FIGS, Inc.

Good afternoon. Thank you for attending today's FIGS fourth quarter and full year fiscal 2022 earnings conference call. My name is Megan. I'll be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. I would now like to pass the conference over to our host, Jean Fontana with FIGS.

Jean, please go ahead. Thank you. Good afternoon, everyone. And thank you for joining today's call to discuss FIGS fourth quarter and full year 2022 results, which we released this afternoon and can be found in our earnings press release and in the stockholders 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 Daniella Turenshine, our chief financial officer. As a reminder, remarks on this call that do not concern past events or forward-looking statements. This 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 10-K we filed today, which we encourage you to review. Do not place undue reliance on our 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, and thank you for joining us today for a discussion of our fourth quarter results and an update on the progress we are making across our strategic priorities. For 2022, our first full year as a public company, we delivered net revenue growth of over 20%. We saw strong performance in our non-scrubs business, which increased 59%. Additionally, international sales grew 50%, resulting from increased brand awareness and repeat purchases. And teams, our B2B business, grew 41%. With respect to profitability, adjusted EBITDA margin for the year was 17.2%. For the fourth quarter, results were ahead of our expectations with net revenues up 13%. We achieved a record number of new customer additions leading to a 23% increase in active customers. On an LTM basis, net revenue per customer was down 1% to $221 due to lower frequency rates partially offset by higher AOBs. Fourth quarter adjusted EBITDA margin of 13.6% reflects better than anticipated gross margin, as well as disciplined expense management. While our fourth quarter results exceeded our expectations, extending our market share gains, a number of interrelated factors that we discussed last quarter led to decelerated growth from previous quarters. These include macro headwinds, lower frequency trends, and color launches that did not perform to the elevated levels we saw last year. While we cannot control the macro headwinds, we recognize that there are areas of our business where we can and will do better. We remain confident in our long-term outlook and therefore we will continue to invest in our business as the investments we make today will position us as an even stronger company in the future. We have identified opportunities and have initiatives underway that we believe will drive accelerated growth in 2024 and beyond. In the near term, we plan to remain prudent in managing our promotional activity while moving through current inventory and managing expense headwinds. Before I speak to our strategic priorities, I want to briefly discuss some of the highlights from the fourth quarter. Starting with product, we continued to deliver innovation in our non-scrubware assortment, which grew 39% to reach 21% of net revenues. Orders that include non-scrubware delivered a 14% higher UPT than scrubware-only orders. We saw strengths across several categories, including lab coats, figs pro, footwear, outerwear, and underscrubs. In our scrubs business, we saw a deceleration in our sales trends with color launches continuing to fall short of our expectations, which we will speak to shortly. On a positive note, we are very pleased with the launch of our extended sizes. Following extensive work behind our fit in product construction, we added 3XL to 6XL to our extended size offering in a selection of core styles Since our launch, these products drove 5% of new customers, and 2XL through 6XL reached double-digit sales penetration within the same selection of core scrubs offering. We were overwhelmed to see the joy of our healthcare professionals' experience by having access to the comfort, functionality, and style that Biggs has to offer. Turning to marketing, we are highly encouraged by our growing brand awareness. as we continue to support product innovation through our data-powered targeted marketing engine. While word of mouth remains our biggest source of customer acquisition, we supplement this with best-in-class digital marketing and in-house creative to efficiently drive healthy new customer growth and retention. We invested in multiple digital and out-of-home channels to share brand moments and educate healthcare professionals about our mission and our purpose. For the holiday season, we kicked off our hashtag gift figs campaign inviting our community, family, friends, neighbors, siblings, and strangers to join us in giving the healthcare community the best gifts ever, FIGS. We had over 50 ambassadors, influencers, and celebrities help seed this sentiment globally. Moving to international, we saw 76% growth for the quarter and 50% for the year. Performance was led by strong results in Canada and in the U.K., In Q4, we localized our marketing strategies to optimize each market according to its customer needs and preferences. These strategies, coupled with the impact of duty subsidies and other efforts to reduce barriers to purchase, resulted in significant acceleration in sales driven by both repeat and new customers, while seeing continued improvement in marketing efficiency. Before I speak to our strategic priorities, I want to take a moment to recognize our 10-year anniversary. Throughout the last decade, we remain steadfast in executing across the core tenets of our business, maintaining a deep connection with the healthcare community, leveraging our authentic category-defining brand, and delivering industry-leading product innovation. As we advance our business to $1 billion in net revenue, we remain hyper-focused on executing solutions-based product innovation and building and deepening our connection with the healthcare community. Beyond these strategic priorities, We are embracing our more nascent growth areas to expand our presence and engage with more healthcare professionals through our international business, our team's business, and by building out our retail strategy. While remaining confident in our long-term potential, we see 2023 as a year of foundational focus as we move through inventory and deploy strategies to accelerate growth. Starting with products, we are putting more firepower behind our innovation by embedding greater technical features and functionality into our products across our layering system to further differentiate FIGS as the leading and premium scrubware brand. Within our scrubs business, we are optimizing design, standardizing features such as trims and waistbands, and determining how we can maximize productivity with the optimal breadth of styles in our offering. In addition, we will continue to inject limited edition styles, which generate strong engagement and evaluate which of these styles should be added to our core offering based on sell-through performance. The Raffaella scrub jumpsuit is a great example of a limited edition style that we transitioned to core. Color remains a key driver of excitement, and