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What changed in FIGS, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of FIGS, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+494 added−479 removedSource: 10-K (2024-02-28) vs 10-K (2023-02-28)

Top changes in FIGS, Inc.'s 2023 10-K

494 paragraphs added · 479 removed · 376 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

78 edited+27 added−9 removed57 unchanged
Biggest changeWe maintain stringent Acceptable Quality Limit standards, which define the level of quality required to pass our inspection processes. We purchase our finished product from our manufacturers on a purchase order basis and do not have any long-term agreements requiring us to use any supplier or manufacturer.
Biggest changeWe purchase our finished product from our manufacturers on a purchase order basis and do not have any long-term agreements requiring us to use any supplier or manufacturer. We generally have long-standing relationships with our vendors, which are strengthened by the consistency and longevity of our core fabric and core style profile.
We collaborate with other highly regarded brands to further extend our brand reach and enhance our appeal 7 Table of Contents with customers. Through our Ambassador Program, we have formed meaningful relationships with hundreds of Awesome Humans who help us reach millions of healthcare professionals around the world in an intimate, authentic and personalized way.
We collaborate with other highly regarded brands to further extend our brand reach and enhance our appeal with customers. Through our Ambassador Program, we have formed meaningful relationships with hundreds of Awesome 7 Table of Contents Humans who help us reach millions of healthcare professionals around the world in an intimate, authentic and personalized way.
We are committed to operating responsibly and promoting ethical and 8 Table of Contents sustainable business practices through our sourcing and manufacturing. We prioritize building a diverse, inclusive, equitable and supportive team that is driven by creativity and purposeful innovation. Our Products We approach product design with the healthcare professional in mind.
We are committed to operating responsibly and promoting ethical and sustainable business practices through our sourcing and manufacturing. We prioritize building a diverse, inclusive, equitable and supportive team that is driven by creativity and purposeful innovation. 8 Table of Contents Our Products We approach product design with the healthcare professional in mind.
We leverage customer data, customer feedback, focus groups and practitioner testing to provide us with an intimate understanding of how medical professionals move, work and interact with colleagues and patients. Our tight feedback loop through our digital platform and social media channels and our customer experience team enables us to quickly incorporate ideas from our community into our product design.
We leverage customer data, customer feedback, focus groups and practitioner testing to provide us with an intimate understanding of how medical professionals move, work and interact with colleagues and patients. Our tight feedback loop through our digital platform, social media channels and our customer experience team enables us to quickly incorporate ideas from our community into our product design.
Our non-scrubwear products are intentionally designed as an integrated system that complements our scrubwear, and are comprised of “base layer” and “outer layer” products. Base layer products are those designed to be worn under scrubs and include compression socks and underscrubs. Our underscrubs include sports bras, performance leggings and tops and super-soft pima cotton tops.
Our non-scrubwear products are intentionally designed as an integrated system that complements our scrubwear, and are comprised of “base layer” and “outer layer” products. Base layer products are those designed to be worn under scrubs and include compression socks, underscrubs and under underscrubs. Our underscrubs include sports bras, performance leggings, performance tops and super-soft pima cotton tops.
To drive further engagement and individual ownership of the Company, we also maintain an employee stock purchase plan, which provides eligible employees an opportunity to purchase additional FIGS stock at a discounted price. Culture and Perks We believe that to be successful, each of our employees must feel empowered to show up as their true authentic selves.
To drive further engagement and individual ownership of the Company, we also maintain an employee stock purchase plan, which provides eligible employees an opportunity to purchase additional FIGS stock at a discounted price. Culture, Engagement and Perks We believe that to be successful, each of our employees must feel empowered to show up as their true authentic selves.
Our scrubs also feature easy-to-access zippered pockets for professional and personal items such as stethoscopes, scissors, smartphones and ID badges. Our non-scrubwear, such as lab coats, underscrubs, outerwear, loungewear, compression socks and footwear, are also specifically designed for the needs and preferences of the healthcare community.
Our scrubs also feature easy-to-access zippered pockets for professional and personal items such as stethoscopes, scissors, smartphones and ID badges. Our non-scrubwear offerings, such as outerwear, underscrubs, footwear, compression socks, lab coats, and loungewear, are also specifically designed for the needs and preferences of the healthcare community.
Our hiring methods currently include (1) utilizing special tools to review all communications to candidates to facilitate the use of inclusive language and (2) leveraging a bias scanner within our applicant tracking system to hide pictures or mask other elements that could introduce bias into the hiring process.
Our hiring methods currently include (1) utilizing special tools to review communications to candidates to facilitate the use of inclusive language and (2) leveraging a bias scanner within our applicant tracking system to hide pictures or mask other elements that could introduce bias into the hiring process.
In addition, through our digital platform and social media presence, we provide venues for our community to engage with each other on common ground. We are proud that our products and digital platform are connecting healthcare professionals and bridging gaps that previously existed across varying disciplines and experience levels.
In addition, through our digital platform, retail experience and social media presence, we provide venues for our community to engage with each other on common ground. We are proud that our products and digital platform are connecting healthcare professionals and bridging gaps that previously existed across varying disciplines and experience levels.
Our customers include a wide range of experience levels and areas of expertise, including registered nurses, nurse practitioners, orthodontists, dental hygienists, pharmacists, physical therapists, occupational therapists, veterinarians, sales representatives, estheticians, speech pathologists, emergency medical technicians, surgeons and healthcare administrators, among others.
Our customers include a wide range of experience levels and areas of expertise, including registered nurses, nurse practitioners, orthodontists, dental hygienists, pharmacists, physical therapists, occupational therapists, veterinarians, sales representatives, estheticians, speech pathologists, emergency medical technicians, surgeons and healthcare administrators, among many others.
Unlike most other categories in the apparel sector, scrubwear, due to its frequent wear as a uniform, is largely non-discretionary, replenishment driven, recession resistant and much less susceptible to fashion or fad risk.
Unlike most other categories in the apparel sector, scrubwear, due to its frequent wear as a uniform, is largely non-discretionary, replenishment-driven, recession resistant and less susceptible to fashion or fad risk.
While compliance with these laws and regulations often requires the dedication of time and effort of employees, as well as financial resources, for the fiscal year ended December 31, 2022 compliance with these laws and regulations, including any applicable environmental regulations, has not had, and in any material subsequent period is not expected to have, a material effect on our capital expenditures, results of operations or competitive position.
While compliance with these laws and regulations often requires the dedication of time and effort of employees, as well as financial resources, for the fiscal year ended December 31, 2023 compliance with these laws and regulations, including any applicable environmental regulations, has not had, and in any material subsequent period is not expected to have, a material effect on our capital expenditures, results of operations or competitive position.
These data sets are used to build proprietary data science solutions applied to key functions across the company, including product development, supply chain, merchandising and inventory management, and marketing.
These data sets are used to build proprietary data solutions applied to key functions across the company, including product development, supply chain, merchandising and inventory management, and marketing.
Our strong brand affinity is demonstrated by our high Net Promoter Score (“NPS”) of +79 through December 31, 2022. Industry-Leading Product Innovation Our design philosophy is rooted in Technical Comfort™— the conviction that design, comfort and function are non-negotiable. As such, we deliver innovation across fabric, function, fit and style, all of which is led by comfort and performance.
Our strong brand affinity is demonstrated by our high Net Promoter Score (“NPS”) of +79 through December 31, 2023. Industry-Leading Product Innovation Our design philosophy is rooted in Technical Comfort— the conviction that design, comfort and function are non-negotiable. As such, we deliver innovation across fabric, function, fit and style, all of which is led by comfort and performance.
Our Marketing Strategy We create differentiated brand marketing content and utilize performance marketing to drive customers from awareness to consideration to conversion. 9 Table of Contents Brand Marketing We attract and retain customers in large part through our unique ability to engage with our community, which we do across multiple channels, including marketing campaigns, social media and our Ambassador Program.
Our Marketing Strategy We create differentiated brand marketing content and utilize performance marketing to drive customers from awareness to consideration to conversion. 9 Table of Contents Brand Marketing We attract and retain customers in large part through our unique ability to engage with our community, which we do across multiple channels, including marketing campaigns, social media, our Ambassador Program, brand activations and brand collaborations.
If the foreign design registrations issued to us for our core scrubwear and apparel are maintained until the end of their terms, they are expected to expire in the years ranging between 2030 and 2047, at which point we intend to renew them, to the extent they are renewable.
If the foreign design registrations issued to us for our core scrubwear and apparel are maintained until the end of their terms, they are expected to expire in the years ranging between 2030 and 2048, at which point we intend to renew them, to the extent they are renewable.
The core elements of our employee health and safety strategy are risk analysis, incident management and training, including for our team members at our fulfillment center, and we ensure that our third-party logistics provider, which operates our fulfillment center, maintains robust safety practices as well.
The core elements of our employee health and safety strategy are risk analysis, incident management and training, including for our team members at our fulfillment center and our Community Hubs, and we ensure that our third-party logistics provider, which operates our fulfillment center, maintains robust safety practices as well.
Hospitals, medical offices, clinics and laboratories routinely require healthcare professionals such as doctors, nurses and medical technicians to wear scrubs, lab coats and other medical apparel during every shift, and the vast majority of medical professionals purchase their own uniforms.
In addition, hospitals, medical offices, clinics and laboratories routinely require healthcare professionals such as doctors, nurses and medical technicians to wear scrubs, lab coats and other medical apparel during every shift, and the vast majority of medical professionals purchase their own uniforms.
Consistent with this philosophy, we created our own headless digital platform, which is a fully customized front-end architecture that allows our community of healthcare professionals to experience features and functionality that are specifically tailored to their needs. We then combine that customized presentation layer with the backend engine from Shopify, which is a proven and industry-leading e-commerce solution.
Consistent with this philosophy, we created our own headless digital platform, which is a fully customized front-end architecture that allows our community of healthcare professionals to experience features and functionality that are specifically tailored to their needs. We then combine that customized presentation layer with the backend engine from Shopify, which is a proven and industry-leading eCommerce solution.
We have also developed a customized iOS app to drive more meaningful engagement with our healthcare community. The features of our app extend beyond enhancing the purchase experience, enabling us to connect more deeply with our healthcare community through relevant, educational content, personalization and wellness support.
We have also developed a customized iOS app to drive more meaningful engagement with our healthcare community. The features of our app extend beyond enhancing the purchase experience, enabling us to connect more deeply with our healthcare community through personalization and relevant content.
Our TEAMS Business We have built a differentiated B2B custom platform, known as TEAMS, to revolutionize, consumerize and elevate what had previously been an outdated buying process for institutional customers. Through TEAMS, healthcare administrators and institutions can seamlessly and efficiently solicit individual orders and buy FIGS products for their organizations.
Our TEAMS Business We have built a differentiated B2B custom platform, known as TEAMS, to revolutionize, consumerize and elevate what had previously been an outdated buying process for institutional customers. Through TEAMS, healthcare administrators and institutions can seamlessly and efficiently solicit individual orders and buy FIGS products for their 10 Table of Contents organizations.
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. We sell products purposefully designed to serve the particular needs of healthcare professionals primarily through a convenient direct-to-consumer (“DTC”) digital platform, consisting of our website and mobile app.
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. 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 compete against wholesalers of healthcare apparel, such as Careismatic Brands, Barco Uniforms, Landau Uniforms and Superior Group of Companies. Additionally, we compete with healthcare apparel aggregated retailers, such as Scrubs & Beyond and Uniform Advantage, as well as DTC brands such as Jaanuu and Mandala.
We compete against wholesalers of healthcare apparel, such as Careismatic Brands, Barco Uniforms, Landau Uniforms and Superior Group of Companies. Additionally, we compete with healthcare apparel aggregated retailers, such as Scrubs & Beyond and Uniform Advantage, as well as DTC brands such as 14 Table of Contents Jaanuu and Mandala.
What Sets Us Apart We believe that the following competitive strengths have been key drivers of our success to date and strategically position us for continued success. Deeply Passionate, Loyal Community By December 31, 2022, our deeply loyal community consisted of approximately 2.3 million active customers.
What Sets Us Apart We believe that the following competitive strengths have been key drivers of our success to date and strategically position us for continued success. Deeply Passionate, Loyal Community By December 31, 2023, our deeply loyal community consisted of approximately 2.6 million active customers.
We also use our digital platform to celebrate Awesome Humans in aspirational, creative and unexpected ways, and we leverage social media platforms to listen to, engage with, understand and better serve our community at scale.
We also use our voice to celebrate Awesome Humans in aspirational, creative and unexpected ways, and we leverage social media platforms to listen to, engage with, understand and better serve our community at scale.
Within this space, we also operate a technology-enabled embroidery workshop, through which we offer text and logo embroidery on scrub tops, lab coats and outerwear, enabling our healthcare professionals to tell the world who they are and what they do.
Within this space, we also operate a technology-enabled embroidery workshop, 12 Table of Contents through which we offer text and logo embroidery on scrub tops, lab coats and outerwear, enabling our healthcare professionals to tell the world who they are and what they do.
Our differentiated approach to creating authentic and meaningful relationships with our community has allowed us to build a growing base of approximately 2.3 million active customers as of December 31, 2022 who are passionate about and loyal to our brand.
Our differentiated approach to creating authentic and meaningful relationships with our community has allowed us to build a growing base of approximately 2.6 million active customers as of December 31, 2023 who are passionate about and loyal to our brand.
We were the first healthcare apparel company to have a significant presence on social media. We use social media to foster a dialogue with our community and grow an enthusiastic, highly engaged fan base. Today, we have over 820,000 followers on Instagram, which is over twice the number of followers of our nearest competitor.
We were the first healthcare apparel company to have a significant presence on social media. We use social media to foster a dialogue with our community and grow an enthusiastic, highly engaged fan base. Today, we have over one million followers on Instagram, which is over twice the number of followers of our nearest DTC competitor.
We pride ourselves on hiring team members who not only have 12 Table of Contents the skills required to perform their respective roles, but also share in the mission to celebrate, empower and serve those who serve others.
We pride ourselves on hiring team members who not only have the skills required to perform their respective roles, but also share in the mission to celebrate, empower and serve those who serve others.
Consumers continue to embrace the convenience of online and mobile shopping. For healthcare professionals who work long shifts and all hours of the day and night, the convenience of eCommerce is even more necessary. Lastly, consumers are increasingly attracted to, and interested in engaging with, purpose-driven brands using social media channels.
For healthcare professionals who work long shifts and all hours of the day and night, the convenience of eCommerce is even more necessary. Lastly, consumers are increasingly attracted to, and interested in engaging with, purpose-driven brands using social media channels.
As an additional benefit, our product portfolio has resulted in a return rate of approximately 10% in 2021 and 2022, which is far lower than the broader online apparel return rates that tend to be in the 30% to 40% range.
As an additional benefit, our product portfolio has resulted in a return rate of approximately 10% from 2021 through 2023, which is far lower than the broader online apparel return rates that tend to be in the 30% to 40% range.
We also launch limited edition colors, limited edition styles or new products almost every week, which not only drive excitement, but also drive our core business by encouraging recurring traffic to our digital platform.
We also frequently launch limited edition colors, limited edition styles or new products, which not only drive excitement, but also drive our core business by encouraging recurring traffic to our digital platform.
Our Supply Chain We have built a supply chain that is optimized for our business and through which we control the design, development and fulfillment of our products. Manufacturing We have a diversified and flexible supply chain that leverages third-party suppliers and manufacturers to produce our product components and finished products.
Our Supply Chain We have built a supply chain that is optimized for our business and through which we control the design, development and fulfillment of our products. Sourcing and Manufacturing We have a diversified and flexible supply chain that leverages global third-party suppliers and manufacturers spread across multiple continents to produce our product components and finished products.
We redefined scrubs, engineering them for function and taking cues from performance sports apparel, to create exceptionally comfortable and technical products to help healthcare professionals look good, feel good and perform at their best. Within the scrubwear category, we have 13 core styles that are available on our digital platform year-round.
We redefined scrubs, engineering them for function and taking cues from performance sports apparel, to create exceptionally comfortable and technical products to help healthcare professionals look good, feel good and perform at their best. Within the scrubwear category, as of December 31, 2023, we had 15 core styles that are available on our digital platform year-round.
Our rich data set is blended from first-party, deterministic and observed behaviors, a complementary, expanded set of enriched elements and hundreds of data attributes associated with millions of customers. In addition, we have established a unique approach to capturing granular data from all stages of the order 10 Table of Contents journey.
The scale of our data is vast and growing. Our rich data set is blended from first-party, deterministic and observed behaviors, a complementary, expanded set of enriched elements and thousands of data attributes associated with millions of customers. In addition, we have established a unique approach to capturing granular data from all stages of the order journey.
As of December 31, 2022, our workforce predominantly remains in a hybrid work environment, and we have provided resources to enable employees to effectively manage remote work, such as web conferencing and project collaboration solutions and equipment and supplies for at-home offices.
As of December 31, 2023, our workforce predominantly remains in a hybrid work environment, and we have provided resources to enable employees to effectively manage remote work, such as web conferencing and project collaboration solutions and equipment and supplies for at-home offices. We have also supported our team with hybrid-focused learning and development training.
