FIGS, Inc.

Previous 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.

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 consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the Securities and Exchange Commission (“SEC”) on February 27, 2025 (the “2024 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 have revolutionized the large and fragmented healthcare apparel market. We branded a previously unbranded industry and de-commoditized a previously commoditized product—elevating scrubs and creating premium products for healthcare professionals. Most importantly, we built a community and lifestyle around a profession. As a result, we have become the industry’s category-defining healthcare apparel and lifestyle brand.

Current wording

By elevating scrubs and creating premium products for healthcare professionals, we revolutionized the large and fragmented healthcare apparel market, branded a previously unbranded industry and de-commoditized a previously commoditized product. Most importantly, we built a community and lifestyle around a profession. As a result, we have become the industry’s category-defining healthcare apparel and lifestyle brand.

Previous wording

Our offerings include scrubwear and non-scrubwear, such as outerwear, underscrubs, footwear, compression socks, lab coats, loungewear and other apparel. We primarily design all of our products in-house, leverage third-party suppliers and manufacturers to produce our product components and finished products, and generally utilize shallow initial buys and data-driven repurchasing decisions to test new products. We directly and actively coordinate with our suppliers on every step of our product development and production process to ensure that our extremely high quality standards are met. We also have a dynamic merchandising model—due to the largely non-discretionary, replenishment-driven nature of scrubwear, we maintain lessened inventory risk driven by a relatively high volume of repeat purchases and a focus on our core scrubs offerings.

Current wording

Our offerings include scrubwear and non-scrubwear, such as outerwear, underscrubs, footwear, compression socks, lab coats, loungewear and other apparel. We primarily design all of our products in-house, leverage third-party suppliers and manufacturers to produce our product components and finished products, and generally utilize shallow initial buys and data-driven repurchasing decisions to test new products. We directly and actively coordinate with our suppliers on every step of our product development and production process to ensure that our extremely high quality standards are met. We also have a dynamic merchandising model with lessened inventory risk, as a result of the largely non-discretionary, replenishment-driven nature of scrubwear and a focus on our core scrubs offerings.

Previous wording

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

Current wording

In the three months ended March 31, 2025, we had the following results compared to the comparable period in 2024:

Previous wording

•Gross margin decreased 1.3 percentage points from 68.4% to 67.1% for the three months ended September 30, 2024, and 1.9 percentage points from 69.6% to 67.7% for the nine months ended September 30, 2024;

Current wording

◦Gross margin decreased 1.3 percentage points from 68.9% to 67.6% for the three months ended March 31, 2025;

Previous wording

•Net income (loss) decreased from $6.1 million to $(1.7) million for the three months ended September 30, 2024, and from $12.6 million to $0.8 million for the nine months ended September 30, 2024;

Current wording

◦Net income (loss) decreased from $1.4 million to $(0.1) million for the three months ended March 31, 2025;

Previous 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;

Current wording

◦Adjusted EBITDA decreased from $13.0 million to $9.0 million for the three months ended March 31, 2025, representing an adjusted EBITDA margin of 7.2%;

Previous wording

•Cash flows from operating activities decreased from $80.6 million to $50.7 million for the nine months ended September 30, 2024; and

Current wording

◦Cash flows from operating activities decreased from $11.6 million to $9.2 million for the three months ended March 31, 2025; and

Previous wording

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

Current wording

◦Free cash flow decreased from $11.1 million to $7.9 million for the three months ended March 31, 2025.

Previous 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.”

Current wording

As a result of ongoing conflict in the Middle East, there have been disruptions in commercial shipping transiting the Red Sea and surrounding waterways. Global ocean freight traffic has also been impacted by the conflict and shifts in global trade policy, resulting in shipping delays, increased freight costs and volatility in capacity and transit times. Although we have not experienced a material disruption to our supply chain or a material increase in shipping costs to date as a result, during the three months ended March 31, 2025, we experienced delays in the delivery of raw materials to, and finished goods from, our manufacturers, as well as elevated ocean freight rates and shipping costs. To address these impacts, we have proactively sought alternative ways to ship raw materials and receive inventory, including selecting new vessel routes and ports, and using increased air freight from time to time. We also pre-negotiated ocean freight shipping rates and adjusted our product launch schedule to account for delays. If there are continued or increased hostilities in the Middle East or continued uncertainty surrounding global trade policy or volatility as a result of the imposition of tariffs or other trade barriers, 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

Cost of goods sold consists principally of the cost of purchased merchandise and includes import duties and other taxes, freight-in, defective merchandise returned by customers, inventory write-offs and other miscellaneous shrinkage. Our cost of goods sold has and may continue to fluctuate with the cost of the raw materials used in our products and freight costs.

