Hims & Hers Health, Inc.

Good afternoon, and thank you for joining us on today's conference call to discuss Hims and Hers Health Inc's fourth quarter and full year 2020 financial results. Joining me on the call are Andrew Dudum, our Chief Executive Officer, and Spencer Lee, our Chief Financial Officer. On this call, we will be making forward-looking statements, including financial guidance and expectations for our first quarter and fiscal year 2021, growth, expansion into new categories, strategies, customer demand, and products. These statements reflect our best judgment based on factors currently known to us and actual events or results may differ materially. Please refer to documents we filed with the SEC, including the Form 10-K filed with today's press release. Those documents contain risks and other factors that may cause our actual results to differ from those contained in our forward-looking statements. These forward-looking statements are being made as of today, and we disclaim any obligation to update or revise these statements. If this call is reviewed after today, the information presented during this call may not be current or accurate. We will also discuss non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles. For historical periods, a reconciliation of GAAP and non-GAAP results is provided in the press release filed today with the SEC on 8K and also available on our website. And with that, I'll now turn it over to Andrew Dudum. Welcome.

Welcome. and thank you for joining our first earnings call as a public company. 2020 was a monumental year for HIMSS and HERS, and I'm happy to be with you all today to review our performance and share our exciting vision for the future. We've taken a big step forward in our plans to create a new front door to healthcare. Last year, we entered into a SPAC merger agreement, and in January of this year, we completed our SPAC merger and began trading under the ticker symbol HIMSS on the New York Stock Exchange. As a repeat founder and startup investor for over 15 years, I've come across very few businesses that look like him and hers. A business that combines both a massive multi-generational vision, significant tailwinds, and core fundamentals of robust, diversified growth and best-in-class margins. As just a three-year-old business, hims and hers has these dynamics in spades. And it is for that reason that we are so energized for the future of our company in the public market. We plan to leverage our unique DNA of innovation, brand building, and speed to build one of the most transformative digital health companies of the next generation. During the course of 2020, we took big, important steps from an operational standpoint that led to an incredibly successful year. I'm very pleased that we're able to meet and exceed the expectations for 2020 performance shared in our roadshow this past fall with no surprises. We are a team that prides itself on prudent execution and focus. We ended the year significantly ahead of our internal plan on both the top and bottom lines, including revenue growth of 80% year-over-year, gross margin expansion to 74%, and an 88% reduction in adjusted EBITDA losses year over year. We ended the year powering over 3 million medical visits on our platform, with over 300,000 subscriptions across dozens of medical services and offerings. Powering thousands of patients a day, we serve consumers in every state in the nation, offering access to products and services for individuals across the full spectrum of demographics and socioeconomic backgrounds, and helping people access world-class clinical care from the comfort and safety of their health. In 2020, we made very large strategic investments in order to unlock continued growth and success for the years to come. This included the launch of dermatology, mental health for anxiety and depression, and primary care services. 44, 14, and $280 billion market opportunities, respectively. As I've shared with many of you, we have a unique opportunity to build a transformative consumer brand known in households across the country for health and wellness that is supported within by a diversified set of specialty services and business units. It is under this brand and umbrella that we expect dozens of growth opportunities to exist. We believe much of the US healthcare system will move towards digital experiences like ours over the next decade. And with that, we have a special opportunity to systematically expand our platform to serve more customers and more conditions. We believe our ability to expand prudently and successfully into these new categories is a unique and defensible asset. In 2020, we made several critical investments to drive future growth in emerging categories, and I'm excited to report those investments are showing early signs of customer demand and robust fundamentals. Investments like this are key. Hims and Hers is in a leadership position today because we boldly and deliberately invested hundreds of millions of dollars and hundreds of thousands of person hours to rapidly build a next generation digitally native platform, clinical protocols, and a brand with meaning. Looking to the future, you can expect us to follow the same path, investing to unlock and drive future growth. Let me give you some of the examples of what we've been up to. For our HERS brand, we invested in the dermatology and hair care categories to launch personalized and custom formularies, expanded product assortment, and new bundles for enhanced treatment plans. With the team's focus, these categories more than doubled revenue year over year in Q4, with materially improved conversion and customer demand. In 2021, HERS continues to be a focus as we work to further unlock new acquisition channels and brand awareness. In mental health, we launched access to affordable psychiatric evaluations for anxiety and depression, conditions that are far too prevalent in our core demographics. These initiatives are led by our Senior Vice President of Behavioral Health, Julian Cohen, who most recently led similar organizations at MDLive and Teladoc. With prudent iterations and customer insights, this business has seen similar growing demand. We saw strong quarter-over-quarter revenue growth in Q4 and are energized by what we believe can eventually be a leading growth vertical in our portfolio. In addition, we launched an affordable and streamlined virtual primary care offering. With exceptionally high MPS as compared to traditional healthcare systems, this primary care offering allows patients to engage further with our platforms across a broad