The following discussion and analysis provides information that management believes is relevant to an assessment and understanding of our consolidated results of operations and financial condition. You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our Form 10-K for the year endedDecember 31, 2021 (our "2021 Annual Report"), including "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in ITEM 7 of Part II of our 2021 Annual Report and the accompanying unaudited condensed consolidated financial statements and notes thereto included in this quarterly report on Form 10-Q. Our actual results may differ materially from those contained in any forward-looking statements. The events and circumstances reflected in the forward-looking statements may not be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Except as required by law, we do not intend to update any of these forward-looking statements after the date hereof or to conform these statements to actual results or revised expectations. Forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) and other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described under "Risk Factors" in ITEM 1A of Part II of this quarterly report on Form 10-Q. 19
--------------------------------------------------------------------------------
Table of Contents
Unless otherwise indicated or the context otherwise requires, references in this discussion and analysis to "we," "us," "our," the "Company," and "Hims & Hers" refer toHims & Hers Health, Inc. and its subsidiaries and variable interest entities. Overview Hims & Hers is a consumer-first platform transforming the way customers fulfill their health and wellness needs. Our mission is to make health and wellness solutions accessible, affordable, and convenient for everyone. Our digital platform enables access to treatments for a broad range of conditions, including those related to sexual health, hair loss, dermatology, mental health and primary care. Hims & Hers connects patients to licensed healthcare professionalswho can prescribe medications when appropriate. Prescriptions are fulfilled online through licensed pharmacies on a subscription basis, making accessing treatments simple, affordable, and straightforward. Through the Hims & Hers mobile applications, consumers can access a range of educational programs, wellness content, community support, and other services that promote lifelong health and wellness. We are leading an industry transformation by becoming the digital front door to health and wellness for a broad spectrum of consumers. We believe the future of healthcare will be led by trusted consumer first brands that empower people and give them more control over their health and wellness needs. We have endeavored to build a model that centers around the consumer, and provides them with tools and support to chart their own path to feeling their best. We connect technology and a seamless experience, with a brand that consumers recognize and trust. To further our mission, we offer a range of health and wellness products and services available for purchase directly by customers on our websites and mobile applications. Additionally, Hims & Hers products can be found in tens of thousands of top retail locations inthe United States .
Revenue and Key Business Metrics
Our management monitors two financial results, Online Revenue and Wholesale Revenue (both defined below), to track our total revenue generation.
"Online Revenue" represents the sales of products and services on our platform, net of refunds, credits, and chargebacks, and includes revenue recognition adjustments recorded pursuant to accounting principles generally accepted inthe United States of America ("U.S. GAAP"), primarily relating to deferred revenue and returns reserve. Online Revenue is generated by selling directly to consumers through our websites and mobile applications. Our Online Revenue consists of products and services purchased by customers directly through our online platform. The majority of our Online Revenue is subscription-based, where customers agree to be billed on a recurring basis to have products and services automatically delivered to them. "Wholesale Revenue" represents non-prescription product sales to retailers through wholesale purchasing agreements. We sell only non-prescription products to wholesale partners. In addition to being revenue generative and profitable, wholesale partnerships have the added benefit of generating brand awareness with new customers in physical environments. "Subscriptions" are defined as the number of customer agreements where the customer has agreed to be automatically billed on a recurring basis at a defined cadence. The billing cadence is typically defined as a number of months (for example, billed every month or every three months). Subscriptions are excluded from our reporting when payment has not occurred at the contracted billing cadence. Subscription billing is preferred by many of our customers because most of the products and services we make available treat chronic conditions and these product and service offerings are most effective when taken consistently and continuously. Customers can cancel subscriptions in between billing periods to stop receiving additional products and services and can reactivate subscriptions to continue receiving additional products and services. Subscriptions are sometimes also referred to by us as "subscription memberships" or "memberships."
"Net Orders" are defined as the number of online customer orders minus
transactions related to refunds, credits, chargebacks, and other negative
adjustments.
