10-Q 1 hims-20240331.htm 10-Q hims-20240331
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Quarterly Period Ended March 31, 2024

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 For the transition period from                         to ____________


HIMS & HERS HEALTH, INC.
 (Exact name of registrant as specified in its charter)
 
Delaware001-3898698-1482650
(State or other jurisdiction of incorporation or organization)(Commission File Number)(I.R.S. Employer
Identification No.)
2269 Chestnut Street, #523San FranciscoCalifornia94123
(Address of principal executive offices)(ZIP Code)
(415) 851-0195
Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:

Title of each classTrading symbol(s)Name of each exchange on which registered
Class A common stock, $0.0001 par value per shareHIMSNew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to filing requirements for the past 90 days.
Yes No
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer                                  Accelerated filer           
Non-accelerated filer                                  Smaller reporting company    
Emerging growth company         

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes No

As of May 3, 2024, 206,408,463 shares of Class A common stock, par value $0.0001, and 8,377,623 shares of Class V common stock, par value $0.0001, were issued and outstanding.





Table of Contents
 


i

Cautionary Note Regarding Forward-Looking Statements

This quarterly report on Form 10-Q, including, without limitation, statements under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements can be identified by the use of forward-looking terminology, including the words “believe,” “estimate,” “anticipate,” “expect,” “assume,” “imply,” “intend,” “plan,” “may,” “will,” “potential,” “project,” “predict,” “continue,” “could,” “confident,” “confidence,” or “should,” or, in each case, their plural, their negative or other variations or comparable terminology. There can be no assurance that actual results will not materially differ from expectations. Such statements include, but are not limited to, any statements relating to our financial and business performance, including with respect to the Hims & Hers platform, our marketing campaigns, investments in innovation, and our infrastructure, and the underlying assumptions with respect to the foregoing; statements relating to events and trends relevant to us, including with respect to our financial condition, results of operations, short- and long-term business operations, objectives, and financial needs; expectations regarding our mobile applications, market acceptance, user experience, customer retention, brand development, our ability to invest and generate a return on any such investment, customer acquisition costs, operating efficiencies and leverage (including our fulfillment capabilities), the effect of any pricing decisions, changes in our product and offering mix, the timing and market acceptance of any new products or offerings, the success of our business model, our market opportunity, our ability to scale our business, the growth of certain of our categories, our ability to innovate on and expand the scope of our offerings and experiences, our ability to reinvest into the customer experience, and our ability to comply with the extensive, complex, and evolving regulatory requirements applicable to our business, including without limitation state and federal healthcare, privacy and consumer protection laws and regulations. These statements are based on management’s current expectations, but actual results may differ materially due to various factors.

The forward-looking statements contained in this quarterly report on Form 10-Q are based on our current expectations and beliefs concerning future developments and their potential effects on us. Future developments affecting us may not be those that we have anticipated. These 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 Part II, Item 1A: “Risk Factors.” Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation (and expressly disclaim any obligation) to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. These risks and others described under Part II, Item 1A: “Risk Factors” may not be exhaustive.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and developments in the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this quarterly report on Form 10-Q. In addition, even if our results of operations, financial condition and liquidity, and developments in the industry in which we operate are consistent with the forward-looking statements contained in this quarterly report on Form 10-Q, those results or developments may not be indicative of results or developments in subsequent periods.
ii

Part I - Financial Information
Item 1. Financial Statements
Hims & Hers Health, Inc.
Condensed Consolidated Balance Sheets
(In Thousands, Except Share and Per Share Data)
 
March 31, 2024December 31, 2023
 (Unaudited)
Assets
Current assets:
Cash and cash equivalents$105,237 $96,663 
Short-term investments98,355 124,318 
Inventory29,826 22,464 
Prepaid expenses and other current assets28,316 21,608 
Total current assets261,734 265,053 
Restricted cash856 856 
Goodwill110,881 110,881 
Property, equipment, and software, net45,212 36,143 
Intangible assets, net17,863 18,574 
Operating lease right-of-use assets11,422 9,588 
Other long-term assets138 91 
Total assets$448,106 $441,186 
Liabilities and stockholders' equity
Current liabilities:
Accounts payable$43,919 $43,070 
Accrued liabilities26,714 28,972 
Deferred revenue13,735 7,733 
Earn-out payable7,412 7,412 
Operating lease liabilities1,544 1,281 
Total current liabilities93,324 88,468 
Operating lease liabilities10,279 8,667 
Other long-term liabilities21 22 
Total liabilities103,624 97,157 
Commitments and contingencies (Note 12)
Stockholders' equity:
Common stock – Class A shares, par value $0.0001, 2,750,000,000 shares authorized and 206,033,630 and 205,104,120 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively; Class V shares, par value $0.0001, 10,000,000 shares authorized and 8,377,623 shares issued and outstanding as of March 31, 2024 and December 31, 2023
21 21 
Additional paid-in capital701,670 712,307 
Accumulated other comprehensive loss(162)(124)
Accumulated deficit(357,047)(368,175)
Total stockholders' equity344,482 344,029 
Total liabilities and stockholders' equity$448,106 $441,186 
See accompanying notes to unaudited condensed consolidated financial statements.
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Hims & Hers Health, Inc.
Condensed Consolidated Statements of
Operations and Comprehensive Income (Loss) (Unaudited)
(In Thousands, Except Share and Per Share Data)
 
Three Months Ended March 31,
20242023
Revenue$278,171 $190,770 
Cost of revenue49,076 37,345 
Gross profit229,095 153,425 
Operating expenses:
Marketing130,553 97,245 
Operations and support38,747 26,182 
Technology and development15,324 10,748 
General and administrative34,568 30,513 
Total operating expenses219,192 164,688 
Income (loss) from operations9,903 (11,263)
Other income (expense):
Change in fair value of liabilities (295)
Other income, net2,500 1,877 
Total other income, net2,500 1,582 
Income (loss) before income taxes12,403 (9,681)
Provision for income taxes(1,275)(386)
Net income (loss)11,128 (10,067)
Other comprehensive (loss) income(38)166 
Total comprehensive income (loss)$11,090 $(9,901)
Net income (loss) per share attributable to common stockholders:
Basic$0.05 $(0.05)
Diluted$0.05 $(0.05)
Weighted average shares outstanding:
Basic213,452,092 207,140,298 
Diluted229,364,585 207,140,298 
See accompanying notes to unaudited condensed consolidated financial statements.

2

Hims & Hers Health, Inc.
Condensed Consolidated Statements of Stockholders' Equity (Unaudited)
(In Thousands, Except Share Data)
Common StockAdditional
Paid-In
Capital
Accumulated
Other
Comprehensive Loss
Accumulated
Deficit
Total
Stockholders'
 Equity
SharesAmount
Balance as of December 31, 2023213,481,743 $21 $712,307 $(124)$(368,175)$344,029 
Issuance of common stock upon vesting of RSUs, net of shares withheld for taxes925,243 — — — — — 
Payments for taxes related to net share settlement of equity awards— — (7,314)— — (7,314)
Exercise of vested stock options2,027,347 — 5,070 — — 5,070 
Repurchases and retirement of common stock(2,023,080)— (28,064)— — (28,064)
Stock-based compensation— — 19,671 — — 19,671 
Other comprehensive loss— — — (38)— (38)
Net income— — — — 11,128 11,128 
Balance as of March 31, 2024214,411,253 $21 $701,670 $(162)$(357,047)$344,482 

Common StockAdditional
Paid-In
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Accumulated
Deficit
Total
Stockholders'
 Equity
SharesAmount
Balance as of December 31, 2022208,429,312 $21 $656,626 $(277)$(344,629)$311,741 
Issuance of common stock upon vesting of RSUs, net of shares withheld for taxes751,486 — — — — — 
Payments for taxes related to net share settlement of equity awards— — (3,657)— — (3,657)
Exercise of vested stock options131,246 — 245 — — 245 
Stock-based compensation— — 14,317 — — 14,317 
Other comprehensive income— — — 166 — 166 
Net loss— — — — (10,067)(10,067)
Balance as of March 31, 2023209,312,044 $21 $667,531 $(111)$(354,696)$312,745 
See accompanying notes to unaudited condensed consolidated financial statements.
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Hims & Hers Health, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In Thousands)
Three Months Ended March 31,
20242023
Operating activities
Net income (loss)$11,128 $(10,067)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization3,001 2,117 
Stock-based compensation19,032 14,167 
Change in fair value of liabilities 295 
Net accretion on securities(1,077)(1,041)
Impairment of long-lived assets75 429 
Non-cash operating lease cost574 448 
Non-cash acquisition-related costs 566 
Non-cash other408 124 
Changes in operating assets and liabilities:
Inventory(7,362)865 
Prepaid expenses and other current assets(6,708)(4,984)
Other long-term assets(47)5 
Accounts payable3,602 3,955 
Accrued liabilities(2,258)1,673 
Deferred revenue6,002 1,394 
Operating lease liabilities(532)(463)
Net cash provided by operating activities25,838 9,483 
Investing activities
Purchases of investments(70,700)(40,687)
Maturities of investments97,700 39,084 
Investment in website development and internal-use software(3,377)(1,875)
Purchases of property, equipment, and intangible assets(10,581)(635)
Net cash provided by (used in) investing activities13,042 (4,113)
Financing activities
Proceeds from exercise of vested stock options5,070 245 
Payments for taxes related to net share settlement of equity awards(7,314)(3,657)
Repurchases of common stock(28,064) 
Net cash used in financing activities(30,308)(3,412)
Foreign currency effect on cash and cash equivalents2 15 
Increase in cash, cash equivalents, and restricted cash8,574 1,973 
Cash, cash equivalents, and restricted cash at beginning of period97,519 47,628 
Cash, cash equivalents, and restricted cash at end of period$106,093 $49,601 
Reconciliation of cash, cash equivalents, and restricted cash
Cash and cash equivalents$105,237 $48,745 
Restricted cash856 856 
Total cash, cash equivalents, and restricted cash$106,093 $49,601 
Supplemental disclosures of cash flow information
Cash paid for taxes$126 $286 
Non-cash investing and financing activities
Purchases of property and equipment included in accounts payable and accrued liabilities$594 $1,290 
Right-of-use asset obtained in exchange for lease liability2,174  

See accompanying notes to unaudited condensed consolidated financial statements.
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Hims & Hers Health, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)

1. Organization

Hims & Hers Health, Inc. (the “Company” or “Hims & Hers”), incorporated in Delaware, is a consumer-first platform transforming the way customers fulfill their health and wellness needs. The Company’s mission is to help the world feel great through the power of better health. The Hims & Hers platform includes access to a highly-qualified and technologically-capable provider network, a clinically-focused electronic medical records system, digital prescriptions, and cloud-enabled pharmacy fulfillment. The Company’s digital platform enables access to treatments for a broad range of conditions, including five core specialties: sexual health, men’s and women’s dermatology, mental health, and weight loss. Hims & Hers connects patients to licensed healthcare professionals who 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.

