Hinge Health - Earnings Call - Q2 2025

Transcript

Operator (participant)

Ladies and gentlemen, thank you for joining us, and welcome to the Hinge Health Second Quarter twenty twenty five Earnings Call. After today's prepared remarks, we will host a question and answer session. I will now hand the conference over to Bianca Buck, Head of Investor Relations. Bianca, please go ahead.

Bianca Buck (Finance, Head - IR)

Good afternoon, everyone, and thank you for joining Hinge Health's second quarter twenty twenty five earnings conference call and our first as a public company. I'm Bianca Buck, Head of Investor Relations at Hinge Health. Joining me today are Daniel Perez, our Co Founder and Chief Executive Officer Jim Persley, our President and James Budge, our chief financial officer. Since this is our first earnings call, we felt it important to have Jim join Dan and James to give a refresher on our go to market motion. Before we begin, I'd like to note that today's call is being recorded, and you can find all relevant materials, including our earnings presentation, on the Investor Relations section of our website.

Today's discussion will include forward looking statements. These statements reflect our current views and expectations regarding future events, including expected performance of our business, our future financial results, our business and growth strategies and future prospects. These statements also include our improved financial outlook for Q3 and full year 2025. All of these forward looking statements are subject to various risks, uncertainties and assumptions. While these statements represent our good faith judgment and beliefs, actual results may differ materially from those projected or implied during the discussion.

Note that the forward looking statements on this call are based on information available to us as of today's date. We undertake no obligation to update any forward looking statements except as required by law. For a detailed discussion of the risks and uncertainties that could cause our actual results to differ, please refer to our IPO prospectus filed with the Securities and Exchange Commission as well as the Form 10 Q that will be filed next week. Additionally, during today's call, we will reference certain non GAAP financial measures alongside our GAAP results. Revenue will be discussed on a GAAP basis, while all other measures will be measured on a non GAAP basis.

These non GAAP measures should be considered as supplemental to and not a substitute for our GAAP financial measures. For a reconciliation of certain of our non GAAP to GAAP measures, please refer to our earnings release. With that, I'll now turn the call over to Dan for his opening remarks.

Daniel Perez (Co-Founder & CEO)

Thank you, Bianca. Welcome, everyone, to our inaugural Hinge Health earnings call. I'm excited to share our second quarter results and business update. Let me outline what we'll cover in our remarks. First, I'll provide a high level financial snapshot of our second quarter performance and give a quick overview of our business.

Second, I'll discuss our product updates, including some core product enhancements and update on our AI efficiency initiatives and the exciting announcement of Hinge Select, our high performance network of in person providers. Third, Jim will provide a commercial update, including our recent sales momentum. Fourth, James will go deeper into our financials and provide our formal guidance. Finally, I'll return to wrap up with our strategic outlook and long term vision, and then we'll open it up to questions. Let's dive in.

Firstly, I'm pleased to report that Hinge Health delivered an exceptional second quarter, delivering profitable growth and demonstrating strong momentum across all key metrics. Revenue for the second quarter was a $139,000,000, up 55 compared to 90,000,000 in the same quarter last year. Our non GAAP income from operations was $26,000,000 for a 19% non GAAP operating margin. Moreover, we generated $33,000,000 of free cash flow for a free cash flow margin of over 23. Our last twelve months calculated billings reached $568,000,000, also up 55% year over year compared to $368,000,000 in the prior year period.

As a reminder, our last twelve months calculated billings is a leading indicator for our revenue. This strong performance was driven by higher eligible lives from both new and legacy clients and better than expected enrollment yields, resulting in increased members and billings. James, our CFO, will go into more details about our financials, but we're proud about these results. We believe they underscore the strength and momentum of our business. Now since this is our first earnings call as a public company, I'd like to take a moment to remind those new to our story, what makes Hinge Health special and why we're so excited about the opportunity ahead of us.

At our core, Hinge Health is automating health care delivery itself, starting with musculoskeletal conditions or MSK. We've built a comprehensive platform that combines AI powered technology, a proprietary wearable device, and expert care to deliver personalized evidence based treatment that can help members decrease their pain and improve quality of life, all while reducing health care costs for clients. What sets us apart is our approach to scaling health care delivery. We've reduced human care team hours associated with traditional physical therapy by approximately 95% through automation, which allows us to reduce health care costs for clients while improving members' health outcomes and satisfaction. Our platform isn't just about digitizing existing processes.

We believe we're fundamentally reshaping how care can be delivered more effectively and efficiently. The market opportunity before us is significant. MSK spend in The US reached $661,000,000,000 in 2023, and we believe that over 70,000,000,000 of that is spent on physical therapy. Because MSK treatment has historically been procedure driven, it consistently ranks as one of the top three health care spend categories for employers. Our clients partner with us because we deliver on health care's triple aim, enhancing the member experience, improving member outcomes, and reducing costs.

To put this in everyday terms, think about someone suffering from chronic back pain. Traditional care often means waiting weeks for an appointment, traveling to multiple providers, and following a one size fits all treatment plan. With Hinge Health, that same person can start their personalized care program within minutes right from home, receive real time feedback through our AI powered motion tracking technology, and connect with the care team when needed, all while their employer saves on health care costs. We've built an efficient go to market motion and realized early on the benefits of key partners, health plans, pharmacy benefit managers or PBMs, third party administrators or TPAs, and others. We now have 50 plus partners, many of whom have selected us as their preferred digital MSK solution, including all five of the largest national health plans by self insured lives and the three largest PBMs by market share.

This means the vast majority of our enterprise prospects yet to buy Hinge Health can turn us on without having to go through lengthy contracting or IT security review, which is a big pain point in health care. We believe these partnerships differentiate Hinge Health as we seek to be one of the easiest solutions to buy and implement. This combination of accessibility, effectiveness, and cost efficiency has resonated strongly with both our members and clients, positioning us to capture a significant share of this growing market. And as we look ahead, we see significant potential to expand our impact and continue automating the delivery of care. Let me now turn to our recent product innovations and enhancements.

We're headquartered in San Francisco, so we're very focused on tech driven innovation. Over the past three years alone, we've launched our women's pelvic health program, fall prevention program, multiple iterations of our Enzo pain management device, breakthrough AI powered motion tracking technology, and our menopause program among other products. Three key product investment areas in 2025 worth mentioning include core enhancements, AI efficiencies, and Hinge Select. Starting with our core product enhancements, we've made significant improvements to our AI powered motion tracking technology or TruMotion. We've introduced more variety to our exercises and enhanced three d visualizations, including our new smart skeleton feature.