Current wording

Cost of goods sold consists principally of the cost of purchased merchandise and includes import duties, tariffs and other taxes, freight-in, defective merchandise returned by customers, inventory write-offs and other miscellaneous shrinkage. Our cost of goods sold has and may continue to fluctuate with the cost of the raw materials used in our products and freight costs and the impact of changes to applicable import duties and tariffs.

Previous wording

Our provision for income taxes consists of an estimate of federal and state income taxes based on enacted federal and state tax rates, as adjusted for allowable credits, deductions and uncertain tax positions.

Current wording

Our provision for income taxes consists of an estimate of federal, state and foreign income taxes based on enacted federal, state, and foreign tax rates, as adjusted for allowable credits, deductions and uncertain tax positions.

Previous wording

Unlike the traditional apparel industry, the healthcare apparel industry is generally not seasonal in nature. However, due to our historical pattern of sequential growth, as well as our decision to conduct select promotions during the holiday season, we historically have generated a higher proportion of net revenues, and incurred higher selling and marketing expenses, during the fourth quarter of the year compared to other quarters, and we expect these trends to continue.

Current wording

Unlike the traditional apparel industry, the healthcare apparel industry is generally not seasonal in nature. However, due to our general historical pattern of sequential growth, as well as our decision to conduct select promotions during the holiday season, we historically have generated a higher proportion of net revenues, and incurred higher selling and marketing expenses, during the fourth quarter of the year compared to other quarters, and these trends could continue.

Previous 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.

Current wording

Net revenues increased by $5.6 million, or 4.7%, for the three months ended March 31, 2025, compared to the prior year period. The increase in net revenues was primarily driven by an increase in orders from existing customers and an increase in AOV.

Previous 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.

Current wording

Gross margin decreased 1.3 percentage points for the three months ended March 31, 2025, compared to the same period last year. The decrease in gross margin was primarily related to product mix shift and higher freight expense, partially offset by a lower mix of promotional sales.

Previous 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.

Current wording

Operating expenses increased by $3.0 million, or 3.6%, for the three months ended March 31, 2025, compared to the same period last year and, as a percentage of net revenues, decreased by 0.7 percentage points, primarily driven by a decrease in general and administrative expenses, offset by an increase in selling expenses.

Previous 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.

Current wording

Selling expense increased by $4.2 million, or 14.8%, for the three months ended March 31, 2025, compared to the same period last year and, as a percentage of net revenues, increased by 2.3 percentage points. The increase in selling expense as a percentage of net revenues was primarily due to higher fulfillment center expenses following the 2024 transition to a new facility, as well as higher shipping expenses.

Previous 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.

Current wording

General and administrative expense decreased by $2.2 million, or 6.0%, for the three months ended March 31, 2025, compared to the same period last year and, as a percentage of net revenues, decreased 3.1 percentage points. The decrease in general and administrative expense as a percentage of net revenues was primarily due to lower stock-based compensation expense, partially offset by higher depreciation related to our fulfillment center.

Previous 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.

Current wording

Other income, net decreased for the three months ended March 31, 2025, compared to the same period last year, primarily due to a decrease in interest income driven by lower interest rates.

Previous 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.

Current wording

Provision for income taxes increased by $0.1 million, or 6.6%, for the three months ended March 31, 2025, compared to the same period last year, primarily due to a decrease in tax benefits related to stock-based compensation.

Previous wording

We report our financial results in accordance with GAAP. In addition to the measures presented in our financial statements, we use the following key operational and business metrics to evaluate our business, measure our performance, develop financial forecasts and make strategic decisions. We believe the non-GAAP financial measures, Adjusted EBITDA, Adjusted EBITDA Margin and Free Cash Flow, are useful in evaluating our performance. Our non-GAAP financial measures should not be considered in isolation from, or as substitutes for, financial information prepared in accordance with GAAP.

Current wording

We report our financial results in accordance with GAAP. In addition to the measures presented in our condensed consolidated financial statements, we use the following key operational and business metrics to evaluate our business, measure our performance, develop financial forecasts and make strategic decisions. We believe the non-GAAP financial measures, adjusted EBITDA, adjusted EBITDA margin and free cash flow, are useful in evaluating our performance. Our non-GAAP financial measures should not be considered in isolation from, or as substitutes for, financial information prepared in accordance with GAAP.

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 nine months ended September 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 months ended March 31, 2025 and 2024, respectively, are presented in the following table:

Previous wording

We calculate Adjusted EBITDA as net income adjusted to exclude: other income (loss), net; gain/loss on disposal of assets; provision for income taxes; depreciation and amortization expense; stock-based compensation and related expense; transaction costs; and expenses related to non-ordinary course disputes. Adjusted EBITDA Margin is calculated by dividing Adjusted EBITDA by net revenues.