In addition, the Company offers access to a range of health and wellness products designed to meet individual needs, which can include curated prescription and non-prescription products. The Company’s products and services are available for purchase directly by customers on the Company’s websites and mobile applications. Additionally, Hims & Hers non-prescription products can be found in tens of thousands of top retail locations in the United States.

2. Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to accounting principles generally accepted in the United States of America (“U.S. GAAP”).

The condensed consolidated financial statements as of March 31, 2024 are unaudited. The condensed consolidated balance sheet as of December 31, 2023 included herein was derived from the audited consolidated financial statements as of that date. Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. As such, the information included herein should be read in conjunction with the consolidated financial statements and accompanying notes as of and for the year ended December 31, 2023 (the “audited consolidated financial statements”).

The unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and reflect, in management’s opinion, all adjustments of a normal, recurring nature that are necessary for the fair statement of the Company’s balance sheet, results of operations, and cash flows for the periods presented, but are not necessarily indicative of the results expected for the full fiscal year or any other period.

The unaudited condensed consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries, and variable interest entities in which it is the primary beneficiary. All intercompany transactions and balances have been eliminated in these condensed consolidated financial statements.

There have been no changes to the Company’s significant accounting policies described in the audited consolidated financial statements for the year ended December 31, 2023 that have had a material impact on these condensed consolidated financial statements and related notes.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, judgments, and assumptions that affect the amounts reported in the financial statements and accompanying notes. The more significant estimates, judgments, 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, estimates used in the capitalization of website development and internal-use software costs, valuation allowance against deferred tax assets, and judgments relating to impairment triggering events for long-lived assets. Management believes that the estimates, judgments, and assumptions upon which it relies are reasonable based upon information available to it at the time that these estimates, judgments, and assumptions were made.
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Actual results experienced by the Company may differ from management’s estimates. To the extent that there are material differences between these estimates and actual results, the Company’s condensed consolidated financial statements will be affected.

Goodwill

Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired in a business combination. Goodwill is not amortized but is tested for impairment annually in the fourth quarter or more frequently if events or changes in circumstances indicate that the asset may be impaired. The Company operates as one reporting unit. When testing goodwill for impairment, the Company may first perform an optional qualitative assessment. If the Company determines it is not more likely than not the reporting unit’s fair value is less than its carrying value, then no further analysis is necessary. If the Company determines that it is more likely than not that the fair value of its reporting unit is less than its carrying amount, then the quantitative impairment test will be performed. Under the quantitative impairment test, if the carrying amount of the Company’s reporting unit exceeds its fair value, the Company will recognize an impairment loss in an amount equal to that excess but limited to the total amount of goodwill. No goodwill impairment was recorded for the three months ended March 31, 2024 and 2023.

Impairment of Long-Lived Assets

Long-lived assets include property, equipment, and software and intangible assets subject to amortization. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In such cases, recoverability of assets to be held and used is assessed by comparing the carrying amount of assets with their future underlying net undiscounted cash flows without interest charges. If such assets are considered to be impaired, an impairment is recognized as the amount by which the carrying amount of the assets exceeds the estimated fair values of the assets. The Company recognized $0.1 million and $0.4 million of impairment charges on long-lived assets during the three months ended March 31, 2024 and 2023, respectively, in general and administrative expenses on the unaudited condensed consolidated statements of operations and comprehensive income (loss).

Revenue Recognition

The Company recognizes revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services.

The Company’s consolidated revenue primarily comprises online sales of health and wellness products and services through the Company’s 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 and post-consultation service support provided by Affiliated Medical Groups (defined below). Additionally, the Company offers a range of health and wellness products through wholesale partners.
 
Revenue consists of the following (in thousands):

Three Months Ended March 31,
20242023
Online Revenue$267,761 $184,175 
Wholesale Revenue10,410 6,595 
Total revenue$278,171 $190,770 

For Online Revenue, the Company defines its customer as an individual who purchases products or services through its websites or mobile applications. For Wholesale Revenue, the Company defines its customer as a wholesale partner, with the exception of consignment arrangements, where its customer is defined as an individual who purchases products through certain third-party platforms. The transaction price in the Company’s contracts with customers is the total amount of consideration to which the Company expects to be entitled in exchange for transferring products or services to the customer.

The Company’s contracts that contain prescription products issued as the result of a consultation primarily include the following performance obligations: access to (i) products, as well as medication adjustments, as applicable, and (ii) consultation
6

services, as well as post-consultation service support, as applicable. The Company’s contracts for prescription refills and contracts that do not contain prescription products have a single performance obligation. Revenue is recognized at the time the related performance obligation is satisfied by transferring the promised product to the customer and, in contracts that contain services, by the provision of consultation services to the customer. The Company satisfies its performance obligation for products at a point in time, which is upon delivery of the products to a third-party carrier or wholesale customer warehouse. The Company satisfies its performance obligation for consultation services typically within one day and for post-consultation service support over the contract term. The customer obtains control of the products and services upon the Company’s completion of its performance obligations.

For contracts with multiple performance obligations, the transaction price is allocated to each performance obligation on a relative stand-alone selling price basis. The stand-alone selling price is based on the prices at which the Company separately sells the products and services, as well as market and cost plus estimates. For each of the three months ended March 31, 2024 and 2023, service revenue represented less than 10% of consolidated revenues.

To fulfill its promise to customers for contracts that include professional medical consultations, the Company maintains relationships with various “Affiliated Medical Groups,” which are professional corporations or other professional entities owned by licensed physicians and that engage licensed healthcare professionals (physicians, physician assistants, nurse practitioners, and mental health providers; collectively referred to as “Providers” or individually, a “Provider”) to provide consultation services. Refer to Note 10 – Variable Interest Entities. The Company accounts for service revenue as a principal in the arrangement with its customers. This conclusion is reached because (i) the Company determines which Affiliated Medical Group and Provider provides the consultation to the customer; (ii) the Company is primarily responsible for the satisfactory fulfillment and acceptability of the services; (iii) the Company incurs costs for consultation services even for visits that do not result in a prescription and the sale of products; and (iv) the Company, in its sole discretion, sets all listed prices charged on its websites and mobile applications for products and services.

Additionally, to fulfill its promise to customers for contracts that include sale of prescription products, the Company maintains relationships with (i) certain third-party pharmacies (“Partner Pharmacies” or individually, a “Partner Pharmacy”) and (ii) XeCare, LLC (“XeCare”) and Apostrophe Pharmacy LLC (“Apostrophe Pharmacy”, and together with XeCare, the “Affiliated Pharmacies”), which are licensed mail order pharmacies providing prescription fulfillment solely to the Company’s customers. The Partner Pharmacies and the Affiliated Pharmacies fill prescription orders for customers who have received a prescription from a prescribing Provider through the Company’s websites and mobile applications. The Company accounts for prescription product revenue as a principal in the arrangement with its customers. This conclusion is reached because (i) the Company has sole discretion in determining which Partner Pharmacy or Affiliated Pharmacy fills a customer’s prescription; (ii) Partner Pharmacies and Affiliated Pharmacies fill the prescription based on fulfillment instructions provided by the Company, including using the Company’s branded packaging for generic products; (iii) the Company is primarily responsible to the customer for the satisfactory fulfillment and acceptability of the order; (iv) the Company is responsible for refunds of the prescription medication after transfer of control to the customer; and (v) the Company, in its sole discretion, sets all listed prices charged on its websites and mobile applications for products and services.

The Company estimates refunds using the expected value method primarily based on historical refunds granted to customers. The Company updates its estimate at the end of each reporting period and recognizes the estimated amount as contra-revenue with a corresponding refund liability. Sales, value-added, and other taxes are excluded from the transaction price and, therefore, from revenue.

The Company accounts for shipping activities, consisting of direct costs to ship products performed after the control of a product has been transferred to the customer, in cost of revenue.

For online sales, payment for prescription medication and non-prescription products is typically collected from the customer a few days in advance of product shipment in accordance with contract terms, with the exception of prepaid offerings for which payment is collected upfront with subsequent shipments typically occurring quarterly. Contract liabilities are recorded when payments have been received from the customer for undelivered products or services and are recognized as revenue when the performance obligations are later satisfied. Contract liabilities consisting of balances related to customer prepayments are recognized as current deferred revenue on the condensed consolidated balance sheets since the associated revenue will be primarily recognized within the following month, with the exception of post-consultation service support and prepaid offerings which are recognized within the following year. For wholesale arrangements, payments are collected in accordance with contract terms.
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Recently Issued Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The amendments in this update expand reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 is effective for all public entities for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is evaluating the impact of this guidance on its consolidated financial statements and related disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amendments in this update expand income tax disclosure requirements, primarily through enhanced disclosures related to income taxes paid and the rate reconciliation. ASU 2023-09 is effective for all public entities for annual periods beginning after December 15, 2024, with early adoption permitted. The amendments should be applied on a prospective basis and retrospective application is permitted. The Company is evaluating the method of adoption and the impact of this guidance on its consolidated financial statements and related disclosures.