This shows members a detailed view of their spine curvature and provides more dynamic movement tracking, making at home exercise more intuitive and effective. We've also streamlined how new members start with our program, making it easier to begin their care journey. This has led to more people successfully joining our platform and starting their care. Additionally, we found new ways to reconnect with members who haven't used our platform in a while. We implemented various strategic campaigns and product nudges showing these members our latest features and expanded offerings, which has successfully brought many of these members back to continue their care.

Overall, members are more engaged and satisfied with our platform year over year, and we hit our all time high member NPS in the first half of the year. These enhancements also have the benefit of driving our high client retention and improving member enrollment yields. Now beyond our core product investment areas, we've also seen meaningful efficiency gains across the company from our AI initiatives, benefiting both margins and scalability. As just one tangible example, our proprietary generative AI powered care team assistant, which automates routine tasks like message drafting and reviewing clinical histories, continued to improve this past quarter. We reduced the average time it takes our care team to respond to members by 16% in q two compared to q one and by 47% compared to a year ago, freeing up time for deeper interactions.

Finally, I'm excited to discuss Hinge Select, our new high performance provider network we announced in June that complements our digital MSK solution, delivering a truly unified musculoskeletal care experience. Think of Hinge Select as a carefully curated marketplace that connects our members with high quality in person providers for services like imaging, physical therapy, injections, and more, all at up to 50% below typical insurance rates. We are moving towards a future where health care delivery itself will be automated via software and connected hardware, but many aspects of care still require in person providers. Any care that cannot yet be delivered by our technology will be directed to vetted in person providers designed to provide consistent evidence based support every step of the way and to ensure that care is coordinated, high quality, and cost effective. We expect that most members will begin with our flagship digital But for those who may benefit from an in person encounter, they'll be routed using technology to a HingeFlight provider and, in many cases, continue the remainder of their care digitally.

This solution is intended to create value for everyone involved, members, employers, providers, and payers. Members can get access to high quality in person care at low or no direct cost to them. Employers could benefit from reduced health care spending and better outcomes. Health care providers can get streamlined workflows, faster payments, and more focused patient referrals. And our health plan partners are particularly excited about the ability to combine their existing networks within Select to create a better experience for members at a lower cost.

We are starting with a limited pilot in late twenty twenty five, which we expect to be followed by a broader launch in 2026. We've already secured contracts with providers across more than 2,100 locations as of the '2 with many more being signed in q three to date. We have several large early client adopters. While we don't expect meaningful revenue impact until 2027, Hinge Select represents an important opportunity to improve member outcomes and client ROI while increasing yields and adding a high margin revenue stream for us as we'll recognize a percentage of their medical claims as net revenue. We're incredibly excited about this new offering and its potential to allow us to deliver end to end care in MSK.

With that, I'll hand over to Jim Purse, our president, to discuss our commercial updates.

Jim Pursley (President)

Thank you, Dan, and thanks everyone for joining. I'm excited to share our commercial progress and market momentum with you all today. Our value proposition continues to resonate strongly with clients as evidenced by our consistently high client retention rates. As a reminder, we operate on an enterprise focused subscription software model where we only generate revenue when members actively engage with our platform. This alignment of interest has proven particularly compelling for employers seeking to optimize their health care spend while enhancing employee benefits.

We have developed an efficient go to market model by working directly with our partners and clients. Our clients are primarily self insured employers and include many of the nation's leading enterprises across a broad range of industries and sizes. Within this segment, we also serve many public sector self insured employers, such as state, local, and city governments and labor unions. In most instances, we partner with the client's health plans, TPAs, PBMs, other ecosystem partners to reduce the friction of contracting, procurement, security and IT reviews, implementation, and billing. As of the '2, we had over 50 partners, including the five largest national health plans and the top three PBMs.

We're also in the early stages of expanding to serve health plans fully insured and Medicare advantage populations, as well as federal insurance plans. We've seen good traction in these segments over the past couple of years. Before diving into our key priorities, I wanna remind everyone about our typical sales cycle. The majority of our clients enter contracts with us in the second half of each calendar year, aligning with typical employee benefit enrollment periods. Most of these clients then launch in the first half of the following calendar year.

This creates a natural rhythm to our business where the first half focuses on launching new clients and building pipeline, while the second half represents our peak sales season. Given that, the 2025 has been focused on two key priorities, successfully launching our clients, one in 2024, and building a robust pipeline for the second half of the year. I'm pleased to report strong execution on both fronts. Our new client launches have exceeded expectations with eligible lives coming in higher than anticipated, which contributed to our financial outperformance this past quarter. Our sales momentum is equally encouraging.

We've signed more lives in the 2025 than in the 2024. We had 2,359 clients contracted as of the '2, up 32% compared to q two twenty twenty four. On the competitive front, we're feeling as confident as ever. Our win rate remains strong and has increased year over year. While early in the sales season, looking at our 2025 wins, we're seeing particularly robust growth in our large employer enterprise and public sector segments.

Our fully insured and federal programs are also showing promising momentum. Recently, we validate our value proposition in the fully insured space through a new ROI study. This study analyzed medical claims data from nearly 4,800 health plan members and was validated by Gallagher, a leading global insurance brokerage, risk management, and consulting firm. It showed an average savings of $2,343 per member per year and a 2.4 times return on investment. The study found meaningful cost savings from reduced utilization across a spectrum of health care services, including injections, physical or occupational therapy, with majority of claims reduction, forty four percent, coming from avoided surgeries.

This becomes our fifth large scale claims based study, further reinforcing the significant value our platform delivers. This past quarter, we also significantly expanded our program's reach across Europe and launched in five new countries, The United Kingdom, France, The Netherlands, Ireland, and Germany, building upon our existing presence in Canada. In each of these markets, we've met Europe's strict privacy and regulatory requirements, launching as a class one medical device. As a reminder, we're currently focusing on US based multinational corporations with employees abroad rather than building separate sales and care teams in these countries. This approach helps us better serve large corporations with global workforces.

