybe include or exclude? And what is the long-term time frame?

Yes. So what we've disclosed in the past -- and thank you for the question -- is 88% long-term retention, and that's total retention between the year 2 and year 3 of a lifetime value for one of those consumers. So between year 2 and 3, you're retaining 88% of the value of that cohort, which we just think is incredibly indicative of the stickiness of the platform, right? And when you think about the fact that -- I think we disclosed this, 94%, 95% of our revenue is long-term recurring subscription revenue, it's the fact that what people are signing up with Hims & Hers is a chronic condition, right, a chronic program that helps them treat something that is an ongoing long-term relationship. And so that metric, we think, is really reflective of the long-term stickiness of the cohorts. And we believe that will really continue to be the case, given the types of categories we continue to expand into.

Awesome. And then just maybe as a follow-up on the launch of programs, so how are you thinking kind of about pursuing reimbursement alongside developing new clinical programs or expanding into new clinical areas? And then just, is there any relationship between the launch of programs and your relationship with Privia Health that I think you guys announced (inaudible)?

Yes. There's no direct relationship between the programs launch and Privia Health per se. What is at the core of programs, however, is a number of relationships with either health systems or medical specialists that are coming from top universities and top programs, where those partnerships are creating and crafting the actual journey and the content, that we then are able to produce and bring to market.

So each of these programs is being built in partnership with leading specialists and individuals coming from these institutions, for the most part, that are helping us drive that value. As we continue to launch those programs, I think like I've shared, the majority of offerings will be, and continue to be cash pay, because we believe that will be built with the verticalized provider group, the verticalized pharmacy, the ability to really treat these patients start to finish. We can deliver that at cash pay prices in almost all situations.

It's cheaper than most people's co-pays for their insurance, given the acceleration of high deductible plans in the country. But with that said, we are continuing to work on that insurance reimbursement. The team is actively involved in that for very specific conditions and specific categories. And so you can imagine specific programs that do have reimbursement dynamics, where the cash pay cost is just not an achievable, accessible option. So we do think that will play in as we continue to expand on programs and introduce categories where reimbursement dynamics are important.

At this time, there are no further questions. I will now turn the call to Andrew Dudum for closing comments.

Awesome. I just want to thank everybody for joining today, and thank you all for your great questions. Also just want to thank my team for all the hard work. It has been an incredible quarter, and I'm so proud of what has been built, and we are very much looking forward to sharing more with all of you soon. So everybody, please have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you all for participating. You may now disconnect.