FIGS Inc

Previous wording

You should read the following discussion and analysis of our financial condition and results of operations together with our condensed financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q, as well as our audited financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission (“SEC”) on February 28, 2024 (the “2023 Annual Report on Form 10-K”). This discussion contains forward-looking statements based upon current plans, expectations and beliefs involving risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in Part II, Item 1A. “Risk Factors” and other factors set forth in other parts of this Quarterly Report on Form 10-Q.

Current wording

You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q, as well as our audited financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission (“SEC”) on February 28, 2024 (the “2023 Annual Report on Form 10-K”). This discussion contains forward-looking statements based upon current plans, expectations and beliefs involving risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in Part II, Item 1A. “Risk Factors” and other factors set forth in other parts of this Quarterly Report on Form 10-Q.

Previous wording

We sell products purposefully designed to serve the particular needs of healthcare professionals primarily through our direct to consumer (“DTC”) digital platform, consisting of our website, mobile app and B2B business (“TEAMS”). We also recently launched our first physical retail store, which we call a Community Hub, and which represents a first-of-its-kind retail experience for healthcare professionals.

Current wording

We sell products purposefully designed to serve the particular needs of healthcare professionals primarily through our direct to consumer (“DTC”) digital platform, consisting of our website, mobile app and B2B business (“TEAMS”). We also operate physical retail stores, which we call Community Hubs, and which represent a first-of-its-kind retail experience for healthcare professionals.

Previous wording

In the three months ended March 31, 2024, we had the following results compared to the same periods in 2023:

Current wording

In the three and six months ended June 30, 2024, we had the following results compared to the same periods in 2023:

Previous wording

•Expanded our community of active customers by 8.7% from approximately 2.4 million at March 31, 2023 to approximately 2.6 million at March 31, 2024;

Current wording

•Expanded our community of active customers by 6.1% from approximately 2.5 million at June 30, 2023 to approximately 2.6 million at June 30, 2024;

Previous wording

•Net income decreased from $1.9 million to $1.4 million for the three months ended March 31, 2024;

Current wording

•Net income decreased from $4.6 million to $1.1 million for the three months ended June 30, 2024, and from $6.5 million to 2.5 million for the six months ended June 30, 2024;

Previous wording

•Adjusted EBITDA decreased from $16.1 million to $13.0 million for the three months ended March 31, 2024, representing an Adjusted EBITDA Margin of 10.9%;

Current wording

•Adjusted EBITDA decreased from $18.9 million to $12.9 million for the three months ended June 30, 2024, and decreased from $35.0 million to $25.9 million for the six months ended June 30, 2024, representing an Adjusted EBITDA Margin of 9.0% and 9.8%, respectively;

Previous wording

•Cash flows from operating activities increased from $(2.9) million to $11.6 million for the three months ended March 31, 2024; and

Current wording

•Cash flows from operating activities increased from $26.5 million to $28.2 million for the six months ended June 30, 2024; and

Previous wording

During the quarter ended March 31, 2024, we continued to execute on our previously announced fulfillment enhancement project. As part of the project, we intend to transition all fulfillment operations from our current City of Industry facility to a new facility we have leased and which will be operated by a third-party logistics provider. We currently expect to complete the transition by the end of the third quarter of 2024. In connection with the project and transition, during the quarter ended March 31, 2024, we incurred approximately $4.2 million in capital expenditures. During the remainder of the fiscal year ending December 31, 2024, we expect to incur an additional $9 to $10 million in capital expenditures in connection with the project and transition. We believe the investments we are making in our fulfillment capabilities will enable us to more optimally serve our customers, drive efficiency and support us as we increase scale over the long term.

Current wording

During the three months ended June 30, 2024, we continued to execute on our previously announced fulfillment enhancement project. As part of the project, we are in the process of transitioning all fulfillment operations from our current City of Industry, California facility to a new facility we have leased in Goodyear, Arizona, which is operated by a third-party logistics provider. We currently expect to complete the transition by the end of the third quarter of 2024. In connection with the project and transition, during the three months ended June 30, 2024, we incurred approximately $7.0 million in capital expenditures. During the remainder of the fiscal year ending December 31, 2024, we expect to incur an additional $2.0 to $3.0 million in capital expenditures in connection with the project and transition. We believe the investments we are making in our fulfillment capabilities will enable us to more optimally serve our customers, drive efficiency and support us as we scale over the long term.