In the future, we expect to work with payers directly in those countries. As we look ahead to the 2025, we believe we are well positioned to capitalize on our strong sales pipeline and continue our growth trajectory. The combination of our proven ROI, enhanced product offerings, and expanding market reach gives us confidence in our ability to maintain our leadership position in the MSK care space. We're now entering the height of our sales season, and the next two quarters will be important in shaping our 2026 performance. While the momentum is encouraging, it's still early, and we remain focused on disciplined execution and converting our pipeline to contracted lives. Now I'll turn over James, our CFO.

James Budge (CFO)

Thank you, Jim. Before digging into the numbers, let me start by reminding everyone about our billings model, which is driven by three key components, eligible lives, yield, which is our conversion rate of eligible lives to active members, and average price per member. I'm pleased to report strong performance across all three of these components this quarter, resulting in strong billings. Our last twelve months calculated billings reached $568,000,000 representing a 55% year over year growth compared to $368,000,000 in the prior year. This outperformance was driven by higher than expected eligible lives across our client base and stronger than expected member yields.

Average prices are coming in about as expected. On the live side, we saw higher than expected numbers from both new client launches and organic growth within our existing client base. For yield, we saw improvements in both newly launched and legacy clients. Our broad and targeted marketing campaigns performed well, and we're seeing particular strength in our newly diversified channels. As an example, one of several of our product led growth initiatives doubled conversions year over year in the 2025 for that specific channel.

Regarding the average price, we are now two quarters into our new utilization based pricing model and are seeing strong evidence supporting ASP parity with our previous model. And we remain optimistic on the upside potential of this new model. About 40% of our eligible lives opted for the new pricing model by the end of Q2. Our billings momentum translated into revenue of $139,000,000 for Q2, representing 55% growth compared to $90,000,000 in the same quarter last year. Our non GAAP gross margin improved to 83% from 77 last year, driven by operational efficiencies across our care team, hardware, infrastructure costs and the successful mitigation of tariff risks.

We saw meaningful leverage across all three operating expense categories as we continue to scale. On a non GAAP basis, sales and marketing expenses as a percentage of revenue decreased to 36% from 48% in the prior year period. We benefited from strong marketing efficiency driven by favorable channel dynamics, lower than expected acquisition costs and strong conversion rates across our funnel. Research and development expenses declined to 1616% of revenue from 27 last year, our while G and A expenses improved to 12% from 18% in the prior year period despite increased cost to operate as a public company. This translated to our non GAAP operating margin reaching 19%, a significant improvement from negative 16% in Q2 twenty twenty four, reflecting continued discipline across all operating units. We've leaned into utilizing various AI tools as an organization, particularly within R and D, which is helping us become more efficient while maintaining headcount. Our free cash flow was $33,000,000 which represents a free cash flow margin of over 23% compared to 16% in Q2 twenty twenty four. This increase was driven by our strong billings growth, an improvement in our collections operations and improved operating efficiency.

We ended the quarter with $415,000,000 in cash and investments, down from $473,000,000 at the end of Q1, primarily due to IPO related activities, which were partially offset by the 33,000,000 in free cash flow generation. As a reminder, our IPO offering was a mix of secondary shares and primary shares, where we used the primary share proceeds of the IPO to pay withholding taxes on our RSU settlements. We ended Q2 with 95,000,000 fully diluted shares, inclusive of the outstanding preferred stock. The weighted average share count for non GAAP purposes this quarter is not a meaningful indicator given the timing and impact of our IPO. These Q2 results reflect the fundamental strength of our business model and our ability to drive both growth and operational efficiency.

As we look forward, based on our strong first half performance, I'm pleased to announce our financial expectations for both the third quarter and full year 2025. For Q3 twenty twenty five, we expect revenue to be between 141,000,000 and $143,000,000 representing 41% year over year growth at the midpoint. For the full year 2025, we expect revenue to be between $548,000,000 and $552,000,000 also reflecting 41% year over year growth at the midpoint. We expect non GAAP income from operations to be between $1,721,000,000 dollars for Q3 or a 13% operating margin at the midpoint and between 77,000,000 and $83,000,000 for the full year 2025 or a 15% operating margin at the midpoint. This guidance reflects continued operating efficiencies across the board.

That said, we plan to lean into our first half momentum by reinvesting in Hinge Select and sales and marketing to further drive strong top line growth, especially with a significant number of lives still left to close. These improved expectations are primarily driven by the strength we saw in the first half, particularly in eligible lives, performance and yield improvements. While we're seeing strong traction on both metrics, the performance has been driven more by higher than expected launched eligible lives, and we're confident in our ability to maintain this momentum. As we look to the second half of the year, it's important to remind everyone that we face more challenging year over year comparisons due to last year being unusually back end weighted in terms of billings with its corresponding revenue distribution across the year. The 2024 was particularly strong due to effective product and marketing initiatives we launched at that time.

Q4 traditionally sees lower member conversion rates versus the first three quarters due to the holiday season slowdown, so we typically deploy fewer member touch points during this period. We've aimed to be thoughtful about our guidance, taking into account market conditions, including recent developments in tariffs and the associated market exposure. What's particularly compelling about our business model is its resilience across economic cycles. During challenging economic times, we typically see increased demand as employers look to control costs through our proven ROI model. Conversely, when the economy is strong, our platform may serve as a key tool for employee retention and satisfaction.

In terms of average shares should normalize with our fully diluted share count in Q3. We're anticipating a range of 95,000,000 to 96,000,000 shares by the end of Q3, which includes the outstanding preferred shares. Finally, as a reminder, our IPO lockup has a ninety day post lockup provision that allows for the release of up to approximately 2,000,000 shares if the price has exceeded 120% of the IPO price for a certain period. Given current trading dynamics, we are likely to hit this threshold with the additional 2,000,000 shares becoming free to trade on 08/19/2025. We intend to announce our early lockup release on a Form eight k, and these shares are held by our employees and service providers and exclude directors and officers.

With that, thank you all for joining. We remain confident in our business trajectory and look forward to sharing more updates in future quarters. I'll now turn it back over to Dan to wrap it up.

Daniel Perez (Co-Founder & CEO)

Thank you, James. Before we open the call for questions, I wanna emphasize why we're optimistic about Hinge Health's future. Our business fundamentals, reputation with our clients, and member experience have never been stronger with exceptional progress across the board for the first half of this year. Our product innovation continues to accelerate, including TruMotion, where we launched a ton of new exercises, our AI driven efficiencies, and the announcement of our high performance in person network, Hinge Select. These advancements, combined with our strong commercial execution and free cash flow, give us confidence to continue playing offense.