3. Investments

Short-term investments as of March 31, 2024, consist of the following (in thousands):
 
Adjusted
Cost
Unrealized
Gains
Unrealized
Losses
Fair
Value
U.S. Treasury bills$70,371 $ $(16)$70,355 
Corporate bonds24,493 7 (2)24,498 
Government and government agency2,789  (1)2,788 
Asset-backed bonds714   714 
Total short-term investments$98,367 $7 $(19)$98,355 
 
Short-term investments as of December 31, 2023, consist of the following (in thousands):

Adjusted
Cost
Unrealized
Gains
Unrealized
Losses
Fair
Value
U.S. Treasury bills$63,809 $24 $ $63,833 
Corporate bonds39,152 18 (1)39,169 
Government and government agency20,624  (14)20,610 
Asset-backed bonds705 1  706 
Total short-term investments$124,290 $43 $(15)$124,318 

4. Inventory

Inventory consists of the following (in thousands):

March 31, 2024December 31, 2023
Finished goods$17,982 $15,221 
Raw materials11,844 7,243 
Total inventory$29,826 $22,464 

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5. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following (in thousands):
 
March 31, 2024December 31, 2023
Wholesale trade receivables$6,405 $5,705 
Prepaid expenses15,079 10,665 
Other current assets6,832 5,238 
Total prepaid expenses and other current assets$28,316 $21,608 

6. Property, Equipment, and Software, Net

Property, equipment, and software, net consist of the following (in thousands):

March 31, 2024December 31, 2023
Purchased and internal-use software and website development$26,425 $22,970 
Facility equipment and other tangible property11,692 8,254 
Leasehold improvements8,222 2,256 
Assets not placed in service13,117 14,907 
Total property, equipment, and software59,456 48,387 
Less: accumulated depreciation and amortization(14,244)(12,244)
Total property, equipment, and software, net$45,212 $36,143 

Depreciation and amortization expense for property, equipment, and software was $2.3 million and $1.1 million for the three months ended March 31, 2024 and 2023, respectively.

Impairment charges on property, equipment, and software were $0.1 million and $0.4 million for the three months ended March 31, 2024 and 2023, respectively.

7. Intangible Assets, Net

Intangible assets as of March 31, 2024 consist of the following (in thousands):

Gross
Amount
Accumulated Amortization and ImpairmentNet
Carrying
Value
Weighted
Average
Remaining
Useful Life
(Years)
Trade name$24,170 $(7,474)$16,696 7.2
Other4,829 (3,662)1,167 5.8
Intangible assets, net$28,999 $(11,136)$17,863 7.1

Intangible assets as of December 31, 2023 consist of the following (in thousands):

Gross
Amount
Accumulated Amortization and ImpairmentNet
Carrying
Value
Weighted
Average
Remaining
Useful Life
(Years)
Trade name$24,170 $(6,880)$17,290 7.4
Other4,803 (3,519)1,284 5.7
Intangible assets, net$28,973 $(10,399)$18,574 7.3

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Amortization expense for intangible assets was $0.7 million and $1.0 million for the three months ended March 31, 2024 and 2023, respectively.

There were no impairment charges on intangible assets for the three months ended March 31, 2024 and 2023.

Amortization that will be charged to expense over the remaining life of the intangible assets subsequent to March 31, 2024 is as follows (in thousands):

The remainder of 2024$2,070
20252,625
20262,477
20272,353
20282,353
2029 and thereafter5,985
$17,863

8. Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

March 31, 2024December 31, 2023
Marketing$10,711 $12,331 
Payroll5,627 7,888 
Professional services4,887 5,341 
Tax3,288 2,009 
Other accruals2,201 1,403 
Total accrued liabilities $26,714 $28,972 

9. Operating Leases

The Company has various operating leases for fulfillment and corporate facilities with lease periods expiring between fiscal years 2025 and 2027, not including renewal options the Company is reasonably certain to exercise. The operating lease agreements provide for rental payments on a graduated basis and for options to renew, which could increase future minimum lease payments if exercised. The Company utilizes the reasonably certain threshold criteria in determining which options it will exercise. In the first quarter of 2024, a reassessment was triggered due to signing a lease for a new facility which is in close proximity to and also acts as an operational expansion of an existing facility, as well as investment in leasehold improvements in the existing facility. This resulted in the remeasurement of the lease liability and an adjustment of $0.9 million to the carrying amount of the corresponding right-of-use (“ROU”) asset for the existing facility. In the fourth quarter of 2023, a reassessment of another of the Company’s leased facilities was triggered due to significant leasehold improvements. This resulted in the remeasurement of the lease liability and an adjustment of $5.7 million to the carrying amount of the corresponding ROU asset.

For each of the three months ended March 31, 2024 and 2023, the Company recorded operating lease costs of $0.6 million, including variable operating lease costs of $0.1 million in each period.

For each of the three months ended March 31, 2024 and 2023, operating cash flows used for operating leases were $0.5 million. As of March 31, 2024, the weighted average remaining lease term and weighted average discount rate, including for renewal options the Company is reasonably certain to exercise, was 6.3 years and 8.9%, respectively.

10

Future minimum lease payments, including for renewal options the Company is reasonably certain to exercise, under the Company's non-cancelable operating leases with an initial lease term in excess of one year subsequent to March 31, 2024 are as follows (in thousands):

The remainder of 2024$1,876 
20252,662 
20262,685 
20272,245 
20282,015 
2029 and thereafter4,049 
Gross lease payments15,532 
Less: imputed interest(3,709)
Present value of net future minimum lease payments$11,823 

10. Variable Interest Entities

The variable interest entities (“VIEs”) are: (i) the Affiliated Medical Groups; and (ii) the Affiliated Pharmacies. The Company determined that it is the primary beneficiary of these entities for accounting purposes because it has the ability to direct the activities that most significantly affect the entities’ economic performance and has the obligation to absorb the losses. Under the VIE model, the Company presents the results of operations, cash flows, and the financial position of the VIEs as part of the consolidated financial statements of the Company as if the consolidated group were a single economic entity. The assets of the VIEs can only be used to settle the obligations of the VIEs. There is no noncontrolling interest upon consolidation of the entities. The results of operations and cash flows of the VIEs are also included in the Company’s condensed consolidated financial statements.

As of March 31, 2024 and December 31, 2023, the Company’s condensed consolidated balance sheets included current and total assets of $29.3 million and $24.1 million, respectively, for the VIEs. As of March 31, 2024 and December 31, 2023, current and total liabilities were $7.7 million and $6.0 million, respectively. All amounts are after elimination of intercompany transactions, balances, and non-cash impact of operating leases.

For the three months ended March 31, 2024 and 2023, the VIEs charged $33.1 million and $22.5 million, respectively, for services rendered. For the three months ended March 31, 2024 and 2023, operations of the VIEs generated a net loss of $0.8 million and net income of $2.7 million, respectively, inclusive of administrative expenses.

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11. Fair Value Measurements

The Company’s fair value hierarchy for its financial assets that are measured at fair value on a recurring basis as of March 31, 2024, is as follows (in thousands):
 
Level 1Level 2Level 3Total
Assets
Cash and cash equivalents:
Money market funds$40,502 $ $ $40,502 
Short-term investments:
U.S. Treasury bills70,355   70,355 
Corporate bonds 24,498  24,498 
Government and government agency 2,788  2,788 
Asset-backed bonds 714  714 
Restricted cash:
Money market funds856   856 
Total assets$111,713 $28,000 $ $139,713 

The Company’s fair value hierarchy for its financial assets that are measured at fair value on a recurring basis as of December 31, 2023, is as follows (in thousands):
 
Level 1Level 2Level 3Total
Assets
Cash and cash equivalents:
Money market funds$42,492 $ $ $42,492 
Short-term investments:
U.S. Treasury bills63,833   63,833 
Corporate bonds 39,169  39,169 
Government and government agency 20,610  20,610 
Asset-backed bonds 706  706 
Restricted cash:
Money market funds856   856 
Total assets$107,181 $60,485 $ $167,666 

The fair values of cash, accounts receivable, accounts payable, and accrued liabilities approximated their carrying values as of March 31, 2024 and December 31, 2023, due to their short-term nature. All other financial instruments are valued either based on recent trades of securities in active markets or based on quoted market prices of similar instruments and other significant inputs derived from or corroborated by observable market data. During the three months ended March 31, 2024 and 2023, the Company had no transfers between levels of the fair value hierarchy of its assets or liabilities measured at fair value.

12. Commitments and Contingencies

Purchase Obligations

The Company has non-cancelable contractual obligations to make future purchases, primarily related to cloud-based software contracts used in operations. As of March 31, 2024, purchase obligations were $5.8 million, with $3.3 million payable in 2024, $2.4 million payable in 2025, and $0.1 million payable in 2026.

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Lease Commitments

Refer to Note 9 Operating Leases for discussion of the Company’s future lease commitments.

Legal Proceedings
From time to time, the Company is a party to litigation, various claims, and other legal and administrative proceedings arising in the ordinary course of business. Some of these claims, lawsuits, and other proceedings may involve highly complex issues that are subject to substantial uncertainties, and could result in damages, fines, penalties, non-monetary sanctions, or relief. Management is not currently aware of any matters that are reasonably likely to have a material adverse impact on the Company’s business, financial position, results of operations, or cash flows.