we are leveraging our data to fine-tune our launch strategy to drive greater frequency. Turning to non-scrubs, we intend to build upon proven categories, including outerwear, footwear, and performance underscrubs with a greater level of technical innovation. We will expand newer categories, such as our FIGS Pro offering, which is a healthcare office-ready collection that provides premium style and functionality. As part of our commitment to quality innovation, we are making our supply chain even stronger. We are working with existing partners while developing new partnerships with best-in-class manufacturers to enhance design capabilities to improve consistency across fit, construction, and speed to market. Ultimately, our goal is to create an even higher standard within the healthcare apparel industry. Today, we believe there is no close second to the quality we deliver. Tomorrow, I am confident all this work will further widen that gap. Turning to marketing, we remain focused on developing deeper engagement with our community through a diversified strategy. For our 10 year anniversary, we kicked off 2023 with our FIGS 10 iconic series. 10 weeks, 10 iconic colors, 10 years of FIGS. It was very gratifying to see the very positive feedback we received as we brought back our fan favorites. Our 360-degree mask campaign, We Are Not Done Being the First, highlights FIGS as always the first brand to create products that redefine everything we know about the healthcare professional's uniform. Our campaign messaging will always have a fun and unexpected brand voice. And as we raise the stakes on product innovation, we will also inform customers about product functionality, technical features, and use cases to emphasize the value in our premium product. As we address the trends we've seen around frequency, we are focused on driving more consistent and personalized engagement within the healthcare community. As such, we are supplementing our launch campaigns with more evergreen strategies to drive higher frequency by speaking to different sub-segments of our community. We will also continue to optimize our existing media channels while strategically investing in new channels to meet our customers where they are spending time. We have been more intentional in our communication, aligning our messaging with specific audiences across our diverse set of digital and out-of-home channels. With respect to our more nascent growth opportunities, we will start with international expansion. We believe there's a significant opportunity to grow our brand globally. As we expand into non-English speaking countries, localization in our international markets will be supported by translation across email, social, and our website beginning in the second quarter. We are also localizing around regional holidays and in our messaging and channel engagement. To fuel further discovery, we are building out our ambassador network with a focus on highly influential healthcare professionals who will not only stimulate brand awareness, but act as boots on the ground to learn about individual needs and preferences within these communities. Importantly, we are committed to delivering growth internationally in a profitable way, just as we have grown the rest of our business Next, we are expanding our presence through our Teams business. We are seeing a growing number of concierge clinics, med spas, fertility clinics, and other healthcare institutions wanting to elevate their Teams uniforms. We can serve these institutions by helping to standardize and professionalize their employee base with FIGS. To support this initiative, we are creating a more robust technology platform to expand our product offering, streamline the ordering experience, and offer additional payment and reporting capabilities. Turning to retail. Based on the overwhelming engagement we saw in our previous market activations and past pop-up shops, we have learned that healthcare professionals really want to experience FIGS in person. We will test store formats, identify locations where we see the biggest opportunity. Our first location will be a store in Century City in Los Angeles, which is scheduled to open this fall. True to FIGS, this location will provide a customer experience unlike anything our healthcare professionals have seen before. Our stores will serve as community hubs where healthcare professionals can connect and build relationships. Importantly, we will take a measured approach to our retail strategies and how we test store formats and develop store economic targets and site criteria. As we continue to build our business for the future, we are adding talent to our team. We recently hired Steve Brube as our new Chief Operating Officer. He will be responsible for overseeing distribution and logistics in addition to inventory planning and customer experience. Steve brings over 30 years of experience with some of the best brands, including Lululemon and Nike. And in his most recent role at Levi's, he helped to scale the company's infrastructure for long-term growth. With Steve joining, Devin Dufgego now serves as Chief Business Development Officer. In Devin's new role, she will be responsible for overseeing our international and team businesses, as well as developing our retail opportunity. Her strategic thinking, operational experience, and deep understanding of the FIGS community make her the ideal fit to lead the growth of these businesses. I want to take a moment to discuss our ongoing commitment to support our healthcare professionals. A leading priority in advocacy for 2023 will be advancing our often human self. focused on, among other things, providing fair pay, mental health support, workplace safety and training. We have also partnered with the Lorna Breen Foundation, a leading organization promoting mental health services specifically for health care professionals, and we will be working directly with them to advance our policy goals. This includes advocating in Washington, D.C., where we aim to spearhead new legislation to further combat these challenges. In closing, Throughout the last decade, we have remained committed to helping the global community of healthcare professionals look, feel, and perform at their best, 24-7, 365 days a year. We've 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. We are very proud of what we have accomplished to date. We have so much opportunity in front of us. We have identified areas in which we can get even better, and we have an action plan in place to be better at the level of innovation we deliver, better at delivering consistent product, better at connecting with our community to keep them coming back, and better at operational excellence. Our strong business model is underscored by product innovation, community connection, and advocacy. And there is no close second. We have the scale and balance sheet to take our business to the next level. As we continue to grow and expand, we remain committed to investing in our business. We have seen tremendous growth over the last four years, and we believe now is the right time to make the investments necessary to double our revenue once again. With that, I will turn the call over to Daniella.