FIGS, Inc.

Good evening, everyone, and thank you for joining today's FIGS third quarter fiscal 2022 earnings conference call. My name is Dante, and I'll be your operator for today's call. All lines will be muted during the presentation portion of today's call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star one on your telephone keypad. I would now like to pass the conference over to our host, Ms. Jean Fontana, head of investor relations.

Thank you, good afternoon, and thank you for joining today's call to discuss FIGS third quarter 2022 results, which we released this afternoon and can be found in our earnings press release and in the stockholder slide deck on our investor relations website at ir.warefigs.com. Presenting on today's call are Trina Spear, our co-founder and chief executive officer, and Daniela Turnshine, our chief financial officer. As a reminder, remarks on this call that do not concern past events are forward-looking statements. These may include predictions, expectations, or estimates, including about future financial performance, market opportunity, or business plans. Forward-looking statements involve risks and uncertainties, and actual results could differ materially. These and other risks are discussed in our SEC filings, including in the 10Q we filed today, which we encourage you to review. Do not place undue reliance on forward-looking statements which speak only as of today and which we undertake no obligation to update. Finally, we will discuss certain non-GAAP metrics which we believe are useful supplemental measures for understanding our business. Reconciliations of these non-GAAP measures to their most comparable GAAP measures are included in the earnings release and shareholder deck we issued today. Now, I'd like to turn the call over to Trina Spear, Chief Executive Officer of FIGS.

