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spk14: please stand by we're about to begin good afternoon ladies and gentlemen welcome to the hens and hers health fourth quarter 2022 earnings call my name is beau and i will be your operator today at this time all participants are in a listen-only mode and please be advised that this call is being recorded after the speakers prepare to march there will be a question and answer session if you would like to ask a question during this time simply press star 1 on your telephone keypad And if you would like to withdraw your question, simply press star 1 again. And at this time, I'll turn the call over to Ms. Alice Lopato, Vice President of Investor Relations. Please go ahead, Ms. Lopato.
spk07: Good afternoon, everyone, and welcome to the Hims and Hers Health Fourth Quarter and Full Year 2022 Earnings Call. On the call with me today is Andrew Dudum, Co-Founder and Chief Executive Officer, as well as Yami 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 risk uncertainties and 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 see our most recently filed 10-K and 10-Q reports for 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 table contained in today's press release available on our Investor Relations website for reconciliations to the most directly comparable GAAP financial measures and related information. You'll find a link to the webcast and Investor Relations website at investors.forhim.com. Please also note, we have created a new investor presentation that we hope will serve as a useful resource for both new and existing investors. You can find this on our investor relations website under events and presentations. 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.
spk12: Thanks, Alice. Welcome to everyone joining us. 2022 was a transformative year for hims and hers, and I'm happy to be with you all today to review our performance and share our perspectives on the future. We're pleased to report an exceptional finish to a record year. Headlines by annual revenue of 527 million, more than 1 million subscribers, and over 10 million cumulative medical visits since inception, and importantly, the transition to adjusted EBITDA profitability in the fourth quarter for the first time in our company's history. This is an incredible moment for us all that serves as a testament to the strength of our company and approach. We find ourselves at an inflection point in which we're reaping the benefits of our size and scale. We believe our brand awareness and customer loyalty have never been stronger. Our product offerings have never been more expansive and personalized, and our platform's scale and insights are enabling clinical excellence and efficiency unlike anything in the market today. Even after this quarter of record-breaking growth, we have significant aspirations for our company's future. In commitment to these aspirations, we set an extremely high bar for disciplined execution across all teams within the organization. This approach is driven by the fact that our mission to help the world feel great through the power of better health is more relevant and essential for customers than ever before. By delivering on this at every level, we can continue taking leaps towards our goal of being a fundamental and beloved part of every household in the country. This mission is deeply personal because we, too, are customers. This is the enduring power of HIMS and HERS. We're experiencing a truly unique moment in history, a moment where customers expect hyper-personalization, on-demand access, and price transparency. A moment where technology and AI are capable of helping deliver both speed and accuracy in a complex analysis. And lastly, a moment where trust is a driver of consumer purchase behavior and where authentic brands are expected to reach out and build deep and enduring relationships with customers. As a company and as a team, we have never been more confident in our ability to capture this energy and seize this historic moment. with all of the tools and experience required to lead in this new world. We ended 2022 with the strongest quarter in our company's history, delivering not only continued momentum, but accelerating growth since going public over two years ago. Revenue, which was predominantly driven by recurring online subscriptions, grew 97% year over year, reaching a record 167 million in the fourth quarter. Efficiency and a disciplined approach toward investments have been crucial to our strategy and have enabled us to achieve our first quarter of adjusted EBITDA profitability, which was approximately $4 million in the fourth quarter. The underlying strength of our model, combined with ongoing velocity across the business, gives us a unique opportunity to operate profitably on a go-forward basis while continuing to scale our platform.
spk03: Our team's execution and focus
spk12: alongside our exciting pipeline of innovation, positions us well to deliver on a robust outlook for 2023. Equally energizing, those elements give us the confidence to speak to certain longer-term financial targets. By 2025, we expect to deliver annual revenue of at least 1.2 billion and generate at least 100 million of adjusted EBITDA. These targets are based on the current strength and trajectory of the business. Our success will continue to be fueled by a relentless focus on our customers, putting them at the center of everything we do. This focus on consumer centricity is powered by four key strategic pillars to which every investment, priority, and initiative ladders up. First, building a trusted brand, known and respected in every household in the country. Second, developing a leading technology platform that can deliver world-class recommendations efficiently through perpetual improvements with customer feedback. Third, delivering innovative products and personalized services. And fourth, ensuring clinical excellence with each and every patient. You'll notice we've expanded our pillars, now decoupling technology and innovation. This is a natural evolution for us as we pursue market leadership and work to redefine how world-class experiences in our industry look and feel. These four pillars create a powerful flywheel that underpins our growth engine. It starts with our trusted brand, which drives customer demand and scale. The growth in our consumer base fuels the rate of customer insights, feedback, and learnings we can utilize. This allows us to garner better personalized understanding and customer segment preferences. These insights feed into our technology platform to better train, refine, and deliver great care. In addition, this trove of customer insights helps shape the innovation roadmap and ultimately the products and services delivered. All of this done in partnership and collaboration with the leading clinical bodies, specialists, and pharmaceutical supply chain partners delivers an experience unlike anything available in the market, cycling right back to the fortification of our trusted brand. We're incredibly proud of the company we've built in just six years. The building blocks we have put in place, the strategic decisions we have made throughout our journey, and an ongoing focus on our four growth pillars are paying dividends. Looking ahead, we are energized by the many opportunities available. and initiatives planned across these pillars. With our trusted brand, we expect to expand our awareness and develop deep relationships with individuals and whole households by continuing to show up in the most culturally relevant moments across