Hims & Hers Health, Inc. (NYSE:HIMS) Q1 2024 Earnings Call Transcript May 6, 2024
Hims & Hers Health, Inc. beats earnings expectations. Reported EPS is $0.04852, 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 First Quarter 2024 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, Head of Investor Relations. Please go ahead.
Bill Newby: Good afternoon, everyone, and welcome to the Hims & Hers Health first quarter 2024 earnings call. Today, after the market closed, We released this quarter’s 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, 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 view 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 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. Our first quarter results marked an outstanding beginning to the year. The momentum we built in 2023 is continuing. As we further advance our mission to help the world feel great through the power of better health. The underlying strength of our business is propelled by an unwavering dedication to delivering the highest quality personalized care possible across each of our five core specialties, men’s and women’s dermatology, mental health, sexual health and weight loss. Strong execution of our strategy is drawing more consumers to our platform than ever before, translating into robust financial performance. In the first quarter, subscribers grew by a record 172,000 quarter-over-quarter to over 1.7 million.
Personalization continues to resonate with users. The number of subscribers opting for personalized subscription has nearly tripled over the course of the last year to north of 600,000 subscribers, representing just over 35% of subscribers on the platform. Our ability to efficiently acquire and retain users resulted in revenue increasing 46% year-over-year to $278 million, while also generating $32 million of adjusted EBITDA. We believe that our expanding portfolio of personalized solutions, combined with the ability of our brand to reach and resonate with consumers at multiple stages of their health and wellness journeys are driving forces behind our continued success. I’d like to start by providing additional insight into how we see each of these evolving across the year.
Starting with our portfolio of personalized solutions. We leverage hundreds of thousands of interactions on our platform to facilitate an understanding of key consumer concerns and challenges that may prevent individuals from reaching optimal outcomes. Partnerships with leading medical institutions and experts within each of our specialties then enable us to provide access to tailored clinical solutions that are crafted with a focus on safety, efficacy at top concerns identified by our customers. This allows providers on our platform to meet their patients’ clinical needs at an individual level, targeting things like side effects and adherence through personalized dosages, a variety of product form factors to drive adherence and the ability to address multiple health conditions with one solution.
Our infrastructure and scale provides the ability to equip providers with the breadth of personalized treatment options at mass market prices. Continued expansion and refinement of our personalized portfolio will be a critical component behind our success in 2024 and beyond. In areas like weight loss and dermatology we’ll aim to improve the customer experience with more user-friendly form factors and eventually a broader selection of multi-action offerings. Just as with Hard Mints and Heart Health, our upcoming offerings will be focused on various customer needs and use cases across demographics through tailored treatments. Our recent launch of Sex Rx + Climax Control is a great example of this type of innovation. A 2-in-1 offering designed to help men address multiple aspects of their sexual health without the need to take multiple pills.
In the coming years, we expect the vast majority of our subscribers will be utilizing one or more of our personalized offerings. Our brand has historically played a critical role in our success. And early on in our company’s lifecycle, we built trust and awareness with our customers by making conditions more approachable in driving awareness of these solutions. Traditionally, these efforts were targeted at consumers that are already being impacted by a condition within one of our specialties. Our aspiration is to make Hims & Hers synonymous with high-quality personalized, affordable solutions. And as part of that ambition, we’ve started to focus efforts on reaching consumers earlier in their journey with a narrative that resonates. In recent years, we have significantly increased our investments in channels that enable us to reach a broader set of consumers at different phases of their journey with a condition.
This includes TV and other brand campaigns aimed at consumers during the most culturally relevant moments across society. These efforts are not aimed at immediate user acquisition. Rather, they are centered on raising awareness of our brand and platform capabilities early in an individual’s journey with the condition, sometimes even before those journeys formally begin. A multi-specialty platform enables us to do this in an efficient manner as we’re able to speak to consumers broadly about a platform of capabilities versus an individual condition. It is clear to us that these efforts are starting to compound. We are seeing users actively seek us out, either by visiting our website directly or through other cost-effective channels. We believe this is happening as users associate the Hims & Hers brand with the treatment of a breadth of conditions and are seeking treatment on our platform, either the result of recalling prior messaging that they saw or increasingly through word of mouth from friends and associates.
The growth and efficiency gains we saw in the first quarter are a direct result of these improving dynamics. And solidify our conviction in our ability to achieve our long-term adjusted EBITDA margin target of 20% to 30%, while simultaneously maintaining an attractive growth profile. This is an incredibly exciting time for our business. In a very short period, I believe we have established Hims & Hers as the clear leader for accessing high-quality personalized care and the efficiency gains we are seeing throughout our model ensure we can continue to build upon that position for years to come. There are three underlying components of this model that allow us to bring this differentiated value proposition to market. First, our technology platform, which serves as the backbone of our innovation process and allows us to seamlessly integrate structured data and direct feedback from both consumers and providers offering invaluable insights into our user preferences and needs.
