Hims & Hers Health, Inc. (NYSE:HIMS) Q4 2022 Earnings Call Transcript February 27, 2023
Operator: Good afternoon ladies and gentlemen, welcome to the Hims & Hers Health Fourth Quarter 2022 Earnings Call. My name is , and I will be your operator today. At this time, all participants are in a listen-only mode and please be advised that this call is being recorded. At this time, I’ll turn the call over to Ms. Alice Lopatto, Vice President of Investor Relations. Please go ahead Ms. Lopatto.
Alice Lopatto: Good afternoon everyone and welcome to the Hims & Hers Health fourth quarter and full-year 2022 earnings call. On the call with me today is Andrew Dudum, Co-Founder and Chief Executive Officer; as well as Yemi Okupe, our Chief Financial Officer. Before I hand it over to Andrew, I need to remind you of legal safe harbor and cautionary declarations. Certain statements and projections of future results made in this presentation constitute forward-looking statements that are based on among other things, our current market, competitors and regulatory expectations and are subject to risks and uncertainties that could cause actual results to vary materially. We take no obligation to update publicly any forward-looking statement after this call, whether as a result of new information, future events, changes in assumptions or otherwise.
Please see our most recently filed 10-K and 10-Q reports for a discussion of risk factors as they relate to forward-looking statements. In today’s presentation, we have certain non-GAAP financial measures. We refer you to the reconciliation table contained in today’s press release available on our Investor Relations website for reconciliations to the most directly comparable GAAP financial measures and related information. You’ll find a link to the webcast and Investor Relations website at investors.forhims.com. Please also note, we have created a new investor presentation that we hope will serve as a useful resource for both new and existing investors. You can find this on our investor relations website, under events and presentations. After the call, this webcast will be archived on the website for 12 months.
And with that, I’ll now turn the call over to Andrew.
Andrew Dudum: Thanks, Alice. Welcome to everyone joining us. 2022 was a transformative year for Hims & Hers and I’m happy to be with you all today to review our performance and share our perspectives on the future. We are pleased to report an exceptional finish to a record year, headlined by annual revenue of 527 million, more than 1 million subscribers and over 10 million cumulative medical visits since inception, and importantly, the transition to adjusted EBITDA profitability in the fourth quarter for the first time in our company’s history. This is an incredible moment for us all that serves as a testament to the strength of our company and approach. We find ourselves at an inflection point in which we’re reaping the benefits of our size and scale.
We believe our brand awareness and customer loyalty have never been stronger. Our product offerings have never been more expansive and personalized and our platform scale and insights are enabling clinical excellence and efficiency unlike anything in the market today. Even after this quarter of record breaking growth, we’ve significant aspirations for our company’s future. In commitment to these aspirations, we set an extremely high bar for disciplined execution across all teams within the organization. This approach is driven by the fact that our mission to help the world feel great through the power of better health is more relevant and essential for customers than ever before. By delivering on this at every level, we can continue taking leaps towards our goal of being a fundamental and beloved part of every household in the country.
This mission is deeply personal because we too are customers. This is the enduring power of Hims & Hers. We’re experiencing a truly unique moment in history, a moment where customers expect hyper personalization, on-demand access, and price transparency. A moment where technology and AI are capable of helping deliver both speed and accuracy in a complex analysis. And lastly, a moment where trust is a driver of consumer purchase behavior, and where authentic brands are expected to reach out and build deep and enduring relationships with customers. As a company and as a team, we have never been more confident in our ability to capture this energy and seize this historic moment, with all of the tools and experience required to lead in this new world.
We ended 2022 with the strongest quarter in our company’s history, delivering not only continued momentum, but accelerating growth since going public over two years ago. Revenue, which was predominantly driven by recurring online subscriptions, grew 97% year-over-year reaching a record 167 million in the fourth quarter. Efficiency and a disciplined approach toward investments have been crucial to our strategy and have enabled us to achieve our first quarter of adjusted EBITDA profitability, which was approximately $4 million in the fourth quarter. The underlying strength of our model combined with ongoing velocity across the business gives us a unique opportunity to operate profitably on a go forward basis, while continuing to scale our platform.