We also have developed an advocacy program designed to address some of the biggest challenges, including the need for equitable compensation, access to mental health services, workplace safety, reduced administrative burdens, and training, which are facing healthcare professionals today.
We also have developed an advocacy program, through which we are actively lobbying for our Awesome Humans Bill, a platform we designed to address the biggest challenges facing healthcare professionals today, including the need for equitable compensation, access to mental health services, workplace safety, reduced administrative burdens, and training.
We also may face competition from large, diversified apparel brands with name recognition and well-established sales, manufacturing and distribution infrastructure that choose to expand into the production and marketing of healthcare apparel. One such brand, Fabletics, has recently done so.
We also currently and in the future may continue to face competition from large, diversified apparel brands with name recognition and well-established sales, manufacturing and distribution infrastructure that choose to expand into the production and marketing of healthcare apparel, such as Fabletics.
This approach enables the harvesting and management of extensive data, the development of a suite of proprietary tools, and the direct and rapid application of those data and tools to improve core operating activities and decision-making processes throughout the Company. The scale of our data is vast and growing.
Our data team works directly with key functional areas of the Company. This approach enables the harvesting and management of extensive data, the development of a suite of proprietary tools, and the direct and rapid application of those data and tools to improve core operating activities and decision-making processes throughout the Company.
Prior to FIGS, the healthcare apparel industry had operated for over 100 years with little change or innovation. Despite attractive market fundamentals, the industry had been held back, and its consumers underserved, by legacy participants with outdated business models.
The Industry Has Historically Lacked Innovation and is Fundamentally Changing. Prior to FIGS, the healthcare apparel industry had operated for over 100 years with little change or innovation. Despite attractive market fundamentals, the industry had been held back, and its consumers underserved, by legacy participants with outdated business models. Consumers increasingly embrace the convenience of online and mobile shopping.
Our Tier I Suppliers are contractually required to adhere to the provisions of our Vendor Manual, through which they commit to providing working conditions that meet or exceed the labor standards established by the United Nations, local labor laws and the standards established by the Fair Labor Association.
Our Tier I Suppliers are contractually required to adhere to the Vendor Code of Conduct in our Vendor Manual, through which they commit to providing working conditions that meet or exceed the labor standards established by the United Nations International Labor Organisation Declaration on Fundamental Principles and Rights at Work, local labor laws and the standards established by the Fair Labor Association.
As of December 31, 2022, we had 12 granted U.S. design patents, eight pending U.S. design patent applications, 62 granted foreign design registrations and 28 pending foreign design applications, which relate to our core scrubwear and other apparel designs.
As of December 31, 2023, we had 15 granted U.S. design patents, seven pending U.S. design patent applications, 82 granted foreign design registrations and 22 pending foreign design applications, which relate to our core scrubwear and other apparel designs.
In 2020, the total addressable market of the healthcare apparel industry was an estimated $12.0 billion in the United States alone and $79.0 billion globally, according to an April 2021 Frost & Sullivan study that we commissioned (the “Frost & Sullivan Study”).
Finally, we believe the healthcare apparel industry will be supported by the long-term secular growth of the healthcare sector. In 2020, the total addressable market of the healthcare apparel industry was an estimated $12.0 billion in the United States alone and $79.0 billion globally, according to an April 2021 Frost & Sullivan study that we commissioned.
While there is considerable diversity in demographics and income levels within the healthcare sector, we attract a diverse range of healthcare professionals by having a differentiated brand and offering premium products at an affordable price point.
Our Community of Awesome Humans We strive to celebrate, empower and serve healthcare professionals across all levels of experience and areas of expertise. While there is considerable diversity in demographics and income levels within the healthcare sector, we attract a diverse range of healthcare professionals by having a differentiated brand and offering premium products at an affordable price point.
We are proud that we grant all new hires equity as part of their total compensation package, which we believe fosters a stronger sense of ownership and aligns our employees’ interests with the interests and growth of the Company.
Our 2021 Equity Incentive Award Plan additionally provides for grants of equity awards to employees. We are proud that we grant all full-time permanent new hires equity as part of their total compensation package, which we believe fosters a stronger sense of ownership and aligns our employees’ interests with the interests and growth of the Company.
None of our employees is represented by a labor union. We have not experienced any work stoppages, and we consider our relations with our employees to be good.
Additionally, we rely on independent contractors and temporary personnel to supplement our workforce from time to time. None of our employees is represented by a labor union. We have not experienced any work stoppages, and we consider our relations with our employees to be good.
We understand that authentically serving humans starts from within, and we are passionate about supporting our community and enabling our company to reflect the world we want to live in.
Our People and Human Capital Our company culture mirrors our mission to celebrate, empower and serve those who serve others. We understand that authentically serving humans starts from within, and we are passionate about supporting our community and enabling our company to reflect the world we want to live in.
Our products sold outside of the United States may be subject to tariffs, treaties and various trade agreements, as well as laws affecting the importation of consumer goods. We monitor changes in these laws and believe that we are in material compliance with applicable laws.
Our products sold outside of the United States may be subject to tariffs, treaties and various trade agreements, as well as laws affecting the importation of consumer goods.
Our Ambassador Program is a microcosm of our FIGS community—they are invaluable to us, they inspire and inform everything we do, and we would not be where we are today without them. Performance Marketing Our performance marketing aims to offer the right products to the right healthcare professionals at the right times.
Our Ambassador Program is a microcosm of our FIGS community—they are invaluable to us, they inspire and inform everything we do, and we would not be where we are today without them. Brand Activations .
We also source new suppliers and manufacturers to support our ongoing innovation and growth, particularly in our non-scrubwear categories. 11 Table of Contents Ethical Practices We contractually commit all of our direct suppliers and manufacturers (“Tier I Suppliers”) to certain ethical requirements to help ensure they share our standards for quality of manufacturing, ethical working conditions and social and environmental sustainability practices.
Ethical Practices We contractually commit all of our direct suppliers and manufacturers (“Tier I Suppliers”) to certain ethical requirements to help ensure they share our standards for quality of manufacturing, ethical working conditions and social and environmental sustainability practices.
Our offerings include scrubwear and non-scrubwear, such as lab coats, underscrubs, outerwear, loungewear, compression socks, footwear and other lifestyle 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 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.
Competition Competition in the healthcare apparel industry is principally on the basis of product quality, innovation, style, price, brand image, distribution model, as well as customer experience and service. The healthcare apparel industry includes established companies as well as new entrants.
We also maintain a whistleblower hotline through which employees can report health and safety risks, among other concerns. Competition Competition in the healthcare apparel industry is principally on the basis of product quality, innovation, style, price, brand image, distribution model, as well as customer experience and service. The healthcare apparel industry includes established companies as well as new entrants.
To complement our scrubwear offering, we also offer non-scrubwear products, which together with our scrubwear, are intentionally designed to be worn as a Layering System from base layer to outer layer.
As of December 31, 2023, we offered 15 core scrubwear styles in seven core colors. In 2023, our core scrubwear styles represented over 71% of our net revenues. To complement our scrubwear offering, we also offer non-scrubwear products, which together with our scrubwear, are intentionally designed to be worn as a layering system from base layer to outer layer.
Our data team works directly with key functional areas of the Company, including apparel design and merchandising, customer acquisition and retention, demand forecasting and inventory optimization.
We develop proprietary and customized data solutions designed to optimize our product innovation, inventory analytics, marketing efforts and operational efficiency. Our data team works directly with key functional areas of the Company, including apparel design and merchandising, customer acquisition and retention, demand forecasting and inventory optimization.
As a company devoted to the needs of healthcare professionals, quality is critically important to us. We have our own in-house quality control team and also independent third-party quality controllers that each conduct detailed quality control checks on our fabric, trims and finished products to ensure that our extremely high quality standards are met.
We have our own in-house quality control team and also independent third-party quality controllers that each conduct detailed quality control checks on our fabric, trims and finished products to ensure that our extremely high quality standards are met. We maintain stringent Acceptable Quality Limit standards, which define the level of quality required to pass our inspection processes.
We also rely on several additional third-party storage locations in Southern California to house inventory and we regularly evaluate our distribution infrastructure and capacity to ensure that we are able to meet our anticipated needs and support our continued growth. Our People and Human Capital Our company culture mirrors our mission to celebrate, empower and serve those who serve others.
From time to time, we also rely on additional third-party storage locations to house inventory and we regularly evaluate our distribution infrastructure and capacity to ensure that we are able to meet our anticipated needs and support our continued growth and operations.
Our Culture Committee programming also provides a way for our employees to give back to the community, driving connections and making an impact on a wide variety of organizations in need. 13 Table of Contents Safety We are committed to the health and safety of our employees.
Our Culture Committee programming also provides a way for our employees to give back to the community, driving connections and making an impact on a wide variety of organizations in need. In 2023, we conducted a confidential employee engagement survey to give our employees the opportunity to provide input about their experiences with us.
Based on data collected in January 2023, we are proud that: • 38% of our board of directors identified as women and 25% identified as members of underrepresented racial or ethnic groups; • approximately 70% of our leadership team identified as women, 30% identified as men and 30% identified as members of underrepresented racial or ethnic groups; and • approximately 66% of our total workforce identified as women, 31% identified as men, 1% identified as non-binary, 1% identified as agender and 58% identified as members of underrepresented racial or ethnic groups.
Based on data collected in January 2024, we are proud that: • 33% of our board of directors identified as female and 33% identified as members of underrepresented racial or ethnic groups; 13 Table of Contents • approximately 64% of our leadership team identified as female and 18% identified as members of underrepresented racial or ethnic groups; and • approximately 67% of our total workforce identified as female, 29% identified as male, 1% identified as non-binary and 54% identified as members of underrepresented racial or ethnic groups.
As of December 31, 2022, we employed 313 team members in the United States across our Santa Monica, California headquarters, our City of Industry, California fulfillment center location and remote locations. As of December 31, 2022, 93% of our employees were permanent employees. Additionally, we rely on independent contractors and temporary personnel to supplement our workforce from time to time.
As of December 31, 2023, we employed 354 team members in the United States across our Santa Monica, California headquarters, our City of Industry, California fulfillment center location, our Los Angeles, California Community Hub and remote locations. As of December 31, 2023, 98% of our team members were permanent employees and 97% were full-time.
These core scrubwear styles consist of three women’s scrub tops, four women’s scrub pants, two men’s scrub tops and four men’s scrub pants. We offer these core styles in six core colors and in limited edition colors. Additionally, we frequently launch limited edition scrubwear styles in both core and limited edition colors. • Non-Scrubwear.
These core scrubwear styles consisted of four women’s scrub tops, four women’s scrub pants, one women’s scrub jumpsuit, two men’s scrub tops and four men’s scrub pants. We offered these core styles in seven core colors and in limited edition colors.
Our DTC strategy also gives us access to valuable real-time customer data. We leverage our rich customer data set, bolstered by the inherent benefits of our DTC model, to serve our community more effectively and efficiently. We develop proprietary and customized data solutions designed to optimize our product innovation, inventory analytics, marketing efforts and operational efficiency.
Each of our DTC digital platform and our retail channel also give us access to valuable real-time customer data. We leverage our rich customer data set, bolstered by the inherent benefits of our DTC model, to serve our community more effectively and efficiently.
Warehouse and Embroidery We distribute our products from our fulfillment center located in City of Industry, California, where we have created an innovative warehouse-within-a-warehouse model at our third-party logistics provider’s site.
Warehouse and Embroidery We distribute our products from our fulfillment center located in City of Industry, California, which is owned and operated by a third-party logistics provider.
With an expanding aging 6 Table of Contents population, proliferation of chronic illness, greater access to healthcare in the United States and an increasing focus on health and wellness, the demand for healthcare professionals continues to grow.
With an expanding aging population, proliferation of chronic illness, greater access to healthcare in the United States and an increasing focus on health and wellness, the demand for healthcare professionals continues to grow. Healthcare Apparel Is a Large, Growing and Largely Non-Discretionary Industry. We believe the healthcare apparel industry is positioned for long-term growth driven by several key industry dynamics.
Our principal executive offices are located at 2834 Colorado Avenue, Suite 100, Santa Monica, California 90404 and our telephone number is (424) 300-8330. Our website address is www.wearfigs.com. The information contained on, or that can be accessed through, our website is not incorporated by reference into, and is not a part of, this Annual Report on Form 10-K.
The information contained on, or that can be accessed through, our website is not incorporated by reference into, and is not a part of, this Annual Report on Form 10-K.
Our in-house innovation and design team works closely with our suppliers to develop the materials for our products that meet our exact specifications for comfort, stretch, durability, functionality and performance. In 2022, approximately 85% of our production utilized our main scrubwear fabric technology FIONx, which enables us to achieve consistency and scale.
Our in-house innovation and design team works closely with our suppliers to develop the materials for our products that meet our exacting standards for comfort, stretch, durability, functionality and performance.
Seasonality For information regarding the seasonality of our business, please refer to Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Annual Report on Form 10-K. Corporate and Available Information We were formed in 2013 as FIGS, Inc., a Delaware corporation.
We intend to pursue additional intellectual property protection to the extent we believe it would be beneficial and cost-effective. 15 Table of Contents Seasonality For information regarding the seasonality of our business, please refer to Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Annual Report on Form 10-K.
Our vast and growing data set also plays a critical role in driving new customer acquisition as well as in our community engagement and customer retention strategy.
Our vast and growing data set also plays a critical role in driving new customer acquisition as well as in our community engagement and customer retention strategy. Dynamic Merchandising and Product Launch Model We have developed a dynamic merchandising strategy, anchored by our recurring, functional offering of core scrubwear styles and colors we offer year round.
Outer layer products include footwear, lab coats, and a variety of vests and jackets. Our non-scrubwear product offerings also include our FIGSPRO offerings, which is our polished and performance-driven, office-ready collection. We also partner with New Balance to design and offer shoes that provide greater slip-resistance, cushion and moisture-repellent qualities that our healthcare professionals need.
Our under underscrubs include several styles of underwear. Outer layer products include footwear, lab coats, and a variety of vests, jackets and fleeces. Our non-scrubwear product offerings also include our FIGSPRO offerings, which is our polished and performance-driven, office-ready collection.
We consider the FIGS name and Cross & Shield Logo trademarks to be among our most valuable intellectual property assets.
We consider the FIGS name and Cross & Shield Logo trademarks to be among our most valuable intellectual property assets. In addition, we have applied to register or have registered the trademarks for several of our fabrics and product names, and have also sought and/or obtained trademark registrations for several of our taglines.
In addition to our many other philanthropic efforts, advocacy at FIGS will continue to be an important way in which we support our community of Awesome Humans. Our Market Opportunity Healthcare Apparel Is a Large, Growing and Largely Non-Discretionary Industry. The healthcare apparel market is a fundamentally attractive industry underpinned by its scale, recurring nature and compelling growth outlook.
In addition to our many other philanthropic efforts, advocacy at FIGS will continue to be an important way in which we support our community of Awesome Humans. 6 Table of Contents Our Market Opportunity Demand for Healthcare Professionals is Projected to Grow.
We also continuously assess our hiring process to identify areas for development and to improve our inclusive hiring strategies. We are deeply committed to creating a diverse and inclusive team through new sourcing methods, reducing unconscious bias across the recruitment life cycle and promoting fair and consistent hiring practices.
As part of those efforts, we utilize dedicated technology from a leading third-party provider to drive inclusive hiring throughout the Company. We are deeply committed to creating a diverse and inclusive team through new methods, reducing unconscious bias across the recruitment life cycle and promoting fair and consistent hiring practices.
Our in-house production team selects our fabric and trim suppliers, directly manages the relationships between these suppliers and our finished product manufacturers, and drives our production allocation strategy and production schedules. The 13 core scrubwear styles that we produce year-round represented over 78% of our net revenues in 2022.
The vast majority of our production utilizes our main scrubwear fabric technology FIONx, which enables us to achieve consistency and scale. 11 Table of Contents Our in-house production team selects our fabric and trim suppliers, directly manages the relationships between these suppliers and our finished product manufacturers, and drives our production allocation strategy and production schedules.
Some of our issued U.S. design patents will expire in 2036, while others will expire in 2037. We intend to pursue additional intellectual property protection to the extent we believe it would be beneficial and cost-effective.
Some of our issued U.S. design patents will expire in 2036, while others will expire in 2037 or 2038.
There are approximately 22 million healthcare professionals in the United States, according to the U.S. Census Bureau’s 2019 American Community Survey.
As of 2022, there were approximately 22 million healthcare and social assistance industry sector workers in the United States, according to the U.S. Census Bureau and U.S. Bureau of Labor Statistics. Furthermore, according to the U.S.
We also offer necessities such as face masks, scrub caps, lanyards, badge reels, tote bags, baseball caps and beanies. Our Community of Awesome Humans We strive to celebrate, empower and serve healthcare professionals across all levels of experience and areas of expertise.