This provides us with critical insights into customer behaviors, why users adopt certain solutions why they may switch to another? And why they adhere to particular products? Importantly, we also recognize the sensitivity of this data, and we take significant steps to prioritize customer trust and safety through our commitment to data privacy and security, compliance with ethical privacy laws, and transparency about how we use data. Second, our team of internal medical experts oversee this entire process. With expertise across each of our core specialties, these individuals help ensure that each offering aligns with the highest standards of clinical excellence. And finally, our affiliated pharmacies help ensure that every step of production from formulation to packaging upholds the integrity of our brand and meets the exacting standards of our customers.
This enables us to offer access to a wide array of personalized solutions. Solutions that historically were only available to the wealthiest segments of society at truly accessible prices. Investments across these key pillars are fundamental to our ability to meet growing demand we’re experiencing. And fuel future growth. In the near term, this means additional investments in our affiliated pharmacies. Enhancements in both breadth and capacity will position us to further accelerate market penetration while ensuring a best-in-class experience for our customers. Through the integration of robotics and specialized software, we aim to build the necessary infrastructure to bring our unique offering to tens of millions of individuals. These investments will allow us to continue deploying a strategy that focuses on offering a diverse range of solutions that our providers can use to effectively meet individual needs.
As we expand these capabilities we are thrilled to announce that several new and exciting solutions will be launching on our platform in the coming weeks. I look forward to sharing more details as these solutions become available later this quarter. Before I close, I want to thank our teams for their outstanding levels of execution to start the year. We have created a platform that delivers a seamless and comprehensive customer experience by providing an expanding portfolio of personalized solutions at compelling prices. I take extreme pride in how we serve our customers, and I look forward to extending this experience to an ever-growing audience in 2024. Before passing to Yemi, I’d like to reiterate a clarification I shared yesterday. The last few days have been a disheartening reflection of just how divisive a time we live in, and my words have been misconstrued by some.
I, in no way, condone nor support acts or threats of violence, antisemitism or intimidation and there’s absolutely no justification for violence on our campuses. Every student deserves to feel safe without fear of harm or being targeted for who they are. I am deeply saddened that my support for peaceful protest has been interpreted by some as encouraging violence, intimidation or bigotry of any kind. I do believe deeply in the right for people to use their voices and peaceful protest to drive change. This right is critical to our democracy and must be protected. Our world today is more just because students throughout history have courageously taken to their campuses and use their voices to force change. Generations of Americans have engaged in nonviolent protests and these movements have led to some of the most important changes in our country’s history.
As a father whose children are both the descendants of Palestinian refugees who fled the Nakba in 1948 and the descendants of Holocaust survivors from Poland. As I’ve previously shared, I have a personal appreciation for the different perspectives people have, which I live with daily at my dinner table. I hope and pray for peace and for an end to violence everywhere. 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 first quarter financial performance and then discuss our updated outlook for 2024. 2024 is off to an exceptional start. Our position as a leader for success in high-quality personalized care has never been more evident, and we are seeing cascading improvements throughout our business as more and more individuals find success on the Hims & Hers platform. We believe we are just scratching the surface of what our platform can do and the number of individuals we can help. Continued robust momentum in the first quarter serves as confirmation of that. Revenue grew 46% year-over-year to $278.2 million. This growth was driven by the ongoing expansion of our subscriber base.
Subscribers grew 41% year-over-year to 1.7 million. The first quarter represented a record level of quarter-over-quarter subscriber additions on our platform as we added 172,000 net new subscribers. Our strategy of equipping providers with high-quality personalized solutions at mass market prices is a significant driving force behind our success. In just two years, the number of subscribers that have opted for a personalized subscription has increased over 6x to north of 600,000 subscribers. With this continued transition, we believe several benefits will emerge in the future. The first is improved retention. We are receiving signals across several specialties the retention for personalized products is higher alongside a stronger user preference for them relative to generic alternatives.
This does not come as a surprise to us. as feedback from user interactions and behavior is one of the key ingredients and development of our offerings. We expect continued placement of personalized treatment options at increasingly mass market prices to compound this benefit. Secondarily, we see opportunities for improved efficiency. Benefits from economies of scale with our personalized offerings are expected, similar to what we have observed in other areas of our operation in the past. We are confident that these benefits will compound as we continue to extend our portfolio of personalized offerings over the course of 2024. Margins remain robust as we continue to leverage strong execution with the economies of scale. Gross margins expanded two points year-over-year in the first quarter to over 82%, relatively flat when compared with the prior quarter.
Our team continues to leverage affiliated pharmacies in other areas of our network to drive efficiencies across key costs such as logistics, raw ingredients and customer support. We continue to experiment with the highest value ways to pass this value to our consumers, and we are excited to continue to enhance the value they receive in the future. As our platform scales, we continue to see G&A leverage. G&A improved 4 points year-over-year to 12% of revenue in the first quarter. Cost as a percentage of revenue associated with operations and support as well as technology and development were both relatively flat on a year-over-year basis. At the foundation of the Hims & Hers platform is a delightful end-to-end experience for our consumers across multiple specialties.