13. Stockholders’ Equity

Common Stock

The Company has two classes of common stock, Class A and Class V common stock. The rights are identical, including liquidation and dividend rights, except Class V common stock has additional voting rights.

Share Repurchase Program

On October 26, 2023, the Board of Directors authorized and approved a share repurchase program pursuant to which the Company may repurchase up to $50.0 million of the Company’s Class A common stock. The program expires on November 8, 2025. The Company intends to use the program to repurchase shares on a discretionary basis from time to time, subject to general business and market conditions and other investment opportunities, through open market purchases, privately negotiated transactions or other means. This repurchase program may be suspended or discontinued at any time.

During the three months ended March 31, 2024, the Company repurchased and retired 2,023,080 shares of Class A common stock under the program for $28.1 million. As of March 31, 2024, $19.9 million remains available under the program.

RSU Releases

During the three months ended March 31, 2024, the Company released 1,424,493 gross shares of Class A common stock upon vesting of restricted stock units (“RSUs”). In connection with the releases, 499,250 shares of Class A common stock were withheld for the payment of employee taxes. During the three months ended March 31, 2023, the Company released 1,156,901 gross shares of Class A common stock upon vesting of RSUs. In connection with the releases, 405,415 shares of Class A common stock were withheld for the payment of employee taxes.

2017 Stock Plan and 2020 Equity Incentive Plan

In July 2017, Hims, Inc. (“Hims”) adopted the 2017 Stock Plan (the “2017 Plan”). Under the 2017 Plan, the board of directors of Hims granted awards, including incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock awards, RSU awards, and other stock awards to employees, directors, and consultants of Hims.

In January 2021, the Board of Directors adopted the 2020 Equity Incentive Plan (the “2020 Plan”) and reserved 21,000,000 authorized shares of Class A common stock the Company could issue. In addition, up to 19,000,000 shares of Hims Class A common stock subject to awards granted under the 2017 Plan that were forfeited, expired, or lapsed unexercised or unsettled could be added to the 2020 Plan reserve. Beginning on January 1, 2022 and ending on January 1, 2031, the number of authorized shares of common stock under the 2020 Plan will automatically increase each fiscal year by 5% of the total number of Class A and Class V common stock issued and outstanding on the last day of the preceding fiscal year unless the Board of Directors approves a lesser number. As of the effective date of the 2020 Plan, no further stock awards have been or will be granted under the 2017 Plan. As of December 31, 2023, there were 43,612,952 and 12,577,863 shares of Class A common stock reserved and available for issuance, respectively, under the 2020 Plan. For the three months ended March 31, 2024, 3,696 shares of Class A common stock subject to awards granted under the 2017 Plan that were forfeited after the adoption of the 2020 Plan were added to the 2020 Plan reserve. Additionally, on January 1, 2024, 10,674,087 shares of Class A common stock were automatically added to the 2020 Plan reserve. Therefore, as of March 31, 2024, there were 54,290,735 shares of Class A
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common stock reserved and 13,978,564 shares of Class A common stock available for grant under the 2020 Stock Plan. There were no more shares available for grant under the 2017 Plan since the 2017 Plan was replaced by the 2020 Plan.

2020 Employee Stock Purchase Plan

In January 2021, the Board of Directors adopted the Company’s Employee Stock Purchase Plan (“ESPP”). The total shares of Class A common stock initially reserved under the ESPP is limited to 4,000,000 shares of Class A common stock. Beginning on January 1, 2022 and ending on January 1, 2041 (unless extended by the Board of Directors and approved by the Company’s shareholders), the number of authorized shares of common stock under the ESPP will automatically increase each fiscal year by the lesser of (i) 1% of the total number of Class A and Class V common stock issued and outstanding on the last day of the preceding fiscal year, (ii) 12,000,000 shares of Class A common stock, or (iii) a number of shares of Class A common stock determined by the Board of Directors. As of December 31, 2023, there were 6,047,919 and 5,059,506 shares of Class A common stock reserved and available for issuance, respectively, under the ESPP. There were no shares added to the ESPP reserve on January 1, 2024. Therefore, as of March 31, 2024, there were 6,047,919 shares of Class A common stock reserved for issuance under the ESPP. No shares were issued under the ESPP during the three months ended March 31, 2024 and 2023. As of March 31, 2024, there were 5,059,506 shares of Class A common stock available for issuance under the ESPP.

Under the ESPP, eligible employees may purchase the Company’s Class A common stock during pre-specified offering periods at a discount established by the Company’s compensation committee. The purchase price is 85% of the lower of the fair market value of the Company’s Class A common stock on the first trading day of the offering period or the fair market value on the purchase date. Under the ESPP, the Company may specify offering periods with durations of not more than 27 months, and may specify shorter purchase periods within each offering period.

Employees participating in the ESPP commence payroll withholdings that accumulate through the end of the respective offering period. As of March 31, 2024, $1.4 million has been withheld via employee payroll deductions for employees who have opted to participate in the purchase periods ending May 2024.

As of March 31, 2024, there was $1.5 million of unrecognized stock-based compensation related to the ESPP which is expected to be recognized over a weighted average period of 1.29 years.

Stock Options

The Company has historically granted stock options prior to 2024, which for new employees generally vest over four years, with 25% vesting one year after the vesting commencement date and then 1/48th of the total grant vesting monthly thereafter. Options granted to existing employees generally vest 1/48th of the total grant monthly over four years. Options granted are exercisable within a period not exceeding ten years from the grant date.

On June 17, 2020, the board of directors of Hims granted 3,246,139 and 1,623,070 stock options to the Chief Executive Officer (“CEO”) with an exercise price of $2.43 to vest upon either (i) an acquisition of the Company with per share consideration equal to at least $22.99 and $38.31, respectively, or (ii) a per share price on a public stock exchange that is at least equal to $22.99 and $38.31, respectively. The CEO is required to be employed at the time the per share consideration/price is achieved in order to receive the awards, but the awards are not subject to any other service condition. The Company recognizes expense related to these awards based on the fair value and derived service period as measured using a Monte Carlo simulation model, and the expense is accelerated if the requirements outlined in (i) and (ii) above are achieved. The grant date fair value was $16.6 million for these awards. The $22.99 per share price threshold related to awards for the 3,246,139 stock options was achieved in February 2021. As of March 31, 2024, 1,531,019 of these stock options have been exercised at a weighted average exercise price of $2.43. As of March 31, 2024, there was $0.1 million of remaining compensation expense to be recognized for the remaining 1,623,070 stock options over a period of 0.04 years.

On February 24, 2022, the Board of Directors granted 2,085,640 stock options to the CEO with an exercise price of $5.01 that vest in four equal tranches. On each anniversary date after February 24, 2022, 25% of the shares subject to the options will vest provided that (i) the CEO is employed on the anniversary date and (ii) the closing price of the Company’s Class A common stock is more than $10 per share in 20 of the 30 trading days prior to the anniversary date. The award is not subject to any other service condition. Vesting is cumulative in subsequent years if the market condition was not previously met. The Company recognizes expense related to this award for each tranche individually based on the fair value and requisite service period, which is the greater of the derived service period and the explicit service period. The fair value and the derived service term of
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the market condition were both measured using a Monte Carlo simulation model. The total grant date fair value was $3.8 million for this award. As of March 31, 2024, no shares have vested and there was $0.9 million of remaining compensation expense to be recognized over a period of 1.90 years.

Option activity (excluding the stock options granted to the CEO outlined above) is as follows (in thousands, except for weighted average exercise price and weighted average contractual term in years):
 
SharesWeighted
Average
Exercise
Price
Weighted
Average
Contractual
Period
(in Years)
Aggregate
Intrinsic
Value
Outstanding at December 31, 202313,784 $5.14 7.14$57,972 
Exercised(810)2.62 
Forfeited and expired(10)8.78 
Outstanding at March 31, 202412,964 5.29 7.00131,963 
Exercisable as of March 31, 20249,354 4.82 6.6299,583 

The intrinsic value of vested options exercised was $7.4 million.

As of March 31, 2024, there was $12.9 million of unrecognized stock-based compensation expense related to unvested stock options (excluding the stock options granted to the CEO outlined above) which is expected to be recognized over a weighted average period of 1.87 years.

The options outstanding and exercisable as of March 31, 2024 (excluding the stock options granted to the CEO outlined above) have been aggregated into ranges for additional disclosure as follows (in thousands, except weighted average remaining contractual life and exercise price):
 
 Options OutstandingOptions Exercisable
Exercise PriceSharesWeighted Average Remaining Contractual Life 
(in Years)
SharesWeighted Average Remaining Contractual Life 
(in Years)
$ 0.060.40
967 3.97967 3.97
1.551.75
720 5.20720 5.20
2.433.11
2,635 6.182,635 6.18
5.016.82
5,841 7.932,988 7.93
8.1311.53
2,008 7.451,447 7.00
12.2115.17
793 7.07597 7.07
12,964 9,354 

RSUs

RSUs for new employees generally vest over four years, with 25% vesting one year after the vesting commencement date on the first Company Quarterly Vesting Date (defined below) and the remaining grant vesting quarterly thereafter on the specified vesting dates of March 15, June 15, September 15, and December 15 (each, a “Company Quarterly Vesting Date” or collectively, “Company Quarterly Vesting Dates”). Additional RSUs granted to current employees generally vest quarterly on Company Quarterly Vesting Dates over four years.

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RSU activity (excluding the performance RSUs outlined below) is as follows (in thousands, except for weighted average grant date fair value):

SharesWeighted Average Grant Date Fair Value
Unvested at December 31, 202314,483 $8.08 
Granted7,726 13.79 
Vested(1,424)8.68 
Forfeited and expired(380)8.88 
Unvested at March 31, 202420,405 $10.19 

Included in the above activity are 476,308 earn-out RSUs and 9,478 Parent Warrant RSUs issued to the CEO in January 2021 that vest in accordance with the same market conditions as the CEO stock options, of which 317,539 earn-out RSUs and 6,319 Parent Warrant RSUs have vested as of March 31, 2024.

