FIGS, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Figures are in millions of dollars except per-share data. FIGS is a direct-to-consumer healthcare apparel and lifestyle company, selling primarily through digital channels. It reported approximately 1.743 million active customers, up 57.6% year over year.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net revenue | $102.7 | $76.8 | $290.9 | $172.9 |
| Gross profit / margin | $74.7 / 72.7% | $56.6 / 73.7% | $211.2 / 72.6% | $126.2 / 73.0% |
| Operating income (loss) | $10.6 | $24.6 | $(5.5) | $45.2 |
| Net income (loss) | $7.0 | $19.3 | $(22.2) | $37.6 |
| Diluted EPS | $0.03 | $0.12 | $(0.14) | $0.24 |
| Adjusted EBITDA (non-GAAP) | $22.2 | $25.7 | $73.3 | $47.7 |
| Adjusted EBITDA margin (non-GAAP) | 21.6% | 33.5% | 25.2% | 27.6% |
- Revenue grew 33.7% in Q3 and 68.2% year to date, driven by more orders from customer acquisition and retention. Average order value rose to $102 from $99 in Q3 and to $102 from $93 for the nine-month period. Scrubs accounted for $89.5 million of Q3 revenue; U.S. revenue was $95.8 million.
- Gross margin narrowed 1.0 percentage point in Q3 and 0.4 point year to date. Management cited returns and enhanced restocking standards, higher ocean freight rates and, year to date, increased duty expense; lower use of air freight partly offset pressures.
- Q3 operating expenses rose 100.1% to $64.2 million, with general and administrative expense up 238.2% to $28.4 million. The increase reflected stock-based compensation, workforce investment, public-company costs and charitable contributions; selling and marketing costs also rose.
- Year-to-date stock-based compensation was $68.3 million, including $32.8 million of expense from accelerated option vesting in Q2. This was a major contributor to the nine-month GAAP operating and net losses. Nine-month income tax expense was $15.7 million despite a pretax loss; the filing attributes the effective tax rate partly to nondeductible stock compensation and other items.
- Operating cash flow was $52.5 million for the nine months, versus $23.0 million; free cash flow, a non-GAAP measure, was $50.5 million versus $21.5 million. Cash flow included substantial noncash stock-compensation expense and working-capital movements, including a $19.6 million increase in inventory.
Liquidity, capital and balance sheet
- At September 30, 2021, cash and cash equivalents were $180.6 million and restricted cash was $3.3 million; total current assets were $268.6 million and current liabilities $61.6 million. Total liabilities were $65.2 million.
- No borrowings were outstanding under the $100 million Bank of America revolving facility, which matures in September 2026. The prior $50 million JPMorgan facility was terminated; approximately $3.2 million of letters of credit remained outstanding, secured by $3.3 million of restricted cash.
- The June IPO generated $95.1 million in net proceeds for FIGS. The September follow-on offering was a sale by existing stockholders: the company issued no shares and received no proceeds.
- Inventory was $69.4 million, up from $49.7 million at year-end 2020. Inventory purchase obligations were $38.4 million. Future minimum operating lease payments totaled $18.2 million.
Outlook, commentary and material risks
- No numerical revenue or earnings guidance is provided in this filing. Management said it expected COVID-related supply-chain pressures to begin easing in 2022, while noting uncertainty; it planned to continue using more expensive air freight in Q4 2021. Management believed pandemic-related demand and brand awareness could support growth, but said those trends might not continue.
- COVID-related freight delays, port congestion, higher shipping rates, labor shortages, and supplier or manufacturer delays—particularly in Vietnam—could constrain fulfillment or pressure costs. FIGS relies on a limited supplier and manufacturing base, and its sole fulfillment center is operated by a third party in California.
- FIGS reported ongoing litigation with Strategic Partners, Inc. A court dismissed certain claims in August 2021; other proceedings remained. The company said it intended to defend the claims and had not accrued a potential liability because it considered them without merit.
- The company recorded $1.9 million for estimated contingent remote-sales taxes. It also cautioned that rapid growth may not persist, that it had only recently achieved profitability, and that competition, customer demand, inventory forecasting, international expansion, costs and public-company expenses could affect results.
- Class B shares carry 20 votes each versus one vote for Class A; founders and Tulco together controlled approximately 74.2% of voting power. FIGS identified itself as a controlled company and relied on certain NYSE governance exemptions. Management concluded disclosure controls were effective at the reasonable-assurance level.
Important facts for investors to verify
- How much of revenue growth and customer activity persists after pandemic-related demand effects, and whether customer retention and order value remain strong.
- Whether freight, returns, duties and fulfillment costs continue to compress gross margin, particularly in Q4 and into 2022.
- The normalized level of stock-based compensation and public-company costs, and their effects on GAAP profitability and per-share results.
- Inventory quality, purchase commitments and supplier concentration, alongside the timing and cost of supply-chain recovery.
- Developments in the Strategic Partners litigation and any changes to the remote-sales-tax estimate or other contingencies.