Filing summary
Important entity note: The supplied filing is Oaktree Acquisition Corp.’s Form 10-Q, not an operating-company 10-Q filed by Hims & Hers Health, Inc. Oaktree was a blank-check company pursuing a merger with Hims, Inc. The financial results below are Oaktree’s and do not describe Hims’ operating performance.
Business context and reporting period
The unaudited report covers the quarter and nine months ended September 30, 2020. Oaktree had not commenced operations; its activities related to its formation, IPO, and search for a business combination. It reported no operating revenue and expected none until after a business combination.
Financial metrics
- Quarter ended September 30, 2020: General and administrative expenses were $2.338 million; trust-account investment gains, dividends and interest were $81,232; net loss was $2.257 million.
- Nine months ended September 30, 2020: General and administrative expenses were $2.708 million; trust-account investment gains, dividends and interest were $1.699 million; net loss was $1.010 million.
- Comparatives: The quarter ended September 30, 2019 showed net income of $436,045. The 2019 year-to-date comparison is from inception on April 9 through September 30, 2019—not a comparable nine-month period—and showed net income of $419,439.
- Cash flow: Net cash used in operating activities was $577,740 for the first nine months of 2020. Investing activities provided $325,000, and cash decreased by $252,740 to $1.258 million.
- Liquidity and balance sheet: At September 30, 2020, cash and cash equivalents were $1.258 million, trust-account investments were $204.481 million, total assets were $205.814 million, and total liabilities were $10.231 million. Current liabilities of $3.038 million exceeded current assets of $1.333 million, producing approximately $1.7 million of negative working capital.
- Debt and margins: The filing reports no outstanding working capital loans or long-term debt obligations. Revenue and operating margins are not meaningful for this pre-combination SPAC; the filing reports no operating revenue.
Material changes and proposed business combination
- Quarterly general and administrative expense increased to $2.338 million from $449,938 in the 2019 quarter, while trust-account investment income fell to $81,232 from $885,983. Oaktree consequently moved from quarterly net income to a net loss.
- On September 30, 2020, Oaktree entered into a merger agreement with Hims, Inc. The proposed transaction contemplated a combined company named Hims & Hers Health, Inc., with an implied equity value of $1.6 billion, subject to agreement terms and possible cash consideration of up to $75 million at closing.
- The transaction included a $75 million PIPE investment and up to 16 million earn-out shares tied to specified stock-price thresholds. Closing was expected in the fourth quarter of 2020, subject to shareholder approval and other customary conditions; the filing does not establish that it subsequently closed.
- The proposed dual-class structure was expected to give Hims founder and CEO Andrew Dudum approximately 90% of voting power immediately after closing on a fully diluted basis. The filing also describes sponsor forfeiture of 25% of its founder shares and private-placement warrants in connection with the transaction.
Outlook, risks and contingencies
- Management stated that Oaktree’s liquidity position, required liquidation and subsequent dissolution raised substantial doubt about its ability to continue as a going concern. The SPAC’s deadline to complete a business combination was July 22, 2021; otherwise it generally had to redeem public shares and wind up.
- Oaktree had approximately $3.2 million of trust-account interest income available for permitted regulatory withdrawals, subject to an annual $325,000 limit, and tax obligations. Sponsor or affiliate working capital loans were possible but not committed; none were outstanding at quarter-end.
- COVID-19 could negatively affect Oaktree’s financial position, operations or search for a target, but management said the specific impact was not readily determinable.
- A newly disclosed risk was that negative interest rates on trust investments could reduce public shareholders’ redemption proceeds below $10 per share.
- Deferred underwriting commissions of $7.044 million and deferred legal fees of $150,000 were payable from trust assets only if a business combination was completed. The filing reported no legal proceedings.
Investor facts to verify
- Confirm the transaction’s eventual closing status and compare this SPAC filing with Hims & Hers’ own operating-company financial statements for the relevant period.
- Verify the final merger consideration, cash paid to Hims stockholders, PIPE funding, earn-out terms, and resulting share dilution.
- Review actual post-combination ownership and voting control, including the effect of the dual-class structure and sponsor forfeitures.
- Assess liquidity available outside the trust account, transaction expenses, redemption levels, and any subsequent financing or debt.
- Check whether the filing’s going-concern and negative-interest-rate risks were resolved or changed in later filings.