What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-08 compared with 2022-11-07 · 144 added, 185 removed, 215 unchanged (60% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

The following discussion and analysis provides information that management believes is relevant to an assessment and understanding of our consolidated results of operations and financial condition.

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our Form 10-K for the year ended December 31, 2022 (our “2022 Annual Report”), including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Item 7 of Part II of our 2022 Annual Report and the accompanying unaudited condensed consolidated financial statements and notes thereto included in this quarterly report on Form 10-Q.

Our actual results may differ materially from those contained in any forward-looking statements.

Our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

You should not rely on forward-looking statements as predictions of future events.

The events and circumstances reflected in the forward-looking statements may not be achieved or occur.

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Hims & Hers is a consumer-first platform transforming the way customers fulfill their health and wellness needs.

Our mission is to make health and wellness solutions accessible, affordable, and convenient for everyone.

Our mission is to help the world feel great through the power of better health.

We believe that we have the technical platform, distributed provider network, and access to clinical capabilities to lead the migration of routine office visits to a digital format.

The Hims & Hers platform includes access to a highly-qualified and technologically-capable provider network, a clinically-focused electronic medical records system, digital prescriptions, and cloud-enabled pharmacy fulfillment.

Our digital platform enables access to treatments for a broad range of conditions, including those related to sexual health, hair loss, dermatology, mental health, and primary care.

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Through the Hims & Hers mobile applications, consumers can access a range of educational programs, wellness content, community support, and other services that promote lifelong health and wellness.

We are leading an industry transformation by becoming the digital front door to health and wellness for a broad spectrum of consumers.

We believe the future of healthcare will be led by trusted consumer first brands that empower people and give them more control over their health and wellness needs.

We have endeavored to build a model that centers around the consumer, and provides them with tools and support to chart their own path to feeling their best.

We connect technology and a seamless experience, with a brand that consumers recognize and trust.

To further our mission, we offer a range of health and wellness products and services available for purchase directly by customers on our websites and mobile applications.

Additionally, Hims & Hers products can be found in tens of thousands of top retail locations in the United States.

In addition, we offer access to a range of health and wellness products designed to meet individual needs, which can include curated prescription and non-prescription products.

Our products and services are available for purchase directly by customers on our websites and mobile applications.

Additionally, Hims & Hers non-prescription products can be found in tens of thousands of top retail locations in the United States.

Reclassifications

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(i) operations and support, (ii) technology and development, and (iii) general and administrative.

The operations and support caption includes costs related to our supply chain, fulfillment and customer support functions.

technology and development caption includes costs related to the operation and enhancement of our digital platform and product development.

operations and support caption includes costs related to our supply chain, fulfillment, and customer support functions.

The technology and development caption includes costs related to the operation and enhancement of our digital platform and product development.

The general and administrative caption includes costs relating to our corporate functions, including personnel costs, professional services, insurance, depreciation and amortization relating to corporate operating activities, and other general corporate costs.

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Our management monitors two financial results, Online Revenue and Wholesale Revenue (both defined below), to track our total revenue generation.

“Online Revenue” represents the sales of products and services on our platform, net of refunds, credits, and chargebacks, and includes revenue recognition adjustments recorded pursuant to accounting principles generally accepted in the United States of America (“U.S.

We also monitor the additional key business metrics set forth below to help us evaluate our business, identify trends affecting our business, formulate business plans and make strategic decisions.

Increases or decreases in these key business metrics may not correspond with increases or decreases in our revenue.

The limitations our key business metrics have as an analytical tool include:

(i) they might not accurately predict our future financial results pursuant to accounting principles generally accepted in the United States of America (“U.S.

and (ii) other companies, including companies in our industry, may calculate our key business metrics or similarly titled measures differently, which reduces their usefulness as comparative measures.

As our business grows and evolves, we continually and strategically review our key metrics.

Beginning with our 2022 Annual Report, we commenced reporting “Subscribers” and “Monthly Online Revenue Per Average Subscriber” as additional key business metrics (as defined below).

As a result of broadening the number of health and wellness categories we serve, we believe it is important to measure the holistic relationship that we have with our customers.

Additionally, the recurring nature of our revenue necessitates the need for metrics that provide greater visibility into both the breadth and engagement of users on our platform.

We believe Subscribers represent a more accurate reflection of the number of distinct users that we have on our platform relative to the number of subscriptions, and beginning with the three months ending March 31, 2023, we are no longer reporting “Subscriptions” as a key business metric.

Monthly Online Revenue per Average Subscriber reflects how users’ engagement with products across our platform is evolving.

These changes are intended to better align our key business metrics with our internal priorities and business plans.

Brief descriptions of our key business metrics are provided below.

“Online Revenue” represents the sales of products and services on our platform, net of refunds, credits, and chargebacks, and includes revenue recognition adjustments recorded pursuant to U.S.

GAAP, primarily relating to deferred revenue and returns reserve.

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In addition to being revenue generative and profitable, wholesale partnerships have the added benefit of generating brand awareness with new customers in physical environments.

“Subscriptions” are defined as the number of customer agreements where the customer has agreed to be automatically billed on a recurring basis at a defined cadence.

The billing cadence is typically defined as a number of months (for example, billed every month or every three months).

Subscriptions are excluded from our reporting when payment has not occurred at the contracted billing cadence.

Subscription billing is preferred by many of our customers because most of the products and services we make available treat chronic conditions and these product and service offerings are most effective when taken consistently and continuously.

Customers can cancel subscriptions in between billing periods to stop receiving additional products and services and can reactivate subscriptions to continue receiving additional products and services.

Subscriptions are sometimes also referred to by us as “subscription memberships” or “memberships.”

“Subscribers” are customers who have one or more “Subscriptions”, which are agreements pursuant to which they have agreed to be automatically billed on a recurring basis at a defined cadence.

The Subscription billing cadence is typically defined as a number of months (for example, billed every month or every three months), which are excluded from our reporting when payment has not occurred at the contracted billing cadence.

Subscribers can cancel Subscriptions in between billing periods to stop receiving additional products and services and can reactivate Subscriptions to continue receiving additional products and services.

“Monthly Online Revenue per Average Subscriber” is defined as Online Revenue divided by “Average Subscribers”, which amount is then further divided by the number of months in a period.

“Average Subscribers” are calculated as the sum of the Subscribers at the beginning and end of a given period divided by 2.