society. Most recently, we ran campaigns during the NFL playoffs and linked a high-profile partnership with Kristen Bell, who teamed up with hers to share her journey managing depression. We have many new initiatives underway that will continue this work to better empower consumers and deepen these relationships. As our platform continues to scale, we will deploy our leading technology to leverage unique insights, delivering access to world-class care for our customers and best-in-class tools for our providers. Our vision is a world where being treated through hims and hers is equivalent to accessing the collective minds of the top specialists across the nation to review each customer's needs and provide timely recommendations made possible through the power of machine learning. Through the power of scale from over a million subscribers and 10 million cumulative medical visits, our platform currently generates insights that enable us to deliver access to innovative products and services that customers love. Throughout 2023, we have a robust pipeline of new products that will bring advanced and personalized ways to treat consumers. which we feel will remove barriers for a wide portion of potential patients yet to be treated. We are pleased with the rollout of our first newly launched offering in 2023, Hard Mints by Hens, which has seen strong interest in its first month on the platform. Customers come to us to find solutions to their health and wellness needs, ultimately as a path towards feeling great. This is why clinical excellence is so important to us. Today, we have a medical advisory team of over 10 specialists that ensure providers on our platforms are providing the highest quality of care in line with how we do everything. We have further augmented our clinical capabilities to bring on two C-level hires, our chief medical officer and chief pharmacy officer, and expanding our partnerships with medical groups across the nation to ensure patients that come to us have access to high-quality care whether that be through our platform or via a recommendation from us to an alternative option. As standalone initiatives, we believe these advancements will continue to distinguish hims and hers as a leader in the industry. Together, this flywheel propels us down a strategically laid path towards further growth and profitability. All of this is made possible by a team that today is executing better than any team I've had the privilege of working with. Our people are our greatest asset. And this quarter's performance and this coming year's ambitions are reflective of the talent and focus of each of our employees. As I mentioned earlier, many of our employees, including myself, are customers. This is the reason our passion and commitment is so strong and why we are so energized about the future ahead. We are excited to update you on our next phase of growth And with that, I will now turn it over to Yemi to walk through details of our financial performance and outlook.
spk00: Thanks, Andrew. Hello, everyone, and thank you for joining us today. I'll start by providing additional color into our financial performance, including newly disclosed metrics, and expand upon Andrew's comments regarding our 2023 guidance and longer-term goals. 2022 was an incredible year for hims and hers that saw the compelling effect of our investments materialize in record performance. This culminated into a strong finish for the year. In the fourth quarter, we continued to drive exceptional growth across our business while also delivering our first quarter of adjusted EBIT at profitability. Fourth quarter revenue grew 97% year over year to 167.2 million. Revenue for 2022 was 526.9 million, up 94% relative to 2021. Throughout 2022, we saw strong momentum from our established offerings, such as men's sexual health and hair loss, as well as several of our emerging offerings. Strength in our online channel remained the primary driver of our growth throughout 2022. In the fourth quarter, online revenue increased 106% year-over-year to $161.2 million. For the full year, online revenue increased 94% year-over-year to $502.5 million. Growth in our online channel is driven by two levers. The first is the footprint of our subscriber base, which is influenced by our efforts to attract new subscribers and retain them. The second is our ability to increase subscriber engagement on the platform, which drives more revenue per subscriber. Our platform has evolved over the years to offer users a broader set of solutions to a diverse set of health and wellness needs. We feel that we will increasingly have the ability to enable services to our users across multiple conditions, elevating the importance of measuring the holistic relationship with our customers. Starting this quarter, we are disclosing the number of subscribers on our platform and will provide this metric on a quarterly basis going forward. A subscriber is an individual with one or more subscriptions on the Hams and Hers platform. Subscribers, when combined with monthly online revenue generated per average subscriber, is more reflective of our holistic engagement with each individual and provides greater visibility into the underlying drivers of growth. We will provide these metrics on a quarterly basis in lieu of subscriptions going forward. In the fourth quarter, subscriber count grew 124,000 quarter-over-quarter, representing an increase of 88% relative to the fourth quarter of 2021. We feel this growth is the result of successful investment related to the development of our brand, innovative products, and the overall platform experience. Monthly online revenue per average subscriber in the fourth quarter was $55, up 10% relative to the fourth quarter of last year. The share of subscribers with a multi-month subscription increased five points year over year in the fourth quarter to 73%. Higher revenue generated per user is a strong signal that we are not only expanding the number of users on our platform, but that we are also able to foster deeper relationships with our customers. Wholesale revenue increased $1 million relative to the third quarter to $6 million, representing a modest decline from the same time period last year. As we have previously communicated, we expect revenue growth on our wholesale channel to moderate, as we now have a presence in the majority of top retailers across the country. The wholesale channel will remain an important piece in our strategy to generate more consumer awareness for our brand, and we will look to continue to cultivate our relationships with strategic partners across this channel. Gross margins remained stable quarter-on-quarter at 79%, representing a 600 basis point year-over-year increase for the fourth quarter. Gross margins for 2022 were 78%, reflecting a 300 basis point increase from 2021. Margin expansion was driven by continued efficiency gains in our operations, increased fulfillment volume from our affiliated pharmacies, higher adoption of longer-duration subscriptions, and a greater share of online channel revenue. Moving down the P&L. Marketing as a percentage of revenue in the fourth quarter was 51% and 50% when excluding stock-based compensation, representing a 300 basis point improvement relative to the third quarter. For the full year, marketing as a percentage of revenue was 52% and 51% when excluding stock-based compensation. We are starting to see leverage on investments made in newer channels to develop our brands, such as TV. As a result of new product launches and offerings, you can expect us to be opportunistic with our