Average Order Value ("AOV") is defined as Online Revenue divided by
20
--------------------------------------------------------------------------------
Table of Contents
We monitor the following key metrics to help us evaluate our business, identify trends affecting our business, formulate business plans, and make strategic decisions. We believe the following metrics are useful in evaluating our business. The table below provides a breakdown of total revenue between Online Revenue and Wholesale Revenue, for the three and six months endedJune 30, 2022 and 2021, as well as key metrics that drive Online Revenue (i.e.,Net Orders , AOV, and Subscriptions) and the dollar and percentage change between such periods (in thousands, except for AOV): Three Months EndedJune 30 , Six
Months Ended
2022 2021 Change % Change 2022 2021 Change % Change Online Revenue$ 107,462 $ 58,146 $ 49,316 85 %$ 201,564 $ 108,826 $ 92,738 85 % Wholesale Revenue 6,101 2,546 3,555 140 % 13,313 4,180 9,133 218 % Total revenue$ 113,563 $ 60,692 $ 52,871 87 %$ 214,877 $ 113,006 $ 101,871 90 % Net Orders 1,385 786 599 76 % 2,592 1,473 1,119 76 % AOV$ 78 $ 74 $ 4 5 %$ 78 $ 74 $ 4 5 % As of June 30, 2022 2021 Change % Change Subscriptions 817 453 364 80 % We generated$107.5 million in Online Revenue for the three months endedJune 30, 2022 , an increase of 85% as compared to$58.1 million for the three months endedJune 30, 2021 . Growth in Online Revenue for the three months endedJune 30, 2022 was driven by growth in Subscriptions, AOV, andNet Orders , as well as the inclusion of the operations ofYoDerm, Inc. ("Apostrophe"), which was acquired inJuly 2021 , and a full three months of revenue forHonest Health Limited , which was acquired inJune 2021 and is nowHims & Hers UK Limited ("HHL"). We generated$201.6 million in Online Revenue for the six months endedJune 30, 2022 , an increase of 85% as compared to$108.8 million for the six months endedJune 30, 2021 . Growth in Online Revenue for the six months endedJune 30, 2022 was primarily driven by growth in Subscriptions, AOV, andNet Orders , as well as the inclusion of the operations of Apostrophe and a full six months of revenue for HHL. We generated$6.1 million in Wholesale Revenue for the three months endedJune 30, 2022 , an increase of 140% as compared to$2.5 million for the three months endedJune 30, 2021 . We generated$13.3 million in Wholesale Revenue for the six months endedJune 30, 2022 , an increase of 218% as compared to$4.2 million for the six months endedJune 30, 2021 . These increases were primarily due to the addition of new retail partners in the fourth quarter of 2021 and the first half of 2022, which increased the overall volume of wholesale orders. For the three months endedJune 30, 2022 , AOV was$78 , an increase of 5% as compared to$74 for the three months endedJune 30, 2021 . For the six months endedJune 30, 2022 , AOV was$78 , an increase of 5% as compared to$74 for the six months endedJune 30, 2021 . AOV growth for the three and six months endedJune 30, 2022 was driven by higher price points from larger product bundles and multi-month Subscriptions. We continuously test and optimize the online experience and offerings to improve the customer experience, maximize sales, and improve gross margin. In our Subscription arrangements, customers (sometimes also referred to by us as "members") select a cadence at which they wish to receive product shipments. In addition to a monthly cadence, we offer customers the ability to select from a range of multi-month Subscription shipment cadences, from every two to twelve months, depending on the product. The customer is billed upon each shipment. Customers can cancel subscriptions in between billing periods to stop receiving additional products and can reactivate subscriptions at any time. In addition, our customers can purchase product bundles or defined product kits, either consisting of non-prescription over-the-counter products or non-prescription products together with prescription medications, for a single all-inclusive price. Such offerings and their uptake by customers have contributed to the expansion of AOV over time. Additionally, the uptake of these offerings has resulted in higher gross profits and gross margins for our sales of products and services on our platform. For example, for multi-month Subscriptions, we may incur shipping and fulfillment expenses two or four times per year (for six-month and three-month subscription cadences, respectively) versus twelve times per year for monthly Subscriptions. The customer uptake of multi-month Subscriptions results in lower recurring costs and higher gross margins as compared to monthly Subscriptions. 21
--------------------------------------------------------------------------------
Table of Contents
Subscriptions grew 80% to approximately 817,000 as ofJune 30, 2022 as compared to approximately 453,000 Subscriptions as ofJune 30, 2021 . Growth in Subscriptions was driven by increased marketing expenses, increased traffic to our platform (through the mobile applications and websites), increased customer conversion rates from improved onsite and customer onboarding experiences, and the addition of Subscriptions from the 2021 acquisitions of Apostrophe and HHL. As a result of growth in Subscriptions, we generated approximately 1.4 millionNet Orders for the three months endedJune 30, 2022 , an increase of 76% as compared to approximately 0.8 millionNet Orders for the three months endedJune 30, 2021 . We generated approximately 2.6 millionNet Orders for the six months endedJune 30, 2022 , an increase of 76% as compared to approximately 1.5 millionNet Orders for the six months endedJune 30, 2021 .
Key Factors Affecting Results of Operations
We believe that our performance and future success depend on several factors that present significant opportunities for us but also pose risks and challenges.
New customer acquisition
Our ability to attract new customers is a key factor for our future growth. To date, we have successfully acquired new customers through marketing and the development of our brands as well as through acquisitions. As a result, revenue has increased each year since our launch. If we are unable to acquire enough new customers in the future, revenue might decline. New customer acquisition could be negatively impacted if our marketing efforts are less effective in the future. Increases in advertising rates could also negatively impact our ability to acquire new customers. Consumer tastes, preferences, and sentiment for our brands may also change and result in decreased demand for our products and services. Changes in law or regulatory enforcement could also negatively impact our ability to acquire new customers.
