10-Q 1 figs-20240630.htm 10-Q figs-20240630
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2024
OR
oTRANSITION 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
img40503485_0.jpg
FIGS, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware46-2005653
(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 classTrading Symbol(s)Name of each exchange on which registered
Class A common stock, $0.0001 par value per shareFIGSNew 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 filerxAccelerated filero
Non-accelerated fileroSmaller reporting companyo
Emerging growth companyo
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 July 31, 2024, there were 162,576,575 shares of the registrant’s Class A common stock, par value $0.0001 per share, outstanding and 8,283,641 shares of the registrant’s Class B common stock, $0.0001 par value per share, outstanding.

TABLE OF CONTENTS
Page
2
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; our industry; business and macroeconomic trends; the impact of macroeconomic pressures; our use of ocean and air freight; the impact of and expectations related to global supply chain challenges; demand for our products; our expectations regarding the opening and success of retail stores; our plans for evolving our sourcing capabilities and strategically refining our manufacturing base; our fulfillment enhancement project and the impact of and timing for our transition to a new fulfillment center; our plans to open additional fulfillment facilities in the future; our intended transition away from a key third party supplier in Jordan; the impact of conflict in the Middle East on our business; equity compensation; our share repurchase program; our marketing strategy; competition; market growth; our business strategy; and 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.
3
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 historical growth may not be sustainable or indicative of future growth, and we expect our growth rate to slow over time.
•If we fail to manage the expansion of our business effectively, our 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 supply chain disruptions, inflation, high interest rates, fear of recession or entry into a recession, geopolitical tensions and military conflicts, and healthcare workforce-related stress, 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.
•If proprietary, confidential or sensitive information or personal data about our customers is disclosed, or if we or our third-party providers are subject to real or perceived cyberattacks, our customers may curtail use of our website or mobile app, we may be exposed to liability and our reputation could suffer.
•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.
4
•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.
5
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
FIGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
As of
June 30,
2024		December 31,
2023
Assets(Unaudited)
Current assets
Cash and cash equivalents$131,811 $144,173 
Short-term investments136,719 102,522 
Accounts receivable12,719 7,469 
Inventory, net119,294 119,040 
Prepaid expenses and other current assets16,697 12,455 
Total current assets417,240 385,659 
Non-current assets
Property and equipment, net35,266 24,864 
Operating lease right-of-use assets55,003 43,059 
Deferred tax assets16,300 18,291 
Other assets2,214 1,336 
Total non-current assets108,783 87,550 
Total assets$526,023 $473,209 
Liabilities and stockholders’ equity
Current liabilities
Accounts payable$19,910 $14,749 
Operating lease liabilities11,749 8,230 
Accrued expenses21,610 7,906 
Accrued compensation and benefits4,104 7,312 
Sales tax payable3,217 3,149 
Gift card liability8,034 8,240 
Deferred revenue2,825 2,160 
Returns reserve3,514 2,989 
Income tax payable1,640 2,557 
Total current liabilities76,603 57,292 
Non-current liabilities
Operating lease liabilities, non-current47,532 38,884 
Other non-current liabilities183 183 
Total liabilities$124,318 $96,359 
Commitments and contingencies (Note 9)
Stockholders’ equity
Class A Common stock — par value $0.0001 per share, 1,000,000,000 shares authorized as of June 30, 2024 and December 31, 2023; 162,392,991 and 161,457,403 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively
16 16 
Class B Common stock — par value $0.0001 per share, 150,000,000 shares authorized as of June 30, 2024 and December 31, 2023; 8,283,641 shares issued and outstanding as of June 30, 2024 and December 31, 2023
— — 
Preferred stock — par value $0.0001 per share, 100,000,000 shares authorized as of June 30, 2024 and December 31, 2023; zero shares issued and outstanding as of June 30, 2024 and December 31, 2023
— — 
Additional paid-in capital337,447 315,075 
Accumulated other comprehensive income (loss)(47)5 
Retained earnings64,289 61,754 
Total stockholders’ equity401,705 376,850 
Total liabilities and stockholders’ equity$526,023 $473,209 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
FIGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(Unaudited)
Three months ended June 30,Six months ended June 30,
2024202320242023
Net revenues$144,225 $138,132 $263,518 $258,364 
Cost of goods sold46,961 42,098 84,118 76,654 
Gross profit97,264 96,034 179,400 181,710 
Operating expenses
Selling36,934 33,739 65,393 64,896 
Marketing23,003 20,889 40,248 37,953 
General and administrative35,774 34,840 71,763 68,997 
Total operating expenses95,711 89,468 177,404 171,846 
Net income from operations1,553 6,566 1,996 9,864 
Other income, net
Interest income 2,830 1,521 5,677 2,593 
Other expense— (4)(10)(5)
Total other income, net2,830 1,517 5,667 2,588 
Net income before provision for income taxes4,383 8,083 7,663 12,452 
Provision for income taxes3,283 3,501 5,128 5,961 
Net income$1,100 $4,582 $2,535 $6,491 
Earnings attributable to Class A and Class B common stockholders
Basic earnings per share$0.01 $0.03 $0.01 $0.04 
Diluted earnings per share$0.01 $0.02 $0.01 $0.04 
Weighted-average shares outstanding—basic170,393,480 167,423,656 170,158,479 167,100,292 
Weighted-average shares outstanding—diluted179,688,524 183,332,560 180,195,183 183,094,950 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

7
FIGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
Three months ended June 30,Six months ended June 30,
2024202320242023
Net income$1,100 $4,582 $2,535 $6,491 
Other comprehensive loss, net of tax
Unrealized loss on short-term investments, net of tax(21)(8)(52)(8)
Total other comprehensive loss, net of tax(21)(8)(52)(8)
Total comprehensive income$1,079 $4,574 $2,483 $6,483 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
8
FIGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share data)
(Unaudited)
Class A Common StockClass B Common StockAdditional
Paid-in Capital		Retained Earnings
Accumulated Other Comprehensive Loss
Total Stockholders’
Equity
Shares AmountShares Amount
December 31, 2022159,351,307 $16 7,210,795 $— $268,606 $39,117 $— $307,739 
Issuance of Class A Common Stock upon vesting of Restricted Stock494,487 — — — — — — — 
Issuance of Class B Common Stock upon exchange of Class A Common Stock(271,219)— 271,219 — — — — — 
Restricted Stock surrendered for employee's tax liability— — — — (246)— — (246)
Stock-based compensation— — — — 10,790 — — 10,790 
Stock option exercises2,250 — — — 1 — — 1 
Net income— — — — — 1,909 — 1,909 
March 31, 2023159,576,825 $16 7,482,014 $— $279,151 $41,026 $— $320,193 
Issuance of Class A Common Stock upon vesting of Restricted Stock626,377 — — — — — — — 
Issuance of Class B Common Stock upon exchange of Class A Common Stock(266,938)— 266,938 — — — — — 
Stock-based compensation— — — — 11,519 — — 11,519 
Stock option exercises and employee stock purchases568,258 — — — 636 — — 636 
Net income— — — — — 4,582 — 4,582 
Other comprehensive loss, net of tax— — — — — — (8)(8)
June 30, 2023160,504,522 $16 7,748,952 $— $291,306 $45,608 $(8)$336,922 