marketing investments from time to time. That said, we expect that the payback period will remain less than one year, as highlighted in our capital allocation framework. Operations and support costs as a percentage of revenue in the fourth quarter came in at 13%, both including and excluding stock-based compensation. This represents 150 basis point improvement relative to the third quarter. We continue to see efficiency gains as a result of a greater share of fulfillment via our affiliated pharmacies, benefits from economies of scale, and leverage on overhead. Technology and product development costs represented 5% of revenue in the fourth quarter and 4% when excluding the effects of stock-based compensation. Excluding stock-based compensation, this represents a 60 basis point improvement relative to the third quarter. We expect investment in this area to expand as we launch new capabilities on our platform and continue to evolve our product offerings. General and administrative costs for the fourth quarter were 16% of revenue, representing a nine-point improvement relative to the fourth quarter of 2021 and a 160 basis point improvement relative to the third quarter of this year. Excluding the impact of stock-based compensation, G&A costs were 11% of revenue in the fourth quarter, representing a seven-point year-over-year improvement from 2021. For the full year, G&A costs were 18% of revenue, reflecting a 24-point year-over-year improvement relative to 2021. When excluding stock-based compensation, G&A costs for the full year were 13% of revenue. Efficiency gains in this area were the result of disciplined headcount growth, and we anticipate further leverage in this area in the future. Focused strategic investments we have made throughout the years have enabled us to drive leverage across multiple areas as our platform has scaled. In the fourth quarter, we generated $3.9 million of adjusted EBITDA, marking our first quarter of adjusted EBITDA profitability. Adjusted EBITDA margins were 2% in the fourth quarter, representing an improvement of six points relative to the prior quarter, and a 10-point improvement to the fourth quarter of 2021. Adjusted EBITDA losses for 2022 were $15.8 million, representing an adjusted EBITDA margin of negative 3%. 2022 was another outstanding year for Hims and Hers. We saw demonstrated success in the development of our brand across new channels, brought in user awareness for showing up in some of the most culturally relevant areas. As a result, we added a record number of subscribers and exited the year with over 1 million customers on the platform. We signed new partnership agreements with medical groups, enabling us to expand the ways in which we serve our customer base. And lastly, achieved our first quarter of adjusted EBITDA profitability. It is clear that we are at a critical moment in our company's history, and I could not be more excited for the future. We have an immense amount of flexibility as we enter 2023 with strong growth, generating positive adjusted EBITDA and a robust balance sheet with approximately $180 million of cash and short-term investments. Turning now toward our 2023 outlook. In the first quarter, we are anticipating revenue in the range of $175 to $180 million, representing the year-over-year increase of 73 to 78%. On the bottom line, we expect adjusted EBITDA to be between 3 to 6 million, representing an adjusted EBITDA margin of between 2 to 3%. For the full year, we are anticipating revenue of between 735 to 755 million, representing the year-over-year growth rate of 39 to 43%. And on the bottom line, there's our expectation that 2023 adjusted EBITDA will be between 20 to 30 million. These adjusted EBITDA and revenue ranges result in an adjusted EBITDA margin of between 3% to 4%. Our full-year outlook assumes that we are able to maintain long-term retention rates above 85%. We continue to achieve payback periods of under one year on our marketing investments, and we start to see traction with an expanded portfolio of personalized products that we would expect to launch throughout 2023. Several opportunities have emerged to extend the capabilities of our fulfillment centers that we expect to capture over the next two years. As we take advantage of these opportunities, we expect a temporary increase in CapEx. Our expectation is that we will have between 10 to 15 million of incremental CapEx over our current baseline during the next two years. The first portion of these investments are expected in the second quarter. I'll end by taking a moment to talk through some of our longer-term aspirations. Our belief is that over time, our platform can generate adjusted EBITDA margins of between 20% to 30% while maintaining a healthy growth profile. We are at a unique and exciting stage in the company's lifecycle, and the opportunity to make the world feel great through the power of health is immense. As a result, we will continue to strategically invest in new opportunities across our platform that we expect will result in a differentiated experience with better outcomes for our customers. Embedded in our long-term adjusted EBITDA margin target is an expectation that gross margins normalize in the mid-70s as the customer experience on our platform evolves. To provide insight into how the trajectory toward the long-term margin structure is expected to evolve, I'll spend a moment talking through our mid-range expectations. In 2025, we expect to generate at least $1.2 billion of annual revenue. Our capital allocation framework has demonstrated an ability to drive leverage as the platform scales, and we will continue adhering to it. As a reminder, the key tenets of the framework include a payback period of less than a year on marketing and other investments, investment in products and capabilities that foster durable long-term growth channels while enabling the ability to benefit from economies of scale, and a significant potential for a high return on investment over the long term. We feel that strong growth combined with sound execution across our capital allocation framework will enable us to drive at least 100 million of annual adjusted EBITDA in 2025. Our ability to achieve these targets is dependent on operating in a similar environment today and does not assume any significant or unforeseen external challenges. It is clear to us that we are at an inflection point. The transition to profitability combined with our strong balance sheet provides us with the ability to capitalize on the tremendous runway we see in front of us. 2022 provides a solid foundation that gives us increased confidence to lean into the investments we are making across each of our four strategic pillars. I'd like to thank our customers, partners, and employees for helping us deliver these outstanding results, and we look forward to continuing to update you on our progress. With that, I'll now turn it over to the operator to open the call to questions.
spk16: Thank you.
spk14: Ladies and gentlemen, at this time, any questions, simply press star 1. And just a reminder, if you find your question has already been addressed, you can remove yourself from the queue by pressing star 1 again. We'll take our first question this afternoon from Michael Cherney of Bank of America.
spk10: Yes, hi, good afternoon. This is Dan Clark on for Mike. To start from us, just wanted to walk a little bit through the building blocks to get to your fiscal 25 top line targets. How much of that revenue do you sort of expect to come from existing products, and how much do you expect will come from new products?
