FIGS, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023; comparisons are to the same periods in 2022. FIGS is a direct-to-consumer healthcare apparel and lifestyle company, selling primarily through digital platforms.
Financial performance and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $142.4 million | $128.6 million | $400.7 million | $360.9 million |
| Gross margin | 68.4% | 70.6% | 69.6% | 70.8% |
| Operating income | $10.0 million | $11.2 million | $19.8 million | $34.4 million |
| Net income | $6.1 million | $4.0 million | $12.6 million | $17.8 million |
| Diluted EPS | $0.03 | $0.02 | $0.07 | $0.09 |
| Adjusted EBITDA (non-GAAP) | $24.4 million | $21.0 million | $59.4 million | $67.5 million |
| Adjusted EBITDA margin (non-GAAP) | 17.2% | 16.4% | 14.8% | 18.7% |
Q3 revenue rose 10.7%, driven mainly by more orders from new and existing customers and, to a lesser extent, higher average order value. Nine-month revenue increased 11.0%. Scrubwear remained the largest category: Q3 scrubwear revenue was $114.9 million and non-scrubwear revenue was $27.4 million. International revenue grew faster than U.S. revenue in Q3, though the U.S. remained the majority of sales.
Q3 gross margin fell 2.2 percentage points, primarily from product mix, with higher promotional sales and duties also contributing; lower freight costs partly offset these pressures. Operating income declined 11.2% in Q3 as higher general and administrative costs more than offset revenue growth. Net income increased in the quarter, supported in part by higher interest income and a lower tax provision. For the nine months, operating income, net income and Adjusted EBITDA were lower year over year, with higher operating expenses and lower gross margin weighing on results.
Active customers increased 19.6% to approximately 2.6 million. Trailing-twelve-month revenue per active customer decreased to $212 from $227, while average order value rose to $114 from $112 for both the quarter and nine-month period.
Cash and debt: At September 30, cash and cash equivalents were $183.0 million and short-term investments were $49.1 million. FIGS had no borrowings under its $100 million revolving facility; $95.1 million was available after $4.9 million of letters of credit. Total liabilities were $86.6 million, including operating lease liabilities; the filing reports no outstanding debt borrowings.
Cash flow: Nine-month operating cash flow was $80.6 million, compared with cash used of $39.9 million in 2022. Free cash flow, a non-GAAP measure, was $70.9 million versus cash used of $44.1 million. The improvement was primarily attributed to working-capital movements, especially lower inventory purchases; it should not be read as solely reflecting improved earnings. Investing cash outflow was $58.0 million, including $65.8 million of investment purchases and $9.7 million of capital expenditures. Cash increased $23.2 million from year-end 2022.
Management commentary, outlook and risks
- Management said freight rates and ocean transit times had improved, and air freight was used less than in the prior-year quarter. FIGS reallocated a material amount of manufacturing geographically, reducing dependence on Southeast Asian partners, and plans to refine its manufacturing base and enhance fulfillment. Fulfillment improvements are expected to add costs in the short term.
- Inventory remained elevated. Management described efforts to reduce it through adjusted future purchases, reintroduction of limited-edition products and selective promotions. Storage costs declined year over year in Q3.
- Management attributed moderated purchase-frequency trends partly to inflation’s effect on customers and expects macroeconomic pressures to continue affecting near-term results. The filing provides no clear numerical financial guidance for 2023.
- Inventory purchase obligations were $50.3 million at September 30. New operating leases are expected to commence in late 2023 and the first half of 2024; management expects $47.8 million of operating lease costs over their 5-to-7-year terms.
- A securities class action and related derivative litigation are pending. The company intends to defend the claims; management said potential loss was neither probable nor reasonably estimable, and no accrual was recorded. An adverse outcome could affect the business and financial condition.
- Key risks include demand and inventory forecasting, margin pressure from product mix, promotions and duties, supplier concentration and international supply-chain exposure, fulfillment execution, macroeconomic weakness, competition, and litigation. The company also has a dual-class voting structure and is a controlled company, relying on certain NYSE governance exemptions.
Important facts for investors to verify
- Whether revenue growth can continue while revenue per active customer and purchase frequency face pressure.
- Whether elevated inventory is reduced without sustained discounting or further gross-margin deterioration.
- Whether operating expense growth—particularly G&A—moderates and profitability improves over subsequent quarters.
- How much of the strong nine-month operating cash flow reflects temporary inventory and other working-capital changes.
- Progress and costs associated with manufacturing diversification, fulfillment enhancements, and the planned leases.
- Developments in the securities and derivative litigation, including any change to the company’s loss assessment or accrual.