Our team’s execution and focus alongside our exciting pipeline of innovation positions us well to deliver on a robust outlook for 2023. Equally energizing, those elements give us the confidence to speak to certain longer-term financial targets. By 2025, we expect to deliver annual revenue of at least 1.2 billion and generate at least 100 million of adjusted EBITDA. These targets are based on the current strength and trajectory of the business. Our success will continue to be fueled by a relentless focus on our customers putting them at the center of everything we do. This focus on consumer centricity is powered by four key strategic pillars to which every investment, priority and initiative ladders up. First, building a trusted brand. Known and respected in every household in the country.
Second, developing a leading technology platform that can deliver world-class recommendations efficiently through perpetual improvements with customer feedback. Third, delivering innovative products and personalized services. And fourth, ensuring clinical excellence with each and every patient. You’ll notice we’ve expanded our pillars now decoupling technology and innovation. This is a natural evolution for us as we pursue market leadership and work to redefine how world-class experiences in our industry look and feel. These four pillars create a powerful flywheel that underpins our growth engine. It starts with our trusted brand, which drives customer demand and scale. The growth in our consumer base fuels the rate of customer insights feedback and learnings we can utilize.
This allows us to garner better personalized understandings and customer segment preferences. These insights feed into our technology platform to better train, refine, and deliver great care. In addition, this of customer insights helps shape the innovation roadmap and ultimately the products and services delivered. All of this, some in partnership and collaboration with the leading clinical bodies, specialist, and pharmaceutical supply chain partners delivers an experience unlike anything available in the market, cycling right back to the fortification of our trusted brand. We are incredibly proud of the company we’ve built in just six years. The building blocks we have put in place, the strategic decisions we have made throughout our journey and an ongoing focus on our four growth pillars are paying dividends.
Looking ahead, we are energized by the many opportunities available and initiatives planned across these pillars. With our trusted brand, we expect to expand our awareness and develop deep relationships with individuals and whole households by continuing to show up in the most culturally relevant moments across society. Most recently, we ran campaigns during the NFL playoffs and named a high profile partnership with Kristen Bell, who teamed up with Hers to share her journey managing depression. We have many new initiatives underway that will continue this work to better empower consumers and deepen these relationships. As our platform continues to scale, we will deploy our leading technology to leverage unique insights, delivering access to world-class care for our customers and best-in-class tools for our providers.
Our vision is a world where being treated through Hims & Hers is equivalent to accessing the collective minds of the top specialists across the nation to review each customer’s needs, and provide timely recommendations made possible through the power of machine learning. Through the power of scale from over a million subscribers and 10 million cumulative medical visits, our platform currently generates insights that enable us to deliver access to innovative products and services that customers love. Throughout 2023, we have a robust pipeline of new products that will bring advanced and personalized ways to treat consumers, which we feel will remove barriers for a wide portion of potential patients yet to be treated. We are pleased with the rollout of our first newly launched offering in 2023, Hard Mints by Hims, which has seen strong interest in its first month on the platform.
Customers come to us to find solutions to their health and wellness needs, ultimately is a path towards feeling great. This is why clinical excellence is so important to us. Today, we have a medical advisory team of over 10 specialists that ensure providers on our platforms are providing the highest quality of care in-line with how we do everything at HIMSS and HERS. We have further augmented our clinical capabilities to bring on two C-Level hires. Our Chief Medical Officer and Chief Pharmacy Officer and expanding our partnerships with medical groups across the nation to ensure patients that come to us have access to high quality care, whether that be through our platform or via a recommendation from us to an alternative option. At standalone initiatives, we believe these advancements will continue to distinguish Hims & Hers as a leader in the industry.
Together, this flywheel propels us down a strategically laid path towards further growth and profitability. All of this is made possible by a team that today is executing better than any team I’ve had the privilege of working with. Our people are our greatest assets. And this quarter’s performance and this coming year’s ambitions are reflective of the talent and focus of each of our employees. As I mentioned earlier, many of our employees, including myself, are customers. This is the reason our passion and commitment is so strong and why we are so energized about the future ahead. We are excited to update you on our next phase of growth. And with that, I will now turn it over to Yemi to walk through details of our financial performance and outlook.