spk00: Yeah. Hi, Dan. This is Yemi. Thanks so much for the question. There's a few different levers that we expect to pull on over the coming years. The first is we've seen an immense amount of growth coming from some of the existing categories that we're in on the HIMSS platform. And so really with the rollout of personalized products, we do expect that many of the verticals on HIMSS will continue to scale. We also remain excited by the opportunities that we continue to see on the Hearst platform as well. And so we do expect that over the coming years to scale. Then lastly, as we've mentioned on prior calls, we do expect to have discipline category expansion to the tune of expanding the capabilities of one to two categories per year. And so really the ability to achieve the longer-range targets that we've set for assume that we're able to continue to pull on each of those levers over the coming years.
spk10: Got it. Thanks. And then just shifting gears to fiscal 23 guidance, how are you thinking about macro, if at all, in your guide? Is there anything that we should be kind of thinking about there? Thanks.
spk00: Yeah, I think that we are cognizant of a dynamic macroeconomic environment. What we've seen thus far throughout 2022 and other periods of economic uncertainty is that really the recurring nature of the platform has afforded us some protection. Additionally, in many of the conditions that we're in, we've seen that they've been largely resistant to macroeconomic headwinds. And some of that is the result of just the stickiness of the solutions as well as the diverse consumer set. And so we would say that our view is balanced. We are continuing to project strong quarter-on-quarter growth as well as year-on-year growth in 2023. They're not necessarily some of the record-level performance that we saw in some quarters in 2022.
spk16: Got it. Thank you. Thank you. We go next now to Daniel Grossleif at Citi.
spk13: Hi, guys. Thanks for taking the question, and congrats on the quarter. Your longer-term guidance assumes around 400 basis points of gross margin degradation, and I know you mentioned your prepared remarks that some of that has to do with the customer experience. But I was wondering if you can put a little bit more of a finer point on that gross margin degradation from around 79% to 75% and the cadence of that from 23 to 25. Thanks, Dan, for the question.
spk12: I can kick off. I think there's a strong desire internally, you know, really to be constantly reevaluating the customer experience and find ways for us to improve it maturely. And so I think there's this engine of personalization and innovation on the product side, on the roadmap, where we're trying to create a level of care that is really different from what is traditionally available in the generic markets. And then I think there's also just a general experience improvement that we constantly want to be investing in. And so I think that speaks to a couple of the points, and Yemi can probably speak to a little bit of the timing of that.
spk00: Yeah, I think with respect to the timing, I think the factors, as Andrew mentioned, that would drive that would be often to stick from time to time in exchange for making the platform sticky. We'll continue to reevaluate some of the pricing options in exchange for longer durations. Additionally, we do expect over time more and more of the ecosystem to be driven by value-added services as well as the personalized products. And so really the culmination of making those experiences better, it's not as if we're going to see gross margins degrade overnight, but over time as we start to continue to optimize the customer experience, we're likely to see that start to normalize in the mid-70s and embed it in our assumption in the 20% to 30% range, factors that in.
spk13: Okay, makes sense. And then on marketing expenses, those can be a bit lumpy based on new marketing campaigns. You mentioned you had that new partnership with Kristen Bell. Curious if you're launching any other large marketing campaigns and how should we think about that line item in 2023? Should we see some lumpiness there or are you going to be getting more leverage out of your marketing spend in 2023?
spk12: You know, I think we want to leave the flexibility there open for opportunistic investment. You know, I think we've said this on the last call, Dan, there's definitely an opportunity in market right now where we're seeing opportunities a fairly unique ability to take disproportionate share as others in the space are retrenching and I think playing a little bit more conservative. And I think the underlying strength of the model and the recurring nature of the business and the strength of the unit economics that are improving, you know, gives us that energy and confidence to continue to lean in. And so I think we want to maintain that flexibility that Kristen Bell worked on you know, has proven to be really valuable. And we think there are other partners that likely make sense in a similar vein. But with that said, I think, you know, we definitely expect as we continue to shift more and more dollars into brand building initiatives and away from performance-based channels, there to be pretty meaningful leverage on that line item.
spk16: Yeah. Thanks for the call, Eric. Yeah. Thanks, Dan. Thank you. We'll go next down to Jack Wallace with Guggenheim.
spk11: Hey, thanks for taking my questions, and congrats on another great quarter and a close to a fantastic 2022. I'm going to ask another set of questions around the 25 targets. In terms of the growth contribution, are we thinking in terms of new verticals? Are there any one or two that could be outsized contributors? Just thinking of some hot categories that some of your competitors have recently entered that seems to have reignited growth. there. And then second is on the gross margin side. Should we read into that as there being any more of a human capital cost associated with, say, more time in patients and care providers? Thank you.
spk12: Thanks, Jack. I can probably take the beginning part of that. You know, on the category side, we're seeing very robust growth, both from the early 10-year categories, traditionally on the men's health side of the house, as well as a lot of the new categories on the HRS side. So I think at this point still maintain, you know, a number of categories with triple digit and a triple digit growth rates. And so, you know, a lot of the focus continues to be on better understanding those customers, segmenting them, and then delivering a roadmap this year of proprietary and innovative products that just add a level of personalization to those customers in a way that make that relationship even stickier and have increased outcomes and really an experience they can't get anywhere else. So I think there's a balanced effort here of improving the customer experiences for those core categories that have really rapid scale and are continuing to grow pretty robustly while also looking and getting excited about what else the platform can serve and unlock. And I think to your point, there's quite a lot. I think in some of the materials we released today, You know, there's categories in women's health, across digestion, menopause, men's health, testosterone, prostate health, you know, general health, such as pain management, fertility, cardiovascular, diabetes. These are all categories that over time I believe we will be in and have a very strong presence in. But I think we're just being, you know, balanced in making sure that we are continuously engaging improving the core experience of the segments that are growing today and then the reasons people are coming to us today. And as Yemi said, you can kind of expect us to act as we have in the past, which is to continue to roll out meaningfully new categories on a one to two times per year basis while innovating within those categories on a much more rapid timeline.
