figs-20240331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


x			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024


o			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________________ to ___________________

Commission File Number: 001-40448

FIGS, Inc.

(Exact Name of Registrant as Specified in its Charter)


Delaware			46-2005653
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
2834 Colorado Avenue, Suite 100 Santa Monica, CA			90404
(Address of principal executive offices)			(Zip Code)

(424) 300-8330

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A common stock, $0.0001 par value per share

FIGS

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of April 30, 2024, there were 161,944,492 shares of the registrant’s Class A common stock, par value $0.0001 per share, outstanding and 8,283,641 shares of the registrant’s Class B common stock, $0.0001 par value per share, outstanding.

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TABLE OF CONTENTS


		Page
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Balance Sheets	6
	Condensed Statements of Operations and Comprehensive Income	7
	Condensed Statements of Stockholders’ Equity	9
	Condensed Statements of Cash Flows	10
	Notes to Condensed Financial Statements	11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.	Controls and Procedures	28

PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	65
Item 3.	Defaults Upon Senior Securities	66
Item 4.	Mine Safety Disclosures	67
Item 5.	Other Information	68
Item 6.	Exhibits	69
Signatures		70

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FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1955, as amended. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q may be forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “forecast,” “predict,” “potential,” “strategy,” “strive” or “continue” or the negative of these terms or other similar expressions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, without limitation, statements regarding our future results of operations and financial position; our industry; business and macroeconomic trends; the impact of macroeconomic pressures; our use of ocean and air freight; the fact that we may continue to contend with global supply chain challenges; demand for our products; our expectations regarding the opening and success of retail stores; our plans for evolving our sourcing capabilities and strategically refining our manufacturing base; our fulfillment enhancement project and the impact of and timing for our transition to a new fulfillment center; the impact of conflict in the Middle East on our business; equity compensation; our marketing strategy; competition; market growth; our business strategy; and plans and objectives for future operations.

The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. Forward-looking statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including, but not limited to, the important factors discussed in Part II, Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q. The forward-looking statements in this Quarterly Report on Form 10-Q are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed as exhibits to this Quarterly Report on Form 10-Q with the understanding that our actual future results, performance and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained in this Quarterly Report on Form 10-Q, whether as a result of any new information, future events or otherwise.

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SUMMARY RISK FACTORS

Our business is subject to numerous risks and uncertainties, including those described in Part II, Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q. You should carefully consider these risks and uncertainties when investing in our Class A common stock. The principal risks and uncertainties affecting our business include the following:

•Our historical growth may not be sustainable or indicative of future growth, and we expect our growth rate to slow over time.

•If we fail to manage the expansion of our business effectively, our financial condition and results of operations may be adversely affected.

•We have not always been profitable and may not be profitable in the future.

•Our success depends on our ability to maintain the value and reputation of our brand.

•If we fail to attract new customers, retain existing customers, or fail to maintain or increase sales to those customers, our business, financial condition, results of operations and growth prospects will be harmed.

•If our marketing efforts are not successful, our business, financial condition and results of operations could be harmed.

•Our business depends on our ability to maintain a strong community of engaged customers and ambassadors, including through the use of social media. We may not be able to maintain and enhance our brand if we experience negative publicity related to our marketing efforts or use of social media, fail to maintain and grow our network of ambassadors or otherwise fail to meet our customers’ expectations.

•If we do not continue to successfully develop and introduce new, innovative and updated products, we may not be able to maintain or increase our sales and profitability.

•The market for healthcare apparel is highly competitive.

•Our future success depends on the continuing efforts of our key employees and our ability to attract and retain highly skilled team members.

•We plan to expand into additional international markets over time, which will expose us to new and significant risks.

•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.

•If we experience problems with our distribution and warehouse management systems, our ability to meet customer expectations, manage inventory, complete sales and achieve objectives for operating efficiencies could be harmed.