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Yemi Okupe: Thanks, Andrew. Hello everyone and thank you for joining us . I’ll start by providing additional color into our financial performance, including newly disclosed metrics and expand upon Andrew’s comments regarding our 2023 guidance and longer-term goals. 2022 was an incredible year for Hims & Hers that saw the effect of our investments materialized in record performance. This culminated into a strong finish for the year. In the fourth quarter, we continue to drive exceptional growth across our business, while also delivering our first quarter of adjusted EBITDA profitability. Fourth quarter revenue grew 97% year-over-year to 167.2 million. Revenue for 2022 was 526.9 million, up 94% relative to 2021. Throughout 2022, we saw strong momentum from our established offerings such as men’s sexual health and hair loss, as well as several of our emerging offerings.
Strength in our online channel remained the primary driver of our growth throughout 2022. In the fourth quarter, online revenue increased 106% year-over-year to 161.2 million. For the full-year, online revenue increased 94% year-over-year to 502.5 million. Growth in our online channel is driven by two levers. The first is the footprint of our subscriber base, which is influenced by our efforts to attract new subscribers and retain them. The second is our ability to increase subscriber engagement on the platform, which drives more revenue per subscriber. Our platform has evolved over the years to offer users a broader set of solutions to a diverse set of health and wellness needs. We feel that we will increasingly have the ability to enable services to our users across multiple conditions, elevating the importance of measuring the holistic relationship with our customers.
Starting this quarter, we are disclosing the number of subscribers on our platform and will provide this metric on a quarterly basis going forward. A subscriber is an individual with one or more subscriptions on the Hims & Hers platform. Subscribers when combined with monthly online revenue generated per average subscriber is more reflective of our holistic engagement with each individual who provides greater visibility into the underlying drivers of growth. We will provide these metrics on a quarterly basis in lieu of subscriptions going forward. In the fourth quarter, subscriber count grew 124,000 quarter-over-quarter, representing an increase of 88%, relative to the fourth quarter of 2021. We feel this growth is the result of successful investment related to the development of our brand, innovative products, and the overall platform experience.
Monthly online revenue per average subscriber in the fourth quarter was $55, up 10% relative to the fourth quarter of last year. The share of subscribers with a multi-month subscription increased 5 points year-over-year in the fourth quarter to 73%. Higher revenue generated per user is a strong signal that we are not only expanding the number of users on our platform, but that we are also able to foster deeper relationships with our customers. Wholesale revenue increased $1 million, relative to the third quarter to 6 million, representing a modest decline from the same time period last year. As we have previously communicated, we expect revenue growth in our wholesale channel to moderate as we now have a presence in the majority of top retailers across the country.
The wholesale channel will remain an important piece in our strategy to generate more consumer awareness for our brand and we will look to continue to cultivate our relationships with strategic partners across this channel. Gross margins remained stable quarter-on-quarter at 79%, representing a 600 basis point year-over-year increase for the fourth quarter. Gross margins for 2022 were 78%, reflecting a 300 basis point increase from 2021. Margin expansion was driven by continued efficiency gains in our operations, increased fulfillment volume from affiliated pharmacies, higher adoption of longer duration subscriptions, a greater share of online channel revenue. Moving down the P&L, marketing as a percentage of revenue in the fourth quarter was 51% and 50% when excluding stock-based compensation, representing a 300 basis point improvement relative to the third quarter.
For the full-year, marketing as a percentage of revenue was 52% and 51% when excluding stock based compensation. We are starting to see leverage on investments made in newer channels to develop our brands such as TV. As a result of new product launches and you can expect us to be opportunistic with our marketing investments from time-to-time. That said, we expect that the payback period will remain less than one year as highlighted in our capital allocation framework. Operations and support costs as a percentage of revenue in the fourth quarter came in at 13%, both including and excluding stock based compensation. This represents a 150 basis point improvement relative to the third quarter. We continue to see efficiency gains as a result of a greater share of fulfillment via our affiliated pharmacies, benefits from economies of scale, and leverage on overhead.
