Fair Value Measurements

3 Months Ended

Mar. 31, 2022

The Company’s fair value hierarchy for its financial assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2022, is as follows (in thousands):


	Level 1		Level 2		Level 3		Total
Assets
Cash and cash equivalents:
Money market funds	$	35,464	$	—	$	—	$	35,464
Government bonds	—		6,533		—		6,533
Short-term investments:
Corporate bonds	—		136,208		—		136,208
Government bonds	—		4,963		—		4,963
Asset-backed bonds	—		13,598		—		13,598
Restricted cash:
Money market funds	856		—		—		856
Total assets	$	36,320	$	161,302	$	—	$	197,622
Liabilities
Earn-out liabilities	$	—	$	—	$	1,544	$	1,544
Total liabilities	$	—	$	—	$	1,544	$	1,544

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 1		Level 2		Level 3		Total
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 funds	856		—		—		856
Total assets	$	60,617	$	183,154	$	—	$	243,771
Liabilities
Earn-out liabilities	$	—	$	—	$	1,999	$	1,999
Total liabilities	$	—	$	—	$	1,999	$	1,999

The fair values of cash, accounts receivable, accounts payable, accrued liabilities, and earn-out payable approximated their carrying values as of March 31, 2022 and December 31, 2021, due to their short-term nature. All other financial instruments except for earn-out liabilities are valued either based on recent trades of securities in active markets or based on quoted market prices of similar instruments and other significant inputs derived from or corroborated by observable market data. During the three months ended March 31, 2022 and 2021, the Company had no transfers between levels of the fair value hierarchy of its assets or liabilities measured at fair value.

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


	HHL
Revenue risk-adjusted discount rate	9.1	%
Revenue volatility	50.0	%
Counterparty discount rate	5.0	%

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

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


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

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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