•If we are unable to accurately forecast customer demand, manage our inventory and plan for future expenses, our results of operations could be adversely affected.

•Consumer confidence, shopping behavior and spending have been and may continue to be negatively impacted by factors beyond our control, including supply chain disruptions, inflation, high interest rates, fear of recession or entry into a recession, geopolitical tensions and military conflicts, and healthcare workforce-related stress, which may adversely affect our business, financial condition and results of operations.

•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.

•If proprietary, confidential or sensitive information or personal data about our customers is disclosed, or if we or our third-party providers are subject to real or perceived cyberattacks, our customers may curtail use of our website or mobile app, we may be exposed to liability and our reputation could suffer.

•Our quarterly results of operations have from time to time, and may in the future fluctuate, and if our operating and financial performance in any given period does not meet the guidance that we have provided to the public or the expectations of our investors and securities analysts, the trading price of our Class A common stock may decline.

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•The dual-class structure of our common stock and voting agreement among us and our co-founders, Heather Hasson and Trina Spear, Tulco, LLC and Thomas Tull and certain related persons and trusts have the effect of concentrating voting control with Ms. Hasson, Ms. Spear and Mr. Tull, who together hold the majority of the voting power of our outstanding capital stock, which may limit or preclude your ability to influence corporate matters, including the election of directors and the approval of any change of control transaction.

•We are a “controlled company” within the meaning of the rules of the New York Stock Exchange and, as a result, qualify for, and rely on, exemptions from certain corporate governance requirements. You do not have the same protections afforded to stockholders of companies that are subject to such requirements.

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

FIGS, INC.

CONDENSED BALANCE SHEETS

(In thousands, except share and per share data)


	As of
	March 31, 2024		December 31, 2023
Assets	(Unaudited)
Current assets
Cash and cash equivalents	$	155,328	$	144,173
Short-term investments	103,845		102,522
Accounts receivable	5,413		7,469
Inventory, net	130,466		119,040
Prepaid expenses and other current assets	10,526		12,455
Total current assets	405,578		385,659
Non-current assets
Property and equipment, net	28,054		24,864
Operating lease right-of-use assets	57,219		43,059
Deferred tax assets	18,040		18,291
Other assets	2,047		1,336
Total non-current assets	105,360		87,550
Total assets	$	510,938	$	473,209
Liabilities and stockholders’ equity
Current liabilities
Accounts payable	$	22,216	$	14,749
Operating lease liabilities	9,233		8,230
Accrued expenses	16,604		7,906
Accrued compensation and benefits	4,329		7,312
Sales tax payable	3,392		3,149
Gift card liability	7,647		8,240
Deferred revenue	1,884		2,160
Returns reserve	2,707		2,989
Income tax payable	3,813		2,557
Total current liabilities	71,825		57,292
Non-current liabilities
Operating lease liabilities, non-current	49,055		38,884
Other non-current liabilities	183		183
Total liabilities	$	121,063	$	96,359
Commitments and contingencies (Note 9)
Stockholders’ equity
Class A Common stock — par value $0.0001 per share, 1,000,000,000 shares authorized as of March 31, 2024 and December 31, 2023; 161,801,871 and 161,457,403 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively	16		16
Class B Common stock — par value $0.0001 per share, 150,000,000 shares authorized as of March 31, 2024 and December 31, 2023; 8,283,641 shares issued and outstanding as of March 31, 2024 and December 31, 2023	—		—
Preferred stock — par value $0.0001 per share, 100,000,000 shares authorized as of March 31, 2024 and December 31, 2023; zero shares issued and outstanding as of March 31, 2024 and December 31, 2023	—		—
Additional paid-in capital	326,696		315,075
Accumulated other comprehensive income (loss)	(26)		5
Retained earnings	63,189		61,754
Total stockholders’ equity	389,875		376,850
Total liabilities and stockholders’ equity	$	510,938	$	473,209

The accompanying notes are an integral part of these unaudited condensed financial statements.