Retention of customers
Our ability to retain customers is a key factor in our ability to generate revenue. Most of our customers purchase products and services through Subscription-based plans, where customers are billed and sent products and/or receive services on a recurring basis. The recurring nature of this revenue provides us with a certain amount of predictability for future revenue if past customer behavior stays consistent in the future. In addition, the uptake by customers of our Subscription offerings has contributed to the expansion of AOV over time and has resulted in higher gross profits and gross margins for our sale of products and services on our platform. We expect to retain a majority or a higher percentage of revenue from customerswho have maintained a Subscription for more than two years (sometimes referred to by us as "long-term revenue retention"). However, if customer behavior changes, or our assumptions regarding long-term revenue retention are incorrect, and customer retention decreases in the future, then future revenue will be negatively impacted. The ability of our customers to continue to pay for our products and services will also impact the future results of our operations.
Investments in growth
We expect to continue to focus on long-term growth. We intend to continue to invest in our fulfillment and operating capabilities, including our Affiliated Pharmacies and warehousing facilities, with the goal of fulfilling nearly all of our pharmaceutical and over-the-counter customer orders through affiliated and internal fulfillment capabilities. Additionally, we expect to make significant investments in marketing to acquire new customers and we expect to continue to make investments in product offerings and customer experience. We are working to enhance our offerings and expand the breadth of products and services offered on our websites and mobile applications. This includes further investments in and development of mobile phone technology, including our mobile applications, in order to improve the customer experience on our platform. We also may continue exploring investments in the ability to accept insurance on our platform for certain products or services in the future. In the short term, we expect these investments to increase our operating expenses; however, in the long term, we anticipate that these investments will positively impact our results of operations. If we are unsuccessful at improving our offerings or are unable to generate additional demand for our offerings, we may not recover the financial investments we make into the business and revenue may not increase in the future.
Expansion into new categories
We expect to continue to expand into new categories with our offerings. Category expansion allows us to increase the number of customers for whom we can provide products and services. It also allows us to offer access to treatment of additional 22
--------------------------------------------------------------------------------
Table of Contents
conditions that may already affect our current customers. Expanding into new categories has required and will require financial investments in additional headcount, marketing and customer acquisition costs, additional operational capabilities, and may require the purchase of new inventory. If we are unable to generate sufficient demand in new categories, we may not recover the financial investments we make into new categories and revenue may not increase in the future.
Non-GAAP Financial Measures
In addition to our financial results determined in accordance withU.S. GAAP, we present Adjusted EBITDA (which is a non-GAAP financial measure), and Adjusted EBITDA margin (which is a non-GAAP ratio), each as defined below. We use Adjusted EBITDA and Adjusted EBITDA margin to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that Adjusted EBITDA and Adjusted EBITDA margin, when taken together with the correspondingU.S. GAAP financial measures, provide meaningful supplemental information regarding our performance by excluding certain items that may not be indicative of our business, results of operations, or outlook. We consider Adjusted EBITDA and Adjusted EBITDA margin to be important measures because they help illustrate underlying trends in our business and our historical operating performance on a more consistent basis. We believe that the use of Adjusted EBITDA and Adjusted EBITDA margin is helpful to our investors as they are used by management in assessing the health of our business and our operating performance. However, non-GAAP financial information is presented for supplemental informational purposes only, has limitations as an analytical tool, and should not be considered in isolation or as a substitute for financial information presented in accordance withU.S. GAAP. In addition, other companies, including companies in our industry, may calculate similarly-titled non-GAAP financial measures or ratios differently or may use other financial measures or ratios to evaluate their performance, all of which could reduce the usefulness of Adjusted EBITDA or Adjusted EBITDA margin as tools for comparison. Reconciliations are provided below to the most directly comparable financial measures stated in accordance withU.S. GAAP. Investors are encouraged to review ourU.S. GAAP financial measures and not to rely on any single financial measure to evaluate our business. Adjusted EBITDA is a key performance measure that our management uses to assess our operating performance. Because Adjusted EBITDA facilitates internal comparisons of our historical operating performance on a more consistent basis, we use this measure for business planning purposes. "Adjusted EBITDA" is defined as net loss before stock-based compensation, depreciation and amortization, acquisition-related costs (which include professional services and consideration paid for employee equity with vesting requirements incurred directly as a result of acquisitions), provision for income taxes, interest income, change in fair value of liabilities, one-time Merger bonuses and warrant expense, and amortization of debt issuance costs. "Adjusted EBITDA margin" is defined as Adjusted EBITDA divided by revenue. 23
