10-Q 1 hims-20220331.htm 10-Q hims-20220331
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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, 2022

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 6, 2022, 197,685,152 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” 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, market acceptance and success of our business model, our ability to expand the scope of our offerings, and our ability to comply with the extensive, complex, and evolving regulatory requirements applicable to the healthcare industry. 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.
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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, 2022December 31, 2021
 (Unaudited)
Assets
Current assets:
Cash and cash equivalents$48,284 $71,784 
Short-term investments154,769 175,490 
Inventory12,143 13,558 
Prepaid expenses and other current assets16,750 9,073 
Total current assets231,946 269,905 
Restricted cash856 856 
Goodwill110,881 110,881 
Intangibles, net24,848 25,890 
Operating lease right-of-use assets4,787 5,111 
Other long-term assets8,721 7,942 
Total assets$382,039 $420,585 
Liabilities and stockholders' equity
Current liabilities:
Accounts payable$23,906 $19,640 
Accrued liabilities9,089 12,194 
Deferred revenue1,145 3,188 
Earn-out payable12,972 42,834 
Operating lease liabilities1,388 1,365 
Total current liabilities48,500 79,221 
Operating lease liabilities3,763 4,117 
Earn-out liabilities1,544 1,999 
Other long-term liabilities517 629 
Total liabilities54,324 85,966 
Commitments and contingencies (Note 11)
Stockholders' equity:
Common stock – Class A shares, par value $0.0001, 2,750,000,000 shares authorized and 197,503,386 and 196,414,363 shares issued and outstanding as of March 31, 2022 and December 31, 2021, 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, 2022 and December 31, 2021
21 20 
Additional paid-in capital623,220 613,687 
Accumulated other comprehensive loss(323)(137)
Accumulated deficit(295,203)(278,951)
Total stockholders' equity327,715 334,619 
Total liabilities and stockholders' equity$382,039 $420,585 
See accompanying notes to unaudited condensed consolidated financial statements.
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Hims & Hers Health, Inc.
Condensed Consolidated Statements of
Operations and Comprehensive Loss (Unaudited)
(In Thousands, Except Share and Per Share Data)
 
Three Months Ended March 31,
20222021
Revenue$101,314 $52,314 
Cost of revenue26,558 12,067 
Gross profit74,756 40,247 
Operating expenses:
Marketing48,093 26,958 
Selling, general, and administrative43,582 61,698 
Total operating expenses91,675 88,656 
Loss from operations(16,919)(48,409)
Other income (expense):
Change in fair value of liabilities441 (2,681)
Other income, net320 (224)
Total other income (expense), net761 (2,905)
Loss before income taxes(16,158)(51,314)
Provision for income taxes(94)(90)
Net loss(16,252)(51,404)
Other comprehensive loss(186)(61)
Total comprehensive loss$(16,438)$(51,465)
Net loss per share attributable to common stockholders:
Basic and diluted$(0.08)$(0.34)
Weighted average shares outstanding:
Basic and diluted202,695,970 153,080,538 
See accompanying notes to unaudited condensed consolidated financial statements.