What truly excites me is that we are just beginning to scratch the surface of our potential. The MSK market represents our initial focus, but our vision extends far beyond. We're building a new health care system that leverages technology to automate care delivery itself, transforming the member experience, improving member outcomes, and reducing costs for clients. The success we've demonstrated in PT itself, a $70,000,000,000 market, we believe, provides a lot of runway and blueprint for potentially automating other areas of health care delivery in the future. As I mentioned in my IPO letter, health care remains one of our economy's last redoubts of manual labor.

We have a century of work ahead of us in applying technology to automate care delivery itself, and we're moving with urgency to capture this opportunity. We believe that our double walled moat combining technology, innovation with preferred access to clients provide us with a strong foundation for sustained long term growth. Now while we're proud of our quarterly results, we have a lot of work ahead. Health care is hard, but we have the team, the technology, and the stamina to realize our vision of automated delivery of care. With that, I'll turn it over to Bianca for q and a.

Bianca Buck (Finance, Head - IR)

Thank you, Dan. Operator, we're now ready to open the line for questions.

Operator (participant)

Thank you. We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please raise your hand now. If you have dialed in to today's call, please press 9 Your first question comes from the line of Saket Kalia with Barclays. Your line is open. Please go ahead.

Saket Kalia (Managing Director)

Okay. Great. Hey, guys. Can you hear me okay?

James Budge (CFO)

Yep.

Daniel Perez (Co-Founder & CEO)

Yeah.

Saket Kalia (Managing Director)

Okay. Awesome. Well, hey. Thanks for taking my my questions here, and congrats on your first quarter as a public company.

Daniel Perez (Co-Founder & CEO)

Thank you, Saket.

Saket Kalia (Managing Director)

Absolutely. Dan, maybe for you just to start off. You know, I think one of the important channels that you have here is is the health plans and and PBMs as you referred to in in in your in your prepared remarks. Maybe the question is, what are you hearing from them about sort of casting a wide net to their end customers in MSK? And, also, what they're thinking about as as they think about other sort of, other products outside of MSK and physical therapy from Hinge that is?

Daniel Perez (Co-Founder & CEO)

Great question. So, look, when a when a health plan approves one of our products, they go through, like, an eighteen to twenty four month evaluation process, and they look at all the other, you know, digital MSK solutions out there on the market. And so the fact that, you know, 50 plus partners have selected us as as their preferred partner, most of them as their preferred partner, shows that we are consistently performing above anybody else within digital MSK because they are so methodical and so thoughtful and so thorough, in their evaluation process. And so when they when they do select us, it's frankly because they believe in the outcomes we're driving, the experience, and especially in our ROI. And so when they bring us to their self insured book, it is because of that belief, and they believe their book of business will benefit from our product.

Now we at Hinge Health, we take that trust very seriously. And as we develop new products, we're able to leverage these relationships that we have, but we still have to demonstrate we are improving outcomes, the experience, and reducing costs with any single one of these products that we that we bring to market. But the fact is we have a track record of doing just that, and that's earned us a lot of trust with our health plan partners and a lot of credibility with with, employer customers when when our when, you know, one of our health plan partners brings us to to an employer, they know, oh, Active's been speaking to my peer at this other company. They've deployed Hinge. We'd love to we'd love to bring this on as as well, and it makes our health plan partners look good.

And, again, we had a 98% lower retention in 2024. So, we have a track record of of building products that truly deliver the triple aim. It's earned us that trust and because we have an intellectually honest approach to our product development. We will only sell products that we believe work, and our health plan partners appreciate that. Our employer customers appreciate that.

We're gonna keep it up. We're we're very excited to surprise you with some of the new products that will be landing in 2026.

Saket Kalia (Managing Director)

Well, that's great to hear and and and definitely look forward to it. James, maybe for my follow-up for you, can you just talk a little bit about that new pricing model that you referred to in New York? Just remind us how different is it compared to sort of our traditional pricing model, and and what impact or opportunity does it maybe have as we think about that becoming more prevalent?

James Budge (CFO)

Yeah. Thanks, Saket. Let me just give you a couple details, and then I think, Dan might wanna just add in a few bits and pieces here as well. So just as a reminder, we're at about by the '2, about 40%, of our clients have moved to the new pricing model rather than an upfront fee that gets amortized over time. It's more of a pay as you go with a platform fee upfront.

So a lot of our clients have opted to go that direction. We think it'll even get a little bit higher than 40% over the coming two to three quarters. And on, the pricing side of the ASP, it's about at parity right now, through the first half of the year, and we expect that to continue as we move through the balance of the year.

Daniel Perez (Co-Founder & CEO)

Yeah. And I'd say, as I get there, there's really historically, there's been two sides to our growth coin. It is adding lives that is increasing the amount of people who have access to our product, and the second bit is increasing the enrollment, from those lives that have access to the product. To date, ASP has not been a a a meaningful contributor to our growth. It's just been flat.

With this new pricing model, it can be. First things first, though, the new pricing model means we're much more accountable for delivering a product that engages our members, is delightful, and, of course, improves outcomes and reduces cost. This year, we are focused on a flat ASP that as we continue to deliver. And last year, we had record engagement. In the first half of this year, again, we had, you know, record engagement on on a per member basis.

It will allow us to earn the right to have a higher ASP, and we like betting on ourselves.

Saket Kalia (Managing Director)

Very clear. Thanks, guys. Thank you.

Operator (participant)

Your next question comes from the line of Brad Stills with Bank of America. Your line is open. Please go ahead.

Daniel Perez (Co-Founder & CEO)

Hey, Brad. You there? You may be muted.

Operator (participant)

Mr. Stills, your line is open. Please go ahead.

Bradley Sills (Managing Director)

Hey, guys. Can you hear me okay?

Daniel Perez (Co-Founder & CEO)

Yes.

Bradley Sills (Managing Director)

Okay. Wonderful. Thanks, guys, and I'll give the congratulations on a nice quarter out of the gate here post the IPO. I guess, Daniel, when you kind of step back here and you take a look at what drove the upside in eligible lives, what would you attribute that to? And I guess the same question on yield.

You know, just taking a step back, it sounds like new customer signings was good. Expansions were good within the within the existing customer base. But I guess what are the underlying drivers here that you would say on the demand side or the product side?

Daniel Perez (Co-Founder & CEO)

Sure. How about I'll let Jim take the the first part of the question around what's driving our increased lives above expectations, and I'll take the second part around our increased enrollment deals.