spk00: And then to hit the second part of your question, Jack, we actually continue to see our cost structure get more and more efficient over time. And so really what we would look to do is look for, again, as Andrew mentioned, new ways to improve the overall customer experience, whether that comes in the form of more personalized products, new services, evolving our overall offering. That's what we expect to drive more of the movement and gross margins we expected, as opposed to our evolving cost structure. We're actually getting to see more and more efficiency, which is showing up in the form of higher gross margins.
spk11: Gotcha. That's really helpful. And then just a quick follow-up on the CapEx. Are there certain maybe robotic processes that you're looking at? Or I'm just trying to get an idea for what the expansion or the opportunities are that you're looking at that is going to be an incremental to the budget the next couple of years.
spk00: Yeah, I think at a high level, it's to do a few things. It's to, you know, just augment the, you know, given the pipeline of products that we have that are centered on creating a unique experience that's personal for customers. Some of the investment is going towards that, as well as towards just increasing the overall efficiency of the affiliated fulfillment centers. And so, really, it's a combination of those two elements that are driving the incremental investment.
spk11: Got it. Thanks again, and congrats on another great quarter and great year.
spk16: Thanks, Jack. Thanks, Jeff. Thank you. We go next now to Glenn Santangelo.
spk14: Oh, yeah. Thanks for taking my question.
spk03: Hey, Andrew, I just wanted to follow up on some of the comments you were just making regarding the competitive landscape. You know, as you obviously noticed, right, Amazon sort of not sitting still. You know, people have been looking at sort of category expansion at Roman. And I'm just kind of wondering how you view the competitive landscape these days because I think what investors are trying to understand is, you know, that path to those sort of long-term margin targets, right? It seems like you're clearly getting the SG&A leverage this year, right? But people are kind of looking more at the marketing expense and sort of thinking about customer acquisition costs vis-a-vis that competitive landscape and what maybe is happening with CAC, you know, over time.
spk12: Yeah, thanks for that question. You know, I think we, at a high level, we've found the market right now to be really advantageous for us. And I think you've seen that in Q4 and the quarter before where we are taking opportunities to lean in and be aggressive and I think take very meaningful market share from the competitors that are very well-funded competitors at really strong paybacks. Within our capital allocation framework, always maintaining a sub-one-year payback period but doing it in a way that's investing in the long-term asset of the business, which is that trusted brand. I think the competitors continue to move as you expect they would. I genuinely believe that the industry we're in, this kind of mix between consumer business and healthcare, will likely generate one of the largest industries in the country, if not the world eventually, and I think some of the largest and most valuable businesses in the world will likely end up in this industry. And so I think it's probably unexpected to believe that we'll be the only one, but I think we are very clearly blazing that path as the leader and taking that forward. And I think as long as we continue to focus on those four pillars that I was talking about prior, investing in that trusted brand, continuing to innovate on the leading technology, delivering truly innovative products and services, and then reinforcing that whole thing with clinical excellence. Those four pillars, I think, really are the bread and butter of what's working and what's delivering a holistic start to finish experience that is really unlike anything in market. And so that's where we're focused. But I think we're seeing really great dynamics in market that allow our team to be aggressive and to take share in a time where it's a little bit more turbulent for the rest of the industry.
spk03: I appreciate those comments. If I could just ask one quick follow-up. Trying to get maybe a little bit of a better understanding as to which therapy areas might be driving the growth. And I think, Yemi, you sort of called out in your prepared remarks non-sexual health, because we're getting some questions around, you know, the average order value, you know, up $13 year-over-year, 18%. And we're trying to figure out, is that a mix issue? Is that a pricing? is some of that price, is some of that multi-month subscription. So can you give us any color about where the strength is coming from and maybe what's driving that AOV as much as it is? Thanks.
spk12: Yeah, thanks. Maybe I can provide a little color on the first half. You know, from a growth standpoint, we're seeing strong growth, you know, I think quite equally between the original kind of older tenured businesses in men's health, which is usually in things like dermatology and sexual health, as well as a lot of the newer businesses that find itself more on the HRS side of the business. We've got a few businesses now still maintaining mid-triple digits growth across both HIMSS and HRS. And so there's really no single point here that's driving this. This is really accumulation of multiple businesses scaling, and I think this is really the defensible nature of this business, which is you are layering very different customers who are coming to us with very different needs, and we're servicing those patients with very different treatment plans and have different relationships. And so that defensibility, I think, is one of the core aspects of the business, but it really is a combination coming from the traditional and older tenured businesses in HIMSS as well as a lot of the newer innovation that you guys have seen from us in the last 12 to 18 months.
spk00: And then, Glenn, to touch upon your question around what's driving AOV particularly, we're generally not in the habit of directly optimizing for AOV. Just given the fact that the revenue model is primarily subscription-based, our strategy really centers around driving longer, more doable, lasting relationships with customers. And so as a result, that focus has resulted in a few things. One is, as mentioned, we continue to see strong multi-month adoption. We also see users opening themselves and being more receptive to engage with us across a broader set of conditions. Our strategy is going to continue to be around focusing on building those relationships. And so that's both to draw in new subscribers as well as retain the existing subscribers on the platform, as well as just expand the revenue that we generate per subscriber.
spk16: Okay, thank you very much. Thank you. We'll go next now to Jonathan Young with Credit Suisse.
spk01: Hey, thanks. Take my question and congrats on a strong quarter here. Just going to your 2025 targets, as you think about balancing growth versus profitability and going to your comments about some retrenchment by some of your competitors, How do you think about possibly accelerating the revenue growth, perhaps maybe pulling back on the EBITDA side, maybe launching more categories through 23 or through 24? I just want to get a flavor of how you're thinking about that, if the opportunity presents itself to you in the next year or two.