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Hims & Hers Health, Inc.
Condensed Consolidated Statements of Stockholders' Equity (Deficit) (Unaudited)
(In Thousands, Except Share Data)
Redeemable Convertible Preferred StockCommon StockAdditional
Paid-In
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Accumulated
Deficit
Total
Stockholders'
 Equity
SharesAmountSharesAmount
Balance as of December 31, 2021 $ 204,791,986 $20 $613,687 $(137)$(278,951)$334,619 
Issuance of common stock upon vesting of RSUs, net of shares withheld for taxes— — 320,296 — — — — — 
Payments for taxes related to net share settlement of equity awards— — — — (404)— — (404)
Exercise of vested stock options— — 768,727 1 890 — — 891 
Vesting of early exercised stock options— — — — 38 — — 38 
Stock-based compensation— — — — 9,009 — — 9,009 
Other comprehensive income— — — — — (186)— (186)
Net loss— — — — — — (16,252)(16,252)
Balance as of March 31, 2022 $ 205,881,009 $21 $623,220 $(323)$(295,203)$327,715 
Redeemable Convertible Preferred StockCommon StockAdditional
Paid-In
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Accumulated
Deficit
Total
Stockholders'
 Equity (Deficit)
SharesAmountSharesAmount
Balance as of December 31, 202093,328,118 $249,962 52,967,106 $5 $24,424 $(11)$(171,292)$(146,874)
Pre-closing stock repurchase, net of exercise of vested options(206,511)(125)(1,817,519)— (21,902)— — (21,902)
Conversion of redeemable convertible preferred stock to common stock(93,121,607)(249,837)93,121,607 9 249,828 — — 249,837 
Repayment of related-party promissory notes associated with vested shares— — — — 854 — — 854 
Forfeiture of related-party promissory notes— — (370,734)— — — — — 
Conversion of Series D preferred stock warrants to Class A common warrants— — — — 1,160 — — 1,160 
Exercise of Class A common stock warrants— — 1,867,292 — 21,678 — — 21,678 
Issuance of common stock upon Merger, net of transaction costs of $16.2 million
— — 23,892,244 2 129,657 — — 129,659 
Issuance of PIPE shares— — 7,500,000 1 74,999 — — 75,000 
Issuance of earn-out shares to common stockholders— — 14,153,520 1 — — — 1 
Exercise of vested stock options— — 37,887 — 80 — — 80 
Vesting of early exercised stock options— — — — 54 — — 54 
Warrant expense in connection with Merger— — — — 154 — — 154 
Stock-based compensation— — — — 34,230 — — 34,230 
Other comprehensive income— — — — — (61)— (61)
Net loss— — — — — — (51,404)(51,404)
Balance as of March 31, 2021 $ 191,351,403 $18 $515,216 $(72)$(222,696)$292,466 
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,
20222021
Operating activities
Net loss$(16,252)$(51,404)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization1,741 394 
Stock-based compensation8,856 34,230 
Change in fair value of liabilities(441)2,681 
Warrant expense in connection with Merger 154 
Amortization of debt issuance costs 144 
Net amortization on securities971 287 
Benefit for deferred taxes(112) 
Non-cash operating lease cost377 378 
Non-cash other(94)165 
Changes in operating assets and liabilities:
Inventory1,415 (980)
Prepaid expenses and other current assets(7,677)(7,147)
Other long-term assets(30)(58)
Accounts payable4,266 5,117 
Accrued liabilities(3,148)1,114 
Deferred revenue(2,043)(648)
Operating lease liabilities(384)(375)
Earn-out payable(6,848) 
Net cash used in operating activities(19,403)(15,948)
Investing activities
Purchases of investments(84,881)(172,021)
Maturities of investments82,340 9,500 
Proceeds from sales of investments22,291  
Investment in website development and internal-use software(1,197)(740)
Purchases of property, equipment, and intangible assets(100)(63)
Net cash provided by (used in) investing activities18,453 (163,324)
Financing activities
Pre-closing stock repurchase (22,027)
Proceeds from issuance of common stock upon Merger 197,686 
Proceeds from PIPE 75,000 
Payments for transaction costs related to securities issuances (12,794)
Proceeds from repayment of promissory notes associated with vested and unvested shares 1,193 
Proceeds from exercise of Class A common stock warrants 807 
Proceeds from exercise of vested and unvested stock options891 80 
Payments for taxes related to net share settlement of equity awards(404) 
Payments for earn-out consideration for acquisitions(23,014) 
Net cash (used in) provided by financing activities(22,527)239,945 
Foreign currency effect on cash and cash equivalents(23)2 
(Decrease) increase in cash, cash equivalents, and restricted cash(23,500)60,675 
Cash, cash equivalents, and restricted cash at beginning of period72,640 28,350 
Cash, cash equivalents, and restricted cash at end of period$49,140 $89,025 
Reconciliation of cash, cash equivalents, and restricted cash
Cash and cash equivalents$48,284 $88,169 
Restricted cash856 856 
Total cash, cash equivalents, and restricted cash$49,140 $89,025 
Supplemental disclosures of cash flow information
Cash paid for taxes$36 $59 
Non-cash investing and financing activities
Recapitalization from redeemable convertible preferred stock pre-closing stock repurchase$ $125 
Conversion of redeemable convertible preferred stock to common stock 249,837 
Assumption of Merger warrants liability 51,814 
Exercise of Private Placement Warrants and Public Warrants 20,871 
Conversion of Series D preferred stock warrants to Class A common warrants 1,160 
Vesting of early exercised stock options38 54 

