Hims & Hers Health, Inc. (NYSE:HIMS) Q4 2023 Earnings Call Transcript
Hims & Hers Health, Inc. (NYSE:HIMS) Q4 2023 Earnings Call Transcript February 26, 2024
Hims & Hers Health, Inc. beats earnings expectations. Reported EPS is $0.01, expectations were $-0.02. Hims & Hers Health, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Ladies and gentlemen, thank you for standing by. At this time, I would like to welcome everyone to the Hims & Hers Fourth Quarter and Full-Year 2023 Earnings Conference call. Please note that this call is being recorded. [Operator Instructions] I would now like to turn today's call over to Bill Newby, Director of Investor Relations. Bill, please go ahead.
Bill Newby: Good afternoon, everyone, and welcome to the Hims & Hers fourth quarter and full year 2023 earnings call. Today, after the market closed, we released our first-ever shareholder letter, a copy of which you can find on our website at investors.hims.com. On the call with me today is Andrew Dudum, our 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, are 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 statements after this call, whether as a result of new information, future events, changes in assumptions, or otherwise. Please view the 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 will also use certain non-GAAP financial measures. We refer you to the reconciliation tables to the most directly comparable GAAP financial measures contained in today's press release and Shareholder Letter. You can find this information, as well as a link to today's webcast at investors.hims.com. 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, Bill. 2023 was a transformative year for Hims & Hers as we continue to deliver against our mission of helping the world feel great through the power of better health. Strong execution of our strategy resulted in financial success on both the top- and bottom-line. Revenue increased 65% year-over-year to $872 million. Growth remains robust as a result of our ability to continue to draw and retain users to the Hims & Hers platform. Over 1.5 million subscribers were on the platform at the end of 2023, representing a year-over-year increase of 48%. We've always taken a disciplined approach to scaling our platform and that is translating to meaningful success on our bottom line as well. I'm incredibly proud of our organization's ability to scale our platform efficiently and deliver our first quarter of positive net income on the one-year anniversary of our first quarter of positive adjusted EBITDA.
Throughout 2023, we continued to excel the providing users with access, access to providers and diagnoses in days or in some instances, hours, as opposed to weeks or months in brick and mortar, and access to clinically appropriate generic treatments and solutions for singular issues that consumers are challenged with. We view our capabilities to deliver on access as table stakes and believe a sustainable leadership position requires more. My belief is that our success is a culmination of an intentional focus on core specialties, as well as our ability to transform our platform across a few dimensions. Let me start by double-clicking into the significance of focus. Today, our efforts are focused on ensuring that customers have a delightful experience across five core specialties; sexual health, men's and women's dermatology, mental health and weight loss, which we are excited to launch in the fourth quarter.
These are some of the most emotionally resonant challenges across society today and impact over 100 million individuals in the U.S. alone. In 2023, we made meaningful strides in evolving our platform across a few key dimensions, which has enabled us to capture a leading market share of customers seeking solutions within many of our specialties. First is the move beyond generics towards personalized solutions and treatments that uniquely address users' concern via new form factors as well as multi-action capabilities. Second is our ability to leverage AI capabilities across structured data to not only inform new effective and safe solutions that resonate with users but also enable providers to leverage learnings from hundreds of thousands of interactions across our platform to more efficiently match users with the right treatment.
Lastly, our operational excellence and scale enable us to offer all of this value to users at attractive price points. Nationally renowned experts combined with our data platform were foundational to our ability to roll out access to heart support, hard mints and updated men's hair loss options in our tenured specialties such as sexual health and men's dermatology. Personalized offerings, which have now been adopted by over 30% of subscribers on the platform as of year-end, have allowed these specialties to continue to scale at a rapid rate through 2023. We are confident that a substantial runway for growth remains, especially as we continue to evolve our offerings. The shift toward personalized offerings has been even stronger in our newer specialties as new users are increasingly opting for these unique approaches to individualized care.
Hers dermatology subscribers are opting for a personalized solution more than 75% of the time while subscribers to the new weight loss offering are essentially all opting for a personalized treatment. It is clear to us that personalized solutions drive increased longevity on the platform and help to facilitate the acquisition of new users. As we continue to see increasingly rapid adoption of personalized approaches across newer specialties such as Hers dermatology, mental health and weight loss, we are confident that each of these specialties has the ability to deliver more than $100 million of revenue in 2025. We are pleased to see the strong momentum of the past six years continue into 2024 with continued strength across each of our specialties and margin expansion from our disciplined approach to scale.
These factors provide us with line of sight to achieve our 2025 targets of 1.2 billion of revenue and $100 million of EBITDA one year early. We are also tracking toward our first year of positive net income in 2024. These are all important benchmarks, but we have every belief this is just the beginning. Our aspiration is to bring tens of millions of users on our platform given the fact that over 100 million consumers are impacted by conditions in the specialties we serve. Our ability to achieve these ambitions will be governed by our ability to remove points of friction for users seeking treatment today, as well as remove barriers for those who may be suffering but not seeking treatment. To-date, we've excelled at removing barriers and friction points such as lack of awareness, accessibility, and affordability.
