Hinge Health’s CEO is sizing up a giant market opportunity for digital healthcare

It’s been less than a year since digital physical therapy startup Hinge Health went public last May.

But those months have been volatile, with the stock soaring to roughly double its IPO price before nose-diving. The roller-coaster ride continued this month, with Hinge soaring more than 25% after better-than-expected Q4 earnings numbers on February 10, then pushing the gains even higher.

Shortly after the report, Hinge CEO and cofounder Daniel Perez sat down with Sherwood News to talk about life as a public company, how being at the whims of Mr. Market can shift company morale, and the scale of the addressable market opportunity for digital healthcare.

This conversation has been edited for clarity and concision.

Matt Phillips, Sherwood News: Dan, it’s great to see you and to get to know a little bit more about your company. Congrats on your recent earnings. It seemed like the markets approved.

Daniel Perez, CEO Hinge Health: Yeah, it’s been a tough market the last couple of weeks or months, but it’s fine. We know that things are going to go up and down and that Mr. Market could be a little emotional at times, but long-term I think the market’s a weighing machine, not a voting machine. And so we’re willing to wait it out. As your readers would say, we’re willing to HODL.

Sherwood: You’ve just touched a couple of value investing cornerstones there, with Mr. Market, a Ben Graham conceit. How are you thinking about being a public CEO, dealing with the markets? Does it enter into your consideration on a daily basis? Or does it just take care of itself for good — or for ill?

Perez: I think it’s impractical to say it doesn’t play a role, particularly when you employ 1,500 people and a significant part of their compensation is tied to their stock-based comp.

So, you could say we don’t look at the markets. But you know that it’s impacting the morale of your employees and it’s impacting what their monthly or quarterly take-home pay is. The market is having that impact.

We do try to remind our employees when everybody might be down, or things are happening outside of our control, to recognize that’s what we can control is our metrics and, long-term, we will be recognized for our metrics.

We’re also in an industry, digital health, that has been unpopular at times because it hasn’t always delivered.

And when we IPO’d, I let our employees know we’re going to have to work twice as hard to get half the credit, and we’re willing to do that.

But if we can put forward six to eight quarters where we’re beating and raising, we are confident that the market is going to realize Hinge Health is that N=1 company that we believe we are. And the investors who see that earlier are the ones who are going to be rewarded earlier.

So, going back to how I manage. Long-term, we are managing to free cash flow per share. That is something I look at very, very closely.

And that means both increasing the numerator — that is, your absolute free cash flow amount — as well as reducing the denominator, which is reducing the absolute shares outstanding.

So, and you see this in our last quarter, our first year out, we have $588 million of revenue up 50% and a 30% free cash flow margin, $180 million. Very few recent IPOs are delivering a 30% free cash flow margin.

Sherwood: You’re a man after my own heart, with your focus on free cash flow. It’s an admirably restrictive metric. So you don’t target any sort of adjusted EBITDA reverse double backflip operating income number?

Perez: You know, Warren Buffett says GAAP is imperfect, but it’s the best we have.

But I think the metric that really is, as you mentioned, hard to game is just free cash flow per share. That is a really, really important metric, and it’s kind of clarifying as well. And it takes into account so many other things.

People sometimes focus on the gross margin. And you might have a 90% gross margin, but very, very low revenue. Or you could have a 10% gross margin, but 100x more revenue.

Now we’re focused on both, because we do have an 85% gross margin, and that allows us to deliver a really high amount of free cash flow.

Sherwood: It’s worth taking a step back and telling our readers what you do. It’s digital healthcare. But the way I understand it, I’m sure you’ll correct me, is essentially as a disruption of traditional physical therapy, or perhaps a trainer at a gym? Tell me a little bit about where the opportunity is, and how you think of the company broadly.

Perez: So fundamentally, our vision at Hinge Health is to use technology to automate the delivery of care itself.

If you think about healthcare, if you walk into a clinic, Matt, you’re going to see all sorts of gizmos and technology and lights and things beeping away.

But the fact is, despite all the technology that you see in a hospital setting, or in a clinical setting, most care itself is still delivered one-on-one with a provider or with multiple providers. Healthcare is our economy’s largest services industry.

Sherwood: And its largest jobs producer.

Perez: Yeah, it’s a big job producer, right? Because it’s very human-centered. It takes a lot of humans to deliver healthcare. And it’s one of the reasons healthcare is very expensive. It’s one the reasons it can be very inaccessible. You have to, you know, long wait times, particularly for specialists, where outcomes could be somewhat variable.

We’ve demonstrated with with outpatient physical therapy that we can automate away about 95% of human clinician hours associated with outpatient physical therapy. And our vision is, if we can get this to work for physical therapy, we can eventually get this to work with other aspects of healthcare.

Physical therapy is only about 1.2% of total healthcare spend. But it’s a $60 billion market. So at roughly $600 million revenue — we have $588 million of revenue — it’s about 1% of the PT market. So we have a huge amount of runway ahead of us just in physical therapy, and that’s just within the United States.

But our aim is to keep chipping away, another half-point here, another point there, of healthcare. But a half-point of healthcare is a $40 billion market. So if you could chip off another half-point of healthcare, and automate that portion as well, you’ve substantially expanded your TAM and you also have a huge runway.