--------------------------------------------------------------------------------
Table of Contents
The following table reconciles net loss to Adjusted EBITDA for the three and six
months ended
Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Revenue$ 113,563 $ 60,692 $ 214,877 $ 113,006 Net loss (19,679) (9,153) (35,931) (60,557) Stock-based compensation 10,632 9,160 19,488 43,390 Depreciation and amortization 1,821 505 3,562 899 Acquisition-related costs 150 2,872 266 2,872 Provision for income taxes 12 34 106 124 Change in fair value of liabilities (121) (7,963) (562) (5,282) Interest income (356) (113) (531) (195) Merger bonuses - - - 5,219 Warrant expense in connection with Merger - - - 154 Amortization of debt issuance costs - - - 144 Adjusted EBITDA$ (7,541) $ (4,658) $ (13,602) $ (13,232) Net loss as a % of revenue (17) % (15) % (17) % (54) % Adjusted EBITDA margin (7) % (8) % (6) % (12) % Some of the limitations of Adjusted EBITDA include (i) Adjusted EBITDA does not properly reflect capital commitments to be paid in the future, and (ii) although depreciation and amortization are non-cash charges, the underlying assets may need to be replaced and Adjusted EBITDA does not reflect these capital expenditures. In evaluating Adjusted EBITDA, you should be aware that in the future we will incur expenses similar to the adjustments in this presentation. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by these expenses or any unusual or non-recurring items. We compensate for these limitations by providing specific information regarding theU.S. GAAP items excluded from Adjusted EBITDA. When evaluating our performance, you should consider Adjusted EBITDA in addition to, and not as a substitute for, other financial performance measures, including our net loss and otherU.S. GAAP results.
Impact of the COVID-19 Pandemic
InMarch 2020 , theWorld Health Organization declared the 2019 novel coronavirus ("COVID-19") a global pandemic. The COVID-19 pandemic continues to persist, and we are closely monitoring its impact on all aspects of our business. We have a remote-first policy that permits most of our employees to work remotely should their particular positions allow, and we have taken measures in response to the ongoing COVID-19 pandemic, including implementing additional safety policies and procedures for employees working in our warehouse and Affiliated Pharmacies; suspending employee travel and in-person meetings prior to vaccination; and actively managing our fulfillment operations and inventory levels. We may take further actions that alter our business operations as may be required by federal, state, or local authorities or that we determine are in the best interests of our employees, customers, and stockholders. Our financial condition and results of operations to date have not been adversely impacted by the COVID-19 pandemic. However, it is possible that the COVID-19 pandemic, the measures taken by the federal, state, or local authorities (including vaccine mandates) and businesses affected, supply chain impacts, and the resulting economic impact may materially and adversely affect our business, results of operations, cash flows and financial positions as well as our customers, suppliers, and partners. Widespread supply chain issues resulting from the pandemic have impacted businesses across multiple industries, including those in which we operate. While we have not experienced material supply chain issues to date, if we experience delays or other challenges in obtaining supplies necessary for the production, fulfillment, or distribution of the products or services we offer, it could negatively affect our ability to satisfy our obligations to customers and maintain our operations in a cost-efficient manner and have a material adverse effect on our business. We will continue to monitor the status of the COVID-19 pandemic, and its related resurgences and variants, and adjust our strategy accordingly. 24
--------------------------------------------------------------------------------
Table of Contents Basis of Presentation Currently, we conduct business through one operating segment. Substantially all our long-lived assets are maintained in, and our losses are attributable to,the United States of America . Foreign operations are immaterial to the consolidated financial statements. The condensed consolidated financial statements include the accounts of our company, our wholly-owned subsidiaries, and variable interest entities for which we are the primary beneficiary. The variable interest entities are: (i) the Affiliated Medical Groups; and (ii) the Affiliated Pharmacies. We determined that we are the primary beneficiary of the Affiliated Medical Groups and the Affiliated Pharmacies for accounting purposes because we have the ability to direct the activities that most significantly affect these entities' economic performance and have the obligation to absorb the entities' losses. Under the variable interest entity model, we present the results of operations and the financial position of the entities as part of our condensed consolidated financial statements as if the consolidated group were a single economic entity.
Components of Results of Operations
Revenue
We recognize revenue when we transfer promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services.
Our consolidated revenue primarily comprises of online sales of health and wellness products through our websites and mobile applications, including prescription and non-prescription products. In contracts that contain prescription products issued as the result of a consultation, revenue also includes medical consultation services provided by Affiliated Medical Groups. Additionally, revenue is generated through wholesale arrangements.
For information on our significant accounting policies, see Note 2 to our accompanying unaudited condensed consolidated financial statements.