Technology and product development costs represented 5% of revenue in the fourth quarter and 4% when excluding the effects of stock based compensation. Excluding stock based compensation, this represents a 60 basis point improvement relative to the third quarter. We expect investment in this area to expand as we launch new capabilities on our platform and continue to evolve our product offerings. General and administrative costs for the fourth quarter was 16% of revenue, representing a 9 point improvement relative to the fourth quarter of 2021 and a 160 basis point improvement relative to the third quarter of this year. Excluding the impact of stock based compensation, G&A costs were 11% of revenue in the fourth quarter, representing a 7 point year-over-year improvement from 2021.
For the full-year, G&A costs were 18% of revenue, reflecting a 24 point year-over-year improvement relative to 2021. When excluding stock based compensation, G&A costs for the full-year were 13% of revenue. Efficiency gains in this area were the result of disciplined headcount growth and we anticipate further leverage in this area in the future. Focus strategic investments we have made throughout the years have enabled us to drive leverage across multiple areas as our platform has scaled. In the fourth quarter, we generated $3.9 million of adjusted EBITDA marking our first quarter of adjusted EBITDA profitability. Adjusted EBITDA margins were 2% in the fourth quarter, representing an improvement 6 points relative to the prior quarter and a 10-point improvement to the fourth quarter of 2021.
Adjusted EBITDA losses for 2022 were 15.8 million, representing an adjusted EBITDA margin of negative 3%. 2022 was another outstanding year for Hims & Hers. We saw demonstrated success in the development of our brand across new channels, brought in user awareness for showing up in some of the most culturally relevant areas. As a result, we added a record number of subscribers and exited the year with over 1 million customers on the platform. We signed new partnership agreements with medical groups enabling us to expand the ways in which we serve our customer base and lastly achieved our first quarter of adjusted EBITDA profitability. It is clear that we are at a critical moment in our company’s history and I cannot be more excited for the future.
We have an immense amount of flexibility as we enter 2023 with strong growth, generating positive adjusted EBITDA, and a robust balance sheet with approximately $180 million of cash and short-term investments. Turning now to our 2023 outlook. In the first quarter, we are anticipating revenue in the range of 175 million to 180 million, representing a year-over-year increase of 73% to 78%. On the bottom line, we expect adjusted EBITDA to be between 3 million to 6 million, representing an adjusted EBITDA margin of between 2% to 3%. For the full-year, we are anticipating revenue of between 735 million to 755 million, representing a year-over-year growth rate of 39% to 43%. And on the bottom line, with our expectation the 2023 adjusted EBITDA will be between 20 million to 30 million.
These adjusted EBITDA and revenue ranges resulted in an adjusted EBITDA margin of between 3% to 4%. Our full-year outlook assumes that we are able to maintain long-term retention rates above 85%. We continue to achieve payback periods under one year in our marketing investments and we start to see traction with an expanded portfolio of personalized products that we would expect to launch throughout 2023. Several opportunities have emerged to extend the capabilities of our fulfillment centers that we expect to capture over the next two years. As we take advantage of these opportunities, we expect a temporary increase to CapEx. Our expectation is that we will have between 10 million to 15 million of incremental CapEx over our current baseline during the next two years.
The first portion of these investments are expected in the second quarter. I’ll end by taking a moment to talk through some of our longer-term aspirations. Our belief is that over time, our platform can generate adjusted EBITDA margins of between 20% to 30%, while maintaining a healthy growth profile. We are at a unique and exciting days of the company’s lifecycle and the opportunity to make the world feel great through the power of health . As a result, will continue to strategically invest in new opportunities across our platform that we expect will result in a differentiated experience with better outcomes for our customers. Embedded in our long-term adjusted EBITDA margin target is an expectation that gross margin is normalized in the mid-70s as the customer experience on our platform evolves.