spk00: Yeah, I would say that we continue to be very much focused on optimizing and acquiring more of the TAM that's in front of us. That said, I think as we've been able to demonstrate throughout our history, we really have the ability to do both, given the uniqueness of the model, given that we oftentimes are able to benefit from economies of scale, unlocking new efficiencies across the business as we scale. What you do see is that we get leverage across certain areas, both in GA as well as our variable expenses. And so I think that that's what gives us the conviction to put forth not just a revenue target or not just an EBITDA target. It's a little bit more mid- to long-term in nature, but really to be able to do both, just because we do have the conviction that the model affords the ability to see expansion across both areas. So you can continue to expect us to lean in to identifying and investing categories where it makes sense. That said, though, we also are confident in the ability to continue to drive more and more EBITDA onto the platform as well.
spk01: Great. And then just going to the customer experience investments that you're doing, when you think about those investments, is it really to drive kind of the top-line growth, or is it to improve retention, or maybe it's a combination of both, just how you think about where the benefits of that will come from? Thanks. Thanks.
spk12: Yeah, that's a great question. You know, I think we really look at it through the lens of better treating patients on the platform, right, and providing products and services that increase adherence, that deliver, you know, outcomes that have more efficacy, and that deliver experiences that patients, frankly, love, right, and that they, as a result, you know, really stick to and share with their friends and family and, you know, you know, have as a meaningful part of their lives. And so I think a lot of that, you know, ends up long-term as, you know, driving aggregate LTV cohort improvements, but, you know, really improved activation and improved retention rates over time. But a lot of it, I think, is looking at it through the lens of how do we improve customer outcomes? What are the reasons patients are struggling currently? How do we make that simpler? What are the dynamics that patients you know, don't like and what are their preferences and how can we improve those? What are the clinical options we have to drive better outcomes or reduce side effect profiles? I think those are a lot of the questions that we're asking on the customer support side that ultimately just result in a much happier customer, a much longer tenure customer, and, you know, long-term, a much more valuable customer.
spk16: Great. Thank you. Thank you. We'll go next now to Jillian Racine at Juris Securities.
spk17: Hi, this is Jay on for Jillian. Thanks for taking my question. So I understand you're no longer providing specific figures for multi-month insurance, but just wanted to know, like, what are the percentage of multi-month orders continuing to trend upwards each quarter above, I think, 36%, and that trend has improved from this single-digit percent monthly?
spk00: Yes, I think what we have disclosed in our materials is the ratio of subscribers that have a multi-month relationship with us relative to those that are more on a month-to-month. Currently, we have more than 70% of our users are on the multi-month model. And then to your second question, Andrew, did you want to take that one?
spk12: Sure. Sorry, I didn't get the first part of that.
spk16: But the second part of that, I'm sorry, if you mind repeating it.
spk02: Oh, whether term has improved from the missed single-digit percentage monthly?
spk12: Oh, yes. We haven't reported on the monthly side, but continue to see really strong long-term retention rates in the north of 85%, which is what we reiterated this quarter.
spk17: Okay. And then just quickly, what are your thoughts on, I guess, Biden's administration's proposal last week, which would require patients to see a doctor in person before getting attention deficit disorder medication or a dose of painkillers? Just kind of wondering what kind of percentage of your business today is tied to those kind of prescriptions?
spk12: Yeah, that's a great question. We currently do not offer any type of controlled substances on the platform. They're not permitted. in any capacity. And so there's no part of the business today that would be affected by the Biden administration's proposals that came out last week.
spk02: All right. Thank you.
spk16: Thank you. And we'll go next now to Jonah Kim at Calvin.
spk02: Thank you for taking my question. Congratulations on a nice quarter.
spk08: Just wanted to maybe get more thoughts on the retention rate you were talking about. How does the retention rate differ by single month versus multi-month, and what are some key strategies that you have in place to drive higher retention across different courts? Thank you very much.
spk00: Yeah, so we generally see, you know, for multi-month, the retention rates are higher. For many of these conditions, they are chronic in nature. But for some of them, you know, for instance, using hair loss as an example, it does take time to see the results show up. And so through committing to multi-month, we generally see that those users are stickier. Many of the initiatives, you know, that we have had around retention have really just centered around evolving the customer experience, so making it easier to switch, you know, for instance, to a different cadence or your treatment. Also just having on the platform the end-to-end experience where you're able to solicit help and have a timely response. And as mentioned in the prepared remarks, we're continuously looking for ways to evolve that customer experience to further increase the overall stickiness on the platform.
spk16: Got it. Thank you. Thank you. We go next now to George Hill at Deutsche Bank.
spk15: Good evening, guys, and thanks for taking my question. I guess, Yumi and Andrew, I'd start off with, how would you guys characterize your visibility to the long-term guide? And I guess, do you think of it as, you know, at one end of the spectrum is conservative, the other end of the spectrum is aspirational? And kind of, I'd be interested in your comments on the thoughts of putting it, just in general, putting it out there, given the uncertainty of the environment that we're in.
spk12: Yeah, thanks, George, for the question. You know, I would characterize it as reflective of what we think is reasonable for the business to achieve given the current trajectory of what we see today. And so, you know, I think we intentionally put out there that we think this is, you know, a revenue number of at least $1.2 billion and an adjusted EBITDA number of at least $100 million. So we do think that, you know, the business can achieve this. We think that hopefully the business can surpass it. But it's fairly representative of the growth we see under the hood today and I think also representative of the you know, really robust innovation pipeline that we have in the works both for this year and next year on the proprietary product side across categories and new categories that we think are going to unlock quite a lot of new customer segments and also drive engagement and retention pretty powerfully. And so maybe that's a little bit of color to provide over. I don't know, Yemi, if there's anything you'd like to add.