Class A Common StockClass B Common StockAdditional
Paid-in Capital		Retained EarningsAccumulated Other Comprehensive Income (Loss)
Total Stockholders’
Equity
Shares AmountShares Amount
December 31, 2023161,457,403 $16 8,283,641 $— $315,075 $61,754 $5 $376,850 
Issuance of Class A Common Stock upon vesting of Restricted Stock325,466 — — — — — — — 
Stock-based compensation— — — — 11,611 — — 11,611 
Stock option exercises19,002 — — — 10 — — 10 
Net income— — — — — 1,435 — 1,435 
Other comprehensive loss, net of tax— — — — — — (31)(31)
March 31, 2024161,801,871 $16 8,283,641 $— $326,696 $63,189 $(26)$389,875 
Issuance of Class A Common Stock upon vesting of Restricted Stock404,620 — — — — — — — 
Issuance of Class A Common Stock in exchange for services41,667 — — — 250 — — 250 
Stock-based compensation— — — — 10,247 — — 10,247 
Stock option exercises and employee stock purchases144,833 — — — 254 — — 254 
Net income— — — — — 1,100 — 1,100 
Other comprehensive loss, net of tax— — — — — — (21)(21)
June 30, 2024162,392,991 $16 8,283,641 $— $337,447 $64,289 $(47)$401,705 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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FIGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six months ended
June 30,
20242023
Cash flows from operating activities:
Net income$2,535 $6,491 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense1,963 1,372 
Deferred income taxes1,991 (984)
Non-cash operating lease cost3,977 1,364 
Stock-based compensation22,108 22,309 
Accretion of discount on available-for-sale securities(2,723)(260)
Changes in operating assets and liabilities:
Accrued interest(231)— 
Accounts receivable(5,250)597 
Inventory(254)10,170 
Prepaid expenses and other current assets(5,973)2,034 
Other assets(878)(1)
Accounts payable4,679 (9,100)
Accrued expenses11,310 (8,181)
Accrued compensation and benefits(3,208)951 
Sales tax payable68 (421)
Gift card liability(206)508 
Deferred revenue665 (2,009)
Returns reserve525 (144)
Income tax payable(917)3,290 
Operating lease liabilities(2,023)(1,466)
Net cash provided by operating activities28,158 26,520 
Cash flows from investing activities:
Purchases of property and equipment(9,489)(1,613)
Purchases of available-for-sale securities(137,850)(38,343)
Maturities of available-for-sale securities106,555 — 
Net cash used in investing activities(40,784)(39,956)
Cash flows from financing activities:
Proceeds from stock option exercises and employee stock purchases264 637 
Tax payments related to net share settlements on restricted stock units— (246)
Net cash provided by financing activities264 391 
Net change in cash and cash equivalents(12,362)(13,045)
Cash and cash equivalents, beginning of period144,173 159,775 
Cash and cash equivalents, end of period$131,811 $146,730 
Supplemental disclosures:
Property and equipment included in accounts payable and accrued expenses$3,329 $153 
Lease assets obtained in exchange for new operating lease liabilities$15,921 $3,206 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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FIGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.    DESCRIPTION OF BUSINESS
FIGS, Inc., a Delaware corporation (together with its wholly-owned subsidiary FIGS Canada, Inc. unless the context requires otherwise, the “Company”), 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 non-scrubwear, such as outerwear, underscrubs, footwear, compression socks, lab coats, loungewear and other apparel. 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 consolidated 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 consolidated financial statements and footnotes. Certain reclassifications have been made to prior-year amounts to conform to the current period presentation. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and related notes for the year ended December 31, 2023, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 28, 2024.
In the opinion of management, the unaudited condensed consolidated 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 and six months ended June 30, 2024 are not necessarily indicative of the results to be expected for the year ending December 31, 2024.
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.
Short-term Investments
The Company holds short-term investments in U.S. government debt securities and corporate debt securities. The Company’s short-term investments mature within 12-months or less and are classified as current assets on the Company’s condensed consolidated balance sheets and have been classified and accounted for as available-for-sale securities. The Company determines the appropriate classification of its investments at the time of purchase and reevaluates their classification at each balance sheet date.
The Company’s available-for-sale investments in debt securities are carried at fair value with unrealized gains and losses, net of taxes, reported within accumulated other comprehensive income in stockholders’ equity. Available-for-sale debt securities with an amortized cost basis in excess of estimated fair value are assessed to determine what amount of that difference, if any, is caused by expected credit losses, with any allowance for credit losses recognized as a charge in other expense on the Company’s condensed consolidated statements of operations. The Company did not record any credit losses on its available-for-sale debt securities in any of the periods presented. The Company determines gains or losses on the sale or maturities of short-term investments using the specific identification method and gains or losses are recorded in other expense on the Company’s condensed consolidated statements of operations.
Inventory, Net
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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 June 30, 2024 and December 31, 2023.
Revenue Recognition
The Company recognizes revenues in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“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 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 goods 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 consolidated balance sheets was $3.5 million and $3.0 million as of June 30, 2024 and December 31, 2023, respectively.
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 consolidated 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 $2.1 million during the six months ended June 30, 2024 related to the deferred revenue balance that existed at December 31, 2023. The Company recognized revenues of $2.6 million during the six months ended June 30, 2024 related to redemptions from the gift card liability balance that existed at December 31, 2023. The Company does not have significant contract acquisition costs.
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The following table presents the disaggregation of the Company’s net revenues for the three and six months ended June 30, 2024 and 2023 as follows (in thousands):
Three months ended
June 30,		Six months ended
June 30,
2024202320242023
By geography:
United States$125,291 $123,797 $228,361 $231,477 
Rest of the world18,934 14,335 35,157 26,887 
$144,225 $138,132 $263,518 $258,364 
By product:
Scrubwear$118,345 $115,238 $213,241 $213,104 
Non-Scrubwear25,880 22,894 50,277 45,260 
$144,225 $138,132 $263,518 $258,364 
Recently Issued Accounting Pronouncements
In November 2023, the FASB issued ASU 2023-07, Improvements to Reportable Segment Disclosures, which improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. In addition, the amendments enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for entities with a single reportable segment, and contain other disclosure requirements. This ASU is effective for public companies with annual periods beginning after December 15, 2023, and interim periods within annual periods beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the effects adoption of this guidance will have on its financial statements.
In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, which requires disclosure of disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. This ASU is effective for public companies with annual periods beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the effects adoption of this guidance will have on its financial statements.
3.    FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES
The Company's cash equivalents consist of money market funds and highly liquid investments with original maturities of 90 days or less from the date of purchase. The Company classifies cash equivalents and short-term investments within Level 1 or Level 2 of the fair value hierarchy.
The following tables present the Company's cash equivalents and short-term investments by significant investment category and fair value level as of June 30, 2024, and December 31, 2023 (in thousands):
June 30, 2024
CostGross Unrealized GainsGross Unrealized LossesFair Value
Level 1(1):
Money market funds$70,308 $— $— $70,308 
U.S. government securities77,296 1 (18)77,279 
Level 2(2):
Corporate paper78,076 — (31)78,045 
Total$225,680 $1 $(49)$225,632 
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December 31, 2023
CostGross Unrealized GainsGross Unrealized LossesFair Value
Level 1(1):
Money market funds$117,328 $— $— $117,328 
U.S. government securities64,630 12 — 64,642 
Level 2(2):
Corporate paper37,888 — (7)37,881 
Total$219,846 $12 $(7)$219,851 
(1) Level 1 fair value estimates are based on quoted prices in active markets for identical assets or liabilities.
(2) Level 2 fair value estimates are based on observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
There have been no transfers of assets between fair value levels during the periods presented. The carrying values of other current assets, accounts payable and accrued expenses approximate their fair values due to the short-term nature of these assets and liabilities.
4.    ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following (in thousands):
June 30,
2024		December 31,
2023
Trade$11,628 $6,549 
Other1,091 920 
$12,719 $7,469 
5.    PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consisted of the following (in thousands):
June 30,
2024		December 31,
2023
Inventory deposits$1,748 $3,012 
Prepaid expenses3,956 8,173 
Prepaid taxes9,853 — 
Other1,140 1,270 
$16,697 $12,455 
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6.    PROPERTY AND EQUIPMENT, NET
Property and equipment, net consisted of the following (in thousands):
June 30,
2024		December 31,
2023
Furniture and fixtures$1,832 $1,441 
Office equipment1,134 1,031 
Machinery and equipment17,239 2,753 
Computer equipment6,139 2,056 
Software and website design8,466 8,061 
Leasehold improvements4,075 3,696 
Capital projects in progress6,073 13,555 
Total property and equipment44,958 32,593 
Less: accumulated depreciation and amortization(9,692)(7,729)
Property and equipment, net$35,266 $24,864 
Depreciation and amortization expense of property and equipment for the three and six months ended June 30, 2024 was $1.1 million and $2.0 million, respectively. Depreciation and amortization expense of property and equipment for the three and six months ended June 30, 2023 was $0.7 million and $1.4 million, respectively
7.    ACCRUED EXPENSES
Accrued expenses consisted of the following (in thousands):
June 30,
2024		December 31,
2023
Accrued inventory$5,831 $2,126 
Accrued shipping2,965 565 
Accrued selling expenses4,037 2,601 
Accrued marketing expenses1,914 466 
Accrued property and equipment2,793 399 
Accrued legal521 24 
Other accrued expenses3,549 1,725 
$21,610 $7,906 
8.    FINANCING ARRANGEMENTS
On September 7, 2021, the Company, as borrower, entered into a credit agreement with Bank of America, N.A. for a $100.0 million revolving credit facility, including capacity to issue letters of credit (the “2021 Facility”). The 2021 Facility is secured by substantially all assets of the Company and its material subsidiaries, subject to customary exceptions. The 2021 Facility has a maturity date of September 7, 2026 (“2021 Facility Maturity Date”). As of June 30, 2024, the Company had letters of credit aggregating to $4.9 million outstanding under the 2021 Facility and available borrowings of $95.1 million. As of June 30, 2024, the Company had no outstanding borrowings under the 2021 Facility. Borrowings under the 2021 Facility are payable on the 2021 Facility Maturity Date. Borrowings bear interest at either (a) the Eurodollar Rate (as defined in the 2021 Facility) plus 1.125% or (b) the Base Rate (as defined in the 2021 Facility) plus 0.125%. The interest rate for undrawn amounts is 0.175%. Costs associated with entering into the 2021 Facility were not material.
On February 27, 2023, the Company entered into a first amendment (the “First Amendment”) to the 2021 Facility. The First Amendment amends the Credit Agreement to replace the London interbank offered rate (“LIBOR”) with a term rate based on the Secured Overnight Financing Rate (“SOFR”), together with certain administrative changes to facilitate such replacement. Except as amended by the First Amendment, the terms of the Credit Agreement remain in full force and effect.
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9.    COMMITMENTS AND CONTINGENCIES
Taxes on Remote Sellers
The Company is subject to state laws or administrative practices with respect to taxes on remote sellers. In accordance with ASC 450, Contingencies, the Company recorded $1.5 million and $1.6 million within sales tax payable on the Company’s condensed consolidated balance sheets as of June 30, 2024, and December 31, 2023, respectively, as an estimate of contingent sales tax payable.
Inventory Purchase Obligations
Inventory purchase obligations as of June 30, 2024 were $54.4 million. These inventory purchase obligations can be impacted by various factors, including the timing of issuing orders and the timing of the shipment of orders.
Legal Contingencies
Legal claims may arise from time to time in the normal course of business, the results of which may have a material effect on the Company’s accompanying condensed consolidated financial statements.
A putative securities class action and related derivative suits against the Company and certain of its executive officers and directors are currently pending.
The Company intends to vigorously defend against such claims. The Company has determined that any potential loss is neither probable nor reasonably estimable and an accrual has not been recorded.
10.    LEASES
The Company has operating lease agreements for its office space, retail stores, fulfillment center and fulfillment center equipment. The Company’s lease agreements have initial terms that expire between 2028 and 2030. Certain of the Company’s lease agreements include rent abatement periods, escalating rent payment provisions, and provide for an option to extend or terminate the lease.
The Company has a sublease agreement classified as an operating lease for additional office space with an initial term expiring in 2026. The sublease includes an option to extend the agreement, at the Company’s discretion, if the sublandlord declines to terminate its master lease. The sublease includes a rent abatement period and escalating rent payment provisions.
The operating lease and sublease agreements included in the measurement of lease liabilities do not reflect options to extend or terminate, as the Company does not consider the exercise of these options to be reasonably certain. The Company’s lease and sublease agreements do not contain any material residual value guarantees or material restrictive covenants.
The Company recognizes operating lease expense on a straight-line basis over the lease term. Operating lease expense for the three and six months ended June 30, 2024 was $3.1 million, and $5.4 million, respectively. Operating lease expense for the three and six months ended June 30, 2023 was $0.8 million, and $1.6 million, respectively.
Cash payments included in the measurement of operating lease liabilities were $3.4 million for the six months ended June 30, 2024. Right of use assets obtained in exchange for operating lease liabilities were $15.9 million for the six months ended June 30, 2024.
As the rates implicit in the Company’s outstanding leases are not determinable, the Company uses its incremental borrowing rate based on information available on the lease commencement date to determine the present value of lease payments.
The weighted-average remaining lease term and weighted-average discount rate related to the Company’s operating leases at June 30, 2024 were as follows:
Weighted-average remaining lease term5.7 years
Weighted-average discount rate6.6 %
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Future undiscounted lease payments, and a reconciliation of these payments to the Company’s operating lease liabilities at June 30, 2024, were as follows (in thousands):
Remainder of 2024$8,370 
202513,254 
202610,640 
202711,175 
202811,680 
Thereafter15,637 
Total lease payments$70,756 
Less: Imputed interest(11,475)
Total lease liabilities$59,281 
11.    INCOME TAXES
The tax provision for interim periods is determined using an estimate of the Company’s annual effective tax rate, adjusted for discrete items arising during interim periods.
For the three months ended June 30, 2024 and 2023, the Company’s effective tax rate was 74.9% and 43.3%, respectively. The Company’s effective tax rate differed from the U.S. statutory tax rate primarily due to limitations on the deductibility of officer compensation and state taxes.
For the three months ended June 30, 2024 and 2023, the Company recorded income tax expense of $3.3 million and $3.5 million, respectively.
For the six months ended June 30, 2024 and 2023, the Company’s effective tax rate was 66.9% and 47.9%, respectively. The Company’s effective tax rate differed from the U.S. statutory tax rate primarily due to limitations on the deductibility of officer compensation and state taxes.
For the six months ended June 30, 2024 and 2023, the Company recorded income tax expense of $5.1 million and $6.0 million, respectively.
12.    EARNINGS PER SHARE
Basic earnings per share (“basic EPS”) and diluted earnings per share (“diluted EPS”) attributable to common stockholders is calculated in conformity with the two-class method required for participating securities: Class A and Class B common stock. The rights of the holders of Class A and Class B common stock are identical, except with respect to voting, conversion, and transfer rights. Each share of Class A common stock is entitled to one vote per share and each share of Class B common stock is entitled to twenty votes per share. Each share of Class B common stock is convertible at any time at the option of the stockholder into one share of Class A common stock.
Basic EPS attributable to common stockholders is computed by dividing net income attributable to common stockholders by the weighted-average number of common shares outstanding during the period. For the calculation of diluted EPS, net income attributable to common stockholders for basic EPS is adjusted by the effect of dilutive securities. Diluted EPS attributable to common stockholders is computed by dividing the net income attributable to common stockholders by the weighted-average number of common shares outstanding, including all potentially dilutive common shares.
As the economic rights of Class A and Class B common stock are identical, undistributed earnings are allocated on a proportionate basis and presented on a combined basis. The following table sets forth the computation of basic and diluted
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EPS and a reconciliation of the weighted average number of common and common equivalent shares outstanding for the three and six months ended June 30, 2024 and 2023 (in thousands, except share and per share amounts):
Three months ended June 30,Six months ended June 30,
2024202320242023
Numerator:
Net income$1,100 $4,582 $2,535 $6,491 
Denominator:
Weighted-average shares—basic170,393,480 167,423,656 170,158,479 167,100,292 
Effect of dilutive stock options9,217,557 14,818,670 9,913,735 14,831,121 
Effect of dilutive restricted stock77,487 1,090,234 122,969 1,163,537 
Weighted-average shares—diluted179,688,524 183,332,560 180,195,183 183,094,950 
Earnings per share:
Basic earnings per share$0.01 $0.03 $0.01 $0.04 
Effect of dilutive stock options and restricted stock— (0.01)— — 
Diluted earnings per share$0.01 $0.02 $0.01 $0.04 
The Company excluded the following weighted average common equivalent shares from the computation of diluted earnings per share for the three and six months ended June 30, 2024 and 2023 because including them would have had an anti-dilutive effect:
Three months ended June 30,Six months ended June 30,
2024202320242023
Stock options to purchase common stock22,069,783 11,303,495 22,343,742 10,198,597 
Restricted stock units5,063,315 2,287,331 2,384,577 2,030,447 
13.    SHARE REPURCHASE PROGRAM