Cost of revenue
Cost of revenue consists of costs directly attributable to the products shipped and services rendered, including product costs, packaging materials, shipping costs, and labor costs directly related to revenue generating activities. Costs related to free products, where there is no expectation of future purchases from a customer, are considered to be SG&A (as defined below) and are excluded from cost of revenue.
Gross profit and gross margin
Our gross profit represents total revenue less our total cost of revenue, and our gross margin is our gross profit expressed as a percentage of our total revenue. Our gross profit and gross margin have been and will continue to be affected by a number of factors, including the prices we charge for our products and services, the costs we incur from our vendors for certain components of our cost of revenues, the mix of the various products and services we sell in a period, the mix of Online Revenue and Wholesale Revenue in a period, the impact of acquisitions, and our ability to sell our inventory. We expect our gross margin to fluctuate from period to period depending on these and other factors.
Marketing expenses
The largest component of our marketing expenses consists of our discretionary customer acquisition costs. Customer acquisition costs, also called paid marketing expense, are the advertising and media costs associated with our efforts to acquire new customers, promote our brands, and build awareness for our products and services. Customer acquisition costs include advertising in digital media, social media, television, radio, out-of-home media and various other media outlets. Marketing expenses also include overhead expenses, including salaries, benefits, taxes and stock-based compensation for personnel; agency, contractor and consulting expenses; content production, software and other marketing operating costs. Marketing is an important driver of growth and we intend to continue to make significant investments in customer acquisition and our marketing organization. Historically, our marketing expenses have increased quarter-over-quarter, with such increases reflecting a decreasing percentage of revenue over recent quarters with respect to a given cohort. We expect this trend to continue, though marketing expenses may fluctuate as a percentage of revenue due to the timing and discretionary nature of these expenses. 25
--------------------------------------------------------------------------------
Table of Contents
Selling, general, and administrative expenses
Selling, general, and administrative expenses ("SG&A") include the salaries, benefits, taxes, and stock-based compensation for personnel for our executive, engineering, finance, supply chain management, and other administrative functions. SG&A also includes general operating expenses for professional services, third-party software and hosting, facilities, warehousing and fulfillment, customer service, payment processing, depreciation and amortization, and acquisition-related expenses. We expect SG&A to increase for the foreseeable future as we increase headcount with the growth of our business. In addition, SG&A increases when we incur acquisition costs related to purchasing businesses. However, we anticipate SG&A will decrease as a percentage of revenue over the long term, although it may fluctuate as a percentage of total revenue from period to period due to the timing and amount of these expenses.
Other income
Other income primarily consists of the change in fair value of liabilities, as well as interest income from our cash and cash equivalents and investment accounts. Additionally, other income includes non-operating and one-time charges classified outside of operating expenses.
Provision for income taxes
The provision for income taxes is primarily due to state taxes and change in valuation allowance. Deferred tax assets are reduced by a valuation allowance to the extent management believes it is not more likely than not to be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income. Management makes estimates and judgments about future taxable income based on assumptions that are consistent with our plans and estimates.
Results of Operations
Comparisons for the three and six months ended
The following table sets forth our unaudited condensed consolidated statement of operations for the three and six months endedJune 30, 2022 and 2021, and the dollar and percentage change between the two periods (dollars in thousands): Three Months Ended June 30, Six Months Ended June 30, 2022 2021 Change % Change 2022 2021 Change % Change Revenue$ 113,563 $ 60,692 $ 52,871 87 %$ 214,877 $ 113,006 $ 101,871 90 % Cost of revenue 26,387 13,415 12,972 97 % 52,945 25,482 27,463 108 % Gross profit 87,176 47,277 39,899 84 % 161,932 87,524 74,408 85 % Operating expenses:(1) Marketing 60,490 27,944 32,546 116 % 108,583 54,902 53,681 98 % Selling, general, and administrative 46,876 36,740 10,136 28 % 90,458 98,438 (7,980) (8) % Total operating expenses 107,366 64,684 42,682 66 % 199,041 153,340 45,701 30 % Loss from operations (20,190) (17,407) (2,783) 16 % (37,109) (65,816) 28,707 (44) % Other income: Change in fair value of liabilities 121 7,963 (7,842) (98) % 562 5,282 (4,720) (89) % Other income, net 402 325 77 24 % 722 101 621 615 % Total other income, net 523 8,288 (7,765) (94) % 1,284 5,383 (4,099) (76) % Loss before income taxes (19,667) (9,119) (10,548) 116 % (35,825) (60,433) 24,608 (41) % Provision for income taxes (12) (34) 22 (65) % (106) (124) 18 (15) % Net loss$ (19,679) $ (9,153) $ (10,526) 115 %$ (35,931) $ (60,557) $ 24,626 (41) %
______________
(1)Includes stock-based compensation expense as follows (in thousands):
26
--------------------------------------------------------------------------------
Table of Contents Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Marketing $ 1,072
9,560 8,388 17,593 40,772 Total stock-based compensation expense$ 10,632
The following table sets forth our results of operations as a percentage of our total revenue for the periods presented:
Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Revenue 100 % 100 % 100 % 100 % Cost of revenue 23 % 22 % 25 % 23 % Gross profit 77 % 78 % 75 % 77 % Operating expenses: Marketing 53 % 46 % 51 % 49 % Selling, general, and administrative 41 % 61 % 42 % 87 % Total operating expenses 94 % 107 % 93 % 136 % Loss from operations (17) % (29) % (18) % (59) % Other income: Change in fair value of liabilities - % 13 % - % 5 % Other income, net - % 1 % - % - % Total other income, net - % 14 % - % 5 % Loss before income taxes (17) % (15) % (18) % (54) % Provision for income taxes - % - % - % - % Net loss (17) % (15) % (18) % (54) % Revenue Revenue was$113.6 million for the three months endedJune 30, 2022 , compared to$60.7 million for the three months endedJune 30, 2021 , an increase of$52.9 million , or 87%. Revenue was$214.9 million for the six months endedJune 30, 2022 , compared to$113.0 million for the six months endedJune 30, 2021 , an increase of$101.9 million , or 90%. For a detailed discussion of these increases, refer to "-Revenue and Key Business Metrics."