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”), formerly known as Oaktree Acquisition Corp. (“OAC”), incorporated in Delaware, is a multi-specialty telehealth platform transforming the way healthcare is delivered. The Company’s mission is to make healthcare accessible, affordable, and convenient for everyone. The Company’s digital platform enables access to treatments for a broad range of conditions, including those related to sexual health, hair loss, dermatology, mental health and primary care. Hims & Hers connects patients to licensed healthcare 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 application, consumers can access a range of educational programs, wellness content, community support, and other services that promote lifelong health and wellness.

The Company offers a range of health and wellness products and services available for purchase directly by customers on the Company’s websites and mobile application. Additionally, Hims & Hers products can be found in tens of thousands of top retail locations in the United States.

On January 20, 2021 (the “Closing Date”), OAC completed the acquisition of Hims, Inc. (“Hims”) pursuant to the Agreement and Plan of Merger dated as of September 30, 2020 (the “Merger Agreement”) by and among OAC, Hims, and Rx Merger Sub, Inc., a Delaware corporation and a direct wholly-owned subsidiary of OAC (“Merger Sub”). The Merger Agreement provided for, among other things, the combination of Hims and OAC pursuant to the merger of Merger Sub with and into Hims, with Hims continuing as the surviving entity and as a wholly-owned subsidiary of OAC, which changed its name to Hims & Hers Health, Inc. (the “Merger”). The Merger was accounted for as a reverse recapitalization with Hims as the accounting acquirer and OAC as the acquired company for accounting purposes.

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, 2022 are unaudited. The condensed consolidated balance sheet as of December 31, 2021, 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, 2021 (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 holds a controlling financial interest. 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, 2021 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 and assumptions that affect the amounts reported in the financial statements and accompanying notes. The more significant estimates and assumptions by management include, among others, valuation of inventory, valuation and recognition
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of stock-based compensation expense, valuation of contingent consideration in business combinations, purchase price allocation for business combinations, and estimates in capitalization of website development and internal-use software costs. Management believes that the estimates and judgments upon which it relies are reasonable based upon information available to it at the time that these estimates and judgments were made. 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.

Business Combinations

The Company accounts for its business combinations using the acquisition method of accounting. The purchase price is attributed to the fair value of the assets acquired and liabilities assumed. Transaction costs directly attributable to the acquisition are expensed as incurred. Identifiable assets and liabilities acquired or assumed are measured separately at their fair values as of the acquisition date. The excess of the purchase price of acquisition over the fair value of the identifiable net assets of the acquiree is recorded as goodwill. The results of businesses acquired in a business combination are included in the Company’s consolidated financial statements from the date of acquisition.

When the Company issues stock-based or cash awards to an acquired company’s shareholders, the Company evaluates whether the awards are consideration or compensation for post-acquisition services. The evaluation includes, among other things, whether the vesting of the awards is contingent on the continued employment of the acquired company’s stockholders beyond the acquisition date. If continued employment is required for vesting, the awards are treated as compensation for post-acquisition services and recognized as expense over the requisite service period.