Previous wording

As a result, during the three months ended March 31, 2024, we have experienced delays in the delivery of raw materials to, and finished goods from, our manufacturers in Jordan and elsewhere, as well as rising ocean freight rates and shipping costs. Although we have not yet experienced a material disruption to our supply chain or a material increase in costs, and have sought alternative ways to ship raw materials and receive inventory, such as selecting new vessel routes, alternative ports and using air freight from time to time, we expect that if there are continued or increased hostilities in the Middle East, there could be continued increases in shipping times and ocean and air freight rates, as well as other impacts to our supply chain, which could adversely affect our financial condition and results of operations. See Item 1A. “Risk Factors—Risks Related To Our Business—Shipping is a critical part of our business and changes in, or disruptions to, our shipping arrangements have in the past and may in the future adversely affect our business, financial condition and results of operations” and “—Our reliance on a limited number of third-party suppliers to provide materials for and produce our products could cause problems in our supply chain and subject us to additional risks.”

Current wording

As a result of ongoing conflict and violence in the Middle East, there have been disruptions in commercial shipping transiting the Red Sea. Global ocean freight traffic has also generally been impacted, resulting in shipping delays and increased freight costs. As a result, during the three months ended June 30, 2024, we have experienced delays in the delivery of raw materials to, and finished goods from, our manufacturers in Jordan and elsewhere, as well as rising ocean freight rates and shipping costs. Although we have not yet experienced a material disruption to our supply chain or a material increase in costs, and have sought alternative ways to ship raw materials and receive inventory, such as selecting new vessel routes, alternative ports, using air freight from time to time and pre-negotiating ocean freight shipping rates, we expect that if there are continued or increased hostilities in the Middle East, there could be continued increases in shipping times and ocean and air freight rates, as well as other impacts to our supply chain, which could adversely affect our financial condition and results of operations. See Item 1A. “Risk Factors—Risks Related To Our Business—Shipping is a critical part of our business and changes in, or disruptions to, our shipping arrangements have in the past and may in the future adversely affect our business, financial condition and results of operations” and “—Our reliance on a limited number of third-party suppliers to provide materials for and produce our products could cause problems in our supply chain and subject us to additional risks.”

Previous wording

General and administrative expenses consist primarily of employee-related costs, including salaries, bonuses, benefits, stock-based compensation, other related costs and other general overhead, including certain third-party consulting and contractor expenses, certain facilities costs, software expenses, legal expenses and recruiting fees. We expect our general and administrative expenses to increase in absolute dollars as we continue to grow our business.

Current wording

General and administrative expenses consist primarily of employee-related costs, including salaries, bonuses, benefits, stock-based compensation, other related costs and other general overhead, including certain third-party consulting and contractor expenses, certain facilities costs, software expenses, legal expenses, recruiting fees and in-kind donations. We expect our general and administrative expenses to increase in absolute dollars as we continue to grow our business.

Previous wording

Other income, net consists of interest income or expense associated with debt financing arrangements, amortization of debt issuance costs and interest income earned on investments, as well as gain or loss on foreign currency, primarily driven by payment to vendors for amounts not denominated in U.S. dollars.

Current wording

Other income, net consists of interest income, interest expense, amortization of debt issuance costs, as well as gain or loss on foreign currency, primarily driven by payment to vendors for amounts not denominated in U.S. dollars.

Previous wording

Net revenues decreased by $0.9 million, or 0.8%, for the three months ended March 31, 2024, compared to the same period last year. The decrease in net revenues was driven primarily by a decrease in orders, partially offset by an increase in AOV.

Current wording

Net revenues increased by $6.1 million, or 4.4%, for the three months ended June 30, 2024, compared to the same period last year. The increase in net revenues was driven primarily by an increase in orders from existing customers, partially offset by a decrease in AOV.

Previous wording

Other income, net increased by $1.8 million for the three months ended March 31, 2024, compared to the same period last year, primarily related to an increase in our interest income driven by higher interest rates.

Current wording

Other income, net increased by $1.3 million for the three months ended June 30, 2024, compared to the same period last year, primarily related to an increase in our interest income driven by higher cash and cash equivalents and short-term investment balances.

Previous wording

Provision for income taxes decreased by $0.6 million, or 25.0% for the three months ended March 31, 2024, compared to the same period last year, primarily due to a decrease in pre-tax income.