We also partner with New Balance to design and offer shoes that provide greater slip-resistance, cushion and moisture-repellent qualities that our healthcare professionals need. We also offer necessities such as scrub caps, lanyards, badge reels, tote bags, baseball caps and beanies.
Similar to our core FIONx fabric, the continuous production of our core scrubwear styles provides us with consistency and scale in our production. We manage a diversified supply chain, which spanned 9 countries and consisted of approximately 34 global production partners as of December 31, 2022.
The 15 core scrubwear styles that we produce year-round represented over 71% of our net revenues in 2023. Similar to our core FIONx fabric, the continuous production of our core scrubwear styles provides us with consistency and scale in our production. As a company devoted to the needs of healthcare professionals, quality is critically important to us.
Compensation and Benefits We aim to offer highly competitive compensation and benefits designed to enable us to attract, retain and motivate exceptional talent. Our 2021 equity incentive award plan additionally provides for grants of equity awards to employees.
We are committed to not making employment (including hiring, promotion, and compensation) or other contracting decisions on the basis of legally protected characteristics. Compensation and Benefits We aim to offer highly competitive compensation and benefits designed to enable us to attract, retain and motivate exceptional talent.
Our TEAMS business is centered around partnering with institutional departments and medical offices that wish to standardize and professionalize their organizations’ uniforms. Our Data Analytics Data is an essential and embedded capability throughout our organization. Our data team works directly with key functional areas of the Company.
Our TEAMS business is centered around partnering with institutional departments and medical offices that wish to standardize and professionalize their organizations’ uniforms. Our Community Hubs In 2023, we opened our first permanent physical retail store in Los Angeles, California, which we call a Community Hub, and we plan to open additional Community Hubs in the future.
Removed
Furthermore, according to the Bureau of Labor Statistics, as of September 2022, employment in healthcare occupations in the United States is projected to grow 13% from 2021 to 2031, much faster than the average for all occupations, adding about 2 million new jobs.
Added
We also recently launched our first physical retail store, which we call a Community Hub, and which represents a first-of-its-kind experience for healthcare professionals. Our offerings include scrubwear and non-scrubwear, such as outerwear, underscrubs, footwear, compression socks, lab coats, loungewear and other apparel.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeSubstantially all of our suppliers and manufacturers are located outside of the United States, and as a result, we are subject to risks associated with doing business abroad, including: • the imposition of new laws and regulations, including those relating to our due diligence of our supply chain as well as labor conditions, quality and safety standards, imports, duties, taxes and other charges on imports, as well as trade restrictions and restrictions on currency exchange or the transfer of funds; • political unrest or conflict, such as Russia’s invasion of Ukraine and the ongoing political crisis in Sri Lanka, terrorism, labor disputes and economic instability resulting in the disruption of trade from foreign countries in which our products are manufactured; • reduced protection for intellectual property rights, including trademark protection, in some countries, particularly in China; • disruptions or delays in shipments across our supply chain, whether due to port congestion, labor disputes, product regulations and/or inspections or other factors, natural disasters, including in connection with climate change, or health pandemics, or other transportation disruptions; and • the impact of health conditions, including the ongoing COVID-19 pandemic, and related government and private sector responsive actions, and other changes in local economic conditions in countries where our manufacturers, suppliers or customers are located.
Biggest changeSubstantially all of our suppliers and manufacturers are located outside of the United States, and as a result, we are subject to risks associated with doing business abroad, including: • the imposition of new laws and regulations, including those relating to our due diligence of our supply chain as well as labor conditions, quality and safety standards, imports, duties, taxes and other charges on imports, as well as trade restrictions and restrictions on currency exchange or the transfer of funds; • political unrest, conflict or war, such as Russia’s invasion of Ukraine and violence in the Middle East, terrorism, labor disputes and economic instability resulting in the disruption of trade from foreign countries in which our products are manufactured, and geopolitical tensions or conflicts affecting global trade or resulting in trade barriers or disputes among countries; • reduced protection for intellectual property rights, including trademark protection, in some countries, particularly in China; • disruptions or delays in shipments across our supply chain, whether due to port congestion, labor disputes, product regulations and/or inspections or other factors, natural disasters, including in connection with climate change, or health pandemics, or other transportation disruptions; and • the impact of health conditions, such as COVID-19, and related government and private sector responsive actions, and other changes in local economic conditions in countries where our manufacturers, suppliers or customers are located. 26 Table of Contents These and other factors beyond our control could interrupt our suppliers’ production in offshore facilities, influence the ability of our suppliers to export our products cost-effectively or at all and inhibit our suppliers’ ability to procure certain materials, any of which could harm our business, financial condition and results of operations.
We have occasionally in the past incurred and may in the future incur losses from various types of fraud, including stolen credit card numbers, claims that a customer did not authorize a purchase and merchant fraud. As a general matter, we are liable for fraudulent credit card transactions.
We may incur losses from fraud. We have occasionally in the past incurred and may in the future incur losses from various types of fraud, including stolen credit card numbers, claims that a customer did not authorize a purchase and merchant fraud. As a general matter, we are liable for fraudulent credit card transactions.
In addition, we seek to continually update and improve our software, and we may not always be successful in executing these upgrades and improvements, and the operation of our systems may be subject to failure. We may experience slowdowns or interruptions in our website when we are updating it.
In addition, we seek to continually update and improve our software, and we may not always be successful in executing these upgrades and improvements, and the operation of our IT Systems may be subject to failure. We may experience slowdowns or interruptions in our website when we are updating it.
Our net revenues depend on the number of visitors who shop on our website and the volume of orders we can handle. Unavailability of our website or mobile app or reduced order fulfillment performance would reduce the volume of goods sold and could also adversely affect customer perception of our brand.
Our net revenues depend on the number of visitors who shop on our website and mobile app and the volume of orders we can handle. Unavailability of our website or mobile app or reduced order fulfillment performance would reduce the volume of goods sold and could also adversely affect customer perception of our brand.
Among others, these provisions include that: • provide for a dual-class common stock structure in which holders of our Class B common stock may have the ability to control the outcome of matters requiring stockholder approval, including the election of directors and significant corporate transactions, such as a merger or other sale of our company or its assets, even if they own significantly less than a majority of the outstanding shares of our common stock; • restrict the forum for certain litigation against us to Delaware or the federal courts, as applicable; • our board of directors has the exclusive right to expand the size of our board of directors and to elect directors to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors; • our board of directors is divided into three classes, Class I, Class II and Class III, with each class serving staggered three-year terms, which may delay the ability of stockholders to change the membership of a majority of our board of directors; • our stockholders may act by written consent until such time as holders of our Class B common stock beneficially own less than a majority of the voting power, at which time our stockholders will no longer be able to act by written consent and instead must take action at an annual or special meeting of our stockholders; • a special meeting of stockholders may be called only by the chair of the board of directors, the chief executive officer, or the board of directors, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors; • our amended and restated certificate of incorporation prohibits cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; • our board of directors may alter our amended and restated bylaws without obtaining stockholder approval; • the required approval of the holders of at least two-thirds of the shares entitled to vote at an election of directors to adopt, amend or repeal our amended and restated bylaws or repeal the provisions of our amended and restated certificate of incorporation regarding the election and removal of directors; • stockholders must provide advance notice and additional disclosures in order to nominate individuals for election to the board of directors or to propose matters that can be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquiror from conducting a solicitation of proxies to elect the acquiror’s own slate of directors or otherwise attempting to obtain control of our company; and 46 Table of Contents • our board of directors is authorized to issue shares of preferred stock and to determine the terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer.
Among others, these provisions include that: • provide for a dual-class common stock structure in which holders of our Class B common stock may have the ability to control the outcome of matters requiring stockholder approval, including the election of directors and significant corporate transactions, such as a merger or other sale of our company or its assets, even if they own significantly less than a majority of the outstanding shares of our common stock; • restrict the forum for certain litigation against us to Delaware or the federal courts, as applicable; • our board of directors has the exclusive right to expand the size of our board of directors and to elect directors to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors; • our board of directors is divided into three classes, Class I, Class II and Class III, with each class serving staggered three-year terms, which may delay the ability of stockholders to change the membership of a majority of our board of directors; • our stockholders may act by written consent until such time as holders of our Class B common stock beneficially own less than a majority of the voting power, at which time our stockholders will no longer be able to act by written consent and instead must take action at an annual or special meeting of our stockholders; • a special meeting of stockholders may be called only by the chair of the board of directors, the chief executive officer, or the board of directors, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors; • our amended and restated certificate of incorporation prohibits cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; • our board of directors may alter our amended and restated bylaws without obtaining stockholder approval; • the required approval of the holders of at least two-thirds of the shares entitled to vote at an election of directors to adopt, amend or repeal our amended and restated bylaws or repeal the provisions of our amended and restated certificate of incorporation regarding the election and removal of directors; • stockholders must provide advance notice and additional disclosures in order to nominate individuals for election to the board of directors or to propose matters that can be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquiror from conducting a solicitation of proxies to elect the acquiror’s own slate of directors or otherwise attempting to obtain control of our company; and • our board of directors is authorized to issue shares of preferred stock and to determine the terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer.
Our fulfillment center and storage locations include computer-controlled and automated equipment and rely on a warehouse management systems to manage supply chain fulfillment operations, which means our operations are complicated, require coordination between our fulfillment center and storage locations and are subject to a number of risks related to cybersecurity, the proper operation of software and hardware, including connections between software and/or hardware, electronic or power interruptions or other system failures.
Our fulfillment center and storage locations include computer-controlled and automated equipment and rely on warehouse management systems to manage supply chain fulfillment operations, which means our operations are complicated, require coordination between our fulfillment, storage and retail operations, and are subject to a number of risks related to cybersecurity, the proper operation of software and hardware, including connections between software and/or hardware, electronic or power interruptions or other system failures.
In addition, these types of events could negatively impact customer spending in the impacted regions or globally. To the extent any of these events occur, our business, financial condition and results of operations could be adversely affected. We are subject to periodic claims and litigation that could result in unexpected expenses and could ultimately be resolved against us.
In addition, these types of events could negatively impact customer spending in the impacted regions or globally. To the extent any of these events occur, our business, financial condition and results of operations could be adversely affected. We are subject to periodic disputes, claims and litigation that could result in unexpected expenses and could ultimately be resolved against us.
In addition, any such proceeding could negatively impact our brand equity and our reputation. Our insurance may not provide adequate coverage against claims. Our operations may expose us to product liability claims and litigation or regulatory actions relating to personal injury. We believe that we maintain insurance customary for businesses of our size and type.
In addition, any such dispute or proceeding could negatively impact our brand equity and our reputation. Our insurance may not provide adequate coverage against claims. Our operations may expose us to product liability claims and litigation or regulatory actions relating to personal injury. We believe that we maintain insurance customary for businesses of our size and type.
We also have and may in the future adjust our marketing activity and spend from period to period or within a period as we launch new campaigns or offerings, or for other reasons. Because of these adjustments and because marketing initiatives may become increasingly expensive, generating a meaningful return on those initiatives may be difficult or unpredictable.
We also have and may in the future adjust our marketing activity, techniques and spend from period to period or within a period as we launch new campaigns or offerings, or for other reasons. Because of these adjustments and because marketing initiatives may become increasingly expensive, generating a meaningful return on those initiatives may be difficult or unpredictable.
We may need to operate additional fulfillment centers in the future to keep pace with the growth of our business, and we cannot assure you that we will be able to locate suitable facilities on commercially acceptable terms in accordance with our expansion plans, nor can we assure you that we will be able to recruit qualified managerial and operational personnel to support our expansion plans.
We will need to operate additional fulfillment centers in the future to keep pace with the growth of our business, and we cannot assure you that we will be able to locate suitable facilities on commercially acceptable terms in accordance with our expansion plans, nor can we assure you that we will be able to recruit qualified managerial and operational personnel to support our expansion plans.
In addition, the U.S. government’s presumptive import ban on materials mined, produced, or manufactured wholly or in part in the Xinjiang region of China, the source of a large portion of certain raw materials, including rayon, may impact global prices and availability of raw materials from which some of our products are made.
In addition, the U.S. government’s presumptive import ban on materials mined, produced, or manufactured wholly or in part in the Xinjiang region of China, the source of a large portion of certain raw materials, including cotton and rayon, may impact global prices and availability of raw materials from which some of our products are made.
An unfavorable outcome of any particular proceeding could exceed the limits of our insurance policies, or our insurance carriers may decline to fund such final settlements or judgments or all or part of the legal costs associated with the proceeding, which could have an adverse impact on our business, financial condition and results of operations.
An unfavorable outcome of any particular dispute or proceeding could exceed the limits of our insurance policies, or our insurance carriers may decline to fund such final settlements or judgments or all or part of the legal costs associated with the dispute or proceeding, which could have an adverse impact on our business, financial condition and results of operations.
The market price of our Class A common stock has fluctuated significantly since our initial public offering (“IPO”), and may continue to fluctuate in response to numerous factors, many of which are beyond our control, including: • actual or anticipated fluctuations in our financial condition and results of operations; • the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections; • failure of securities analysts to initiate or maintain coverage of our company, changes in financial estimates or ratings by any securities analysts who follow our company or our failure to meet these estimates or the expectations of investors; • announcements by us or our competitors of significant technical innovations, acquisitions, strategic partnerships, joint ventures, results of operations or capital commitments; • changes in stock market valuations and operating performance of other healthcare and technology companies generally, or those in our industry in particular; • price and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole; • changes in our board of directors or management; 42 Table of Contents • sales of large blocks of our Class A common stock, including sales by Tulco, LLC’s Permitted Transferees, as defined in our amended and restated certificate of incorporation, our co-founders or our other executive officers or directors; • lawsuits threatened or filed against us; • anticipated or actual changes in laws, regulations or government policies applicable to our business; • changes in our capital structure, such as future issuances of debt or equity securities; • short sales (or concerted efforts by short sellers to spread negative information in order to gain a market advantage), hedging and other derivative transactions involving our capital stock; • general economic conditions in the United States and globally, such as a continued increase in inflation rates or interest rates; • other events or factors, including those resulting from war (such as Russia’s invasion of Ukraine), pandemics (including COVID-19), incidents of terrorism or responses to these events; and • the other factors described in this “Risk Factors” section of our Annual Report on Form 10-K.
The market price of our Class A common stock has fluctuated significantly since our initial public offering (“IPO”), and may continue to fluctuate in response to numerous factors, many of which are beyond our control, including: • actual or anticipated fluctuations in our financial condition and results of operations; • the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections; • failure of securities analysts to initiate or maintain coverage of our company, changes in financial estimates or ratings by any securities analysts who follow our company or our failure to meet these estimates or the expectations of investors; • announcements by us or our competitors of significant technical innovations, acquisitions, strategic partnerships, joint ventures, results of operations or capital commitments; • changes in stock market valuations and operating performance of other healthcare and technology companies generally, or those in our industry in particular; 42 Table of Contents • price and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole; • changes in our board of directors or management; • sales of large blocks of our Class A common stock, including sales by Tulco, LLC’s Permitted Transferees, as defined in our amended and restated certificate of incorporation, our co-founders or our other executive officers or directors; • lawsuits threatened or filed against us; • anticipated or actual changes in laws, regulations or government policies applicable to our business; • changes in our capital structure, such as future issuances of debt or equity securities; • short sales (or concerted efforts by short sellers to spread negative information in order to gain a market advantage), hedging and other derivative transactions involving our capital stock; • general economic conditions in the United States and globally, such as a continued increase in inflation rates or interest rates; • other geopolitical events, conflicts or factors, including those resulting from war (such as Russia’s invasion of Ukraine and violence in the Middle East), pandemics (such as COVID-19), incidents of terrorism or responses to these events; and • the other factors described in this “Risk Factors” section of our Annual Report on Form 10-K.
We believe that continued growth in net revenues, as well as our ability to improve or maintain margins and profitability, will depend upon, among other factors, our ability to address the challenges, risks and difficulties described elsewhere in this “Risk Factors” section.
We believe that growth in net revenues, as well as our ability to improve or maintain margins and profitability, will depend upon, among other factors, our ability to address the challenges, risks and difficulties described elsewhere in this “Risk Factors” section.
If we are not able to negotiate acceptable pricing and other terms with these providers, or if these providers experience performance problems or other difficulties in processing our orders or delivering our products to customers, it could negatively impact our results of operations and our customers’ experience.
If we are not able to negotiate acceptable pricing and other terms with these providers, or if these providers experience performance problems or other difficulties in delivering inventory, processing our orders or delivering our products to customers, it could negatively impact our results of operations and our customers’ experience.
For example, in the past we have experienced minor slowdowns while updating our website. Moreover, new technologies or infrastructures may not be fully integrated with existing systems on a timely basis, or at all.
For example, in the past we have experienced minor slowdowns while updating our website. Moreover, new technologies or infrastructures may not be fully integrated with existing IT Systems on a timely basis, or at all.
The actual or perceived failure to comply with federal, state or foreign laws and regulations or our contractual obligations relating to data privacy, data protection and customer protection, or the expansion of current or the enactment of new laws and regulations relating to data privacy, data protection and customer protection, could adversely affect our business and our financial condition.
