Hinge Health S-1
Can this virtual PT monster end the logjam for digital health IPOs?
1/ There are two ways to build a digital health startup - arm the empire and sell software to incumbent providers, or be the rebels and create a new vertically integrated alternative. Hinge Health fits squarely in the latter camp and has built an outcomes-driven alternative to traditional PT clinics. Hinge is a classic disruptor and I am both impressed with its current financial profile and bullish about its future.
2/ I gained an intimate knowledge of this market when I was an advisor to a large software company in the space. It became evident to me that most legacy providers were essentially doing physical therapy the way it had been done for decades and didn’t have the razor focus on outcomes required to truly excel.
3/ Ever since I tore my ACL in October and had surgery, I have religiously gone to PT twice a week. Hinge Health offers a more convenient alternative: using a combination of AI-powered motion tracking technology and a proprietary electrical nerve stimulation wearable device to enable musculoskeletal patients to replace a physical therapist with exercises from their home.
4/ The result of Hinge’s approach is impressive: Hinge says it reduced the number of human care team hours associated with traditional physical therapy by ~95%. Of course, the operative question is twofold: (i) can Hinge achieve comparable outcomes; and (ii) do they have a scalable and sustainable go to market motion.
5/ Let’s tackle outcomes first. In combing through the research, no major studies have challenged the efficacy of these programs to date, but experts note that most research has been conducted or funded by the vendors. In 2024, the Peterson Health Technology Institute (PHTI) reviewed dozens of studies and concluded that PT-guided digital solutions (like Hinge and Sword) improve pain and function comparable to in-person care and can substitute for clinic PT in many cases. Hinge itself did a longitudinal study where participants reported a 68% average improvement in reported pain and a 58% reduction in reported depression and anxiety after 12 weeks.
6/ Hinge’s go-to-market success is perhaps even more impressive than the outcomes. Their digital solution has taken the employer universe by storm. Hinge now has ~20 million contracted lives and 532K active members across more than 2,250 clients. It has 42% of the Fortune 500 companies. And these clients are thrilled so far, with 98% logo retention and 117% net revenue retention as of Dec 2024. And the company says its products offered a 2.4x ROI for clients, based on the estimated $2,387 average cost savings per member over a 12-month period.
7 Hinge’s service is bundled as a comprehensive program (including hardware sensors, software, and clinical team access) for a flat fee that has been cited around ~$600–$1000 per participant for a program. For individuals with access, this means little or no out-of-pocket cost, compared to traditional PT co-pays that can be $20–$50 per visit (and often 10+ visits).
8/ The MSK market itself is very attractive. To give a sense, MSK medical costs in the U.S. rose to ~$661 billion in 2023, with MSK a top three driver of employer healthcare spending. Hinge’s current contracted lives only represent 5% of the US addressable market, with the company’s announced expansions to Canada and Europe representing additional upside. Additionally, I could see a world where Hinge takes on risk-based contracts and shares in savings and a world where Hinge expands into adjacent markets like pain management and mental health.
9/ With great opportunity comes great competition. Besides Hinge, Sword, and Kaia, there are players like Omada Health (which acquired a digital PT startup Physitrack/Physera), RecoveryOne, Vori Health (offering virtual multidisciplinary MSK care), DarioHealth (digital chronic care company with an MSK module), and others.
10/ Commoditization of MSK programs is certainly a risk, especially in a recessionary cost-cutting environment where big employers and payers regularly run competitive RFP processes. Hinge has significant revenue concentration amongst these sophisticated buyers, with HCSC, Elevance and Anthem accounting for ~43% of revenue. Clearly, over time, there will likely be downward pricing pressure from both employers and payers.
11/ Despite the competition, Hinge stands heads and shoulders above its competitors for three reasons.
Scale. Nearly half the Fortune 100 offer a digital MSK program using Hinge Health.
Tech advantage. Hinge pioneered the use of wearable motion sensors for exercise feedback, and it has been incorporating computer vision AI to enable camera-based tracking as well. In contrast, competitors either use only sensors (Sword) or only software (Kaia, Omada, etc.)
Outcomes. Hinge has multiple peer reviewed studies, with results well beyond those of competitors.
12/ Hinge’s competitive positioning is reflected in its strong financials. It’s refreshing to see an S-1 where the company is actually showing both healthy growth and cash generation. Hinge’s 2024 revenue was $390M (+33% YoY) with 77% gross margins and $45M in free cash flow.
13/ As an aside, it is notable how G&A spend decreased in absolute dollars from 2023 to 2024. It is clearly an example of AI driving efficiency, with G&A dropping from 23% to 16% of sales in only a year’s time.
14/ Broadly speaking, administrative spending is estimated at 20-25% of the country’s $4.5 trillion in health care spend. As early stage investors, we are looking at where AI can cut this radically, in areas including billing and coding, prior authorizations, regulatory compliance and provider-payor negotiations and patient communication. Hinge is clearly leveraging AI to cut costs but what is even more compelling for Hinge and other health care companies who have access to a large trove of patient data is how to leverage AI to radically improve patient care.
15/ Hinge’s last valuation was rich, at $6.2 billion in Oct 2021. Digital health multiples have compressed since then. The average SaaS multiple is 7x current run rate revenue, according to SaaS Capital.
16/ That said, Hinge Health has high software-like gross margins, growth of >30% and is cash generative, putting it in rarified company. These metrics mirror those of a DataDog or Hubspot, which trade at 11-12x trailing 12-month revenue.
17/ Will the market give Hinge, a health care services business in many ways, the same multiple as the best SaaS companies? Hims has been the star in health care services and trades at 5x TTM revenue. Other companies like Privia, Progyny, and Teladoc are not growing at fast but trade at very poor multiples. We will see if Hinge can break out from the comp set. Even if it does, Hinge will have trouble clearing the valuation of its last round. At 12x 2024 revenue, the company would be valued at $4.7 billion.
18/ It is bold for a company to attempt an IPO in the choppy market we are in today. But if any company can succeed, it’s Hinge. They are disrupting a giant industry, with impressive traction and outcomes. I’ll be cheering as they ring the bell.