On August 8, 2024, the Company’s board of directors authorized a share repurchase program for up to $50.0 million of the Company’s outstanding Class A common stock, with no expiration date. Repurchases under the share repurchase program may be made from time to time through, without limitation, open market purchases or through privately negotiated transactions and/or structured repurchase agreements with third parties, block purchases or derivative contracts, and/or pursuant to Rule 10b5-1 trading plans, subject to market conditions, applicable securities laws and other legal requirements and relevant factors. Open market repurchases will be structured to occur in accordance with applicable federal securities law, including within the pricing and volume requirements of Rule 10b-18 under the Exchange Act. The share repurchase program does not obligate the Company to acquire any particular amount of Class A common stock, and may be modified, suspended or terminated at any time, without prior notice. The timing, manner, price and amount of any repurchases will be determined at the Company’s discretion, subject to business, economic and market conditions and other factors. Repurchases under the program are expected to be funded from existing cash and cash equivalents. The Company has not yet repurchased any shares of Class A common stock under the share repurchase program.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q, as well as our audited financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission (“SEC”) on February 28, 2024 (the “2023 Annual Report on Form 10-K”). This discussion contains forward-looking statements based upon current plans, expectations and beliefs involving risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in Part II, Item 1A. “Risk Factors” and other factors set forth in other parts of this Quarterly Report on Form 10-Q.
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Overview
Our mission is to celebrate, empower and serve those who serve others.
We are a founder-led, direct-to-consumer healthcare apparel and lifestyle brand that seeks to celebrate, empower and serve current and future generations of healthcare professionals. We are committed to helping this growing, global community of professionals, whom we refer to as Awesome Humans, look, feel and perform at their best—24/7, 365 days a year. We create technically advanced apparel and products that feature an unmatched combination of comfort, durability, function and style, all at an affordable price. In doing so, we have redefined what scrubs are—giving rise to our tag-line: why wear scrubs, when you can #wearFIGS?
We have revolutionized the large and fragmented healthcare apparel market. We branded a previously unbranded industry and de-commoditized a previously commoditized product—elevating scrubs and creating premium products for healthcare professionals. Most importantly, we built a community and lifestyle around a profession. As a result, we have become the industry’s category-defining healthcare apparel and lifestyle brand.
We sell products purposefully designed to serve the particular needs of healthcare professionals primarily through our direct to consumer (“DTC”) digital platform, consisting of our website, mobile app and B2B business (“TEAMS”). We also operate physical retail stores, which we call Community Hubs, and which represent a first-of-its-kind retail experience for healthcare professionals.
Our offerings include scrubwear and non-scrubwear, such as outerwear, underscrubs, footwear, compression socks, lab coats, loungewear and other apparel. We primarily design all of our products in-house, leverage third-party suppliers and manufacturers to produce our product components and finished products, and generally utilize shallow initial buys and data-driven repurchasing decisions to test new products. We directly and actively coordinate with our suppliers on every step of our product development and production process to ensure that our extremely high quality standards are met. We also have a dynamic merchandising model—due to the largely non-discretionary, replenishment-driven nature of scrubwear, we maintain lessened inventory risk driven by a relatively high volume of repeat purchases and a focus on our core scrubs offerings.
At June 30, 2024, we had approximately 2.6 million active customers. Our customers come to us through word of mouth referrals, as well as through our data-driven brand and performance marketing efforts. See the section titled “Key Operating Metrics and Non-GAAP Financial Measures” for a definition of active customers.
In the three and six months ended June 30, 2024, we had the following results compared to the same periods in 2023:
•Expanded our community of active customers by 6.1% from approximately 2.5 million at June 30, 2023 to approximately 2.6 million at June 30, 2024;
•Net revenues increased from $138.1 million to $144.2 million, or 4.4%, for the three months ended June 30, 2024, and from $258.4 million to $263.5 million, or 2.0%, for the six months ended June 30, 2024;
•Gross margin decreased 2.1 percentage points from 69.5% to 67.4% for the three months ended June 30, 2024, and 2.2 percentage points from 70.3% to 68.1% for the six months ended June 30, 2024;
•Net income decreased from $4.6 million to $1.1 million for the three months ended June 30, 2024, and from $6.5 million to 2.5 million for the six months ended June 30, 2024;
•Net income margin decreased 2.6 percentage points from 3.4% to 0.8% for the three months ended June 30, 2024 and decreased 1.5 percentage points from 2.5% to 1.0% for the six months ended June 30, 2024;
•Adjusted EBITDA decreased from $18.9 million to $12.9 million for the three months ended June 30, 2024, and decreased from $35.0 million to $25.9 million for the six months ended June 30, 2024, representing an Adjusted EBITDA Margin of 9.0% and 9.8%, respectively;
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•Cash flows from operating activities increased from $26.5 million to $28.2 million for the six months ended June 30, 2024; and
•Free cash flow decreased from $24.9 million to $18.7 million for the six months ended June 30, 2024.
See the section titled “Key Operating Metrics and Non-GAAP Financial Measures” for information regarding Adjusted EBITDA, Adjusted EBITDA Margin and free cash flow, including reconciliations to the most directly comparable financial measures prepared in accordance with U.S. generally accepted accounting principles (“GAAP”).
Recent Developments
Fulfillment Enhancement

During the three months ended June 30, 2024, we continued to execute on our previously announced fulfillment enhancement project. As part of the project, we are in the process of transitioning all fulfillment operations from our current City of Industry, California facility to a new facility we have leased in Goodyear, Arizona, which is operated by a third-party logistics provider. We currently expect to complete the transition by the end of the third quarter of 2024. In connection with the project and transition, during the three months ended June 30, 2024, we incurred approximately $7.0 million in capital expenditures. During the remainder of the fiscal year ending December 31, 2024, we expect to incur an additional $2.0 to $3.0 million in capital expenditures in connection with the project and transition. We believe the investments we are making in our fulfillment capabilities will enable us to more optimally serve our customers, drive efficiency and support us as we scale over the long term.

Logistics

As a result of ongoing conflict and violence in the Middle East, there have been disruptions in commercial shipping transiting the Red Sea. Global ocean freight traffic has also generally been impacted, resulting in shipping delays and increased freight costs. As a result, during the three months ended June 30, 2024, we have experienced delays in the delivery of raw materials to, and finished goods from, our manufacturers in Jordan and elsewhere, as well as rising ocean freight rates and shipping costs. Although we have not yet experienced a material disruption to our supply chain or a material increase in costs, and have sought alternative ways to ship raw materials and receive inventory, such as selecting new vessel routes, alternative ports, using air freight from time to time and pre-negotiating ocean freight shipping rates, we expect that if there are continued or increased hostilities in the Middle East, there could be continued increases in shipping times and ocean and air freight rates, as well as other impacts to our supply chain, which could adversely affect our financial condition and results of operations. See Item 1A. “Risk Factors—Risks Related To Our Business—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” and “—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.”
Supplier Transition
We have a third party supplier in Jordan that currently accounts for a majority of our production. Following allegations of labor conditions at this supplier that do not meet our high standards, we intend to transition away from this supplier. We plan to conduct this transition over time, in a responsible manner that takes into consideration the needs of our suppliers’ workers and without impacting our sourcing capacity and quality. However, this transition could subject us to additional costs and challenges, which could adversely affect our financial condition and results of operations. See Item 1A. “Risk Factors—Risks Related To Our Business— 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” and “—Any failure by us or our suppliers or manufacturers to comply with product safety, labor or other laws, provide safe conditions for our or their workers or use or be transparent about ethical business practices may damage our reputation and brand and harm our business.”
Key Factors Affecting Our Performance
We believe that our performance and future success depend on a number of factors that present significant opportunities for us. There have been no material changes to such factors from those described in our 2023 Annual Report
20
on Form 10-K under the heading “Key Factors Affecting Our Performance.” Those factors also pose risks and challenges, including those discussed in Part II, Item 1A. “Risk Factors” of this Quarterly Report on Form 10-Q.
Components of Our Results of Operations
Net Revenues

Net revenues consist of sales of healthcare apparel, footwear and other products primarily through our digital platform. We recognize product sales at the time control is transferred to the customer, which is when the product is shipped to the customer. Net revenues represent the sale of these items and shipping revenue, net of estimated returns and discounts. Net revenues are primarily driven by the number of active customers, the frequency with which customers purchase and the average order value (“AOV”). See the section titled “—Key Operating Metrics and Non-GAAP Financial Measures” for a definition of average order value.
Cost of Goods Sold
Cost of goods sold consists principally of the cost of purchased merchandise and includes import duties and other taxes, freight-in, defective merchandise returned by customers, inventory write-offs and other miscellaneous shrinkage. Our cost of goods sold has and may continue to fluctuate with the cost of the raw materials used in our products and freight costs.
Gross Profit and Gross Margin
We define gross profit as net revenues less cost of goods sold. Gross margin is gross profit expressed as a percentage of net revenues. Our gross margin has fluctuated historically and may continue to fluctuate from period to period based on a number of factors, including the timing and mix of the product offerings we sell as well as our ability to reduce costs, in any given period.
Operating Expenses
Our operating expenses consist of selling, marketing and general and administrative expenses.
Selling
Selling expenses represent the costs incurred for fulfillment, selling and distribution. Fulfillment expenses consist of costs incurred in operating and staffing a third-party fulfillment center, including costs associated with inspecting and warehousing inventories and picking, packaging and preparing customer orders for shipment. Selling and distribution expenses consist primarily of shipping and other transportation costs incurred in delivering merchandise to customers and from customers returning merchandise, merchant processing fees and packaging. We expect fulfillment, selling and distribution costs to increase in absolute dollars as we increase our net revenues.
Marketing
Marketing expenses consist primarily of online performance marketing costs, such as retargeting, paid search and product listing advertisements, paid social media advertisements, search engine optimization, personalized email and mobile push notifications through our app. Marketing expenses also include our spend on brand marketing channels, including billboards, podcasts, commercials, photo and video shoot development, expenses associated with our Ambassador Program and other forms of online and offline marketing. We expect our marketing expenses to increase in absolute dollars as we continue to grow our business.
General and Administrative
General and administrative expenses consist primarily of employee-related costs, including salaries, bonuses, benefits, stock-based compensation, other related costs and other general overhead, including certain third-party consulting and contractor expenses, certain facilities costs, software expenses, legal expenses, recruiting fees and in-kind donations. We expect our general and administrative expenses to increase in absolute dollars as we continue to grow our business.
Other Income, Net
Other income, net consists of interest income, interest expense, amortization of debt issuance costs, as well as gain or loss on foreign currency, primarily driven by payment to vendors for amounts not denominated in U.S. dollars.
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Provision for Income Taxes
Our provision for income taxes consists of an estimate of federal and state income taxes based on enacted federal and state tax rates, as adjusted for allowable credits, deductions and uncertain tax positions.
Seasonality
Unlike the traditional apparel industry, the healthcare apparel industry is generally not seasonal in nature. However, due to our historical pattern of sequential growth, as well as our decision to conduct select promotions during the holiday season, we historically have generated a higher proportion of net revenues, and incurred higher selling and marketing expenses, during the fourth quarter of the year compared to other quarters, and we expect these trends to continue.
Results of Operations
Three Months Ended June 30, 2024, Compared to Three Months Ended June 30, 2023
The following table sets forth information comparing the components of our results of operations for the periods indicated and our results of operations as a percentage of net revenues for the periods presented.
Three months ended
June 30,		Three months ended
June 30,
2024202320242023
(in thousands)(as a percentage of net revenues)
Net revenues $144,225 $138,132 100.0 %100.0 %
Cost of goods sold46,961 42,098 32.630.5
Gross profit97,264 96,034 67.469.5
Operating expenses
Selling36,934 33,739 25.624.4
Marketing23,003 20,889 15.915.1
General and administrative(1)
35,774 34,840 24.825.2
Total operating expenses95,711 89,468 66.464.7
Net income from operations1,553 6,566 1.14.8
Other income, net2,830 1,517 2.01.1
Net income before provision for income taxes4,383 8,083 3.05.9
Provision for income taxes3,283 3,501 2.32.5
Net income$1,100 $4,582 0.8 %3.4 %
(1) Includes stock-based compensation expense of $10.2 million and $11.5 million for the three months ended June 30, 2024 and 2023, respectively.
Net Revenues
Three months ended
June 30,		Change
20242023%
(in thousands)
Net revenues$144,225 $138,132 4.4 %
Net revenues increased by $6.1 million, or 4.4%, for the three months ended June 30, 2024, compared to the same period last year. The increase in net revenues was driven primarily by an increase in orders from existing customers, partially offset by a decrease in AOV.
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Cost of Goods Sold
Three months ended
June 30,		Change
20242023
(in thousands)
Cost of goods sold$46,961 $42,098 11.6 %
Gross profit97,264 96,034 1.3 %
Gross margin67.4 %69.5 %(210) bps
Gross margin decreased by 2.1% for the three months ended June 30, 2024, compared to the same period last year. The decrease in gross margin was primarily from product mix shift related to outperformance of limited edition scrubwear and limited edition non-scrubwear.
Operating Expenses
Three months ended
June 30,		Change
20242023%
(in thousands)
Operating expenses:
Selling$36,934 $33,739 9.5 %
Marketing23,003 20,889 10.1 %
General and administrative35,774 34,840 2.7 %
Total operating expenses95,711 89,468 7.0 %
Operating expenses increased by $6.2 million, or 7.0%, for the three months ended June 30, 2024, compared to the same period last year and, as a percentage of net revenues, increased by 1.7 percentage points, primarily driven by increases in selling and marketing expenses, offset by the decreases in general and administrative expense as a percentage of net revenues, as described below.
Selling expense increased by $3.2 million, or 9.5%, for the three months ended June 30, 2024, compared to the same period last year and, as a percentage of net revenues, increased by 1.2 percentage points. The increase in selling expense as a percentage of net revenues was primarily due to higher fulfillment expenses associated with the transition of our fulfillment operations to a new fulfillment center, partially offset by lower storage costs and the accounting reclassification related to duty subsidies for international customers from selling expense to net revenues.
Marketing expense increased by $2.1 million, or 10.1%, for the three months ended June 30, 2024, compared to the same period last year and, as a percentage of net revenues, increased by 0.8 percentage points. The increase in marketing expense as a percentage of net revenues was primarily due to higher digital and brand marketing expenses related to our 2024 Olympics campaign.
General and administrative expense increased by $0.9 million, or 2.7%, for the three months ended June 30, 2024, compared to the same period last year and, as a percentage of net revenues, decreased by 0.4 percentage points. The decrease in general and administrative expense as a percentage of net revenues was primarily due to lower stock-based compensation expense and lower legal fees. This decrease was partially offset by a one-time scrubwear donation and increased investment in people.
Other Income, Net
Three months ended
June 30,		Change
20242023%
(in thousands)
Other income, net$2,830 $1,517 86.6 %
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Other income, net increased by $1.3 million for the three months ended June 30, 2024, compared to the same period last year, primarily related to an increase in our interest income driven by higher cash and cash equivalents and short-term investment balances.
Provision for Income Taxes
Three months ended
June 30,		Change
20242023%
(in thousands)
Provision for income taxes$3,283 $3,501 (6.2)%
Provision for income taxes decreased by $0.2 million, or 6.2% for the three months ended June 30, 2024, compared to the same period last year, primarily due to a decrease in pre-tax income.
Results of Operations
Six Months Ended June 30, 2024, Compared to Six Months Ended June 30, 2023
The following table sets forth information comparing the components of our results of operations for the periods indicated and our results of operations as a percentage of net revenues for the periods presented.
Six months ended
June 30,		Six months ended
June 30,
2024202320242023
Net revenues $263,518 $258,364 100.0 %100.0 %
Cost of goods sold84,118 76,654 31.929.7
Gross profit179,400 181,710 68.170.3
Operating expenses
Selling65,393 64,896 24.825.1
Marketing40,248 37,953 15.314.7
General and administrative(1)
71,763 68,997 27.226.7
Total operating expenses177,404 171,846 67.366.5
Net income from operations1,996 9,864 0.83.8
Other income, net5,667 2,588 2.21.0
Net income before provision for income taxes7,663 12,452 2.94.8
Provision for income taxes5,128 5,961 1.92.3
Net income$2,535 $6,491 1.0 %2.5 %
(1) Includes stock-based compensation expense of $21.9 million and $22.3 million for the six months ended June 30, 2024 and 2023, respectively.
Net Revenues
Six months ended
June 30,		Change
20242023%
(in thousands)
Net revenues$263,518 $258,364 2.0 %
Net revenues increased by $5.2 million, or 2.0%, for the six months ended June 30, 2024, compared to the same period last year. The increase in net revenues was driven primarily by an increase in orders from existing customers, partially offset by a decrease in AOV.
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Cost of Goods Sold
Six months ended
June 30,		Change
20242023
(in thousands)
Cost of goods sold$84,118 $76,654 9.7 %
Gross profit179,400 181,710 (1.3)%
Gross margin68.1 %70.3 %(220) bps
Gross margin decreased by 2.2% for the six months ended June 30, 2024, compared to the same period last year. The decrease in gross margin was primarily related to product mix shift, partially offset by lower freight expense.