As of March 31, 2024, there was $194.7 million of unrecognized stock-based compensation expense related to unvested RSUs (excluding the performance RSUs outlined below) which is expected to be recognized over a weighted average period of 3.36 years.

Performance RSUs

On March 1, 2023, the Board of Directors granted awards of 1,115,709 target shares of performance RSUs (“PRSUs”) to certain executive officers. As of March 31, 2024, 11,408 shares subject to PRSUs have been forfeited. The PRSUs vest at the end of a three-year period, with the number of shares earned ranging from 0% to 200% of the target, provided that (i) the recipient remains employed at the end of the period and (ii) the Company achieves certain performance metrics related to the 2025 fiscal year. The total grant date fair value of the awards was $12.9 million, which is based on the probable achievement of 100% of the target.

On February 28, 2024, the Board of Directors granted awards of 1,218,467 target shares of PRSUs to certain executive officers and senior leadership. The PRSUs vest at the end of a three-year period, with the number of shares earned ranging from 0% to 200% of the target, provided that (i) the recipient remains employed at the end of the period and (ii) the Company achieves certain performance metrics related to the 2026 fiscal year. The total grant date fair value of the awards was $16.2 million, which is based on the probable achievement of 100% of the target.

As of March 31, 2024, there was unrecognized stock-based compensation expense related to unvested PRSUs of $26.0 million, which is expected to be recognized over a weighted average period of 2.57 years. The Company will continue to evaluate the likelihood of achieving the performance metrics on a quarterly basis.

Warrants

As of March 31, 2024, there were 462,335 Class A common stock warrants outstanding and exercisable issued to nonemployees in connection with vendor service arrangements, with a weighted average exercise price of $1.75, a weighted average contractual term of 7.01 years, and an aggregate intrinsic value of $6.3 million. Upon the exercise of outstanding warrants, vendors also have the right to receive 45,225 additional shares of Class A common stock. As of March 31, 2024, all stock-based compensation expense related to vendor warrants and associated earn-out shares has been recognized.

As of March 31, 2024, there were 98,723 Class A common stock warrants outstanding and exercisable issued in connection with a historical debt arrangement, with a weighted average exercise price of $6.96, a weighted average contractual term of 6.71 years, and an aggregate intrinsic value of $0.8 million. Upon the exercise of outstanding warrants, the holders also have the right to receive 9,657 additional shares of Class A common stock. These debt warrants were settled in additional paid-in capital as a result of their conversion to equity-classified Class A common stock warrants.

Stock Subject to Vesting and Earn-out Share Liability

In June 2021, the Company granted 447,553 restricted shares of Class A common stock subject to vesting with an aggregate grant date fair value of $5.5 million in connection with the acquisition of HHL. As part of the acquisition of HHL, the Company
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also recognized an earn-out liability based on the achievement of certain revenue targets. A portion of the earn-out liability will be settled in shares of Class A common stock. Vesting of the restricted shares and a portion of total earn-out payable to specific individuals are contingent on each recipient’s continued employment. Accordingly, the Company has recognized stock-based compensation expense related to these awards for the three months ended March 31, 2024 and 2023. The expense is being recognized over a four-year vesting period with 25% vesting one year after the acquisition date and the remaining vesting quarterly thereafter. As of March 31, 2024, there was unrecognized stock-based compensation expense of $1.6 million, which will be recognized over a weighted average period of 1.19 years.

In July 2021, the Company granted 2,332,557 restricted shares of Class A common stock subject to vesting with an aggregate grant date fair value of $24.2 million in connection with the acquisition of YoDerm, Inc. (“Apostrophe”). Vesting of the restricted shares is contingent on each recipient’s continued employment. Accordingly, the Company has recognized stock-based compensation expense related to these awards for the three months ended March 31, 2024 and 2023. The expense is being recognized over a three-year vesting period with 17% vesting 6 months after the acquisition date and the remaining vesting quarterly thereafter. As of March 31, 2024, there was unrecognized stock-based compensation expense of $1.9 million, which will be recognized over a weighted average period of 0.25 years.

Stock-Based Compensation Expense

The following table summarizes stock-based compensation expense for employees and nonemployees, by category, on the unaudited condensed consolidated statements of operations and comprehensive income (loss) for the three months ended March 31, 2024 and 2023 (in thousands):

Three Months Ended March 31,
20242023
Marketing$1,904 $996 
Operations and support2,155 1,154 
Technology and development2,205 1,461 
General and administrative12,768 10,556 
Total stock-based compensation expense$19,032 $14,167 

The Company capitalized $0.6 million and $0.3 million of stock-based compensation as internal-use software for the three months ended March 31, 2024 and 2023, respectively.

14. Related-Party Transactions

For the three months ended March 31, 2024 and 2023, the Company recorded $1.2 million and $1.0 million, respectively, within operating expenses on the unaudited condensed consolidated statements of operations and comprehensive income (loss) for payments made to Vouched, a related-party company that provides identity verification services.

In addition, for the three months ended March 31, 2023, the Company recorded $1.0 million within operating expenses on the unaudited condensed consolidated statements of operations and comprehensive income (loss) for payments made to Terminal, Inc., a former related-party company that provides professional services to the Company, primarily to support engineering and operations functions. As of January 1, 2024, Terminal, Inc. was no longer considered a related party.

15. Basic and Diluted Net Income (Loss) per Share

The Company uses the two-class method to calculate net income (loss) per share. No dividends were declared or paid for the three months ended March 31, 2024 and 2023. Undistributed earnings for each period are allocated equally to participating securities based on the contractual participation rights of the security to share in the current earnings as if all current period earnings had been distributed. The Company’s basic net income (loss) per share is computed by dividing the net income (loss) attributable to common stockholders by the weighted average shares of common stock outstanding during the period. The Company’s diluted net income (loss) per share is computed by dividing the net income (loss) attributable to common stockholders by the weighted average shares of common stock outstanding and, when dilutive, potential common shares
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outstanding during the period. The dilutive effect of potential common shares is reflected in diluted net income (loss) per share by application of the treasury stock method.
 
The following table sets forth the computation of the Company’s basic and diluted net income (loss) per share attributable to common stockholders for the three months ended March 31 (in thousands, except share and per share amounts):
 
Three Months Ended March 31,
 20242023
 Class AClass VClass AClass V
Numerator:
Net income (loss) attributable to common stockholders$10,691 $437 $(9,660)$(407)
Denominator:
Weighted average shares outstanding, basic205,074,469 8,377,623 198,762,675 8,377,623 
Effect of dilutive potential common shares15,912,493    
Weighted average shares outstanding, diluted220,986,962 8,377,623 198,762,675 8,377,623 
Basic net income (loss) per share$0.05 $0.05 $(0.05)$(0.05)
Diluted net income (loss) per share$0.05 $0.05 $(0.05)$(0.05)

Basic net loss per share is the same as diluted net loss per share attributable to common stockholders for the three months ended March 31, 2023, because the inclusion of potential shares of common stock would have been anti-dilutive for the periods presented.

The following table discloses weighted-average securities that were not included in the computation of diluted net loss per share as their inclusion would have been anti-dilutive:

Three Months Ended March 31,
20242023
RSUs5,264,985 13,334,746 
Stock options1,456,985 21,549,957 
Common stock issued subject to vesting 1,441,632 
Common stock issuable under the ESPP 874,287 
Warrants to purchase Class A common stock 561,058 
PRSUs 384,300 

16. Income Tax

The effective income tax rate was 10.3% and (4.0)%, respectively, for the three months ended March 31, 2024 and 2023. The effective tax rate differs from the U.S. federal rate primarily due to the impacts of the valuation allowance placed on the Company’s deferred tax assets and current federal and state taxes. The Company intends to continue maintaining a full valuation allowance on all deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances. However, the Company believes that, in the foreseeable future, sufficient positive evidence may become available to reach a conclusion that a significant portion of the valuation allowance will no longer be needed. A release of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense for the period the release is recorded. The exact timing and amount of the valuation allowance release are subject to change on the basis of the level of profitability that the Company is actually able to achieve.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)

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 ended December 31, 2023 (our “2023 Annual Report”), including “Management’s Discussion and Analysis of Financial Condition
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and Results of Operations” included in Item 7 of Part II of our 2023 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 could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. You should not rely on forward-looking statements as predictions of future events. 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.

Unless otherwise indicated or the context otherwise requires, references in this discussion and analysis to “we,” “us,” “our,” the “Company,” and “Hims & Hers” refer to Hims & 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 help the world feel great through the power of better health. We believe that we have the technical platform, distributed provider network, and access to clinical capabilities to lead the migration of routine office visits to a digital format. The Hims & Hers platform includes access to a highly-qualified and technologically-capable provider network, a clinically-focused electronic medical records system, digital prescriptions, and cloud-enabled pharmacy fulfillment. Our digital platform enables access to treatments for a broad range of conditions, including five core specialties: sexual health, men’s and women’s dermatology, mental health, and weight loss. Hims & Hers connects patients to licensed healthcare professionals who 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.

In addition, we offer access to a range of health and wellness products designed to meet individual needs, which can include curated prescription and non-prescription products. Our products and services are available for purchase directly by customers on our websites and mobile applications. Additionally, Hims & Hers non-prescription products can be found in tens of thousands of top retail locations in the 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. We also monitor the additional key business metrics set forth below to help us evaluate our business, identify trends affecting our business, formulate business plans and make strategic decisions. Increases or decreases in these key business metrics may not correspond with increases or decreases in our revenue.