The actual or perceived failure to comply with federal, state or foreign laws and regulations or our contractual obligations relating to data privacy, data protection, cybersecurity and customer protection, or the expansion of current or the enactment of new laws and regulations relating to data privacy, data protection, cybersecurity and customer protection, could adversely affect our business and our financial condition.
Any actual or perceived security incident or breach, or breach of our contractual obligations, could harm our reputation and brand, expose us to potential liability or require us to expend significant resources on data security and in responding to any such actual or perceived breach.
Any actual or perceived security incident or breach, or breach of our contractual obligations, could also harm our reputation and brand, expose us to potential liability or require us to expend significant resources on data security and in responding to any such actual or perceived breach.
There are also other risks and costs inherent in doing business in international markets, including: • the need to adapt and localize products for specific countries to account for, among other things, different cultural tastes, size and fit preferences or regulatory requirements; • difficulty establishing and managing international operations and the increased operations, travel, infrastructure, including establishment of local delivery service and customer service operations, and legal compliance costs associated with locations in different countries or regions; • increased shipping times to and from international markets; • the need to vary pricing and margins to effectively compete in international markets; • increased competition from local providers of similar products; • the ability to protect and enforce intellectual property rights abroad; 20 Table of Contents • the need to offer customer support in various languages; • difficulties in understanding and complying with local laws, regulations and customs in other jurisdictions; • compliance with anti-bribery laws, such as the U.S.
There are also other risks and costs inherent in doing business in international markets, including: • the need to adapt and localize products for specific countries to account for, among other things, different cultural tastes, size and fit preferences or regulatory requirements; • difficulty establishing and managing international operations and the increased operations, travel, infrastructure, including establishment of local delivery service and customer service operations, and legal compliance costs associated with locations in different countries or regions; • increased shipping times to and from international markets; • the need to vary pricing and margins to effectively compete in international markets; • increased competition from local providers of similar products; • the ability to protect and enforce intellectual property rights abroad; • the need to offer customer support in various languages; • difficulties in understanding and complying with local laws, regulations and customs in other jurisdictions; • compliance with anti-bribery laws, such as the U.S.
These types of activities subject us to inherent costs and risks associated with replacing and changing these systems, including impairment of our ability to fulfill customer orders, potential disruption of our internal control structure, capital expenditures, additional administration and operating expenses, acquisition and retention of sufficiently skilled personnel to implement and operate the new systems, demands on management time, the introduction of errors or vulnerabilities and other risks and costs of delays or difficulties in transitioning to or integrating new systems into our current systems.
These activities subject us to inherent costs and risks associated with replacing and changing these systems, including impairment of our ability to fulfill customer orders, potential disruption of our internal control structure, capital expenditures, additional administration and operating expenses, acquisition and retention of sufficiently skilled personnel to implement and operate the new systems, demands on management time, the introduction of errors or vulnerabilities and other risks and costs of delays or difficulties in transitioning to or integrating new systems into our current IT Systems.
Natural disasters, such as earthquakes, wildfires, hurricanes, tornadoes, storms, droughts, floods and other adverse weather and climate conditions; unforeseen public health crises, such as epidemics and pandemics, including the ongoing COVID-19 pandemic; political crises, such as terrorist attacks, war and other political instability; or other catastrophic events, whether occurring in the United States or internationally, could disrupt our operations in any of our offices and fulfillment center or the operations of one or more of our third-party providers or vendors.
Natural disasters, such as earthquakes, wildfires, hurricanes, tornadoes, storms, droughts, floods and other adverse weather and climate conditions; unforeseen public health crises, such as epidemics and pandemics, including COVID-19; political crises, such as terrorist attacks, war and other political instability; or other catastrophic events, whether occurring in the United States or internationally, could disrupt our operations in any of our offices and fulfillment center or the operations of one or more of our third-party providers or vendors.
In addition, if we experience significantly increased demand, or if we need to replace or discontinue our relationship with an existing supplier or manufacturer, which has occurred from time to time, we may be unable to locate additional supplies of fabrics, raw materials or product components or additional manufacturing capacity on terms that are acceptable to us, or at all, or we may be unable to locate any supplier or manufacturer with sufficient capacity to meet our requirements or to fill our orders in a timely manner.
In addition, if we experience significantly increased demand, or if we need to replace or discontinue our relationship with an existing supplier or manufacturer, which has occurred from time to time, we may be unable to locate additional suppliers of fabrics, raw materials or product components or additional manufacturing capacity on terms that are acceptable to us, or at all, or we may be unable to locate any supplier or manufacturer with sufficient capacity to meet our requirements or to fill our orders in a timely manner.
Any actual or perceived non-compliance with these rapidly changing laws, regulations or standards or our contractual obligations relating to data privacy, data protection and consumer protection by us or the third-party companies we work with could result in litigation and proceedings against us by governmental entities, consumers or others, fines and civil or criminal penalties for us or company officials, obligations to cease offerings or to substantially modify our business in a manner that makes it less effective in certain jurisdictions, negative publicity and harm to our brand and reputation, and 37 Table of Contents reduced overall demand for our products, any of which could have an adverse effect on our business, financial condition and results of operations.
Any actual or perceived non-compliance with these rapidly changing laws, regulations or standards or our contractual obligations relating to data privacy, data protection and consumer protection by us or the third-party companies we work with could result in litigation and proceedings against us by governmental entities, consumers or others, fines and civil or criminal penalties for us or company officials, obligations to cease offerings or to substantially modify our business in a manner that makes it less effective in certain jurisdictions, negative publicity and harm to our brand and reputation, and reduced overall demand for our products, any of which could have an adverse effect on our business, financial condition and results of operations.
The timing, effectiveness and costs associated with the successful implementation of any upgrades or changes to our systems and infrastructure serving website or mobile device users may affect our results of operations.
The timing, effectiveness and costs associated with the successful implementation of any upgrades or changes to our IT Systems and infrastructure serving website or mobile device users may affect our results of operations.
If our computer and communications hardware fail, or if we suffer an interruption or degradation of services, we could lose customer data and miss order fulfillment deadlines, which could harm our business.
If our computer and communications hardware fail, or if we suffer an interruption or degradation of services, we could also lose customer data and miss order fulfillment deadlines, which could harm our business.
Other factors affecting consumers’ spending levels include, among others: rising interest rates, the size and timing of federal stimulus programs, wages, levels of employment, inflation, recession and fears of recession or depression or entry into a recession or depression, housing costs, energy costs, income tax rates, financial market fluctuations, consumer perceptions of personal well-being and security, availability of consumer credit and consumer debt levels, and consumer confidence in future economic conditions.
Other factors affecting consumers’ spending levels include, among others: high interest rates, the size and timing of federal stimulus programs, wages, levels of employment, inflation, recession and fears of recession or depression or entry into a recession or depression, housing costs, energy costs, income tax rates, financial market fluctuations, consumer perceptions of personal well-being and security, availability of consumer credit and consumer debt levels, and consumer confidence in future economic conditions.
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. We rely on our sole fulfillment center in the City of Industry, California, which is operated by our third-party logistics provider, for all of our product distribution.
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. We currently rely on our fulfillment center in the City of Industry, California, which is operated by our third-party logistics provider, for all of our product distribution.
We may not be successful in developing relationships with key participants in the mobile industry or in developing products that operate effectively with these technologies, systems, networks, or standards.
Further, we may not be successful in developing relationships with key participants in the mobile industry or in developing products that operate effectively with these technologies, systems, networks, or standards.
Our ability to forecast demand for our products has from time to time been and will continue to be affected by various factors, including unanticipated changes in general market conditions (for example, because of effects on inventory supply and consumer demand caused by the current COVID-19 pandemic and high inflation rates), and economic conditions or consumer confidence in future economic conditions.
Our ability to forecast demand for our products has from time to time been and will continue to be affected by various factors, including unanticipated changes in general market conditions (for example, because of effects on inventory supply and consumer demand caused by the COVID-19 pandemic and high inflation rates), economic conditions or consumer confidence in future economic conditions and geopolitical conditions.
Further, any delays, interruption or increased costs in the supply of fabric or the manufacture of our products, or extended period of global supply chain disruption, could also have an adverse effect on our ability to meet customer demand for our products and result in lower net revenues, increased cost of goods sold and lower net income from operations, both in the short and long term.
Any delays, interruption or increased costs in the supply of fabric or the manufacture of our products, or extended period of global supply chain disruption, could have an adverse effect on our ability to meet customer demand for our products and result in lower net revenues, increased cost of goods sold and lower net income from operations, both in the short and long term.
A high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross margin and selling, general, and administrative expenses as a percentage of net revenue if we are unable, or choose not to, increase the selling prices of our products in proportion with these increased costs.
A high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross margin and selling, general, and administrative expenses as a percentage of net revenues if we are unable, or choose not to, increase the selling prices of our products in proportion with these increased costs.
In addition, the imposition of additional sales tax collection obligations, whether for prior years or prospectively, could create additional administrative burdens for us, put us at a competitive disadvantage if similar obligations are not imposed on our competitors and decrease our future sales, which could have an adverse impact on our business and results of operations.
In addition, the imposition of additional sales tax collection obligations, whether for prior years or prospectively, could create additional administrative burdens for us, put us at a competitive disadvantage if similar obligations are not imposed on our competitors and decrease our future sales, which could have an adverse impact on our business, financial condition and results of operations.
In addition, if we experience increased 22 Table of Contents volatility in shipping times from our suppliers and manufacturers and/or production disruptions, we may experience a shortage of products available for sale. Alternatively, if we advance the timing of inventory shipments to mitigate perceived freight transit time volatility and/or sales below our expectations, we may experience excess inventory levels.
In addition, if we experience increased shipping times from our suppliers and manufacturers and/or production disruptions, we may experience a shortage of products available for sale. Alternatively, if we advance the timing of inventory shipments to mitigate 23 Table of Contents perceived freight transit time volatility and/or sales below our expectations, we may experience excess inventory levels.
Our costs for raw materials are affected by, among other things, weather, customer demand, rising interest rates, inflation, geopolitical tensions, volatility in the commodities market, the relative valuations and fluctuations of the currencies of producer versus customer countries and other factors that are generally unpredictable and beyond our control.
Our costs for raw materials are affected by, among other things, weather, customer demand, high interest rates, inflation, geopolitical tensions, volatility in the commodities market, the relative valuations and fluctuations of the currencies of producer versus customer countries and other factors that are generally unpredictable and beyond our control.
These reasons include those described in these risk factors as well as the following: • fluctuations in product mix; • our ability to effectively launch and manage new products; • fluctuations in the levels or quality of inventory; • fluctuations in capacity as we expand our operations; • our success in engaging existing customers and attracting new customers; • the amount and timing of our operating expenses; • the timing and success of new products launches; • the impact of competitive developments and our response to those developments; • our ability to manage our existing business and future growth; and • economic and market conditions, particularly those affecting our industry.
These reasons include those described in these risk factors as well as the following: • fluctuations in product mix; • our ability to effectively launch and manage new products; • fluctuations in the levels or quality of inventory; • fluctuations in capacity as we expand our operations; • our success in engaging existing customers and attracting new customers; • the amount and timing of our operating expenses; • the timing and success of new products launches; • the impact of competitive developments and our response to those developments; 43 Table of Contents • our ability to manage our existing business and future growth; and • economic and market conditions, particularly those affecting our industry.
For example, the ongoing COVID-19 pandemic has negatively impacted global supply chains and caused challenges to logistics, including from time to time causing ocean freight reliability and capacity issues, increased volatility in ocean freight transit times, port congestion, increased ocean and air freight rates, labor shortages and ocean freight delays.
For example, the COVID-19 pandemic negatively impacted global supply chains and from time to time caused challenges to logistics, including causing ocean freight reliability and capacity issues, increased volatility in ocean freight transit times, port congestion, increased ocean and air freight rates, labor shortages and ocean freight delays.
Additionally, difficulties with implementing new technology systems, delays in our timeline for planned improvements, significant system failures or our inability to successfully modify our information systems to respond to changes in our business needs may cause disruptions in our business operations and adversely affect our business, financial condition and results of operations.
Additionally, difficulties with implementing new technology systems, delays in our timeline for planned improvements, significant system failures or our inability to successfully modify our IT Systems to respond to changes in our business needs may cause disruptions in our business operations and adversely affect our business, financial condition and results of operations.
Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which generally prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner.
Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which generally prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the 46 Table of Contents person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner.
Further, any slow down or material disruption of our systems, or the systems of our third-party service providers, or our website has from time to time, and could in the future, disrupt our ability to track, record and analyze the products that we sell and could negatively impact our operations, shipment of goods, ability to process financial information and transactions, and our ability to receive and process customer orders or engage in normal business activities.
Further, any slow down or material disruption of our IT Systems, or the systems of our third-party service providers, or our website or mobile app has from time to time, and could in the future, disrupt our ability to track, record and analyze the products that we sell and could negatively impact our operations, shipment of goods, ability to process financial information and transactions, and our ability to receive and process customer orders or engage in normal business activities.
If we or our third-party service providers experience, or are believed to have experienced, security breaches that result in marketplace performance or availability problems or the loss or corruption of, or unauthorized access to or disclosure of, personal data or confidential information, people may become unwilling to provide us the information necessary to make purchases on our website or mobile app.
If we or our third-party service providers experience, or are believed to have experienced, security breaches 34 Table of Contents that result in marketplace performance or availability problems or the loss or corruption of, or unauthorized access to or disclosure of, personal data or confidential information, people may become unwilling to provide us the information necessary to make purchases on our website or mobile app.
Any such incidents may result in a disruption to our retail operations and significant costs if not covered by our insurance policies. In addition, operating retail stores creates supply chain, merchandising and pricing challenges, as we must select the right product mix for each individual store while continuing to manage inventory at our fulfillment center.
Any such incidents may result in a disruption to our retail operations and significant costs if not covered by our insurance policies. In addition, operating retail stores creates supply chain, merchandising and pricing challenges, as we must select the right product mix for each individual store while continuing to manage inventory.
As a result, we might not be able to register, use or maintain the domain names that use the name FIGS or “wearFIGS” in all of the countries and territories in which we currently or intend to conduct business. Risks Related to Other Legal, Regulatory and Tax Matters We may face exposure to foreign currency exchange rate fluctuations.
As a result, we might not be able to register, use or maintain the domain names that use the name FIGS or “wearFIGS” in all of the countries and territories in which we currently or intend to conduct business. 39 Table of Contents Risks Related to Other Legal, Regulatory and Tax Matters We may face exposure to foreign currency exchange rate fluctuations.
Bribery Act”), by us, our employees and our business partners; • complexity and other risks associated with current and future legal requirements in other countries, including legal requirements related to medical apparel, customer advertising protection, customer product safety and data privacy and security frameworks, such as the EU General Data Protection Regulation 2016/679 (the “GDPR”) and the UK GDPR; • the potential need to utilize new suppliers or comply with additional regulations regarding our suppliers, supply chain or value chain; • varying business practices and customs related to the sale of medical apparel; • varying levels of internet technology adoption and infrastructure, and increased or varying network and hosting service provider costs; • tariffs and other non-tariff barriers, such as quotas and local content rules, as well as tax consequences; • fluctuations in inflationary conditions, which could increase our costs of doing business in certain countries; • fluctuations in currency exchange rates and the requirements of currency control regulations, which might restrict or prohibit conversion of other currencies into U.S. dollars; and • political or social unrest or economic instability in a specific country or region in which we operate, including, for example, Russia’s invasion of Ukraine.
Bribery Act”), by us, our employees and our business partners; • complexity and other risks associated with current and future legal requirements in other countries, including legal requirements related to medical apparel, customer advertising protection, customer product safety and data privacy and security frameworks, such as the EU General Data Protection Regulation 2016/679 (the “GDPR”) and the UK GDPR; • the potential need to utilize new suppliers or comply with additional regulations regarding our suppliers, supply chain or value chain; • varying business practices and customs related to the sale of medical apparel; • varying levels of internet technology adoption and infrastructure, and increased or varying network and hosting service provider costs; 21 Table of Contents • tariffs and other non-tariff barriers, such as quotas and local content rules, as well as tax consequences; • fluctuations in inflationary conditions, which could increase our costs of doing business in certain countries; • fluctuations in currency exchange rates and the requirements of currency control regulations, which might restrict or prohibit conversion of other currencies into U.S. dollars; and • political or social unrest, economic instability or armed conflict in a specific country or region in which we operate, including, for example, Russia’s invasion of Ukraine and violence in the Middle East.
Further, any such claim, proceeding or action could harm our reputation, brand and business, force us to incur significant expenses in defense of such proceedings, distract our management, increase our costs of doing business, result in a loss of customers and suppliers or an inability to process credit card payments and may result in the imposition of monetary penalties.
Further, any such claim, proceeding or action could harm our reputation, brand and business, force us to incur significant expenses in defense of such proceedings, distract our management, increase our costs of doing business, result in a loss of customers and suppliers or an inability to process credit card payments and may result in the 35 Table of Contents imposition of monetary penalties.
