Hims & Hers Health, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023; comparisons are with the corresponding 2022 periods. The unaudited filing describes a consumer telehealth and health-and-wellness platform, primarily subscription-based, with online and wholesale sales.
Financial results
| Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 |
|---|---|---|---|---|
| Revenue | $226.7m | $144.8m | $625.4m | $359.7m |
| Gross profit / margin | $187.3m / 83% | $114.5m / 79% | $510.9m / 82% | $276.4m / 77% |
| Operating loss | $(8.6)m | $(20.0)m | $(29.1)m | $(57.1)m |
| Net loss | $(7.6)m | $(18.8)m | $(24.8)m | $(54.8)m |
| Adjusted EBITDA (non-GAAP) | $12.3m | $(6.1)m | $28.9m | $(19.7)m |
| Operating cash flow | Not presented by quarter in the supplied filing text | $51.5m | $(19.8)m |
Q3 basic and diluted loss per share was $0.04, versus $0.09 in Q3 2022. Nine-month loss per share was $0.12, versus $0.27. Adjusted EBITDA and its margin are non-GAAP measures; the company reported a 5% adjusted EBITDA margin for both 2023 periods, compared with negative 4% for Q3 2022 and negative 5% for 9M 2022.
Revenue and operating metrics
- Q3 revenue increased 57% year over year; nine-month revenue increased 74%. Online revenue rose 57% in Q3 and 77% for nine months; wholesale revenue rose 39% and 11%, respectively.
- Subscribers reached 1.426 million, up 56% from 916,000. Q3 net orders rose 33% to 2.222 million and average order value rose 19% to $99.
- Monthly online revenue per average subscriber was $54 in Q3, down 4% from $56, which management attributed primarily to product mix and strategic price reductions. The nine-month measure rose 6% to $55.
- Gross margin improved to 83% in Q3 and 82% for nine months. Management cited lower product and packaging costs from greater affiliated-pharmacy fulfillment and a smaller wholesale share of revenue.
Liquidity, cash flow and obligations
- At September 30, cash and cash equivalents were $58.0m and short-term investments were $154.5m, totaling $212.5m in cash and investments. Current assets were $250.2m and current liabilities $82.5m.
- Nine-month operating cash flow improved to $51.5m from cash use of $19.8m. The 2023 inflow included approximately $20.0m from changes in operating assets and liabilities, principally higher accounts payable and accrued liabilities; stock-based compensation of $48.3m was also a significant non-cash adjustment.
- Investing activities used $32.8m, including net investment purchases and $15.3m combined for property, equipment, intangible assets, website and software development. Financing activities used $7.5m, mainly for taxes on net-settled equity awards.
- No conventional borrowings are listed on the balance sheet. Operating lease liabilities were $4.7m; the balance sheet also included a $6.9m acquisition earn-out liability. Total contractual obligations and commitments were $18.5m, of which $13.5m was due within 12 months.
- Management said existing financial resources were sufficient for planned operations for at least 12 months after issuance, while noting that further financing might be needed if capital requirements exceed expectations.
Changes, outlook and risks
- Operating and net losses narrowed year over year, while revenue, marketing spend and operating expenses all increased. Marketing expense rose 48% in Q3; customer acquisition costs increased to $98.6m from $67.3m.
- Management expects continued investment in marketing, fulfillment and operating capacity, product offerings, customer experience and new categories. It expects these investments to raise near-term expenses; no quantified revenue, earnings or cash-flow guidance is provided in the filing text.
- On October 26, 2023, after quarter-end, the board authorized discretionary repurchases of up to $50m of Class A stock through November 8, 2025. Repurchases may be suspended or discontinued; the authorization is not an obligation to buy shares.
- Unusual and judgment-sensitive items include a $3.9m increase in the HHL earn-out liability during the first nine months, bringing it to $6.9m, and $48.3m of nine-month stock-based compensation. Nine-month long-lived-asset impairment was $0.4m; no Q3 2023 impairment was recorded.
- Principal risks highlighted include evolving healthcare, pharmacy, compounding, telehealth and privacy regulation; customer acquisition and retention; competition and marketing costs; dependence on providers, pharmacies and other service partners; cybersecurity and sensitive health-data protection; and the company’s history of net losses. Management reported no legal matter then known to be reasonably likely to have a material adverse impact.
- The company’s dual-class structure gives Class V shares 175 votes each; the CEO and affiliates held approximately 90% of voting power, limiting other shareholders’ influence.
Important facts for investors to verify
- Whether subscriber growth and higher average order value can persist while Q3 revenue per average subscriber declined and marketing acquisition costs increased.
- How much of positive operating cash flow reflects sustainable operations versus working-capital timing, non-cash items and stock-based compensation.
- Whether gross-margin gains from affiliated-pharmacy fulfillment continue as fulfillment capacity and order volumes expand.
- The potential financial and operational effects of regulatory changes, especially for asynchronous telehealth, affiliated medical groups, pharmacies and compounded products.
- Future share repurchases, dilution from equity awards and the impact of the dual-class voting structure.