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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 June 30, 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 August 5, 2022, 198,758,777 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.





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TABLE OF CONTENTS
 


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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, including with respect to the Hims & Hers platform, 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, our ability to invest and generate a return on any such investment, customer acquisition costs, operating efficiencies, the success of our business model, our ability to scale our business. the growth of certain of our categories and the impact of our acquisitions, our ability to expand the scope of our offerings and experiences, and our ability to comply with the extensive, complex, and evolving regulatory requirements applicable to our business, including without limitation state and federal healthcare and privacy 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.
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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)
 
June 30, 2022December 31, 2021
 (Unaudited)
Assets
Current assets:
Cash and cash equivalents$55,033 $71,784 
Short-term investments139,944 175,490 
Inventory19,673 13,558 
Prepaid expenses and other current assets15,835 9,073 
Total current assets230,485 269,905 
Restricted cash856 856 
Goodwill110,881 110,881 
Intangibles, net23,806 25,890 
Operating lease right-of-use assets4,459 5,111 
Other long-term assets9,478 7,942 
Total assets$379,965 $420,585 
Liabilities and stockholders' equity
Current liabilities:
Accounts payable$27,093 $19,640 
Accrued liabilities11,809 12,194 
Deferred revenue2,337 3,188 
Earn-out payable12,972 42,834 
Operating lease liabilities1,412 1,365 
Total current liabilities55,623 79,221 
Operating lease liabilities3,402 4,117 
Earn-out liabilities1,510 1,999 
Other long-term liabilities371 629 
Total liabilities60,906 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 198,472,604 and 196,414,363 shares issued and outstanding as of June 30, 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 June 30, 2022 and December 31, 2021
21 20 
Additional paid-in capital634,388 613,687 
Accumulated other comprehensive loss(468)(137)
Accumulated deficit(314,882)(278,951)
Total stockholders' equity319,059 334,619 
Total liabilities and stockholders' equity$379,965 $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 June 30,Six Months Ended June 30,
2022202120222021
Revenue$113,563 $60,692 $214,877 $113,006 
Cost of revenue26,387 13,415 52,945 25,482 
Gross profit87,176 47,277 161,932 87,524 
Operating expenses:
Marketing60,490 27,944 108,583 54,902 
Selling, general, and administrative46,876 36,740 90,458 98,438 
Total operating expenses107,366 64,684 199,041 153,340 
Loss from operations(20,190)(17,407)(37,109)(65,816)
Other income:
Change in fair value of liabilities121 7,963 562 5,282 
Other income, net402 325 722 101 
Total other income, net523 8,288 1,284 5,383 
Loss before income taxes(19,667)(9,119)(35,825)(60,433)
Provision for income taxes(12)(34)(106)(124)
Net loss(19,679)(9,153)(35,931)(60,557)
Other comprehensive (loss) income(145)32 (331)(29)
Total comprehensive loss$(19,824)$(9,121)$(36,262)$(60,586)
Net loss per share attributable to common stockholders:
Basic and diluted$(0.10)$(0.05)$(0.18)$(0.35)
Weighted average shares outstanding:
Basic and diluted203,949,535 191,922,517 203,326,215 172,631,312 
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)
Common StockAdditional
Paid-In
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Accumulated
Deficit
Total
Stockholders'
 Equity
SharesAmount
Balance as of December 31, 2021204,791,986 $20 $613,687 $(137)$(278,951)$334,619 
Issuance of common stock upon vesting of RSUs, net of shares withheld for taxes320,296 — — — — — 
Payments for taxes related to net share settlement of equity awards— — (404)— — (404)
Exercise of vested stock options768,727 1 890 — — 891 
Vesting of early exercised stock options— — 38 — — 38 
Stock-based compensation— — 9,009 — — 9,009 
Other comprehensive loss— — — (186)— (186)
Net loss— — — — (16,252)(16,252)
Balance as of March 31, 2022205,881,009 21 623,220 (323)(295,203)327,715 