In addition, responding to any enforcement 40 Table of Contents action may result in a significant diversion of management’s attention and resources and significant defense costs and other professional fees. Our ability to source and distribute our merchandise profitably or at all could be harmed if new trade restrictions and/or tariffs are imposed or existing trade restrictions become more burdensome.
In addition, responding to any enforcement action may result in a significant diversion of management’s attention and resources and significant defense costs and other professional fees. Our ability to source and distribute our merchandise profitably or at all could be harmed if new trade restrictions and/or tariffs are imposed or existing trade restrictions become more burdensome.
Also, the imposition of trade sanctions or other regulations against products imported by us from, or the loss of “normal trade relations” status with, any country in which our products are manufactured, could significantly increase our cost of products and harm our business. Our sales and profitability may decline if product costs increase or selling prices decrease.
Also, the imposition of trade sanctions or other regulations against products imported by us from, or the loss of “normal trade relations” status with, any country in which our products are manufactured, could significantly increase our cost of products and harm our business. 28 Table of Contents Our sales and profitability may decline if product costs increase or selling prices decrease.
In the event that it is more difficult for our customers to buy products from us on their mobile devices, or if our customers choose not to buy products from us on their mobile devices or to use mobile products that do not offer access to our websites, our customer growth could be harmed and our business, financial condition and results of operations may be adversely affected.
In the event that it is more difficult for our customers to buy products from us on their mobile devices, or if our customers choose not to buy products from us on their mobile devices or to use mobile products that do not offer access to our website or mobile app, our customer growth could be harmed and our business, financial condition and results of operations may be adversely affected.
If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our Class A common stock could decrease, which might cause our Class A common stock price and trading volume to decline. 45 Table of Contents We do not currently intend to pay dividends for the foreseeable future.
If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our Class A common stock could decrease, which might cause our Class A common stock price and trading volume to decline. We do not currently intend to pay dividends for the foreseeable future.
We rely on third-party suppliers to manufacture our raw materials, product components and products, and our raw materials, product components and products may be available, in the short-term, from a limited number of sources.
We rely on a global network of third-party suppliers to manufacture our raw materials, product components and products, and our raw materials, product components and products may be available, in the short-term, from a limited number of sources.
In addition, we could be required to continue to expand our sales and marketing, product development and distribution functions, to upgrade our management information systems and other processes and technology and to obtain more space for our expanding workforce. Additionally, the growth of our business places significant demands on our existing management and other employees.
In addition, we could be required to continue to expand our sales and 16 Table of Contents marketing, product development and distribution functions, to upgrade our management information systems and other processes and technology and to obtain more space for our expanding workforce. Additionally, the growth of our business places significant demands on our existing management and other employees.
If we are unable to acquire new customers who purchase products in numbers sufficient to grow our business, we may not be able to generate the scale necessary to drive beneficial network effects with our suppliers, our net revenues may decrease, and our business, financial condition and operating results may be adversely affected.
If we are unable to acquire new customers or retain existing customers who purchase products in numbers sufficient to grow our business, we may not be able to generate the scale necessary to drive beneficial network effects with our suppliers, our net revenues may decrease, and our business, financial condition and operating results may be adversely affected.
If the products ordered by our customers are not delivered in a timely fashion, including to international customers, or are damaged or lost during the delivery process, our customers could become dissatisfied and cease buying products from us, which would adversely affect our business, financial condition and results of operations.
If the products ordered by our customers are not delivered in a timely fashion, including to international customers, or are damaged or lost during the 22 Table of Contents delivery process, our customers could become dissatisfied and cease buying products from us, which would adversely affect our business, financial condition and results of operations.
We incur significant costs associated with corporate governance requirements that are applicable to us as a public company, including rules and regulations of the SEC, under the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Customer Protection Act of 2010, the Securities Act and the Exchange Act, as well as the rules of the NYSE.
We incur significant costs associated with corporate governance requirements that are applicable to us as a public company, including rules and regulations of the SEC, under the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform 48 Table of Contents and Customer Protection Act of 2010, the Securities Act and the Exchange Act, as well as the rules of the NYSE.
To the extent ESG matters negatively impact our reputation, it may also impede our ability to compete effectively to attract and retain employees or customers, which may adversely impact our operations. In addition, we expect there will be increasing levels of regulation, disclosure-related and otherwise, with respect to ESG matters.
To the extent ESG matters negatively impact our reputation, it may also impede our ability to compete effectively to attract and retain employees or customers, which may adversely impact our operations. In addition, we expect there will be increasing levels of regulation, disclosure-related and otherwise in the U.S. and abroad, with respect to ESG matters.
Cyberattacks could also result in the theft of our intellectual property, damage to our IT systems or disruption of our ability to make financial reports and other public disclosures required of public companies.
Cyberattacks could also result in the theft of our intellectual property, damage to our IT Systems, operational disruptions, or disruption of our ability to make financial reports and other public disclosures required of public companies.
Any failure or inability to protect or enforce our intellectual property rights could diminish the value of our brand, weaken our competitive position and harm our business, financial condition and results of operations.
Risks Related to Intellectual Property Any failure or inability to protect or enforce our intellectual property rights could diminish the value of our brand, weaken our competitive position and harm our business, financial condition and results of operations.
Even if we are able to expand existing or find new manufacturing or fabric sources, we may encounter delays in production and added costs as a result of the time it takes to train our suppliers and manufacturers in our methods, products, and quality control standards.
Even if we are able to expand existing or find new manufacturing or fabric sources, we may encounter delays in production and added costs as a result of the time it takes to train our suppliers and manufacturers in our methods, products, 25 Table of Contents and quality control standards.
We 24 Table of Contents choose not to enter into long-term contracts with any of our suppliers or manufacturers for the production and supply of our raw materials, product components and products, and typically transact business with our suppliers on an order-by-order basis. We also compete with other companies for raw materials and production.
We choose not to enter into long-term contracts with any of our suppliers or manufacturers for the production and supply of our raw materials, product components and products, and typically transact business with our suppliers on an order-by-order basis. We also compete with other companies for raw materials, product components and production.
Moreover, if we are unsuccessful in protecting our intellectual property rights in our brand, the value of our brand may be harmed. Any harm to our brand and reputation 16 Table of Contents could adversely affect our ability to attract and engage customers and negatively impact our business, financial condition and results of operations.
Moreover, if we are unsuccessful in protecting our intellectual property rights in our brand, the value of our brand may be harmed. Any harm to our brand and reputation could adversely affect our ability to attract and engage customers and negatively impact our business, financial condition and results of operations.
If we do not meet the transparency standards 26 Table of Contents expected by parties active in promoting ethical business practices, we may attract negative publicity, regardless of whether the actual labor and other business practices adhered to by us and our independent manufacturers are consistent with ethical business practices.
If we do not meet the transparency standards expected by parties active in promoting ethical business practices, we may attract negative publicity, regardless of whether the actual labor and other business practices adhered to by us and our independent manufacturers are consistent with ethical business practices.
There can be no assurance that we will be able to accurately project the rate or timing of increases, if any, in the use of our website or mobile app or expand, scale and upgrade our technology, systems and infrastructure to accommodate such increases on a timely basis.
There can be no assurance that we will be able to accurately project the rate or timing of increases, if any, in the use of our website or mobile app or expand, scale and upgrade our IT Systems to accommodate such increases on a timely basis.
For example, expectations around our management of ESG matters continues to evolve rapidly, in many instances due to factors that are out of our control. In addition, we may commit to certain initiatives or goals, and we may not ultimately be able to achieve such commitments or goals due to factors that are within or outside of our control.
For example, expectations around our management of ESG matters continues to evolve rapidly. In addition, we may commit to certain initiatives or goals, and we may not ultimately be able to achieve such commitments or goals due to factors that are within or outside of our control.
Macroeconomic conditions may adversely affect our business. While we believe our business is largely resistant to recessionary pressures due to the largely non-discretionary nature of scrubwear, consumer spending may decline if general economic conditions deteriorate, and demand for our products may be adversely affected.
Macroeconomic conditions may adversely affect our business. While we believe our business is largely resistant to recessionary pressures due to the largely non-discretionary nature of scrubwear, consumer spending may decline if general economic conditions deteriorate, and demand for our products has been and may continue to be adversely affected.
Operating our business and platform involves the collection, storage and transmission of proprietary and confidential data, as well as the personal information of our employees and customers. Some of our third-party service providers, such as identity verification and payment processing providers, also regularly have access to customer data.
Operating our business and platform involves the collection, storage, processing and transmission of proprietary and confidential data, as well as the personal information of our employees and customers (collectively, “Confidential Information”). Some of our third-party service providers, such as identity verification and payment processing providers, also regularly have access to customer data.
Even if we are able to secure attractive retail locations, the opening of new stores brings operational challenges. In opening stores, we must provide our customers with a consistent experience. Our stores may also be the target of theft or experience property damage.
Even if we are able to secure attractive retail locations, the opening of new stores brings operational challenges. In opening stores, we must also provide our customers with a consistent experience, which presents additional challenges. Our stores may also be the target of theft or experience property damage.
If we gain greater visibility, we may face a higher risk of being targeted by cyberattacks. Advances in computer capabilities, new technological discoveries or other developments may result in cyberattacks or other incidents 33 Table of Contents becoming more sophisticated or obscure and more difficult to detect.
If we gain greater visibility, we may face a higher risk of being targeted by cyberattacks. Advances in computer capabilities, new technological discoveries or other developments may result in cyberattacks or other incidents becoming more sophisticated or obscure and more difficult to detect.
In an effort to protect sensitive information, we rely on a variety of security measures, including encryption and authentication technology licensed from third parties.
In an effort to protect Confidential Information, we rely on a variety of security measures, including encryption and authentication technology licensed from third parties.
We cannot provide assurance that we will be able to successfully manage any such challenges or risks to our future growth. Any of these factors could cause our net revenues growth to slow or decline and may adversely affect our margins and 15 Table of Contents profitability.
We cannot provide assurance that we will be able to successfully manage any such challenges or risks to our future growth. Any of these factors could cause our net revenues growth to slow or decline and may adversely affect our margins and profitability.
We have made significant investments in enhancing our brand and attracting new customers, and we expect to continue to make significant investments to promote our products, including marketing campaigns that can be expensive and may not always result in new customers or increased sales of our products.
We have made significant investments in enhancing our brand and attracting new customers, and we expect to continue to make significant investments to promote our products, including marketing campaigns that can be expensive and may not always result in new customers or increased sales of our 17 Table of Contents products.
If we are unable to successfully deliver emails to our customers or if our customers do not engage with our emails, whether out of choice, because those emails are marked as low priority or spam or for other reasons, our business could be adversely affected.
If we are unable to successfully deliver emails to our customers or if our customers do not engage with 18 Table of Contents our emails, whether out of choice, because those emails are marked as low priority or spam or for other reasons, our business could be adversely affected.
For example, hourly wages for employees of our third-party logistics provider have from time to time increased as a result of inflationary 27 Table of Contents pressures, and may in the future increase further, which could adversely impact our fulfillment costs.
For example, hourly wages for employees of our third-party logistics provider have from time to time increased as a result of inflationary pressures, and may in the future increase further, which could adversely impact our fulfillment costs.
Acquisitions, investments and other strategic alliances involve numerous risks, including: • problems integrating the acquired business, facilities, technologies or products, including issues maintaining uniform standards, procedures, controls, policies and culture; • unanticipated costs associated with acquisitions, investments or strategic alliances; • diversion of management’s attention from our existing business; • adverse effects on existing business relationships with suppliers, outsourced manufacturing partners and other third parties; • risks associated with entering new markets in which we may have limited or no experience; • potential loss of key employees of acquired businesses; and • increased legal and accounting compliance costs We may be unable to identify acquisitions or strategic relationships we deem suitable.
Acquisitions, investments and other strategic alliances involve numerous risks, including: • problems integrating the acquired business, facilities, technologies or products, including issues maintaining uniform standards, procedures, controls, policies and culture; • unanticipated costs associated with acquisitions, investments or strategic alliances; • diversion of management’s attention from our existing business; • adverse effects on existing business relationships with suppliers, outsourced manufacturing partners and other third parties; • risks associated with entering new markets in which we may have limited or no experience; • potential loss of key employees of acquired businesses; and • increased legal and accounting compliance costs.
The versions of our website and our mobile app developed for such alternative 32 Table of Contents devices may not be compelling to customers. In addition, it is time consuming and costly to keep pace with rapidly changing and continuously evolving technology.
The versions of our website and our mobile app developed for such alternative devices may not be compelling to customers. In addition, it is time consuming and costly to keep pace with rapidly changing and continuously evolving technology.
Moreover, the terms of our existing credit agreement restrict our ability to pay dividends, and any additional debt we may incur in the future may include similar restrictions. In addition, Delaware law may impose requirements that may restrict our ability to pay dividends to holders of our common stock.
Moreover, the terms of our existing credit agreement restrict our ability to pay dividends, and any additional debt we may incur in the future may include similar restrictions. In addition, Delaware law may impose requirements that may restrict our ability to pay dividends to holders of 45 Table of Contents our common stock.
If we fail to manage our growth effectively, our business, financial condition and results of operations may be adversely affected. To manage our growth effectively, we must continue to implement our operational plans and strategies, improve and expand our infrastructure of people and information systems and expand, train and manage our employee base.
If we fail to manage the expansion of our business effectively, our financial condition and results of operations may be adversely affected. To manage the expansion of our business effectively, we must continue to implement our operational plans and strategies, improve and expand our infrastructure of people and information systems and expand, train and manage our employee base.
Our distribution capacity is also dependent on the timely performance of services by third parties, including the shipping of our products to and from our City of Industry distribution facility.
Our distribution capacity is also dependent on the timely performance of services by third parties, including the shipping of our products to and from our distribution facility.
There is no guarantee that we will be able to generate sufficient cash flow or sales to meet these financial covenants or pay the principal and interest when due under our credit facility. Furthermore, there is no guarantee that future working capital, borrowings or equity financing will be available to repay or refinance any such debt.
There is no guarantee that we will be able to generate sufficient cash flow or sales to meet these financial covenants or pay the principal and interest when due under our credit facility. Furthermore, there is no guarantee that future working capital, borrowings or equity financing will 29 Table of Contents be available to repay or refinance any such debt.
Certain laws, particularly relating to EHS matters, may also impose liability without regard to fault or to the legality of the action at the time of occurrence. Any investigations or inquiries by governmental agencies could result in significant settlement amounts, damages, fines or other penalties, divert financial and management resources and result in significant legal fees.
Certain laws, particularly relating to environmental, health and safety matters, may also impose liability without regard to fault or to the legality of the action at the time of occurrence. Any investigations or inquiries by governmental agencies could result in significant settlement amounts, damages, fines or other penalties, divert financial and management resources and result in significant legal fees.
For 35 Table of Contents example, the EEA and the UK have adopted the GDPR or the UK GDPR respectively, which may apply to our collection, control, use, sharing, disclosure and other processing of data relating to an identified or identifiable living individual (personal data).
For example, the EEA and the UK have adopted the GDPR or the UK GDPR respectively, which may apply to our collection, control, use, sharing, disclosure and other processing of data relating to an identified or identifiable living individual (personal data).
We also heavily rely on the continued service and performance of other members of our senior management team. If the senior management team, including any new hires that we make, fails to 19 Table of Contents work together effectively and to execute our plans and strategies on a timely basis, our business and future growth prospects could be harmed.
We also heavily rely on the continued service and performance of other members of our senior management team. If the senior management team, including any new hires that we make, fails to work together effectively or to execute our plans and strategies on a timely basis, our business and future growth prospects could be harmed.

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Item 2. Properties

Properties — owned and leased real estate

1 edited+3 added−0 removed2 unchanged
Biggest changeWe also operate an embroidery workshop within our dedicated warehouse space at a third-party logistics provider’s location in City of Industry, California, which we lease pursuant to a services agreement. We also maintain warehouse space with other third-party logistics providers pursuant to service agreements.
Biggest changeWe operate an embroidery workshop within our dedicated warehouse space at a third-party logistics provider’s location in City of Industry, California, which we lease pursuant to a services agreement.
Added
As part of our fulfillment enhancement project, we intend to transition all fulfillment and embroidery operations from our City of Industry location to a new fulfillment center, where we expect to commence distribution operations by Q3 2024.
Added
The new facility is leased by us under a lease agreement that expires in 2030 and will be operated by a third-party logistics provider. We also maintain warehouse space with other third-party logistics providers pursuant to service agreements or leases.
Added
We currently operate one retail store in Los Angeles, California, which is leased by us under a lease agreement that expires in 2028. We also lease space in Philadelphia, Pennsylvania, which we intend to use for a future retail store.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

6 edited+12 added−10 removed1 unchanged
Biggest changeThe complaint alleges, among other things, violations of the Securities Act and Exchange Act for allegedly making false and misleading statements with respect to our use of air freight, supply chain, repeat customers and outlook between our initial public offering in May 2021 and May 2022.