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FIGS, INC.

CONDENSED STATEMENTS OF OPERATIONS

(In thousands, except share and per share data)

(Unaudited)


	Three months ended March 31,
	2024		2023
Net revenues	$	119,293	$	120,232
Cost of goods sold	37,156		34,556
Gross profit	82,137		85,676
Operating expenses
Selling	28,459		31,158
Marketing	17,246		17,064
General and administrative	35,989		34,157
Total operating expenses	81,694		82,379
Net income from operations	443		3,297
Other income, net
Interest income	2,847		1,072
Other expense	(10)		(1)
Total other income, net	2,837		1,071
Net income before provision for income taxes	3,280		4,368
Provision for income taxes	1,845		2,459
Net income	$	1,435	$	1,909
Earnings attributable to Class A and Class B common stockholders
Basic earnings per share	$	0.01	$	0.01
Diluted earnings per share	$	0.01	$	0.01
Weighted-average shares outstanding—basic	169,923,479		166,773,335
Weighted-average shares outstanding—diluted	180,701,844		182,853,746

The accompanying notes are an integral part of these unaudited condensed financial statements.

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FIGS, INC.

CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)


	Three months ended March 31,
	2024		2023
Net income	$	1,435	$	1,909
Other comprehensive loss, net of tax
Unrealized loss on short-term investments, net of tax	(31)		—
Total other comprehensive loss, net of tax	(31)		—
Total comprehensive income	$	1,404	$	1,909

The accompanying notes are an integral part of these unaudited condensed financial statements.

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FIGS, INC.

CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share data)

(Unaudited)


	Class A Common Stock			Class B Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount
December 31, 2022	159,351,307	$	16	7,210,795	$	—	$	268,606	$	39,117	$	—	$	307,739
Issuance of Class A Common Stock upon vesting of Restricted Stock	494,487	—		—	—		—		—		—		—
Issuance of Class B Common Stock upon exchange of Class A Common Stock	(271,219)	—		271,219	—		—		—		—		—
Restricted Stock surrendered for employee's tax liability	—	—		—	—		(246)		—		—		(246)
Stock-based compensation	—	—		—	—		10,790		—		—		10,790
Stock option exercises	2,250	—		—	—		1		—		—		1
Net income	—	—		—	—		—		1,909		—		1,909
March 31, 2023	159,576,825	$	16	7,482,014	$	—	$	279,151	$	41,026	$	—	$	320,193


	Class A Common Stock			Class B Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount
December 31, 2023	161,457,403	$	16	8,283,641	$	—	$	315,075	$	61,754	$	5	$	376,850
Issuance of Class A Common Stock upon vesting of Restricted Stock	325,466	—		—	—		—		—		—		—
Stock-based compensation	—	—		—	—		11,611		—		—		11,611
Stock option exercises	19,002	—		—	—		10		—		—		10
Net income	—	—		—	—		—		1,435		—		1,435
Other comprehensive loss	—	—		—	—		—		—		(31)		(31)
March 31, 2024	161,801,871	$	16	8,283,641	$	—	$	326,696	$	63,189	$	(26)	$	389,875

The accompanying notes are an integral part of these unaudited condensed financial statements.

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FIGS, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Three months ended March 31,
	2024		2023
Cash flows from operating activities:
Net income	$	1,435	$	1,909
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization expense	850		659
Deferred income taxes	251		(440)
Non-cash operating lease cost	1,761		666
Stock-based compensation	11,611		10,790
Accretion of discount on available-for-sale securities	(1,376)		—
Changes in operating assets and liabilities:
Accounts receivable	2,056		3,085
Inventory	(11,426)		(2,397)
Prepaid expenses and other current assets	198		2,303
Other assets	(711)		62
Accounts payable	6,407		(12,439)
Accrued expenses	6,214		(4,894)
Accrued compensation and benefits	(2,983)		231
Sales tax payable	243		332
Gift card liability	(593)		(351)
Deferred revenue	(276)		(2,080)
Returns reserve	(282)		44
Income tax payable	1,256		382
Operating lease liabilities	(3,016)		(743)

