HIMS

Will a class action settlement, if any, dilute existing shareholders or affect earnings per share?

Created August 06, 2025 at 07:33 PM

Short answer:

Because the filing notice does not disclose any settlement terms, we cannot say with certainty how a eventual class‑action settlement will impact Hims & Hers Health’s capital structure or earnings per share (EPS). The effect will depend entirely on how the company chooses to fund the settlement—whether with cash (or insurance proceeds), by issuing new securities, or by a combination of both. Below is a detailed look at the possible scenarios and the mechanics that drive dilution and EPS changes.

1. What a class‑action settlement typically looks like for a public company

Funding method	Typical impact on shareholders	Why it matters for dilution / EPS
Cash payment (or insurance‑covered cash)	No new shares are created, so the share count stays the same. The company’s cash (or retained‑earnings) balance is reduced, which can lower the equity base and therefore the denominator in the EPS calculation.	EPS may decline because net income is unchanged (or slightly lower after settlement expenses) while the equity base is smaller. No dilution of ownership.
Issuance of new shares (or convertible securities)	New shares increase the total share count, diluting each existing shareholder’s ownership percentage and voting power.	EPS is likely to fall because the same net income is now spread over a larger number of shares. The dilution effect can be quantified by the “diluted EPS” metric.
Hybrid approach (cash + new securities)	Some dilution, but the cash component limits the total share‑count increase.	The net effect on EPS will be a mix of the two pure‑cash and pure‑equity scenarios.
Settlement funded through a “cash‑less” transaction (e.g., a forward‑purchase agreement, a preferred‑stock swap, or a debt‑to‑equity conversion)	May create a new class of securities (preferred shares, convertible notes) that can later be converted into common stock, leading to potential future dilution.	Immediate EPS impact may be modest, but future conversion could further dilute common‑share EPS.

2. How the specific facts in the news shape our expectations

The notice is a reminder, not a settlement agreement.
- The press release from Gibbs Mura merely alerts investors that a class‑action lawsuit has been filed. It does not disclose any settlement proposal, amount, or funding plan.
The lawsuit is on behalf of Hims & Hers investors.
- Because the plaintiffs are shareholders, any settlement will most likely be cash‑based (i.e., a direct payment to the affected investors) rather than a “share‑exchange” that would give them additional equity. Companies typically prefer to resolve shareholder claims with cash to avoid further complicating the capital structure.
No mention of insurance coverage.
- If the company has directors‑and‑officers (D&O) or corporate‑practice liability insurance that covers securities‑class‑action claims, the settlement could be paid out of those insurance proceeds, again with no dilution.
No disclosed “contingent‑liability” reserve.
- The filing does not indicate that Hims & Hers has set aside a specific reserve for this case. If the company must draw from operating cash, the balance‑sheet impact will be a reduction in cash/short‑term assets, which can modestly affect EPS but not dilute shareholders.

3. Potential EPS impact under each plausible funding route

Funding route	Effect on EPS (basic & diluted)	Effect on shareholder dilution
Cash settlement from operating cash	Basic EPS: Net income after settlement expense ÷ unchanged share count → EPS likely lower because the settlement expense reduces net income. Diluted EPS: Same as basic (no new shares).	No dilution – ownership percentages unchanged.
Cash settlement from insurance proceeds	Similar to cash from operating funds: EPS may dip slightly if the settlement expense is recognized in the period, but the cash inflow from the insurer offsets the outflow.	No dilution.
Settlement funded by issuing new common shares	Basic EPS: Net income after expense ÷ higher share count → lower EPS. Diluted EPS: Even lower because the “new” shares are already counted in the denominator.	Dilution – each existing shareholder’s stake is reduced proportionally.
Settlement funded by issuing preferred stock or convertible notes	Basic EPS: Same as cash (no change in common‑share count). Diluted EPS: If the preferred securities are convertible, the “potential” common shares are added to the diluted‑share count, reducing diluted EPS now (or later when conversion occurs).	Potential future dilution – depends on conversion timing and terms.
Hybrid (cash + modest equity issuance)	Basic EPS: Slightly lower due to cash expense. Diluted EPS: Slightly lower because of the modest increase in share count.	Mild dilution – less severe than a pure equity issuance.

4. How investors can gauge the likely impact before a settlement is announced

Read the company’s SEC filings (Form 8‑K, 10‑Q, 10‑K).
- If the company has disclosed a “contingent‑liability” or “legal‑risk” note, it may already have estimated the potential exposure and the intended funding source.
Check for existing D&O or securities‑class‑action insurance.
- Insurance policies are often listed in the “Risk Factors” or “Legal Proceedings” sections of the 10‑K. A covered settlement would be cash‑based and non‑dilutive.
Monitor the company’s cash‑position and capital‑allocation plans.
- A strong cash balance or a recent capital‑raising (e.g., a secondary offering) could indicate the firm has the flexibility to pay in cash without needing to issue new equity.
Watch for any “share‑exchange” or “stock‑swap” language in future settlement announcements.
- If the settlement terms include “share‑exchange” (e.g., “settlement will be funded by issuing X million new shares to class‑action members”), that is a clear dilution signal.

5. Bottom‑line take‑aways for Hims & Hers shareholders

Scenario	Dilution?	EPS impact?
Cash (or insurance) settlement	No	Potential modest decline in basic and diluted EPS because net income is reduced by settlement expense (or recognized as a one‑time charge).
Equity‑based settlement	Yes – existing shareholders own a smaller slice of the company.	Both basic and diluted EPS fall as the same earnings are spread over a larger share count.
Hybrid or convertible‑security settlement	Possible (future) – may not dilute immediately but could later if conversion occurs.	Current EPS may be unchanged, but diluted EPS could be lower now (if convertible securities are counted) and will fall further if conversion happens.

Answer to the specific question

Will a class‑action settlement, if any, dilute existing shareholders or affect earnings per share?

Based on the information in the news release alone, we cannot definitively say. The notice only confirms that a class‑action lawsuit has been filed on behalf of Hims & Hers investors; it does not reveal the settlement structure, amount, or funding source.

If the settlement is paid in cash (or via insurance proceeds), there will be no dilution of existing shareholders. EPS (both basic and diluted) could decline modestly because the settlement expense reduces net income, but the share count remains unchanged.
If the settlement is funded by issuing new shares or convertible securities, it will dilute existing shareholders and lower EPS (basic and diluted) as earnings are spread over a larger number of shares.
If a hybrid approach is used, the impact will be somewhere in between the two extremes, with some dilution and a corresponding EPS reduction.

Until the company (or the plaintiffs) disclose the settlement terms—most likely through an SEC filing or a press release—the actual effect on dilution and EPS remains uncertain. Investors should keep an eye on forthcoming SEC filings, the company’s cash‑position, and any mention of insurance coverage to better anticipate the eventual financial impact.