Q3 2021 Hims & Hers Health Inc Earnings Call
Programs provide consumers with beautiful and fun original content journeys for a range of curated health challenges.
Grams or 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 in community for people struggling to take the first step in resolving a health or wellness challenge we.
We believe programs have the potential to help millions of people take that first step.
From helping reducing xiety and resolve hormonal acme 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.
His and hers members will now have full access to care.
Simple and unified hub for accessing your entire virtual care team.
Within care customers will have access to support and a variety of ways.
Scheduling consultations with licensed medical professionals on video phone or chat.
Leveraging unlimited messaging access to the medical experts that are supporting their treatment plans.
Within care members will also find our new 24 seven concierge.
Were members will have a round the clock access to highly trained coordinators, helping navigate the ecosystem coordinate with their virtual care teams are 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 HIMSS in her product portfolio into one simple and personalized space.
Consumers will soon have one click ability 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 her law. The member store allows for curated and personalized offerings bundled for easy access to up level daily routines are enhanced current plans.
While still early we believe that what we are building envisions, a new future and health care.
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 jumped 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 product line, the shelves and nearly 10000 physical brick and mortar locations nationwide, including most recently a nationwide rollout and Walgreens.
From the loyalists of J Lo and irreverent lovers of Miley Cyrus.
So the Sunday night fans of raw Gronkowski hims in 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 and innovating visualizing and ultimately, creating the future of health care.
I've said this before but I feel its 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.
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 upward guidance for Q4 first let's discuss our Q3 results.
In addition to continuing to drive strong growth in both the HIMSS and hers brands. We also began integrating the companies first two 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 lab.
The earnings call, we not only provided guidance for revenue and adjusted EBITDA for Q3, we also discuss several other metrics, including gross margin marketing expense and Adobe.
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 Q.
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 healthcare consumers.
Our ability to identify these audiences and people who connect with them through our brands and driving engagement and conversion through our unique digital experiences resulted in Q3 subscriptions growing 95% year over year to approximately 551000.
We generated nearly 1 million net orders in the quarter 968000 to be precise which accelerated to 66% growth year over year.
Year over year growth in net orders has accelerated for the last four 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 a posture fee and on his 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 Q.
Q3 marketing expenses included the marketing budgets, we inherited from apostrophe, an honest hill and the upfront investments we made for our celebrity partnerships with Miley Cyrus and Rob Gronkowski.
We are exceptionally pleased with 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 cat quarter and lowest cat quarter has in less than 3%.
Another way of saying this is that tax has essentially been flat all year.
Keeping <unk> 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 tax by spending less and having growth decline or increasing marketing spend at ever increasing marginal tax 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 tax 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 wanted to take a moment to really emphasize them.
First we have a diversified marketing model, where we are not dependent on any single marketing channel to drive growth.
Since the start of the company, we've 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 in 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 tailwind, including the upfront marketing expenses associated with our Miley Cyrus and Rob Bronchoscopy 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 seven 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 two points from 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% to $37 million.
And finally, as we were working on our plan and budget for 2022 I wanted to provide some thoughts about next year.
October 2020, we shared in Investor presentation. During our spec 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 our 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 instead of experiences to meet their needs and.
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.
We continue to be an exceptionally fast growing company guiding to 77% revenue growth this year.
Which is basically maintaining our 80% growth rate from last year.
Growing at this rate while on track to generate well over a quarter billion dollars in revenue. This year, reaching this incredible scale and 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 hope over $250 million in cash and investments on the balance sheet.
2021 is turning out to be an unbelievably strong year I couldnt be more proud of what we've achieved.
Operator, I'm happy to open up the call for questions.
Ladies and gentlemen, if he would like to ask a question. Please press star and the number one on your telephone.
Robert first question you have J Landry from credit Suisse. Your line is open.
Hey, this is Adam on for drilling are today. Thanks for taking my question and congrats on the quarter.