“Net Orders” are defined as the number of online customer orders minus transactions related to refunds, credits, chargebacks, and other negative adjustments.

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

The table below provides a breakdown of total revenue between Online Revenue and Wholesale Revenue, for the three and nine months ended September 30, 2022 and 2021, as well as key metrics that drive Online Revenue (i.e., Net Orders, AOV, and Subscriptions) and the dollar and percentage change between such periods (in thousands, except for AOV):

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 Change % Change 2022 2021 Change % Change

The table below provides a breakdown of total revenue between Online Revenue and Wholesale Revenue, for the three months ended March 31, 2023 and 2022, as well as key metrics that drive Online Revenue (i.e., Subscribers, Monthly Online Revenue per Average Subscriber, Net Orders, and AOV) and the dollar and percentage change between such periods (in thousands, except for Monthly Online Revenue per Average Subscriber and AOV):

Three Months Ended March 31,

2023 2022 Change % Change

Online Revenue $ 184,175 $ 94,102 $ 90,073 96 %

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Total revenue $ 190,770 $ 101,314 $ 89,456 88 %

Subscriptions (end of period) 991 551 440 80 %

Subscribers (end of period) 1,209 646 563 87 %

Monthly Online Revenue per Average Subscriber $ 55 $ 52 $ 3 6 %

Net Orders 2,047 1,207 840 70 %

AOV $ 90 $ 78 $ 12 15 %

We generated $139.8 million in Online Revenue for the three months ended September 30, 2022, an increase of 94% as compared to $72.0 million for the three months ended September 30, 2021.

Growth in Online Revenue for the three months ended September 30, 2022 was driven primarily by growth in Subscriptions, as well as growth in AOV and Net Orders.

generated $341.3 million in Online Revenue for the nine months ended September 30, 2022, an increase of 89% as compared to $180.9 million for the nine months ended September 30, 2021.

Growth in Online Revenue for the nine months ended September 30, 2022 was primarily driven by growth in Subscriptions, AOV, and Net Orders, as well as a full nine months of revenue for both Honest Health Limited, which was acquired in June 2021 and is now Hims & Hers UK Limited (“HHL”), and YoDerm, Inc.

(“Apostrophe”), which was acquired in July 2021.

We generated $5.1 million in Wholesale Revenue for the three months ended September 30, 2022, an increase of 136% as compared to $2.1 million for the three months ended September 30, 2021.

We generated $18.4 million in Wholesale Revenue for the nine months ended September 30, 2022, an increase of 191% as compared to $6.3 million for the nine months ended September 30, 2021.

These increases were primarily due to the addition of new retail partners in the fourth quarter of 2021 and throughout 2022, which increased the overall volume of wholesale orders.

Wholesale Revenue has trended upward in the long-term but, in the near term, can fluctuate on a quarter-to-quarter basis due to various factors, including delayed inventory purchases from our partners, seasonality trends, launches of new merchants and timing of specialized campaigns.

For the three months ended September 30, 2022, AOV was $83, an increase of 12% as compared to $74 for the three months ended September 30, 2021.

For the nine months ended September 30, 2022, AOV was $80, an increase of 8% as compared to $74 for the nine months ended September 30, 2021.

AOV growth for the three and nine months ended September 30, 2022 was driven by higher price points from product bundles with product mixes shifting towards higher priced items and longer duration multi-month Subscriptions.

We generated $184.2 million in Online Revenue for the three months ended March 31, 2023, an increase of $90.1 million, or 96%, as compared to $94.1 million for the three months ended March 31, 2022.

Growth in Online Revenue for the three months ended March 31, 2023 was primarily driven by growth in Subscribers, from whom we generated recurring and stable Monthly Online Revenue per Average Subscriber, as well as growth in AOV and Net Orders.

We generated $6.6 million in Wholesale Revenue for the three months ended March 31, 2023, a decrease of $0.6 million, or 9%, as compared to $7.2 million for the three months ended March 31, 2022.

In the first quarter of 2022, there were larger initial orders from new retail partners that were not repeated in the first quarter of 2023.

Wholesale Revenue can fluctuate on a quarter-to-quarter basis due to various factors, including delayed inventory purchases from our partners, seasonality trends, launches of new merchants and timing of specialized campaigns.

Subscribers grew 87% to approximately 1,209,000 as of March 31, 2023 as compared to approximately 646,000 Subscribers as of March 31, 2022.

Growth in Subscribers was driven by increased traffic to our platform (through our websites and mobile applications) as a result of our marketing activities, and by increased customer conversion rates from improved onsite and customer onboarding experiences.

Monthly Online Revenue per Average Subscriber grew $3 to $55 for the three months ended March 31, 2023 as compared to $52 for the three months ended March 31, 2022.

Monthly Online Revenue per Average Subscriber has remained relatively stable as a result of recurring and predictable uptake of our offerings by Subscribers.

As a result of growth in Subscribers, we generated approximately 2.0 million Net Orders for the three months ended March 31, 2023, an increase of 70% as compared to approximately 1.2 million Net Orders for the three months ended March 31, 2022.

For the three months ended March 31, 2023, AOV was $90, an increase of 15% as compared to $78 for the three months ended March 31, 2022.

AOV growth for the three months ended March 31, 2023 was driven by higher price points from product bundles with product mixes shifting towards higher priced items and longer duration multi-month Subscriptions.

We continuously test and optimize the online experience and offerings to improve the customer experience, maximize sales, and improve gross margin.

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In addition, our customers can purchase product bundles or defined product kits, either consisting of non-prescription over-the-counter products or non-prescription products together with prescription medications, for a single all-inclusive price.

Such offerings and their uptake by customers have contributed to the expansion of AOV over time.

Such offerings and their uptake by customers have contributed to the stable and predictable nature of our Monthly Online Revenue per Average Subscriber.

Additionally, the uptake of these offerings has resulted in higher gross profits and gross margins for our sales of products and services on our platform.

For example, for multi-month Subscriptions, we may incur shipping and fulfillment expenses two or four times per year (for six-month and three-month subscription cadences, respectively) versus twelve times per year for monthly Subscriptions.

example, for multi-month Subscriptions, we may incur shipping and fulfillment expenses two or four times per year (for six-month and three-month Subscription cadences, respectively) versus twelve times per year for monthly Subscriptions.