Operating Expenses
Six months ended
June 30,		Change
20242023%
(in thousands)
Operating expenses:
Selling$65,393 $64,896 0.8 %
Marketing40,248 37,953 6.0 %
General and administrative71,763 68,997 4.0 %
Total operating expenses177,404 171,846 3.2 %
Operating expenses increased by $5.6 million, or 3.2%, for the six months ended June 30, 2024, compared to the same period last year. As a percentage of net revenues, operating expenses increased by 0.8 percentage points, primarily driven by increases in marketing and general and administrative expenses, offset by a decrease in selling expense as a percentage of net revenues, as described below.
Selling expense increased by $0.5 million, or 0.8%, for the six months ended June 30, 2024, compared to the same period last year and, as a percentage of net revenues, decreased by 0.3 percentage points. The decrease in selling expense as a percentage of net revenues was primarily due to an accounting reclassification related to duty subsidies for international customers from selling expense to net revenues and lower fulfillment expenses associated with lower storage costs, partially offset by expenses associated with the transition of our fulfillment operations to a new fulfillment center.
Marketing expense increased by $2.3 million, or 6.0%, for the six months ended June 30, 2024, compared to the same period last year and, as a percentage of net revenues, increased by 0.6 percentage points. The increase in marketing expense as a percentage of net revenues was primarily due to higher digital and brand marketing expenses related to our 2024 Olympics campaign.
General and administrative expense increased by $2.8 million, or 4.0%, for the six months ended June 30, 2024, compared to the same period last year and, as a percentage of net revenues, increased by 0.5 percentage points. The increase in general and administrative expense as a percentage of net revenues was primarily due to increased investment in people, as well as a one-time scrubwear donation. This increase was partially offset by decreases in legal fees and stock-based compensation expense.
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Other Income, Net
Six months ended
June 30,		Change
20242023%
(in thousands)
Other income, net$5,667 $2,588 119.0 %
Other income, net increased by $3.1 million for the six months ended June 30, 2024, compared to the same period last year, primarily related to an increase in our interest income driven by higher cash and cash equivalents and short-term investment balances.
Provision for Income Taxes
Six months ended
June 30,		Change
20242023%
(in thousands)
Provision for income taxes$5,128 $5,961 (14.0)%
Provision for income taxes decreased by $0.8 million, or 14.0% for the six months ended June 30, 2024, compared to the same period last year, primarily due to a decrease in pre-tax income.
Key Operating Metrics and Non-GAAP Financial Measures
We report our financial results in accordance with GAAP. In addition to the measures presented in our financial statements, we use the following key operational and business metrics to evaluate our business, measure our performance, develop financial forecasts and make strategic decisions. We believe the non-GAAP financial measures, Adjusted EBITDA, Adjusted EBITDA Margin and Free Cash Flow, are useful in evaluating our performance. Our non-GAAP financial measures should not be considered in isolation from, or as substitutes for, financial information prepared in accordance with GAAP.
Active Customers, Net Revenues per Active Customer, and Average Order Value

We believe the number of active customers is an important indicator of our growth as it reflects the reach of our digital platform, our brand awareness and overall value proposition. We define an active customer as a unique customer account that has made at least one purchase in the preceding 12-month period. In any particular period, we determine our number of active customers by counting the total number of customers who have made at least one purchase in the preceding 12-month period, measured from the last date of such period. Active customers as of June 30, 2024 and 2023, respectively, are presented in the following table:
As of June 30,
20242023
(in thousands)
Active customers2,628 2,476 

We believe measuring net revenues per active customer is important to understanding our engagement and retention of customers, and as such, our value proposition for our customer base. We define net revenues per active customer as the sum of total net revenues in the preceding twelve month period divided by the current period active customers. Net revenues per active customer as of June 30, 2024 and 2023, respectively, are presented in the following table:
As of June 30,
20242023
Net revenues per active customer$210 $215 
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We define AOV as the sum of the total net revenues in a given period divided by the total orders placed in that period. Total orders are the summation of all completed individual purchase transactions in a given period. We believe our relatively high average order value demonstrates the premium nature of our product. As we expand into and increase our presence in additional product categories, price points and international markets, AOV may fluctuate. AOV for the three and six months ended June 30, 2024 and 2023, respectively, are presented in the following table:
Three months ended
June 30,		Six months ended
June 30,
2024202320242023
Average order value$113 $115 $115 $115 
Adjusted EBITDA and Adjusted EBITDA Margin
We calculate Adjusted EBITDA as net income adjusted to exclude: other income (loss), net; gain/loss on disposal of assets; provision for income taxes; depreciation and amortization expense; stock-based compensation and related expense; transaction costs; and expenses related to non-ordinary course disputes. Adjusted EBITDA Margin is calculated by dividing Adjusted EBITDA by net revenues.
Management believes that excluding certain non-cash items and items that may vary substantially in frequency and magnitude period-to-period from net income provides useful supplemental measures that assist in evaluating our ability to generate earnings, provide consistency and comparability with our past financial performance and facilitate period-to-period comparisons of our core operating results as well as the results of our peer companies.
There are several limitations related to the use of Adjusted EBITDA and Adjusted EBITDA Margin as analytical tools, including:
•other companies may calculate Adjusted EBITDA and Adjusted EBITDA Margin differently, which reduces their usefulness as a comparative measure;
•Adjusted EBITDA and Adjusted EBITDA Margin do not reflect other income (loss), net;
•Adjusted EBITDA and Adjusted EBITDA Margin do not reflect any gain or loss on disposal of assets;
•Adjusted EBITDA and Adjusted EBITDA Margin do not reflect our tax provision, which reduces cash available to us;
•Adjusted EBITDA and Adjusted EBITDA Margin do not reflect recurring, non-cash expenses of depreciation and amortization of property and equipment and, although these are non-cash expenses, the assets being depreciated and amortized may have to be replaced in the future;
•Adjusted EBITDA and Adjusted EBITDA Margin do not reflect the impact of stock-based compensation and related expense;
•Adjusted EBITDA and Adjusted EBITDA Margin do not reflect transaction costs; and
•Adjusted EBITDA and Adjusted EBITDA Margin do not reflect expenses related to non-ordinary course disputes.
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The following table reflects a reconciliation of Adjusted EBITDA to Net Income, the most directly comparable financial measure prepared in accordance with GAAP and presents Adjusted EBITDA Margin with Net Income Margin, the most directly comparable financial measure prepared in accordance with GAAP:
Three months ended
June 30,		Six months ended
June 30,
2024202320242023
(in thousands, except margin)
Net income$1,100 $4,581 $2,535 $6,490 
Add (deduct):
Other income, net(2,830)(1,517)(5,667)(2,588)
Provision for income taxes3,283 3,501 5,128 5,961 
Depreciation and amortization expense(1)
1,113 713 1,963 1,372 
Stock-based compensation and related expense(2)
10,266 11,618 21,963 22,482 
Expenses related to non-ordinary course disputes(3)
— — — 1,256 
Adjusted EBITDA$12,932 $18,896 $25,922 $34,973 
Net revenues$144,225 $138,132 $263,518 $258,364 
Net income margin(4)
0.8 %3.4 %1.0 %2.5 %
Adjusted EBITDA margin9.0 %13.7 %9.8 %13.5 %
(1) Excludes amortization of debt issuance costs included in “Other income, net.”
(2) Includes stock-based compensation expense, payroll taxes and costs related to equity award activity.
(3) Exclusively represents attorney’s fees, costs and expenses incurred by the Company in connection with the Company’s now-concluded litigation against Strategic Partners, Inc.
(4) Net income margin represents net income as a percentage of net revenues.
Free Cash Flow
We calculate Free Cash Flow as net cash (used in) provided by operating activities reduced by capital expenditures, including purchases of property and equipment and capitalized software development costs. We believe Free Cash Flow is a useful supplemental measure of liquidity and an additional basis for assessing our ability to generate cash. There are limitations related to the use of free cash flow as an analytical tool, including that other companies may calculate free cash flow differently, which reduces its usefulness as a comparative measure and Free Cash Flow does not reflect our future contractual commitments, nor does it represent the total residual cash flow for a given period.
The following table presents a reconciliation of Free Cash Flow to net cash provided by operating activities, the most directly comparable financial measure calculated in accordance with GAAP:
Six months ended
June 30,
20242023
(in thousands)
Net cash provided by operating activities$28,158 $26,520 
Less: capital expenditures(9,489)(1,613)
Free cash flow$18,669 $24,907 
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Liquidity and Capital Resources
As of June 30, 2024 and December 31, 2023, we had $131.8 million and $144.2 million of cash and cash equivalents, respectively. Since inception, we have financed operations primarily through cash flows from operating activities, the sale of our capital stock and borrowings under credit facilities.
In September 2021, we entered into a credit agreement with Bank of America, N.A. providing for a revolving credit facility in an amount of up to $100.0 million (as amended, the “2021 Facility”). The 2021 Facility will mature in September 2026. As of June 30, 2024, we had no outstanding borrowings under the 2021 Facility (other than $4.9 million of outstanding letters of credit) and available borrowings of $95.1 million.
See Note 8 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for more information regarding the 2021 Facility.
In August 2024, our board of directors authorized a share repurchase program for up to $50.0 million of the Company’s outstanding Class A common stock, with no expiration date. Repurchases under the share repurchase program may be made from time to time through, without limitation, open market purchases or through privately negotiated transactions and/or structured repurchase agreements with third parties, block purchases or derivative contracts, and/or pursuant to Rule 10b5-1 trading plans, subject to market conditions, applicable securities laws and other legal requirements and relevant factors. Open market repurchases will be structured to occur in accordance with applicable federal securities law, including within the pricing and volume requirements of Rule 10b-18 under the Exchange Act. The share repurchase program does not obligate the Company to acquire any particular amount of Class A common stock, and may be modified, suspended or terminated at any time, without prior notice. The timing, manner, price and amount of any repurchases will be determined at the Company’s discretion, subject to business, economic and market conditions and other factors. Repurchases under the program are expected to be funded from existing cash and cash equivalents. The Company has not yet repurchased any shares of Class A common stock under the share repurchase program.
Our cash requirements have primarily been for working capital and capital expenditures. We believe that existing cash and cash equivalents, cash flows from operations and available borrowings under our 2021 Facility, if needed, will be sufficient to support our working capital and capital expenditure requirements for at least the next 12 months.
Our future capital requirements may vary materially from those currently planned and will depend on many factors, including our rate of revenue growth, the timing and extent of international expansion efforts and other growth initiatives, the expansion of our marketing activities and overall economic conditions. To the extent that current and anticipated future sources of liquidity are insufficient to fund our future business activities and cash requirements, we may be required to seek additional equity or debt financing. The sale of additional equity would result in additional dilution to our stockholders. The incurrence of additional debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations. There can be no assurances that we will be able to raise additional capital when needed or on terms acceptable to us. The inability to raise capital if needed would adversely affect our ability to achieve our business objectives.
Historical Cash Flows
The following table summarizes our cash flows for the periods presented:
Six months ended
June 30,
20242023
(in thousands)
Cash flows from operating activities$28,158 $26,520 
Cash flows from investing activities(40,784)(39,956)
Cash flows from financing activities264 391 
Net change in cash and cash equivalents
$(12,362)$(13,045)
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Operating Activities
Cash flows from operating activities consists primarily of net income adjusted for certain items including depreciation and amortization, stock-based compensation expense and the effect of changes in operating assets and liabilities.
Cash flows from operating activities were $28.2 million for the six months ended June 30, 2024, an increase of $1.6 million compared to the same period last year. The increase in operating cash flows was primarily due to a net change in operating assets and liabilities of $2.1 million driven by the timing of cash payments related to accrued expenses of $19.5 million and accounts payable of $13.8 million. These improvements were partially offset by higher inventory purchases of $10.4 million, the timing of cash payments for prepaid expenses and other current assets of $8.0 million, the timing of cash receipts from accounts receivables of $5.8 million, the timing of cash payments of accrued compensation and benefits of $4.2 million and the timing of cash payments for income tax payable of $4.2 million.
Investing Activities
Cash flows from investing activities relate to capital expenditures and the purchases and maturities of investments.
Cash flows used in investing activities increased by $0.8 million for the six months ended June 30, 2024, compared to the same period last year. The increase in cash flows used in investing activities was primarily due to higher purchases of available-for-sale securities of $99.5 million and higher capital expenditures of $7.9 million, partially offset by maturities of available-for-sale securities of $106.6 million.
Capital expenditures during the six months ended June 30, 2024 were primarily related to the purchases of machinery and equipment, investments of capital projects in progress, and purchases of computer equipment.
Capital expenditures during the six months ended June 30, 2023 were primarily related to capitalized software development costs, purchases of computer equipment, and purchases of warehouse machinery and equipment.
Financing Activities
Cash flows from financing activities consists primarily of proceeds and payments related to transactions involving our common stock, borrowings, and fees associated with our existing line of credit.
Cash flows from financing activities were not material for the six months ended June 30, 2024.
Cash flows from financing activities of $0.4 million for the six months ended June 30, 2023 was attributable to proceeds from stock option exercises and employee stock purchases, offset by tax payments related to net share settlements on restricted stock units.
Contractual Obligations and Commitments
There have been no material changes to our contractual obligations from those described in our 2023 Annual Report on Form 10-K.
Refer to Note 9 to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q for commitments entered into during the six months ended June 30, 2024.
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q are prepared in accordance with GAAP. The preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from our estimates. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.
Our critical accounting policies are described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in our 2023 Annual Report on
30
Form 10-K. There have been no material changes to our critical accounting policies since December 31, 2023. See Note 2 to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q for a description of our other significant accounting policies.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
There have been no material changes to the quantitative and qualitative disclosures about market risk disclosed in our 2023 Annual Report on Form 10-K.
Item 4. Controls and Procedures.
Limitations on effectiveness of controls and procedures
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Evaluation of disclosure controls and procedures
Our management, with the participation of our principal executive officer and interim principal financial officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, our principal executive officer and interim principal financial officer concluded that, as of June 30, 2024, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended June 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
On November 1, 2022, a putative class action complaint was filed against us and certain of our executive officers and directors in the United States District Court for the Central District of California alleging, among other things, violations of the Securities Act and Exchange Act for allegedly making false and misleading statements in our IPO in May 2021 and thereafter. An additional putative class action complaint was filed against us, certain of our executive officers and directors, stockholders and the underwriters to our IPO, in the United States District Court for the Central District of California on December 8, 2022, making similar allegations to the previously referenced purported class action. On February 14, 2023, the court consolidated the two complaints and appointed lead plaintiffs. On April 10, 2023, the lead plaintiffs filed a consolidated amended complaint against us, certain of our executive officers and directors, stockholders and the underwriters to our IPO, alleging, among other things, violations of the Securities Act and Exchange Act for allegedly making false and misleading statements between May 27, 2021 and February 28, 2023 with respect to our ability to predict customer demand and to manage our supply chain, inventory, air freight usage and costs (the “Class Action Securities Litigation”). The complaint sought unspecified compensatory damages and attorney’s fees and costs. On May 25, 2023, defendants filed a motion to dismiss the consolidated amended complaint. On January 17, 2024, the court granted the motion in its entirety as to all defendants, dismissed the case without prejudice, and granted plaintiffs leave to amend the complaint. On March 19, 2024, plaintiffs filed an amended complaint alleging violations of the Securities Act and Exchange Act similar to those alleged in the previously dismissed amended complaint. On May 3, 2024, defendants filed a motion to dismiss the amended complaint, which is fully briefed and pending before the court.

