Hims & Hers Health, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Unaudited results are compared with the corresponding 2021 periods. The company operates a consumer telehealth and health-products platform, with online subscription sales and wholesale retail sales.
Key financial results
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $144.8m (+95%) | $74.2m | $359.7m (+92%) | $187.2m |
| Gross profit / margin | $114.5m / 79% | $54.9m / 74% | $276.4m / 77% | $142.4m / 76% |
| Operating loss | $20.0m | $27.7m | $57.1m | $93.5m |
| Net loss | $18.8m | $15.9m | $54.8m | $76.5m |
| Adjusted EBITDA (non-GAAP) | $(6.1)m | $(9.8)m | $(19.7)m | $(23.0)m |
| Adjusted EBITDA margin (non-GAAP) | (4%) | (13%) | (5%) | (12%) |
Q3 online revenue was $139.8m, up 94%; wholesale revenue was $5.1m, up 136%. End-of-period subscriptions increased 80% to approximately 991,000. Net orders rose 73% to 1.675m, while average order value increased 12% to $83.
Cash and liquidity: At September 30, cash and cash equivalents were $58.0m and short-term investments were $140.4m, totaling $198.4m. Cash, cash equivalents and restricted cash declined $13.8m from year-end 2021. Nine-month operating cash use was $19.8m, versus $31.3m in 2021. Investing activities provided $28.7m, while financing activities used $22.7m, including $23.0m of acquisition earn-out payments. The balance sheet lists no borrowings; it includes $5.7m of operating lease liabilities and acquisition earn-out obligations. Total liabilities were $71.9m.
Changes and drivers
- Revenue growth reflected higher subscriptions, orders and average order value; wholesale growth also benefited from additional retail partners. Nine-month comparisons additionally included a full period of operations for acquisitions made in 2021.
- Gross margin improved, primarily as more orders were fulfilled through affiliated pharmacies at lower product and packaging cost. Management noted that the larger wholesale mix and acquired operations partly offset the improvement.
- Marketing expense rose 105% in Q3 to $78.5m; customer acquisition costs rose 137% to $67.3m. Management attributed the increase to higher customer-acquisition investment and acquired operations.
- Q3 operating loss narrowed, but net loss increased year over year, partly because the prior-year period included a larger fair-value gain on liabilities. For the nine months, lower net loss also reflected reduced stock-based compensation and prior-year one-time merger-related expenses.
- The company reclassified operating expenses into operations and support, technology and development, and general and administrative categories. Prior periods were conformed; the change did not affect reported financial position or results.
Outlook, risks and unusual items
Management expects operating losses to continue for at least the next 12 months as it invests in marketing, fulfillment, pharmacy capabilities, product offerings and customer experience. It stated that available resources are sufficient for at least one year past issuance of the financial statements, while cautioning that assumptions may change and additional financing could be needed. No specific revenue or earnings guidance was provided.
Reported unusual items include $1.1m of long-lived-asset impairment in 2022 and a $3.1m tax benefit in Q3 2021 related to the Apostrophe acquisition. The remaining $13.0m Apostrophe earn-out payable was expected to be paid in Q4 2022. Management reported no legal proceeding that it believed would individually or collectively have a material adverse effect.
Key stated risks include healthcare, pharmacy and telehealth regulation; privacy and cybersecurity; dependence on affiliated medical groups, pharmacies and other service providers; customer acquisition and retention; competition and marketing costs; supply-chain disruption; and the possibility of needing additional capital. The CEO’s Class V shares carry 175 votes per share, giving him approximately 90% of voting power, according to the filing.
Important facts for investors to verify
- Whether rapid subscription and revenue growth can continue while marketing spend rises sharply and the company remains loss-making.
- Whether improved gross margins and reduced cash burn are sustainable, including the effects of fulfillment mix and wholesale growth.
- Completion and cash impact of the remaining Apostrophe earn-out payment, and the company’s liquidity after planned investment and obligations.
- Any changes in healthcare, pharmacy, compounded-product, telehealth or privacy requirements that could affect operations or customer acquisition.
- Potential dilution from equity compensation and the implications of the dual-class voting structure for Class A shareholders.