spk00: Yeah, nothing further from my end.
spk15: Okay, and then if I could hop in with a follow-up on the new MINT product that you guys launched. I know that you talked about the gross margin erosion over the next couple years as we look at the 2025. If we compare the MINT product to what I would call like the standard generic ED product, is that product gross margin accretive or dilutive? And I guess, can you talk about, do you see a lot of opportunities in other product categories to use formulation? as a way to kind of drive price and maybe gross margin expansion?
spk00: I'll take the first part of that question and maybe hand it over to Andrew to take the second part. I think over time, we do expect that we have the ability to achieve similar gross margins on the personalized products that we do for more of the generic-based products. The gross margin dynamics that we talked about We're really just around having line of sight into the flexibility to offer consumers more and more capabilities onto the platform. And so I think as we look at around how things are likely to evolve, really just having that flexibility is where we see some of the gross margin dynamics that we referenced earlier come from.
spk12: Yeah, and to your question, George, about formulation opportunities, I think the answer is absolutely. This, I think, was key to the large strategic purchase of Apostrophe and that compounding infrastructure in pharmacy a couple of years ago. We have always believed that personalized medicine will deliver much better outcomes for patients. And that could be in way of form factor preference. It could be in the way of optimizing side effects by improving different dose dynamics. Or it could be in the way of optimizing clinical outcomes through different formulation combinations where it makes sense. And so I think giving the providers on our platform and the patients on our platform increased capabilities to optimize personalized solutions for them. And that means formulation and form factor in a lot of situations. across the businesses we're in and across the future businesses we're going to launch into is a huge opportunity. And again, I think this just really reinforces a lot of the investments we've been making across the stack to improve the customer experience in such a way where patients really can come to us and know that not only are they going to get the best clinical care, but they're also going to get products and services that are truly proprietary and unique to our platform and unavailable at other places in market.
spk15: Okay, that's helpful. Maybe just a really quick follow-up. Just can you comment on uptake of the minutes? Has it been kind of – I know it's really the kind of met expectations, surpassed expectations.
spk12: I think we have very high expectations, and I think they're meeting them. There's been really strong adoption and strong engagement just in the last few weeks since getting those out. So it has given the team a lot of energy and excitement to keep pushing forward.
spk16: Okay, thank you. Thank you. We go next now to Corrine Wolfmeyer at HyperStandler.
spk05: Hey, good afternoon, all. Congrats on a great quarter, and thanks for taking the questions. So first, I'd like to kind of, I guess, piggyback on that last question, but address some of the newer products that you've been launching, such as like the shampoo and the conditioners. Are you viewing these as more so, you know, market expansive and being able to tap into a broader customer base? Or are you seeing existing customers start tacking on these other products that you're launching into their current orders? Any color would be helpful. Thank you.
spk12: Yeah, that's a great question. I think it's a mix of both. We see similarly in the retail channels, which we continue to invest in for the most strategic partners, being on shelves and having OTC product breadth for customers allows them to have an introductory relationship with hims or hers. And I think as we invest in brand building initiatives and an omni-channel presence and the ability to touch and have deep relationships with these patients, those products in a lot of ways are sometimes less intimidating and more accessible and first start products. So I think that's definitely part of it. And then I think it's probably equally weighted that patients that are coming to us and are getting personalized prescription pharmaceutical products through the platform and getting treated with specific issues, often ask for and desire complementary products that work with that regimen. So having a prescription-made topical spray, let's say, for a woman who's experiencing hair loss postpartum, that woman's also going to ask us what is the right shampoo, what is the right conditioner that can also boost volume and boost thickening and help regrow. And so the ability to have that assortment, that proprietary assortment and the breadth of products, I think ultimately does drive increased bundle value and average order size in a way that it is incrementally pretty meaningful to the business.
spk02: That's really helpful. Thank you. And then if I could just
spk05: push you a little bit more on this, the 20 to 30% EBITDA margin guide that you put out for the longer term. Can you talk about, you know, how far down the road is that? I mean, you gave us some 2025 targets, but it seems like we're not quite there, although those are, you know, at least 100 million EBITDA, but just how are we going to get to that 20 to 30% and how far down the road do you think that really is? Thank you.
spk00: Yeah, sure. Thanks for the question. I'd say that I think we have direct line of sight to continue to get leverage on many of the line items that we've seen leverage on already. So we do expect to continue to be very disciplined in the way that we grow our G&A footprint. So you can expect us over the coming years to get leverage on that side. We see a lot of things that are very exciting on our variable costs that primarily show up in operations and support. And so over the coming years, we'll continue to get leverage there. Then what we'd also expect to see is right now we're currently investing in acquiring more and more customers onto the platform, also investing across a breadth of categories. But what we do see over time is that the base of the existing customers that we have is also rapidly growing. As a result, that also drives just a ton of leverage and efficiency across the business. And so over time, what we would expect is we would start to get leverage on the marketing line as well. You know, realistically, we're probably looking at, you know, at least, you know, probably a five-year plus horizon, so I'd say five to ten years to, you know, truly probably hit the, you know, that type of concept. But really, it's going to be a tradeoff between how we make the investments versus, you know, how we continue to see our base evolve and mature.
spk02: Very helpful. Thank you.
spk16: And we'll go next now to Ivan Feinsteth at Tigris Financial.
spk04: Thank you for taking my questions and congratulations on another huge year. I have two questions. In your projections going into 25, does that $1.2 billion include any possible M&A or that would be if you were to make an acquisition be an additional to that?