Jim Pursley (President)

Yeah. I I think first and foremost, the strength of our product, the investments that we've made in product. Again, you heard Dan mention earlier, a delightful experience that's driving both clinical outcomes and a measurable ROI, I think, really the backbone of that lives growth. Things like offering choice in the engagement pricing model as well as new product offerings that we've rolled out has also been very attractive and well received by the market. And so I think that really is the underpinning of the new lives growth.

Daniel Perez (Co-Founder & CEO)

And our by the way, our with regards to the new lives growth, our win rate, it remains exceptionally high. And so we're in an overwhelming, majority of head to head deals that we have with others, and our, health plan partners, TPA, and and pharmacy benefit managers still make us the easiest, we believe, to be the easiest solution to buy for enterprise customers, and that's really been reinforced. Now with regards to enrollment deals, you know, our member enrollment engine is one our secret sauces, one of the, you know, most important capabilities a digital health company needs to to build, and we we leverage various amounts of proprietary data we have access to and couple this with quite a bit of predictive analytics and just a best in class consumer grade growth techniques, and we're constantly experimenting and refining our targeted enrollment as well as our conversion methods. And we had a ton of wins this quarter. And it so it's not just one initiative, which we like.

It's a combination of of a bunch of singles and doubles that we're able to land, none of which are or or many of which are are not yet done in their, or fully optimized. And that's what we like. We like to have a portfolio approach of many different ways to, to build awareness within our member base so that more and more people start start enrolling in Hinge and and remain engaged with us over a longer period of time.

Bradley Sills (Managing Director)

Super exciting. Thank you so much. Maybe one more follow-up if I could, James, for you, please. You alluded to some efficiency gains here on the AI side on the developer, with developer productivity. Would love it if you could elaborate a little bit there.

You know, where are you applying AI? And what does that mean for, you know, the future cadence of release here as you guys, look forward to the road map?

James Budge (CFO)

Yeah. Maybe just to reinforce some of the numbers we shared, down to 16% of revenue, which is almost at our target model for where we want our R and D spend to go. And, yeah, AI has certainly been a big story behind that. As far as some of the initiatives, I'll let Dan kick in on that one.

Daniel Perez (Co-Founder & CEO)

Yeah. And so we are making an incumbent on every team at Hinge Health to apply AI to improve their efficiency, not just in r and d, but in finance, in our HR team, in our operations team, in our customer support across the board. And some teams simply have more mature AI tools with which to avail themselves with. And, certainly, our r and d team, I mean, it is a new dawn right now when it comes to building product, particularly tech enabled products, and things are moving faster than even we anticipated twelve, eighteen months ago. And so me and my cofounder, Gabe, we are hands on, particularly Gabriel.

He has taken the wheel, as my cofounder, and he is driving personally from the founder level, AI adoption across our r and d organization. And we are measuring, you know, how many of our engineers are using AI tools to build their products. We are having trainings with our PMs and our designers to ensure they are adopting AI products, and it's it's meant that just across the board in r and d, we are shipping faster at a higher quality, and landing on the target more and more frequently. And it's really exciting because when you could ship more, you could take more risks, and you could take more shots on goal. And that's what that should be benefiting the the entire funnel, both, you know, top of the funnel of of from enrollment through engagement and and reengagement.

But it's not just that where AI is driving efficiency. The other big area or domain where there's a lot of low hanging fruit outside of just developer efficiency is in our care team efficiency. And so we are applying a lot of brain cells towards putting our AI tooling in place for our care team because what's what's exciting about that is that we could make our care team interactions more personalized, quicker, more convenient, as well as lowering costs. So to put in perspective, while we improved our efficiency in in several of our care team metrics by about 15% quarter over quarter in terms of their speed to or or their efficiency and and throughput for, messaging members, and about, you know, over 45% year over year, Our NPS hit an all time high in in the first half of the year. So what we're seeing is that not only are we becoming more efficient in how we engage our members, they are loving the product more than ever, and that's really exciting.

And their engagement as well, their usage of the product was was was higher this year than it was last year too. So we're we're able to balance the efficiency while improving the experience for our members, which is the true win win that we're aiming for.

Bradley Sills (Managing Director)

Super exciting, Daniel. Thanks so much.

Daniel Perez (Co-Founder & CEO)

Thank you.

Operator (participant)

Your next question comes from the line of Craig Hettenbach with Morgan Stanley. Your line is open. Please go ahead.

Craig Hettenbach (Executive Director)

Yes. Thank you. Question on partnerships. Understanding Hinge Select is in kind of pilot stage. Just curious kind of the partnership feedback in terms of what you're bringing to the table for these partners and then how excited they are for it.

And then you also had a partnership with Progyny. I know you already have a lot of momentum in women's health, but just kind of what that means to kinda building on that momentum on the women's health side.

Daniel Perez (Co-Founder & CEO)

Great question. And so with regards to health plan partners and their perspective in Select, you know, our high performance network is designed to be complementary to a member's existing health plan and provider network. Members continue to have full access to their current network and coverage while also benefiting from our high performance network. And this integration makes it easier for members to access high value MSK care, typically with much lower out of pocket costs and minimal, barriers to care. And by combining the strengths of a member's existing network with the integrated care of Hinge Select's, high performance network, we could deliver a lot greater convenience, additional choice, and lower cost.

And so our health plan partners are we've had really positive discussions with them about bringing this blended network to their employer customers and even potentially to several are discussing us for their fully insured lives. And so we're really excited about the about the momentum we have, with our health plan partners. And I'll let Jim talk about the the partnership with Progyny.

Jim Pursley (President)

Yeah. So as we bring new products to market like women's pelvic health, we look for partners that are complementary and accretive to our efforts. We look for market leaders who, again, are not just accretive from a product standpoint, but also our brand. And so Progyny would be a good example of that. And so it's another organization from a lead gen perspective, Also, as a way to engage our members, maybe as they're coming into their health care journey from a different angle or through a different door, it gives us one more touch point to to reach and engage members when and where they need us most.

And so a project would be a great example of that. One of the market leaders in in women's health and has been a great early partner to us since launching that.

Craig Hettenbach (Executive Director)

Great. Just a a follow-up question beyond kind of the core self insured market. Any anecdotes you can share in terms of inroads you're making in fully insured in in the MA markets as well?