The limitations our key business metrics have as an analytical tool include: (i) they might not accurately predict our future financial results pursuant to accounting principles generally accepted in the United States of America (“U.S. GAAP”); and (ii) other companies, including companies in our industry, may calculate our key business metrics or similarly titled measures differently, which reduces their usefulness as comparative measures.

Brief descriptions of our key business metrics are provided below.

“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 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.
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“Wholesale Revenue” represents non-prescription product sales to retailers through wholesale purchasing agreements. Wholesale Revenue also includes non-prescription product sales to third-party platforms through consignment arrangements. In addition to being revenue generative and profitable, wholesale partnerships and consignment arrangements have the added benefit of generating brand awareness with new customers in physical environments and on third-party platforms.

“Subscribers” are customers who have one or more “Subscriptions” pursuant to which they have agreed to be automatically billed on a recurring basis at a defined cadence. The Subscription billing cadence is typically defined as a number of days (for example, billed every 30 days or every 90 days), which are excluded from our reporting when payment has not occurred at the contracted billing cadence. Subscribers can cancel Subscriptions in between billing periods to stop receiving additional products and/or services and can reactivate Subscriptions to continue receiving additional products and/or services.

“Monthly Online Revenue per Average Subscriber” is defined as Online Revenue divided by “Average Subscribers”, which amount is then further divided by the number of months in a period. “Average Subscribers” are calculated as the sum of the Subscribers at the beginning and end of a given period divided by 2.

“Net Orders” are defined as the number of online customer orders minus transactions related to refunds, credits, chargebacks, and other negative adjustments. Net Orders represent transactions made on our platform during a defined period of time and exclude revenue recognition adjustments recorded pursuant to U.S. GAAP.

Average Order Value (“AOV”) is defined as Online Revenue divided by Net Orders.

The table below provides a breakdown of total revenue between Online Revenue and Wholesale Revenue, for the three months ended March 31, 2024 and 2023, as well as key metrics that drive Online Revenue (i.e., Subscribers, Monthly Online Revenue per Average Subscriber, Net Orders, and AOV) and the dollar and percentage change between such periods (in thousands, except for Monthly Online Revenue per Average Subscriber and AOV):
 
 Three Months Ended March 31,
 20242023Change% Change
Online Revenue$267,761 $184,175 $83,586 45 %
Wholesale Revenue10,410 6,595 3,815 58 %
Total revenue$278,171 $190,770 $87,401 46 %
Subscribers (end of period)1,709 1,209 50041 %
Monthly Online Revenue per Average Subscriber$55 $55 $— — %
Net Orders2,461 2,047 414 20 %
AOV$109 $90 $19 21 %

We generated $267.8 million in Online Revenue for the three months ended March 31, 2024, an increase of $83.6 million, or 45%, as compared to $184.2 million for the three months ended March 31, 2023. Growth in Online Revenue for the three months ended March 31, 2024 was primarily driven by growth in Subscribers, from whom we generated recurring and stable Monthly Online Revenue per Average Subscriber, as well as newer offerings, both of which led to growth in AOV and Net Orders.

We generated $10.4 million in Wholesale Revenue for the three months ended March 31, 2024, an increase of $3.8 million, or 58% as compared to $6.6 million for the three months ended March 31, 2023. Wholesale Revenue can fluctuate on a period-to-period basis due to various factors, including delayed inventory purchases from our partners, seasonality trends, launches of new merchants and timing of specialized campaigns.

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Subscribers grew 41% to approximately 1.7 million as of March 31, 2024 as compared to approximately 1.2 million Subscribers as of March 31, 2023. Growth in Subscribers was driven by increased traffic to our platform (through our websites and mobile applications) as a result of our marketing activities, newer offerings, and improved onsite and customer onboarding experiences. Monthly Online Revenue per Average Subscriber remained constant at $55 for each of the three months ended March 31, 2024 and 2023. Monthly Online Revenue per Average Subscriber has remained relatively stable as a result of generally recurring and predictable uptake of our offerings by Subscribers, but can fluctuate on a period-to-period basis due to various factors, including price changes, product mix, and duration of Subscriptions.

As a result of growth in Subscribers, we generated approximately 2.5 million Net Orders for the three months ended March 31, 2024, an increase of 20% as compared to approximately 2.0 million Net Orders for the three months ended March 31, 2023. For the three months ended March 31, 2024, AOV was $109, an increase of 21% as compared to $90 for the three months ended March 31, 2023. AOV growth for the three months ended March 31, 2024 was driven by newer product offerings as well as product mixes shifting towards longer duration Subscriptions.

We continuously test and optimize the online experience and offerings to improve the customer experience, maximize sales, and improve gross margin. Our Subscribers (sometimes also referred to by us as “members”) select a cadence at which they wish to receive product shipments. In addition to a 30-day cadence, we offer Subscribers the ability to select from a range of Subscription shipment cadences, from every 60 days to 360 days, depending on the product. Subscriptions automatically renew on the applicable cadence selected by the Subscriber when purchasing or updating the Subscription. To ensure timely delivery of prescription medications and in accordance with our terms and conditions, Subscribers may sometimes be charged, and products may sometimes be shipped, earlier than their regularly scheduled cadence to accommodate holidays or for other operational reasons to support continuity of treatment. The Subscriber is typically billed upon each shipment. Subscribers 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 Subscribers have contributed to the generally stable and predictable nature of our Monthly Online Revenue per Average Subscriber. 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 longer term Subscriptions, we incur shipping and fulfillment expenses fewer times per year than for 30-day Subscriptions. The Subscriber uptake of longer term Subscriptions results in lower recurring costs and higher gross margins as compared to 30-day Subscriptions.

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, including changes to privacy, healthcare, or other laws that could impact customer acquisition costs.

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 Subscribers 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 Subscriber behavior stays relatively consistent in the future. In addition, the consistent uptake by Subscribers of our offerings has contributed to the stable and predictable nature of our Monthly Online Revenue per Average Subscriber. We expect to retain a significant majority of revenue from Subscribers who maintain 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-
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term revenue retention are incorrect and Subscriber retention decreases in the future, then future revenue will be negatively impacted. Macroeconomic factors including inflation or recessionary pressures may affect the ability of our Subscribers to continue to pay for our products and services, which may 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 (as defined below) 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. For example, we are making investments in the expansion of our current facilities, which are expected to continue for at least the next 12 months. Additionally, we expect to continue 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 health and wellness products and services offered on our websites and mobile applications. This includes investments in personalized product offerings, including in our compounding capabilities. This also includes further investments in and development of mobile phone technology, including our mobile applications, in order to improve the customer experience on our platform. 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 specialties

We expect to continue to expand into new health and wellness specialties with our offerings. Specialty expansion allows us to increase the number of health and wellness consumers for whom we can provide products and services. It also allows us to offer access to treatment of additional conditions that may already affect our current customers. Expanding into new health and wellness specialties has required and will continue to 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 health and wellness specialties, we may not recover the financial investments we make into new specialties and revenue may not increase in the future.

Non-GAAP Financial Measures

In addition to our financial results determined in accordance with U.S. GAAP, we present Adjusted EBITDA (which is a non-GAAP financial measure), Adjusted EBITDA margin (which is a non-GAAP ratio), and Free Cash Flow (which is a non-GAAP financial measure) each as defined below. We use Adjusted EBITDA, Adjusted EBITDA margin, and Free Cash Flow to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that Adjusted EBITDA, Adjusted EBITDA margin, and Free Cash Flow, when taken together with the corresponding U.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, Adjusted EBITDA margin, and Free Cash Flow 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, Adjusted EBITDA margin, and Free Cash Flow is helpful to our investors as they are used by management in assessing the health of our business, our operating performance, and our liquidity.

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 with U.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, Adjusted EBITDA margin, and Free Cash Flow as tools for comparison. Reconciliations are provided below to the most directly comparable financial measures stated in accordance with U.S. GAAP. Investors are encouraged to review our U.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 income (loss) before stock-based
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compensation, depreciation and amortization, income taxes, acquisition and transaction-related costs (which includes (i) consideration paid for employee compensation with vesting requirements incurred directly as a result of acquisitions, inclusive of revaluation of earn-out consideration recorded in general and administrative expenses, and (ii) transaction professional services), impairment of long-lived assets, change in fair value of liabilities, and interest income. “Adjusted EBITDA margin” is defined as Adjusted EBITDA divided by revenue.

The following table reconciles net income (loss) to Adjusted EBITDA for the three months ended March 31, 2024 and 2023 (in thousands): 

 Three Months Ended March 31,
 20242023
Revenue$278,171 $190,770 
Net income (loss)11,128 (10,067)
Stock-based compensation19,032 14,167 
Depreciation and amortization3,001 2,117 
Provision for income taxes1,275 386 
Acquisition and transaction-related costs376 646 
Impairment of long-lived assets75 429 
Change in fair value of liabilities— 295 
Interest income (2,540)(1,913)
Adjusted EBITDA$32,347 $6,060 
Net income (loss) as a % of revenue%(5)%
Adjusted EBITDA margin12 %%

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 the U.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 other U.S. GAAP results.

Free Cash Flow is a key performance measure that our management uses to assess our liquidity. Because Free Cash Flow facilitates internal comparisons of our historical liquidity on a more consistent basis, we use this measure for business planning purposes. “Free Cash Flow” is defined as net cash provided by operating activities, less purchases of property, equipment, and intangible assets and investment in website development and internal-use software in investing activities.