Determining the fair value of assets acquired and liabilities assumed requires management to use significant judgment and estimates, including the selection of valuation methodologies, estimates of future revenue and cash flows, discount rates, and selection of comparable companies. The estimates and assumptions used to determine the fair values and useful lives of identified intangible assets could change due to numerous factors, including market conditions, technological developments, economic conditions, and competition. In connection with determination of fair values, the Company may engage a third-party valuation specialist to assist with the valuation of intangible and certain tangible assets acquired and certain assumed obligations.

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. Goodwill of $110.9 million was acquired during the second and third quarters of 2021 and no goodwill impairment was recorded for the three months ended March 31, 2022.

Impairment of Long-Lived Assets

Long-lived assets include property and equipment 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. As of March 31, 2022 and December 31, 2021, the Company determined that no events or changes in circumstances existed that would indicate any impairment of its long-lived assets.

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.
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The Company’s consolidated revenue primarily comprises online sales of health and wellness products and services through the Company’s websites and mobile application, including prescription and non-prescription products. In contracts that contain prescription products issued as the result of a consultation, revenue also includes medical consultation services provided by Affiliated Medical Groups (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,
20222021
Online Revenue$94,102 $50,680 
Wholesale Revenue7,212 1,634 
Total Revenue$101,314 $52,314 

For Online Revenue, the Company defines its customer as an individual who purchases products or services through its websites or mobile application. For Wholesale Revenue, the Company defines its customer as a wholesale partner. 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 include two performance obligations: access to (i) products and (ii) consultation services. 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. The Company satisfies its performance obligation for services over the period of the consultation service, which is typically within one day. 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, 2022 and 2021, 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 9 – 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, at its sole discretion, sets all listed prices charged on its websites and mobile application for products and services.

Additionally, to fulfill its promise to customers for contracts that include sale of prescription products, the Company maintains relationships with certain affiliated and third-party pharmacies (“Partner Pharmacies” or individually, a “Partner Pharmacy”) to fill prescriptions that are ordered by the Company’s customers for fulfillment through the Company’s websites and mobile application. 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 fills a customer’s prescription; (ii) Partner 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, at its sole discretion, sets all listed prices charged on its websites and mobile application for products and services.

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The Company estimates refunds using the expected value method 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. 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. For wholesale arrangements, payments are collected in accordance with contract terms.

3. Investments

Short-term investments as of March 31, 2022, consist of the following (in thousands):
 
Adjusted
Cost
Unrealized
Losses
Fair
Value
Corporate bonds$136,337 $(129)$136,208 
Government bonds4,977 (14)4,963 
Asset-backed bonds13,667 (69)13,598 
Total short-term investments$154,981 $(212)$154,769 
 
Short-term investments as of December 31, 2021, consist of the following (in thousands):

Adjusted
Cost
Unrealized
Losses
Fair
Value
Corporate bonds$146,032 $(30)$146,002 
Asset-backed bonds29,507 (19)29,488 
Total short-term investments$175,539 $(49)$175,490 

4. Inventory

Inventory consists of the following (in thousands):
March 31, 2022December 31, 2021
Finished goods$7,883 $10,428 
Raw materials4,260 3,130 
Total inventory$12,143 $13,558 

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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, 2022December 31, 2021
Wholesale trade receivables$5,463 $3,577 
Prepaid expenses10,051 4,606 
Other current assets1,236 890 
Total prepaid expenses and other current assets$16,750 $9,073 

6. Intangible Assets

Intangible assets as of March 31, 2022 consist of the following (in thousands):

Gross
Amount
Accumulated
Amortization
Net
Carrying
Value
Weighted
Average
Remaining
Useful Life
(Years)
Trade name$24,170 $(1,939)$22,231 9.0
Other3,846 (1,229)2,617 2.2
Intangible assets, net$28,016 $(3,168)$24,848 8.3

Intangible assets as of December 31, 2021 consist of the following (in thousands):

Gross
Amount
Accumulated
Amortization
Net
Carrying
Value
Weighted
Average
Remaining
Useful Life
(Years)
Trade name$24,170 $(1,298)$22,872 9.2
Other3,846 (828)3,018 2.4
Intangible assets, net$28,016 $(2,126)$25,890 8.4

Amortization expense for intangible assets was $1.0 million and less than $0.1 million for the three months ended March 31, 2022 and 2021, respectively.