Biggest changeOn April 10, 2023, the lead plaintiffs filed a consolidated amended complaint against us, certain of our executive officers and directors, stockholders and the underwriters to our IPO, alleging, among other things, violations of the Securities Act and Exchange Act for allegedly making false and misleading statements between May 27, 2021 and February 28, 2023 with respect to our ability to predict customer demand and to manage our supply chain, inventory, air freight usage and costs (the “Class Action Securities Litigation”).
The results of any current or future claims or proceedings cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and litigation costs, diversion of management resources, reputational harm and other factors. Item 4. Mine Safety Disclosures. Not applicable. 52 Table of Contents PART II
The results of any current or future claims or proceedings cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and litigation costs, diversion of management resources, reputational harm and other factors. Item 4. Mine Safety Disclosures. Not applicable. 54 Table of Contents PART II
An additional putative class action complaint was filed against us, certain of our executive officers and directors, stockholders and the underwriters to our IPO, in the United States District Court for the Central District of California on December 8, 2022, alleging factual allegations similar to the previously referenced purported class action.
An additional putative class action complaint was filed against us, certain of our executive officers and directors, stockholders and the underwriters to our IPO, in the United States District Court for the Central District of California on December 8, 2022, making similar allegations to the previously referenced purported class action.
We believe the claims asserted in the forgoing cases are without basis or merit, and we intend to continue to vigorously defend against such claims; however, we cannot be certain of the outcome of our ongoing proceedings and, if determined adversely to us, our business and financial condition may be adversely affected.
We intend to continue to vigorously defend against such claims; however, we cannot be certain of the outcome of our ongoing proceedings and, if determined adversely to us, our business and financial condition may be adversely affected.
On November 1, 2022, a putative class action complaint was filed against us and certain of our executive officers and directors in the United States District Court for the Central District of California.
On November 1, 2022, a putative class action complaint was filed against us and certain of our executive officers and directors in the United States District Court for the Central District of California alleging, among other things, violations of the Securities Act and Exchange Act for allegedly making false and misleading statements in our IPO in May 2021 and thereafter.
On February 14, 2023, the court consolidated the two complaints and appointed lead plaintiffs. The complaints seek unspecified compensatory damages, other equitable relief, and attorneys’ fees and costs.
On February 14, 2023, the court consolidated the two complaints and appointed lead plaintiffs.
Removed
Item 3. Legal Proceedings. On February 22, 2019, Strategic Partners, Inc.
Added
The complaint sought unspecified compensatory damages and attorney’s fees and costs. On May 25, 2023, defendants filed a motion to dismiss the consolidated amended complaint. On January 17, 2024, the court granted the motion in its entirety as to all defendants, dismissed the case without prejudice, and granted plaintiffs leave to amend the complaint.
Removed
(“SPI”), filed an action against us (later naming each of our Executive Chair and Chief Executive Officer (the “Founders”) in Los Angeles County Superior Court, in which SPI alleged, among other things, false advertising, unfair business practices, untrue and misleading advertising, intentional interference with prospective economic relations, conversion and breach of fiduciary duty. The case was removed to the U.S.
Added
On June 2, 2023, a putative stockholder, Paige McMurtrie, filed a derivative lawsuit against us and certain of our current and former executive officers, directors and stockholders in the United States District Court for the Central District of California.
Removed
District Court for the Central District of California (the “Central District”) in March 2019.
Added
The derivative complaint alleged factual allegations largely tracking allegations made in the Class Action Securities Litigation and sought, among other things, damages and restitution to be paid to the Company by the individual defendants, governance changes and attorney’s fees and costs.
Removed
On September 3, 2019, SPI filed an additional action against the Founders (later naming us) in Los Angeles County Superior Court covering the same 51 Table of Contents subject matter as the previously filed federal action; this later state court action was stayed until the conclusion of the Central District action.
Added
On June 8, 2023, the plaintiff voluntarily dismissed that action brought in the Central District of California and re-filed it in the United States District Court for the District of Delaware (the “McMurtrie Action”).
Removed
On August 10, 2021, the Central District partially granted our motion for judgment on the pleadings, dismissing without leave to amend certain of SPI’s claims for unfair business practices and the entirety of SPI’s claims for conversion, breach of fiduciary and aiding and abetting breach of fiduciary duty.
Added
On July 11, 2023, another putative stockholder, Andrew Wubben, filed a derivative lawsuit asserting claims and factual allegations that were materially equivalent to the McMurtrie Action (the “Wubben Action”).
Removed
Trial on the false advertising claims concluded on November 3, 2022, with the jury rendering a verdict fully in favor of FIGS, rejecting SPI’s claims and finding that FIGS did not engage in false advertising. On February 22, 2023, the parties entered into a settlement agreement.
Added
On July 31, 2023, the parties to the McMurtrie Action and Wubben Action filed a stipulation to consolidate those actions and any future actions that may be filed based on the same claims and factual allegations (collectively, the “Consolidated Federal Court Derivative Action”).
Removed
As part of that settlement agreement, on February 22, 2023, SPI dismissed all litigation with prejudice and neither party was obligated to make any payments or assume any other obligations to the other (except for administrative obligations required by the settlement agreement).
Added
On September 25, 2023, the parties to the Consolidated Federal Court Derivative Action filed a stipulation voluntarily staying the Consolidated Federal Court Derivative Action until (1) the dismissal of the Class Action Securities Litigation, with prejudice, and exhaustion of all related appeals; or (2) the denial of any motion to dismiss the Class Action Securities Litigation in whole or in part; or (3) any of the parties to the Consolidated Federal Court Derivative Action provides 30-day notice that they no longer consent to the voluntary stay of the Consolidated Federal Court Derivative Action.
Removed
On November 1, 2021, Miracle Ventures I, LP (“Miracle Ventures”), a former FIGS stockholder, filed a complaint against us and the Founders in the U.S.
Added
On September 20, 2023, another putative stockholder, Osayi Lawani, filed a derivative lawsuit in the Central District of California asserting claims and factual allegations that were materially equivalent to the Consolidated Federal Court Derivative Action (the “Lawani Action”).
Removed
District Court for the Southern District of New York, in which Miracle Ventures alleged causes of action for breach of fiduciary duty and fraud in connection with its decision to sell its shares of FIGS common stock to another FIGS stockholder in June 2017. On March 3, 2022, we filed a motion to dismiss the amended complaint.
Added
The Lawani Action was then dismissed, re-filed in the United States District Court for the District of Delaware, and consolidated it into the Consolidated Federal Court Derivative Action. 53 Table of Contents On January 5, 2024, a putative stockholder, Lloyd Kimmen, filed a derivative lawsuit against us and certain of our current and former executive officers, directors, and stockholders in the Delaware Court of Chancery (the “Kimmen Action”).
Removed
On November 1, 2022, the court granted our motion and dismissed the amended complaint, granting Miracle Ventures leave to attempt to replead only its breach of fiduciary claim. Miracle Ventures has since filed a second amended complaint, and a motion to dismiss that complaint is currently pending.
Added
On January 12, 2024, another putative stockholder, Cameron Carter, filed a derivative lawsuit that is materially equivalent to the Kimmen Action (the “Carter Action”).
Added
The Kimmen Action and the Carter Action allege factual allegations largely tracking allegations made in the Class Action Securities Litigation and the Consolidated Federal Court Derivative Action, except that the Kimmen Action and the Carter Action reference non-public documents that the Company previously produced to each of those shareholders pursuant to books and records requests made under Delaware General Corporation Law section 220.
Added
On February 6, 2024, the parties to the Kimmen Action and Carter Action filed a stipulation to consolidate those actions and any future actions that may be filed based on the same claims and factual allegations (collectively, the “Consolidated Delaware Court Derivative Action”) and to voluntarily stay the Consolidated Delaware Court Derivative Action on terms similar to the stay entered in the Consolidated Federal Court Derivative Action.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

4 edited+0 added−0 removed6 unchanged
Biggest changeItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information for Common Stock Our Class A common stock began trading on the New York Stock Exchange under the symbol “FIGS” on May 27, 2021. Prior to that date, there was no public trading market for our Class A common stock.
Biggest changeItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information for Common Stock Our Class A common stock is listed and traded on the New York Stock Exchange under the symbol “FIGS.” Our Class B common stock is not listed or traded on any stock exchange.
The graph assumes an initial investment of $100 at the market close on May 27, 2021, which was our initial trading day, in each of our Class A common stock, the NYSE Composite Index and the S&P 500 Apparel, Accessories & Luxury Goods Index, and the reinvestment of dividends, if any. 53 Table of Contents The comparisons in the graph below are based upon historical data and are not indicative of, nor intended to forecast, future performance of our Class A common stock.
The graph assumes an initial investment of $100 at the market close on May 27, 2021, which was our initial trading day, in each of our Class A common stock, the NYSE Composite Index and the S&P 500 Apparel, Accessories & Luxury Goods Index, and the reinvestment of dividends, if any. 55 Table of Contents The comparisons in the graph below are based upon historical data and are not indicative of, nor intended to forecast, future performance of our Class A common stock.
There has been no material change in the expected use of the net proceeds from our IPO as described in our Registration Statement. Recent Sales of Unregistered Securities None. Issuer Purchases of Equity Securities None. Item 6. [Reserved] 54 Table of Contents
There has been no material change in the expected use of the net proceeds from our IPO as described in our Registration Statement. Recent Sales of Unregistered Securities None. Issuer Purchases of Equity Securities None. Item 6. [Reserved] 56 Table of Contents
Our Class B common stock is not listed or traded on any stock exchange. Holders of Record As of January 31, 2023, there were 15 registered holders of our Class A common stock and 7 registered holders of our Class B common stock.
Holders of Record As of February 16, 2024, there were 13 registered holders of our Class A common stock and 7 registered holders of our Class B common stock.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

60 edited+22 added−22 removed55 unchanged
Biggest changeYear ended December 31, Year ended December 31, 2022 2021 2022 2021 (in thousands) (as a percentage of net revenues) Net revenues $ 505,835 $ 419,591 100.0 % 100.0 % Cost of goods sold 151,375 118,370 29.9 28.2 Gross profit 354,460 301,221 70.1 71.8 Operating expenses Selling 118,449 81,923 23.4 19.5 Marketing 77,692 58,713 15.4 14.0 General and administrative (1) 120,653 149,602 23.9 35.7 Total operating expenses 316,794 290,238 62.6 69.2 Net income from operations 37,666 10,983 7.4 2.6 Other income (loss), net 1,061 (1,124) 0.2 (0.3) Net income before provision for income taxes 38,727 9,859 7.7 2.3 Provision for income taxes 17,541 19,415 3.5 4.6 Net income (loss) and comprehensive income (loss) $ 21,186 $ (9,556) 4.2 % (2.3) % (1) Includes stock-based compensation expense of $37.5 million and $81.1 million for the years ended December 31, 2022 and 2021, respectively. 59 Table of Contents Net Revenues Year ended December 31, Change 2022 2021 % (in thousands) Net revenues $ 505,835 $ 419,591 20.6 % Net revenues increased by $86.2 million, or 20.6%, for the year ended December 31, 2022, compared to the prior year.
Biggest changeYear ended December 31, Year ended December 31, 2023 2022 2023 2022 (in thousands) (as a percentage of net revenues) Net revenues $ 545,646 $ 505,835 100.0 % 100.0 % Cost of goods sold 168,683 151,375 30.9 29.9 Gross profit 376,963 354,460 69.1 70.1 Operating expenses Selling 125,149 118,449 22.9 23.4 Marketing 77,094 77,692 14.1 15.4 General and administrative (1) 140,675 120,653 25.8 23.9 Total operating expenses 342,918 316,794 62.8 62.6 Net income from operations 34,045 37,666 6.2 7.4 Other income, net 6,762 1,061 1.2 0.2 Net income before provision for income taxes 40,807 38,727 7.5 7.7 Provision for income taxes 18,170 17,541 3.3 3.5 Net income $ 22,637 $ 21,186 4.1 % 4.2 % (1) Includes stock-based compensation expense of $45.8 million and $37.5 million for the years ended December 31, 2023 and 2022, respectively. 61 Table of Contents Net Revenues Year ended December 31, Change 2023 2022 % (in thousands) Net revenues $ 545,646 $ 505,835 7.9 % Net revenues increased by $39.8 million, or 7.9%, for the year ended December 31, 2023, compared to the prior year.
Other Income (Loss), Net Other income (loss), net consists of interest income or expense associated with debt financing arrangements, amortization of debt issuance costs and interest income earned on investments, as well as gain or loss on foreign currency, primarily driven by payment to vendors for amounts not denominated in U.S. dollars.
Other Income, Net Other income, net consists of interest income or expense associated with debt financing arrangements, amortization of debt issuance costs and interest income earned on investments, as well as gain or loss on foreign currency, primarily driven by payment to vendors for amounts not denominated in U.S. dollars.
Since inception, we have financed operations primarily through cash flows from operating activities, the sale of our capital stock and borrowings under credit facilities. 63 Table of Contents We completed our IPO in June 2021 by issuing 4,636,364 shares of our Class A common stock at a price to the public of $22.00 per share, resulting in net proceeds to us of $95.1 million, after deducting the underwriting discount and commissions of $6.1 million and deferred offering expenses of $0.8 million, net of reimbursements.
Since inception, we have financed operations primarily through cash flows from operating activities, the sale of our capital stock and borrowings under credit facilities. 65 Table of Contents We completed our IPO in June 2021 by issuing 4,636,364 shares of our Class A common stock at a price to the public of $22.00 per share, resulting in net proceeds to us of $95.1 million, after deducting the underwriting discount and commissions of $6.1 million and deferred offering expenses of $0.8 million, net of reimbursements.
There are limitations related to the use of free cash flow as an analytical tool, including: other companies may calculate free cash flow differently, which reduces its usefulness as a comparative measure; and free cash flow does reflect our future contractual commitments and it does not represent the total residual cash flow for a given period.
There are limitations related to the use of free cash flow as an analytical tool, including that other companies may calculate free cash flow differently, which reduces its usefulness as a comparative measure, and free cash flow does not reflect our future contractual commitments, nor does it represent the total residual cash flow for a given period.
A hypothetical 10% change in our recorded tax liabilities as of December 31, 2022 would not result in a material impact on our financial statements. To the extent that our view as to the outcome of these matters changes, we will adjust income tax expense in the period in which such determination is made.
A hypothetical 10% change in our recorded tax liabilities as of December 31, 2023 would not result in a material impact on our financial statements. To the extent that our view as to the outcome of these matters changes, we will adjust income tax expense in the period in which such determination is made.
A hypothetical 10% change in our inventory reserves estimate as of December 31, 2022 would not result in a material impact on our financial statements. Income Taxes We are subject to income taxes in the United States.
A hypothetical 10% change in our inventory reserves estimate as of December 31, 2023 would not result in a material impact on our financial statements. Income Taxes We are subject to income taxes in the United States.
Results of Operations Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 The following table sets forth information comparing the components of our results of operations for the periods indicated and our results of operations as a percentage of net revenues for the periods presented.
Results of Operations Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 The following table sets forth information comparing the components of our results of operations for the periods indicated and our results of operations as a percentage of net revenues for the periods presented.
Active Customers, Net Revenues per Active Customer, and Average Order Value The number of active customers is an important indicator of our growth as it reflects the reach of our digital platform, our brand awareness and overall value proposition.
Active Customers, Net Revenues per Active Customer, and Average Order Value We believe the number of active customers is an important indicator of our growth as it reflects the reach of our digital platform, our brand awareness and overall value proposition.
Free Cash Flow We calculate free cash flow as net cash provided by operating activities reduced by capital expenditures, including purchases of property and equipment and capitalized software development costs. We believe free cash flow is a useful measure of liquidity and an additional basis for assessing our ability to generate cash.
Free Cash Flow We calculate free cash flow as net cash (used in) provided by operating activities reduced by capital expenditures, including purchases of property and equipment and capitalized software development costs. We believe free cash flow is a useful supplemental measure of liquidity and an additional basis for assessing our ability to generate cash.
We have made significant investments to strengthen the FIGS brand through our marketing strategy, which includes brand marketing campaigns across platforms, including email, digital, display, site, direct-mail, commercials, social media and ambassadors, as well as performance marketing efforts, including retargeting, paid search and product listing advertisements, paid social media advertisements, search engine optimization, personalized email and mobile push notifications through our app.
We have made significant investments to strengthen the FIGS brand through our marketing strategy, which includes brand marketing campaigns across platforms, including email, digital, display, site, direct-mail, commercials, social media and ambassadors, as well as performance marketing efforts, including retargeting, paid search and product listing advertisements, paid social media advertisements, search engine optimization, personalized email and 58 Table of Contents mobile push notifications through our app.
We analyze the quantity of inventory on hand, the quantity sold in the past year, the anticipated sales volume, 66 Table of Contents the expected sales price and the cost of making the sale when evaluating the value of our inventory. If the sales volume or sales price of specific products declines, additional write-downs may be required.
We analyze the quantity of inventory on hand, the quantity sold in the past year, the anticipated sales volume, the expected sales price and the cost of making the sale when evaluating the value of our inventory. If the sales volume or sales price of specific products declines, additional write-downs may be required.
