Hims & Hers Health, Inc.

Good afternoon, and thank you for joining us on today's conference call to discuss HIMSS and HERS Health, Inc. first quarter 2021 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 second quarter in 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 that we file with the SEC, including the Form 8-K filled 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 will 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 an 8K and also available on our website. And with that, I'll now turn it over to Andrew Dudum.

Welcome, and thank you all for joining our first quarter earnings call. Simply put, 2021 is off to an incredible start. Our mission is clear, to make the highest quality personalized healthcare accessible to everyone. We started this year helping more consumers across more conditions than ever before, and the results speak for themselves. Across the board, we exceeded our guidance with the revenue coming in at over 52 million, representing 74% year-over-year growth, and adjusted EBITDA coming in at a loss of 8.6 million, ahead of our guidance range. We also maintained our gross margin of 77%, which remains our highest in any historical quarter. This outperformance across the spectrum was driven by continued, robust growth in our core HIMSS categories, as well as accelerated strength of our HERS brand and across all of our emerging categories. These numbers underpin what I continue to believe is an exceptionally rare opportunity in the public markets. a business that combines a massive multi-generational vision, significant tailwinds, and present-day core fundamentals of robust, diversified growth and efficiency. The truth is we're doing things differently, and it's a real, durable, competitive advantage. We are meeting this younger generation, especially millennials and Gen Z, where they are, building a brand and set of experiences that they love, and leveraging deep consumer expertise and insights to build lasting relationships with the most digitally native generation in the country, the future of the health system, the consumers that matter most. And key to it all, personalization. Tims and Herbs helps consumers develop a healthcare plan of action that is tailored to the exact needs of each individual across a broad range of their conditions and preferences. We believe personalized medicine focused on the consumer is something that's really never been done before at anywhere near this level of reach. And our focus on personalized access is working. In the last year, people's understanding of telehealth has dramatically accelerated. And while many have experienced the simplicity and ease of virtual care, there have been questions as to whether or not the post-COVID environment will drive a shift back to in-person. For our customers and our audiences, the answer appears clear. Last quarter, we added more new subscriptions than any quarter in the company's history, growing subscriptions nearly 80% year over year. For the generation who grew up with cell phones in their hands, the traditional healthcare approach is a way of the past, and we believe hims and hers is the future. Our personalized approach to building a unified and fully verticalized front door to healthcare has served us well in continuing to differentiate and build moats in the landscape. Offering a single destination for personally tailored digital health and wellness, we continue to gain economic advantages and deeper, more valuable customer relationships that are quickly driving real economics. This quarter, our gross profit grew 95% year over year. Despite the historic magnitude of investment in the last 12 months in this sector, our team's execution and our defensible approach continued to drive efficiency throughout the business. And most excitingly, in this last quarter, adoption of new product lines were some of the fastest-growing categories in our business, with revenue from HERS Dermatology, part of an estimated $44 billion market, more than doubling quarter over quarter. As the US healthcare system continues to move towards digital experiences like ours, we will be uniquely positioned to continue capitalizing on expansion, serving more customers in more conditions. Our team's ability to meet this younger generation where they are and deliver a brand and consumer experience that wows our customers will continue to prove a strong competitive advantage in our vertical by vertical expansion strategy. As we progress in our goal to be one of the most transformative digital health companies of the next generation, we continue to remind ourselves that the future is just around the corner. We are leaders who are constantly anticipating what's next, and it has served us well. As such, we've invested a tremendous amount of time in Q1 prioritizing initiatives we believe will deepen our capabilities and entrench our competitive moats in the years to come. The two largest areas of investment have been in our future mobile platform and insurance. Let me tell you a little bit about both. Today, we have hundreds of thousands of subscriptions on the platform, with almost all platform engagement taking place via mobile devices. What