Amortization that will be charged to expense over the remaining life of the intangible assets subsequent to March 31, 2022 is as follows (in thousands):

The remainder of 2022$3,124
20233,542
20242,801
20252,672
20262,455
2027 and thereafter10,254
$24,848
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7. Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

March 31, 2022December 31, 2021
Payroll costs$2,686 $3,363 
Marketing expenses2,322 3,158 
Tax payables1,007 954 
Professional services812 734 
Product and shipping costs761 2,635 
Other accrued liabilities1,501 1,350 
Total accrued liabilities $9,089 $12,194 

8. Operating Leases

In January 2020, the Company entered into a 63-month non-cancelable lease for 302,880 square feet of warehouse space in New Albany, Ohio. The lease commenced on June 1, 2020. Total minimum lease payments are $7.9 million, net of rent abatement for an initial three-month period and with an annual escalation of 2.5%. The Company has the option to extend the lease term for a period of five years. The Company utilizes the reasonably certain threshold criteria in determining which options it will exercise.

In January 2022, the Company entered into a 62-month non-cancelable lease for 24,465 square feet of warehouse, distribution, and pharmacy space in Gilbert, Arizona. The lease commenced on May 1, 2022. Total minimum lease payments are $1.5 million, net of rent abatement for an initial two-month period and with annual escalation of 3.0%. The Company has the option to extend the lease term for a period of five years. The Company had not been given access to the facility as of March 31, 2022, and as a result there are no new lease liabilities during the quarter.

For each of the three months ended March 31, 2022 and 2021, the Company recorded operating lease costs of $0.4 million, including variable operating lease costs of $0.1 million.

Supplemental information related to the Company’s non-cancelable operating leases was as follows for the three months ended March 31, 2022 and 2021 (in thousands):

Three Months Ended March 31,
20222021
Operating cash flows used for operating lease$384$375
Operating lease liability arising from adoption of ASC 842$$6,756
Weighted average remaining lease term3.4 years4.4 years
Weighted average discount rate4.0%4.0%

Future minimum lease payments under the Company's non-cancelable operating leases with an initial lease term in excess of one year subsequent to March 31, 2022 are as follows (in thousands):

The remainder of 2022$1,175 
20231,598 
20241,638 
20251,114 
Gross lease payments5,525 
Less: imputed interest(374)
Present value of net future minimum lease payments$5,151 

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As of March 31, 2022, the present value of net future minimum lease payments of $5.2 million is recorded as operating lease liabilities: (i) $1.4 million within current liabilities; and (ii) $3.8 million within long-term liabilities on the condensed consolidated balance sheet.

9. Variable Interest Entities

The variable interest entities (“VIEs”) are: (i) professional corporations or other professional entities owned by licensed healthcare providers that engage licensed clinical professionals to provide consultation services (i.e., the “Affiliated Medical Groups”); and (ii) XeCare, LLC (“XeCare”) and Apostrophe Pharmacy LLC (“Apostrophe Pharmacy”, and together with XeCare, the “Affiliated Pharmacies”), each of which is a licensed mail order pharmacy providing prescription fulfillment services solely to the Company’s customers. 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 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. 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, 2022 and December 31, 2021, the Company’s condensed consolidated balance sheets included current and total assets of $2.9 million and $2.2 million, respectively, for the VIEs. As of March 31, 2022 and December 31, 2021, current and total liabilities were $2.2 million and $3.0 million, respectively. All amounts are after elimination of intercompany transactions, balances, and non-cash impact of operating leases.