Issuance of common stock upon vesting of RSUs, net of shares withheld for taxes427,850 — — — — — 
Payments for taxes related to net share settlement of equity awards— — (779)— — (779)
Exercise of vested stock options356,265 — 579 — — 579 
Vesting of early exercised stock options— — 38 — — 38 
Issuance of common stock under employee stock purchase plan185,103 — 553 — — 553 
Stock-based compensation— — 10,777 — — 10,777 
Other comprehensive loss— — — (145)— (145)
Net loss— — — — (19,679)(19,679)
Balance as of June 30, 2022206,850,227 $21 $634,388 $(468)$(314,882)$319,059 
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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 loss— — — — — (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 
Issuance of common stock for Merger transaction costs of $2.5 million
— — 250,000 — — — — — 
Issuance of common stock for acquisition of business— — 624,880 — 1,949 — — 1,949 
Exercise of Class A common stock warrants— — 88 — 1 — — 1 
Issuance of common stock upon vesting of RSUs, net of tax withholdings— — 725,740 1 (1,959)— — (1,958)
Exercise of vested stock options— — 294,374 — 178 — — 178 
Vesting of early exercised stock options, net of cancelations— — (2,643)— 48 — — 48 
Stock-based compensation— — — — 9,491 — — 9,491 
Other comprehensive income— — — —  32 — 32 
Net loss— — — — — — (9,153)(9,153)
Balance as of June 30, 2021 $ 193,243,842 $19 $524,924 $(40)$(231,849)$293,054 
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)
Six Months Ended June 30,
20222021
Operating activities
Net loss$(35,931)$(60,557)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization3,562 899 
Stock-based compensation19,488 43,390 
Change in fair value of liabilities(562)(5,282)
Warrant expense in connection with Merger 154 
Amortization of debt issuance costs 144 
Net amortization on securities863 560 
Benefit for deferred taxes(258) 
Non-cash operating lease cost755 756 
Non-cash other58 399 
Changes in operating assets and liabilities:
Inventory(6,115)(3,047)
Prepaid expenses and other current assets(6,762)(4,635)
Other long-term assets(27)(58)
Accounts payable7,453 7,353 
Accrued liabilities150 5,583 
Deferred revenue(851)(253)
Operating lease liabilities(772)(753)
Earn-out payable(6,848) 
Net cash used in operating activities(25,797)(15,347)
Investing activities
Purchases of investments(89,146)(187,521)
Maturities of investments101,259 48,421 
Proceeds from sales of investments22,291 1,215 
Investment in website and mobile application development and internal-use software(2,397)(1,833)
Purchases of property, equipment, and intangible assets(276)(122)
Deferred consideration paid for acquisitions(459) 
Acquisition of business, net of cash acquired (748)
Net cash provided by (used in) investing activities31,272 (140,588)
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 (12,851)
Proceeds from repayment of promissory notes associated with vested and unvested shares 1,193 
Proceeds from exercise of Class A common stock warrants 808 
Proceeds from exercise of vested and unvested stock options, net of repurchases and cancelations1,470 254 
Payments for taxes related to net share settlement of equity awards(1,183)(4,458)
Payments for earn-out consideration for acquisitions(23,014) 
Proceeds from employee stock purchase plan553  
Net cash (used in) provided by financing activities(22,174)235,605 
Foreign currency effect on cash and cash equivalents(52)(19)
(Decrease) increase in cash, cash equivalents, and restricted cash(16,751)79,651 
Cash, cash equivalents, and restricted cash at beginning of period72,640 28,350 
Cash, cash equivalents, and restricted cash at end of period$55,889 $108,001 
Reconciliation of cash, cash equivalents, and restricted cash
Cash and cash equivalents$55,033 $107,145 
Restricted cash856 856 
Total cash, cash equivalents, and restricted cash$55,889 $108,001 
Supplemental disclosures of cash flow information
Cash paid for taxes$528 $227 
Non-cash investing and financing activities
Recapitalization from redeemable convertible preferred stock pre-closing stock repurchase$ $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 20,872 
Conversion of Series D preferred stock warrants to Class A common warrants 1,160 
Vesting of early exercised stock options76 106 
Common stock issued, contingent consideration, and payables for acquisition of business 4,064 

