FIGS(FIGS) - 2021 Q4 - Annual Report

Part I Business FIGS, Inc. is a direct-to-consumer healthcare apparel and lifestyle brand that designs and sells technically advanced medical apparel, experiencing rapid growth in a large global market - FIGS is a founder-led, direct-to-consumer (DTC) healthcare apparel and lifestyle brand focused on creating technically advanced products for healthcare professionals[20] - The company's merchandising model is anchored by 13 core scrubwear styles, which accounted for over 80% of net revenues in 2021, utilizing limited edition colors and styles to drive customer engagement[39] - As of December 31, 2021, FIGS had a growing base of approximately 1.9 million active customers[23] - The total addressable market for healthcare apparel was estimated at $12.0B in the U.S. and $79.0B globally in 2020, with the U.S. market projected to grow to $16.0B by 2025[29][33] - The company's supply chain is diversified across 14 countries with approximately 40 global production partners in 2021, all required to be certified through the Worldwide Responsible Accredited Production (WRAP) program[78] Net Revenue Growth (2017-2021) | Year | Net Revenues (in millions) | | :--- | :--- | | 2017 | $17.6M | | 2021 | $419.6M | Risk Factors The company faces multiple risks related to the sustainability of its rapid growth, supply chain dependencies, information technology, and corporate governance structure - The company's rapid growth from $263.1M in 2020 to $419.6M in 2021 may not be sustainable, and the growth rate is expected to slow over time[100][101] - A significant business risk is the reliance on a limited number of third-party suppliers, with the vast majority of fabrics sourced from two suppliers in China and most products produced by two main manufacturers in South East Asia[162][164] - The dual-class stock structure concentrates approximately 74.6% of voting power with the co-founders and Tulco, LLC, limiting the influence of Class A stockholders on corporate matters[292][294] - The company is a "controlled company" under NYSE rules, allowing it to rely on exemptions from certain corporate governance requirements, such as having a majority of independent directors[297][298] - The business is subject to risks from system interruptions, cyberattacks, and failure to comply with evolving data privacy laws like CCPA and GDPR, which could lead to liability and reputational damage[199][219][224] - Global supply chain disruptions, exacerbated by the COVID-19 pandemic, have led to ocean freight delays, port congestion, and increased freight rates, which may continue to impact costs and operations[158][166] Unresolved Staff Comments The company reports that it has no unresolved staff comments from the Securities and Exchange Commission - None[349] Properties FIGS, Inc. is headquartered in leased office space in Santa Monica, California, and operates an embroidery workshop within a third-party logistics provider's facility in City of Industry, California - The company's headquarters are in a leased office space in Santa Monica, California, with the lease expiring in January 2030[351] - An embroidery workshop is operated within a dedicated warehouse space at a third-party logistics provider's site in City of Industry, California[352] Legal Proceedings The company is involved in legal proceedings, notably two actions filed by Strategic Partners, Inc. alleging false advertising and unfair business practices, and a complaint from a former stockholder alleging breach of fiduciary duty and fraud, all of which the company intends to vigorously defend against - Strategic Partners, Inc. (SPI) has filed two actions against the company and its co-founders, alleging false advertising, unfair business practices, and other claims[354] - Miracle Ventures I, LP, a former stockholder, filed a complaint against the company and its co-founders for alleged breach of fiduciary duty and fraud related to a 2017 stock sale[354] - The company believes the claims in these cases are without merit and is defending against them, but notes that an adverse outcome could negatively affect its business and financial condition[355] Mine Safety Disclosures This item is not applicable to the company's business - Not applicable[357] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's Class A common stock began trading on the NYSE in May 2021, with no cash dividends paid or anticipated, as earnings are retained for business growth and IPO proceeds are invested - Class A common stock began trading on the NYSE under the symbol "FIGS" on May 27, 2021, while Class B common stock is not traded on any exchange[361][362] - The company has never declared or paid cash dividends and does not expect to in the foreseeable future, retaining earnings for business operations and growth[364] - Net proceeds from the June 1, 2021 IPO have been invested in investment-grade, interest-bearing instruments, with no material change in the intended use of proceeds[370] Management's Discussion and Analysis of Financial Condition and Results of Operations In fiscal year 2021, FIGS, Inc. achieved significant revenue growth driven by customer expansion, though profitability was impacted by increased stock-based compensation and freight costs, while maintaining a strong liquidity position Financial Highlights (FY 2021 vs. FY 2020) | Metric | FY 2021 | FY 2020 | Change | | :--- | :--- | :--- | :--- | | Net Revenues | $419.6M | $263.1M | +59.5% | | Gross Margin | 71.8% | 72.3% | -0.5 p.p. | | Net Income (Loss) | ($9.6M) | $49.8M | -119.2% | | Adjusted EBITDA | $105.2M | $69.1M | +52.3% | | Active Customers | 1.9M | 1.3M | +46.0% | | Average Order Value | $105 | $94 | +11.7% | - The increase in General and Administrative expenses was primarily driven by an $81.1M stock-based compensation expense in 2021, largely in connection with the IPO[407][416] - The COVID-19 pandemic continued to negatively impact global supply chains, causing the company to use faster but more expensive air freight, which increased cost of goods sold[384] - The company completed its IPO on June 1, 2021, raising net proceeds of $95.1M[385] - As of December 31, 2021, the company had $195.4M in cash and cash equivalents and access to