FIGS, Inc. — Q1 2022 Form 10-Q
Business context and reporting period. Unaudited results cover the three months ended March 31, 2022, compared with the three months ended March 31, 2021. FIGS is a direct-to-consumer healthcare apparel and lifestyle company, selling primarily through its digital platforms. Figures below are in U.S. dollars; financial statement amounts are in millions unless otherwise noted.
Financial and operating performance
| Metric | Q1 2022 | Q1 2021 | Change / note |
|---|---|---|---|
| Net revenue | $110.1 | $87.1 | +26.4% |
| Gross profit / gross margin | $78.4 / 71.2% | $62.4 / 71.6% | Profit +25.8%; margin down 0.4 percentage points |
| Operating income | $13.7 | $16.1 | Down 14.4%; operating margin 12.5% versus 18.4% |
| Net income | $8.9 | $11.4 | Down 22.2%; diluted EPS $0.05 versus $0.07 |
| Adjusted EBITDA (non-GAAP) | $25.0; margin 22.7% | $24.3; margin 28.0% | EBITDA increased slightly; margin fell |
| Operating cash flow / free cash flow (non-GAAP) | $(8.0) / $(8.4) | $16.1 / $15.6 | Both turned negative |
- Revenue growth was attributed mainly to higher average order value (AOV) and, to a lesser extent, more orders from customer acquisition and retention. AOV was $116 versus $100; active customers grew 31.1% to approximately 1.962 million. Trailing-12-month revenue per active customer was $226 versus $213.
- Scrubwear revenue was $90.5 million and non-scrub/lifestyle revenue was $19.6 million. U.S. revenue was $101.4 million; rest-of-world revenue was $8.7 million.
- Operating expenses rose 39.7% to $64.7 million, faster than revenue. General and administrative expense increased 48.4%, including higher stock-based compensation, workforce investment and public-company costs. Marketing rose 42.1%, reflecting increased brand investment; selling expense rose 28.9%, partly due to shipping rates.
- Cash and cash equivalents were $189.4 million at March 31, 2022, down from $195.4 million at December 31, 2021. Inventory increased to $102.8 million from $86.1 million. Management attributed the operating cash-flow deterioration primarily to working-capital movements, including inventory, prepaid expenses, accrued expenses and income taxes.
- Total assets were $342.7 million and total liabilities $79.4 million. FIGS had no borrowings on its $100 million revolving credit facility; $95.6 million remained available after $4.4 million of letters of credit. The facility is secured by substantially all company assets and matures in September 2026.
Material changes, outlook and risks
- Higher air-freight use and increased ocean and air freight rates pressured gross margin and raised costs. FIGS reported delays receiving finished goods, product availability constraints and interruptions to product and color launches, including from COVID-related shutdowns in China.
- Management expected unpredictable ocean transit times, elevated freight rates and other supply-chain challenges to continue at least through the end of 2022. It planned to increase air-freight use through at least year-end and adjusted its product and color launch calendar.
- Management reported softer trends beginning in Q1 amid inflation and shifts in consumer spending. It characterized its replenishment-driven healthcare apparel model as relatively resilient, but acknowledged it was not immune to near-term revenue impacts. The filing provides no specific quantitative financial guidance.
- Inventory purchase obligations were $35.8 million at quarter-end. The filing also reports a $1.6 million estimated contingent remote-sales-tax liability, included in sales tax payable.
- Two significant legal matters remained pending: litigation involving Strategic Partners, Inc. and a complaint by former stockholder Miracle Ventures I, LP. FIGS disputed the claims and had recorded no accrual for potential liability; outcomes were uncertain.
- FIGS adopted lease accounting Topic 842 on January 1, 2022, recognizing operating lease right-of-use assets and liabilities of approximately $12.9 million and $16.5 million, respectively, at adoption. The adoption was not material to earnings or cash flows. Quarter-end operating lease liabilities were $20.8 million.
- Other key risks include reliance on a limited number of suppliers and manufacturers, demand and inventory forecasting, shipping and fulfillment disruptions, inflation and consumer-spending shifts, competition, and the possibility that rapid growth will not continue. The filing notes concentrated voting control and the company’s controlled-company status.
Important facts for investors to verify
- Whether revenue growth and customer gains persist while operating income, net income and adjusted EBITDA margin are under pressure.
- Whether freight costs, shipping reliability and product availability improve, and whether increased air freight continues to weigh on gross margin.
- How inventory and working-capital movements affect operating cash flow and liquidity in subsequent quarters.
- Developments and potential financial exposure in the Strategic Partners and Miracle Ventures litigation, plus the $35.8 million of inventory purchase obligations.
- The terms and covenant requirements of the secured revolving credit facility, and the effects of dual-class voting control on shareholder rights.