Jim Pursley (President)

Yeah. We're seeing great progress outside of outside ASO. We're seeing a lot of strength in our government business, our federal employee business. We're seeing strength in our labor markets as well as fully insured and Medicare Advantage. You know, as we've discussed previously, we think this is a really exciting growth area for us.

And while we're in the early innings, we're seeing some really strong signals and some nice ROI being generated in these in these new markets for us. So stay tuned more to come there, but, you know, really strong start.

Craig Hettenbach (Executive Director)

Great. Thank you.

Operator (participant)

Your next question comes from the line of Jaylinda Singh with Truist Securities. Your line is open. Please go ahead.

Jailendra Singh (Managing Director)

Thank you. Can you guys hear me okay?

Jim Pursley (President)

Yes, we can.

Daniel Perez (Co-Founder & CEO)

Sounds great.

Jailendra Singh (Managing Director)

Congratulations on your first earnings call as a public company and a very strong quarter. So my first question is, with respect to the 2026, selling season, some nice momentum there. I was wondering if you could spend some more time there in terms of any trends emerging this year in terms of what clients are looking for either in terms of their preference for bundled offering versus pricing model versus how the benefit is being structured. And related to that, can you give us a number on how was your how has been your win rate so far this year?

Jim Pursley (President)

Yeah. Thank you for the question, Jalinda. And so we're just entering the heart of our sales season now. So we have to acknowledge that we're early in the in the heart of our sales season. But what we're seeing is strong demand fueled by a couple of things.

One, MSK costs still are, you know, a top one or two cost driver for the bulk of our clients, so they have to solve the cost issue. You know, from a bundle perspective, you know, you hear a lot of commentary about that in the market. But in reality, most of our buyers looking for best in class solutions. As you've heard Dan mention before, we have the benefit of being both. We have the benefit of both being the strongest product in the market to address MSK outcomes and and cost, but we also are the easiest to buy through those relationships with the health plans and the PBMs and the TPAs.

So we are able to, you know, if you will use the word bundle. But the reality is most clients are still looking for that best in class solution that's really gonna solve their problem to the greatest extent greatest extent possible. And those are some of the kind of macro forces that we're some of the tailwinds that we're experiencing right now as we enter the heart of our sales season.

Daniel Perez (Co-Founder & CEO)

Yeah. And and just to add on to that, we we do sometimes hear from, like, surveys and this and that that employer clients are are looking to buy, several solutions across disease categories from a single provider, but they're, or single vendor partner, but their actual behavior shows that they still want a best in class cardiometabolic solution, still want a best in class mental health solution, still want a best in class MSK solution, particularly for their top cost drivers. And the fact is that musculoskeletal, the TAM is just so large. And and in order to capture it, it does require a lot of focus, and we have remained very focused. And even this a a relatively small portion of MSK, is physical therapy, is still $70,000,000,000 market.

And so we are really focused on capturing this, what we believe to be a $70,000,000,000 market, and we have a, you know, $500,000,000 run rate behind this growing really fast, but a lot of runway left.

Jailendra Singh (Managing Director)

Yep. And then my follow-up is on the yield improvement you guys called out in both newly launched and legacy clients. Maybe talk about some of the key drivers there. You kind of touched in pieces, but just give us a little bit more kind of concise there. Like, why what has been driving that?

And can you frame the magnitude of difference between the improvement between the two set of clients? And related to that, maybe touch on if HingeConnect is having a meaningful impact on yields, or is that still ahead of us?

Daniel Perez (Co-Founder & CEO)

Great. Yeah. So I I just wanna make sure I catch a catchy component. So with regards to our our yield improvements between existing and new customers, we're not breaking that out here. But, we've had very consistent yield improvements across the board for for both new and existing customers.

And we haven't seen a material difference, though, by the way. So I I I'm not, not sharing that with it because I don't I don't wanna share it. I actually haven't seen it, so it hasn't really risen to my level of of there being much of a difference. And, with regards to, you know, what we're doing to improve yield, so it starts with both, an enrollment yield. It starts with, you know, how can we better target members who need our services?

Sometimes when people have a musculoskeletal care episode, it could be episode limited. You know, they sprained their ankle. They had a flare a up in their back pain after they're horsing around with their kids, or they're they twisted their knee playing basketball. And how can we get better at identifying people when they're early in their, in their care episode, but also building our brand within any given employer base or member base so that they think about us, when they're in pain. And that's one of the key reasons why we expanded, with our Hinge Select in person provider network, Gelendra, because with our in person provider network, we're able to offer in person physical therapy.

We're able to offer joint injections. We're able to offer imaging. We're able to offer doctor visits. And now for a member, no matter what may be ailing them with regards to their back, joint, or muscle pain, they could see us as their one stop shop for their orthopedic care needs. And they'll have to think, well, you know, Hinge does a digital PT, but I I kinda need someone to see me in person.

Or and I I really think I need an MRI first before I go I go get get see Hinge Health. Now they could you know, that that condominous dissonance could go away, and Hinge is my one stop shop for anything related to MSK, both in person and and digital care, and we think that's gonna really improve our our yield both for for digital care, but, of course, we're gonna capture additional yield for for in person. Now with regards to Hinge Connect, this allows us to both integrate with, EMRs as well as get, quite a bit of claims data as well, and that is ramping up. Focusing on the claims data, we're ramping that up quite substantially. And with and it really helps when you have so many dozens of health plan partners because that's where you're getting a lot of the data from.

And we know when we, enroll somebody who's had a prior musculoskeletal claim, our ROI goes up. And so we know these are what we call internally ROI rich members, and we wanna be able to spike our member base with ROI rich members knowing that that's gonna increase our client retention overall and drive up our the points that we get with it with regards to ROI. When members sign up, we have north of 90% of them. I think, you know, plus or minus five, I think, is closer to 95% of members, allow us to then integrate with their EMR, and that means that we could we could monitor their care over time. And in case they become a higher risk member, say they get referred for an MRI or do a surgery referral, we're able to follow-up with them.

And that really that actually comes post enrollment, but allows us to to capture members who are who are trending towards a high cost. And these are some of the reasons why we have such a high logo retention.

Jailendra Singh (Managing Director)

Perfect. Thanks, guys. Congrats again.

Daniel Perez (Co-Founder & CEO)

Thank you. Great question, Jalanjaram.

Operator (participant)

Your next question comes from the line of Elizabeth Anderson with Evercore ISI. Your line is open. Please go ahead.

