Business context and reporting period
Hims & Hers Health, Inc. filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2021. The company operates a direct-to-consumer telehealth platform offering health and wellness products and services online and through wholesale partners. The January 2021 business combination with Oaktree Acquisition Corp. was accounted for as a reverse recapitalization, with Hims as the accounting predecessor; prior-period figures are presented on that basis.
Financial and operating performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $60.7 million | $35.9 million | $113.0 million | $66.0 million |
| Gross profit / margin | $47.3 million / 78% | $25.7 million / 71% | $87.5 million / 77% | $46.3 million / 70% |
| Operating loss | $17.4 million | $1.0 million | $65.8 million | $7.2 million |
| Net loss | $9.2 million | $1.0 million | $60.6 million | $7.0 million |
| Adjusted EBITDA, non-GAAP | $(4.7) million | $1.2 million | $(13.2) million | $(3.4) million |
| Cash used in operating activities | Not provided for quarter | Not provided for quarter | $15.3 million | $5.3 million |
Q2 revenue grew 69%; online revenue rose 75% to $58.1 million, while wholesale revenue declined 3% to $2.5 million. Subscriptions increased 76% year over year to approximately 453,000; net orders increased 37% to approximately 786,000. Average order value was $74, up 28%. Gross margin improved, but expense growth outpaced revenue: Q2 marketing expense rose 137% and selling, general and administrative expense rose 148%. For the first half, SG&A included $40.8 million of stock-based compensation, largely associated with the merger and related equity awards.
At June 30, 2021, cash and cash equivalents were $107.1 million and short-term investments were $210.2 million; current assets were $336.3 million and current liabilities $27.3 million. Total liabilities were $54.6 million, including $25.4 million of warrant liabilities; the company reported no outstanding term-loan debt. The SVB loan agreement was terminated in January, although a $0.8 million warehouse letter of credit remained secured by restricted cash. Six-month investing cash outflow was $140.6 million, primarily reflecting net purchases of investments; financing provided $235.6 million, including merger proceeds of $197.7 million and $75.0 million from the PIPE, partly offset by repurchases and transaction costs.
Material changes, outlook, and risks
- Management said it expects operating losses for at least the next 12 months as it invests in growth, but believes available resources are sufficient for at least one year beyond the financial statement issuance date. No specific revenue, earnings, or margin guidance was provided.
- Management plans continued investment in marketing, product expansion, customer experience, insurance acceptance, mobile applications, fulfillment and pharmacy capabilities. It expects marketing and SG&A to increase in absolute dollars in the near term.
- In June, the company acquired UK-based Honest Health Limited for an accounting purchase price of approximately $4.8 million, including contingent consideration; its purchase-price allocation was preliminary. In July, it acquired Apostrophe for potential total consideration of up to approximately $200 million, with approximately $150 million upfront consideration and approximately $50 million paid in cash at closing; additional cash consideration may depend on revenue targets.
- Post-quarter, the company called Public and Parent Warrants for redemption. It estimated approximately 2 million shares could be issued through exercises and expected an immaterial cash redemption payment.
- Disclosure controls were not effective at June 30 because of a previously identified material weakness in accounting for complex transactions, principally SPAC warrants. Management was undertaking remediation but gave no assurance it would be successful. The company also disclosed prior financial-statement restatements related to warrant accounting.
- Key risks include extensive and evolving healthcare, telehealth, pharmacy and privacy regulation; customer acquisition costs and retention; competition; reliance on medical groups, providers, pharmacies and technology vendors; acquisition integration and funding needs; and the uncertain durability of pandemic-related telehealth demand. The company reported no legal proceeding expected by management to have a material adverse effect. Lease commitments after June 30 totaled $6.7 million, with an additional $2.1 million of cloud-software purchase obligations.
Important facts for investors to verify
- Whether subscription growth, order volume and higher average order value can persist while customer acquisition costs rise.
- How operating losses and operating cash use develop, and whether the reported cash and investments remain adequate after acquisitions and planned expansion.
- The final Apostrophe purchase accounting, contingent consideration, integration costs and resulting dilution or cash needs.
- Progress in remediating the material weakness and whether future filings report effective disclosure controls.
- The final number of warrants exercised or redeemed, shares issued, and any related cash payment.
- Whether healthcare, pharmacy, telehealth and privacy rules—or provider and pharmacy relationships—require changes to the company’s operating model.