The results of operations and cash flows of the VIEs are included in the Company’s condensed consolidated financial statements. For the three months ended March 31, 2022 and 2021, the VIEs charged the Company $12.2 million and $3.4 million, respectively, for services rendered. For the three months ended March 31, 2022 and 2021, operations of the VIEs generated net income and a net loss of $1.2 million and $1.8 million, respectively, inclusive of administrative expenses.

10. Fair Value Measurements

The Company’s fair value hierarchy for its financial assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2022, is as follows (in thousands):
 
Level 1Level 2Level 3Total
Assets
Cash and cash equivalents:
Money market funds$35,464 $ $ $35,464 
Government bonds 6,533  6,533 
Short-term investments:
Corporate bonds 136,208  136,208 
Government bonds 4,963  4,963 
Asset-backed bonds 13,598  13,598 
Restricted cash:
Money market funds856   856 
Total assets$36,320 $161,302 $ $197,622 
Liabilities
Earn-out liabilities$ $ $1,544 $1,544 
Total liabilities$ $ $1,544 $1,544 

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The Company’s fair value hierarchy for its financial assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2021, is as follows (in thousands):
 
Level 1Level 2Level 3Total
Assets
Cash and cash equivalents:
Money market funds$59,761 $ $ $59,761 
Government bonds 7,664  7,664 
Short-term investments:
Corporate bonds 146,002  146,002 
Asset-backed bonds 29,488  29,488 
Restricted cash:
Money market funds856   856 
Total assets$60,617 $183,154 $ $243,771 
Liabilities
Earn-out liabilities$ $ $1,999 $1,999 
Total liabilities$ $ $1,999 $1,999 

The fair values of cash, accounts receivable, accounts payable, accrued liabilities, and earn-out payable approximated their carrying values as of March 31, 2022 and December 31, 2021, due to their short-term nature. All other financial instruments except for earn-out liabilities 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, 2022 and 2021, the Company had no transfers between levels of the fair value hierarchy of its assets or liabilities measured at fair value.

At inception, the fair value of the earn-out liabilities associated with the acquisition of Honest Health Limited, which is now Hims & Hers UK Limited (“HHL”), was determined based on revenue projections and probability of achievement of revenue targets as evaluated using a Monte Carlo simulation, which is considered a Level 3 fair value measurement containing significant unobservable inputs including estimates of achieving the revenue targets. The undiscounted range of contingent purchase consideration is nil to $3.3 million. The following assumptions were used to determine the fair value at inception:

HHL
Revenue risk-adjusted discount rate9.1 %
Revenue volatility50.0 %
Counterparty discount rate5.0 %

The long-term earn-out liability, which is solely related to the HHL acquisition as of March 31, 2022 and December 31, 2021, remains classified as Level 3.

The fair value of the earn-out liabilities is remeasured at each reporting period. This change in fair value is related to contingent consideration and compensation costs (see Note 12 – Stockholders’ Equity) and is recognized in other income (expense) and selling, general, and administrative expenses, respectively, on the condensed consolidated statements of operations and comprehensive loss. The change in the fair value of earn-out liabilities is as follows (in thousands):

Balance at December 31, 2021$1,999 
Change in fair value due to revaluation and service-based vesting(455)
Balance at March 31, 2022$1,544 

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11. Commitments and Contingencies

Purchase Obligations

The Company has contractual obligations to make future purchases, primarily related to cloud-based software contracts used in operations. As of March 31, 2022, purchase obligations were $2.3 million, with $1.2 million payable in 2022 and $1.1 million payable in 2023.