On June 2, 2023, a putative stockholder, Paige McMurtrie, filed a derivative lawsuit against us and certain of our current and former executive officers, directors and stockholders in the United States District Court for the Central District of California. The derivative complaint alleged factual allegations largely tracking allegations made in the Class Action Securities Litigation and sought, among other things, damages and restitution to be paid to the Company by the individual defendants, governance changes and attorney’s fees and costs. On June 8, 2023, the plaintiff voluntarily dismissed that action brought in the Central District of California and re-filed it in the United States District Court for the District of Delaware (the “McMurtrie Action”). On July 11, 2023, another putative stockholder, Andrew Wubben, filed a derivative lawsuit asserting claims and factual allegations that were materially equivalent to the McMurtrie Action (the “Wubben Action”). On July 31, 2023, the parties to the McMurtrie Action and Wubben Action filed a stipulation to consolidate those actions and any future actions that may be filed based on the same claims and factual allegations (collectively, the “Consolidated Federal Court Derivative Action”). On September 25, 2023, the parties to the Consolidated Federal Court Derivative Action filed a stipulation voluntarily staying the Consolidated Federal Court Derivative Action until (1) the dismissal of the Class Action Securities Litigation, with prejudice, and exhaustion of all related appeals; or (2) the denial of any motion to dismiss the Class Action Securities Litigation in whole or in part; or (3) any of the parties to the Consolidated Federal Court Derivative Action provides 30-day notice that they no longer consent to the voluntary stay of the Consolidated Federal Court Derivative Action. On September 20, 2023, another putative stockholder, Osayi Lawani, filed a derivative lawsuit in the Central District of California asserting claims and factual allegations that were materially equivalent to the Consolidated Federal Court Derivative Action (the “Lawani Action”). The Lawani Action was then dismissed, re-filed in the United States District Court for the District of Delaware, and consolidated it into the Consolidated Federal Court Derivative Action.

On January 5, 2024, a putative stockholder, Lloyd Kimmen, filed a derivative lawsuit against us and certain of our current and former executive officers, directors, and stockholders in the Delaware Court of Chancery (the “Kimmen Action”). On January 12, 2024, another putative stockholder, Cameron Carter, filed a derivative lawsuit that is materially equivalent to the Kimmen Action (the “Carter Action”). The Kimmen Action and the Carter Action allege factual allegations largely tracking allegations made in the Class Action Securities Litigation and the Consolidated Federal Court Derivative Action, except that the Kimmen Action and the Carter Action reference non-public documents that the Company previously produced to each of those shareholders pursuant to books and records requests made under Delaware General Corporation Law section 220. The parties to the Kimmen Action and Carter Action have stipulated, and the court has entered an order, to consolidate those actions and any future actions that may be filed based on the same claims and factual allegations (collectively, the “Consolidated Delaware Court Derivative Action”) and to voluntarily stay the Consolidated Delaware Court Derivative Action on terms similar to the stay entered in the Consolidated Federal Court Derivative Action.

We intend to continue to vigorously defend against such claims; however, we cannot be certain of the outcome of our ongoing proceedings and, if determined adversely to us, our business and financial condition may be adversely affected.
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In addition to the matters described above, from time to time, we have been and may become subject to arbitration, litigation or claims arising in the ordinary course of business. The results of any current or future claims or proceedings cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and litigation costs, diversion of management resources, reputational harm and other factors.
Item 1A. Risk Factors.
Our business involves significant risks. You should carefully consider the risks and uncertainties described below, which update and supersede the risks and uncertainties previously disclosed in Part I, Item 1A of our 2023 Annual Report on Form 10-K, together with all of the other information in this Quarterly Report on Form 10-Q and in our 2023 Annual Report on Form 10-K and in our other filings with the SEC. The realization of any of these risks and uncertainties could have a material adverse effect on our reputation, business, financial condition, results of operations, growth and future prospects as well as our ability to accomplish our strategic objectives. In addition to the factors discussed in Item 7 of Part II of our 2023 Annual Report on Form 10-K and in the risk factors below, global economic and geopolitical conditions and additional or unforeseen circumstances, developments or events may amplify the risks discussed below. In that event, the market price of our Class A common stock could decline and you could lose part or all of your investment.
Risks Related to Our Business
Our historical growth may not be sustainable or indicative of future growth, and we expect our growth rate to slow over time.
Our historical rate of growth may not be sustainable or indicative of our future rate of growth, and in the near term, we expect our net revenues to grow more slowly than in the past, and in the long term our net revenues could grow more slowly than we expect. We believe that growth in net revenues, as well as our ability to improve or maintain margins and profitability, will depend upon, among other factors, our ability to address the challenges, risks and difficulties described elsewhere in this “Risk Factors” section. We cannot provide assurance that we will be able to successfully manage any such challenges or risks to our future growth. Any of these factors could cause our net revenues growth to slow or decline and may adversely affect our margins and profitability. Even if our net revenues continue to increase, we expect that our growth rate could be negatively impacted due to a number of other reasons, including if there is a slowdown in the growth of demand for our products, increased competition, a decrease in the growth or reduction in the size of our overall market or if we cannot capitalize on growth opportunities. Failure to continue to grow our net revenues or improve or maintain margins would adversely affect our business, financial condition and results of operations. You should not rely on our historical rate of growth as an indication of our future performance.
If we fail to manage the expansion of our business effectively, our financial condition and results of operations may be adversely affected.
To manage the expansion of our business effectively, we must continue to implement our operational plans and strategies, improve and expand our infrastructure of people and information systems and expand, train and manage our employee base. We face significant competition for personnel, including in Southern California, where our headquarters is located. To attract top talent, we may need to increase our employee compensation levels to remain competitive in attracting and retaining talented employees. In addition, we could be required to continue to expand our sales and marketing, product development and distribution functions, to upgrade our management information systems and other processes and technology and to obtain more space for our expanding workforce. Additionally, the growth of our business places significant demands on our existing management and other employees. Failure to manage our employee base and hiring needs effectively, including successfully integrating our new hires, may adversely affect our business, financial condition and results of operations.
In addition, we are required to manage relationships with a growing number of customers, suppliers, manufacturers, distributors and other third parties. If we are unable to expand supply, manufacturing and distribution capabilities when required, or our information technology systems and our other processes are inadequate to support the future growth of these relationships, we could experience delays in customer service and order response and shipping times, which would adversely impact our reputation and brand. If we are unable to manage the growth of our organization effectively, our business, financial condition and results of operations may be adversely affected.
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We have not always been profitable and may not be profitable in the future.
We have not always been profitable. We expect our operating expenses to increase in the future as we increase our sales and marketing efforts, continue to invest in developing new products, hire additional personnel, expand our operating infrastructure and expand into new geographies. Further, as a public company, we incur additional legal, accounting and other expenses that we did not incur as a private company. Additionally, stock-based compensation expense related to equity awards has been and may from time to time be a significant expense in future periods, which impacts our net income. These efforts and additional expenses may be more costly than we expect, and we cannot guarantee that we will be able to increase our net revenues to offset our increased operating expenses. In the near term, we expect our net revenues to grow more slowly than in the past or to decline, and over the long term our net revenues growth may slow for a number of other reasons, including if we experience reduced demand for our products, increased competition, a decrease in the growth or reduction in the size of our overall market or if we cannot capitalize on growth opportunities. If our net revenues do not grow at a greater rate than our operating expenses, we will not be able to maintain the level of profitability that we have achieved.
Our success depends on our ability to maintain the value and reputation of our brand.
The FIGS brand is integral to our business strategy and our ability to attract and engage customers. Maintaining, promoting and positioning our brand will depend largely on the success of our marketing and branding efforts and our ability to provide a consistent, high quality product and customer experience. Our brand may suffer if we fail to achieve these objectives or if our public image were to be tarnished by negative publicity about us, including our products, technology, customer service, personnel, marketing efforts, ambassadors or suppliers. Even isolated incidents involving our company, suppliers, agents or third-party service providers, or the products we sell, could erode the trust and confidence of our customers and damage the strength of our brand, especially if such incidents result in adverse publicity, governmental investigations, product recalls or litigation.
In addition, the importance of our brand may increase to the extent we experience increased competition, which could require additional expenditures on our brand promotion activities. Maintaining and enhancing our brand image also may require us to make additional investments in areas such as merchandising, marketing and online operations. These investments may be substantial and may not ultimately be successful. Moreover, if we are unsuccessful in protecting our intellectual property rights in our brand, the value of our brand may be harmed. Any harm to our brand and reputation could adversely affect our ability to attract and engage customers and negatively impact our business, financial condition and results of operations.
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.
Our success depends in large part upon widespread adoption of our products by healthcare professionals. In order to attract new customers and continue to expand our customer base, we must appeal to and attract healthcare professionals who identify with our products. If the number of healthcare professionals who are willing to purchase our products does not continue to increase, if we fail to deliver a high quality shopping experience or if our current or potential future customers are not convinced that our products are superior to alternatives, then our ability to retain existing customers, acquire new customers and grow our business may be harmed. We have made significant investments in enhancing our brand and attracting new customers, and we expect to continue to make significant investments to promote our products, including marketing campaigns that can be expensive and may not always result in new customers or increased sales of our products. These factors, in turn, have from time to time increased and may again increase our customer acquisition costs over time. As our brand becomes more widely known, we may not attract new customers or increase our net revenues at historical rates, or retain existing customers to the same extent as we have in the past. For example, while the number of our active customers continues to increase, we have recently not added new customers at the same rates as we have in the past and have seen the frequency of repeat purchases decline from time to time. If we are unable to acquire new customers or retain existing customers who purchase products in numbers sufficient to grow our business, we may not be able to generate the scale necessary to drive beneficial network effects with our suppliers, our net revenues may decrease, and our business, financial condition and operating results may be adversely affected.
In addition, our future success depends in part on our ability to increase sales to our existing customers over time, as a significant portion of our net revenues are generated from sales to existing customers, particularly those existing customers who are highly engaged and make frequent and/or large purchases of the products we offer. If existing customers no longer find our products appealing, are not satisfied with our customer service, including shipping times, or if
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we are unable to timely update our products to meet current trends and customer demands, our existing customers may not make purchases, or if they do, they may make fewer or smaller purchases in the future.
Moreover, our success depends in part on the condition of the healthcare workforce. There have been reports of rising fatigue and stress among workers in the healthcare industry, in part as a result of heightened demand on, and for, healthcare workers in the wake of the COVID-19 pandemic, which we believe may be impacting customer purchasing behavior. As a replenishment-driven healthcare apparel brand, demand for our products may be impacted by healthcare workforce-related stress, including if the number of employed healthcare workers were to decline.
If we are unable to continue to attract new customers or our existing customers decrease their spending on the products we offer or fail to make repeat purchases of our products, 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.
We create differentiated brand marketing content and utilize performance marketing to drive customers from awareness to consideration to conversion, and promoting awareness of our brand and products is important to our ability to grow our business, drive customer engagement and attract new customers. Our marketing strategy includes brand marketing campaigns across platforms, including email, digital, display, site, direct-mail, commercials, social media, out-of-home campaigns and ambassadors, as well as performance marketing efforts, including retargeting, paid search and product listing advertisements, paid social media advertisements, search engine optimization, personalized email and mobile push notifications through our mobile app.
We have historically also benefited from social media, customer referrals and word of mouth to advertise our brand. Social networks are important as a source of new customers and as a means by which to connect with existing customers, and such importance may be increasing. In addition, we have implemented grassroots marketing efforts such as engaging with local doctors, nurses and other healthcare professionals, some of whom we refer to as our ambassadors, to assist us by introducing our brand and culture to their communities. Our social media and grassroots efforts must be tailored to each particular market, which requires substantial efforts as we enter new markets, as well as ongoing attention and resources. We also seek to engage with our customers and build awareness of our brands through sponsoring unique events and experiences. If our marketing efforts and messaging are not appropriately tailored to and accepted by the healthcare community, we may fail to attract customers and our brand and reputation may be harmed. Our future growth and profitability and the success of our brand will depend in part upon the effectiveness and efficiency of these marketing efforts.
We also receive a significant amount of visits to our digital platform via social media or other channels used by our existing and prospective customers. As eCommerce and social media continue to rapidly evolve, we must continue to establish relationships with these channels and may be unable to develop or maintain these relationships on acceptable terms. In addition, we currently receive a significant number of visits to our website and mobile app via search engine results. Search engines frequently change the algorithms that determine the ranking and display of results of a user’s search, which could reduce the number of visits to our website, in turn reducing new customer acquisition and adversely affecting our results of operations. If we are unable to cost-effectively drive traffic to our digital platform, our ability to acquire new customers and our financial condition would suffer. Email marketing efforts are also important to our marketing efforts. If we are unable to successfully deliver emails to our customers or if our customers do not engage with our emails, whether out of choice, because those emails are marked as low priority or spam or for other reasons, our business could be adversely affected.