To provide insight into how the trajectory toward the long-term margin structure is expected to evolve, I’ll spend a moment talking through our mid-range expectations. In 2025, we expect to generate at least 1.2 billion of annual revenue. Our capital allocation framework has demonstrated an ability to drive leverage as the platform scales and we will continue to . As a reminder, the key of the framework include a payback period of less than a year on marketing and other investments, investment in products and capabilities that foster durable long-term growth channels, while enabling the ability to benefit from economies of scale, and a significant potential for a high return on investment over the long-term. We feel that strong growth combined with sound execution across our capital allocation framework will enable us to drive at least 100 million of annual adjusted EBITDA in 2025.
Our ability to achieve these targets is dependent on operating in a similar environment today and does not assume any significant or unforeseen external challenges. It is clear to us that we are at an inflection point. The transition to profitability combined with our strong balance sheet provides us with the ability to capitalize on the tremendous runway we see in front of us. 2022 provides a solid foundation that gives us increased confidence to lean into the investments we’re making across each of our four strategic pillars. I’d like to thank our customers, partners, and employees helping us deliver these outstanding results and we look forward to continuing to update you on our progress. With that, I’ll now turn it over to the operator to open the call to questions.
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Q&A Session
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Operator: Thank you. We’ll take our first question this afternoon from Michael Cherny of Bank of America.
Ben Clark: Yes. Hi, good afternoon. This is Ben Clark on for Mike. start from us, just wanted to walk a little bit through the building blocks to get to your fiscal 2025 top line targets. How much of that revenue do you, sort of expect to come from existing products, and how much do you expect will come from new products?
Yemi Okupe: Yes. Hi, Ben. This is Yemi. Thanks so much for the question. There’s a few different levers that we expect to pull on over the coming years. The first is, we’ve seen an immense amount of growth coming from some of the existing categories that we’re in on the Hims platform. And so really with the rollout of personalized products, we do expect that many of the verticals on Hims will continue to scale. We also remain excited by the opportunities that we continue to see on the first platform as well. And so, we do expect that over the coming years to scale. Then lastly, as we mentioned on prior calls, we do expect to have disciplined category expansion to the tune of expanding the capabilities of one to two categories per year. And so, really the ability to achieve the long range targets that we set for assume that we’re able to continue to pull on each of those levers over the coming years.
Ben Clark: Got it. Thanks. And then just shifting gears of fiscal 2023 guidance, how are you guys thinking about macro, if at all, in your guidance? Is there anything that we should be, kind of be thinking about there? Thanks.
Yemi Okupe: Yes, I think that we are cognizant of a dynamic macroeconomic environment. What we’ve seen thus far throughout 2022 and other periods of economic uncertainty. Is it really the recurring nature of the platform has afforded us some protection? Additionally, in many of the conditions that we’re in, we’ve seen that they’ve been largely resistant to MACI economic headwinds. And some of that is the result of just the stickiness of the solutions, as well as the diverse consumer set. And so, we would say that our view is balanced. We are continuing to project strong quarter-on-quarter growth, as well as year-on-year growth in 2023. They’re not necessarily some of the record level performance that we saw in some quarters in 2022.
Ben Clark: Got it. Thank you.
Operator: Thank you. We’ll go next now to Daniel Grosslight at Citi.
Daniel Grosslight: Hi guys. Thanks for taking the question and congrats on the quarter. Your longer-term guidance assumes around 400 basis points of gross margin degradation. And I know you mentioned in your prepared remarks that some of that has to do with the customer experience, but I was wondering if you can a little bit of more of a finer point on that gross margin degradation from around 79% to 75% and the cadence of that from 23% to 25%.
Andrew Dudum: Thanks Dan for the question. I can kick off. I think there’s a strong desire internally, really to be constantly reevaluating the customer experience and find ways for us to improve it materially. And so, I think there’s this engine of personalization and innovation on the product side, on the roadmap where we’re trying to create a level of care that is really different from what is traditionally available in the generic markets. And then I think there was also just a general experience improvement that we constantly want to be investing in. And so, I think that’s €“ that speaks to a couple of the points. And Yemi can probably speak to a little bit of the timing of that.