Net cash (used in) provided by operating activities	11,619		(2,881)
Cash flows from investing activities:
Purchases of property and equipment	(496)		(772)
Purchases of available-for-sale securities	(41,278)		—
Maturities of available-for-sale securities	41,300		—
Net cash used in investing activities	(474)		(772)
Cash flows from financing activities:
Proceeds from stock option exercises and employee stock purchases	10		1
Tax payments related to net share settlements on restricted stock units	—		(246)


Net cash (used in) provided by financing activities	10		(245)
Net change in cash and cash equivalents	11,155		(3,898)
Cash and cash equivalents, beginning of period	144,173		159,775
Cash and cash equivalents, end of period	$	155,328	$	155,877
Supplemental disclosures:
Property and equipment included in accounts payable and accrued expenses	$	3,997	$	123
Lease assets obtained in exchange for new operating lease liabilities	$	15,921	$	—

The accompanying notes are an integral part of these unaudited condensed financial statements.

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FIGS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

1. DESCRIPTION OF BUSINESS

FIGS, Inc. (the “Company”), a Delaware corporation, was founded in 2013 and is a founder-led, direct-to-consumer healthcare apparel and lifestyle brand company. The Company designs and sells scrubwear and non-scrubwear, such as outerwear, underscrubs, footwear, compression socks, lab coats, loungewear and other apparel. The Company markets and sells its products primarily in the United States. Sales are primarily generated through the Company’s digital platforms.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information. The Company’s fiscal year ends on December 31. Certain information and footnote disclosures normally included in the Company’s annual audited financial statements and accompanying notes have been condensed or omitted in these accompanying interim condensed financial statements and footnotes. Certain reclassifications have been made to prior-year amounts to conform to the current period presentation. These unaudited condensed financial statements should be read in conjunction with the audited financial statements and related notes for the year ended December 31, 2023, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 28, 2024.

In the opinion of management, the unaudited condensed financial statements include all adjustments of a normal recurring nature necessary for the fair presentation of the Company’s financial position, results of operations, and cash flows. The results of operations for the three months ended March 31, 2024 are not necessarily indicative of the results to be expected for the year ending December 31, 2024.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods presented. Significant estimates include, but are not limited to, the valuation of the net realizable value of inventory, reserves for sales returns, allowances for doubtful accounts, stock-based compensation, contingent sales tax liability, and the useful lives and recoverability of long-lived assets. Actual results could differ from those estimates.

Short-term Investments

The Company holds short-term investments in U.S. government debt securities and corporate debt securities. The Company’s short-term investments mature within 12-months or less and are classified as current assets on the Company’s condensed balance sheets and have been classified and accounted for as available-for-sale securities. The Company determines the appropriate classification of its investments at the time of purchase and reevaluates their classification at each balance sheet date.

The Company’s available-for-sale investments in debt securities are carried at fair value with unrealized gains and losses, net of taxes, reported within accumulated other comprehensive income in stockholders’ equity. Available-for-sale debt securities with an amortized cost basis in excess of estimated fair value are assessed to determine what amount of that difference, if any, is caused by expected credit losses, with any allowance for credit losses recognized as a charge in other expense on the Company’s statements of operations. The Company did not record any credit losses on its available-for-sale debt securities in any of the periods presented. The Company determines gains or losses on the sale or maturities of short-term investments using the specific identification method and gains or losses are recorded in other expense on the Company’s condensed statements of operations.

Inventory, Net

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Inventory consists of finished goods and is accounted for using an average cost method. Inventory is valued at the lower of cost or net realizable value. The Company records a provision for excess and obsolete inventory to adjust the carrying value of inventory based on assumptions regarding future demand for the Company’s products.