Current wording

Provision for income taxes decreased by $0.2 million, or 6.2% for the three months ended June 30, 2024, compared to the same period last year, primarily due to a decrease in pre-tax income.

Previous wording

Gross margin decreased by 2.4% for the three months ended March 31, 2024, compared to the same period last year. The decrease in gross margin was primarily related to product mix shift and, to a lesser extent, a higher mix of promotional sales and higher duties, partially offset by lower freight expense.

Current wording

Gross margin decreased by 2.2% for the six months ended June 30, 2024, compared to the same period last year. The decrease in gross margin was primarily related to product mix shift, partially offset by lower freight expense.

Previous wording

Operating expenses decreased by $0.7 million, or 0.8%, for the three months ended March 31, 2024, compared to the same period last year. As a percentage of net revenues, operating expenses were consistent with the same period last year. The decrease in operating expenses was primarily driven by a decrease in selling expenses as described below.

Current wording

Operating expenses increased by $5.6 million, or 3.2%, for the six months ended June 30, 2024, compared to the same period last year. As a percentage of net revenues, operating expenses increased by 0.8 percentage points, primarily driven by increases in marketing and general and administrative expenses, offset by a decrease in selling expense as a percentage of net revenues, as described below.

Previous wording

Selling expense decreased by $2.7 million, or 8.7%, for the three months ended March 31, 2024, compared to the same period last year and, as a percentage of net revenues, decreased by 2.0 percentage points. The decrease in selling expense as a percentage of net revenues was primarily due to an accounting reclassification related to duty subsidies for international customers from selling expense to net revenues and lower fulfillment expenses associated with lower storage costs, partially offset by startup costs associated with the transition of our fulfillment operations to a new fulfillment center.

Current wording

Selling expense increased by $0.5 million, or 0.8%, for the six months ended June 30, 2024, compared to the same period last year and, as a percentage of net revenues, decreased by 0.3 percentage points. The decrease in selling expense as a percentage of net revenues was primarily due to an accounting reclassification related to duty subsidies for international customers from selling expense to net revenues and lower fulfillment expenses associated with lower storage costs, partially offset by expenses associated with the transition of our fulfillment operations to a new fulfillment center.

Previous wording

General and administrative expense increased by $1.8 million, or 5.4%, for the three months ended March 31, 2024, compared to the same period last year and, as a percentage of net revenues, increased by 1.8 percentage points. The increase in general and administrative expense as a percentage of net revenues was primarily due to increased investment in people, including salaries, bonus, and stock-based compensation expense. This increase was partially offset by a decrease in legal fees, a lower accrual for charitable donations, and reduced professional fees.

Current wording

General and administrative expense increased by $2.8 million, or 4.0%, for the six months ended June 30, 2024, compared to the same period last year and, as a percentage of net revenues, increased by 0.5 percentage points. The increase in general and administrative expense as a percentage of net revenues was primarily due to increased investment in people, as well as a one-time scrubwear donation. This increase was partially offset by decreases in legal fees and stock-based compensation expense.

Previous wording

We define AOV as the sum of the total net revenues in a given period divided by the total orders placed in that period. Total orders are the summation of all completed individual purchase transactions in a given period. We believe our relatively high average order value demonstrates the premium nature of our product. As we expand into and increase our presence in additional product categories, price points and international markets, AOV may fluctuate. AOV for the three months ended March 31, 2024 and 2023, respectively, are presented in the following table:

Current wording

We define AOV as the sum of the total net revenues in a given period divided by the total orders placed in that period. Total orders are the summation of all completed individual purchase transactions in a given period. We believe our relatively high average order value demonstrates the premium nature of our product. As we expand into and increase our presence in additional product categories, price points and international markets, AOV may fluctuate. AOV for the three and six months ended June 30, 2024 and 2023, respectively, are presented in the following table:

Previous wording

The following table presents a reconciliation of Free Cash Flow to net cash (used in) provided by operating activities, the most directly comparable financial measure calculated in accordance with GAAP:

Current wording

The following table presents a reconciliation of Free Cash Flow to net cash provided by operating activities, the most directly comparable financial measure calculated in accordance with GAAP:

Previous wording

As of March 31, 2024 and December 31, 2023, we had $155.3 million and $144.2 million of cash and cash equivalents, respectively. Since inception, we have financed operations primarily through cash flows from operating activities, the sale of our capital stock and borrowings under credit facilities.