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 December 31, 2022, we had approximately 2.3 million active customers.
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 December 31, 2023, we had approximately 2.6 million active customers.
General and Administrative General and administrative expenses consist primarily of employee-related costs, including salaries, bonuses, benefits, stock-based compensation, other related costs and other general overhead, including certain third-party consulting and contractor expenses, certain facilities costs, software expenses, legal expenses and recruiting fees.
General and Administrative General and administrative expenses consist primarily of employee-related costs, including salaries, bonuses, benefits, stock-based compensation, other related costs and other general overhead, including certain third-party consulting 60 Table of Contents and contractor expenses, certain facilities costs, software expenses, legal expenses and recruiting fees.
A discussion of the year ended December 31, 2021 compared to the year ended December 31, 2020 has been reported previously in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 10, 2022, under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Overview Our mission is to celebrate, empower and serve those who serve others.
A discussion of the year ended December 31, 2022 compared to the year ended December 31, 2021 has been reported previously in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 28, 2023, under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Overview Our mission is to celebrate, empower and serve those who serve others.
As of December 31, 2022, we had no outstanding borrowings under the 2021 Facility (other than $4.4 million of outstanding letters of credit) and available borrowings of $95.6 million. See Note 8 to our audited financial statements included elsewhere in this Annual Report on Form 10-K for more information regarding the 2021 Facility.
As of December 31, 2023, we had no outstanding borrowings under the 2021 Facility (other than $4.9 million of outstanding letters of credit) and available borrowings of $95.1 million. See Note 8 to our audited financial statements included elsewhere in this Annual Report on Form 10-K for more information regarding the 2021 Facility.
To ensure sufficient availability of merchandise, we generally purchase inventory in advance and, because approximately 85% of our production utilizes our main scrubwear fabric technology FIONx (in 2022), and a substantial amount of our revenue is generated by our core scrubwear styles in core colors, which are in demand year-round, we can hold greater inventory without significant risk of obsolescence or exposure to seasonality.
To ensure sufficient availability of merchandise, we generally purchase inventory in advance and, because the vast majority of our production utilizes our main scrubwear fabric technology FIONx, and a substantial amount of our revenue is generated by our core scrubwear styles in core colors, which are in demand year-round, we can hold greater inventory without significant risk of obsolescence or exposure to seasonality.
We estimate our liability for product returns based on historical 65 Table of Contents return trends and an evaluation of current economic and market conditions. We record the expected customer refund liability as a reduction to revenue, and the expected inventory right of recovery as a reduction of cost of goods sold.
Our revenue is reported net of sales returns and discounts. We estimate our liability for product returns based on historical return trends and an evaluation of current economic and market conditions. We record the expected customer refund liability as a reduction to revenue, and the expected inventory right of recovery as a reduction of cost of goods sold.
There are several limitations related to the use of Adjusted EBITDA and Adjusted EBITDA Margin as analytical tools, including: • other companies may calculate Adjusted EBITDA and Adjusted EBITDA Margin differently, which reduces their usefulness as a comparative measure; • Adjusted EBITDA and Adjusted EBITDA Margin do not reflect other income (loss), net; • Adjusted EBITDA and Adjusted EBITDA Margin do not reflect any gain or loss on disposal of assets; • Adjusted EBITDA and Adjusted EBITDA Margin do not reflect our tax provision, which reduces cash available to us; • Adjusted EBITDA and Adjusted EBITDA Margin do not reflect recurring, non-cash expenses of depreciation and amortization of property and equipment and, although these are non-cash expenses, the assets being depreciated and amortized may have to be replaced in the future; • Adjusted EBITDA and Adjusted EBITDA Margin do not reflect the impact of stock-based compensation expense; • Adjusted EBITDA and Adjusted EBITDA Margin do not reflect transaction costs; and • Adjusted EBITDA and Adjusted EBITDA Margin do not reflect expenses related to non-ordinary course disputes. 62 Table of Contents 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: Year ended December 31, 2022 2021 (in thousands, except margin) Net income (loss) $ 21,186 $ (9,556) Add (deduct): Other income (loss), net (1,061) 1,124 Provision for income taxes 17,541 19,415 Depreciation and amortization expense (1) 1,924 1,424 Stock-based compensation and related expense (2) 37,533 83,516 Transaction costs — 1,139 Expenses related to non-ordinary course disputes (3) 10,128 8,183 Adjusted EBITDA $ 87,251 $ 105,245 Net Revenue $ 505,835 $ 419,591 Net income (loss) margin (4) 4.2 % (2.3) % Adjusted EBITDA Margin 17.2 % 25.1 % (1) Excludes amortization of debt issuance costs included in “Other income (loss), net.” (2) Includes stock-based compensation expense and payroll taxes related to equity award activity.
There are several limitations related to the use of Adjusted EBITDA and Adjusted EBITDA Margin as analytical tools, including: • other companies may calculate Adjusted EBITDA and Adjusted EBITDA Margin differently, which reduces their usefulness as a comparative measure; • Adjusted EBITDA and Adjusted EBITDA Margin do not reflect other income (loss), net; • Adjusted EBITDA and Adjusted EBITDA Margin do not reflect any gain or loss on disposal of assets; • Adjusted EBITDA and Adjusted EBITDA Margin do not reflect our tax provision, which reduces cash available to us; • Adjusted EBITDA and Adjusted EBITDA Margin do not reflect recurring, non-cash expenses of depreciation and amortization of property and equipment and, although these are non-cash expenses, the assets being depreciated and amortized may have to be replaced in the future; • Adjusted EBITDA and Adjusted EBITDA Margin do not reflect the impact of stock-based compensation expense; • Adjusted EBITDA and Adjusted EBITDA Margin do not reflect transaction costs; and • Adjusted EBITDA and Adjusted EBITDA Margin do not reflect expenses related to non-ordinary course disputes. 64 Table of Contents 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: Year ended December 31, 2023 2022 (in thousands, except margin) Net income $ 22,637 $ 21,186 Add (deduct): Other income, net (6,762) (1,061) Provision for income taxes 18,170 17,541 Depreciation and amortization expense (1) 2,942 1,924 Stock-based compensation and related expense (2) 47,757 37,533 Expenses related to non-ordinary course disputes (3) 1,256 10,128 Adjusted EBITDA $ 86,000 $ 87,251 Net Revenues $ 545,646 $ 505,835 Net income margin (4) 4.1 % 4.2 % Adjusted EBITDA Margin 15.8 % 17.2 % (1) Excludes amortization of debt issuance costs included in “Other income, net.” (2) Includes stock-based compensation expense, payroll taxes and costs related to equity award activity.
Year ended December 31, 2022 2021 Average order value $ 112 $ 105 Adjusted EBITDA and Adjusted EBITDA Margin We calculate Adjusted EBITDA as net income (loss) 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.
AOV for the years ended December 31, 2023 and 2022, respectively, are presented in the following table: Year ended December 31, 2023 2022 Average order value $ 115 $ 112 Adjusted EBITDA and Adjusted EBITDA Margin We calculate Adjusted EBITDA as net income (loss) 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.
In September 2021, we entered into a credit agreement with Bank of America, N.A. providing for a revolving credit facility in an amount of up to $100.0 million (as amended, the “2021 Facility”). The 2021 Facility will mature in September 2026.
The Company incurred a total of $8.7 million of expenses, before reimbursements, in connection with the IPO. In September 2021, we entered into a credit agreement with Bank of America, N.A. providing for a revolving credit facility in an amount of up to $100.0 million (as amended, the “2021 Facility”). The 2021 Facility will mature in September 2026.
This increase was primarily due to a higher total number of orders in 2022 as compared to 2021. Gross profit increased by $53.2 million, or 17.7%, for the year ended December 31, 2022, compared to the prior year, primarily due to an increase in the total number of orders.
This increase was primarily due to a higher total number of orders in 2023 as compared to 2022. Gross profit increased by $22.5 million, or 6.3%, for the year ended December 31, 2023, compared to the prior year, primarily due to an increase in the total number of orders.
The following range of assumptions was used to estimate the fair value of options granted during the year ended December 31, 2022: Risk free interest rate 1.71 - 4.08 % Expected volatility 34 - 40 % Expected dividend yield 0 % Expected term (in years) 5.63 - 6.25 Risk-free interest rate—determined by reference to the U.S.
The following range of assumptions was used to estimate the fair value of options granted during the year ended December 31, 2023: Risk free interest rate 3.39 - 4.65 % Expected volatility 40 - 41 % Expected dividend yield 0 % Expected term (in years) 6.2 - 6.25 Risk-free interest rate—determined by reference to the U.S.
In the year ended December 31, 2022, we had the following results compared to the comparable periods in 2021: ◦ Expanded our community of active customers by 22.5% from approximately 1.9 million at December 31, 2021 to approximately 2.3 million at December 31, 2022; ◦ Net revenues increased from $419.6 million to $505.8 million in the year ended December 31, 2022 representing 20.6% year-over-year growth; ◦ Gross margin decreased 1.7 percentage points from 71.8% to 70.1% in the year ended December 31, 2022; ◦ Net income (loss) increased from $(9.6) million to $21.2 million in the year ended December 31, 2022; ◦ Net income (loss) margin increased from (2.3)% to 4.2% in the year ended December 31, 2022; ◦ Adjusted EBITDA decreased from $105.2 million to $87.3 million in the year ended December 31, 2022, representing an Adjusted EBITDA Margin of 17.2%; 55 Table of Contents ◦ Cash flows from operating activities decreased from $66.4 million to $(35.3) million in the year ended December 31, 2022; and ◦ Free cash flow decreased from $63.7 million to $(40.7) million in the year ended December 31, 2022.
In the year ended December 31, 2023, we had the following results compared to the comparable periods in 2022: ◦ Expanded our community of active customers by 13.0% from approximately 2.3 million at December 31, 2022 to approximately 2.6 million at December 31, 2023; ◦ Net revenues increased from $505.8 million to $545.6 million in the year ended December 31, 2023 representing 7.9% year-over-year growth; ◦ Gross margin decreased 1.0 percentage point from 70.1% to 69.1% in the year ended December 31, 2023; ◦ Net income increased from $21.2 million to $22.6 million in the year ended December 31, 2023; ◦ Net income margin decreased from 4.2% to 4.1% in the year ended December 31, 2023; ◦ Adjusted EBITDA decreased from $87.3 million to $86.0 million in the year ended December 31, 2023, representing an Adjusted EBITDA Margin of 15.8%; 57 Table of Contents ◦ Cash flows from operating activities increased from $(35.3) million to $100.9 million in the year ended December 31, 2023; and ◦ Free cash flow increased from $(40.7) million to $84.6 million in the year ended December 31, 2023.
Selling expense increased by $36.5 million, or 44.6%, for the year ended December 31, 2022, compared to the prior year and, as a percentage of net revenues, increased by 3.9 percentage points.
Selling expense increased by $6.7 million, or 5.7%, for the year ended December 31, 2023, compared to the prior year and, as a percentage of net revenues, decreased by 0.5 percentage points.
As of December 31, 2022 2021 (in thousands) Active customers 2,294 1,872 61 Table of Contents We believe measuring net revenues per active customer is important to understanding our engagement and retention of customers, and as such, our value proposition for our customer base.
Active customers as of December 31, 2023 and 2022, respectively, are presented in the following table: As of December 31, 2023 2022 (in thousands) Active customers 2,593 2,294 63 Table of Contents We believe measuring net revenues per active customer is important to understanding our engagement and retention of customers, and as such, our value proposition for our customer base.
Other Income (Loss), Net Year ended December 31, Change 2022 2021 % (in thousands) Other income (loss), net $ 1,061 $ (1,124) 194.4 % Other income (loss), net increased for the year ended December 31, 2022, compared to the prior year, primarily due to an increase in our interest income driven by higher interest rates.
Other Income, Net Year ended December 31, Change 2023 2022 % (in thousands) Other income, net $ 6,762 $ 1,061 537.3 % Other income, net increased for the year ended December 31, 2023, compared to the prior year, primarily due to an increase in interest income driven by higher interest rates.
Year ended December 31, 2022 2021 (in thousands) Net cash (used in) provided by operating activities $ (35,329) $ 66,437 Less: capital expenditures (5,348) (2,712) Free cash flow $ (40,677) $ 63,725 Liquidity and Capital Resources As of December 31, 2022 and 2021, we had $159.8 million and $195.4 million of cash and cash equivalents, respectively.
Year ended December 31, 2023 2022 (in thousands) Net cash (used in) provided by operating activities $ 100,915 $ (35,329) Less: capital expenditures (16,348) (5,348) Free cash flow $ 84,567 $ (40,677) Liquidity and Capital Resources As of December 31, 2023 and 2022, we had $144.2 million and $159.8 million of cash and cash equivalents, respectively.
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 and price points as well as expand internationally, AOV may fluctuate.
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 and price points as well as expand internationally, AOV may fluctuate.
While we believe our largely non-discretionary, replenishment-driven business model is resilient in challenging macroeconomic environments, we expect current macroeconomic pressures to affect our results of operations in the near term. We continue to monitor the impacts of current macroeconomic conditions.
While we believe our largely non-discretionary, replenishment-driven business model is resilient in challenging macroeconomic environments, adverse macroeconomic pressures have affected our results of operations and we expect them to continue to do so in the near term.
Historical Cash Flows The following table summarizes our cash flows for the periods presented: Year ended December 31, 2022 2021 (in thousands) Net cash (used in) provided by operating activities $ (35,329) $ 66,437 Net cash used in investing activities (5,848) (2,712) Net cash provided by financing activities 3,522 75,572 Net (decrease) increase in cash, cash equivalents, and restricted cash $ (37,655) $ 139,297 Operating Activities Cash (used in) provided by operating activities consist 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.
Historical Cash Flows The following table summarizes our cash flows for the periods presented: Year ended December 31, 2023 2022 (in thousands) Cash flows from operating activities $ 100,915 $ (35,329) Cash flows from investing activities (117,187) (5,848) Cash flows from financing activities 670 3,522 Net change in cash, cash equivalents, and restricted cash $ (15,602) $ (37,655) Operating Activities Cash flows from operating activities consist 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.
Brand Awareness and Loyalty Our ability to promote and maintain brand awareness and loyalty is critical to our success. We have a significant opportunity to continue to grow our brand awareness and loyalty through word of mouth, brand marketing and 56 Table of Contents performance marketing.
We have a significant opportunity to continue to grow our brand awareness and loyalty through word of mouth, brand marketing and performance marketing.
Gross margin decreased 1.7 percentage points for the year ended December 31, 2022, compared to the prior year. The decrease in gross margin was primarily related to higher mix of promotional sales and, to a lesser extent, an increase in freight-in due to elevated ocean freight rates and product mix shift.
Gross margin decreased 1.0 percentage point for the year ended December 31, 2023, compared to the prior year. The decrease in gross margin was primarily related to product mix shift and, to a lesser extent, higher duties and a higher mix of promotional sales, partially offset by lower air freight utilization and ocean freight rates.
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.
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.
As of December 31, 2022 2021 Net revenues per active customer $ 221 $ 224 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.
Net revenues per active customer as of December 31, 2023 and 2022, respectively, are presented in the following table: As of December 31, 2023 2022 Net revenues per active customer $ 210 $ 221 We define AOV as the sum of the total net revenues in a given period divided by the total orders placed in that period.
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 a reconciliation to the most directly comparable financial measures prepared in accordance with GAAP.
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 a reconciliation to the most directly comparable financial measures prepared in accordance with GAAP. Recent Developments During the quarter and year ended December 31, 2023, we continued to execute on our previously announced fulfillment enhancement project.
Customer Retention and Engagement Our continued success depends in part on our ability to retain, and drive repeat purchases from, our existing customers. We monitor retention across our entire customer base. Our goal is to attract and convert visitors into active customers and foster relationships that drive repeat purchases.
Our future growth will depend in part on our ability to increase our net revenues per active customer. Customer Retention and Engagement Our continued success depends in part on our ability to retain, and drive repeat purchases from, our existing customers. We monitor retention across our entire customer base.
We determine revenue recognition through the following steps in accordance with Topic 606, which we adopted effective January 1, 2018: • identification of the contract, or contracts, with a customer; • identification of the performance obligations in the contract; • determination of the transaction price; • allocation of the transaction price to the performance obligations in the contract; and • recognition of revenue when, or as, we satisfy a performance obligation.
We determine revenue recognition through the following steps in accordance with Topic 606, which we adopted effective January 1, 2018: • identification of the contract, or contracts, with a customer; • identification of the performance obligations in the contract; • determination of the transaction price; • allocation of the transaction price to the performance obligations in the contract; and • recognition of revenue when, or as, we satisfy a performance obligation. 67 Table of Contents Revenue is recognized upon shipment when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.
Critical Accounting Policies and Estimates The preparation of our financial statements in conformity with GAAP requires us to make estimates and judgments that affect the amounts reported in those financial statements and accompanying notes.