We also have and may in the future adjust our marketing activity, techniques and spend from period to period or within a period as we launch new campaigns or offerings, or for other reasons. Because of these adjustments and because marketing initiatives may become increasingly expensive, generating a meaningful return on those initiatives may be difficult or unpredictable. Moreover, even if we successfully increase net revenues as a result of our marketing efforts, it may not offset the additional marketing expenses we incur.
If our marketing efforts are not successful in promoting awareness of our products, driving customer engagement or attracting new customers, or if we are not able to cost-effectively manage our marketing expenses, our results of operations could be adversely affected.
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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.
We partner with ambassadors to help raise awareness of our brand and engage with our community. Our ability to maintain relationships with our existing ambassadors and to identify new ambassadors is critical to expanding and maintaining our customer base. As our market becomes increasingly competitive or as we expand internationally, recruiting and maintaining new ambassadors may become increasingly difficult. If we are not able to develop and maintain strong relationships with our ambassador network, our ability to promote and maintain awareness of our brand may be adversely affected. Further, if we incur excessive expenses in this effort, our business, financial condition and results of operations may be adversely affected.
We and our ambassadors use third-party social media platforms to raise awareness of our brand and engage with our community. As existing social media platforms evolve and new platforms develop, we and our ambassadors must continue to maintain a presence on these platforms and establish presences on emerging popular social media platforms. If we are unable to cost-effectively use social media platforms as marketing tools, our ability to acquire new customers and our financial condition may suffer. Furthermore, as laws and regulations governing the use of these platforms evolve, any failure by us, our ambassadors, our sponsors or third parties acting at our direction to abide by applicable laws and regulations in the use of these platforms could subject us to regulatory investigations, class action lawsuits, liability, fines or other penalties and adversely affect our business, financial condition and results of operations. In addition, an increase in the use of social media for product promotion and marketing may cause an increase in the burden on us to monitor compliance of such materials, and increase the risk that such materials could contain problematic product or marketing claims in violation of applicable regulations. For example, in some cases, the Federal Trade Commission has sought enforcement action where an endorsement has failed to clearly and conspicuously disclose a financial relationship or material connection between an influencer and an advertiser.
Our ambassadors could engage in behavior or use their platforms in a manner that reflects poorly on our brand or is in violation of applicable regulations or platform terms of service, and may be attributed to us. Negative commentary regarding us, our products or ambassadors and other third parties who are affiliated with us, whether accurate or not, may be posted on social media platforms at any time and may adversely affect our reputation, brand and business. The harm may be immediate, without affording us an opportunity for redress or correction and could have an adverse effect on our business, financial condition and results of operations.
In addition, customer complaints or negative publicity related to our website, mobile app, products, product delivery times, customer data handling, marketing efforts, security practices or customer support, especially on blogs and social media websites, could diminish customer loyalty and community engagement.
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.
We are an apparel and lifestyle brand for healthcare professionals. As a result, our success depends in part on our ability to create apparel for healthcare professionals, as well as to anticipate and react to changing customer demands in a timely manner. All of our products are subject to changing customer preferences that cannot be predicted with certainty. If we do not continue to introduce new products or innovations on existing products in a timely manner or our existing or new products or innovations are not accepted by our customers, or if our competitors introduce similar products in a more timely fashion, our brand or our position as a leader in healthcare apparel could be harmed.
Further, our new products and innovations, including to fit, style and fabric, on existing and future products may not, and from time to time have not, received the same level of customer acceptance as our products or innovations have in the past. Customer preferences could change, especially as we expand our product offerings beyond our core scrubwear, and our future success depends in part on our ability to anticipate and respond to these changes. If we fail to anticipate and respond in a timely manner to changing customer preferences or if customers do not accept our new products or innovations, including to fit, style and fabric, we could experience, among other things, lower sales, excess inventory or inventory shortages, markdowns and write-offs, increases in donations and diminished brand loyalty. Even if we are successful in anticipating customer needs and preferences, our ability to adequately address those needs and preferences will in part depend upon our continued ability to develop and introduce innovative, high quality products and designs and maintain our distinctive brand identity as we expand the range of products we offer. A failure to effectively introduce new
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products or innovations on existing products that appeal to our customers could result in a decrease in net revenues and excess inventory levels, which could adversely affect our business, financial condition and results of operations.
The market for healthcare apparel is highly competitive.
We compete in the healthcare apparel industry, principally on the basis of product quality, innovation, style, price, brand image, distribution model, as well as customer experience and service. The industry is highly competitive and includes established companies as well as new entrants. Some of our competitors also have longer operating histories, larger market share and greater resources than we do.
We compete against wholesalers of healthcare apparel, such as Careismatic Brands, Barco Uniforms, Landau Uniforms and Superior Group of Companies. Additionally, we compete with healthcare apparel specialty retailers, such as Scrubs & Beyond and Uniform Advantage as well as digitally native brands such as Jaanuu and Mandala. We also currently and in the future may continue to face competition from large, diversified apparel brands with name recognition and well-established sales, manufacturing and distribution infrastructure that choose to expand into the production and marketing of healthcare apparel, such as Fabletics.
Our competitors may be able to achieve and maintain market share more quickly and effectively than we can. Similarly, if customers perceive the products offered by our competitors to be of higher quality than ours, or our competitors offer similar products at lower prices, our revenues may decline, which would adversely affect our results of operations.
Many of our potential competitors promote their brands primarily through traditional forms of advertising, such as print media, and have substantial resources to devote to such efforts. Our competitors may also use traditional forms of advertising more quickly in new markets than we can. While we believe that our direct-to-consumer business model offers us competitive advantages, our competitors may also be able to increase sales in their new and existing markets faster than we do by emphasizing different distribution channels than we do, such as wholesale and an extensive franchise network of retail stores, and many of our competitors have substantial resources to devote toward increasing sales in such ways. Competition may result in pricing pressures, reduced profit margins or lost market share or a failure to grow our market share, any of which could substantially harm our business, financial condition and results of operations.
Our future success depends on the continuing efforts of our key employees and our ability to attract and retain highly skilled team members.
We are dependent on our ability to continue to identify, attract, develop and retain qualified and highly skilled team members. In particular, we are highly dependent on the services of our co-founders, Heather Hasson and Trina Spear, who serve as our Executive Chair and Chief Executive Officer, respectively, and who are critical to the development of our business, future vision and strategic direction. We also heavily rely on the continued service and performance of other members of our senior management team. If the senior management team, including any new hires that we make, fails to work together effectively or to execute our plans and strategies on a timely basis, our business and future growth prospects could be harmed.
Additionally, the loss of any key team members could make it more difficult to manage our business, including operations, research, development, production, marketing, design, merchandising, engineering and finance activities, reduce our employee retention and net revenues and impair our ability to compete. Although we have entered into employment agreements with certain key team members, these agreements have no specific duration and constitute at-will employment. We have not obtained key man life insurance policies on any of our senior management team. As a result, we would have no way to cover the financial loss if we were to lose the services of members of our senior management team.
Competition for highly skilled team members is often intense, especially in Southern California, where our headquarters is located. We may not be successful in attracting or retaining qualified team members to fulfill our current or future needs. We may experience difficulty in hiring and retaining highly skilled employees with appropriate qualifications. Failure to manage our employee base and hiring needs effectively, including successfully integrating our new hires, or to retain and motivate our current team members may adversely affect our business, financial condition and results of operations.
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We plan to expand into additional international markets over time, which will expose us to new and significant risks.
Our current operations and customer base are based largely in the United States, and our future growth depends in part on our ongoing expansion efforts outside of the United States. While we currently ship to certain countries in North America, Central America, South America, Europe, the Asia Pacific region and the Middle East, we have a relatively limited number of customers and experience operating outside of the United States. We also have relatively limited experience with regulatory environments and market practices outside of the United States and cannot guarantee that we will be able to penetrate or successfully operate in any market outside of the United States. In connection with our expansion efforts, we have from time to time encountered, and may in the future continue to encounter, obstacles we do not face in the United States, including cultural and linguistic differences, differences in regulatory environments and market practices, difficulties in keeping abreast of market, business and technical developments and foreign customers’ tastes and preferences.
We may also encounter difficulty expanding into new markets because of limited brand recognition in those markets, leading to delayed acceptance of our apparel by customers there. In particular, we have no assurance that our marketing efforts will prove successful outside of the narrow geographic regions in which they have been used in the United States. The expansion into new markets may also present competitive, merchandising, forecasting and distribution challenges that are different from or more severe than those we currently face. There are also other risks and costs inherent in doing business in international markets, including:
•the need to adapt and localize products for specific countries to account for, among other things, different cultural tastes, size and fit preferences or regulatory requirements;
•    difficulty establishing and managing international operations and the increased operations, travel, infrastructure, including establishment of local delivery service and customer service operations, and legal compliance costs associated with locations in different countries or regions;
•    increased shipping times to and from international markets;
•    the need to vary pricing and margins to effectively compete in international markets;
•    increased competition from local providers of similar products;
•    the ability to protect and enforce intellectual property rights abroad;
•    the need to offer customer support in various languages;
•    difficulties in understanding and complying with local laws, regulations and customs in other jurisdictions;
•    compliance with anti-bribery laws, such as the U.S. Foreign Corrupt Practices Act (the “FCPA”), and the U.K. Bribery Act 2010 (the “U.K. Bribery Act”), by us, our employees and our business partners;
•    complexity and other risks associated with current and future legal requirements in other countries, including legal requirements related to medical apparel, customer advertising protection, customer product safety and data privacy and security frameworks, such as the EU General Data Protection Regulation 2016/679 (the “GDPR”) and the UK GDPR;
•    the potential need to utilize new suppliers or comply with additional regulations regarding our suppliers, supply chain or value chain;
•    varying business practices and customs related to the sale of medical apparel;
•    varying levels of internet technology adoption and infrastructure, and increased or varying network and hosting service provider costs;
•    tariffs and other non-tariff barriers, such as quotas and local content rules, as well as tax consequences;
•    fluctuations in inflationary conditions, which could increase our costs of doing business in certain countries;
•    fluctuations in currency exchange rates and the requirements of currency control regulations, which might restrict or prohibit conversion of other currencies into U.S. dollars; and
•    political or social unrest, economic instability or armed conflict in a specific country or region in which we operate, including, for example, Russia’s invasion of Ukraine and violence in the Middle East.
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Our failure to successfully manage these risks could harm our international operations and have an adverse effect on our business, financial condition and results of operations.
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.
We currently rely on third-party global logistics and shipping providers to ship raw materials, receive inbound inventory and deliver our products. If we are not able to negotiate acceptable pricing and other terms with these providers, or if these providers experience performance problems or other difficulties in delivering inventory, processing our orders or delivering our products to customers, it could negatively impact our results of operations and our customers’ experience. Furthermore, changes to the terms of our shipping arrangements or the imposition of surcharges or surge pricing have in the past and may in the future adversely impact our margins and profitability. For example, volatility in the global oil markets, including as a result of Russia’s invasion of Ukraine, other wars or armed conflicts, and changes in global supply generally, have from time to time resulted in higher fuel prices, which shipping companies have from time to time passed on to their customers by way of increased fuel surcharges. We have from time to time experienced increased shipping costs as a result of these and other factors, and these costs may continue to increase in the future. We may not be able to or choose to pass such increases on to our customers in the future.
Our supply of raw materials and ability to receive inbound inventory efficiently and ship merchandise to customers, including at costs to which we are accustomed, may also be negatively affected by military conflicts, political or social instability, or terrorism. For example, as a result of ongoing conflict and violence in the Middle East, there has been an increase in attacks on commercial vessels transiting the Red Sea, causing disruptions in an important route for global trade. Such disruptions have affected global ocean freight traffic, caused shipping delays and increased freight costs. As a result, we have experienced delays in the delivery of raw materials to, and finished goods from, our manufacturers in Jordan and elsewhere, as well as rising ocean freight rates and shipping costs. Although we have not yet experienced a material disruption to our supply chain and have sought alternative ways to ship raw materials and receive inventory, such as selecting new vessel routes, alternative ports, using air freight from time to time and pre-negotiating ocean freight shipping rates, we expect that if there are continued or increased hostilities in the Middle East, there could be continued increases in shipping times and ocean and air freight rates, as well as other impacts to our supply chain, which could adversely affect our business, financial condition and results of operations.
In addition, the operations of our third-party providers have in the past been disrupted, and may in the future again be disrupted, by pandemics or health crises. For example, in the past, the COVID-19 pandemic strained parcel carrier networks and caused extended outbound shipping times generally and additional shipping costs. Future pandemics, epidemics or outbreaks of an infectious disease may adversely affect workforces and supply chains globally, potentially impacting the operations of our third-party shipping providers, which could negatively impact our business, financial condition and results of operations.
Weather, fires, floods, power loss, earthquakes, or other events specifically impacting our or other shipping partners, such as labor disputes or shortages, financial difficulties, system failures and other disruptions to the operations of the shipping companies on which we rely, may also negatively our ability to ship raw materials, receive inbound inventory and ship merchandise to customers efficiently and cost-effectively. For instance, a strike, threat of a strike, work slow-down or other disruptions at any of our third-party global providers, other parcel carriers or by port workers at major international shipping hubs, including at the ports of Los Angeles, Long Beach, New York and New Jersey, each of which we use to import our products into the U.S., could significantly disrupt our business. We have in the past experienced, and may in the future experience, shipping delays for reasons outside of our control.
We are also subject to risks of damage or loss during delivery by our shipping vendors. If the products ordered by our customers are not delivered in a timely fashion, including to international customers, or are damaged or lost during the delivery process, our customers could become dissatisfied and cease buying products from us, which would 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.