The customer uptake of multi-month Subscriptions results in lower recurring costs and higher gross margins as compared to monthly Subscriptions.

Subscriptions grew 80% to approximately 991,000 as of September 30, 2022 as compared to approximately 551,000 Subscriptions as of September 30, 2021.

Growth in Subscriptions was driven by increased marketing expenses, increased traffic to our platform (through our websites and mobile applications), and increased customer conversion rates from improved onsite and customer onboarding experiences.

As a result of growth in Subscriptions, we generated approximately 1.7 million Net Orders for the three months ended September 30, 2022, an increase of 73% as compared to approximately 1.0 million Net Orders for the three months ended September 30, 2021.

We generated approximately 4.3 million Net Orders for the nine months ended September 30, 2022, an increase of 75% as compared to approximately 2.4 million Net Orders for the nine months ended September 30, 2021.

Key Factors Affecting Results of Operations

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Increases in advertising rates could also negatively impact our ability to acquire new customers.

Consumer tastes, preferences, and

sentiment for our brands may also change and result in decreased demand for our products and services.

Changes in law or regulatory enforcement could also negatively impact our ability to acquire new customers.

Consumer tastes, preferences, and sentiment for our brands may also change and result in decreased demand for our products and services.

Changes in law or regulatory enforcement could also negatively impact our ability to acquire new customers, including changes to privacy laws that could impact customer acquisition costs.

Retention of customers

Our ability to retain customers is a key factor in our ability to generate revenue.

Most of our customers purchase products and services through Subscription-based plans, where customers are billed and sent products and/or receive services on a recurring basis.

The recurring nature of this revenue provides us with a certain amount of predictability for future revenue if past customer behavior stays consistent in the future.

In addition, the uptake by customers of our Subscription offerings has contributed to the expansion of AOV over time and has resulted in higher gross profits and gross margins for our sale of products and services on our platform.

We expect to retain a majority or a higher percentage of revenue from customers who have maintained a Subscription for more than two years (sometimes referred to by us as “long-term revenue retention”).

However, if customer behavior changes, or our assumptions regarding long-term revenue retention are incorrect, and customer retention decreases in the future, then future revenue will be negatively impacted.

The ability of our customers to continue to pay for our products and services will also impact the future results of our operations.

Most of our customers purchase products and services through subscription-based plans, where Subscribers are billed and sent products and/or receive services on a recurring basis.

The recurring nature of this revenue provides us with a certain amount of predictability for future revenue if past Subscriber behavior stays consistent in the future.

In addition, the consistent uptake by Subscribers of our offerings has contributed to the stable and predictable nature of our Monthly Online Revenue per Average Subscriber.

We expect to retain a majority or a higher percentage of revenue from Subscribers who have maintained a Subscription for more than two years (sometimes referred to by us as “long-term revenue retention”).

However, if customer behavior changes, or our assumptions regarding long-term revenue retention are incorrect and Subscriber retention decreases in the future, then future revenue will be negatively impacted.

Macroeconomic factors including increasing inflation may affect the ability of our Subscribers to continue to pay for our products and services, which may also impact the future results of our operations.

Investments in growth

We expect to continue to focus on long-term growth.

We intend to continue to invest in our fulfillment and operating capabilities, including our Affiliated Pharmacies and warehousing facilities, with the goal of fulfilling nearly all of our pharmaceutical and over-the-counter customer orders through affiliated and internal fulfillment capabilities.

We intend to continue to invest in our fulfillment and operating capabilities, including our Affiliated Pharmacies (as defined below) and warehousing facilities, with the goal of fulfilling nearly all of our pharmaceutical and over-the-counter customer orders through affiliated and internal fulfillment capabilities.

For example, we expect to make investments in the expansion of our current facilities over the next two years.

Additionally, we expect to make significant investments in marketing to acquire new customers and we expect to continue to make investments in product offerings and customer experience.

We are working to enhance our offerings and expand the breadth of health and wellness products and services offered on our websites and mobile applications.

This includes further investments in and development of mobile phone technology, including our mobile applications, in order to improve the customer experience on our platform.

We may also explore additional investments in the ability to accept insurance on our platform for certain products or services in the future.

This includes investments in personalized product offerings, including in our compounding capabilities.

This also includes further investments in and development of mobile phone technology, including our mobile applications, in order to improve the customer experience on our platform.

In the short term, we expect these investments to increase our operating expenses;

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It also allows us to offer access to treatment of additional conditions that may already affect our current customers.

Expanding into new health and wellness categories has required and will require financial investments in additional headcount, marketing and customer acquisition costs, additional operational capabilities, and may require the purchase of new inventory.

Expanding into new health and wellness categories has required and will continue to require financial investments in additional headcount, marketing and

customer acquisition costs, additional operational capabilities, and may require the purchase of new inventory.

If we are unable to generate sufficient demand in new health and wellness categories, we may not recover the financial investments we make into new categories and revenue may not increase in the future.

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We believe that the use of Adjusted EBITDA and Adjusted EBITDA margin is helpful to our investors as they are used by management in assessing the health of our business and our operating performance.

However, non-GAAP financial information is presented for supplemental informational purposes only, has limitations as an analytical tool, and should not be considered in isolation or as a substitute for financial information presented in accordance

In addition, other companies, including companies in our industry, may calculate similarly-titled non-GAAP financial measures or ratios differently or may use other financial measures or ratios to evaluate their performance, all of which could reduce the usefulness of Adjusted EBITDA or Adjusted EBITDA margin as tools for comparison.

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Because Adjusted EBITDA facilitates internal comparisons of our historical operating performance on a more consistent basis, we use this measure for business planning purposes.

“Adjusted EBITDA” is defined as net loss before stock-based compensation, depreciation and amortization, impairment of long-lived assets, acquisition-related costs (which includes (i) acquisition professional services;

and (ii) consideration paid for employee compensation with vesting requirements incurred directly as a result of acquisitions, inclusive of revaluation of earn-out consideration recorded in general and administrative expenses), income taxes, interest income, change in fair value of liabilities, one-time Merger bonuses and warrant expense, and amortization of debt issuance costs.

“Adjusted EBITDA” is defined as net loss before stock-based compensation, depreciation and amortization, acquisition-related costs (which includes consideration paid for employee compensation with vesting requirements incurred directly as a result of acquisitions, inclusive of revaluation of earn-out consideration recorded in general and administrative expenses), impairment of long-lived assets, income taxes, change in fair value of liabilities, and interest income.

