FIGS Inc

Previous wording

At June 30, 2024, we had approximately 2.6 million active customers. Our customers come to us through word of mouth referrals, as well as through our data-driven brand and performance marketing efforts. See the section titled “Key Operating Metrics and Non-GAAP Financial Measures” for a definition of active customers.

Current wording

At September 30, 2024, we had approximately 2.7 million active customers. Our customers come to us through word of mouth referrals, as well as through our data-driven brand and performance marketing efforts. See the section titled “Key Operating Metrics and Non-GAAP Financial Measures” for a definition of active customers.

Previous wording

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

Current wording

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

Previous 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;

Current wording

•Expanded our community of active customers by 3.8% from approximately 2.6 million at September 30, 2023 to approximately 2.7 million at September 30, 2024;

Previous 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;

Current wording

•Adjusted EBITDA decreased from $24.4 million to $4.8 million for the three months ended September 30, 2024, and decreased from $59.4 million to $30.7 million for the nine months ended September 30, 2024, representing an Adjusted EBITDA Margin of 3.4% and 7.6%, respectively;

Previous wording

•Free cash flow decreased from $24.9 million to $18.7 million for the six months ended June 30, 2024.

Current wording

•Free cash flow decreased from $70.9 million to $37.1 million for the nine months ended September 30, 2024.

Previous 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.

Current wording

During the three months ended September 30, 2024, we completed our previously announced fulfillment enhancement project and transitioned 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. In connection with the project and transition, during the three months ended September 30, 2024, we incurred approximately $2.4 million in capital expenditures. We do not expect to incur additional material capital expenditure costs 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 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.”

Current wording

As a result of ongoing conflict 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 September 30, 2024, we experienced delays in the delivery of raw materials to, and finished goods from, our manufacturers in Jordan and elsewhere, as well as elevated ocean freight rates and shipping costs. In addition, the International Longshoremen’s Association, which represents workers at East Coast ports, briefly went on strike during the three months ended September 30, 2024, which resulted in residual port congestion and increased shipping times across the industry. Although we have not experienced a material disruption to our supply chain or a material increase in costs as a result of Middle East conflict or the East Coast port-worker strike, we have proactively sought alternative ways to ship raw materials and receive inventory, such as selecting new vessel routes and alternative ports, and using increased air freight from time to time. We have also pre-negotiated ocean freight shipping rates and adjusted our product launch schedule to account for delays. We expect that if there are continued or increased hostilities in the Middle East, or if the East Coast port-worker strike were to resume, 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

We have a third party supplier in Jordan that currently accounts for a majority of our production. Following allegations of labor conditions at this supplier that do not meet our high standards, we intend to transition away from this supplier. We plan to conduct this transition over time, in a responsible manner that takes into consideration the needs of our suppliers’ workers and without impacting our sourcing capacity and quality. However, this transition could subject us to additional costs and challenges, which could adversely affect our financial condition and results of operations. See Item 1A. “Risk Factors—Risks Related To Our Business—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” and “—Any failure by us or our suppliers or manufacturers to comply with product safety, labor or other laws, provide safe conditions for our or their workers or use or be transparent about ethical business practices may damage our reputation and brand and harm our business.”

Current wording

We have a third party supplier in Jordan that currently accounts for a majority of our production. Following allegations of labor conditions at this supplier that do not meet our high standards, we are working on transitioning away from this supplier, which includes identifying new suppliers. We plan to conduct this transition over time, in a responsible manner that takes into consideration the needs of our suppliers’ workers and without impacting our sourcing capacity and quality. However, this transition could subject us to additional costs and challenges, which could adversely affect our financial condition and results of operations. See Item 1A. “Risk Factors—Risks Related To Our Business—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” and “—Any failure by us or our suppliers or manufacturers to comply with product safety, labor or other laws, provide safe conditions for our or their workers or use or be transparent about ethical business practices may damage our reputation and brand and harm our business.”

Previous wording

Net revenues increased by $5.2 million, or 2.0%, for the six 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.

Current wording

Net revenues decreased by $2.2 million, or 1.5%, for the three months ended September 30, 2024, compared to the same period last year. The decrease in net revenues was driven primarily by a decrease in AOV, partially offset by an increase in orders from existing customers.

Previous wording

Gross margin decreased by 2.1% for the three months ended June 30, 2024, compared to the same period last year. The decrease in gross margin was primarily from product mix shift related to outperformance of limited edition scrubwear and limited edition non-scrubwear.

Current wording

Gross margin decreased by 1.3% for the three months ended September 30, 2024, compared to the same period last year. The decrease in gross margin was primarily driven by higher discounted sales and, to a lesser extent, product mix shift related to limited edition scrubwear.

Previous wording

Operating expenses increased by $6.2 million, or 7.0%, for the three months ended June 30, 2024, compared to the same period last year and, as a percentage of net revenues, increased by 1.7 percentage points, primarily driven by increases in selling and marketing expenses, offset by the decreases in general and administrative expense as a percentage of net revenues, as described below.