We are in the process of transitioning all fulfillment operations from our legacy City of Industry location to a new fulfillment center we have leased in Goodyear, Arizona, which is operated by a third-party logistics provider. We currently expect to complete the transition by the end of the third quarter of 2024, at which point our Goodyear facility will be our
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sole location for product distribution. We also from time to time rely on several additional third-party storage locations to house inventory and plan to add additional facilities in the future, including in Canada. Our fulfillment center and storage locations include computer-controlled and automated equipment and rely on warehouse management systems to manage supply chain fulfillment operations, which means our operations are complicated, require coordination between our fulfillment, storage and retail operations, and are subject to a number of risks related to cybersecurity, the proper operation of software and hardware, including connections between software and/or hardware, electronic or power interruptions or other system failures. In addition, because all of our products have historically been distributed from our City of Industry fulfillment center, and following the completion of our transition to our Goodyear fulfillment center, will all be distributed from that location, our operations could also be interrupted by labor difficulties, or by floods, fires or other natural disasters near our fulfillment center and storage locations. We maintain business interruption insurance, but it may not adequately protect us from the adverse effects that could result from significant disruptions to our distribution system, such as the long-term loss of customers or an erosion of our brand image. Moreover, if we or our third-party logistics provider are unable to adequately staff our fulfillment center to meet demand or if the cost of such staffing is higher than historical or projected costs due to mandated wage increases, regulatory changes, hazard pay, international expansion or other factors, some of which has occurred from time to time and may occur again in the future, our results of operations could be harmed.
Operating a fulfillment center comes with additional potential risks, such as workplace safety issues and employment claims for the failure or alleged failure to comply with labor laws or laws respecting union organizing activities. Our distribution capacity is also dependent on the timely performance of services by third parties, including the shipping of our products to and from our facilities. We will need, and intend, to operate additional fulfillment centers in the future to keep pace with the growth of our business, and we cannot assure you that we will be able to locate suitable facilities on commercially acceptable terms in accordance with our expansion plans, nor can we assure you that we will be able to recruit qualified managerial and operational personnel to support our expansion plans. If we encounter problems with our distribution and warehouse management systems, our ability to meet customer expectations, manage inventory and fulfillment capacity, complete sales, fulfill orders in a timely manner and achieve objectives for operating efficiencies could be harmed, which could also harm our reputation and our relationship with our customers.
In addition, fulfillment center operations may also be disrupted by pandemics. For example, like other similarly situated companies, we have from time to time experienced, and may from time to time experience in the future, inbound shipping delays of our product and labor shortages in our fulfillment center that impact our ability to fulfill orders on the timeline to which we have been accustomed. Any future pandemics, epidemics or other health crises may adversely affect workforces and supply chains globally, potentially impacting the operations of our third-party logistics provider, which could negatively impact our business and results of operations.
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.
We base our current and future inventory needs and expense levels on our operating forecasts and estimates of future demand. To ensure adequate inventory supply, we must be able to forecast inventory needs and expenses and place orders sufficiently in advance with our suppliers and manufacturers, based on our estimates of future demand for particular products. Our ability to forecast demand for our products has from time to time been and will continue to be affected by various factors, including unanticipated changes in general market conditions, economic conditions or consumer confidence in future economic conditions and geopolitical conditions. Failure to accurately forecast demand may result in inefficient inventory supply or increased costs. This risk may be exacerbated by the fact that we may not carry a significant amount of inventory and may not be able to satisfy short-term demand increases. In addition, if we experience increased shipping times from our suppliers and manufacturers and/or production disruptions, we may experience a shortage of products available for sale. Alternatively, if we advance the timing of inventory shipments to mitigate perceived freight transit time volatility and/or sales below our expectations, we may experience excess inventory levels. For example, faster than anticipated ocean freight transit times following our decision to increase weeks of supply during periods of ocean freight transit time volatility, and sales below our expectations as a result of inflationary pressure on consumer spending, have from time to time resulted in increased levels of inventory on hand, which has from time to time resulted in increased storage needs and costs. Inventory levels in excess of customer demand may also result in inventory write-downs or write-offs, increases in donations and the sale of excess inventory at discounted prices, which would cause our gross margin to suffer and could impair the strength and premium nature of our brand.
Further, lower than forecasted demand could also result in excess manufacturing capacity or reduced manufacturing efficiencies, which could result in lower margins. Conversely, if we underestimate customer demand, our
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suppliers and manufacturers may not be able to deliver products to meet our requirements, and we may be subject to higher costs in order to secure the necessary production capacity or we may incur increased shipping costs. An inability to meet customer demand and delays in the delivery of our products to our customers could result in reputational harm and damaged customer relationships and have an adverse effect on our business, financial condition and results of operations.
Moreover, while we devote significant attention to forecasting efforts, the volume, timing, value and type of the orders we receive are inherently uncertain. In addition, we cannot be sure the same growth rates, trends and other key performance metrics are meaningful predictors of future growth. Our business, as well as our ability to forecast demand, is also affected by changes in general domestic and global economic, business and geopolitical conditions, including inflationary pressures, and the degree of customer confidence in future economic conditions, and we anticipate that our ability to forecast demand due to these types of factors will be increasingly affected by conditions in international markets. A significant portion of our expenses is fixed, and as a result, we may be unable to adjust our spending in a timely manner to compensate for any unexpected shortfall in net revenues. Any failure to accurately predict net revenues or gross margins could cause our operating results to be lower than expected, which could adversely affect our financial condition.
Consumer confidence, shopping behavior and spending have been and may continue to be negatively impacted by factors beyond our control, including supply chain disruptions, inflation, high interest rates, fear of recession or entry into a recession, geopolitical tensions and military conflicts, and healthcare workforce-related stress, which may adversely affect our business, financial condition and results of operations.
Macroeconomic conditions may adversely affect our business. While we believe our business is largely resistant to recessionary pressures due to the largely non-discretionary nature of scrubwear, consumer spending may decline if general economic conditions deteriorate, and demand for our products has been and may continue to be adversely affected. Significant risks and uncertainty in the global economy have emerged as a result of government policy decisions and geopolitical tensions, such as Russia's invasion of Ukraine and conflict in the Middle east, which have resulted in significant macroeconomic consequences. These have included increased fuel and energy prices and depressed financial markets from time to time, and as a result consumer behavior, confidence and spending patterns have been affected and may continue to be negatively impacted in the future. Other factors affecting consumers’ spending levels include, among others: high interest rates, the size and timing of federal stimulus programs, wages, levels of employment, inflation, recession and fears of recession or depression or entry into a recession or depression, housing costs, energy costs, income tax rates, financial market fluctuations, consumer perceptions of personal well-being and security, availability of consumer credit and consumer debt levels, and consumer confidence in future economic conditions.
Moreover, our success depends in part on the condition of the healthcare workforce. There have been reports of rising fatigue and stress among workers in the healthcare industry, in part as a result of heightened demand on, and for, healthcare workers in the wake of the COVID-19 pandemic, which we believe may be impacting customer purchasing behavior. As a replenishment-driven healthcare apparel brand, demand for our products may be impacted by healthcare workforce-related stress, including if the number of employed healthcare workers were to decline.
These factors and their impact on our customers’ spending behavior have from time to time impacted, and we expect some of these to continue to impact in the future, the demand for our products, as well as our financial condition and results of operations.
Merchandise returns could harm our business.
We allow our customers to return our products, subject to our return policy. We generally accept merchandise returns for full refund or exchange within 30 days of the original purchase date. Our revenue is reported net of returns and discounts. We estimate our liability for product returns based on historical return trends and an evaluation of current economic and market conditions. We record the expected customer refund liability as a reduction to revenue, and the expected inventory right of recovery as a reduction of cost of goods sold. The introduction of new products, changes in customer confidence or shopping habits or other competitive and general economic conditions could cause actual returns to exceed our estimates. If actual return costs differ from previous estimates, the amount of the liability and corresponding revenue are adjusted in the period in which such costs occur. In addition, from time to time, our products may be damaged in transit, which can also increase return rates. Returned goods may also be damaged prior to or in connection with the return process, which can and has from time to time impeded our ability to restock and resell returned goods. Competitive pressures could cause us to alter our return policies or our shipping policies, which could result in an increase in damaged products and an increase in product returns. If the rate of product returns increases significantly or if product return economics become less efficient, our business, financial condition and results of operations could be harmed.
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The fluctuating cost and availability of raw materials could cause our business, financial condition and results of operations to suffer.
We have from time to time experienced, and may in the future experience, fluctuations in the cost and availability of raw materials used in our products for reasons beyond our control. For example, our core scrubs fabric includes synthetic fabric, the components of which may experience price fluctuations. We have also from time to time seen increases in the cost of cotton, which we use in certain of our non-scrubwear products. Our costs for raw materials are affected by, among other things, weather, customer demand, high interest rates, inflation, geopolitical tensions, volatility in the commodities market, the relative valuations and fluctuations of the currencies of producer versus customer countries and other factors that are generally unpredictable and beyond our control. In addition, the U.S. government’s presumptive import ban on materials mined, produced, or manufactured wholly or in part in the Xinjiang region of China, the source of a large portion of certain raw materials, including cotton and rayon, from time to time has impacted and may in the future impact global prices and availability of raw materials from which some of our products are made. Increases in the cost of raw materials could adversely affect our cost of goods sold, 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.
We rely on a global network of third-party suppliers to manufacture our raw materials, product components and products, and our raw materials, product components and products may be available, in the short-term, from a limited number of sources. We choose not to enter into long-term contracts with any of our suppliers or manufacturers for the production and supply of our raw materials, product components and products, and typically transact business with our suppliers on an order-by-order basis. We also compete with other companies for raw materials, product components and production.
As of June 30, 2024, our supply chain consisted of a diversified network of global production partners spread across multiple continents. Within our supply chain, we source the vast majority of the fabrics used in our products from a limited number of suppliers in China, and we source the other raw materials and product components used in our products, including items such as content labels, elastics, buttons, clasps and drawcords, from suppliers located predominantly in the Asia Pacific region. We also work with manufacturing partners that produce our products in facilities located in South East Asia, China, South America and Jordan. The majority of our products currently in inventory were produced by a limited number of our largest manufacturing suppliers in South and South East Asia and the majority of production currently occurs at a third party supplier in Jordan, although we intend to transition away from this supplier, following allegations of labor conditions at this supplier that do not meet our high standards. We are continuously working to strengthen our sourcing and manufacturing capabilities, which includes diversifying manufacturing operations geographically, as well as strategically refining our manufacturing base into fewer high-quality manufacturing partners to improve product quality and consistency. We believe these efforts will enhance our product innovation, quality and lead times across product categories, as well as maintain our commitment to act ethically and with social responsibility in how our products are made. However, these efforts may subject us to additional risks and costs, which may adversely impact our results of operations in the short term.
We may experience a disruption in the supply of fabrics, raw materials or product components from current sources, and we may be unable to locate alternative materials suppliers of comparable quality at an acceptable price, or at all. In addition, if we experience significantly increased demand, or if we need to replace or discontinue our relationship with an existing supplier or manufacturer, which has occurred from time to time, we may be unable to locate additional suppliers of fabrics, raw materials or product components or additional manufacturing capacity on terms that are acceptable to us, or at all, or we may be unable to locate any supplier or manufacturer with sufficient capacity to meet our requirements or to fill our orders in a timely manner. Identifying a suitable supplier is an involved process that requires us to become satisfied with its quality control, responsiveness and service, financial stability and labor and other ethical practices. Even if we are able to expand existing or find new manufacturing or fabric sources, we may encounter delays in production and added costs as a result of the time it takes to train our suppliers and manufacturers in our methods, products, and quality control standards. In addition, a dispute with, or disruption at, a significant third-party supplier or service provider, which have occurred from time to time, may impact our ability to produce, sell or fulfill our products. Our failure or inability to obtain alternate capabilities in a timely manner or on satisfactory terms could have a material adverse effect on our business, financial condition and results of operations.
