FIGS(FIGS) - 2022 Q1 - Quarterly Report

PART I FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section provides the unaudited financial statements for FIGS, Inc. as of and for the three months ended March 31, 2022, detailing the company's financial position, performance, and cash flows Balance Sheets Total assets increased to $342.7 million from $311.8 million at year-end 2021, driven by inventory growth and new operating lease assets, while liabilities also rose due to new lease obligations Balance Sheet Highlights (in thousands) | Account | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Assets | $342,690 | $311,751 | | Cash and cash equivalents | $189,401 | $195,374 | | Inventory, net | $102,765 | $86,068 | | Total Liabilities | $79,389 | $66,178 | | Operating lease liabilities | $20,775 | $0 | | Total Stockholders' Equity | $263,301 | $245,573 | - The company adopted the new lease accounting standard (ASU 2016-02) on January 1, 2022, resulting in the recognition of operating lease right-of-use assets of $17.2 million and operating lease liabilities of $20.8 million as of March 31, 2022[21][51] Statements of Operations and Comprehensive Income Net revenues grew 26.4% year-over-year to $110.1 million, but net income decreased to $8.9 million due to higher operating expenses, resulting in diluted EPS of $0.05 Q1 2022 vs. Q1 2021 Performance (in thousands, except per share data) | Metric | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net Revenues | $110,100 | $87,079 | | Gross Profit | $78,430 | $62,360 | | Net Income from Operations | $13,745 | $16,060 | | Net Income | $8,899 | $11,440 | | Diluted EPS | $0.05 | $0.07 | Statements of Stockholders' Equity Total stockholders' equity increased to $263.3 million, primarily driven by net income and stock-based compensation during the quarter - Key changes in stockholders' equity for Q1 2022 included $8.9 million in net income and $8.5 million in stock-based compensation expense[27] Statements of Cash Flows The company experienced a net cash outflow from operating activities of $8.0 million, a significant shift from the prior year, mainly due to increased inventory Cash Flow Summary (in thousands) | Activity | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(8,017) | $16,109 | | Net cash used in investing activities | $(364) | $(528) | | Net cash provided by financing activities | $352 | $123 | | Net (decrease) increase in cash | $(8,029) | $15,704 | - The primary driver for the negative operating cash flow was a $16.7 million increase in inventory to support growth and mitigate supply chain risks[32] Notes to Financial Statements These notes provide detailed insights into the company's direct-to-consumer business model, significant accounting policies, revenue disaggregation, and the impact of new accounting standards and tax rates - The company is a direct-to-consumer healthcare apparel and lifestyle brand, generating sales primarily through its digital platforms in the United States[34] Net Revenues Disaggregation (in thousands) | Category | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | By Geography | | | | United States | $101,418 | $81,607 | | Rest of the world | $8,682 | $5,472 | | By Product | | | | Scrubwear | $90,467 | $76,215 | | Non-Scrubwear/Lifestyle | $19,633 | $10,864 | | Total Net Revenues | $110,100 | $87,079 | - The effective tax rate increased to 35.3% in Q1 2022 from 28.6% in Q1 2021, primarily due to state taxes and limitations on officer excess compensation deductions[70] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's Q1 2022 financial performance, highlighting revenue growth driven by customer acquisition, changes in profitability, and ongoing supply chain challenges Q1 2022 Key Performance Indicators | Metric | Q1 2022 | Q1 2021 | Change | | :--- | :--- | :--- | :--- | | Net Revenues | $110.1M | $87.1M | +26.4% | | Active Customers | 2.0M | 1.5M | +31.1% | | Gross Margin | 71.2% | 71.6% | -0.4 ppt | | Adjusted EBITDA | $25.0M | $24.3M | +2.9% | | Free Cash Flow | $(8.4)M | $15.6M | -153.9% | - COVID-19 continues to cause supply chain disruptions, leading to increased volatility in ocean freight transit times and higher costs. The company has adjusted its launch calendar and expects to significantly increase its use of more expensive air freight through the end of 2022 to mitigate these issues[82][85] - Operating expenses increased 39.7% YoY, driven by higher marketing spend (up 42.1%) to support brand growth and a 48.4% increase in G&A expenses due to higher stock-based compensation, workforce investment, and public company costs[107][109][110] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company states that there have been no material changes to the quantitative and qualitative disclosures about market risk from those disclosed in its 2021 Annual Report on Form 10-K - There were no material changes to market risk disclosures during the quarter[145] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2022, with no material changes in internal control over financial reporting during the quarter - Management concluded that as of March 31, 2022, the company's disclosure controls and procedures were effective at a reasonable assurance level[147] - No changes occurred in the company's internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[148] PART II OTHER INFORMATION Item 1. Legal Proceedings The company is involved in legal actions with Strategic Partners, Inc. and a former stockholder, Miracle Ventures I, LP, regarding allegations of false advertising, unfair business practices, and breach of fiduciary duty - FIGS is defending against a lawsuit from competitor Strategic Partners, Inc. (SPI) alleging false advertising, unfair business practices, and other claims[151] - A separate lawsuit was filed by former stockholder Miracle Ventures I, LP, alleging fraud and breach of fiduciary duty related to a 2017 stock sale. A motion to dismiss is pending[152] Item 1A. Risk Factors This section details significant risks including challenges in sustaining growth, supply chain dependencies, IT and privacy vulnerabilities, and governance implications from the dual-class stock structure - Business Risks: The company's rapid growth may not be sustainable, and it faces challenges in managing expansion, maintaining brand value, attracting and retaining customers, and navigating a highly competitive market[157][163][165][184] - Supply Chain Risks: The company relies on a limited number of third-party suppliers, primarily in Asia, for fabrics and manufacturing. Disruptions from COVID-19, logistics challenges, and geopolitical events pose significant risks to inventory and costs[221][223][225] - IT and Privacy Risks: The business is vulnerable to IT system failures, cyberattacks, and data breaches. Evolving and stringent privacy laws (e.g., CCPA, GDPR) create significant compliance costs and potential liabilities[258][278][286] - Ownership and Governance Risks: A dual-class stock structure concentrates voting power with co-founders and key investors, limiting public stockholders' influence. The company qualifies as a "controlled company," exempting it from certain NYSE corporate governance requirements[358][363][365] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reports no unregistered sales of equity securities during the period and confirms no material change in the intended use of IPO proceeds - There were no unregistered sales of equity securities in the quarter[415] - There has been no material change in the company's intended use of proceeds from its IPO[416] Item 3. Defaults Upon Senior Securities The company reports no defaults upon senior securities during the period - None[419] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[422] Item 5. Other Information The company reports no other information for the period - None[425] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate governance documents and required certifications from the CEO and CFO - The report includes required certifications from the Co-Chief Executive Officers and Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) and 18 U.S.C. Section 1350[428] Signatures - The report was duly signed on May 12, 2022, by Co-Chief Executive Officers Heather Hasson and Catherine Spear, and Chief Financial Officer Daniella Turenshine[431][433]