Current wording

Operating expenses increased by $15.2 million, or 17.4%, for the three months ended September 30, 2024, compared to the same period last year and, as a percentage of net revenues, increased by 11.7 percentage points, primarily driven by increases in marketing and selling expenses, offset by a decrease general and administrative expenses, as described below.

Previous wording

Selling expense increased by $3.2 million, or 9.5%, for the three months ended June 30, 2024, compared to the same period last year and, as a percentage of net revenues, increased by 1.2 percentage points. The increase in selling expense as a percentage of net revenues was primarily due to higher fulfillment expenses associated with the transition of our fulfillment operations to a new fulfillment center, partially offset by lower storage costs and the accounting reclassification related to duty subsidies for international customers from selling expense to net revenues.

Current wording

Selling expense increased by $6.4 million, or 19.9%, for the three months ended September 30, 2024, compared to the same period last year and, as a percentage of net revenues, increased by 4.9 percentage points. The increase in selling expense as a percentage of net revenues was primarily due to higher fulfillment expenses associated with the transition of our fulfillment operations to a new fulfillment center and higher shipping expenses due to lower AOV, partially offset by the accounting reclassification related to duty subsidies for international customers from selling expense to net revenues.

Previous wording

Marketing expense increased by $2.1 million, or 10.1%, for the three months ended June 30, 2024, compared to the same period last year and, as a percentage of net revenues, increased by 0.8 percentage points. The increase in marketing expense as a percentage of net revenues was primarily due to higher digital and brand marketing expenses related to our 2024 Olympics campaign.

Current wording

Marketing expense increased by $9.5 million, or 50.1%, for the three months ended September 30, 2024, compared to the same period last year and, as a percentage of net revenues, increased by 6.9 percentage points. The increase in marketing expense as a percentage of net revenues was primarily due to higher digital and brand marketing expenses related to our 2024 Olympics campaign.

Previous wording

General and administrative expense increased by $0.9 million, or 2.7%, for the three months ended June 30, 2024, compared to the same period last year and, as a percentage of net revenues, decreased by 0.4 percentage points. The decrease in general and administrative expense as a percentage of net revenues was primarily due to lower stock-based compensation expense and lower legal fees. This decrease was partially offset by a one-time scrubwear donation and increased investment in people.

Current wording

General and administrative expense decreased by $0.7 million, or 1.9%, for the three months ended September 30, 2024, compared to the same period last year and, as a percentage of net revenues, decreased by 0.2 percentage points. The decrease in general and administrative expense as a percentage of net revenues was primarily due to lower stock-based compensation. This decrease was partially offset by an increase in depreciation and amortization expense related to our fulfillment center transition.

Previous 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.

Current wording

Other income, net increased by $1.0 million for the three months ended September 30, 2024, compared to the same period last year, primarily related to an increase in our interest income driven by higher short-term investment balances.

Previous 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.

Current wording

Provision for income taxes decreased by $9.7 million, or 170.2% for the three months ended September 30, 2024, compared to the same period last year, primarily due to a decrease in pre-tax income.

Previous 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.

Current wording

Net revenues increased by $3.0 million, or 0.7%, for the nine months ended September 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

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.

Current wording

Gross margin decreased by 1.9% for the nine months ended September 30, 2024, compared to the same period last year. The decrease in gross margin was primarily related to product mix shift, higher discounted sales, and, to a lesser extent, higher returns, partially offset by lower freight expense.

Previous 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.

Current wording

Operating expenses increased by $20.8 million, or 8.0%, for the nine months ended September 30, 2024, compared to the same period last year. As a percentage of net revenues, operating expenses increased by 4.7 percentage points, primarily driven by increases in marketing, selling, and general and administrative expenses as a percentage of net revenues, as described below.

Previous 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.

Current wording

Selling expense increased by $6.9 million, or 7.1%, for the nine months ended September 30, 2024, compared to the same period last year and, as a percentage of net revenues, increased by 1.6 percentage points. The increase in selling expense as a percentage of net revenues was primarily due to expenses associated with the transition of our fulfillment operations to a new fulfillment center and, to a lesser extent, a higher mix of promotional sales, partially offset by the accounting reclassification related to duty subsidies for international customers from selling expense to net revenues and lower fulfillment expenses associated with lower storage costs.

Previous wording

Marketing expense increased by $2.3 million, or 6.0%, for the six months ended June 30, 2024, compared to the same period last year and, as a percentage of net revenues, increased by 0.6 percentage points. The increase in marketing expense as a percentage of net revenues was primarily due to higher digital and brand marketing expenses related to our 2024 Olympics campaign.

Current wording

Marketing expense increased by $11.8 million, or 20.7%, for the nine months ended September 30, 2024, compared to the same period last year and, as a percentage of net revenues, increased by 2.8 percentage points. The increase in marketing expense as a percentage of net revenues was primarily due to higher digital and brand marketing expenses related to our 2024 Olympics campaign.