Lower of cost or net realizable value is evaluated by considering obsolescence, excessive levels of inventory, deterioration, and other factors. Adjustments to reduce the cost of inventory to its net realizable value, if required, are made for estimated excess, obsolescence, or impaired inventory. Excess and obsolete inventory is charged to cost of goods sold.

The Company’s allowance to write down inventory to the lower of cost or net realizable value was not material as of March 31, 2024 and December 31, 2023.

Revenue Recognition

The Company recognizes revenues in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASC 606”). Revenue is recognized in an amount that reflects the consideration expected to be received in exchange for products. To determine revenue recognition for contracts with customers within the scope of ASC 606, the Company recognizes revenue from the commercial sales of products and contracts by applying the following five steps (i) identify the contract(s) with a customer; (ii) identify the performance obligations of the contract(s); (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract(s); and (v) recognize revenue when (or as) the Company satisfies the performance obligations.

The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. The Company recognizes revenue at a point in time when it satisfies a performance obligation and transfers control of the products to the respective customers, which occurs when the goods are transferred to a common carrier. Shipping and handling costs associated with outbound freight incurred to transfer a product to a customer are treated as a fulfillment activity, and as a result, any fees received from customers are included in the transaction price for the performance obligation of providing goods to the customer.

The Company generally provides refunds for goods returned within 30 days from the original purchase date. A returns reserve is recorded by the Company based on the historical refund pattern. The returns reserve on the condensed balance sheets was $2.7 million and $3.0 million as of March 31, 2024 and December 31, 2023, respectively.

Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue. The Company records deferred revenue when it receives payments in advance of the transfer of the goods to a common carrier. The amounts recorded are expected to be recognized as revenue within the 12 months following the balance sheet date and, therefore, are classified as current liabilities on the Company’s condensed balance sheets.

The Company does not have significant contract balances other than deferred revenue, the allowance for sales returns and liabilities related to its gift cards. The Company recognized revenues of $1.9 million during the three months ended March 31, 2024 related to the deferred revenue balance that existed at December 31, 2023. The Company recognized revenues of $1.8 million during the three months ended March 31, 2024 related to redemptions from the gift card liability balance that existed at December 31, 2023. The Company does not have significant contract acquisition costs.

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The following table presents the disaggregation of the Company’s net revenues for the three months ended March 31, 2024 and 2023 as follows (in thousands):


	Three months ended March 31,
	2024		2023
By geography:
United States	$	103,070	$	107,680
Rest of the world	16,223		12,552
	$	119,293	$	120,232
By product:
Scrubwear	$	94,896	$	97,866
Non-Scrubwear	24,397		22,366
	$	119,293	$	120,232

Recently Issued Accounting Pronouncements

In November 2023, the FASB issued ASU 2023-07, Improvements to Reportable Segment Disclosures, which improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. In addition, the amendments enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for entities with a single reportable segment, and contain other disclosure requirements. This ASU is effective for public companies with annual periods beginning after December 15, 2023, and interim periods within annual period beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the effects adoption of this guidance will have on its financial statements.

In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, which requires disclosure of disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. This ASU is effective for public companies with annual periods beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the effects adoption of this guidance will have on its financial statements.

3. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

The Company's cash equivalents consist of money market funds and highly liquid investments with original maturities of 90 days or less from the date of purchase. The Company classifies cash equivalents and short-term investments within Level 1 or Level 2 of the fair value hierarchy.

The following tables present the Company's cash equivalents and short-term investments by significant investment category and fair value level as of March 31, 2024, and December 31, 2023 (in thousands):


	March 31, 2024
	Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Level 1(1):
Money market funds	$	118,855	$	—	$	—	$	118,855
U.S. government securities	68,053		1		(7)		68,047
Level 2(2):
Corporate paper	35,818		—		(20)		35,798
Total	$	222,726	$	1	$	(27)	$	222,700

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	December 31, 2023
	Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Level 1(1):
Money market funds	$	117,328	$	—	$	—	$	117,328
U.S. government securities	64,630		12		—		64,642
Level 2(2):
Corporate paper	37,888		—		(7)		37,881
Total	$	219,846	$	12	$	(7)	$	219,851

(1) Level 1 fair value estimates are based on quoted prices in active markets for identical assets or liabilities.