Current wording

We calculate adjusted EBITDA as net income (loss) adjusted to exclude: other income, net; gain/loss on disposal of assets; provision for income taxes; depreciation and amortization expense; stock-based compensation and related expense; transaction costs; and expenses related to non-ordinary course disputes. Adjusted EBITDA margin is calculated by dividing adjusted EBITDA by net revenues.

Previous wording

Management believes that excluding certain non-cash items and items that may vary substantially in frequency and magnitude period-to-period from net income provides useful supplemental measures that assist in evaluating our ability to generate earnings, provide consistency and comparability with our past financial performance and facilitate period-to-period comparisons of our core operating results as well as the results of our peer companies.

Current wording

Management believes that excluding certain non-cash items and items that may vary substantially in frequency and magnitude period-to-period from net income (loss) provides useful supplemental measures that assist in evaluating our ability to generate earnings, provide consistency and comparability with our past financial performance and facilitate period-to-period comparisons of our core operating results as well as the results of our peer companies.

Previous wording

•Adjusted EBITDA and Adjusted EBITDA Margin do not reflect other income (loss), net;

Current wording

•adjusted EBITDA and adjusted EBITDA margin do not reflect other income, net;

Previous wording

The following table reflects a reconciliation of Adjusted EBITDA to Net Income, the most directly comparable financial measure prepared in accordance with GAAP and presents Adjusted EBITDA Margin with Net Income Margin, the most directly comparable financial measure prepared in accordance with GAAP:

Current wording

The following table reflects a reconciliation of adjusted EBITDA to net income (loss), the most directly comparable financial measure prepared in accordance with GAAP and presents adjusted EBITDA margin with net income (loss) margin, the most directly comparable financial measure prepared in accordance with GAAP:

Previous wording

(1) Excludes amortization of debt issuance costs included in “Other income, net.”

Current wording

(1)Excludes amortization of debt issuance costs included in “Other income, net.”

Previous wording

(2) Includes stock-based compensation expense, payroll taxes and costs related to equity award activity.

Current wording

(2)Includes stock-based compensation expense, payroll taxes and costs related to equity award activity.

Previous wording

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

Current wording

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

Previous 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.

Current wording

As of March 31, 2025 and December 31, 2024, we had $90.0 million and $85.6 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 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.

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. On February 27, 2025, our board of directors authorized an increase of $50.0 million to the share repurchase program, bringing the total authorization for repurchases under the program to up to $100.0 million of our outstanding Class A common stock. During the three months ended March 31, 2025, we repurchased 567,607 shares of our Class A common stock for approximately $2.7 million. As of March 31, 2025, we had approximately $52.0 million available for future repurchases under the share repurchase program.

Previous wording

Cash flows from operating activities consists primarily of net income adjusted for certain items including depreciation and amortization, stock-based compensation expense and the effect of changes in operating assets and liabilities.

Current wording

Cash flows from operating activities consist primarily of net income (loss) adjusted for certain items including depreciation and amortization, stock-based compensation expense and the effect of changes in operating assets and liabilities.

Previous 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.

Current wording

Cash flows from operating activities decreased by $2.4 million for the three months ended March 31, 2025, compared to the same period last year. The decrease in cash provided from operating activities was a result of a decrease in net income (loss), including the impact of non-cash adjustments, of $3.2 million. In addition, cash provided by operating activities decreased due to timing of cash payments related to accounts payable of $5.1 million, higher inventory purchases of $4.4 million, and the timing of cash receipts related to deferred revenue of $2.4 million. The decrease in operating cash flows was partly offset by higher cash flows due to the timing of payments against accrued expenses of $6.2 million, the timing of payments of prepaid expenses and other current assets of $2.7 million, the timing of payments of accrued compensation and benefits of $2.4 million, and lower operating lease liabilities of $1.3 million.

Previous wording

Cash flows from investing activities relate to capital expenditures and the purchases and maturities of investments.

Current wording

Cash flows from investing activities consist of capital expenditures and purchases of investments.

Previous 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.

Current wording

Cash flows from investing activities decreased by $1.7 million for the three months ended March 31, 2025, compared to the same period last year. The decrease in cash flows from investing activities was primarily due to an increase in purchases of available-for-sale securities of $13.3 million and an increase in capital expenditures of $0.8 million, offset by an increase in maturities of available-for-sale securities of $12.7 million.

Previous 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.

Current wording

Capital expenditures during the three months ended March 31, 2025 were primarily related to capitalized software development costs and purchases of computer equipment.

Previous wording

Cash flows from financing activities consists primarily of proceeds and payments related to transactions involving our common stock, borrowings, and fees associated with our existing line of credit.

Current wording

Cash flows from financing activities consist primarily of proceeds and payments related to transactions involving our common stock, borrowings, and fees associated with our existing line of credit.

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 nine months ended September 30, 2024.

Current wording

Refer to Note 10 to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q for commitments entered into during the three months ended March 31, 2025.

Previous 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.

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, revenues, costs, 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.