“Adjusted EBITDA margin” is defined as Adjusted EBITDA divided by revenue.

The following table reconciles net loss to Adjusted EBITDA for the three and nine months ended September 30, 2022 and 2021 (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

The following table reconciles net loss to Adjusted EBITDA for the three months ended March 31, 2023 and 2022 (in thousands):

Three Months Ended March 31,

Revenue $ 190,770 $ 101,314

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Depreciation and amortization 2,117 1,741

Impairment of long-lived assets 1,127 — 1,127 —

(Benefit) provision for income taxes (16) (3,173) 90 (3,049)

Acquisition-related costs 646 116

Impairment of long-lived assets 429 —

Provision for income taxes 386 94

Change in fair value of liabilities 295 (441)

Interest income (1,913) (175)

Merger bonuses — — — 5,219

Warrant expense in connection with Merger — — — 154

Amortization of debt issuance costs — — — 144

Adjusted EBITDA $ 6,060 $ (6,061)

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GAAP results.

Impact of the COVID-19 Pandemic

In March 2020, the World Health Organization declared the 2019 novel coronavirus (“COVID-19”) a global pandemic.

The COVID-19 pandemic continues to persist, and we are closely monitoring its impact on all aspects of our business.

We have a remote-first policy that permits most of our employees to work remotely should their particular positions allow, and we have

taken measures in response to the ongoing COVID-19 pandemic, including implementing additional safety policies and procedures for employees working in our warehouse and Affiliated Pharmacies;

suspending employee travel and in-person meetings prior to vaccination;

and actively managing our fulfillment operations and inventory levels.

We may take further actions that alter our business operations as may be required by federal, state, or local authorities or that we determine are in the best interests of our employees, customers, and stockholders.

Our financial condition and results of operations to date have not been adversely impacted by the COVID-19 pandemic.

However, it is possible that the COVID-19 pandemic, the measures taken by the federal, state, or local authorities (including vaccine mandates) and businesses affected, supply chain impacts, and the resulting economic impact may materially and adversely affect our business, results of operations, cash flows and financial positions as well as our customers, suppliers, and partners.

Widespread supply chain issues resulting from the pandemic have impacted businesses across multiple industries, including those in which we operate.

While we have not experienced material supply chain issues to date, if we experience delays or other challenges in obtaining supplies necessary for the production, fulfillment, or distribution of the products or services we offer, it could negatively affect our ability to satisfy our obligations to customers and maintain our operations in a cost-efficient manner and have a material adverse effect on our business.

We will continue to monitor the status of the COVID-19 pandemic, and its related resurgences and variants, and adjust our strategy accordingly.

Basis of Presentation

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Substantially all our long-lived assets are maintained in, and our losses are attributable to, the United States of America.

Foreign operations are immaterial to the consolidated financial statements.

Foreign operations are immaterial to the condensed consolidated financial statements.

The condensed consolidated financial statements include the accounts of our company, our wholly-owned subsidiaries, and variable interest entities for which we are the primary beneficiary.

The variable interest entities are:

(i) the Affiliated Medical Groups;

and (ii) the Affiliated Pharmacies.

(i) “Affiliated Medical Groups,” which are professional corporations or other professional entities owned by licensed physicians and that engage licensed healthcare professionals (physicians, physician assistants, nurse practitioners, and mental health providers;

collectively referred to as “Providers” or individually, a “Provider”) to provide consultation services;

and (ii) XeCare, LLC (“XeCare”) and Apostrophe Pharmacy LLC (“Apostrophe Pharmacy”, and together with XeCare, the “Affiliated Pharmacies”), which are licensed mail order pharmacies providing prescription fulfillment solely to our customers.

We determined that we are the primary beneficiary of the Affiliated Medical Groups and the Affiliated Pharmacies for accounting purposes because we have the ability to direct the activities that most significantly affect these entities’ economic performance and have the obligation to absorb the entities’ losses.

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Cost of revenue consists of costs directly attributable to the products shipped and services rendered, including product costs, packaging materials, shipping costs, and labor costs directly related to revenue generating activities.

Costs related to free products, where there is no expectation of future purchases from a customer, are considered to be operating expenses and are excluded from cost of revenue.

Costs related to free products where there is no expectation of future purchases from a customer and depreciation and amortization on property and equipment are considered to be operating expenses and are excluded from cost of revenue.

Gross profit and gross margin

Our gross profit represents total revenue less our total cost of revenue, and our gross margin is our gross profit expressed as a percentage of our total revenue.

components of our cost of revenues, the mix of the various products and services we sell in a period, the mix of Online Revenue and Wholesale Revenue in a period, the impact of acquisitions, and our ability to sell our inventory.

Our gross profit and gross margin have been and will continue to be affected by a number of factors, including the prices we charge for our products and services, the costs we incur from our vendors for certain components of our cost of revenues, the mix of the various products and services we sell in a period, the mix of Online Revenue and Wholesale Revenue in a period, volume of fulfillment through affiliated and internal fulfillment capabilities, and our ability to sell our inventory.

We expect our gross margin to fluctuate from period to period depending on these and other factors.

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We expect G&A to increase for the foreseeable future as we increase headcount with the growth of our business.

However, we anticipate G&A will decrease as a percentage of revenue over the long term, although it may fluctuate as a percentage of total revenue from period to period due to the timing and amount of these expenses.

Other income primarily consists of the change in fair value of liabilities, as well as interest income from our cash and cash equivalents and investment accounts.

Additionally, other income includes non-operating and one-time charges classified outside of operating expenses.

However, we anticipate G&A will decrease as a percentage of revenue over the long term, in part due to our expected execution of disciplined headcount growth, although it may fluctuate as a percentage of total revenue from period to period due to the timing and amount of these expenses.

Other income (expense)

Other income (expense) primarily consists of the change in fair value of liabilities, as well as interest income from our cash and cash equivalents and investment accounts.

Additionally, other income (expense) includes non-operating and one-time charges classified outside of operating expenses.

Benefit (provision) for income taxes

The benefit (provision) for income taxes is primarily due to state taxes and change in valuation allowance.

Benefit (provision) for income taxes primarily consists of state taxes and change in valuation allowance.