(2) Level 2 fair value estimates are based on observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

There have been no transfers of assets between fair value levels during the periods presented. The carrying values of other current assets, accounts payable and accrued expenses approximate their fair values due to the short-term nature of these assets and liabilities.

4. ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following (in thousands):


	March 31, 2024		December 31, 2023
Trade	$	4,962	$	6,549
Other	451		920
	$	5,413	$	7,469

5. PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consisted of the following (in thousands):


	March 31, 2024		December 31, 2023
Inventory deposits	$	2,131	$	3,012
Prepaid expenses	7,370		8,173
Other	1,025		1,270
	$	10,526	$	12,455

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6. PROPERTY AND EQUIPMENT, NET

Property and equipment, net consisted of the following (in thousands):


	March 31, 2024		December 31, 2023
Furniture and fixtures	$	1,549	$	1,441
Office equipment	1,037		1,031
Machinery and equipment	2,855		2,753
Computer equipment	2,226		2,056
Software and website design	8,137		8,061
Leasehold improvements	3,779		3,696
Capital projects in progress	17,050		13,555
Total property and equipment	36,633		32,593
Less: accumulated depreciation and amortization	(8,579)		(7,729)
Property and equipment, net	$	28,054	$	24,864

Depreciation and amortization expense of property and equipment for the three months ended March 31, 2024 and 2023 was $0.9 million and $0.7 million, respectively.

7. ACCRUED EXPENSES

Accrued expenses consisted of the following (in thousands):


	March 31, 2024		December 31, 2023
Accrued inventory	$	1,690	$	2,126
Accrued shipping	1,229		565
Accrued selling expenses	3,957		2,601
Accrued marketing expenses	2,407		466
Accrued property and equipment	2,883		399
Accrued rent	2,048		—
Other accrued expenses	2,390		1,749
	$	16,604	$	7,906

8. FINANCING ARRANGEMENTS

On September 7, 2021, the Company, as borrower, entered into a credit agreement with Bank of America, N.A. for a $100.0 million revolving credit facility, including capacity to issue letters of credit (the “2021 Facility”). The 2021 Facility is secured by substantially all assets of the Company and its material subsidiaries, subject to customary exceptions. The 2021 Facility has a maturity date of September 7, 2026 (“2021 Facility Maturity Date”). As of March 31, 2024, the Company had letters of credit aggregating to $4.9 million outstanding under the 2021 Facility and available borrowings of $95.1 million. As of March 31, 2024, the Company had no outstanding borrowings under the 2021 Facility. Borrowings under the 2021 Facility are payable on the 2021 Facility Maturity Date. Borrowings bear interest at either (a) the Eurodollar Rate (as defined in the 2021 Facility) plus 1.125% or (b) the Base Rate (as defined in the 2021 Facility) plus 0.125%. The interest rate for undrawn amounts is 0.175%. Costs associated with entering into the 2021 Facility were not material.

On February 27, 2023, the Company entered into a first amendment (the “First Amendment”) to the 2021 Facility. The First Amendment amends the Credit Agreement to replace the London interbank offered rate (“LIBOR”) with a term rate based on the Secured Overnight Financing Rate (“SOFR”), together with certain administrative changes to facilitate such replacement. Except as amended by the First Amendment, the terms of the Credit Agreement remain in full force and effect.