Thank you, Jean. Good afternoon, everyone. Thank you for joining us for our third quarter 2022 conference call. I want to thank the entire FIGS team for their hard work and devotion to the healthcare community. We delivered strong financial performance for the third quarter with net revenue growth of 25% year over year, gross margin over 70%, and adjusted EBITDA margin of 16.4%. Our performance was led by a focused effort to expand our community, which grew our active customers by 24%. to 2.2 million on an LTM basis. This is the second highest number of new customers of any quarter in FIGS history. We also delivered a record level of customer reactivation, defined as customers who have lapsed for 12 months and have since returned to FIGS. Looking at average order value, or AOV, we delivered 10% growth year over year as we continue to emphasize our complete layering system with the expansion of our lifestyle offerings. Lifestyle generated sales growth of 65% in the quarter and reached 17% of net revenue. Net revenues per active customer also increased, up $8 from last year. And finally, our international business delivered strong performance with a 49% increase in net revenue. While many of our key operating metrics showed strong performance, our frequency rates continued to slow. These softer trends became more pronounced toward the end of September and quarter to date. We attribute this to two factors. First, we believe the macro trends, including the sustained level of inflation, began to weigh more heavily on our healthcare professionals. Our own customer surveys tell us that FIGS remains their favorite brand, but they are pulling back on purchases due to their tighter budget. Secondly, recent color launches did not generate the same sales lift we have typically seen in the past. We expect these trends to continue through the remainder of the quarter, and therefore, we are reducing our outlook. While we can't control the macro headwinds, we can control how we drive our business forward. We're adjusting to the macro conditions, listening to our healthcare professionals, and focusing on product innovation to meet their needs. Our deep connection with healthcare professionals fuels our drive to continuously evolve our business and bring excellence to our community. we will continue to make strategic investments to advance our leadership position in the healthcare apparel industry while carefully managing costs through the challenging period. Turning to our strategic priorities, starting with product innovation. As we've discussed in the past, our product innovation strategy is focused on both our scrubs business and our lifestyle offerings, which together make up our layering system. By leveraging the insights and data we receive from the healthcare community, we continue to improve at creating products with the feature and design solutions our customers want most. We will continue to lean into our solutions-based approach as we develop even more new products that are technical, comfortable, and functional, while continuing to incorporate new colors which drive both loyalty and new customer acquisition. We believe this more holistic approach to style and color launches will amplify excitement around newness. This approach has already demonstrated tremendous success in launching our cargo collection, where we highlighted the functionality and comfort of products and new colors. In our scrubs business, we continue to expand our selection with the innovation and product enhancements our customers are looking for. For example, our Raffaella scrub jumpsuit in Quartz sold out within hours during our Press Cancer Awareness Campaign. As a result of the strong demand, we expect to add this jumpsuit to our core offering. Our lifestyle offerings have continued to drive growth in net revenues per active customer, mainly through lifts and UPT, as customers look to purchase the layering system. This has helped fuel the growth in AOV, which has increased 18% from $95 in 2019 to an LTM average of $112. This purchasing dynamic continued into the third quarter, with orders including lifestyle offerings reflecting a more than 30% higher UPT on average than purchases without. The strength of our lifestyle offerings also illustrates our ability to grow our TAM. We were encouraged to see the double-digit lift in first orders that contain lifestyle offerings as we continue to deliver innovation that addresses the broader needs of healthcare professionals. A great example of how lifestyle attracts new customers is SIGS Pro. This polished and performance-driven office-ready collection launched earlier this year with excellent results. Our expanded collection is resonating with physicians and dentists entering the FIGS community and driving a positive response from our loyal customers. As we look ahead, we expect to introduce an even greater flow of new products as we continue to identify gaps and pain points in our customers' uniforms. We are also expanding our scrubware fabric portfolio and developing new techniques within our existing fabrications to solve more use cases and style options. Within lifestyle, we will continue to expand our offerings across categories. For example, we are building on the success of our outerwear business, where we have seen strong demand for our on-shift styles. Previously, healthcare professionals bought fleeces from traditional brands, which were not constructed with the healthcare professionals' needs in mind. We deliver an alternative with outstanding quality and functionality that meets their needs. We recently launched our new lightweight packable puffer, perfect for cold shifts requiring warmth, lightness, and mobility. Our puffer can be worn on and off shift, giving our customers greater versatility. We are also excited to be soft launching extended sizes, ranging from 3XL to 6XL later this year. This is great news for our community. We are responding to a large and underserved segment of the healthcare community that has shared their desire to wear FIGS. Fit is a critical component in the success of our brand and we have been working diligently to optimize our fit for extended sizes to ensure the best possible experience for our healthcare professionals. Moving next to building brand awareness. With just over 2 million active customers in the US at the end of Q3, we have penetrated approximately 10% of US healthcare professionals and continue to see a significant growth opportunity. As I mentioned, We added the second highest number of new customers of any quarter in FIGS history, despite the challenging macro environment. We invested in digital marketing during the quarter to drive new customer acquisition, particularly within our social media channels. We continue to leverage multiple digital and out-of-home outlets to share brand moments and educate healthcare professionals about our mission and our purpose. We plan to lean further into YouTube, TikTok, and OTT. where we will be tailoring our creative to align with varying audiences and channels. Looking at out of home, we launched our Philadelphia activation in August. This included a three-day in-person event near Thomas Jefferson University and other hospitals. We were excited to see the strong turnout as healthcare professionals took the opportunity to see our new offerings in person and touch and feel our products. This quarter, we also continue to deliver brand moments on topics we know are very important to our health care community. For Breast Cancer Awareness Month, we launched our Peace Out Breast Cancer campaign, highlighting our limited edition quartz color. As part of our commitment to the health care community, we donated $50,000 to Memorial Sloan Kettering Cancer Center to support their Young Women with Breast Cancer program. For the holidays, we plan to launch our integrated gift-giving campaign across multiple social channels, allowing everyone to gift figs to express their gratitude to the healthcare professionals in their lives. We expect hashtag gift figs to be the biggest gifting movement in our history, with influencers and celebrities sharing inspiring stories with a call to action as they give back to their awesome humans. We also plan to incorporate this campaign into our Chicago activation at the Magnificent Mile in Millennium Park, which is happening right now. To lead our marketing efforts, I'm pleased to share that we appointed Sunil Khaki, as Chief Marketing Officer. With his proven track record in building brands and communities and deep digital marketing knowledge, we are excited to have him lead our marketing strategy. Let's turn now to customer engagement, where we continue to look for ways to elevate the experience for our loyal community. We recently launched a new customized mobile app that we developed to drive more meaningful engagement with our healthcare community. The features of our new mobile app extend well beyond enhancing the purchase experience to enabling us to connect more deeply with our healthcare community through more relevant educational content, personalization, and wellness support. This launch is another way to raise the bar on how we serve our often humans. At FIGS, we remain committed to supporting this incredible community through advocacy. As part of this effort, we took nine leading healthcare professionals to Washington, D.C. in September to advocate for comprehensive legislation, which we call the Awesome Humans Bill, to reduce the burden and strain on our community. There are many issues to address, including pay, mental health, safety, and training. We met with 17 congressional offices on Capitol Hill and the White House to move this conversation forward. In addition to our many other philanthropy efforts, advocacy at FIGS will continue to be an important way that we deliver for our healthcare professionals. Finally, let me talk about international, and I'll start by saying that we are very pleased with our progress in growing our nascent international presence. As we discussed on our last call, we took steps to improve the customer experience and lower barriers to conversion in international markets. These efforts supported revenue growth of 49%, with particularly strong performance in Canada, UK, and the European markets we've entered. As we focus on driving brand awareness internationally, we expect to enhance the customer experience through language translations and dedicated marketing support. In addition, we plan to launch localized marketing campaigns to engage with the community and elevate the customer experience through tailored messaging. We're highly encouraged by the growing demand for the FIGS brand globally. as a capital light DTC business, we can enter markets relatively quickly. Thus far in the fourth quarter, we've entered New Zealand, Israel, and the UAE. We plan to opportunistically expand as we seek to gain the first mover advantage, focusing on the countries where we see demand for FIGS. While we expect the macro environment to remain challenging in the near term, we intend to invest strategically in our long-term growth while carefully managing our costs. We believe this will best position us to deliver consistent and profitable growth over the long term, especially once the macro dynamics improve. With that, let me turn it over to Daniela.