Just a quick follow up on the Walgreens contribution in <unk> with this $2 million of expected contribution.
Going back to what was going on with target I know there were some like many one time in store marketing and advertising benefits that the target deal had is that a similar dynamic here with Walgreens I guess, how should we expect that to transition into 2022 as the partnership kind of rolls off the the early transition.
Yeah, Adam 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 with the Walgreens agreement. The Po that we've received for Q4 are actually only.
And 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 peers.
And 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 the mobile App.
Obviously very exciting there to have rolled that out.
Can you touch on how Youre 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.
Thanks, Adam.
I think the mobile App is exactly focused on those two things right. It's a platform and a home base for our over half a million more.
<unk> subscription numbers and.
And so part of that it's really lived in this care and programs World, where it's guided handheld the 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, seven concierge experience where they are.
Essentially a doctor in their pocket right and so I think that high touch.
Concierge experience and I would say.
Our focus on clinical efficacy is really at the core of this and so we do believe it had really material potential.
Potential to impact retention long term when you look at our retention for this business as Spencer and I am sure Theres, an incredible long tail rate, 88% long term retention, but most of that churn really takes place in the first couple of months.
The consumer and patient getting acquainted with their medication and building that habit and building a daily process and inexperience of taking that regimen and so this world. These programs. We think are a phenomenal innovation frankly in bringing health care to consume.
<unk> in a digestible way then it's just going to make the engagement. So much higher so so really excited about the impact that could have for those 500000 members and then also just really excited for what it means for the future rate 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 you could imagine scrolling through a category for heart health and clicking a button.
Startup 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.
Imagine a whole fertility section right for people, who are trying to navigate IVF for adoption. So.
I think it's a it's a foundation.
That really changes our ability to build innovation for consumers and so.
That way when you were talking about cross sell when you are talking about customers better understanding what mid then it's bundled in your experience as a member.
80 to explore the ability to one one click purchase all of those things are enhanced dramatically in this type of the world and so we think this is this is arguably one of.
The most important things, we've probably ever built as a company.
And that it's really going to be the foundation of what we continue to build on over the next five to 10 years.
Great Thanks, and congrats again.
Thank you.
Our next question, we have Daniel Crossline from city Daniel Your line is open.
Hi, guys I'll add my congrats to our to the quarter great to see the results am.
I understand you're not formally guiding for 'twenty, two but the 30% growth does imply a pretty steep step down to the growth that you saw in 2021, which immediately was not anticipated so I'm.
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.
Yeah sure thing Hey, Daniel.
So yeah, I mean, I think if you look back to our October presentation from from.
From 2020.
Obviously for <unk> 'twenty, one we've blown way past the revenue forecast that we provided for 'twenty, one and again as I mentioned I think the 30% growth rates that we provided.
During the stock process are instructed in understanding management's perspective, right that means that we are addressing massive multibillion dollar markets that we have a unique set of experiences and brand that is resonating with this underserved regeneration.
<unk> of health care consumers.
And I think you know.
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.
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.
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.
Yep 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 its not showing up in your gross margin currently but as you look ahead and layout 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 our shortages, particularly as you have seen so much growth in the mental health side of the business, which tend to have the.
The most shortages out there.
Thanks, Daniel it's a great question.
We really haven't seen.
Any material adjustments or or necessity to change contracting or our wages are paid in aggregate across the provider groups and I think a big part of that.
It's frankly, when you talk to the physicians on our platform I think at this point, it's over three or 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 that 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.
I think the the system's rebuilt technology any interfaces that they are using when they come to practice on the engineers platform. It is actually just really energizing and makes their life seamless and so we've had really no massive changes or no material difficulties in hiring recruiting or are attaining.
The provider groups and that's really been the case since the beginning but I frankly think that's likely the reality is on a go forward basis as well.
Alright, good to hear congrats again on the quarter.
Thank you.