In 2024, we expect personalization will be foundational to unlocking new opportunities for the treatment of users that may have alternative form factor needs or require unique dosages. We expect MedMatch by Hims & Hers to be a critical tool in giving both providers and consumers the confidence that a treatment will work for them. This is natural in that MedMatch by Hims & Hers has the potential to evolve to address one of the questions most top of mind for consumers, has this solution worked for people like me? In the fourth quarter, we completed the transition of the vast majority of fulfillment to our affiliated pharmacies, which sets the stage to break down a substantial barrier for users suffering across our specialties today, cost. Over 85% of orders going through affiliated pharmacies provides us greater ability to realize the benefits of scale and ultimately pass value back to consumers in a way that is beneficial for our users and accretive to Hims & Hers.
Since we founded Hims & Hers six years ago, our goal has been bold to make the world feel great through the power of better health, developing the technology, operations, clinical excellence, and brand to achieve this goal of transforming health and wellness requires a long term approach and an operational mindset. Through the unparalleled experience and expertise of our team, we have built a platform that offers personalized solutions through a holistic and seamless customer experience at compelling price points. Our approach can enable almost every household in the nation to find a level of personalized care that has historically only been available to the wealthiest subset of the population. We are proud of what we are delivering and the positive outcomes we are bringing to our customers, and we are energized by the opportunity we have to bring this incredible experience to an expanding group of consumers in 2024.
With that, I will pass it over to Yemi to walk through our financials in greater detail.
Yemi Okupe: Thanks, Andrew. I will start by providing an overview of our fourth-quarter financial performance and then expand on Andrew's comments related to our feature outlook. We are incredibly proud of the progress made in 2023 and transforming the business into a leading provider of personalized solutions and are excited by how that positions us for the future. Our strong results are the result of the sound execution of our simple but powerful strategy, which is to provide users with access to attractive, high-quality, and personalized solutions that are affordable and backed by an experience that is delightful from beginning to end. Our fourth quarter results are a great example of the intersection of great strategy and strong execution.
Revenue grew 47% year-over-year to $246.6 million, driven primarily by the ongoing expansion of our subscriber base. We ended 2023 with over 1.5 million subscribers, up 48% from the end of 2022. Over the course of 2023, we continued to evolve the suite of personalized offerings throughout the year across each of our specialties, including launches of Hard Mints in chewable in Men's Sexual Health; Hair Blends, in Women's Dermatology; our first multi-action offer in Heart Support; and finally our weight management offering, which offers customized solutions designed around addressing the underlying causes of weight gain. Consumer demand for these offerings has been rapid with over 35% of new subscribers pursuing personalized options in the fourth quarter.
Our belief is that this will continue to enable us to drive robust growth for the foreseeable future through firstly, drawing a broader audience of consumers impacted by a condition to seek treatment, secondly enabling us to capture a greater share of users that are currently seeking treatment and lastly, increasing the longevity of users on the platform. At the core of our strategy is ensuring that these solutions are placed at attractive price points, which we believe will continue to drive both stronger demand and retention. Our shift toward affiliated pharmacies allowed us to offset the margin impact of strategic pricing actions implemented in 2023. Even more exciting is that they provide a platform to unlock efficiencies that will enable us to provide a better consumer experience at even more attractive price points.
We exited 2023 with over 85% of orders fulfilled via affiliated pharmacies. Our expectation is to maintain a share of orders going through third parties in the high single-digit to low double-digit levels for redundancy purposes. Investments made in affiliated pharmacies have provided the foundation for expanded capabilities as well as efficiency gains. Affiliated pharmacies allow us to drive efficiencies across key costs such as logistics, product costs, and even customer support. Gross margins expanded almost four points year-over-year in both the fourth quarter and across the full year to 83% and 82%, respectively, as we were able to identify and capture these efficiencies. Greater scale will continue to allow us to drive efficiency across our operation.
As previously mentioned, we will actively pass a portion of these gains back to consumers over the next several years in ways that we believe are long-term accretive. This may be in the form of targeted price reductions and additional value-added services. We believe that mass market pricing combined with the convenience of our end-to-end experience will enable us to cement a leadership position across each of our core specialties. Leveraging scale and actively capturing efficiencies is a core trait that extends beyond operations and is embedded in the DNA of Hims & Hers. Over the course of 2023, we gained leverage across the majority of cost areas with marketing costs as a percentage of revenue improving one point, operations and support costs as a percentage of revenue improving one point, and G&A costs as a percentage of revenue improving three points.
