HIMS Q3 earnings review

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Hims and Hers Health (HIMS) reported Q3 earnings on November 4, 2024. The company had guided and landed at these numbers,

Guides vs Actuals
revenue 375-380M → 402M (+77% yoy)
adj EBITDA 35-40M → 51M

Q4 upcoming guide
revenue 465-470M (+89-91% yoy)
adj EBITDA 50-55M

Notes and graphics from the press release and presentation,

HIMS revenue
HIMS revenue1080×1024 107 KB

HIMS adj EBITDA
HIMS adj EBITDA2376×946 112 KB

HIMS cash flow
HIMS cash flow2310×844 130 KB

  • net income of 75.6M (large one time tax benefit of 60.8M), -7.6M year ago
  • subscriptions now 2M, +44% yoy
  • over 1M+ users are choosing a personalized solution
  • user growth excluding GLPs would be 40%
  • company is benefitting from brand awareness, personalization, and new customers
  • monthly online revenue per average subscriber is $67, +24% yoy
  • net orders, 2.66M, +20% yoy
  • AOV (average order volume) $147, +48% yoy
  • wholesale revenue 9M, 28% yoy
  • gross margin 79% (down slightly as GLPs ramp)
  • adj EBITDA 51.1M vs 12.3M last year
  • net cash by operating activities 85.3M vs 25.2M year ago
  • FCF 79.4M vs 19.3M year ago
  • users can access care within hours as opposed to weeks with platform
  • personalized solutions are up 175% yoy, 65% of new subs opt for personalized solution
  • observing higher retention among users with personalized solutions
  • personalized dosing and titration cycles for semaglutide
  • new intelligent customer routing system
  • provider satisfaction monthly above 95%, network of over 1,000 providers
  • shortage of available brand name GLP-1s is not abating
  • oral GLPs have 100M annual run rate just seven months after launch, 1,000+ orders per day
  • liraglutide is first generic GLP available on the platform
  • prioritized each COA (certificate of analysis) associated with each medication
  • investing in 503a and 503b compounding facilities
  • strong unit economics with payback period less than one year
  • sales and marketing is 45% of revenue down from 51% year ago, lowest ever on record
  • ops and support 12% of revenue vs 14% year ago
  • tech and dev 5%, vs 6%
  • G&A 11% vs 16%
  • 254M cash, no debt
  • 100M share repurchase program, 30M purchased so far

Additional notes from the conference call,

  • wider selection of form factors is driving success
  • significant impact of Hers brand, appointed new CMO there
  • surpassed 400k Hers subscribers, strength in dermatology
  • unlocking levels of care only previously available to the most privileged segments of society
  • increased ability to reach some of the “most vulnerable populations across America”, 400k subs are from zip codes where income level is below $50k per year, 40k of those subs in weight loss
  • subscribers coming from older communities as well, 100k customers over 65, 7k of those on weight loss solutions
  • strong retention for compounded GLP-1 medications, at 4 weeks 85% of patients engaged with provider, by 12 weeks 70% of patients continued medication
  • data shows users previously had difficulty accessing GLPs, last two months had 80,000 reports of users coming to platform who could not obtain GLPs
  • actively working with federal and state legislative bodies to share the experience of customers
  • actively investing in 503a facility to continue personalized weight loss solutions
  • 180k net subs added in the third quarter, majority are coming in through non-GLP solutions
  • seeing retention drift higher across many of specialities
  • weight loss solutions carry a higher monthly average price relative to other products, boosts average subscriber revenue
  • increased multi speciality adoption has largely been organic
  • 300k customers are being treated for two or more conditions
  • G&A costs lower, efficiency gains in clever routing for support tickets and to care teams
  • improving cash flow dynamics
  • “precedent specifically on the GLP-1 side for personalization and compounding to the 503 has existed for many, many years”
  • customize to the level of care, precedents are “very well respected”, across all the parties in the industry
  • acquisition of Medisource prior quarter, has the capability to produce GLP-1s
  • continue to invest in both 503a and 503b facilities, can drive substantial amount of efficiency and both will be significantly more efficient than using third parties
  • oral weight loss solutions continuing strong despite GLP-1s injectable availability
  • see the platform like Switzerland, neutral on solutions and want to offer a wide range of treatments and solutions for different customers
  • seeing accelerating GLP-1 growth, but largely subscriber growth coming from the core

HIMS delivered strong results with 77% revenue growth. I was impressed they are guiding for 89-91% next quarter. It does not sound like GLP sales are at any risk, although GLPs are making up a much larger part of revenue now.

