Hims & Hers Health, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. Unless noted otherwise, financial amounts below are in millions of dollars. The company operates a multi-specialty telehealth platform and sells health and wellness products online and through retail partners.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $101.3 | $52.3 | +94% |
| Gross profit / gross margin | $74.8 / 74% | $40.2 / 77% | Gross profit +86%; margin down 3 percentage points |
| Operating expenses | $91.7 | $88.7 | +3% |
| Operating loss | $(16.9) | $(48.4) | Loss narrowed |
| Net loss | $(16.3) | $(51.4) | Loss narrowed |
| Adjusted EBITDA (non-GAAP) | $(6.1) | $(8.6) | Loss narrowed |
| Operating cash flow | $(19.4) | $(15.9) | Cash use increased |
Online revenue was $94.1 million (+86%) and wholesale revenue was $7.2 million (+341%). Net orders increased 76% to 1.207 million, average order value rose 5% to $78, and subscriptions grew 82% to approximately 710,000. Basic and diluted loss per share was $0.08, versus $0.34 a year earlier.
At March 31, cash and cash equivalents were $48.3 million and short-term investments were $154.8 million, totaling $203.1 million; working capital was approximately $183.4 million. Total liabilities were $54.3 million. The filing reports no conventional borrowings; reported obligations include operating leases and acquisition earn-outs. Total assets were $382.0 million and stockholders’ equity was $327.7 million.
Cash and cash equivalents plus restricted cash declined $23.5 million during the quarter to $49.1 million. Investing activities provided $18.5 million, primarily reflecting investment maturities and sales exceeding purchases; financing activities used $22.5 million, largely for acquisition earn-out payments. The company reported $22.3 million of contractual obligations and commitments, $16.3 million payable within 12 months.
Material changes and notable items
- Revenue growth reflected higher subscriptions, orders and average order value, new wholesale partners, and contributions from Apostrophe and HHL, acquired after Q1 2021.
- Gross margin declined from 77% to 74%, which management attributed mainly to a greater wholesale revenue mix and the acquired businesses.
- Marketing expense rose 78% to $48.1 million; customer acquisition costs increased 93% to $39.1 million as the company expanded advertising and incorporated acquisition-related costs.
- SG&A fell 29% to $43.6 million, principally because Q1 2021 included substantial merger-related and other stock-based compensation. Stock-based compensation declined to $8.9 million from $34.2 million; the company also cited $5.1 million of merger bonus expense in Q1 2021.
- The company paid $29.9 million toward the Apostrophe acquisition earn-out during the quarter; a remaining $13.0 million was expected to be paid in Q4 2022 under the acquisition agreement.
Outlook, risks and contingencies
The filing provides no numerical revenue or earnings guidance. Management expects operating losses to continue for at least the next 12 months while it invests in marketing, fulfillment, pharmacies, product offerings, technology and customer experience. It believes available resources are sufficient to fund operations for at least one year from issuance of the financial statements, while cautioning that assumptions could prove wrong and additional financing may be needed.
Key risks include customer acquisition costs and retention, competition, evolving healthcare, pharmacy and telehealth regulation, privacy and cybersecurity, dependence on affiliated medical groups, pharmacies and third-party providers, supply-chain and macroeconomic pressures, and integration or execution risks from acquisitions and expansion. Management said COVID-19 had not adversely affected results to date, but warned that pandemic-related changes and supply disruptions could have future effects. The company reported no legal proceeding that management considered likely, individually or collectively, to have a material adverse effect.
Management stated disclosure controls were effective at the reasonable assurance level as of March 31, 2022, with no material quarterly change in internal control over financial reporting. The filing also notes that a previously identified material weakness had been remediated by December 31, 2021.
Important facts for investors to verify
- Whether subscription growth, customer retention and order economics can sustain revenue growth without continued sharp increases in customer acquisition spending.
- Whether gross margin stabilizes as wholesale sales and acquired operations become a larger share of revenue.
- Cash burn, the timing and amount of remaining acquisition earn-outs, and management’s liquidity assumptions if losses persist.
- Progress and costs associated with pharmacy operations and any planned acceptance of insurance or other third-party reimbursement, which could increase regulatory obligations.
- The effect of equity compensation and potential dilution; the filing reports substantial unrecognized compensation expense and a dual-class structure that concentrates voting power with the CEO and co-founder.