Current wording

As of June 30, 2024 and December 31, 2023, we had $131.8 million and $144.2 million of cash and cash equivalents, respectively. Since inception, we have financed operations primarily through cash flows from operating activities, the sale of our capital stock and borrowings under credit facilities.

Previous wording

See Note 8 to our condensed financial statements included elsewhere in this Quarterly Report on Form 10-Q for more information regarding the 2021 Facility.

Current wording

See Note 8 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for more information regarding the 2021 Facility.

Previous wording

Cash flows from operating activities were $11.6 million for the three months ended March 31, 2024, an increase of $14.5 million compared to the same period last year. The increase in operating cash flows was primarily due to a net change in operating assets and liabilities of $13.6 million driven by the timing of cash payments related to accounts payable of $18.8 million and the timing of payments against accrued expenses of $11.1 million. These improvements were partially offset by higher inventory purchases of $9.0 million, the timing of cash payments for accrued compensation and benefits of $3.2 million and an increase in operating lease liabilities of $2.3 million.

Current wording

Cash flows from operating activities were $28.2 million for the six months ended June 30, 2024, an increase of $1.6 million compared to the same period last year. The increase in operating cash flows was primarily due to a net change in operating assets and liabilities of $2.1 million driven by the timing of cash payments related to accrued expenses of $19.5 million and accounts payable of $13.8 million. These improvements were partially offset by higher inventory purchases of $10.4 million, the timing of cash payments for prepaid expenses and other current assets of $8.0 million, the timing of cash receipts from accounts receivables of $5.8 million, the timing of cash payments of accrued compensation and benefits of $4.2 million and the timing of cash payments for income tax payable of $4.2 million.

Previous wording

Cash flows from investing activities increased by $0.3 million for the three months ended March 31, 2024, compared to the same period last year. The increase in investing cash flows was primarily due to lower cash payments related to capital expenditures and the maturities of available-for-sale securities, offset by purchases of available-for-sale securities.

Current wording

Cash flows used in investing activities increased by $0.8 million for the six months ended June 30, 2024, compared to the same period last year. The increase in cash flows used in investing activities was primarily due to higher purchases of available-for-sale securities of $99.5 million and higher capital expenditures of $7.9 million, partially offset by maturities of available-for-sale securities of $106.6 million.

Previous wording

Capital expenditures during the three months ended March 31, 2024 were primarily related to capital projects in progress.

Current wording

Capital expenditures during the six months ended June 30, 2024 were primarily related to the purchases of machinery and equipment, investments of capital projects in progress, and purchases of computer equipment.

Previous wording

Capital expenditures during the three months ended March 31, 2023 were primarily related to capitalized software development costs, purchases of computer equipment, and purchases of office equipment.

Current wording

Capital expenditures during the six months ended June 30, 2023 were primarily related to capitalized software development costs, purchases of computer equipment, and purchases of warehouse machinery and equipment.

Previous wording

Cash flows from financing activities were not material for the three months ended March 31, 2024.

Current wording

Cash flows from financing activities were not material for the six months ended June 30, 2024.

Previous wording

Cash flows from financing activities of $(0.2) million for the three months ended March 31, 2023 were attributable to tax payments related to net share settlements on restricted stock units.

Current wording

Cash flows from financing activities of $0.4 million for the six months ended June 30, 2023 was attributable to proceeds from stock option exercises and employee stock purchases, offset by tax payments related to net share settlements on restricted stock units.

Previous wording

Refer to Note 9 to our condensed financial statements appearing elsewhere in this Quarterly Report on Form 10-Q for commitments entered into during the three months ended March 31, 2024.

Current wording

Refer to Note 9 to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q for commitments entered into during the six months ended June 30, 2024.

Previous wording

Our condensed financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q are prepared in accordance with GAAP. The preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from our estimates. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.

Current wording

Our condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q are prepared in accordance with GAAP. The preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from our estimates. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.

Previous wording

Our critical accounting policies are described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in our 2023 Annual Report on Form 10-K. There have been no material changes to our critical accounting policies since December 31, 2023. See Note 2 to our condensed financial statements appearing elsewhere in this Quarterly Report on Form 10-Q for a description of our other significant accounting policies.

Current wording

Form 10-K. There have been no material changes to our critical accounting policies since December 31, 2023. See Note 2 to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q for a description of our other significant accounting policies.