set of daily medical needs, creating deeper trust, broader health and wellness support, and ultimately expanded lifetime values. In addition to smart category-specific investments to drive future growth, in 2020, we invested in infrastructure verticalization that we believe will unlock improved efficiency and broad platform capabilities. Most notably, we opened a 300,000 square foot pharmacy and fulfillment center in Ohio. This facility is a key investment as we continue to deliver improved efficiency and high-quality customer experiences. In addition, this pharmacy will ultimately facilitate future insurance reimbursement for pharmaceutical products, even further broadening access and care options to our customers. We had a chance to meet many of you over the last several months, and in those conversations discussed the unique moment in time for which we find ourselves. A moment where customers expect price transparency, on-demand access, and digitally native, beautiful experiences. A moment where technology and AI can standardize clinical protocols, empower healthcare providers, simplify patient diagnoses, and drive higher engagement and better outcomes. And lastly, a moment where COVID-19 has dramatically accelerated people's understanding of telehealth. Experiencing the simplicity and ease of telehealth this year has shown people there is a better way. At Hims and Hers, we believe we are building that better way, the new front door to the healthcare system. As we look towards 2021, our team continues to expand on key durable advantages that have allowed such rapid and distinct growth. Our unique focus on young, digitally native consumers, especially millennials and Generation Z, the first generations who grew up with cell phones in their hands. We understand their thinking, their expectations for convenience, affordability, and accessibility, and we've tailored our business and brand to meet each customer exactly where they are. Gate to where the puck is going is how we approach building the future of healthcare. These consumers share a distinct perspective on technology and consumer experiences. And with such an accelerating divide between their expectations and the current healthcare system, we believe it is imperative to build for the generation that in 10 and 20 years will make up the majority of spend in this industry. You cannot build the future without the future consumer as your focus. Importantly, we have honed our expertise in acquiring and monetizing this particular population as we take a highly differentiated approach to direct to consumer marketing and customer acquisition. This muscle for which we continue to strengthen will give us a unique springboard with consumers to address more and more of their health care needs for mental health to primary care and beyond. All of this is made possible by a technical and clinical platform that has been built for safety and scale. Led by veteran leaders such as Dr. Patrick Carroll, our in-house EMR and the advanced quality assurance programs and provider training maintained by our medical group partners ensure our business meets the highest expectations for a leading digital health platform. Underlying the vision of HIMS and HERS are solid, fundamental, and favorable business characteristics that allowed us to achieve so much in just three years since launch. Our revenue growth has been in excess of 80%. We deliver recurring revenue of 90% plus and report gross margin trends of 75% plus. We have a diversified revenue mix in our portfolio, including primary care, behavioral health, dermatology, and men's and women's sexual health. The breadth of our platform today, our team's iterative approach, and our deep expertise in customer insights, acquisition, and monetization are durable advantages that will help us maintain our position as a leader in this space. In closing, I'm incredibly proud to be part of an organization that is representative of the future of healthcare, at the forefront of transforming an industry that we all so desperately rely upon. We have built significant momentum in 2020, as we work to make him and her the choice for consumers when it comes to health and wellness. And I've never been more excited to continue to update all of you on our progress in 2021. And now I'll hand it off to Spencer for a more detailed view of the numbers. Thank you, Andrew. And thanks everyone for joining our first earnings call. I'm going to touch on our 2020 highlights, then review fourth quarter results in more detail, and close my comments with our financial guidance for 2021. For our fiscal year 2020, we generated revenues of $148.8 million, which increased 80% year over year. Growth was driven by two primary factors. First, wholesale revenue increased to $8 million in 2020, up from $272,000 in 2019. This was a result of our new partnership with Target. Our average order value, or AOV, in 2020 was $62, which increased 88% year over year. AOV increased as a result of subscribers purchasing larger product bundles and multi-month subscriptions. This was driven by our continued strategy from 2019 to increase subscriber lifetime values through product optimization. We successfully expanded our cohort LTVs throughout 2020. We generated a 74% gross margin for the year, up 20 points versus 54% in 2019. This rapid expansion in margin was driven by customer uptake of higher margin product bundles and multi-month subscriptions, increased cost leverage in our provider network and shipping expenses, and a reduction of price discounting. In 2020, we generated 2.3 million net orders, down 9% year over year. This decrease was driven by a mixed shift in our subscription base to multi-month plans. As the mix of multi-month plans grows, net orders will naturally decline. For example, monthly subscribers are shipped 12 orders per year versus quarterly subscribers are only shipped four orders per year. As net orders declined in 2020, subscriptions on our platform increased by 64% year-over-year to 312,000. we continue to capture strong demand for our products and services in our large end markets. Over the last four quarters, our subscriptions have grown from $218,000 in Q1 to $258,000 in Q2 to $283,000 in Q3 and to $312,000 in Q4. We are pleased with the growth in subscriptions, our recurring revenue base, and the mix of multi-month plans. We were able to drive continued subscription growth and margin expansion at increasing efficiency year over year. In 2020, we focused our marketing efforts on driving efficiency through data analytics. We analyzed our customer cohorts, continuously tested