Jim Pursley (President)

Elizabeth, you might be on mute.

Elizabeth Anderson (Senior MD)

Hi, guys. Thanks so much for the question, and congrats on your first quarter out. It's great to see this. I had a question. I wanted to double click a little bit more on, Hinge Select.

Can you talk a little bit more about the business model? I know you said it wasn't really a big contributor until more like 2027. But how do you sort of think about that from like a business model perspective? A few more details on that would be very helpful. Thank you.

Daniel Perez (Co-Founder & CEO)

Great question. So, look, we are very excited about the Hinge Select's potential. So we're we are taking a measured approach, to the rollout. We'll begin a limited pilot here in late twenty twenty five followed by a broader rollout in 2026. And, again, for those tuning in, it might not be as well.

Hinge Select is our in person, provider network. For revenue impact, as you mentioned, we've got a minimal impact, through '26 with more meaningful contribution happening in '27. And we think Hinge Select is a is a great way for us to improve the member experience and just augment that ROI for our clients. For the business, it'll it'll help us capture more individuals. As mentioned earlier, it allows us to stretch the brand beyond physical therapy to a member's one stop shop for any orthopedic care need.

And for the in person network that we're assembling, the business model is we're gonna take a certain percentage rate on the claim as an admin fee and then ultimately report that as net revenue. And we'll be better positioned to quantify the financial impact if we gather more data from our pilot program. But even for you know, we're launching it to our own employees because we're we're self insured just from the, interest from our own employees to access the network. We're really excited about the the member demand for this as we had, you know, hundreds and hundreds of our employees dialing into our own internal webinar, one of the most popular benefits we've ever launched.

Jim Pursley (President)

And might I just Great. Add a little bit oh, sorry. I'm just gonna add the the offers has been has been tremendously positive. I think the market understands it. I think it's intuitive to them.

I think this idea of unified care, the elegant integration of digital care and in person care into a cohesive member experience just resonates with the market, and the early market reception has been phenomenally strong.

Elizabeth Anderson (Senior MD)

Yep. No. That's super great to hear. You also mentioned you have a new ROI study going for your fully insured book of business, which is obviously an exciting part of the longer term opportunity. Can you talk to us about sort of the duration of that study?

And, obviously, I think that would likely be helpful in terms of your sale process for that. So just kind of thinking about that timeline a little bit more detail would be helpful. Thank you.

Jim Pursley (President)

Sure. Sure. Yeah. We looked at almost 5,000 members over a twenty four month period. We had Gallagher do the actuarial analysis and took a hard a hard look at the impact that we were having.

And as as I think we mentioned earlier, the the results were about 2.4 times ROI, and and, you know, that's that's in line with kind of what we typically would see. But, again, to keep being in fully insured, which is, again, very heavily supported by actuarial analysis by underwriters, the bar is, you know, is a little bit higher there. And so to be able to deliver that kind of compelling ROI in that member population was really affirming and exciting for us.

Elizabeth Anderson (Senior MD)

Great. Thanks so much, and congrats.

Jim Pursley (President)

Thank you.

Operator (participant)

Your next question comes from the line of Ryan Daniels with William Blair. You may need to hit star six to unmute. Mister Daniels, your line is open.

Jim Pursley (President)

Still muted, I think.

Ryan Daniels (Group Head–Healthcare Technology and Services)

Hey, guys. Sorry about that. Can you hear me okay?

Jim Pursley (President)

I can.

Ryan Daniels (Group Head–Healthcare Technology and Services)

Perfect. I'll add to the chorus of congratulations on the strong quarter out of the box. James, maybe one for you, just on the Q3 operating margin. I know it's trending down a bit, well above where our model was. I know some of that's the typical sales and marketing spend into the core selling season, but it sounds like you're leaning heavily too into some R and D for product development and maybe further expansion of the Hinge Select network.

So can you give us a little more color on what we should anticipate and if there's any difference in the cadence of spending maybe in the back half of the year?

James Budge (CFO)

Yeah. Thanks for the question, Ryan. You have caught that observation well. We actually think we have a super exciting selling season coming up. We want to lean more into that than what we were previously expecting, which is the fundamental reason why we're seeing that operating expectation in that margin come down a little bit.

And what you're noticing probably in the r and d line is that's where a fair amount of our hinge select cost will go. And we're putting a bit more into that as well as we lean into that in the second half. So those are the two areas that, warrants kind of additional investment, if you will, as we move from the second quarter to the third quarter.

Daniel Perez (Co-Founder & CEO)

Yeah. We Okay. Perfect. There's a huge amount of TAM left, and, you know, several piece of feedback or or thoughts we've had internally is, like, how can we better position us to even capture that and and and maybe even run a little bit faster. And so we're we're hiring additional sales heads to to better capture this opportunity ahead of them.

Ryan Daniels (Group Head–Healthcare Technology and Services)

Great. That's helpful. And then if we think about the new relationship with Cigna, I think you announced that in April. So it was kind of not ready to go at the start of the year, but ahead of the key selling season. Any thoughts on how that's developing?

That's obviously a big new channel partner for you. So I'd be curious if you're seeing early momentum there and if that's helping at all with the momentum you're seeing in self insured employers in the public sector. Thanks.

Jim Pursley (President)

Yep. While we don't break out specific results by partner, I will say the Cigna relationship has officially launched and gone off the ground. We're seeing a very strong results from a pipeline development perspective as millions of lives, of Cigna's lives have entered our, into our pipeline. And we're actually starting to see some of that come to the pipeline and come out the other side as as as clients and preparing to launch those clients here both this year and into 2026. We're really encouraged by the enthusiasm that our our partners at Cigna are showing for our solution.

And, yeah, we're excited to have them play a meaningful role in the in the growth and success here both in 2025 and beyond.

Ryan Daniels (Group Head–Healthcare Technology and Services)

Great. Thanks for the color. Appreciate it.

Operator (participant)

Your next question comes from the line of Richard Close with Canaccord Genuity. Mr. Close, your line is open.

Richard Close (Managing Director Digital & Tech-Enabled Health Equity Research)

Yes. Thanks for the questions. Can you

Saket Kalia (Managing Director)

hear me okay? Sure can.