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9. COMMITMENTS AND CONTINGENCIES

Taxes on Remote Sellers

The Company is subject to state laws or administrative practices with respect to taxes on remote sellers. In accordance with ASC 450, Contingencies, the Company recorded $1.5 million and $1.6 million within sales tax payable on the Company’s condensed balance sheets as of March 31, 2024, and December 31, 2023, respectively, as an estimate of contingent sales tax payable.

Inventory Purchase Obligations

Inventory purchase obligations as of March 31, 2024 were $54.1 million. These inventory purchase obligations can be impacted by various factors, including the timing of issuing orders and the timing of the shipment of orders.

Legal Contingencies

Legal claims may arise from time to time in the normal course of business, the results of which may have a material effect on the Company’s accompanying condensed financial statements.

A putative securities class action and related derivative suits against the Company and certain of its executive officers and directors are currently pending.

The Company intends to vigorously defend against such claims. The Company has determined that any potential loss is neither probable nor reasonably estimable and an accrual has not been recorded.

10. LEASES

The Company has operating lease agreements for its office space, retail stores, fulfillment center and fulfillment center equipment. The Company’s lease agreements have initial terms that expire between 2028 and 2030. Certain of the Company’s lease agreements include rent abatement periods, escalating rent payment provisions, and provide for an option to extend or terminate the lease.

The Company has a sublease agreement classified as an operating lease for additional office space with an initial term expiring in 2026. The sublease includes an option to extend the agreement, at the Company’s discretion, if the sublandlord declines to terminate its master lease. The sublease includes a rent abatement period and escalating rent payment provisions.

The operating lease and sublease agreements included in the measurement of lease liabilities do not reflect options to extend or terminate, as the Company does not consider the exercise of these options to be reasonably certain. The Company’s lease and sublease agreements do not contain any material residual value guarantees or material restrictive covenants.

The Company recognizes operating lease expense on a straight-line basis over the lease term. Operating lease expense for the three months ended March 31, 2024 and 2023 were $2.2 million, and $0.8 million, respectively.

Cash payments included in the measurement of operating lease liabilities were $3.5 million for the three months ended March 31, 2024. Right of use assets obtained in exchange for operating lease liabilities were $15.9 million for the three months ended March 31, 2024.

As the rates implicit in the Company’s outstanding leases are not determinable, the Company uses its incremental borrowing rate based on information available on the lease commencement date to determine the present value of lease payments.

The weighted-average remaining lease term and weighted-average discount rate related to the Company’s operating leases at March 31, 2024 were as follows:


Weighted-average remaining lease term	6.0 years
Weighted-average discount rate	6.6	%

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Future undiscounted lease payments, and a reconciliation of these payments to the Company’s operating lease liabilities at March 31, 2024, were as follows (in thousands):


Remainder of 2024	$	8,291
2025	13,254
2026	10,640
2027	11,175
2028	11,680
Thereafter	15,637
Total lease payments	$	70,677
Less: Imputed interest	(12,389)
Total lease liabilities	$	58,288

11. INCOME TAXES

The tax provision for interim periods is determined using an estimate of the Company’s annual effective tax rate, adjusted for discrete items arising during interim periods.

For the three months ended March 31, 2024 and 2023, the Company’s effective tax rate was 56.3%. The Company’s effective tax rate differed from the U.S. statutory tax rate primarily due to state taxes and limitations on the deductibility of officer compensation.

For the three months ended March 31, 2024 and 2023, the Company recorded income tax expense of $1.8 million and $2.5 million, respectively.

12. EARNINGS PER SHARE

Basic earnings per share (“basic EPS”) and diluted earnings per share (“diluted EPS”) attributable to common stockholders is calculated in conformity with the two-class method required for participating securities: Class A and Class B common stock. The rights of the holders of Class A and Class B common stock are identical, except with respect to voting, conversion, and transfer rights. Each share of Class A common stock is entitled to one vote per share and each share of Class B common stock is entitled to twenty votes per share. Each share of Class B common stock is convertible at any time at the option of the stockholder into one share of Class A common stock.