Previous 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.

Current wording

General and administrative expense increased by $2.1 million, or 2.0%, for the nine months ended September 30, 2024, compared to the same period last year and, as a percentage of net revenues, increased by 0.3 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 an increase in depreciation and amortization expense related to our fulfillment center transition. These increases were partially offset by decreases in legal fees and stock-based compensation expense.

Previous wording

Other income, net increased by $3.1 million for the six 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.

Current wording

Other income, net increased by $4.1 million for the nine months ended September 30, 2024, compared to the same period last year, primarily related to an increase in our interest income driven by higher short-term investment balances.

Previous wording

Provision for income taxes decreased by $0.8 million, or 14.0% for the six months ended June 30, 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 $10.5 million, or 90.4% for the nine months ended September 30, 2024, compared to the same period last year, primarily due to a decrease in pre-tax income.

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 and six months ended June 30, 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 nine months ended September 30, 2024 and 2023, respectively, are presented in the following table:

Previous wording

(4) Net income margin represents net income as a percentage of net revenues.

Current wording

(4) Net income (loss) margin represents net income (loss) as a percentage of net revenues.

Previous 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.

Current wording

As of September 30, 2024 and December 31, 2023, we had $124.1 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

In August 2024, our board of directors authorized a share repurchase program for up to $50.0 million of the Company’s outstanding Class A common stock, with no expiration date. Repurchases under the share repurchase program may be made from time to time through, without limitation, open market purchases or through privately negotiated transactions and/or structured repurchase agreements with third parties, block purchases or derivative contracts, and/or pursuant to Rule 10b5-1 trading plans, subject to market conditions, applicable securities laws and other legal requirements and relevant factors. Open market repurchases will be structured to occur in accordance with applicable federal securities law, including within the pricing and volume requirements of Rule 10b-18 under the Exchange Act. The share repurchase program does not obligate the Company to acquire any particular amount of Class A common stock, and may be modified, suspended or terminated at any time, without prior notice. The timing, manner, price and amount of any repurchases will be determined at the Company’s discretion, subject to business, economic and market conditions and other factors. Repurchases under the program are expected to be funded from existing cash and cash equivalents. The Company has not yet repurchased any shares of Class A common stock under the share repurchase program.

Current wording

In August 2024, our board of directors authorized a share repurchase program for up to $50.0 million of our outstanding Class A common stock, with no expiration date. Repurchases under the share repurchase program may be made from time to time through, without limitation, open market purchases or through privately negotiated transactions and/or structured repurchase agreements with third parties, block purchases or derivative contracts, and/or pursuant to Rule 10b5-1 trading plans, subject to market conditions, applicable securities laws and other legal requirements and relevant factors. Open market repurchases have been and will be structured to occur in accordance with applicable federal securities law, including within the pricing and volume requirements of Rule 10b-18 under the Exchange Act. The share repurchase program does not obligate us to acquire any particular amount of Class A common stock, and may be modified, suspended or terminated at any time, without prior notice. The timing, manner, price and amount of any repurchases have been and will be determined at our discretion, subject to business, economic and market conditions and other factors. Repurchases under the program have been and are expected to be funded from existing cash and cash equivalents. During the three months ended September 30, 2024, we repurchased 1,488,862 shares of our Class A common stock for approximately $7.3 million, and as of September 30, 2024 had $42.7 million available for future repurchases under the share repurchase program.

Previous 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.

Current wording

Cash flows from operating activities were $50.7 million for the nine months ended September 30, 2024, a decrease of $29.9 million compared to the same period last year. We saw a decrease in cash provided from operating activities as a result of a decrease in our net income, excluding the impact of non-cash adjustments, of $7.8 million. In addition, operating cash flows decreased due to higher inventory purchases of $39.1 million, the timing of cash payments for income tax payables of $11.9 million, the timing of cash payments for prepaid expenses and other current assets of $6.4 million, the timing of cash payments of accrued compensation and benefits of $5.2 million, and the timing of cash receipts from accounts receivable of $3.6 million. The decrease in operating cash flows was partly offset by the timing of cash payments related to accrued expenses of $30.7 million and accounts payable of $14.9 million.

Previous 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.

Current wording

Cash flows used in investing activities increased by $5.8 million for the nine months ended September 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 $125.6 million and higher capital expenditures of $3.9 million, partially offset by higher maturities of available-for-sale securities of $123.7 million.

Previous 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.

Current wording

Capital expenditures during the nine months ended September 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 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.

Current wording

Capital expenditures during the nine months ended September 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 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.

Current wording

Cash flows from financing activities of $0.5 million for the nine months ended September 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 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.

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 nine months ended September 30, 2024.

Previous 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.

Current 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 consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q for a description of our other significant accounting policies.