Hims & Hers Health, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Unaudited consolidated financial statements; comparisons are with the same periods in 2022 unless stated otherwise. The company operates a consumer telehealth and health-and-wellness platform, with primarily subscription-based online sales and a smaller wholesale business.
Financial and operating performance
| Metric | Q2 2023 | Six months 2023 |
|---|---|---|
| Revenue | $207.9 million, up 83% | $398.7 million, up 86% |
| Gross profit / margin | $170.2 million / 82% (77% in 2022) | $323.6 million / 81% (75% in 2022) |
| Operating loss | $9.2 million | $20.5 million |
| Net loss | $7.2 million; $0.03 per share | $17.2 million; $0.08 per share |
| Adjusted EBITDA, non-GAAP | $10.6 million; 5% margin | $16.7 million; 4% margin |
| Operating cash flow | Not presented separately for the quarter | $26.3 million provided, versus $25.8 million used in 2022 |
Q2 revenue comprised $201.2 million online revenue, up 87%, and $6.7 million wholesale revenue, up 10%. Subscribers reached approximately 1.3 million, up 74%; net orders rose 52% to 2.1 million; average order value increased 22% to $95. Monthly online revenue per average subscriber was $53, up 4%.
Marketing expense was $107.2 million in Q2, up 77%, including $90.0 million in customer acquisition costs. For the first half, stock-based compensation was $31.0 million, compared with $19.5 million a year earlier.
Liquidity, cash flow and obligations
At June 30, 2023, cash and cash equivalents were $65.4 million and short-term investments were $127.7 million, totaling $193.1 million. Current assets were $234.6 million and current liabilities $66.5 million. The balance sheet reports no borrowing or debt balance; it does include operating lease liabilities of $5.1 million and an earn-out liability of $4.8 million.
First-half investing cash flow was a $1.7 million use; financing cash flow was a $6.0 million use, primarily for taxes on net share settlements of equity awards. Management attributed positive operating cash flow partly to noncash stock compensation and increased accounts payable and accrued liabilities. Contractual obligations and commitments totaled $18.4 million, including $11.4 million payable within 12 months.
Changes, outlook and risks
- Revenue growth and gross-margin improvement accompanied a narrower GAAP net loss. Management attributed the margin improvement mainly to lower product and packaging costs as a share of revenue, including more fulfillment through affiliated pharmacies, and a lower share of wholesale revenue.
- Management expects continued investment in marketing, fulfillment capacity, product offerings and customer experience. It expects these investments to increase near-term operating expenses, while anticipating longer-term operating leverage. The filing gives no specific revenue or earnings guidance.
- The company says it expects operating losses at least over the next 12 months, but believes existing resources are sufficient to fund operations for at least one year after issuance of the statements. It notes that additional financing may be needed if capital requirements exceed expectations.
- Key risks include evolving healthcare, telehealth, pharmacy and compounding rules; privacy and cybersecurity requirements; dependence on customer acquisition and subscription retention; competition and marketing costs; provider and pharmacy relationships; and execution of planned growth investments. The company says it is not aware of legal matters reasonably likely to have a material adverse impact.
- Unusual or notable items include $0.4 million of long-lived-asset impairment in the first half and a $1.8 million increase in the fair value of the Hims & Hers UK earn-out liability. Adjusted EBITDA excludes items including stock-based compensation and acquisition-related costs; it is not a GAAP measure.
Facts investors should verify
- Whether subscriber growth, order growth and average order value remain durable, and how retention and subscription cadence affect recurring revenue.
- Whether higher customer-acquisition spending produces returns sufficient to support growth and profitability.
- Whether gross-margin gains from affiliated-pharmacy fulfillment and product mix persist as the business scales.
- How cash generation develops, particularly given the contribution from noncash compensation and working-capital movements, and whether planned investment changes liquidity needs.
- Potential effects of regulatory developments on telehealth, affiliated medical groups, pharmacy operations, compounded products, marketing and handling of health data.
- Stock-based compensation and potential dilution: the filing reports substantial unrecognized compensation expense and a dual-class structure in which the CEO holds approximately 90% of voting power.