comes next for hims and hers is a completely rethought mobile offering, native to iOS and Android, that will act as the future front door to all of our healthcare needs. This platform will showcase the breadth of what our customers are getting as part of the end-to-end Tims and Hers experience. And here again, personalized consumer health will be at the center, stretching across primary care to content, guided programs, community, and commerce. While still early in our development and design phase, what's clear is what we are building looks like nothing ever offered in healthcare. a single entry point into a beautiful healthcare world, simplifying the complexity of feeling great and being well. In parallel, our team has also begun the work to unlock the power of insurance reimbursement as part of the Hims and Hers platform. This is a key component to affordability for certain types of care and patient populations, which is core to our mission of expanding access for everyone. A first step in this initiative was opening our affiliated pharmacy, building the last verticalized component to our supply chain. From lab testing to behavioral health and more, we see exciting opportunities to facilitate more affordable access and comprehensive care for our customers via insurance. While early in development, we believe these capabilities will serve our customers well in the years to come. We are a company passionate about building the future of healthcare. 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. We are at the forefront of transforming an industry that we all so desperately rely upon. I'm proud of the results we have shared with you today and our team's dedication to our mission. At this point, I will now turn the call over to Spencer for a more detailed review of our results, followed up by Q&As. As a result of an imminently arriving firstborn son, I've prerecorded this message and look forward to following up with many of you in the coming days.

Thank you, Andrew. I'm pleased to report our incredibly strong performance in Q1. I'll walk through the details behind our performance and then provide our guidance for Q2 and our revised upwards revenue guidance for the full year. First, let's jump into the Q1 results. In Q1, we generated revenues of $52.3 million, which increased 74% year-over-year and exceeded the high end of our Q1 revenue guidance of $50 million. Growth was driven by strong performance across the entire business from all categories. We delivered on growth in new customer acquisition, continued improvements in customer retention, and continued expansion of average order values. In Q1, we generated 687,000 net orders, which grew 26% year-over-year. Growth in net orders was primarily driven by growth in subscriptions. We ended the quarter with 391,000 subscriptions on the platform, which increased 79% year-over-year, versus 218,000 subscriptions in the year-ago quarter. Subscription growth was driven by both strong new subscriber acquisition and improving retention of existing subscribers. Average order value, or AOV, in Q1 was $74, which increased 42% year over year. AOV has increased for the past nine consecutive quarters as we continue to drive an increased mix of subscriptions towards higher-priced product bundles and multi-month subscriptions. Our revenue performance in Q1 highlights multiple areas of strength in our business, our large and growing addressable markets, strong consumer demand driven by our uniquely positioned brand and clear cash pay value proposition, and our ability to drive growth by increasing subscriber lifetime values. In Q1, we saw the continued rotation in our subscription base into multi-month subscriptions and higher AOV net orders. As this rotation took place throughout 2020, we saw strong sequential growth in AOVs last year offset relatively flat net orders as the mix of multi-month net orders increased throughout the year. However, as we enter our second full year of this rotation, in Q1, we saw strong year-over-year growth across all dimensions, in net orders up 26%, in AOV up 42%, in subscriptions up 79%, and ultimately in revenue up 74%, all contributing to and positively driving growth. In Q1, we generated a 77% gross margin of 800 basis points versus 69% in the year-ago quarter. The combination of strong revenue growth and expanding gross margins compounded to generate even faster gross profit growth, up 95% year-over-year. Our focus over the last two years on expanding unit economics and increasing subscriber lifetime values has not only driven rapid revenue growth, but also year-over-year gross margin expansion at the same time. We've been able to meaningfully expand margins and accelerate gross profit generation because the fundamental quality of our revenue is improving. As we improved and expanded our product offerings, we were able to reach and target higher value customers. We've been able to validate higher value customers through their uptake of higher AOV and higher margin product bundles and multi-month subscriptions. Not only are newer subscribers spending more with us than previous subscribers, but they also have higher retention, which means they are generating