a $100.0M revolving credit facility with no outstanding borrowings[433][435] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk exposures are related to interest rates, foreign currency, and inflation, with current risks assessed as minimal for interest rates and foreign currency, and no material impact from inflation to date - Interest rate risk is considered low due to cash holdings in interest-earning instruments and no outstanding borrowings on its variable-rate credit facility as of December 31, 2021[465][466] - Foreign currency risk is not currently significant as revenues are denominated in U.S. dollars, but some operating expenses are in foreign currencies, creating minor exposure[467] - The company does not believe inflation has had a material effect on its business to date but notes that an inability to offset future cost increases could harm results[468] Financial Statements and Supplementary Data This section presents the audited financial statements for FIGS, Inc. for the fiscal year ended December 31, 2021, providing detailed information on the company's financial position, results of operations, and cash flows Balance Sheet Summary (As of Dec 31, 2021) | Account | Amount (in millions) | | :--- | :--- | | Total Assets | $311.751M | | Total Current Assets | $293.339M | | Cash and cash equivalents | $195.374M | | Inventory, net | $86.068M | | Total Liabilities | $66.178M | | Total Current Liabilities | $62.393M | | Total Stockholders' Equity | $245.573M | Statement of Operations Summary (Year Ended Dec 31, 2021) | Account | Amount (in millions) | | :--- | :--- | | Net Revenues | $419.591M | | Gross Profit | $301.221M | | Total Operating Expenses | $290.238M | | Net Income (Loss) | ($9.556M) | Statement of Cash Flows Summary (Year Ended Dec 31, 2021) | Account | Amount (in millions) | | :--- | :--- | | Net cash provided by operating activities | $66.437M | | Net cash used in investing activities | ($2.712M) | | Net cash provided by financing activities | $75.572M | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[604] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2021, with no material changes to internal control over financial reporting during the quarter - Management concluded that as of December 31, 2021, the company's disclosure controls and procedures were effective at a reasonable assurance level[606] - No material changes were made to the internal control over financial reporting during the quarter ended December 31, 2021[607] - A management report on internal control over financial reporting is not included, as permitted for newly public companies[608] Other Information This section discloses details of the amended and restated employment letter agreement for Daniella Turenshine, appointed Chief Financial Officer in December 2021, outlining her annual base salary, target bonus, and severance provisions - On March 8, 2022, the company entered into an amended employment agreement with CFO Daniella Turenshine[609] - Ms. Turenshine's agreement includes an annual base salary of $500,000 and a target annual bonus of $300,000 for 2022[609] - The agreement provides for severance payments, including 12 months of base salary, if terminated by the company without "cause" or by her for "good reason"[609] Part III Directors, Executive Officers and Corporate Governance This section provides biographical information for the company's board of directors and executive officers, including co-founders Heather Hasson and Catherine Spear, and details the adoption of a Code of Business Conduct and Ethics - The board of directors consists of five members: Heather Hasson (Co-CEO), Catherine Spear (Co-CEO), Sheila Antrum, Michael Soenen, and J. Martin Willhite[617][618] - The executive officers are Co-Founders and Co-CEOs Heather Hasson and Catherine Spear, and CFO Daniella Turenshine[627] - The company has adopted a Code of Business Conduct and Ethics, which is available on its investor relations website[630] Executive Compensation The information required for this item is incorporated by reference from the company's definitive Proxy Statement for the 2022 Annual Meeting of Stockholders - Information regarding executive compensation is incorporated by reference from the forthcoming 2022 Proxy Statement[633] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section provides a table detailing the securities authorized for issuance under the company's equity compensation plans as of December 31, 2021, with remaining information incorporated by reference from the 2022 Proxy Statement Equity Compensation Plan Information (as of Dec 31, 2021) | Plan Category | Securities to be Issued Upon Exercise | Securities Available for Future Issuance | | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 41,539,849 | 15,362,581 | - The weighted-average exercise price of outstanding options as of December 31, 2021, was $5.24[635][636] Certain Relationships and Related Transactions, and Director Independence The information required for this item is incorporated by reference from the company's definitive Proxy Statement for the 2022 Annual Meeting of Stockholders - Information regarding related party transactions and director independence is incorporated by reference from the forthcoming 2022 Proxy Statement[638] Principal Accountant Fees and Services The information required for this item is incorporated by reference from the company's definitive Proxy Statement for the 2022 Annual Meeting of Stockholders - Information regarding principal accountant fees and services is incorporated by reference from the forthcoming 2022 Proxy Statement[640] Part IV Exhibits, Financial Statement Schedules This section lists the documents filed as part of the Annual Report on Form 10-K, including financial statements and an index of all exhibits, with financial statement schedules omitted as not required or included elsewhere - This section contains the index of financial statements and a list of all exhibits filed with the Form 10-K[643][645] - All financial statement schedules have been omitted as they are not required, not applicable, or the information is included elsewhere[644] Form 10-K Summary The company indicates that there is no Form 10-K summary - None[650]