Disciplined growth and rigorous cost management are resulting in step-change improvements in profitability. Adjusted EBITDA increased 68% quarter-over-quarter in the fourth quarter to almost $21 million. This represents more than a 5 times increase relative to the fourth quarter of last year, which was our first quarter of positive adjusted EBITDA. On the one-year anniversary of our first quarter of a positive adjusted EBITDA, we're thrilled to have generated our first quarter of positive net income. In the fourth quarter, net income was $1.2 million. Attainment of this important milestone is evidence of the strength of our strategy and capital allocation framework, as well as excellent execution across our organization. Our focus remains on continuing to address barriers that prevent consumers from seeking treatment for specialties that we serve, which we believe will result in greater market share capture.
We will do so in a way that is disciplined and provides a path to generate positive free cash flow. To better reflect this focus, we have started disclosing free cash flow generated in each period. In 2023, we generated over $73 million of operating cash flow, driving the free cash flow of $47 million. We ended the year with $221 million of cash and short-term investments on our balance sheet, up over $41 million from the end of 2022. We intend to leverage the strength of our balance sheet to continue to expand our portfolio of personalized solutions as well as to improve the efficiency of affiliated pharmacies as they continue to scale over the course of the next two to three years. This is reflected in the higher capital expenditures in the fourth quarter as well as for the full year of 2023.
Our expectation is that the evolution of personalized offerings will drive continued market share gains and growth in the near future. With that backdrop, I'd like to detail our outlook for 2024. In the first quarter, we are anticipating revenue in the range of $267 million to $272 million, representing a year-over-year increase of 40% to 43%. We expect adjusted EBITDA to be between $22 million and $27 million, representing an adjusted EBITDA margin of 9% at the midpoint of both ranges. For the full-year, we are anticipating revenue of between $1.17 billion to $1.2 billion, representing a year-over-year increase of 34% to 38%. It is our expectation that 2024 adjusted EBITDA will be between $100 million and $120 million. These adjusted EBITDA and revenue ranges imply an adjusted EBITDA margin of 9% at the midpoint of both ranges.
Our outlook for 2024 provides the line of sight to achieve our 2025 floors of $1.2 billion of revenue and $100 million of adjusted EBITDA a year early. As mentioned previously, continued penetration of large addressable markets across our specialties remains our core focus. We continue to scale in a disciplined way that adheres to our rigorous capital allocation framework. With continued successful execution of these priorities, it is our expectation that 2024 will be our first full-year of generating positive net income. While 2023 was a phenomenal year and 2024 looks to be equally, if not more exciting, as Andrew has always mentioned, the company has a long-term orientation. In that spirit, I'll take a moment to provide additional color on our expectations for progress on the attainment of our long-term adjusted EBITDA margin goals of 20% to 30%.
Our expectation is that we will achieve adjusted EBITDA margins of at least low to mid-teens by 2027 and be within our long-term margin range no later than 2030. Margin expansion will occur as we continue charting a path forward toward our ambition of bringing tens of millions of subscribers onto the platform. While further leverage is expected across costs such as G&A and operations and support, a substantial portion of leverage is expected to come from marketing. Our expectation is that marketing as a percentage of revenue will be in the mid-30s to low-40s by 2030. Several factors give us conviction in our ability to drive marketing leverage over time. First, a greater share of our spend is increasingly becoming more semi-fixed in nature.
In 2022, and over the course of 2023, we meaningfully scaled investment in broad-based brand spend intended to drive awareness and consideration of our brand to users earlier in their lifecycle journey. As it starts to hit maturity in 2024, we are confident in our ability to get greater leverage on this spend. Second, our belief is that we can increase conversion and retention by offering consumers high-quality personalized solutions. We have already seen early signs of success that offering personalized solutions enables us to better convert users as well as increase their longevity on the platform. This is especially true when they are placed at attractive price points as we saw in the second quarter of 2023. As our personalized solutions continue to evolve to encompass multi-condition treatments as well as new form factors and scale enables us to place them at more attractive price points, our expectations that we will see continued gains in both conversion and retention.
Lastly, our business is based on a recurring revenue model and the majority of marketing spend goes towards the acquisition of new users. As our user base continues to mature and the average tenure of users on the platform increases, our expectation is that we will gain leverage. These dynamics are expected to drive between one to three points of marketing leverage per year with leverage starting to show as early as 2024. 2023 was an exceptional year for Hims & Hers. Momentum looks to be stronger than ever as we head into 2024. We have high conviction that our strategy of providing users with access to high-quality, personalized solutions that are affordable and backed by an experience that is delightful from beginning to end will position us for continued success in the coming years.
Our ability to drive these strong results would not be possible without the dedication of hundreds of employees across Hims & Hers. I'd like to thank them as well as our customers and partners that support us in our mission of helping the world feel great through the power of better health. We appreciate the support of our shareholders and look forward to keeping you updated on our progress. With that, I will now turn it over to the operator for questions.
Operator: Thank you. [Operator Instructions] Your first question comes from the line of Allen Lutz from Bank of America. Please go ahead.
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