Deferred tax assets are reduced by a valuation allowance to the extent management believes it is not more likely than not to be realized.

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Results of Operations

Comparisons for the three and nine months ended September 30, 2022 and 2021

The following table sets forth our unaudited condensed consolidated statement of operations for the three and nine months ended September 30, 2022 and 2021, and the dollar and percentage change between the two periods (dollars in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 Change % Change 2022 2021 Change % Change

Comparisons for the three months ended March 31, 2023 and 2022

The following table sets forth our unaudited condensed consolidated statement of operations for the three months ended March 31, 2023 and 2022, and the dollar and percentage change between the two periods (dollars in thousands):

Three Months Ended March 31,

2023 2022 Change % Change

Revenue $ 190,770 $ 101,314 $ 89,456 88 %

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Loss before income taxes (9,681) (16,158) 6,477 (40) %

Benefit (provision) for income taxes 16 3,173 (3,157) (99) % (90) 3,049 (3,139) (103) %

Provision for income taxes (386) (94) (292) 311 %

Net loss $ (10,067) $ (16,252) $ 6,185 (38) %

______________

* Not meaningful

(1) Includes stock-based compensation expense as follows (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Three Months Ended March 31,

Marketing $ 996 $ 823

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The following table sets forth our results of operations as a percentage of our total revenue for the periods presented:

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Three Months Ended March 31,

Revenue 100 % 100 %

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Loss before income taxes (5) % (16) %

Benefit (provision) for income taxes — % 4 % — % 2 %

Provision for income taxes — % — %

Net loss (5) % (16) %

Revenue was $144.8 million for the three months ended September 30, 2022, compared to $74.2 million for the three months ended September 30, 2021, an increase of $70.7 million, or 95%.

Revenue was $359.7 million for the nine months ended September 30, 2022, compared to $187.2 million for the nine months ended September 30, 2021, an increase of $172.5 million, or 92%.

For a detailed discussion of these increases, refer to “—Revenue and Key Business Metrics.”

Revenue was $190.8 million for the three months ended March 31, 2023, compared to $101.3 million for the three months ended March 31, 2022, an increase of $89.5 million, or 88%.

For a detailed discussion of this increase, refer to “—Revenue and Key Business Metrics.”

Cost of revenue and gross profit

Cost of revenue was $30.4 million for the three months ended September 30, 2022, compared to $19.3 million for the three months ended September 30, 2021, an increase of $11.1 million, or 57%.

This increase was due to increased costs associated with medical consultation services of 91%, increased shipping costs of 67%, and increased product and packaging costs of 40%, compared to the three months ended September 30, 2021.

Cost of revenue was $83.3 million for nine months ended September 30, 2022, compared to $44.8 million for nine months ended September 30, 2021, an increase of $38.5 million, or 86%.

This increase was primarily due to increased costs associated with medical consultation services of 94%, increased product and packaging costs of approximately 87%, and increased shipping costs of 73% compared to the nine months ended September 30, 2021.

These increases were due to overall increased business activity and growth of Net Orders, as well as a full nine months of operations for both HHL and Apostrophe.

Gross profit was $114.5 million for the three months ended September 30, 2022, compared to $54.9 million for the three months ended September 30, 2021, an increase of $59.6 million, or 109%.

Correspondingly, gross margin was 79% for the three months ended September 30, 2022, compared to 74% for the three months ended September 30, 2021.

Gross profit was $276.4 million for the nine months ended September 30, 2022, compared to $142.4 million for the nine months ended September 30, 2021, an increase of $134.0 million, or 94%.

Correspondingly, gross margin was 77% for the nine months ended September 30, 2022, compared to 76% for the nine months ended September 30, 2021.

The increases in gross margin for the three and nine months ended September 30, 2022 were primarily due to lower product and packaging costs as a percent of revenue as a result of fulfilling greater order volume by Affiliated Pharmacies at lower costs as compared to third-party pharmacies.

These increases were partially offset by Wholesale Revenue, which is lower margin than Online Revenue, comprising a larger proportion of total revenue, as well as a full nine months of operations for both HHL and Apostrophe.

Cost of revenue was $37.3 million for the three months ended March 31, 2023, compared to $26.6 million for the three months ended March 31, 2022, an increase of $10.8 million, or 41%.

This increase was primarily due to increased costs associated with medical consultation services of 99%, increased shipping costs of 66%, and increased product and packaging costs of approximately 12%, compared to the three months ended March 31, 2022.

These increases were due to overall increased business activity with the addition of new Subscribers.

Gross profit was $153.4 million for the three months ended March 31, 2023, compared to $74.8 million for the three months ended March 31, 2022, an increase of $78.7 million, or 105%.

Correspondingly, gross margin was 80% for the three months ended March 31, 2023, compared to 74% for the three months ended March 31, 2022.

The increase in gross margin for the three months ended March 31, 2023 was primarily due to lower product and packaging costs as a percent of revenue as a result of fulfilling greater order volume by Affiliated Pharmacies at lower costs as compared to third-party pharmacies, as well as Wholesale Revenue, which is lower margin than Online Revenue, comprising a smaller proportion of total revenue.

Marketing expenses

Marketing expenses were $78.5 million for the three months ended September 30, 2022, compared to $38.3 million for the three months ended September 30, 2021, an increase of $40.2 million, or 105%.

The most significant component of marketing expenses is customer acquisition costs, which increased to $67.3 million in the three months ended September 30, 2022, compared to $28.4 million for the three months ended September 30, 2021, an increase of 137%.

Marketing expenses were $187.0 million for the nine months ended September 30, 2022, compared to $93.2 million for the nine months ended September 30, 2021, an increase of $93.9 million, or 101%.

Customer acquisition costs increased to $157.4 million in the nine months ended September 30, 2022, compared to $70.8 million for the nine months ended September 30, 2021, an increase of 122%.

The increases in customer acquisition costs were a result of management’s decision to increase investment in display, search, and linear and streaming television marketing, as we continue to identify opportunities to drive new customer growth, as well as the customer acquisition costs associated with a full period of the operations of HHL and Apostrophe for both the three and nine months ended September 30, 2022.

Marketing expenses were $97.2 million for the three months ended March 31, 2023, compared to $48.1 million for the three months ended March 31, 2022, an increase of $49.2 million, or 102%.