Richard Close (Managing Director Digital & Tech-Enabled Health Equity Research)

Excellent. So just want to talk a little bit about the win rates. Good to hear that those have been improving. I'm just curious, you know, your largest competitor seems to be expanding in into other areas such as mental health, I think some AI development, initiatives. And I'm just curious, you know, any thoughts in in terms of do you think that improves the opportunity for win rates to go up for you guys going forward during the selling season?

Jim Pursley (President)

Yeah. Yeah. Thank you for the question, Richard. So as you as you mentioned, our win rate continues to be very strong and increasing year over year. We actually think of our largest competitor as being distracted and not moving forward with the digital musculoskeletal solution, whether it's a new health plan RFP, maybe they're putting their PBM out to RFP, we still see our biggest competition being a no decision or a deal pushing to next year.

And so, you know, we're always looking for ways again to to increase value to improve outcomes. We do think that staying focused in in in MSK is really important. As Dan mentioned earlier, the TAM is enormous. The problems can be complex, and our ability to really build something end to end comprehensive that's delightful whether you're in person or digitally, we think is a really compelling offering. And we're hearing that feedback from the marketplace both in what they're telling us and also how they're behaving by what they're buying today.

So so we really like our strategy. We love our competitive position, and we see that only growing stronger in the months and years ahead.

Richard Close (Managing Director Digital & Tech-Enabled Health Equity Research)

Yeah. That

Daniel Perez (Co-Founder & CEO)

I did underline Richard by saying, yeah, focus matters. Like, health care is hard. Capturing orthopedics is hard, and even capturing physical therapy is is exceptionally hard. You know, our vision is to use technology to, scale and automate the delivery of care, and you're taking unstructured physical tasks and you're using software connected hardware to to automate the delivery of that. We've got about 1,500 employees at Hinge Health laser focused on that problem, and we've had a a lot of momentum, behind us able to do that.

We'd like to see that, you know, some in in some ways, competitors are are starting to look elsewhere to find their growth, because of our win rates have been, have been really high within our market, and and there's a lot more runway to go within this market. And we're gonna continue over time to apply our our model to other areas of health care, but where we can leverage our existing infrastructure that we've built, both existing products that we've built as well as our sales team and our and our client base because we see that as incredible assets.

Richard Close (Managing Director Digital & Tech-Enabled Health Equity Research)

Okay. That's helpful. And quick follow-up. Yields been talked about a little bit several times here on the call. You do, if I remember correctly, have on the self insured some yields high single digits, maybe low double digits.

I'm just curious, you know, thought process on, you know, progressing the yield higher. And then, you know, maybe specifically the MA and, fully insured books, you know, that those are relatively new. Are you seeing any dynamics that those would be meaningfully different from the self insured over time?

Daniel Perez (Co-Founder & CEO)

Great question. And so starting with, like, the potential for our yields. You know, forty percent of Americans have a musculoskeletal condition in any given year ranging, again, from a twisted knee to hip arthritis to a sprained ankle, to chronic low back pain. So forty percent of American adults have a musculoskeletal condition in a given year. Nine percent of them see a physical therapist.

There's a big gap between those who are in pain and those actually getting care for physical therapy, and there's a lot of reasons for that. Physical therapy, could be inconvenient, could be expensive. You have to take time off work, hire a babysitter, and we have developed a product that makes it much more convenient and accessible and lower cost and and and we believe to be more effective as well. And I actually think that percentage of people seeking physical therapy or getting physical therapy features should be closer to twelve to fifteen percent, not nine percent. Last year in 2024, we had three point four percent of people, who have access to Hinge Health.

Adults, use Hinge Health. So we're getting, you know, 37, not quite forty percent of equivalents to to in person PT, and that's gone up from you know, years ago, it was, like, two percent. And we want to continue to invest in our yields, such that, you know, we could approximate the the take rate of in person PT at nine percent, and, eventually, we'd like to go beyond that. We know how long it's gonna take. It's gonna take a while, but we we we like the investments that we're putting in.

With regards to our enrollment rates for for MA and, fully insured, the investments we make across our self insured book benefit both of those books as well. It's very consistent product. And, certainly, there's there's no difference even in the age range or the or the profile of the members for fully insured and self insured. They're the roughly this exact same age, roughly 45, 46 years old. MA is a little older, but, we actually see some of our highest engagements on a per member basis from MA as people get more concerned about their mobility, their, their interest in using Hinge, on a per member basis goes up.

And I think we have time for one more question.

Operator (participant)

Yes. Your final question for today comes from the line of Brian Peterson with Raymond James. Congrats

Brian Peterson (Managing Director)

on a strong quarter. Maybe for Dan or Jim, just you have these new partnerships and and everything on these market expansion. You're revenue in the fifties, which it it was really rarefied air. I'd rather I'd really just like to understand how does the pipeline growth look relative to the billings or revenue growth? And how should we be thinking about that in terms of greenfield versus competitive displacement? Thanks, guys.

Jim Pursley (President)

Yep. So pipeline growth continues to be incredibly strong. We're very pleased. And, again, it's like you said, it's a good leading indicator of what ultimately, you know, bookings and and revenue will look like in outer years. As you think about the split between a competitive displacements and and greenfield, While we're seeing, you know, quite a few competitive displacements, which is really encouraging, the reality is the TAM is so big that the bulk of the growth is gonna come from from greenfield opportunities just given the size of the of the TAM and the unmet need.

So, you know, we're we're absolutely focused on delivering the best experience that attracts, you know, folks from other competitors to the Hinge solution. But I think from a a mix perspective, you're still gonna see the bulk of the growth coming from greenfield just given how much unmet opportunity there is out there.

Brian Peterson (Managing Director)

Great. Thank you.

Daniel Perez (Co-Founder & CEO)

Yeah. And and part of the the revenue growth, will, over time, come from lives, but also through our our increased enrollment yields as well. So they're both two sides of our growth coin. And as we continue to improve the product, we'll earn the right to increase the their ASP as well, which will give another growth lever beyond just lives. And, of course, new products that we're launching.

So I think with that, we're we're a minute over. I'd love to keep going. And so I just wanna appreciate I appreciate everybody's time. Sorry we couldn't get to all the questions. Bianca and James will be following up with with each of you.

Excited about the future and and giving more updates. I'm also happy to join a a few of these calls if any if any of you have specific questions for myself as well. And really excited about the the future ahead of using technology to automate the delivery of care. We're in the early innings, so stay tuned.

Operator (participant)

This concludes today's call. Thank you for attending. You may now disconnect.