The following table reconciles net cash provided by operating activities to Free Cash Flow for the three months ended March 31, 2024 and 2023 (in thousands):

Three Months Ended March 31,
20242023
Net cash provided by operating activities$25,838 $9,483 
Less: purchases of property, equipment, and intangible assets in investing activities(10,581)(635)
Less: investment in website development and internal-use software in investing activities(3,377)(1,875)
Free Cash Flow$11,880 $6,973 

Some of the limitations of Free Cash Flow include (i) Free Cash Flow does not represent our residual cash flow for discretionary expenditures and our non-discretionary commitments, and (ii) Free Cash Flow includes capital expenditures, the benefits of which may be realized in periods subsequent to those in which the expenditures took place. In evaluating Free Cash
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Flow, you should be aware that in the future we will have cash outflows similar to the adjustments in this presentation. Our presentation of Free Cash Flow should not be construed as an inference that our future results will be unaffected by these cash outflows or any unusual or non-recurring items. When evaluating our performance, you should consider Free Cash Flow in addition to, and not as a substitute for, other financial performance measures, including our net cash provided by operating activities and other U.S. GAAP results.

Basis of Presentation

Currently, we conduct business through one operating segment. Substantially all our long-lived assets are maintained in, and a significant majority of our losses are attributable to, the United States of America. 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) “Affiliated Medical Groups,” which are professional corporations or other professional entities owned by licensed physicians and that engage licensed healthcare professionals (physicians, physician assistants, nurse practitioners, and mental health providers; collectively referred to as “Providers” or individually, a “Provider”) to provide consultation services; and (ii) XeCare, LLC (“XeCare”) and Apostrophe Pharmacy LLC (“Apostrophe Pharmacy”, and together with XeCare, the “Affiliated Pharmacies”), which are licensed mail order pharmacies providing prescription fulfillment solely to our customers. 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 and post-consultation service support provided by Affiliated Medical Groups. Additionally, revenue is generated through wholesale arrangements.

Cost of revenue

Cost of revenue consists of costs directly attributable to the products shipped and services rendered, including product costs of purchased and manufactured products, packaging materials, shipping costs, labor costs directly related to revenue generating activities, and overhead costs associated with manufactured products. Costs related to free products where there is no expectation of future purchases from a customer and depreciation and amortization on property, equipment, and software (other than related to manufactured products) are considered to be operating expenses 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, volume of fulfillment through affiliated and internal fulfillment capabilities, 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
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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. 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.

Operations and support expenses

Operations and support expenses include the salaries, benefits, taxes, professional services expenses, and stock-based compensation for personnel, consultants, and contractors for our supply chain, retail, medical group, pharmacy, fulfillment, and customer service functions. These expenses also include operating expenses primarily relating to operating and support functions for facilities, warehousing and fulfillment, payment processing, third-party software and hosting to support those functions, and related depreciation. We expect operations and support expenses to increase for the foreseeable future as we continue to invest in our fulfillment and operating capabilities and grow our business. However, we anticipate operations and support expenses 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.

Technology and development expenses

Technology and development expenses include the salaries, benefits, taxes, professional services expenses, and stock-based compensation for personnel, consultants, and contractors for our engineering, product management, product development, and data science functions. These expenses also include operating expenses primarily relating to technology and development functions for the operation, maintenance and enhancement of our digital platform, websites and mobile applications, inclusive of related expenses for third-party software and hosting to support those functions, and related depreciation. Expenses also include investments to develop new health and wellness products and services. We expect technology and development expenses to increase for the foreseeable future as we grow our business and continue to invest in our platform and new offerings. However, we anticipate technology and development expenses 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.

General and administrative expenses

General and administrative expenses (“G&A”) include the salaries, benefits, taxes, professional services expenses, and stock-based compensation for personnel, consultants, and contractors for our executive, legal, human resources, finance, brand strategy, and other corporate functions. These expenses also include operating expenses primarily relating to general and administrative functions for insurance, third-party software and hosting to support those functions, related depreciation and amortization, and other general corporate costs. We expect G&A to increase for the foreseeable future as we increase headcount with the growth of our business. However, we anticipate G&A will decrease as a percentage of revenue over the long term, in part due to our expected execution of disciplined headcount growth, 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 (expense)

Other income (expense) primarily consists of interest income from our cash and cash equivalents and investment accounts, as well as the change in fair value of liabilities. Additionally, other income (expense) includes non-operating and one-time charges classified outside of operating expenses.

Provision for income taxes

Provision for income taxes primarily consists of federal and state taxes, as well as 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.

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Results of Operations

Comparisons for the three months ended March 31, 2024 and 2023

The following table sets forth our unaudited condensed consolidated statement of operations for the three months ended March 31, 2024 and 2023, and the dollar and percentage change between the two periods (dollars in thousands):

 Three Months Ended March 31,
 20242023Change% Change
Revenue$278,171 $190,770 $87,401 46 %
Cost of revenue49,076 37,345 11,731 31 %
Gross profit229,095 153,425 75,670 49 %
Operating expenses:(1)
Marketing130,553 97,245 33,308 34 %
Operations and support38,747 26,182 12,565 48 %
Technology and development15,324 10,748 4,576 43 %
General and administrative34,568 30,513 4,055 13 %
Total operating expenses219,192 164,688 54,504 33 %
Income (loss) from operations9,903 (11,263)21,166 *
Other income (expense):
Change in fair value of liabilities— (295)295 (100)%
Other income, net2,500 1,877 623 33 %
Total other income, net2,500 1,582 918 58 %
Income (loss) before income taxes12,403 (9,681)22,084 *
Provision for income taxes(1,275)(386)(889)230 %
Net income (loss)$11,128 $(10,067)$21,195 *
______________
(*)    Not meaningful
(1)Includes stock-based compensation expense as follows (in thousands):

Three Months Ended March 31,
20242023
Marketing$1,904 $996 
Operations and support2,155 1,154 
Technology and development2,205 1,461 
General and administrative12,768 10,556 
Total stock-based compensation expense$19,032 $14,167 

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The following table sets forth our results of operations as a percentage of our total revenue for the periods presented:
 
 Three Months Ended March 31,
 20242023
Revenue100 %100 %
Cost of revenue18 %20 %
Gross profit82 %80 %
Operating expenses:
Marketing47 %51 %
Operations and support14 %13 %
Technology and development%%
General and administrative12 %16 %
Total operating expenses79 %86 %
Income (loss) from operations%(6)%
Other income (expense):
Change in fair value of liabilities— %— %
Other income, net%%
Total other income, net%%
Income (loss) before income taxes%(5)%
Provision for income taxes— %— %
Net income (loss)%(5)%

Revenue

Revenue was $278.2 million for the three months ended March 31, 2024, compared to $190.8 million for the three months ended March 31, 2023, an increase of $87.4 million, or 46%. For a detailed discussion of this increase, refer to “—Revenue and Key Business Metrics.”

Cost of revenue and gross profit

Cost of revenue was $49.1 million for the three months ended March 31, 2024, compared to $37.3 million for the three months ended March 31, 2023, an increase of $11.7 million, or 31%. This increase was primarily due to increased product and packaging costs of approximately 45%, increased shipping costs of 26%, and increased costs associated with medical consultation services of 14%, compared to the three months ended March 31, 2023. These increases were due to overall increased business activity with the addition of new Subscribers.

Gross profit was $229.1 million for the three months ended March 31, 2024, compared to $153.4 million for the three months ended March 31, 2023, an increase of $75.7 million, or 49%. Correspondingly, gross margin was 82% for the three months ended March 31, 2024, compared to 80% for the three months ended March 31, 2023. The increase in gross margin for the three months ended March 31, 2024 was primarily due to lower costs associated with medical consultation services as a percent of revenue as a result of improving Provider efficiency, synergies gained through increased fulfillment volume, as well as lower shipping costs as a percent of revenue as a result of optimizing costs.

Marketing expenses

Marketing expenses were $130.6 million for the three months ended March 31, 2024, compared to $97.2 million for the three months ended March 31, 2023, an increase of $33.3 million, or 34%. Customer acquisition costs increased to $113.2 million in the three months ended March 31, 2024, compared to $84.0 million for the three months ended March 31, 2023, an increase of $29.2 million. The increase in customer acquisition costs was a result of management’s decision to increase investment in display, search, streaming television, affiliate, and radio and podcast marketing, as we continue to identify opportunities to drive new customer growth.

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Operations and support

Operations and support expenses were $38.7 million for the three months ended March 31, 2024, compared to $26.2 million for the three months ended March 31, 2023, an increase of $12.6 million or 48%. The increase in operations and support was primarily driven by an increase in employee compensation (comprising salaries and wages, benefits, taxes, and performance bonuses, and excluding stock-based compensation) of $7.0 million, an increase in order fulfillment, transaction processing, and selling costs of $1.4 million, and an increase in stock-based compensation of $1.0 million.

Technology and development

Technology and development expenses were $15.3 million for the three months ended March 31, 2024, compared to $10.7 million for the three months ended March 31, 2023, an increase of $4.6 million or 43%. The increase in technology and development expenses were primarily driven by an increase in employee compensation (comprising salaries and wages, benefits, taxes, and performance bonuses, and excluding stock-based compensation) of $2.4 million and an increase in depreciation, amortization, and technology costs of $1.6 million.

General and administrative

General and administrative expenses were $34.6 million for the three months ended March 31, 2024, compared to $30.5 million for the three months ended March 31, 2023, an increase of $4.1 million, or 13%. The increase in general and administrative expenses was primarily driven by an increase in stock-based compensation of $2.2 million, an increase in employee compensation (comprising salaries and wages, benefits, taxes, and performance bonuses, and excluding stock-based compensation) of $0.9 million, and an increase in professional services of $0.7 million.

Other income

Other income was $2.5 million for the three months ended March 31, 2024, compared to $1.6 million for the three months ended March 31, 2023, an increase of $0.9 million. This increase was driven primarily by interest income for the three months ended March 31, 2024 of $2.5 million, compared to $1.9 million for the three months ended March 31, 2023.