We believe we can continue to drive robust growth with personalized solutions through firstly, drawing a broader audience of consumers impacted by a condition to seek treatment. Secondarily, attracting a greater share of users currently seeking treatment within the specialties Hims & Hers covers and lastly, increasingly longevity of users on the platform, a multi-specialty platform with unique personalized offerings and a compelling end-end experience has provided us with increased confidence to invest in reaching users early in their lifecycle journey. As Andrew mentioned, our aim over time is to make Hims & Hers with high-quality personalized solutions. In the first quarter, we saw a meaningful benefit from reaching a broader audience with a compelling experience and suite of offerings.
Marketing as a percentage of revenue improved more than 400 basis points on both a sequential and year-over-year basis in the first quarter to 47%. The stronger retention, combined with increased acquisition of users through lower cost channels drove leverage. We are pleased to see this amount of leverage during a time of robust growth and record level additions of net new subscribers because it serves as a proof point of our ability to maintain strong growth while driving leverage. Our expectation is that we will continue to opportunistically utilize marketing as a discretionary lever to continue to reach consumers at various points in their journeys, ensure awareness for unique value propositions and capabilities in the platform as they emerge.
— and accelerate awareness for newer personalized offerings. As a result, we expect there to be some fluctuation in marketing levels on a quarter-to-quarter basis as we utilize the marketing as a discretionary lever to drive the aforementioned goals. However, we have high conviction in our ability to drive 1 to 3 points of leverage per annum and achieve our North Star adjusted EBITDA margins of 20% or more, no later than 2030. Strong execution and adherence to the principles behind our capital allocation framework are driving record profitability levels. Adjusted EBITDA in the first quarter was $32.3 million as adjusted EBITDA margins expanded over 3 points quarter-over-quarter to close to 12%. Net income was $11.1 million in the first quarter, up almost 10x from last quarter, elevating our conviction that 2024 will be our first year of GAAP profitability.
Before providing additional insight into our outlook for the remainder of the year, I’d like to drill into how we allocated capital in the first quarter and are guiding principles for the remainder of the year. Free cash flow generation continues to remain strong. We generated $11.9 million of free cash flow in the first quarter as cash flow from operations exceeded investment in fixed assets within our affiliated pharmacies of $10.6 million. Over the course of the first quarter, we saw what we believe to be a meaningful disconnect in our market value relative to our intrinsic value. We believe this was the result of a natural shareholder rotation, driven primarily by members of our pre-IPO shareholder base as well as general market volatility.
We repurchased approximately 2 million shares in the first quarter as a result of these dynamics. At the end of the first quarter, $20 million remain within our $50 million share repurchase program. As a result of these actions, cash and short-term investments decreased by approximately $17 million in the first quarter. As of the end of the first quarter, $204 million of cash and short-term investments remain on our balance sheet. Looking forward, our priority for capital deployment are as follows. Our highest priority remains around positioning our business for growth. We expect meaningful deployment of capital in our affiliated pharmacies over the course of the next three years. Consumer feedback has been resoundingly positive, and we expect future investment will enable us to continue expanding the breadth and capacity of personalized offerings across each of our five specialties.
Our aspiration is to have tens of millions of subscribers on our platform, and we expect the majority will subscribe to a personalized solution. Additionally, our skill allows us to make positive ROI investments in our facilities that we expect will increase our ability to offer solutions to consumers at mass market prices. These investments can come in the form of automation as well as incremental operations in logistically advantageous locations. Our next priority is capitalizing on a moment, and we feel there are meaningful disconnects between our market value and intrinsic value with the repurchase of shares. Lastly, we will continue to take the opportunity to utilize our cash flow generation profile to further strengthen our balance sheet.
We believe this will provide additional option value for opportunities in the future. We are grateful and confident that the strength of our balance sheet and cash flow generation profile will enable us to do each of these things in the coming years concurrently. With that backdrop, I’d like to detail our updated outlook for 2024. In the second quarter, we are anticipating revenue in the range of $292 million to $297 million, representing a year-over-year increase of 40% to 43%. We expect adjusted EBITDA to be between $30 million to $35 million, representing an adjusted EBITDA margin of 11% at the midpoint of both ranges. For the full year, we are anticipating revenue of between $1.2 billion to $1.23 billion, representing a year-over-year increase of 38% to 41%.
Lastly, we expect 2024 adjusted EBITDA will be between $120 million and $135 million. These adjusted EBITDA and revenue ranges imply an adjusted EBITDA margin of 10% at the midpoint of both ranges. Strong momentum in the first quarter has strengthened our conviction that we will exceed not only our bottom line 2025 targets a year early, but our revenue targets as well. Our ability to concurrently drive record growth while achieving meaningful levels of marketing leverage, reinforce our conviction in reaching our goal of long-term adjusted EBITDA margins north of 20% by 2030. Our ability to drive these incredible 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: [Operator Instructions] Your first question comes from Allen Lutz with Bank of America. Please go ahead.
See also 10 Fastest Growing Cities in New York State and 25 Richest Billionaires in Metals and Mining Industry.
To continue reading the Q&A session, please click here.