Business context and reporting period
Hims & Hers Health, Inc. filed this Form 10-K for the fiscal year ended December 31, 2020. Although the request identifies 2020 Q4, the filing is an annual report and does not provide a clear standalone fourth-quarter operating summary. Hims & Hers operates a direct-to-consumer telehealth and health-products platform, with many offerings sold through subscriptions.
Important reporting limitation: The audited financial statements included in this 10-K are for Oaktree Acquisition Corp. (OAC), the pre-merger blank-check company, not Hims & Hers’ operating business. The filing says Hims’ financial statements were to be filed separately. Accordingly, OAC’s audited results below should not be read as Hims’ operating results.
Financial performance, cash flow and liquidity
- Hims historical revenue: $148.8 million in 2020, compared with $82.6 million in 2019 and $26.7 million in 2018. The filing does not provide a clear 2020 gross margin, operating margin, or standalone Q4 revenue figure in the supplied text.
- Hims losses and cash flow: Hims reported annual net losses of $18.1 million in 2020, $72.1 million in 2019 and $75.2 million in 2018, with an accumulated deficit of $171.3 million at December 31, 2020. The filing states Hims had negative operating cash flow in each of those years but does not provide the amounts in the supplied text.
- Hims liquidity: At December 31, 2020, Hims reported $27.3 million of cash and cash equivalents and $72.9 million of short-term investments. Management said these resources were expected to fund operations for at least 12 months. The filing does not provide a clear Hims debt balance or liquidity ratio in the supplied text.
- OAC audited results, not Hims results: OAC recorded a $3.0 million net loss in 2020, $4.8 million of general and administrative expense and $1.7 million of trust-account investment income. At year-end, OAC had $1.1 million of operating cash, $204.5 million held in trust, and $12.1 million of liabilities. Trust assets were associated with the business-combination vehicle and should not be treated as Hims operating cash.
- Business-combination financing: After year-end, the January 20, 2021 merger and PIPE provided gross proceeds of $197.7 million and $75.0 million, respectively. The company also paid $11.5 million of closing costs and repurchased $22.0 million of Hims shares in connection with the transaction.
Material changes and unusual items
- Hims’ revenue increased about 80% in 2020 from 2019, while its reported annual net loss narrowed substantially; these are historical operating-business figures cited in the filing, not results presented in the audited OAC statements.
- On January 20, 2021, OAC completed its merger with Hims, domesticated in Delaware and became Hims & Hers Health, Inc.; the shares began trading on the NYSE as HIMS. A $75 million PIPE was completed at $10 per share.
- The CEO’s Class V shares carry 175 votes per share. The CEO group held approximately 90% of aggregate voting power immediately after closing, creating a substantial concentration of voting control.
- The filing says the 16 million merger earn-out shares’ trading-price conditions were satisfied in February 2021; as of the filing date, the earn-out vesting conditions had been satisfied in full.
- OAC’s year-end balance sheet included $7.0 million of deferred underwriting commissions and $0.15 million of deferred legal fees; these were paid at the merger closing.
Outlook, management commentary and risks
Management expects continued investment in customer acquisition, new categories and products, provider capacity, technology, and pharmacy and fulfillment operations. It expects these investments to raise near-term expenses and states that operating losses were expected to continue for at least the next 12 months. The filing gives no formal quantified revenue, earnings or margin guidance.
- Hims planned to invest up to approximately $3 million in property and equipment for its pharmacy operations, including $1.7 million invested by December 31, 2020, and estimated initial annual selling, general and administrative costs of approximately $10 million for pharmacy, warehousing and fulfillment operations. Management expected some of these costs to offset third-party fulfillment expenses.
- Key risks include uncertain and changing telehealth, pharmacy, healthcare and privacy regulation; challenges to the company’s affiliated-medical-group structure; data-security incidents; dependence on marketing efficiency, subscriptions, providers and pharmacy partners; competition; and uncertainty about whether increased telehealth adoption during COVID-19 will persist.
- The filing describes ordinary-course litigation and claims but says the company was not then party to proceedings that management believed would individually or collectively have a material adverse effect.
- Management reported disclosure controls as effective at December 31, 2020. The auditor’s opinion covered OAC’s financial statements and expressly did not express an opinion on internal-control effectiveness.
Important facts for investors to verify
- Review Hims’ separate operating-company financial statements for audited 2020 revenue, gross profit and margin, net loss, cash flows, debt and quarterly results; this 10-K’s audited statements are OAC’s.
- Reconcile the reported $100.2 million of Hims cash and short-term investments at year-end with post-merger proceeds, closing costs, the share repurchase and subsequent cash use.
- Assess the cost, timing and expected operating leverage of the new pharmacy and fulfillment operations against the disclosed estimated annual costs.
- Evaluate the effects of Class V voting rights and the CEO group’s approximately 90% post-closing voting power, as well as dilution from earn-out shares, warrants and equity plans.
- Monitor subscription retention and customer-acquisition economics, regulatory developments affecting telehealth and affiliated medical groups, and the company’s ability to achieve positive operating cash flow and profitability.