Cost of revenue and gross profit
Cost of revenue was$26.4 million for the three months endedJune 30, 2022 , compared to$13.4 million for the three months endedJune 30, 2021 , an increase of$13.0 million , or 97%. This increase was due to increased costs associated with medical consultation services of 118%, increased product and packaging costs of 98%, and increased shipping costs of 69% compared to the three months endedJune 30, 2021 . Cost of revenue was$52.9 million for six months endedJune 30, 2022 , compared to$25.5 million for six months endedJune 30, 2021 , an increase of$27.5 million , or 108%. This increase was primarily due to increased product and packaging costs of approximately 126%, increased costs associated with medical consultation services of 95%, and increased shipping costs of 77% compared to the six months endedJune 30, 2021 . These increases were due to overall increased business activity and growth ofNet Orders , as well as the inclusion of the operations of Apostrophe and a full period of the operations of HHL for both the three and six months endedJune 30, 2022 . Gross profit was$87.2 million for the three months endedJune 30, 2022 , compared to$47.3 million for the three months endedJune 30, 2021 , an increase of$39.9 million , or 84%. Correspondingly, gross margin was 77% for the three months endedJune 30, 2022 , compared to 78% for the three months endedJune 30, 2021 . Gross profit was$161.9 million for the six months endedJune 30, 2022 , compared to$87.5 million for the six months endedJune 30, 2021 , an increase of$74.4 million , or 85%. Correspondingly, gross margin was 75% for the six months endedJune 30, 2022 , compared to 77% for the six months endedJune 30, 2021 . The decreases in gross margin for the three and six months endedJune 30, 2022 were primarily a result of 27
--------------------------------------------------------------------------------
Table of Contents
Wholesale Revenue comprising a larger proportion of total revenue, as well as
the inclusion of the operations of Apostrophe and a full period of the
operations of HHL for both the three and six months ended
Marketing expenses
Marketing expenses were$60.5 million for the three months endedJune 30, 2022 , compared to$27.9 million for the three months endedJune 30, 2021 , an increase of$32.5 million , or 116%. The most significant component of marketing expenses is customer acquisition costs, which increased to$51.0 million in the three months endedJune 30, 2022 , compared to$22.1 million for the three months endedJune 30, 2021 , an increase of 131%. Marketing expenses were$108.6 million for the six months endedJune 30, 2022 , compared to$54.9 million for the six months endedJune 30, 2021 , an increase of$53.7 million , or 98%. Customer acquisition costs increased to$90.1 million in the six months endedJune 30, 2022 , compared to$42.4 million for the six months endedJune 30, 2021 , an increase of 113%. The increases in customer acquisition costs were a result of management's decision to increase investment in display, search, and television marketing, as we continue to identify opportunities to drive new customer growth, as well as the customer acquisition costs associated with the inclusion of the operations of Apostrophe and a full period of the operations of HHL for both the three and six months endedJune 30, 2022 .