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 and formerly known as Oaktree Acquisition Corp. (“OAC”), is a consumer-first platform transforming the way customers fulfill their health and wellness needs. The Company’s mission is to make health and wellness solutions 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 applications, 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 applications. 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 June 30, 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
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significant estimates and assumptions by management include, among others, valuation of inventory, valuation and recognition of stock-based compensation expense, valuation of contingent consideration in business combinations, purchase price allocation for business combinations, and estimates used in the capitalization of website and mobile application development and internal-use software costs. Management believes that the estimates and judgments upon which it relies are reasonable based upon information available 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 and six months ended June 30, 2022 and 2021.

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 June 30, 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.

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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 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 June 30,Six Months Ended June 30,
2022202120222021
Online Revenue$107,462 $58,146 $201,564 $108,826 
Wholesale Revenue6,101 2,546 13,313 4,180 
Total revenue$113,563 $60,692 $214,877 $113,006 

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. 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 and six months ended June 30, 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 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 services solely to the Company’s customers. The Partner Pharmacies and the Affiliated Pharmacies fill prescriptions that are ordered by the Company’s customers for fulfillment through the Company’s websites and mobile applications. The Company accounts for prescription
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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, at 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 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 June 30, 2022, consist of the following (in thousands):
 
Adjusted
Cost
Unrealized
Losses
Fair
Value
Corporate bonds$121,675 $(248)$121,427 
Government bonds4,985 (30)4,955 
Asset-backed bonds13,612 (50)13,562 
Total short-term investments$140,272 $(328)$139,944 
 
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):
June 30, 2022December 31, 2021
Finished goods$14,435 $10,428 
Raw materials5,238 3,130 
Total inventory$19,673 $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):
 
June 30, 2022December 31, 2021
Wholesale trade receivables$4,936 $3,577 
Prepaid expenses10,099 4,606 
Other current assets800 890 
Total prepaid expenses and other current assets$15,835 $9,073 

6. Intangible Assets

Intangible assets as of June 30, 2022 consist of the following (in thousands):

Gross
Amount
Accumulated
Amortization
Net
Carrying
Value
Weighted
Average
Remaining
Useful Life
(Years)
Trade name$24,170 $(2,579)$21,591 8.7
Other3,846 (1,631)2,215 2.0
Intangible assets, net$28,016 $(4,210)$23,806 8.1

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 $1.1 million and less than $0.1 million for the three months ended June 30, 2022 and 2021, respectively. Amortization expense for intangible assets was $2.1 million and less than $0.1 million for the six months ended June 30, 2022 and 2021, respectively.

Amortization that will be charged to expense over the remaining life of the intangible assets subsequent to June 30, 2022 is as follows (in thousands):

The remainder of 2022$2,082
20233,542
20242,801
20252,672
20262,455
2027 and thereafter10,254
$23,806
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7. Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

June 30, 2022December 31, 2021
Marketing$5,792 $3,158 
Payroll2,950 3,363 
Professional services882 734 
Product and shipping739 2,635 
Tax673 954 
Other accruals773 1,350 
Total accrued liabilities $11,809 $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 stated lease term began 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 June 30, 2022, and as a result there are no new lease liabilities during the six-month period then ended.

For each of the three months ended June 30, 2022 and 2021, the Company recorded operating lease costs of $0.5 million, including variable operating lease costs of $0.1 million. For each of the six months ended June 30, 2022 and 2021, the Company recorded operating lease costs of $0.9 million, including variable operating lease costs of $0.1 million.

For each of the six months ended June 30, 2022 and 2021, operating cash flows used for operating leases were $0.8 million. As of June 30, 2022, the weighted average remaining lease term and weighted average discount rate was 3.2 years and 4.0%, respectively.

Future minimum lease payments under the Company's non-cancelable operating leases with an initial lease term in excess of one year subsequent to June 30, 2022 are as follows (in thousands):

The remainder of 2022$788 
20231,598 
20241,638 
20251,114 
Gross lease payments5,138 
Less: imputed interest(324)
Present value of net future minimum lease payments$4,814 

As of June 30, 2022, the present value of net future minimum lease payments of $4.8 million is recorded as operating lease liabilities: (i) $1.4 million within current liabilities; and (ii) $3.4 million within long-term liabilities on the condensed consolidated balance sheet.

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9. 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 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 June 30, 2022 and December 31, 2021, the Company’s condensed consolidated balance sheets included current and total assets of $5.1 million and $2.2 million, respectively, for the VIEs. As of June 30, 2022 and December 31, 2021, current and total liabilities were $3.2 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 June 30, 2022 and 2021, the VIEs charged the Company $15.0 million and $4.2 million, respectively, for services rendered. For the six months ended June 30, 2022 and 2021, the VIEs charged the Company $27.2 million and $7.6 million, respectively, for services rendered. For the three months ended June 30, 2022 and 2021, operations of the VIEs generated net income and a net loss of $2.5 million and $1.1 million, respectively, inclusive of administrative expenses. For the six months ended June 30, 2022 and 2021, operations of the VIEs generated net income and a net loss of $3.7 million and $2.9 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 June 30, 2022, is as follows (in thousands):
 
Level 1Level 2Level 3Total
Assets
Cash and cash equivalents:
Money market funds$40,494 $ $ $40,494 
Government bonds 6,858  6,858 
Short-term investments:
Corporate bonds 121,427  121,427 
Government bonds 4,955  4,955 
Asset-backed bonds 13,562  13,562 
Restricted cash:
Money market funds856   856 
Total assets$41,350 $146,802 $ $188,152 
Liabilities
Earn-out liabilities$ $ $1,510 $1,510 
Total liabilities$ $ $1,510 $1,510 

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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