Customer acquisition costs increased to $84.0 million in the three months ended March 31, 2023, compared to $39.1 million for the three months ended March 31, 2022, an increase of 115%.

The increase in customer acquisition costs was a result of management’s decision to increase investment in display, search, and linear and streaming television marketing, as we continue to identify opportunities to drive new customer growth.

Operations and support

Operations and support expenses were $21.8 million for the three months ended September 30, 2022, compared to $12.8 million for the three months ended September 30, 2021, an increase of $8.9 million or 70%.

The increase in operations and support was primarily driven by an increase in order fulfillment, transaction processing, and selling costs of $3.1 million, an increase in employee compensation (comprising salaries and wages, benefits, taxes, and performance bonuses and excluding stock-based compensation) of $2.8 million, an increase in professional services of $1.7 million, and an increase in depreciation, amortization, and technology costs of $0.5 million.

Operations and support expenses were $54.9 million for the nine months ended September 30, 2022, compared to $33.7 million for the nine months ended September 30, 2021, an increase of $21.1 million or 63%.

The increase in operations and support was primarily driven by an increase in employee compensation (excluding stock-based compensation) of $9.5 million, an increase in order fulfillment, transaction processing, and selling costs of $6.3 million, an increase in professional services of $3.4 million, and an increase in depreciation, amortization, and technology costs of $1.2 million.

Operations and support expenses were $26.2 million for the three months ended March 31, 2023, compared to $15.7 million for the three months ended March 31, 2022, an increase of $10.5 million or 67%.

The increase in operations and support was primarily driven by an increase in employee compensation (comprising salaries and wages, benefits, taxes, and performance bonuses, and excluding stock-based compensation) of $3.9 million, an increase in order fulfillment, transaction processing, and selling costs of $3.3 million, and an increase in professional services of $1.4 million.

Technology and development

Technology and development expenses were $8.0 million for the three months ended September 30, 2022, compared to $6.2 million for the three months ended September 30, 2021, an increase of $1.7 million or 28%.

The increase in technology and development expenses were primarily driven by an increase in employee compensation (excluding stock-based compensation) of $1.9 million and an increase in depreciation, amortization, and technology costs of $0.8 million.

These costs were partially offset by a decrease in product development costs of $1.5 million, which primarily resulted from one-time costs incurred during the third quarter of 2021.

Technology and development expenses were $20.9 million for the nine months ended September 30, 2022, compared to $16.8 million for the nine months ended September 30, 2021, an increase of $4.1 million or 25%.

The increase in technology and development expenses were primarily driven by an increase in employee compensation (excluding stock-based compensation) of $3.8 million, an increase in depreciation, amortization, and technology costs of $1.8 million, and

an increase in professional services of $0.4 million.

These costs were partially offset by a decrease in product development costs of $1.5 million, which primarily resulted from one-time costs incurred during the third quarter of 2021.

Technology and development expenses were $10.7 million for the three months ended March 31, 2023, compared to $6.1 million for the three months ended March 31, 2022, an increase of $4.7 million or 77%.

The increase in technology and development expenses were primarily driven by an increase in employee compensation (comprising salaries and wages, benefits, taxes, and performance bonuses, and excluding stock-based compensation) of $2.4 million, an increase in depreciation, amortization, and technology costs of $0.9 million, and an increase in stock-based compensation of $0.6 million.

General and administrative

General and administrative expenses were $26.2 million for the three months ended September 30, 2022, compared to $25.2 million for the three months ended September 30, 2021, an increase of $1.1 million or 4%.

The increase in general and administrative expenses was primarily driven by an increase in corporate events and travel costs of $1.7 million, an increase in employee compensation (excluding stock-based compensation) of $1.1 million, and an increase in depreciation, amortization, and technology costs of $0.5 million.

This increase was partially offset by a decrease in professional services of $3.1 million that was primarily driven by acquisition fees incurred for the purchase of businesses during the three months ended September 30, 2021.

General and administrative expenses were $70.6 million for the nine months ended September 30, 2022, compared to $92.1 million for the nine months ended September 30, 2021, a decrease of $21.5 million, or 23%.

The decrease was primarily driven by a decrease in stock-based compensation of $21.9 million.

The decrease in stock-based compensation was attributable to the expenses incurred during the nine months ended September 30, 2021 related to the earn-out consideration issued as part of the Merger (as defined in Note 1 – Organization to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q) as well as the recognition of expense related to stock options granted to the Chief Executive Officer and vesting of restricted stock units, which were both contingent upon the achievement of a liquidity event that was satisfied upon the closing of the Merger.

All of these resulted in either one-time expenses or cumulative catch-up expense as a result of the Merger.

In the nine months ended September 30, 2021, we also incurred $5.1 million of bonus expense almost entirely as a result of the previously disclosed transaction bonus related to the Merger.

Furthermore, for the nine months ended September 30, 2022, the decrease in general and administrative expenses was also attributable to a decrease in professional services of $6.3 million, and was partially offset by an increase in employee compensation (excluding stock-based compensation) of $4.8 million, an increase in depreciation, amortization, and technology costs of $3.4 million, an increase in corporate events and travel costs of $2.2 million, and an increase in insurance premiums of $0.9 million.

Other income was $1.1 million for the three months ended September 30, 2022, compared to $8.5 million for the three months ended September 30, 2021, a decrease of $7.4 million.

The decrease was driven primarily by a gain from the change in fair value of liabilities for the three months ended September 30, 2022 of $0.5 million related to earn-out liabilities, compared to a gain from the change in fair value of liabilities for the three months ended September 30, 2021 of $8.3 million related to warrant liabilities.

Other income was $2.4 million for the nine months ended September 30, 2022, compared to $13.9 million for the nine months ended September 30, 2021, a decrease of $11.5 million.

The decrease was driven primarily by a gain from the change in fair value of liabilities for the nine months ended September 30, 2022 of $1.0 million related to earn-out liabilities, compared to a gain from the change in fair value of liabilities for the nine months ended September 30, 2021 of $13.6 million related to warrant liabilities.

The decrease was also driven by interest income for the nine months ended September 30, 2022 of $1.1 million, compared to $0.3 million for the nine months ended September 30, 2021.

Benefit (provision) for income taxes

Benefit for income taxes was less than $0.1 million for the three months ended September 30, 2022 and $3.2 million for the three months ended September 30, 2021.