Our supply of fabric or the manufacture of our products could also be disrupted or delayed by the impact of global conflict or war, such as the ongoing conflict in Ukraine and the Middle East. Our supply of fabric or the manufacture of our products could also be, and from time to time has been, disrupted or delayed by the impact of pandemics, and the related
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government and private sector responsive actions, such as border closures, restrictions on product shipments and travel restrictions. For instance, the COVID-19 pandemic previously negatively impacted global supply chains and caused challenges to logistics. As a result, certain of our ocean freight providers, as well as some of our suppliers and manufacturers, experienced delays and shutdowns, and could experience delays and shutdowns again in the future as a result of other future pandemic or health crisis. Because of these supply chain challenges, we from time to time contended, and may again contend with, delays receiving finished products from our manufacturers, reduced ability to keep certain products in stock and interrupted product and color launch schedules. In order to manage the impact of these disruptions and meet our customers’ expectations, we from time to time shipped goods earlier when possible, adjusted shipments to alternate origin and destination ports to avoid delays and used faster but more expensive air freight. We may from time to time need to continue to use more expensive air freight, which has in the past and may in the future increase our cost of goods sold. Any delays, interruption or increased costs in the supply of fabric or the manufacture of our products, or extended period of global supply chain disruption, could have an adverse effect on our ability to meet customer demand for our products and result in lower net revenues, increased cost of goods sold and lower net income from operations, both in the short and long term.
Moreover, our suppliers have from time to time manufactured, and may in the future manufacture, products that fail to comply with our technical specifications or that fail to conform to our quality control standards. Under these circumstances, unless we are able to obtain replacement products in a timely manner, we risk the loss of net revenues resulting from the inability to sell those products and related increased administrative and shipping costs, as well as potential inventory write-offs and/or increased fees in connection with additional inspections of our products, which have occurred from time to time. Additionally, if the unacceptability of our products is not discovered until after such products are purchased by our customers, our customers could lose confidence in our products, and our business and brand could be harmed.
The operations of many of our suppliers and manufacturers are subject to additional risks that are beyond our control and that could harm our business, financial condition and results of operations.
Substantially all of our suppliers and manufacturers are located outside of the United States, and as a result, we are subject to risks associated with doing business abroad, including:
•    the imposition of new laws and regulations, including those relating to our due diligence of our supply chain as well as sustainability, labor conditions, quality and safety standards, imports, duties, taxes and other charges on imports, as well as trade restrictions and restrictions on currency exchange or the transfer of funds;
•    political unrest, conflict or war, such as Russia’s invasion of Ukraine and violence in the Middle East, terrorism, labor disputes and economic instability resulting in the disruption of trade from foreign countries in which our products are manufactured, and geopolitical tensions or conflicts affecting global trade or resulting in trade barriers or disputes among countries;
•    reduced protection for intellectual property rights, including trademark protection, in some countries, particularly in China;
•    disruptions or delays in shipments across our supply chain, whether due to port congestion, labor disputes, product regulations and/or inspections or other factors, natural disasters, including in connection with climate change, or health pandemics, or other transportation disruptions; and
•    the impact of health conditions and related government and private sector responsive actions, and other changes in local economic conditions in countries where our manufacturers, suppliers or customers are located.
These and other factors beyond our control could interrupt our suppliers’ production in offshore facilities, influence the ability of our suppliers to export our products cost-effectively or at all and inhibit our suppliers’ ability to procure certain materials, any of which could harm our business, financial condition and results of operations.
Any failure by us or our suppliers or manufacturers to comply with product safety, labor or other laws, provide safe conditions for our or their workers or use or be transparent about ethical business practices may damage our reputation and brand and harm our business.
We are committed to supporting our communities around the globe. Operating with compassion and integrity is core to our values, which makes our reputation sensitive to allegations of unethical or improper business practices, whether
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real or perceived. The failure, or alleged failure, of any of our suppliers or manufacturers to provide safe and humane factory conditions and oversight at their facilities could damage our reputation and brand, result in legal claims against us or cause us to seek alternate suppliers or manufacturers. For example, there have been allegations that labor conditions at a Jordanian supplier of ours do not meet our high standards, and as a result, we intend to transition away from that supplier. While we rely on our manufacturers’ and suppliers’ compliance reporting as well as contractual provisions in our vendor manual in order to comply with regulations applicable to our products, expectations of ethical business practices continually evolve and may be substantially more demanding than applicable legal requirements.
We do not control our suppliers and manufacturers or their business, and they may not comply with our guidelines or applicable law. The products we sell are subject to regulation by the Federal Customer Product Safety Commission, the Federal Trade Commission and similar state and international regulatory authorities. Product safety, labeling and licensing concerns may require us to voluntarily remove selected merchandise from our inventory. Such recalls or voluntary removal of merchandise can result in, among other things, lost sales, diverted resources, potential harm to our reputation and increased customer service costs and legal expenses, which could adversely affect our results of operations. Moreover, failure of our suppliers or manufacturers to comply with applicable laws and regulations and contractual requirements could lead to litigation against us or cause us to seek other vendors, which could increase our costs and result in delayed delivery of our products, product shortages or other disruptions of our operations.
Ethical business practices are also driven in part by legal developments and by groups active in publicizing and organizing public responses to perceived ethical shortcomings. For example, there are increasing expectations in various jurisdictions that companies monitor the environmental and social performance of their suppliers, including compliance with a variety of labor practices, as well as consider a wider range of potential environmental and social matters, including the end of life considerations for products. While we have taken efforts to assess our suppliers, expectations on these matters are evolving rapidly. Compliance can be costly and, in certain cases, require us to design supply chains to avoid certain regions altogether. Failure to comply with such regulations can result in fines, reputational damage, denial of import for our products, or otherwise adversely impact our business. In addition to evaluating the substance of companies’ practices, such groups also often scrutinize companies’ transparency as to such practices and the policies and procedures they use to ensure compliance by their suppliers and other business partners. If we do not meet the transparency standards expected by parties active in promoting ethical business practices, we may attract negative publicity, regardless of whether the actual labor and other business practices adhered to by us and our independent manufacturers are consistent with ethical business practices. Such negative publicity could harm our brand image, business, financial condition and results of operations.
We conduct business with suppliers and manufacturers based in China, which exposes us to risks inherent in doing business there.
We source raw material from, and conduct limited manufacturing in, the People’s Republic of China. With the rapid development of the Chinese economy, the cost of labor has increased and may continue to increase. Our results of operations will be adversely affected if the labor costs of our third-party suppliers and manufacturers increase significantly. In addition, our manufacturers and suppliers may be unable to find a sufficient number of qualified workers due to the competitive market for skilled labor in China.
Conducting business in China exposes us to political, legal and economic risks. In particular, the political, legal and economic climate in China is fluid and unpredictable. Our ability to operate in China may be adversely affected by changes in U.S. and Chinese laws and regulations, including those related to taxation, import and export tariffs and restrictions, economic sanctions and export controls, environmental regulations, land use rights, intellectual property, currency controls, network security, employee benefits, hygiene supervision and other matters.
Our ability to operate in China may also be adversely affected by epidemics or pandemics. For example, China from time to time has, and in the future may again, enforce broad lockdowns in response to pandemics or epidemics, which has affected, and may in the future affect, our third-party suppliers’ and manufacturers’ ability to timely deliver raw materials, product components and products to us.
In addition, Chinese trade regulations are continuously evolving, and we may become subject to other forms of taxation, tariffs and duties. Furthermore, the third parties we rely on in China may disclose our confidential information or intellectual property to competitors or third parties, which could result in the illegal sale of counterfeit versions of our products. If any of these events occur, our business, financial condition and results of operations could be adversely affected.
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Finally, certain trade restrictions related to the Xinjiang region of China could impact our business. The U.S. Government has taken several steps to address forced labor concerns in the Xinjiang Uyghur Autonomous Region of China, including sanctions on specific entities and individuals; withhold release orders (“WROs”) issued by U.S. Customs and Border Protection (“CBP”) that prohibit the entry of imports of certain items from Xinjiang; and the Uyghur Forced Labor Prevention Act, which went into effect in June 2022, and imposes a rebuttable presumption against U.S. imports of any items from Xinjiang and specifically targets the cotton and apparel industry as high-priority sectors for enforcement. We do not intentionally source any products or materials from the Xinjiang region (either directly or indirectly through our supply chain) and we prohibit our suppliers and manufacturers from doing business with or sourcing from any company or entity located in China’s Xinjiang region. However, the presumptive ban on virtually all imports from that region has from time to time affected and could in the future affect the global sourcing and availability of raw materials, such as cotton and rayon, used in the manufacturing of certain of our products and/or lead to our products being held for inspection by CBP and delayed, which has occurred from time to time, or rejected for entry into the United States, which could unexpectedly affect our inventory levels, result in other supply chain disruptions, or cause us to be subject to penalties, fines or sanctions. Even if we were not subject to penalties, fines or sanctions, if products we source are linked in any way to the Xinjiang region, our reputation could be harmed.
Increases in labor costs, including wages, could adversely affect our business, financial condition and results of operations.
Labor is a significant portion of our cost structure and is subject to many external factors, including unemployment levels, inflation, prevailing wage rates, minimum wage laws, potential collective bargaining arrangements, health insurance costs and other insurance costs and changes in employment and labor legislation or other workplace regulation. From time to time, legislative proposals are made to increase the federal minimum wage in the United States, as well as the minimum wage in California and a number of other states and municipalities, and to reform entitlement programs, such as health insurance and paid leave programs. As minimum wage rates increase, related laws and regulations change, or inflationary or other pressures increase wage rates, we and our partners may need to increase not only the wage rates of minimum wage employees, but also the wages paid to other hourly or salaried employees. For example, hourly wages for employees of third-party logistics providers have from time to time increased as a result of inflationary pressures, and may in the future increase further, which could adversely impact our fulfillment costs. Any increase in the cost of our or our third-party partners’ labor could have an adverse effect on our business, financial condition and results of operations.
Increases in labor costs could also force us to increase prices, which could adversely impact our sales. If competitive pressures or other factors prevent us from offsetting increased labor costs by increases in prices, our profitability may decline and could adversely affect our business, financial condition and results of operations. In addition, the job market in Southern California, where our principal offices, fulfillment center and the majority of our employees are located, is very competitive. If prevailing rates are driven higher by market forces or otherwise but we fail to pay such higher wages, we could suffer increased employee turnover, adversely affecting our business. While none of our employees is currently covered by a collective bargaining agreement, any attempt by our employees to organize a labor union could also result in increased legal and other associated costs.
A significant portion of our products are produced in Asia, with some of our products produced in China. Increases in the costs of labor and other costs of doing business in these regions could also increase our costs to produce our products and could have a negative impact on our operations and earnings. Factors that could negatively affect our business include a potential significant revaluation of the currencies used in these countries, which may result in an increase in the cost of producing products, labor shortage and increases in labor costs, and difficulties and additional costs in transporting products manufactured from these countries. Also, the imposition of trade sanctions or other regulations against products imported by us from, or the loss of “normal trade relations” status with, any country in which our products are manufactured, could significantly increase our cost of products and harm our business.
Our sales and profitability may decline if product costs increase or selling prices decrease.
Our business is subject to pressure on costs and pricing caused by many factors. For example, from time to time, our gross margin has been impacted by higher freight costs, which we believe was as a result of inflation due, in part, to global supply chain disruptions. We continue to monitor the impact of inflation on raw materials, freight, labor, rent, and other costs in order to minimize its effects. A high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross margin and selling, general, and administrative expenses as a percentage of net revenues if we are unable, or choose not to, increase the selling prices of our products in proportion with these increased costs.
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Competition, constrained sourcing capacity and related inflationary pressure and pressure from customers to reduce the prices we charge for our products and changes in customer demand, among other factors, also impact our costs and pricing strategy. These factors may cause us to experience increased costs while also causing us to reduce prices. If we were to increase prices in response to increased costs, we may experience reduced sales. Any of the forgoing could cause our operating margin to decline if we are unable to offset these factors with reductions in operating costs and could adversely affect our business, financial condition and results of operations.
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