Legal Proceedings
From time to time, the Company is party to litigation and subject to claims incident to the ordinary course of business. As the Company’s growth continues, it may become party to an increasing number of litigation matters and claims. The outcome of litigation and claims cannot be predicted with certainty, and the resolution of these matters could materially affect the Company’s future results of operations, cash flows, or financial position. The Company is not presently party to any legal proceedings that, in the opinion of management, if determined adversely to the Company, would individually or taken together have a material adverse effect on the Company’s business, operating results, financial condition, or cash flows.

12. 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.

RSU Releases

During the three months ended March 31, 2022, the Company released 413,035 gross shares of Class A common stock upon vesting of restricted stock units (“RSUs”). In connection with the releases, 92,739 shares of Class A common stock were withheld for the payment of employee taxes. There were no RSU releases for the three months ended March 31, 2021.

2017 Stock Plan and 2020 Equity Incentive Plan

In July 2017, 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, in connection with the Merger, 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. Through March 31, 2022, 1,766,696 shares of Class A common stock subject to awards granted under the 2017 Plan that were outstanding on the Closing Date and forfeited after the adoption of the 2020 Plan were added to the 2020 Plan reserve. Additionally, on January 1, 2022, 10,239,599 shares of Class A common stock were automatically added to the 2020 Plan reserve. Therefore, as of March 31, 2022, there were 33,006,295 shares of Class A common stock reserved and 17,102,197 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”), which became effective immediately prior to the Closing Date. 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, the number of authorized shares of common stock under the ESPP will automatically increase each fiscal year by the lesser of (i)
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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. On January 1, 2022, 2,047,919 shares of Class A common stock were automatically added to the ESPP reserve. Therefore, as of March 31, 2022, there were 6,047,919 shares of Class A common stock reserved and available for grant 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, 2022, $0.8 million has been withheld via employee payroll deductions for employees who have opted to participate in the purchase period ending May 2022.

Stock Options

Options 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 current 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, but only upon achieving the requirements outlined in (i) and (ii) above. 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 subsequent to the Merger and, therefore, the Company recognized all $11.3 million of expense related to the grant during the three months ended March 31, 2021 due to achievement of the market condition. As of March 31, 2022, there was $2.8 million of remaining compensation expense to be recognized for the remaining 1,623,070 stock options over a period of 2.04 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 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. The Company recognized $0.1 million of expense related to the grant during the three months ended March 31, 2022. As of March 31, 2022, there was $3.7 million of remaining compensation expense to be recognized over a period of 3.90 years.

In connection with the Merger, each Hims option holder received an equivalent award at an exchange ratio of 0.4530 that vests in accordance with the original terms of the award. The Company determined this to be a Type I modification but did not record any incremental stock-based compensation expense since the fair value of the modified awards immediately after the modification was not greater than the fair value of the original awards immediately before the modification.
 
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The grant date fair value of the Company’s stock options granted (excluding the stock options granted to the CEO outlined above) was estimated using the following weighted average assumptions for the three months ended March 31, 2022:
 
Expected term (in years)6.02
Expected volatility56.7 %
Risk-free interest rate1.9 %
Expected dividend yield %

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, 202110,401 $4.01 7.73$37,868 
Granted5,585 5.01 
Exercised (including early exercised options vested during the period)(793)1.20 
Forfeited and expired(334)5.58 
Outstanding at March 31, 202214,859 4.51 8.5526,306 
Exercisable as of March 31, 20228,066 3.10 7.5224,213 

The weighted average grant date fair value of options granted for the three months ended March 31, 2022 was $2.71 per share, and the intrinsic value of vested options exercised was $3.3 million.

As of March 31, 2022, there was $30.1 million of unrecognized stock-based compensation related to unvested stock options, excluding the CEO stock options, which is expected to be recognized over a weighted average period of 3.27 years.

The options outstanding and exercisable as of March 31, 2022 (excluding the CEO stock options) 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
1,912 5.921,912 5.92
1.551.75
1,829 7.131,737 7.13
2.43
2,946 8.182,946