new marketing campaigns against different audiences, and found increased efficiency throughout the year while acquiring increasingly valuable new customer cohorts. This allowed us to drive strong revenue growth while actually reducing marketing expenses by $4.2 million versus 2019. The combination of increasing revenues, expanding gross margins and increasing marketing efficiency created material operating leverage, enabling us to deliver adjusted EBITDA losses that decreased by $58 million year over year to an $8.1 million loss for 2020. In January, we closed our merger with Oak Tree Acquisition Corp and began trading as a standalone public company under the ticker HIMS. As of January 31st, 2021, we had approximately $340 million of cash, cash equivalents, and short-term investments on the balance sheet and no debt. We are well-funded for future growth investments. Today, we have approximately 191 million common shares outstanding, consisting of approximately 183 million Class A and 8 million Class B shares. This includes approximately 14 million Class A common shares related to earn-out shares per the merger agreement with Oak Tree Acquisition Corp. In addition, by March 31st, 2021, we expect to have between 28 to 30 million potential dilutive securities outstanding, including 8 million warrants and 20 to 22 million shares consisting of existing options and RSUs and new options and RSUs issued under our 2020 equity plan. For the fourth quarter 2020, we generated revenues of $41.5 million, which increased 67% year-over-year. Growth was driven by two primary factors. First, our AOV in Q4 was $69, which increased 60% year-over-year. AOV increased as a result of our continued success in driving the purchase of larger product bundles and multi-month subscriptions. Second, our wholesale revenue increased to $1.4 million in Q4, up from $32,000 in the prior year as a result of our new partnership with Target. Quarter over quarter, our Q4 revenues of $41.5 million was up slightly versus revenue of $41.3 million in Q3. I'd like to provide some additional color on some of the atypical events that influenced our quarter over quarter revenue trends for Q4. Wholesale revenue of $1.4 million in Q4 declined by $1.1 million quarter-over-quarter primarily due to one-time negotiated in-store marketing provided by Target in Q3 that was not provided in Q4. Online revenue of $40.1 million in Q4 was up 3% quarter-over-quarter driven by 3% quarter-over-quarter growth in AOV. In Q4, direct response advertising rates increased substantially versus Q3, driven by the presidential election and holiday season. In response, we moderated our direct response budget and shifted approximately 30% of our variable marketing expenses to awareness channels like TV and radio to build momentum going into 2021. This January, we saw ad rates decline materially from their Q4 peak, we opportunistically took advantage of these lower rates, increased our direct response budgets, and drove strong sequential monthly growth. Year-to-date, we additionally began investing in several new marketing campaigns across all of our categories. Many of these new campaigns have been highly effective, including new campaigns for our HRS brand. As Andrew mentioned, we are seeing good signals from our newer categories, and we are also seeing sequential acceleration in our core HINs categories. As we continue to unlock growth through high velocity creative testing and analytics driven marketing optimization, we expect to continue to make prudent growth investments, even our strong unit economics. In Q1, our marketing campaigns are driving real scale at healthy rates of return. As a result, we are guiding to revenues for Q1 2021 of $48 to $50 million and an adjusted EBITDA loss of negative $9.5 to negative $11.5 million. Note that there will be a few extraordinary items in Q1 resulting from the merger transaction. First, we anticipate Q1 stock-based compensation expenses of between $30 and $40 million The final amount will largely depend on the final technical accounting treatment for equity expenses related to the merger transaction. The technical accounting specifically for the earn-out shares as defined in the agreement has not yet been finalized. Depending on the conclusion, stock-based compensation could fall maturely out of this range. All such expenses will be added back to adjusted EBITDA. And two, per the merger agreement, the Board approved a $10 million bonus related to the transaction, of which $5.2 million has been expensed in Q1, which will be added back to adjusted EBITDA, and $4.6 million will be distributed in equity compensation, which will be amortized and recognized as stock-based compensation over the vesting period. For the full year 2021, we expect revenue of between $195 and $205 million and adjusted EBITDA losses of negative 35 to negative $45 million for the year. We are pleased to be able to take up our revenue guidance at both the high end and the low end of the range versus our previous 2021 revenue forecast of $179 million. The range of 195 to 205 million represents 31% to 39% year-over-year growth. As Andrew mentioned, we are seeing strong early signs in our newer categories to start the year. Our new marketing campaigns in Q1 are delivering meaningful scale and are driving accelerated growth in our core HINs categories and for the HERS brand. We continue to drive strong unit economics with our recurring revenue model, strong subscriber lifetime values, high gross margins, and data-driven marketing campaigns. To date this year, we are seeing opportunities to invest in incremental growth at healthy rates of return, and our adjusted EBITDA guidance takes these opportunities into account. We've always been disciplined and return driven with our capital deployment. We will continue to be prudent and focused on driving growth at high rates of return. I look forward to updating you on our performance and investment opportunities throughout this year. I want to thank our team for delivering such strong financial results last year while also completing a monumental transaction. I'm really proud of all that we achieved last year. We are well positioned for continued growth and 2021 is off to a great start. With that, I'll open the call to questions and headed back to the operator.

At this time, I'd like to inform everyone in order to ask a question, press star one on your telephone keypad. If you would like to withdraw your question, press the pound or hash key. We will pause for a moment to compile the Q&A roster. Your first question comes from Daniel Roslake from Citi.