See Note 9 to our audited financial statements appearing elsewhere in this Annual Report on Form 10-K for a description of our contractual obligations and commitments. Critical Accounting Policies and Estimates The preparation of our financial statements in conformity with GAAP requires us to make estimates and judgments that affect the amounts reported in those financial statements and accompanying notes.
Cash provided by financing activities was $75.6 million for the year ended December 31, 2021, which was attributable to proceeds from our IPO of $95.9 million, capital contributions of $1.3 million and proceeds from stock option exercises of $0.9 million, partially offset by tax payments related to net share settlements on restricted stock units of $21.6 million.
Cash flows from financing activities of $0.7 million for the year ended December 31, 2023, were primarily attributable to proceeds from stock option exercises and employee stock purchases of $0.9 million, offset by tax payments related to net share settlements on restricted stock units of $0.2 million.
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. These factors also pose risks and challenges, including those discussed in Part I, Item 1A. “Risk Factors” of this Annual Report on Form 10-K for the year ended December 31, 2022.
These factors also pose risks and challenges, including those discussed in Part I, Item 1A. “Risk Factors” of this Annual Report on Form 10-K for the year ended December 31, 2023. Brand Awareness and Loyalty Our ability to promote and maintain brand awareness and loyalty is critical to our success.
Cost of Goods Sold Year ended December 31, Change 2022 2021 (in thousands) Cost of goods sold $ 151,375 $ 118,370 27.9 % Gross profit 354,460 301,221 17.7 % Gross margin 70.1 % 71.8 % (170) bps Cost of goods sold increased by $33.0 million, or 27.9%, for the year ended December 31, 2022, compared to the prior year.
Cost of Goods Sold Year ended December 31, Change 2023 2022 (in thousands, except margin) Cost of goods sold $ 168,683 $ 151,375 11.4 % Gross profit 376,963 354,460 6.3 % Gross margin 69.1 % 70.1 % (100) bps Cost of goods sold increased by $17.3 million, or 11.4%, for the year ended December 31, 2023, compared to the prior year.
Operating Expenses Year ended December 31, Change 2022 2021 % (in thousands) Operating expenses: Selling $ 118,449 $ 81,923 44.6 % Marketing 77,692 58,713 32.3 % General and administrative 120,653 149,602 (19.4) % Total operating expenses 316,794 290,238 9.1 % Operating expenses increased by $26.6 million, or 9.1%, for the year ended December 31, 2022, compared to the prior year and, as a percentage of net revenues, decreased by 6.6 percentage points, primarily driven by a decrease in general and administrative expense as described below.
Operating Expenses Year ended December 31, Change 2023 2022 % (in thousands) Operating expenses: Selling $ 125,149 $ 118,449 5.7 % Marketing 77,094 77,692 (0.8) % General and administrative 140,675 120,653 16.6 % Total operating expenses 342,918 316,794 8.2 % Operating expenses increased by $26.1 million, or 8.2%, for the year ended December 31, 2023, compared to the prior year and, as a percentage of net revenues, increased by 0.2 percentage points, primarily driven by an increase in general and administrative expenses, offset by lower marketing and selling expenses.
Cost is determined using an average cost method. Cost of inventory includes import duties and other taxes and transport and handling costs. We write down inventory where it appears that the carrying cost of the inventory may not be recovered through subsequent sale of the inventory.
We write down inventory where it appears that the carrying cost of the inventory may not be recovered through subsequent sale of the inventory.
Financing Activities Cash provided by 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. Cash provided by financing activities was $3.5 million for the year ended December 31, 2022, which was primarily attributable to proceeds from stock option exercises.
Capital expenditures during the year ended December 31, 2022 were primarily related to capitalized software development costs, purchases of machinery and equipment, and purchases of computer equipment. Financing Activities 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.
Cash (used in) provided by operating activities decreased by $101.8 million for the year ended December 31, 2022, compared to the same period last year.
Cash flows from operating activities increased by $136.2 million for the year ended December 31, 2023, compared to the same period last year.
The increase in selling expense as a percentage of net revenues was primarily due to higher fulfillment expenses, including increased storage costs and, to a lesser extent, higher shipping expense as a result of rate increases. 60 Table of Contents Marketing expense increased by $19.0 million, or 32.3%, for the year ended December 31, 2022, compared to the prior year and, as a percentage of net revenues, increased by 1.4 percentage points.
The decrease in selling expense as a percentage of net revenues was primarily driven by leverage within shipping expense due to higher AOV, partially offset by a higher mix of promotional sales. 62 Table of Contents Marketing expense decreased by $0.6 million, or 0.8%, for the year ended December 31, 2023, compared to the prior year and, as a percentage of net revenues, decreased by 1.3 percentage points.
The service condition is generally satisfied ratably over four years. The performance condition related to our outstanding performance-based awards was satisfied in connection with the IPO. See Note 2 to our audited financial statements appearing elsewhere in this Annual Report on Form 10-K for further discussion. Inventory Inventories are stated at the lower of cost and net realizable value.
See Note 2 to our audited financial statements appearing elsewhere in this Annual Report on Form 10-K for further discussion. 68 Table of Contents Inventory Inventories are stated at the lower of cost and net realizable value. Cost is determined using an average cost method. Cost of inventory includes import duties and other taxes and transport and handling costs.
General and administrative expense decreased by $28.9 million, or 19.4%, for the year ended December 31, 2022, compared to the prior year and, as a percentage of net revenues, decreased by 11.8 percentage points.
The decrease in marketing expense as a percentage of net revenues was primarily due to reduced brand marketing spend. General and administrative expense increased by $20.0 million, or 16.6%, for the year ended December 31, 2023, compared to the prior year and, as a percentage of net revenues, increased by 1.9 percentage points.
The decrease in operating cash flows was due to a net change in operating assets and liabilities of $94.7 million primarily driven by higher inventory purchases of $55.6 million, the timing of payments against accrued expenses of $16.5 million, the timing of income tax payments of $8.4 million, and the timing of cash collections related to accounts receivable of $7.8 million during the period. 64 Table of Contents Investing Activities Cash used in investing activities relates to capital expenditures and other investing activities.
The increase in operating cash flows was due to a net change in operating assets and liabilities of $133.2 million primarily driven by lower inventory purchases of $150.8 million, the timing of payments against accrued compensation and benefits of $7.0 million, and the timing of income tax payments of $6.5 million.
As a result, we may no longer take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards available to EGCs and we must comply with all financial reporting and compliance requirements applicable to a “large accelerated filer.” Recent Accounting Pronouncements Refer to Note 2 to our financial statements appearing elsewhere in this Annual Report on Form 10-K for a discussion of accounting pronouncements recently adopted and recently issued accounting pronouncements not yet adopted and their potential impact to our financial statements.
Recent Accounting Pronouncements Refer to Note 2 to our financial statements appearing elsewhere in this Annual Report on Form 10-K for a discussion of accounting pronouncements recently adopted and recently issued accounting pronouncements not yet adopted and their potential impact to our financial statements.
These newly acquired customers frequently make one or more repeat purchase in the same year, which is supplemented by the embedded growth from prior-year cohorts’ customers who continue to purchase from us.
Over the last five years, we have consistently achieved robust net revenues from repeat customers while also maintaining a healthy level of new customer acquisitions. One or more repeat purchase in the same year by these newly acquired customers supplements the embedded growth from prior-year cohorts’ customers who continue to purchase from us.
Provision for Income Taxes Year ended December 31, Change 2022 2021 % (in thousands) Provision for income taxes $ 17,541 $ 19,415 (9.7) % Provision for income taxes decreased by $1.9 million, or 9.7%, for the year ended December 31, 2022, compared to the prior year, primarily due to a decrease in non-deductible items including stock-based compensation expense.
Provision for Income Taxes Year ended December 31, Change 2023 2022 % (in thousands) Provision for income taxes $ 18,170 $ 17,541 3.6 % Provision for income taxes increased by $0.6 million, or 3.6%, for the year ended December 31, 2023, compared to the prior year, primarily due to an increase in pretax income.
We recognize product sales at the time control is transferred to the customer, which is when the product is shipped to the customer. Net revenues represent the sale of these items and shipping revenue, net of estimated returns and discounts.
Components of Our Results of Operations Net Revenues Net revenues consist of sales of healthcare apparel, footwear and other products primarily through our digital platform. We recognize product sales at the time control is transferred to the customer, which is when the product is shipped to the customer.
Nevertheless, we are still vulnerable to demand and pricing shifts and to suboptimal selection and timing of merchandise purchases. Moreover, our inventory investments will fluctuate with the needs of our business. For example, entering new locations and expanding to new categories require additional investments in inventory.
Nevertheless, we are still vulnerable to demand and pricing shifts and to suboptimal selection and timing of merchandise purchases.
Net revenues are primarily driven by the growth in the number of active customers, the frequency with which customers purchase and the average order value (“AOV”).
Net revenues represent the sale of these items and shipping revenue, net of estimated returns and discounts. Net revenues are primarily driven by the number of active customers, the frequency with which customers purchase and the average order value (“AOV”). See the section titled “—Key Operating Metrics and Non-GAAP Financial Measures” for a definition of average order value.
Cash used in investing activities of $5.8 million for the year ended December 31, 2022 increased by $3.1 million as compared to the same period last year. Capital expenditures during the year ended December 31, 2022 and 2021 were primarily related to capitalized software development costs, purchases of machinery and equipment, and purchases of computer equipment.
Investing Activities Cash flows from investing activities consists of capital expenditures and purchases of investments. 66 Table of Contents Cash flows from investing activities were $(117.2) million for the year ended December 31, 2023. Cash flows from investing activities decreased by $111.3 million as compared to the same period last year.
In the year ended December 31, 2022, we saw sales growth moderate due to frequency trends softening, which continued through the fourth quarter. We believe this was due in part to adverse macroeconomic factors such as sustained inflationary pressures on consumer spending, which continues to impact our customers.
For example, we have seen year-over- year sales growth impacted by moderation of frequency trends, which we believe were due in part to adverse macroeconomic factors such as sustained inflationary pressures on consumer spending and we expect to continue to see the impact of inflation on our customers’ purchasing activity in the near term.
The decrease in general and administrative expense as a percentage of net revenues was primarily due to a decrease in stock-based compensation expense, partially offset by increased public company costs.
The increase in general and administrative expense as a percentage of net revenues was primarily driven by higher investment in people, including salaries, bonus, payroll tax, and stock-based compensation expense and, to a lesser extent, an update to our accrual methodology for charitable donations in the prior year. This increase was partially offset by reduced legal and insurance expenses.
We sell products purposefully designed to serve the particular needs of healthcare professionals primarily through a convenient direct-to-consumer (“DTC”) digital platform, consisting of our website and mobile app. Our offerings include scrubwear and non-scrubwear, such as lab coats, underscrubs, outerwear, loungewear, compression socks, footwear and other lifestyle apparel.
We sell products purposefully designed to serve the particular needs of healthcare professionals primarily through our DTC digital platform, consisting of our website, mobile app and TEAMS business. 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.
(3) Represents legal fees incurred in connection with certain of the litigation claims described in the section titled “Legal Proceedings” appearing in this Annual Report on Form 10-K. (4) Net income (loss) margin represents net income (loss) as a percentage of net revenues.
(3) Exclusively represents attorney’s fees, costs and expenses incurred by the Company in connection with the Company’s now-concluded litigation against Strategic Partners, Inc. (4) Net income margin represents net income as a percentage of net revenues.
Removed
COVID-19 and Macroeconomic Update During the fiscal year ended December 31, 2022, the ongoing COVID-19 pandemic and the global macroeconomic environment continued to negatively impact global supply chains and cause challenges to logistics, including elevated ocean freight transit times and elevated ocean and air freight rates.
Added
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.
Removed
Beginning in the second half of the year, we began to see sequential improvements in ocean freight rates, transit times, reliability and capacity, compared to the first half of the year.
Added
In connection with the project and transition, during the year ended December 31, 2023, we incurred $1.2 million in transitory operational expenditures related to implementation costs, nearly all of which was incurred in Q4 2023, and $12.2 million in capital expenditures, $8.8 million of which was incurred in Q4 2023.
Removed
In the quarter and fiscal year ended December 31, 2022, we continued to take measures to mitigate the impact of global supply chain challenges, as we sought to continue to timely and cost effectively fulfill orders and ship products to our customers.
Added
During the fiscal year ending December 31, 2024, we expect to incur transitory operational expenditures of approximately $14 million and an additional $13 million to $14 million in capital expenditures in connection with the project and transition.
Removed
In the quarter ended December 31, 2022, we utilized air freight to a lesser extent than we did during the prior year period. We did, however, incur elevated ocean freight expense as we sold through inventory previously inbounded during periods of higher ocean freight rates, which increased our cost of goods sold compared to the prior year period.
Added
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.
Removed
In the fiscal year ended December 31, 2022, we utilized more expensive air freight relatively consistently throughout the year, and experienced elevated ocean freight rates, which increased our cost of goods sold year over year.
Added
Supply Chain In the quarter ended December 31, 2023, we continued to evolve our sourcing capabilities to strengthen our supply chain, which includes diversifying certain manufacturing operations geographically and strategically refining our manufacturing base into fewer high-quality partners. In so doing, we recently reallocated a material amount of manufacturing geographically, including to Jordan.
Removed
Although ocean freight rates improved in the fourth quarter, we may continue to contend with elevated ocean freight expense and air freight rates, and we may continue to use air freight and incur air freight expense from time to time as supply chain challenges further normalize.
Added
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.
Removed
In the quarter and year ended December 31, 2022, we also continued to experience elevated inventory on hand, as a result of improvements in ocean transit times and sales below our expectations earlier in the year, which in turn resulted in increased costs associated with storing such inventory.
Added
Such attacks have also affected global ocean freight traffic generally, caused shipping delays and increased freight costs. As a result, during and since the quarter ended December 31, 2023, 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.
Removed
We are continuing to work to address our increased inventory by adjusting future inventory purchases accordingly.
Added
Although we have not yet experienced a material disruption to our supply chain 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 impacts to our supply chain, which could adversely affect our financial condition and results of operations.
Removed
Nevertheless, because approximately 85% of our production in 2022 utilized our main scrubwear fabric technology FIONx and a substantial amount of our revenue is generated by our core scrubwear styles in core colors, which are in demand year-round, we can hold greater inventory without significant risk of obsolescence or exposure to seasonality, and are generally able to time the sourcing of our product components and manufacture of our core scrubwear styles in core colors without being solely dependent on cyclical demand trends.
Added
“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.
Removed
An economic slowdown or recession, financial market volatility, changes in the labor market, geopolitical tensions, continuing supply chain disruptions, a reduction in consumer spending or an inability for our suppliers, vendors or other parties with whom we do business to meet their contractual obligations, could negatively impact our business and results of operations.
Added
Our goal is to attract and convert visitors into active customers and foster relationships that drive repeat purchases. As of December 31, 2023, we had approximately 2.6 million active customers, up from approximately 2.3 million active customers as of December 31, 2022.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

5 edited+1 added−0 removed8 unchanged
Biggest changeWe do not enter into investments for trading or speculative purposes and have not used any 67 Table of Contents derivative financial instruments to manage our interest rate risk exposure. A hypothetical 10% change in interest rates would not result in a material impact on our financial statements.
Biggest changeWe do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure.
A high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross margin and selling, general, and administrative expenses as a percentage of net revenue if we are unable, or choose not to, increase the selling prices of our products in proportion with these increased costs. 68 Table of Contents
A high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross margin and selling, general, and administrative expenses as a percentage of net revenue if we are unable, or choose not to, increase the selling prices of our products in proportion with these increased costs. 70 Table of Contents
For example, during the three months and year ended December 31, 2022, our gross margin was impacted by higher freight costs compared to the same periods in 2021, which we believe was as a result of inflation due, in part, to global supply chain disruptions.
For example, during the year ended December 31, 2022, our gross margin was impacted by higher freight costs compared to the same periods in 2021, which we believe was as a result of inflation due, in part, to global supply chain disruptions.
Our market risk exposure is primarily the result of fluctuations in interest rates and foreign exchange rates. Interest Rate Risk At December 31, 2022, we had cash and cash equivalents of $159.8 million. Interest-earning instruments carry a degree of interest rate risk.
Our market risk exposure is primarily the result of fluctuations in interest rates and foreign exchange rates. Interest Rate Risk At December 31, 2023, we had cash and cash equivalents of $144.2 million. Interest-earning instruments carry a degree of interest rate risk.
The 2021 Facility provides us with available borrowings in an amount up to $100.0 million. Because the 2021 Facility bears interest at a variable rate, we will be exposed to market risks relating to changes in interest rates if we have a meaningful outstanding balance. At December 31, 2022, there were no outstanding borrowings under the 2021 Facility.
Because the 2021 Facility bears interest at a variable rate, we will be exposed to market risks relating to changes in interest rates if we have a meaningful outstanding balance. At December 31, 2023, there were no outstanding borrowings under the 2021 Facility.
Added
A hypothetical 10% change in interest rates would not result in a material impact on our financial statements. 69 Table of Contents The 2021 Facility provides us with available borrowings in an amount up to $100.0 million.

Other FIGS 10-K year-over-year comparisons