Selling, general, and administrative expenses
SG&A expenses were$46.9 million for the three months endedJune 30, 2022 , compared to$36.7 million for the three months endedJune 30, 2021 , an increase of$10.1 million , or 28%. The increase in SG&A was primarily driven by employee compensation expense (comprising salaries and wages, benefits, taxes, and performance bonuses and excluding stock-based compensation), which was$14.9 million for the three months endedJune 30, 2022 , compared to$9.2 million for the three months endedJune 30, 2021 , an increase of$5.7 million . Furthermore, for the three months endedJune 30, 2022 , the increase in SG&A was also attributable to a$2.3 million increase in depreciation, amortization, and technology costs, a$1.7 million increase in professional services, a$1.5 million increase in order fulfillment, transaction processing, and selling costs, and a$1.2 million increase in stock-based compensation expense. The increase in SG&A was partially offset by$2.8 million in acquisition fees incurred for the purchase of businesses during the three months endedJune 30, 2021 . SG&A expenses were$90.5 million for the six months endedJune 30, 2022 , compared to$98.4 million for the six months endedJune 30, 2021 , a decrease of$8.0 million , or 8%. The decrease in SG&A was primarily driven by a decrease in stock-based compensation expense to$17.6 million for the six months endedJune 30, 2022 , from$40.8 million for the six months endedJune 30, 2021 , a decrease of$23.2 million . The decrease in stock-based compensation was primarily due to the expenses incurred during the six months endedJune 30, 2021 related to the earn-out consideration issued as part of the Merger (as defined in Note 1 - Organization to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q) as well as the recognition of expense related to stock options granted to the Chief Executive Officer and vesting of restricted stock units, which were both contingent upon the achievement of a liquidity event that was satisfied upon the closing of the Merger. All of these resulted in either one-time expenses or cumulative catch-up expense as a result of the Merger. In the six months endedJune 30, 2021 , we also incurred$5.1 million of bonus expense almost entirely as a result of the previously disclosed transaction bonus related to the Merger. Excluding stock-based compensation, employee compensation expense was$29.8 million for the six months endedJune 30, 2022 , compared to$17.0 million for the six months endedJune 30, 2021 , an increase of$12.8 million . Furthermore, for the six months endedJune 30, 2022 , the decrease in SG&A was partially offset by a$4.8 million increase in depreciation, amortization, and technology costs, a$2.7 million increase in order fulfillment, transaction processing, and selling costs, a$1.3 million increase in professional services costs, and a$0.7 million increase in insurance premiums. These increases were partially offset by$2.8 million of fees incurred for the purchase of businesses during the six months endedJune 30, 2021 . 28
--------------------------------------------------------------------------------
Table of Contents Other income Other income was$0.5 million for the three months endedJune 30, 2022 , compared to$8.3 million for the three months endedJune 30, 2021 , a decrease of$7.8 million . The decrease was driven primarily by a gain from the change in fair value of liabilities for the three months endedJune 30, 2022 of$0.1 million related to earn-out liabilities, compared to a gain from the change in fair value of liabilities for the three months endedJune 30, 2021 of$8.0 million related to warrant liabilities. Other income was$1.3 million for the six months endedJune 30, 2022 , compared to$5.4 million for the six months endedJune 30, 2021 , a decrease of$4.1 million . The decrease was driven primarily by a gain from the change in fair value of liabilities for the six months endedJune 30, 2022 of$0.6 million related to earn-out liabilities, compared to a gain from the change in fair value of liabilities for the six months endedJune 30, 2021 of$5.3 million related to warrant liabilities.
Provision for income taxes
Provision for income taxes was less than
Liquidity and Capital Resources
As of
During the six months endedJune 30, 2022 , we made payments for the Apostrophe acquisition earn-out payable totaling$29.9 million , such payment amounts determined in fiscal year 2021 in accordance with the terms of the related acquisition agreement. The remaining portion of the Apostrophe earn-out payable of$13.0 million will be paid in the fourth quarter of 2022, also based on the terms of the related acquisition agreement. The Apostrophe earn-out payment of$29.9 million is recorded: (i)$6.9 million within operating activities; and (ii)$23.0 million within financing activities on the condensed consolidated statements of cash flows. We have historically incurred negative cash flows from operating activities and significant losses from operations in the past. We expect to continue to incur operating losses at least for the next 12 months due to the investments that we intend to make in our business. We believe our existing cash resources and funds raised from the closing of the Merger are sufficient to support planned operations for the next 12 months. As a result, management believes that our current financial resources are sufficient to continue operating activities for at least one year past the issuance date of the unaudited condensed consolidated financial statements. Our future capital requirements will depend on many factors, including the number of orders we receive, the size of our customer base, the timing and extent of spend to support the expansion of sales, marketing and development activities, and the impact of the COVID-19 pandemic. We completed two acquisitions in 2021 and expect to continue to pursue opportunities to acquire or invest in complementary businesses, services, and technologies, including intellectual property rights. We have based our estimate of our future capital requirements on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. We may be required to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, financial condition, and results of operations would be harmed. Cash Flows
The following table provides a summary of cash flow data (in thousands):
Six
Months Ended