Basic EPS attributable to common stockholders is computed by dividing net income attributable to common stockholders by the weighted-average number of common shares outstanding during the period. For the calculation of diluted EPS, net income attributable to common stockholders for basic EPS is adjusted by the effect of dilutive securities. Diluted EPS attributable to common stockholders is computed by dividing the net income attributable to common stockholders by the weighted-average number of common shares outstanding, including all potentially dilutive common shares.

As the economic rights of Class A and Class B common stock are identical, undistributed earnings are allocated on a proportionate basis and presented on a combined basis. The following table sets forth the computation of basic and diluted

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EPS and a reconciliation of the weighted average number of common and common equivalent shares outstanding for the three months ended March 31, 2024 and 2023 (in thousands, except share and per share amounts):


	Three months ended March 31,
	2024		2023
Numerator:
Net income	$	1,435	$	1,909
Denominator:
Weighted-average shares—basic	169,923,479		166,773,335
Effect of dilutive stock options	10,609,912		14,843,572
Effect of dilutive restricted stock	168,452		1,236,839
Weighted-average shares—diluted	180,701,844		182,853,746

Earnings per share:
Basic earnings per share	$	0.01	$	0.01
Effect of dilutive stock options and restricted stock	—		—
Diluted earnings per share	$	0.01	$	0.01

The Company excluded the following weighted average common equivalent shares from the computation of diluted earnings per share for the three months ended March 31, 2024 and 2023 because including them would have had an anti-dilutive effect:


	Three months ended March 31,
	2024	2023
Stock options to purchase common stock	22,617,700	9,074,968
Restricted stock units	2,493,923	1,757,455

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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.

Overview

Our mission is to celebrate, empower and serve those who serve others.

We are a founder-led, direct-to-consumer healthcare apparel and lifestyle brand that seeks to celebrate, empower and serve current and future generations of healthcare professionals. We are committed to helping this growing, global community of professionals, whom we refer to as Awesome Humans, look, feel and perform at their best—24/7, 365 days a year. We create technically advanced apparel and products that feature an unmatched combination of comfort, durability, function and style, all at an affordable price. In doing so, we have redefined what scrubs are—giving rise to our tag-line: why wear scrubs, when you can #wearFIGS?

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.

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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.

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.

At March 31, 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.

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

•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;

•Net revenues decreased from $120.2 million to $119.3 million, or (0.8)%, for the three months ended March 31, 2024;

•Gross margin decreased 2.4 percentage points from 71.3% to 68.9% for the three months ended March 31, 2024;

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

•Net income margin decreased 0.4 percentage points from 1.6% to 1.2% for the three months ended March 31, 2024;

•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%;

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

•Free cash flow increased from $(3.7) million to $11.1 million for the three months ended March 31, 2024.

See the section titled “Key Operating Metrics and Non-GAAP Financial Measures” for information regarding Adjusted EBITDA, Adjusted EBITDA Margin and free cash flow, including reconciliations to the most directly comparable financial measures prepared in accordance with U.S. generally accepted accounting principles (“GAAP”).

Recent Developments

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.

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Supply Chain

Following the recent outbreak of conflict and violence in the Middle East, there has been an increase in attacks on commercial vessels transiting the Red Sea, causing disruptions in an important route for global trade, which our manufacturing partners, including those based in Jordan, utilize. Such attacks have also affected global ocean freight traffic generally, caused shipping delays and increased freight costs.

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.”

Key Factors Affecting Our Performance

We believe that our performance and future success depend on a number of factors that present significant opportunities for us. There have been no material changes to such factors from those described in our 2023 Annual Report on Form 10-K under the heading “Key Factors Affecting Our Performance.” Those factors also pose risks and challenges, including those discussed in Part II, Item 1A. “Risk Factors” of this Quarterly Report on Form 10-Q.

Components of Our Results of Operations

SEC Form 10-Q filed by FIGS Inc.