figs-20230331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


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

For the quarterly period ended March 31, 2023


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

For the transition period from ___________________ to ___________________

Commission File Number: 001-40448

FIGS, Inc.

(Exact Name of Registrant as Specified in its Charter)


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

(424) 300-8330

(Registrant’s telephone number, including area code)

N/A

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

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A common stock, $0.0001 par value per share

FIGS

New York Stock Exchange

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

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

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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

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

As of April 30, 2023, there were 159,613,628 shares of the registrant’s Class A common stock, par value $0.0001 per share, outstanding and 7,482,014 shares of the registrant’s Class B common stock, $0.0001 par value per share, outstanding.

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TABLE OF CONTENTS


		Page
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Balance Sheets	6
	Condensed Statements of Operations and Comprehensive Income	7
	Condensed Statements of Stockholders’ Equity	8
	Condensed Statements of Cash Flows	9
	Notes to Condensed Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 4.	Controls and Procedures	24

PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	26
Item 1A.	Risk Factors	26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	62
Item 3.	Defaults Upon Senior Securities	63
Item 4.	Mine Safety Disclosures	64
Item 5.	Other Information	65
Item 6.	Exhibits	66
Signatures		67

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FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1955, as amended. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q may be forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “forecast,” “predict,” “potential,” “strategy,” “strive” or “continue” or the negative of these terms or other similar expressions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, without limitation, statements regarding our future results of operations and financial position, industry, business, and macroeconomic trends, the impact of the COVID-19 pandemic and macroeconomic pressures, our use of ocean and air freight, the fact that we may continue to contend with global supply chain challenges, our plans for addressing increased inventory on hand, equity compensation, our marketing strategy, competition, market growth and our business strategy, plans and objectives for future operations.

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

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

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SUMMARY RISK FACTORS

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

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

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

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

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

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

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

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

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

•The market for healthcare apparel is highly competitive.

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

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

•Shipping is a critical part of our business and changes in, or disruptions to, our shipping arrangements have in the past and may in the future adversely affect our business, financial condition and results of operations.

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

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

•Consumer confidence, shopping behavior and spending have been and may continue to be negatively impacted by factors beyond our control, including the COVID-19 pandemic and related economic impacts, supply chain disruptions, inflation, fear of recession or entry into a recession and geopolitical events, which may adversely affect our business, financial condition and results of operations.

•Our reliance on a limited number of third-party suppliers to provide materials for and produce our products could cause problems in our supply chain and subject us to additional risks.

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

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

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

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

FIGS, INC.

CONDENSED BALANCE SHEETS

(In thousands, except share and per share data)


	As of
	March 31, 2023		December 31, 2022
Assets	(Unaudited)
Current assets
Cash and cash equivalents	$	155,877	$	159,775

Accounts receivable	3,781		6,866
Inventory, net	180,373		177,976
Prepaid expenses and other current assets	9,580		11,883
Total current assets	349,611		356,500
Non-current assets
Property and equipment, net	11,241		11,024
Operating lease right-of-use assets	14,646		15,312
Deferred tax assets	11,411		10,971
Other assets	1,195		1,257
Total non-current assets	38,493		38,564
Total assets	$	388,104	$	395,064
Liabilities and stockholders’ equity
Current liabilities
Accounts payable	$	8,571	$	20,906
Operating lease liabilities	3,437		3,408
Accrued expenses	21,270		26,164
Accrued compensation and benefits	3,646		3,415
Sales tax payable	3,706		3,374
Gift card liability	7,531		7,882
Deferred revenue	706		2,786
Returns reserve	3,502		3,458
Income tax payable	382		—
Total current liabilities	52,751		71,393
Non-current liabilities
Operating lease liabilities, non-current	14,984		15,756
Other non-current liabilities	176		176
Total liabilities	$	67,911	$	87,325
Commitments and contingencies (Note 8)
Stockholders’ equity
Class A Common stock — par value $0.0001 per share, 1,000,000,000 shares authorized as of March 31, 2023 and December 31, 2022; 159,576,825 and 159,351,307 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively	16		16
Class B Common stock — par value $0.0001 per share, 150,000,000 shares authorized as of March 31, 2023 and December 31, 2022; 7,482,014 and 7,210,795 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively	—		—
Preferred stock — par value $0.0001 per share, 100,000,000 shares authorized as of March 31, 2023 and December 31, 2022; zero shares issued and outstanding as of March 31, 2023 and December 31, 2022	—		—
Additional paid-in capital	279,151		268,606
Retained earnings	41,026		39,117
Total stockholders’ equity	320,193		307,739
Total liabilities and stockholders’ equity	$	388,104	$	395,064

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

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FIGS, INC.

CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(In thousands, except share and per share data)

(Unaudited)


	Three months ended March 31,
	2023		2022
Net revenues	$	120,232	$	110,100
Cost of goods sold	34,556		31,670
Gross profit	85,676		78,430
Operating expenses
Selling	31,158		22,058
Marketing	17,064		15,408
General and administrative	34,157		27,219
Total operating expenses	82,379		64,685
Net income from operations	3,297		13,745
Other income, net
Interest income	1,072		9
Other expense	(1)		(1)
Total other income, net	1,071		8
Net income before provision for income taxes	4,368		13,753
Provision for income taxes	2,459		4,854
Net income and comprehensive income	$	1,909	$	8,899
Earnings attributable to Class A and Class B common stockholders
Basic earnings per share	$	0.01	$	0.05
Diluted earnings per share	$	0.01	$	0.05
Weighted-average shares outstanding—basic	166,773,335		164,406,142
Weighted-average shares outstanding—diluted	182,853,746		193,379,275

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

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FIGS, INC.

CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share data)

(Unaudited)


	Class A Common Stock			Class B Common Stock			Additional Paid-in Capital		Retained Earnings		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount
December 31, 2021	152,098,257	$	15	12,158,187	$	1	$	227,626	$	17,931	$	245,573
Issuance of Class A Common Stock upon vesting of Restricted Stock	381,973	—		—	—		—		—		—
Issuance of Class B Common Stock upon exchange of Class A Common Stock	(338,152)	—		338,152	—		—		—		—
Issuance of Class A Common Stock upon exchange of Class B Common Stock	6,300,000	—		(6,300,000)	—		—		—		—
Stock-based compensation	—	—		—	—		8,477		—		8,477
Stock option exercises	88,610	—		—	—		352		—		352
Net income	—	—		—	—		—		8,899		8,899
March 31, 2022	158,530,688	$	15	6,196,339	$	1	$	236,455	$	26,830	$	263,301


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

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

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FIGS, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Three months ended March 31,
	2023		2022
Cash flows from operating activities:
Net income	$	1,909	$	8,899
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization expense	659		375
Deferred income taxes	(440)		(406)
Non-cash operating lease cost	666		374
Stock-based compensation	10,790		8,477
Changes in operating assets and liabilities:
Accounts receivable	3,085		(469)
Inventory	(2,397)		(16,697)
Prepaid expenses and other current assets	2,303		(3,857)
Other assets	62		(185)
Accounts payable	(12,439)		2,372
Accrued expenses	(4,894)		(560)
Accrued compensation and benefits	231		(2,371)
Sales tax payable	332		607
Gift card liability	(351)		(315)
Deferred revenue	(2,080)		9
Returns reserve	44		(233)
Income tax payable	382		(3,648)
Operating lease liabilities	(743)		(389)

Net cash used in operating activities	(2,881)		(8,017)
Cash flows from investing activities:
Purchases of property and equipment	(772)		(364)
Net cash used in investing activities	(772)		(364)
Cash flows from financing activities:
Proceeds from stock option exercises and employee stock purchases	1		352
Tax payments related to net share settlements on restricted stock units	(246)		—


Net cash (used in) provided by financing activities	(245)		352
Net change in cash, cash equivalents, and restricted cash	(3,898)		(8,029)
Cash, cash equivalents, and restricted cash, beginning of period	159,775		197,430
Cash, cash equivalents, end of period	$	155,877	$	189,401
Supplemental disclosures:
Property and equipment included in accounts payable and accrued expenses	$	123	$	149

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

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FIGS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

1. DESCRIPTION OF BUSINESS

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information. The Company’s fiscal year ends on December 31. Certain information and footnote disclosures normally included in the Company’s annual audited financial statements and accompanying notes have been condensed or omitted in these accompanying interim condensed financial statements and footnotes. These unaudited condensed financial statements should be read in conjunction with the audited financial statements and related notes for the year ended December 31, 2022, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 28, 2023.

In the opinion of management, the unaudited condensed financial statements include all adjustments of a normal recurring nature necessary for the fair presentation of the Company’s financial position, results of operations, and cash flows. The results of operations for the three months ended March 31, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023.

Use of Estimates

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

Inventory, Net

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

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

The Company’s allowance to write down inventory to the lower of cost or net realizable value was not material as of March 31, 2023 and December 31, 2022.

Revenue Recognition

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

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transaction price to the performance obligations in the contract(s); and (v) recognize revenue when (or as) the Company satisfies the performance obligations.

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

The Company generally provides refunds for goods returned within 30 days from the original purchase date. A returns reserve is recorded by the Company based on the historical refund pattern. The returns reserve on the condensed balance sheets was $3.5 million as of March 31, 2023 and December 31, 2022.

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

The Company does not have significant contract balances other than deferred revenue, the allowance for sales returns and liabilities related to its gift cards. The Company recognized revenues of $2.7 million during the three months ended March 31, 2023 related to the deferred revenue balance that existed at December 31, 2022. The Company does not have significant contract acquisition costs.

The following table presents the disaggregation of the Company’s net revenues for the three months ended March 31, 2023 and 2022 as follows (in thousands):


	Three months ended March 31,
	2023		2022
By geography:
United States	$	107,680	$	101,418
Rest of the world	12,552		8,682
	$	120,232	$	110,100
By product:
Scrubwear	$	97,866	$	90,467
Non-Scrubwear	22,366		19,633
	$	120,232	$	110,100

3. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

As of March 31, 2023, and December 31, 2022, the Company’s cash equivalents consisted of highly liquid investments with original maturities of 90 days or less from the date of purchase. These investments are classified as

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available-for-sale and consist of Level 1 financial assets, which include money market funds and U.S. Treasury securities, and Level 2 financial assets, which include commercial paper.

Assets and liabilities measured at fair value are classified into the following categories:

•Level 1: Quoted market prices in active markets for identical assets or liabilities.

•Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.

The Company's cash equivalents are classified within Level 1 or Level 2 of the fair value hierarchy because their fair values are derived from quoted market prices or alternative pricing sources and models utilizing observable market inputs.

The following table summarizes the Company’s financial assets measured at fair value on a recurring basis (in thousands):


	Fair Value Measurement as of March 31, 2023
	Level 1		Level 2		Level 3		Total
Assets
Money market funds	$	83,623	$	—	$	—	$	83,623
U.S. Treasury securities	21,123		—		—		21,123
Corporate paper	—		29,279		—		29,279
	$	104,746	$	29,279	$	—	$	134,025


	Fair Value Measurement as of December 31, 2022
	Level 1		Level 2		Level 3		Total
Assets
Money market funds	$	102,908	$	—	$	—	$	102,908

SEC Form 10-Q filed by FIGS Inc.