Hims & Hers Health, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Hims & Hers is a direct-to-consumer telehealth company selling health and wellness products and services online and through wholesale partners. The January 2021 merger was accounted for as a reverse recapitalization; comparative operating results represent Hims’ predecessor operations.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $74.2m | $41.3m | $187.2m | $107.3m |
| Gross profit / margin | $54.9m / 74% | $31.3m / 76% | $142.4m / 76% | $77.6m / 72% |
| Operating loss | $(27.7)m | $(3.3)m | $(93.5)m | $(10.5)m |
| Net loss | $(15.9)m | $(5.9)m | $(76.5)m | $(12.9)m |
| Adjusted EBITDA | $(9.8)m | $(1.6)m | $(23.0)m | $(5.0)m |
Q3 revenue increased 79%; online revenue rose 86% to $72.0m, while wholesale revenue declined 14% to $2.1m. Subscriptions increased 95% year over year to approximately 551,000; net orders rose 66% to approximately 968,000. Average order value was $74, up 10%. For the nine-month period, online revenue grew 80%, net orders rose 44%, and average order value increased 25% to $74.
Q3 gross margin declined two percentage points, which management attributed primarily to the Apostrophe and Honest Health acquisitions. Nine-month gross margin improved four points, mainly because revenue grew faster than variable costs, partly offset by acquisitions. Operating expenses grew substantially: Q3 marketing increased 154% and SG&A increased 127%. Nine-month SG&A included $50.3m of stock-based compensation and $5.1m of merger bonuses. Adjusted EBITDA is a non-GAAP measure; review its reconciliation and exclusions alongside GAAP results.
Liquidity, cash flow, and capital
- At September 30, cash and cash equivalents were $64.8m and short-term investments were $187.7m; together, $252.4m. Current assets were $274.2m and current liabilities $52.5m.
- Net cash used in operations for the first nine months was $31.3m, compared with $2.2m in 2020. Net cash used in investing was $166.5m, including $46.5m for acquisitions and net investment purchases. Financing provided $235.1m, principally merger proceeds of $197.7m and PIPE proceeds of $75.0m.
- The filing reports no outstanding term-loan borrowings. A $0.8m warehouse letter of credit is collateralized by restricted cash. Stockholders’ equity was $355.2m; accumulated deficit was $247.8m.
Changes, outlook, and risks
- Revenue growth reflected higher subscriptions, order volume and average order value, as well as acquisitions. Apostrophe was acquired in July for an accounting purchase price of $131.6m, including cash, shares, and contingent consideration; Honest Health was acquired in June for $4.8m. Apostrophe contributed approximately $5m of post-acquisition revenue through September 30.
- Management expects operating losses to continue for at least the next 12 months as it invests in growth, marketing, products, technology, fulfillment, and operations. It considers current resources sufficient for at least one year after issuance of the statements, but cautions that assumptions may prove incorrect and additional financing may be needed. No specific revenue or earnings guidance is provided.
- Key business risks include customer acquisition costs and retention, competition, healthcare and pharmacy regulation, provider and pharmacy relationships, privacy and cybersecurity, supply-chain disruption and the uncertain continuation of pandemic-driven telehealth demand. The company also cites integration, dilution, and impairment risks from acquisitions.
- Disclosure controls were deemed ineffective as of September 30, 2021 because of a previously identified material weakness in accounting for complex transactions, including SPAC warrants; prior financial statements were restated. Management is working to remediate the weakness. Apostrophe was excluded from the controls assessment during the permitted post-acquisition period.
- The CFO announced his intention to resign and was to support a transition as a consultant while the company searched for a successor. The company also disclosed that the CEO and affiliates held approximately 90% of voting power through the dual-class share structure.
- Management reported no legal matter then expected to have a material adverse impact. The filing identifies $6.3m of future minimum warehouse lease commitments and $2.1m of cloud-software purchase obligations. It expects to adopt lease accounting in its 2021 annual report and anticipates recognizing right-of-use assets and lease liabilities.
Investor verification priorities
- Check whether online growth, subscription retention, and order value persist, and whether marketing spend supports efficient customer acquisition.
- Assess acquisition integration, Apostrophe’s contribution and margins, contingent earn-outs, and the potential for further dilution or goodwill impairment.
- Track operating cash use and liquidity against management’s stated one-year resource assessment and growth plans.
- Follow remediation of the material weakness, the CFO transition, and the impact of required accounting-standard adoptions.
- Review exposure to healthcare, pharmacy, privacy, cybersecurity, supply-chain, and telehealth regulatory changes, alongside the governance implications of concentrated voting control.