Hims Stock Dip: CEO Says It's Okay - Telehealth News

Hims & Hers, a telehealth company headquartered in San Francisco that provides health products and services – including those related to sexual wellness – to a younger demographic, commenced public trading today on the NYSE following the completion of a merger with Oaktree Acquisition Corp., a special purpose acquisition company.

The company’s stock experienced a slight decrease in value, closing the day 5% lower than its opening price; however, co-founder and CEO Andrew Dudum indicated that Hims, established in 2017 and currently serving almost 300,000 subscribers, has not prioritized a significant initial public offering performance, as he conveyed earlier today.

Dudum explained that while an initial public offering was once considered, the company ultimately chose to pursue a special purpose acquisition company (SPAC) due to its pricing structure and the opportunity to collaborate with a SPAC managed by Howard Marks, founder of the global alternative investment firm Oaktree Capital Management. (“We were highly impressed by the Oaktree team, their extensive capital market expertise, and their substantial resources.”)

We discussed the structure of the SPAC deal with Dudum, the restrictions on share sales now that Hims is publicly traded, and the continuing importance of the company’s initial offering – a generic form of medication for erectile dysfunction. The following is a lightly edited version of our conversation for brevity and clarity.

TC: Your company is based in the Bay Area and primarily serves customers in the U.S. What are your plans for expanding into new geographic regions?

AD: We are currently operating on a small scale in the U.K., where we are establishing a presence, building a team, and developing infrastructure and fulfillment capabilities. Looking ahead, we see significant potential for growth in Europe, Australia, Canada, the Middle East, and Asia, and we intend to enter these markets in that sequence.

TC: What is the average cost to acquire a new customer?

AD: This figure has decreased from $200 at our launch to approximately $100 last year. On average, we generate nearly $300 in value from a patient over the first two years of their engagement with our services.

TC: What is the rate at which customers discontinue their service?

AD: We analyze lifetime value projections based on quarterly cohorts, and we are consistently improving the monetization of each cohort, achieving higher-margin profiles both quarter-over-quarter and year-over-year.

In the most recent quarter, the company experienced 90% year-over-year growth, with gross margins of 76% and improved cash flow. This is attributable to the increasing number of offerings we provide, which encourages cross-purchasing, and to the growing influence of word-of-mouth referrals, which now account for over 50% of website traffic as we have established a strong brand among younger consumers.

TC: When do you anticipate achieving profitability?

AD: We have reduced our annual expenditures and enhanced our margin efficiency and organic growth, leading us to believe that profitability is a realistic possibility within the next couple of years.

AD: We have reported that approximately half of our revenue comes from the sexual health category, which includes medications for erectile dysfunction, birth control, sexually transmitted diseases, urinary tract infections, and premature ejaculation. The remaining revenue is primarily derived from dermatology, encompassing hair care products for hair loss and acne treatments, with recent expansion into primary care and behavioral health services.

TC: How does Hims differentiate itself from competitors like Ro, which prominently promotes its erectile dysfunction products, for the benefit of individual investors?

AD: Several key distinctions set us apart from both public and private competitors. First and foremost is our commitment to diversifying our product offerings. With a focus on sexual health, dermatology, primary care, and behavioral health, we are dedicated to rapidly expanding into new areas of business.

We also believe we distinguish ourselves by investing significantly in building strong relationships with the demographic that will shape the future of healthcare – individuals in their teens, 20s, and 30s. This generation has different technological and consumer expectations than those in their 40s, 50s, and 60s, and to build for the future, we must cater to the largest group of future healthcare payers.

Traditional healthcare companies focus solely on treating illness, but prioritizing that approach prevents a full understanding of the needs and desires of the next generation. I have rarely observed such a significant gap between a patient population and conventional healthcare experiences, which presents a substantial competitive advantage for our business.

TC: Hims recently became a public company through a SPAC transaction, providing the company with approximately $280 million in capital – $205 million from Oaktree’s blank-check company and an additional $75 million through a private placement. What is the expected duration of this funding?

AD: The company’s current annual burn rate is relatively low, between $10 million and $20 million, providing a substantial runway assuming we maintain our current operating model. However, this capital also enables us to expand into new business areas, including significant categories like sleep disorders, infertility, diabetes, and other chronic conditions.

TC: Are you considering potential acquisitions?

AD: We will continue to evaluate strategic and consolidation opportunities. We receive inquiries from more than a dozen businesses each month regarding potential integration into our brand; however, we generally believe that our primary focus should remain on internal growth and avoid distractions.

TC: Is there a lockup period in place for share sales?

AD: A standard lockup period applies to executives, employees, and board members.

TC: Did the SPAC sponsors receive a seat on the board of directors?

AD: No.

TC: What percentage of the company do they currently own, and are they permitted to sell their shares?

AD: Oaktree holds a couple of percent of the company, and the syndicate involved in the private placement owns 12%. We specifically chose to partner with them because of the quality of their team and organization, and they have a vested interest in the company’s success and in validating their investment thesis over the next year or two.

TC: What is your perspective on the traditional IPO process?

AD: The traditional IPO market remains unchanged. The preparation process requires 12 to 18 months, which is a considerable distraction for management, followed by a one-day PIPE offering that provides institutions with a substantial amount of capital immediately. While this may generate headlines, it comes at a significant cost to the company. Founders and employees would understandably be concerned about the increased dilution. It is not surprising that founders like myself are exploring alternative methods with more favorable pricing and structures.