2022 2021 Net cash used in operating activities$ (25,797) $ (15,347) Net cash provided by (used in) investing activities 31,272 (140,588) Net cash (used in) provided by financing activities (22,174) 235,605 29
--------------------------------------------------------------------------------
Table of Contents
Cash Flows from Operating Activities
Our largest source of operating cash flows is cash collections from our customers. Our primary use of cash from operating activities includes costs of revenue, marketing expenses, and personnel-related expenditures to support the growth of our business. Net cash used in operating activities was$25.8 million for the six months endedJune 30, 2022 . The most significant component of our cash used was a net loss of$35.9 million . This included non-cash expense related to stock-based compensation of$19.5 million , depreciation and amortization of$3.6 million , net amortization on securities of$0.9 million , and non-cash operating lease cost of$0.8 million . Non-cash expense was partially offset by non-cash income of$0.6 million related to the change in fair value of liabilities. In addition, a net cash outflow totaling$13.8 million was attributable to changes in operating assets and liabilities, primarily as a result of a decrease in earn-out payable of$6.9 million , an increase in prepaid expenses and other current assets of$6.8 million , an increase in inventory of$6.1 million , a decrease in deferred revenue of$0.9 million , and a decrease in operating lease liabilities of$0.8 million . This outflow was partially offset by an increase in accounts payable and accrued liabilities of$7.6 million . Net cash used in operating activities was$15.3 million for the six months endedJune 30, 2021 . The most significant component of our cash used was a net loss of$60.6 million . This included non-cash expense related to stock-based compensation of$43.4 million , depreciation and amortization of$0.9 million , non-cash operating lease cost of$0.8 million , and net amortization on securities of$0.6 million . Non-cash expense was partially offset by non-cash income of$5.3 million related to the change in fair value of liabilities. In addition, a net cash inflow totaling$4.2 million was attributable to changes in operating assets and liabilities, primarily as a result of an increase in accounts payable and accrued liabilities of$12.9 million . This inflow was partially offset by an increase in prepaid expenses and other current assets of$4.6 million , an increase in inventory of$3.0 million , and a decrease in operating lease liabilities of$0.8 million .
Cash Flows from Investing Activities
Cash flows from investing activities primarily relate to our treasury operations of investing in available-for-sale investments, as well as acquisitions, investment in website and mobile application development and internal-use software, and purchases of property and equipment.
Net cash provided by investing activities for the six months endedJune 30, 2022 was$31.3 million , which was primarily due to net investment cash inflows of$34.4 million . This cash inflow was partially offset by investments of$2.4 million in website development and internal-use software, including investment in our mobile technology. Net cash used in investing activities for the six months endedJune 30, 2021 was$140.6 million , which was primarily due to net investment cash outflows of$137.9 million , investment in website and mobile application development and internal-use software of$1.8 million , and acquisition of business, net of cash acquired of$0.7 million .
Cash Flows from Financing Activities
Net cash used in financing activities for the six months endedJune 30, 2022 was$22.2 million , which was primarily due to the payments for earn-out consideration for acquisitions of$23.0 million and payments for taxes related to net share settlement of equity awards of$1.2 million . This cash outflow was partially offset by proceeds from the exercise of stock options of$1.5 million . Net cash provided by financing activities for the six months endedJune 30, 2021 was$235.6 million , which was primarily due to the proceeds from the issuance of Class A common stock as a result of the Merger of$197.7 million , proceeds from thePIPE Investment of$75.0 million , proceeds received from employee repayment of promissory notes of$1.2 million , and proceeds from the exercise of warrants and stock options of$1.1 million . This cash inflow was partially offset by payments related to pre-closing stock repurchase of$22.0 million , Merger transaction costs of$12.9 million , and payments for taxes related to net share settlement of equity awards of$4.5 million . 30
--------------------------------------------------------------------------------
Table of Contents
Contractual Obligations and Commitments
Our contractual obligations and commitments include earn-out payables and earn-out liabilities related to acquisitions, operating leases, and non-cancelable purchase obligations primarily related to cloud-based software contracts used in operations. Total contractual obligations and commitments as ofJune 30, 2022 were$21.8 million , of which$16.4 million was payable within 12 months. Critical Accounting Estimates The preparation of our condensed consolidated financial statements in conformity withU.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The more significant estimates and assumptions by management include, among others, valuation of inventory, valuation and recognition of stock-based compensation expense, valuation of contingent consideration in business combinations, purchase price allocation for business combinations, and estimates used in the capitalization of website and mobile application development and internal-use software costs. Management believes that the estimates and judgments upon which it relies are reasonable based upon information available at the time that these estimates and judgments were made. Actual results may differ from management's estimates. To the extent that there are material differences between these estimates and actual results, our condensed consolidated financial statements will be affected. For a discussion of our critical accounting estimates, please refer to ITEM 7 under Part II, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2021 Annual Report for the year endedDecember 31, 2021 . SinceDecember 31, 2021 , there have been no material changes to our critical accounting estimates.
© Edgar Online, source