Provision for income taxes

Provision for income taxes was $1.3 million for the three months ended March 31, 2024, compared to $0.4 million for the three months ended March 31, 2023. This change was primarily due to an increase in federal and state income taxes, which were primarily due to the impacts of the valuation allowance placed on our deferred tax assets and current federal and state taxes. We intend to continue maintaining a full valuation allowance on all deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances. However, we believe that, in the foreseeable future, sufficient positive evidence may become available to reach a conclusion that a significant portion of the valuation allowance will no longer be needed. A release of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense for the period the release is recorded. The exact timing and amount of the valuation allowance release are subject to change on the basis of the level of profitability that we are actually able to achieve.

Liquidity and Capital Resources

As of March 31, 2024, our principal sources of liquidity are cash and cash equivalents in the amount of $105.2 million, which are primarily invested in interest-bearing cash accounts and money market funds, and investments in the amount of $98.4 million, which are invested in U.S. Treasury bills, corporate bonds, government and government agency securities, and asset-backed bonds.

We have historically incurred significant losses from operations. While we had income from operations for the three months ended March 31, 2024, similar performance in the near future is not certain due to the continued investments we are making in our business. We believe our existing cash resources 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.

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Our future capital requirements will depend on many factors, including the number of orders we receive, the size of our customer base, the continuing market acceptance of telehealth, and the timing and extent of spend to support the expansion of sales, marketing, development activities, and our facilities, which may be impacted by inflationary, recessionary, or other macroeconomic factors. We expect to continue to pursue opportunities to expand our internal fulfillment capabilities and may acquire or invest in complementary businesses, services, and technologies, including intellectual property rights. We may also use our cash and cash equivalents to repurchase up to an additional $19.9 million of our Class A common stock through the fourth quarter of 2025 at management’s discretion pursuant to our share repurchase program. 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 or access 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):

 Three Months Ended March 31,
 20242023
Net cash provided by operating activities$25,838 $9,483 
Net cash provided by (used in) investing activities13,042 (4,113)
Net cash used in financing activities(30,308)(3,412)

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 provided by operating activities was $25.8 million for the three months ended March 31, 2024. Net cash provided by operating activities included non-cash expense related to stock-based compensation of $19.0 million, net income of $11.1 million, and depreciation and amortization of $3.0 million, partially offset by net accretion on securities of $1.1 million. In addition, a net cash outflow totaling $7.3 million was attributable to changes in operating assets and liabilities, primarily as a result of an increase in inventory of $7.4 million, an increase in prepaid expenses and other current assets of $6.7 million, and a decrease in accrued liabilities of $2.3 million. This outflow was partially offset by an increase in deferred revenue of $6.0 million and an increase in accounts payable of $3.6 million.

Net cash provided by operating activities was $9.5 million for the three months ended March 31, 2023. Net cash provided by operating activities included non-cash expense related to stock-based compensation of $14.2 million and depreciation and amortization of $2.1 million, partially offset by a net loss of $10.1 million and net accretion on securities of $1.0 million. In addition, a net cash inflow totaling $2.4 million was attributable to changes in operating assets and liabilities, primarily as a result of an increase in accounts payable and accrued liabilities of $5.6 million and an increase in deferred revenue of $1.4 million. This inflow was partially offset by an increase in prepaid expenses and other current assets of $5.0 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 investment in website development and internal-use software and purchases of property, equipment, and intangible assets.

Net cash provided by investing activities for the three months ended March 31, 2024 was $13.0 million, which was primarily due to net investment cash inflows of $27.0 million. This cash inflow was partially offset by $10.6 million in purchases of property, equipment, and intangible assets and investments of $3.4 million in website development and internal-use software.

Net cash used in investing activities for the three months ended March 31, 2023 was $4.1 million, which was due to investments of $1.9 million in website development and internal-use software, net investment cash outflows of $1.6 million, and $0.6 million in purchases of property, equipment, and intangible assets.
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Cash flows from financing activities

Net cash used in financing activities for the three months ended March 31, 2024 was $30.3 million, which was primarily due to repurchases of our Class A common stock of $28.1 million and payments for taxes related to net share settlement of equity awards of $7.3 million. This cash outflow was partially offset by proceeds from the exercise of stock options of $5.1 million.

Net cash used in financing activities for the three months ended March 31, 2023 was $3.4 million, which was primarily due to payments for taxes related to net share settlement of equity awards of $3.7 million. This cash outflow was partially offset by proceeds from the exercise of stock options of $0.2 million.

Contractual Obligations and Commitments

Our contractual obligations and commitments include earn-out payable related to an acquisition, operating leases, and non-cancelable purchase obligations primarily related to cloud-based software contracts used in operations. Total contractual obligations and commitments as of March 31, 2024 were $28.7 million, of which $13.9 million was payable within 12 months.

Critical Accounting Estimates

The preparation of our condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, judgments, and assumptions that affect the amounts reported in the financial statements and accompanying notes. Management believes that the estimates, judgments, and assumptions upon which it relies are reasonable based upon information available to it at the time that these estimates, judgments, and assumptions 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 2023 Annual Report for the year ended December 31, 2023. Since December 31, 2023, there have been no material changes to our critical accounting estimates.
Item 3. Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

Our exposure to interest rate fluctuations relate primarily to our cash and cash equivalents and short-term investments.

We had cash and cash equivalents and short-term investments totaling $203.6 million and $221.0 million, as of March 31, 2024 and December 31, 2023, respectively, which were held for working capital purposes. Our cash and cash equivalents are comprised of interest-bearing cash accounts and money market funds, and our short-term investments are comprised of U.S. Treasury bills, corporate bonds, government and government agency securities, and asset-backed bonds. Our investments are made for capital preservation purposes. We do not hold or issue financial instruments for trading or speculative purposes. Due to the short-term nature of these investments, we believe there will be no associated material exposure to interest rate risk.

Foreign Currency Risk

There was no significant foreign currency risk for the three months ended March 31, 2024 and 2023 since we operate primarily in the United States. Our operations in the United Kingdom are not considered significant. Accordingly, we believe we do not have a material exposure to foreign currency risk. We may choose to focus on international expansion in the future, which may increase our exposure to foreign currency exchange risk.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls
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and procedures designed to ensure that information required to be disclosed in company reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable assurance of achieving the desired control objectives. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

As of March 31, 2024, as required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective at the reasonable assurance level as of such date. Management has concluded that the condensed consolidated financial statements included in this quarterly report on Form 10-Q present fairly, in all material respects, the Company’s financial position, results of operations and cash flows for the periods disclosed in accordance with U.S. GAAP.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the fiscal quarter ended March 31, 2024 covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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Part II - Other Information

Item 1. Legal Proceedings
From time to time, we are a party to litigation, various claims, and other legal and administrative proceedings arising in the ordinary course of business. Some of these claims, lawsuits, and other proceedings may involve highly complex issues that are subject to substantial uncertainties, and could result in damages, fines, penalties, non-monetary sanctions, or relief. Management is not currently aware of any matters that are reasonably likely to have a material adverse impact on our business, financial position, results of operations, or cash flows.

Item 1A. Risk Factors

A description of the risks and uncertainties associated with our business and ownership of our Class A common stock is set forth below. You should carefully consider the risks described below, as well as the other information in this Quarterly Report on Form 10-Q, including our condensed consolidated financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The occurrence of any of the events or developments described below could materially and adversely affect our business, financial condition, results of operations, and growth prospects. In such an event, the market price of our Class A common stock could decline. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. This Quarterly Report on Form 10-Q also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of a number of factors, including the risks described below. See “Cautionary Note Regarding Forward-Looking Statements.”

Summary of Principal Risk Factors

Our limited operating history and evolving business make it difficult to evaluate our current business and future prospects and increases the risk of your investment.
Our results of operations, as well as the performance of our key metrics, may fluctuate on a quarterly and annual basis, which may result in us failing to meet the expectations of industry and securities analysts or our investors.
If we are unable to expand the scope of our offerings, including the number and type of products and services that we offer, the number and quality of Providers serving our customers, and the number and types of conditions capable of being treated through our platform, our business, financial condition, and results of operations may be materially and adversely affected.
If we are unable to successfully market to new customers and retain existing customers, or if evolving privacy, healthcare, or other laws prevent or limit our marketing activities, our business, financial condition, and results of operations could be harmed.
We operate in highly competitive markets and face competition from large, well-established healthcare providers, traditional retailers, pharmaceutical providers and technology companies with significant resources, and, as a result, we may not be able to compete effectively.
Our brand is integral to our success. If we fail to effectively maintain, promote, and enhance our brand in a cost-effective manner, our business and competitive advantage may be harmed.
If the Affiliated Medical Groups are unable to attract and retain high-quality Providers to perform services on our platform, or if we are unable to develop or maintain satisfactory relationships with these Providers or the Affiliated Medical Groups, our business, financial condition, and results of operations may be materially and adversely affected.
Our pharmacy business subjects us to additional healthcare laws and regulations beyond those we face with our core telehealth business, and increases the complexity and extent of our compliance and regulatory obligations. If our Affiliated Pharmacies are unable to obtain and/or maintain necessary licenses and permits, or if our Affiliated Pharmacies fail to comply with applicable pharmacy-related laws and regulatory requirements, our business, financial condition, and results of operations may be materially and adversely affected.
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If we fail to comply with applicable healthcare and other laws and governmental regulations, we could face substantial penalties, our business, financial condition, and results of operations could be materially and adversely affected, and we may be required to restructure our operations.
Evolving government regulations and enforcement activities may require increased costs or adversely affect our results of operations.
Security breaches, loss of data, and other disruptions could compromise sensitive information related to our business or customers, or prevent us from accessing critical information and expose us to liability, which could adversely affect our business and our reputation.
From time to time we are subject to legal proceedings in the ordinary course of business, which can include intellectual property disputes or claims relating to our marketing or sale of products, any of which may be costly to defend and could materially harm our business and results of operations.
We may require additional capital to support business growth, and this capital might not be available on acceptable terms, if at all.