And for our next question, we have Michael Cherny from Bank of America, Michael Your line is open.
Hi, This is Charlie on for Mike and Thanks for taking my question 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 here and 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.
Yeah. Thank you so much for the question.
I think we definitely share that.
This business is scaling exceptionally quickly because of the unique ability to both build the brand and execute on expansion categories right. So as we mentioned previously.
And there.
And the Rerecorded transcript mental health has grown to 1000% year over year right. So these dynamics are really contributing very meaningful revenue and growth across the spectrum.
And you see that obviously, where our marketing dollars are deployed as well we've got Miley Cyrus talking about women's dermatology with Jennifer Lopez talking about women's hair loss Rock-bound koski talking about mental health. So huge belief that this differentiation combo the brand and the expansion Bret is creating.
<unk> value and so what I think you can expect from us is.
That continued expansion.
Every quarter every two quarters the launch of new major categories. One is 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 HIMSS <unk> platform is built today.
So I think when you 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 about world, 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.
This membership so I think you can expect us to continue to launch those categories.
Towards the end of this year and into Q1, and frankly expect that to take place on an ongoing basis for the three to five years ahead.
Yes.
Great. Thanks, and then just a follow up question.
You called out last quarter that you were expecting to see some compression in <unk> 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.
Yeah, So <unk> came in a little bit stronger than expected.
Primarily driven by a mix shift I mean, I think we had some positive.
Mixed shift in the core <unk> business that offset some of the <unk> compression that we thought that would have happened as a result of our acquisitions going forward in Q4 I think.
What were sort of seeing in the business right now is.
That will likely be in line with Q3 or slightly down depending on how sort of mixed shift plays out on the core business.
Over the next couple months, but not any not any material movements, but in line to maybe slightly down in Q4.
Great. Thank you and congrats again on Macquarie.
Thank you.
Again, if he would like to ask a question. Please press star and the number one on your telephone.
Our next question he had Jessica <unk> from Piper Sandler Jessica Your line is open.
Thank you for taking my question and nice quarter and I think early in the call. Andrew you highlighted in the past that 88% long term retention rate can you just help us understand what that number is referring to what is it maybe include or exclude them and buddy.
But is that long term timeframe. Thank you.
Yes, so what we've what we've disclosed in the past and thank you for the question is 88% long term retention and that's.
Toward retention between year, two and your three of our lifetime value for one of those consumers. So between year two and three you are retaining 88% of the value of that cohort.
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 is 94% 95% of our revenue is long term recurring subscription revenue.
It's the fact that what people are signing up with her is a chronic condition a chronic program that helps them treat something that is an ongoing long term relationship and so that metric. We think is just really reflective of the long term stickiness of the cohorts in.
And we believe that will really continue to be the case given the types of categories. We continue to expand into.
And then just maybe as a follow up.
On the launch of program. So how are you thinking kind of about pursuing reimbursement alongside developing new clinical programs are or spending into new clinical areas and then just.
Okay.
Is there any relationship between the launch of programs and your relationship with pretty a housekeeping I think you guys announced.
Really good right now.
Yes, there is no.
There is no direct relationship between the programs launch and pretty healthy per se.
It is.
Laura programs. However is a number of relationships with either health systems or medical specialists that are coming from top universities and talk program, where those partnerships are creating an.
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 specialist in 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 what we built with the vertical lives provider group the vertical lives pharmacy, the ability to really treat these patients start to finish we can deliver an attic cash pay prices that in almost all situations is cheaper.
<unk> than most peoples co pays for their insurance given the acceleration of high deductible plans in the country.
That said, we are continuing to work on that insurance reimbursement. The team is actively involved in that for very specific conditions in 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.
Got it thank you.
Thank you.
At this time there are no further questions I will now turn the call to entry data for closing comments.
Awesome I just wanted to thank everybody for joining today and thank you all for the great questions. Also just wanted 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.
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