spk12: Thanks, Ivan, for the question. This is really representative of the organic trajectory of the business, so does not take into consideration any opportunities on the M&A side that might pop up in the next couple of years.
spk04: And then not giving specifics, but let's say what would be, let's say, some of the other areas that you would like to expand into?
spk12: From a category standpoint, you know, I think on the investor presentation that we released that's up on the investor website right now, We outline a couple of prospective markets that the team is really energized by. On the men's health side, this is things like prostate health, testosterone. On the women's health side, you're talking about things like menopause and digestion. On mental health, there's quite a bit still to unlock in customers struggling with insomnia, PTSD. And then in more general health, pain management, fertility concerns for men and women. weight and metabolic health, cardiovascular, diabetes. I know that's a lot, but I think the honest answer is those are all categories the team is looking at and spending a lot of time in. And for us, it's really not a question of if we're going to launch in any of these categories. It's really just a question of when and how, right? I think we have a desire to... you know, bring to market products and services that truly are innovative and truly personalized. And so that means, you know, not necessarily rushing out the door with, you know, a new medicine once it's been approved. It means actually thinking about, you know, how we deliver that to patients in a way that's, you know, improving their outcomes and their preferences and ultimately the relationship we have with them. And so, you know, those are a lot of categories, but I think it's just a matter of time between, you know, us and launching them. And it's just a question of, you know, how we bring them into market in a way that we feel is very much representative of the hims and hers approach.
spk04: Okay. And my other question is, like, since bringing on Christian Bell as a spokesperson, what kind of impact have you seen or how do you measure that? And then what would some other types of people or, like, types of areas in similar roles that you would look to expand into?
spk12: Yeah, it's a great question. I think Kristen is a unique example in that she's so authentically and courageously speaks to her struggles over the years with depression and anxiety. And I think that authenticity is really powerful for men and women to hear, especially for categories that are, in a lot of ways, full of shame and highly stigmatized. And despite the fact that huge portions of the country suffer from them, very few percent of those people actually go and get treated. And so we've seen really strong results on the brand building side for Kristen. A lot of people are seeing that message and it's resonating with them and coming and being encouraged to evaluate solutions for them. And so for me, I really think of our biggest competitor as somebody who is just reluctant to take that first step. right? The majority of people that come to us are first-time buyers, right? They're really seeking information and they're trying to learn about options available. They're not coming from a different competitor or a different health system. It's somebody who's currently outside of the system who's now opting in with hims and hers. And so I think celebrities and athletes and people of high influence have this ability to be that nudge that encourages people to take the first step and normalize the realities of whatever they might be struggling with and then, you know, go learn and hopefully take care of it and ultimately feel better. So I definitely think we're, you know, open to more partnerships like Kristen. We're looking at, you know, a lot of different options across categories that have those dynamics. So I definitely think it's something you could expect from us in the years to come.
spk04: Thank you. Congratulations again. Wishing you a big 23.
spk16: Thanks, Ivan. I would accept to be Joy Zong at SBD Securities.
spk06: Hey, guys. Congrats on another strong quarter, and thank you for taking my question. In your prepared remarks, you had some comments on sort of the specificities I can't say that word, but you know what I mean, in customer segmenting. So can you give us an update on the profile of your typical customer in terms of age, gender, geography, et cetera, and has that profile of the typical customer changed at all over the past few years as you've expanded into more categories? Thank you.
spk12: Thanks, Joy. It's a good question. There's a really unique part of this brand that attracts a very wide spectrum of customers. And so I think in those remarks, what I was talking about, the customer specificity, which is a tough word, is the ability to identify within the wide spectrum of patients that are coming to us, very specific needs within those patient groups. and how treatments and content and therapies can be improved and personalized for that specific patient. So I'll give you an example. You know, on the women's mental health business per se, right, you have women that are struggling with anxiety who are in their late teens and early 20s. You have women struggling with anxiety and depression postpartum. You have women struggling with anxiety and depression as they're approaching perimenopause and through menopause. The actual care that's appropriate for each of those women at each of those stages is likely very different. And so being able to better segment and understand the specific needs of those patients specific treatments, digital therapeutics, content, et cetera, that could be helpful. And even underlying conditions that might be completely different that we could help address, like that's a really big part of it. And so the brand right now is attracting a very wide spectrum of men and women. There truly is no hims and hers customer. There's no single age. There's no single demographic. It is incredibly vast and broad. across all swaths of people. And I think that's actually one of the most powerful parts of the business is the brands resonate across many, many generations. And so that's continuing to grow. And I think as we launch more categories and get better at customer segmentation and better at brand building, I think you'll see that expand even further in a place where eventually an entire family, an entire household you know, could be a customer of him's and hers and likely the grandparents and great-grandparents. And so I think that's kind of the ambition and the trends that we've seen so far.
spk06: That's super, super helpful. Thank you. And as a follow-up, maybe I'll just tag on another gross margin question. Can you update us on sort of what percentage of your prescription volume today is done through the in-house fulfillment centers? And how much juice is there left to squeeze in terms of margin benefits from that going forward?
spk12: Yeah, that's a great question. I think we disclosed in the latest presentation that north of 55% of the business is being fulfilled through the affiliated pharmacies. And so there's still quite a bit left to go, which is great. And there are quite a bit of opportunities to you know, streamline the margin profile and the efficiency of that remaining percentage. And so, you know, improving quite a bit, but still quite a lot of opportunity on the horizon for us to drive efficiency.
spk16: All right. Thank you. Thank you. Thank you.
spk14: And ladies and gentlemen, that will conclude our question and answer session today, as well as bring us to the end of today's conference call. Again, we'd like to thank you all so much for joining the HIMSS and HERS Health fourth quarter 2022 earnings conference call and wish you all a great remainder of your day.
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