more revenue during their lifetimes. all of which generates increased cost leverage from our product costs, provider costs, and shipping costs, thus leading to a combination of strong revenue growth and expanding gross margins. Our Q1 adjusted EBITDA loss of $8.6 million increased versus a $4.6 million loss in the year-ago quarter and outperformed our Q1 adjusted EBITDA loss guidance of $9.5 to $11.5 million. We were able to outperform our adjusted EBITDA guidance while also exceeding our revenue guidance because we drove numerous operational efficiencies in the quarter. First, we successfully drove increased customer conversion rates through onsite and customer experience optimizations. Second, we increased retention rates through improved customer experience and lifecycle management. And finally, AOVs continued to expand as we drove increased uptake of higher-priced product bundles and multi-month subscriptions. The combined efforts across the organization drove strong outperformance on both the top and bottom line. Before I move on to discuss financial guidance, I wanted to touch briefly on the recent pronouncements by the SEC on warrant accounting related to SPACs. In April, the SEC issued a statement on the various accounting considerations for SPAC warrants with respect to liability versus equity classification. Up until that point, almost all SPACs had classified their warrants as equity, including Oak Tree Acquisition Corp. Consistent with the SEC's guidance, for Q1, we booked a $33 million liability on our balance sheet related to warrants that were issued by Oak Tree Acquisition Corp prior to the merger with HIMSS. We also booked a $2.7 million expense in Q1 in other expenses related to the mark-to-market liability accounting for all of our liability classified warrants. Going forward, we will continue to mark-to-market outstanding warrants and will reflect any changes as other expense or other income in the period. Additionally, we decided to restate Oak Tree Acquisition Corp's historical financial statements to classify the warrants as liabilities. This included amending and restating the 10-K filed by him and hers in March to correct Oak Tree's historical financial statements. The amended 10-K was recently filed with the SEC. Now moving on to financial guidance. For Q2 2021, we are guiding the revenues of $55 to $57 million and an adjusted EBITDA loss of $10 to $12 million. For the full year 2021, we are raising our revenue guidance to a range of $221 to $227 million, an increase of $24 million at the midpoint versus our previous guidance. We are maintaining our guidance for adjusted EBITDA losses of $35 to $45 million for the year. To provide some additional color on how we are thinking about revenue for the rest of the year, our current internal financial forecast has Q4 revenues roughly in line with Q3. So with Q1 revenues this year at $52 million and the midpoint of our Q2 guidance at $56 million, if you take the midpoint of our full-year guidance at $224 million, that implies $58 million per quarter in Q3 and Q4 at the midpoint. As we discussed on our last call and similar to the guidance we provided for Q1, as a young and newly public company, we intend to provide guidance that we are confident in our ability to achieve. based on the current data points we see in the business. As new data points become available, we will continue to update investors in the coming quarters. Finally, I just want to note in Q1, we incurred stock-based compensation expenses of $34 million, largely driven by the merger transaction in January. This was near the midpoint of the guidance we provided on our previous call. In Q2, we expect stock-based compensation to return to a more normalized level of between $9 and $11 million. We are exceptionally pleased with the results we were able to deliver in Q1. Our Q1 performance really highlights the core strengths of our business. Our large markets where we treat conditions that consumers really personally care about, a brand that can uniquely harness this deep consumer demand, our offerings and clear value proposition that resonate with consumers, which drive our ability to grow AOVs, net orders, subscriptions, and gross margins all simultaneously. We continue to see strong investment opportunities ahead, which give us the confidence to increase our full-year revenue guidance at both ends of the range, now representing year-over-year growth rates of 49% to 53% for 2021, substantially ahead of the 30% guidance we provided in our public investor presentation last summer. We continue to be disciplined and return driven with our capital deployment. We continue to be prudent and focused on driving growth at high rates of return. And I look forward to updating you on our performance in the second half of this year. I want to thank our team for their incredible execution last quarter, all while managing the difficult transition into a public company. It's really special to watch the dedication and tremendous talent of our people that allow our company to deliver these types of results. I'm proud to share these results on your behalf. With that, we can open the call to questions. Operator?