Provision for income taxes was $0.1 million for the nine months ended September 30, 2022, while the benefit for income taxes was $3.0 million for the nine months ended September 30, 2021.

The changes were primarily due to the partial release of valuation allowance totaling $3.1 million in the third quarter of 2021 as a result of the tax liability recorded for the Apostrophe acquisition, serving as a source of income for existing tax assets.

General and administrative expenses were $30.5 million for the three months ended March 31, 2023, compared to $21.8 million for the three months ended March 31, 2022, an increase of $8.7 million, or 40%.

The increase in general and administrative expenses was primarily driven by an increase in stock-based compensation of $3.9 million, and an increase in employee compensation (comprising salaries and wages, benefits, taxes, and performance bonuses, and excluding stock-based compensation) of $3.8 million.

Other income was $1.6 million for the three months ended March 31, 2023, compared to $0.8 million for the three months ended March 31, 2022, an increase of $0.8 million or 108%.

This increase was driven primarily by interest income for the three months ended March 31, 2023 of $1.9 million, compared to $0.2 million for the three months ended March 31, 2022.

The increase was partially offset by a loss from the change in fair value of liabilities for the three months ended March 31, 2023 of $0.3 million, compared to a gain of $0.4 million for the three months ended March 31, 2022.

Provision for income taxes

Provision for income taxes was $0.4 million for the three months ended March 31, 2023, compared to $0.1 million for the three months ended March 31, 2022.

This change was primarily due to an increase in state income taxes.

Liquidity and Capital Resources

As of September 30, 2022, our principal sources of liquidity are cash and cash equivalents in the amount of $58.0 million, which are primarily invested in money market funds, and investments in the amount of $140.4 million, which are primarily invested in corporate, government, and asset-backed bonds.

During the nine months ended September 30, 2022, we made payments for the Apostrophe acquisition earn-out payable totaling $29.9 million, such payment amounts determined in fiscal year 2021 in accordance with the terms of the related acquisition agreement.

The remaining portion of the Apostrophe earn-out payable of $13.0 million will be paid in the fourth quarter of

2022, also based on the terms of the related acquisition agreement.

The Apostrophe earn-out payment of $29.9 million is recorded:

(i) $6.9 million within operating activities;

and (ii) $23.0 million within financing activities on the condensed consolidated statements of cash flows.

As of March 31, 2023, our principal sources of liquidity are cash and cash equivalents in the amount of $48.7 million, which are primarily invested in money market funds and government bonds, and investments in the amount of $135.6 million, which are invested in corporate bonds, as well as government and government agency securities.

We have historically incurred negative cash flows from operating activities and significant losses from operations in the past.

We expect to continue to incur operating losses at least for the next 12 months due to the investments that we intend to make in our business.

We believe our existing cash resources and funds raised from the closing of the Merger are sufficient to support planned operations for the next 12 months.

While we had positive cash flows from operating activities for the three months ended March 31, 2023, we expect to continue to incur operating losses at least for the next 12 months due to the investments that we intend to make in our business.

We believe our existing cash resources are sufficient to support planned operations for the next 12 months.

As a result, management believes that our current financial resources are sufficient to continue operating activities for at least one year past the issuance date of the unaudited condensed consolidated financial statements.

Our future capital requirements will depend on many factors, including the number of orders we receive, the size of our customer base, t he continuing market acceptance of telehealth, and the timing and extent of spend to support the expansion of sales, marketing and development activities, which may be impacted by inflationary or other macroeconomic factors.

We completed two acquisitions in 2021 and expect to continue to pursue opportunities to acquire or invest in complementary businesses, services, and technologies, including intellectual property rights.

Our future capital requirements will depend on many factors, including the number of orders we receive, the size of our customer base, t he continuing market acceptance of telehealth, and the timing and extent of spend to support the expansion of sales, marketing, development activities, and our facilities, which may be impacted by inflationary or other macroeconomic factors.

We expect to continue to pursue opportunities to acquire or invest in complementary businesses, services, and technologies, including intellectual property rights.

We have based our estimate of our future capital requirements on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect.

We may be required to seek additional equity or debt financing.

In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all.

If we are unable to raise additional capital when desired, our business, financial condition, and results of operations would be harmed.

In the event that additional financing is required from outside

sources, we may not be able to raise it on terms acceptable to us or at all.

If we are unable to raise or access additional capital when desired, our business, financial condition, and results of operations would be harmed.

The following table provides a summary of cash flow data (in thousands):

Nine Months Ended September 30,

Net cash used in operating activities $ (19,812) $ (31,307)

Net cash provided by (used in) investing activities 28,696 (166,510)

Net cash (used in) provided by financing activities (22,668) 235,121

Three Months Ended March 31,

Net cash provided by (used in) operating activities $ 9,483 $ (19,403)

Net cash (used in) provided by investing activities (4,113) 18,453

Net cash used in financing activities (3,412) (22,527)

Cash flows from operating activities

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Our primary use of cash from operating activities includes costs of revenue, marketing expenses, and personnel-related expenditures to support the growth of our business.

Net cash used in operating activities was $19.8 million for the nine months ended September 30, 2022.

The most significant component of our cash used was a net loss of $54.8 million.

This included non-cash expense related to stock-based compensation of $30.5 million, depreciation and amortization of $5.5 million, non-cash operating lease cost of $1.2 million, impairment of long-lived assets of $1.1 million, and net amortization on securities of $1.0 million.

Non-cash expense was partially offset by non-cash income of $1.0 million related to the change in fair value of liabilities.

In addition, a net cash outflow totaling $2.7 million was attributable to changes in operating assets and liabilities, primarily as a result of an increase in inventory of $8.8 million, a decrease in earn-out payable of $6.9 million, an increase in prepaid expenses and other current assets of $3.6 million, cash payments on operating lease liabilities of $1.2 million, and a decrease in deferred revenue of $1.1 million.

This outflow was partially offset by an increase in accounts payable and accrued liabilities of $18.9 million.

Net cash used in operating activities was $31.3 million for the nine months ended September 30, 2021.

Net cash provided by operating activities was $9.5 million for the three months ended March 31, 2023.

Net cash provided by operating activities included non-cash expense related to stock-based compensation of $14.2 million and depreciation and amortization of $2.1 million, partially offset by a net loss of $10.1 million and net accretion on securities of $1.0 million.