I am not sure why the market has a tepid response to these results. The company has reaccelerated growth from the prior quarters and shows no signs of slowing. I believe the market is still skeptical of the GLP sales, and this could present some upside if sales continue to ramp. I added some to my position today when it got below $21 a share as I believe there is solid value at these prices.

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I took the exact opposite action and sold my position. It was around 5%. I have no idea what’s going on and to be honest I was shocked to see the market reaction after hours and then again today. I think somebody, or some group of somebodies knows something that’s not generally known yet. I’m not waiting around to see what mystery might be revealed as it seems obvious that whatever it is, it isn’t good news.

Yes, of course I know, I could be completely wrong, but I can’t think of any other reason for this market reaction. If I’m wrong, OK, I won’t feel all that bad. There’s lots of opportunities available that is easier to understand.

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@brittlerock so you sold because the price went down?

Revenue
In the last 3 quarters the yoy revenue growth rate went from:

46% ->52% → 77% and at the high end they are now guiding for 90% for Q4.

Margins
Operating margin turned positive in Q4 last year after showing steady improvement for the 3 years before that. This year operating margins went from (Q1 to Q3):
4%->3%->6%

Net profit margin (first year of reaching net profit positive territory):
4%->4%->19% (this includes a one-off benefit so is a bit on the high side)

FCF margin:
4%->15%->20%
That’s not a business that is in trouble: it’s growing very fast and producing a very healthy amount of free cash flow as a % of revenue.

Subscribers
Subscribers grew >40% yoy for the first three quarters, and subscribers on a personalised plan grew 134%->132%->214% in the first three quarters.

No signs of a lack of adoption or saturation here.

Commentary
Commentary was very bullish, and four different analysts started their question in the Q&A session by congratulating the management on the strong performance.

The CEO ended the prepared remarks with this. Bolding is mine:

Capital investment will start to reaccelerate as we invest in capabilities that we expect will enable us to fulfill an increasing portion of demand for GLP-1 solutions through our affiliated pharmacies and bring new solutions to the platform in 2025, such as liraglutide. We believe these investments will enable us to bring the benefit of our platform to tens of millions of users across weight loss and our other specialties.

Our business has always centered on our subscription platform but now more than ever, the majority of our revenue is derived from recurring subscription revenue. The focus of our strategy is centered around acquiring, retaining, and expanding our relationships with our subscribers. […]

Our trajectory in 2024 has been nothing short of phenomenal due to excellent execution across the organization. The business trajectory as well as the current investments in capabilities and talent are setting a robust foundation for 2025.

The business seems to be firing on all cylinders to me, and I cannot find fault with the results. Accordingly I didn’t sell.

-wsm.

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Congratulations, it appears that you made the correct decision as the market appears to be rewarding HIMS shareholders today in a delayed reaction to their earning report.

Personally, I was reluctant to invest in HIMS in the first place, but finally took a small position due to the numbers you’ve just cited. I didn’t miss out on a lot of gains. I remain uncomfortable with the business model, I’m sure it’s legal, but borderline unethical from my POV. In addition, I guess I have become gun shy after the SMCI debacle (it’s continuing to crater), so when the market failed to respond to a very good earnings report, I took it as a red flag.

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This current situation with HIMS seems more akin to how APP was trading in the market than with SMCI. APP was also putting up quarter after quarter of results without having much price impact.

They both have unusual names where an investment advisor may not have been able to pitch them to institutional clients. Free to play game ads, or ED and hair Telehealth doesn’t sound like a serious business to most. However, at some point analysts are going to start coverage and raise targets. The pitch started to sound better for AppLovin once they said they will enter CTV and web. I expect something similar to happen with HIMS, maybe once the woman’s side of the business catches on, or GLP medications become more mainstream.