Sherwood: Who pays you? I have a good friend who works in healthcare technology, and he was saying one of the big challenges is dealing with insurance companies. So, how does it work for you guys?

Perez: Your friend is right; the biggest barrier to innovation in healthcare is reimbursement or getting paid. And healthcare is one of the areas of our economy where, often, the end user isn’t the one paying for the product. And what the person who is paying wants may be different from the end user.

So we go through health insurance companies and self-insured employers. About 25 million American adults today have access to Hinge Health. That’s a little under 9% or so of the adult population in the United States. So we have a lot of room to go in terms of expanding our reach.

Sherwood: But just so I understand, you would work with — and I’m just throwing out names, I have no idea who you work with — an Anthem or a Blue Cross or someone like that. Your contract is with them, you sign a deal with them and then when someone gets a job and is offered insurance under one of their umbrellas, they get access to Hinge Health?

Perez: We work with 50-plus health plans, third-party administrators, pharmacy benefit managers, other ecosystem partners. Five of the top health plans: Anthem, UnitedHealth, Aetna, Cigna, and HCSC.

What this means is that when an employer, one of our enterprise customers, wants to give their employees and their dependents on the plan access to Hinge Health, they don’t have to worry about contracting, IT security, procurement, all that jazz.

Large employers, typically those with 1,000 employees or more, are self-insured, meaning they contract with large health insurance companies to access their network of doctors, but they pay for care with a pool of their own money.

For instance, Hinge Health is self-insured. We contract with Anthem. We have our money in an escrow account, and Anthem pulls from the escrow account for every pediatric appointment an employee might take their kid to, every time there’s a labor and delivery or there’s a checkup. Every dollar that pays is actually a Hinge Health dollar.

So if an employee needs back surgery, the company is paying for that $70,000 back surgery.

But if you give your employees a viable alternative for their back pain or a viable alternative for their knee pain, and they avoid a knee surgery, then your organization has saved maybe $30,000 for that knee surgery or back surgery.

So it’s financially incumbent upon employers to think about innovative healthcare solutions they could give to employees and the family members who are also on the plan, which can improve their health. And we can attract and retain employees because we give compelling healthcare benefits, and thirdly, so we can reduce our costs.

That’s what our enterprise customers are looking for. They’re looking for better outcomes, great employee and member experience, because they’re competing for talent, and thirdly, to reduce cost.

In 2025, we were up to about 2,800 enterprise customers overall with 25 million people with access to Hinge. And when we close a health plan as a partner, the health plan allows us to close employers much quicker.

But the health plans also have Medicare Advantage, which is their own book of business, as well as fully insured. (These are small employers who aren’t self-insured.) In that case, the insurer is the one paying the bills.

We’ve also won those contracts. So overall the market we’re addressing right now — self-insured, fully insured, and Medicare Advantage — is about 190 million or 200 million Americans out of the 340 million, and those are the ones we’re selling into.

Sherwood: Do you consider yourself a software company? We’ve been following this brutal software sell-off that we’ve had recently over the potential impact of AI on software-as-a-service companies. Where do you see your company in relation to AI? And what might be the upsides in terms of productivity and efficiency?

Perez: We’re a technology company. We absolutely use technology to automate the delivery of care, both software-connected and hardware as well.

But look, since our founding, we’ve always had potential threats from new entrants, whether it’s large tech companies that have never been short of resources to try to recapitulate our technology, or incumbent healthcare companies that are very, very large and very powerful. We’ve also had the threat of new startups.

But we’ve thwarted and thrived repeatedly because our competitive advantages go beyond just a code base.

Firstly, our proprietary data: even if OpenAI or Gemini scraped the entire internet, they haven’t conducted 100 million treatment sessions like we have. So we might have the largest data and the most granular dataset on musculoskeletal health in the world.

Secondly, it’s our distribution channels. You know, we talked about earlier, we’ve spent a decade building these deep relationships with health insurance companies and pharmacy benefit managers and employers. That requires not just work on our end, but on their end to implement us and integrate us.

Thirdly, our product experience, which extends well beyond software. We also have a hardware element. In fact, here it is: it’s a neurostimulation device. You put it wherever on your body you’re feeling pain.

Sherwood: This is called Enso, is that right?

Perez: Exactly. It delivers patterns of electrical nerve stimulation.

Sherwood: Besides the musculoskeletal area, is there another adjacent area of therapy or medicine you’re moving toward?

Perez: Invite me back in a couple of months, because we’re working on it. We’re not ready to announce it yet, but our overall vision is to continue to use technology to automate the delivery of care, and we’re going to keep chipping away at different aspects of care.

It’s balancing that focus, as well as that urgency, to capture more aspects of healthcare. Physical therapy is about 1% of total healthcare spend, but it’s still a $60 billion market. And we are 1% penetrated into this 1%, at about $600 million or so. You can see just what the opportunity is ahead of us.

Sherwood: That’s all my questions for now. Congratulations on your jump to the public markets and for surviving your earnings call the other day.

Perez: Thank you so much, Matt. I really appreciate it.