In addition, a net cash inflow totaling $2.4 million was attributable to changes in operating assets and liabilities, primarily as a result of an increase in accounts payable and accrued liabilities of $5.6 million and an increase in deferred revenue of $1.4 million.

This inflow was partially offset by an increase in prepaid expenses and other current assets of $5.0 million.

Net cash used in operating activities was $19.4 million for the three months ended March 31, 2022.

The most significant component of our cash used was a net loss of $16.3 million.

This included non-cash expense related to stock-based compensation of $55.3 million, depreciation and amortization of $2.4 million, net amortization on securities of $1.7 million, and non-cash operating lease cost of $1.1 million.

Non-cash expense was partially offset by non-cash income of $13.6 million related to the change in fair value of warrant and earn-out liabilities and benefit for deferred taxes of $3.2 million.

In addition, a net cash inflow totaling $0.2 million was attributable to changes in operating assets and liabilities, primarily as a result of an increase in accounts payable and accrued liabilities of $5.5 million and a decrease in prepaid expenses and other current assets of $2.6 million.

This inflow was partially offset by an increase in inventory of $6.9 million and a decrease in operating lease liabilities of $1.1 million.

This included non-cash expense related to stock-based compensation of $8.9 million, depreciation and amortization of $1.7 million, and net amortization on securities of $1.0 million.

In addition, a net cash outflow totaling $14.4 million was attributable to changes in operating assets and liabilities, primarily as a result of an increase in prepaid expenses and other current assets of $7.7 million, a decrease in earn-out payable of $6.9 million, and a decrease in deferred revenue of $2.0 million.

This inflow was partially offset by a decrease in inventory of $1.4 million and an increase in accounts payable and accrued liabilities of $1.1 million.

Cash flows from investing activities

Cash flows from investing activities primarily relate to our treasury operations of investing in available-for-sale investments, as well as acquisitions, investment in website and mobile application development and internal-use software, and purchases of property and equipment.

Net cash provided by investing activities for the nine months ended September 30, 2022 was $28.7 million, which was primarily due to net investment cash inflows of $33.8 million.

This cash inflow was partially offset by investments of $3.3 million in website development and internal-use software, including investment in our mobile technology, and $1.3 million in purchases of property and equipment.

Net cash used in investing activities for the nine months ended September 30, 2021 was $166.5 million, which was primarily due to net investment cash outflows of $116.5 million, as well as acquisition of businesses, net of cash acquired of $46.5 million, and investments of $3.2 million in website development and internal-use software, including investment in our mobile technology.

Cash flows from investing activities primarily relate to our treasury operations of investing in available-for-sale investments, as well as investment in website and mobile application development and internal-use software and purchases of property and equipment.

Net cash used in investing activities for the three months ended March 31, 2023 was $4.1 million, which was primarily due to investments of $1.9 million in website development and internal-use software, including investment in our mobile technology, net investment cash outflows of $1.6 million, and $0.6 million in purchases of property and equipment.

Net cash provided by investing activities for the three months ended March 31, 2022 was $18.5 million, which was primarily due to net investment cash inflows of $19.8 million.

This cash inflow was partially offset by investments in website development and internal-use software, including investment in our mobile technology of $1.2 million.

Cash flows from financing activities

Net cash used in financing activities for the nine months ended September 30, 2022 was $22.7 million, which was primarily due to the payments for earn-out consideration for acquisitions of $23.0 million and payments for taxes related to net share settlement of equity awards of $2.4 million.

Net cash used in financing activities for the three months ended March 31, 2023 was $3.4 million, which was primarily due to payments for taxes related to net share settlement of equity awards of $3.7 million.

This cash outflow was partially offset by proceeds from the exercise of stock options of $0.2 million.

Net cash provided by financing activities for the nine months ended September 30, 2021 was $235.1 million, which was primarily due to the proceeds from the issuance of Class A common stock as a result of the Merger of $197.7 million, proceeds from the PIPE Investment of $75.0 million, proceeds received from employee repayment of promissory notes of $1.2 million, and proceeds from the exercise of warrants and stock options of $1.4 million.

This cash inflow was partially offset by payments related to pre-closing stock repurchase of $22.0 million, Merger transaction costs of $12.9 million, and payments for taxes related to net share settlement of equity awards of $5.2 million.

Net cash used in financing activities for the three months ended March 31, 2022 was $22.5 million, which was primarily due to the payments for earn-out consideration for acquisitions of $23.0 million and payments for taxes related to net share settlement of equity awards of $0.4 million.

This cash outflow was partially offset by proceeds from the exercise of stock options of $0.9 million.

Contractual Obligations and Commitments

Our contractual obligations and commitments include earn-out payables and earn-out liabilities related to acquisitions, operating leases, and non-cancelable purchase obligations primarily related to cloud-based software contracts used in operations.

Total contractual obligations and commitments as of September 30, 2022 were $21.5 million, of which $16.2 million was payable within 12 months.

Our contractual obligations and commitments include earn-out liabilities related to an acquisition, operating leases, and non-cancelable purchase obligations primarily related to cloud-based software contracts used in operations.

Total contractual obligations and commitments as of March 31, 2023 were $15.3 million, of which $5.1 million was payable within 12 months.

Critical Accounting Estimates

The preparation of our condensed consolidated financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.

The more significant estimates and assumptions by management include, among others, valuation of inventory, valuation and recognition of stock-based compensation expense, valuation of contingent consideration in business combinations, purchase price allocation for business combinations, and estimates used in the capitalization of website and mobile application development and internal-use software costs.

Management believes that the estimates and judgments upon which it relies are reasonable based upon information available at the time that these estimates and judgments were made.

GAAP requires management to make estimates, judgements, and assumptions that affect the amounts reported in the financial statements and accompanying notes.

The more significant estimates, judgements, and assumptions by management include, among others, valuation of inventory, valuation and recognition of stock-based compensation expense, valuation of contingent consideration in business combinations, purchase price allocation for business combinations, estimates used in the capitalization of website and mobile application development and internal-use software costs, and judgements relating to impairment triggering events for long-lived assets.

Management believes that the estimates, judgments, and assumptions upon which it relies are reasonable based upon information available at the time that these estimates, judgments, and assumptions were made.

Actual results may differ from management’s estimates.

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What changed 10-Q

Item 2. Management’s Discussion and Analysis