I am surprised there have been a few threads along the lines of the company is going down and therefore someone knows something. Are we really thinking there is some large institutional investor that is now selling out because of some non public knowledge? Or it’s groups of smaller investors whose continuous selling on earnings day was pushing the price down? I know in Transmedics case, it does seem like information got leaked, but I believe that is an unusual outcome as I pointed out in that thread.

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I think the fear is that Amazon is going to move in on them. It wouldn’t be hard for them to take their business.

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I recently signed up for a Hims product, and took a position after this report.

The Amazon fear might be totally fair. After all, look what happened with Zoom after Microsoft decided to turn Sauron’s eye onto it.

What I’ll say from my background is that I found the process of signing up and getting the product very smooth, trustworthy, well-designed, from the initial website visit down to the packaging. Amazon certainly has the base and infrastructure to take them down, but it will be interesting to see where it falls in terms of their many, many priorities and if they will be able to engender trust within the medical space. And if trusted, will it be an experience that people enjoy and talk about, like I’m doing now? Who knows. But certainly something to keep an eye on.

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Just in case you haven’t seen this. I am glad that HIMS met your needs.

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OMG - This is a non value added post, but I couldn’t help myself. I bought a small position in HIMS by selling some of my APP which had become a bit over my comfort level. But, when I sold my position in HIMS, I turned around and bought APP shares with the money. APP reports tonight (11/6). I’m expecting a great report with a boost from the ecommerce pilot.

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I believe one of the main concerns with HIMS is that they were allowed to sell the compounded GLP-1 weight loss drugs when the branded (patented) versions of those drugs were on the FDA drug shortage list. Many have been on the shortage list since 2022 and thus HIMS and others can sell compounded versions of them.

See this article from October 31, 2024 where Novo Nordisk says Ozempic and Wegovy are no longer on the shortage list (Ozempic, Wegovy shortages resolved: FDA)

After this Oct 31 article HIMS dropped from $23 to $19.

I’m not an expert in this space and I don’t understand all of the details but I believe this is the main concern - will HIMS be able to continue selling compounded weight loss drugs once they are all off the shortage list.

If you read the HIMS earnings call transcript they talk about someday selling branded weight lot drugs like Ozempic and Wegovy. I believe they may need to stop compounding their drugs once they are all off the shortage list and thus to continue selling weight loss drugs they would resell the branded ones. But how much margin with there be in reselling branded weight loss drugs?

On the earnings call there were several analyst questions about this and here are two of them specifically about the shortages:
Q : Can you describe what the GLP-1 business looks like a year from now, considering different form factors and growth opportunities? A : Thanks, Allen. We are looking at a diverse breadth of the portfolio within the product assortment. The oral business, which we launched, is delivering 70% of the weight loss of GLP-1 medicines for $70 per month. We also have medications like liraglutide coming to the platform. We believe the composition of these avenues will enable a durable business across weight management, regardless of the shortage dynamics.

Q : Can you confirm if around 10,000 users are on the personalized titration schedule for GLP-1s, and will you be able to continue compounding these doses once shortages abate? A : The 10,000 figure was specific to a study on patient outcomes. Our platform caters to personalization needs, and the compounding exemption allows for necessary clinical personalization, which we believe will continue to be respected across the industry.

I’m sure someone on this board knows much more about this and can offer further perspective.

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The shortage and compounding are too separate exemptions. Both of them allow HIMS to offer GLP-1s independently. So even if a certain medication shortage ends, HIMS can still offer that medication as a personalized medication. That personalization can be a compound or a custom dosage.

There is still some risk that the owners of GLP-1 patents successfully argue that HIMS should not be allowed to offer them as part of the personalization exception, but that is a separate issue from the shortage exemption.

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Amazon pharmacy is not a competitor to HIMS, it is a competitor to Walgreens and CVS. HIMS is a one stop shop, you get the doctor’s visit, the prescription, the medication, and the follow up. Until Amazon starts offering that, they are not a competitor.

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They have been offering that.

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