FIGS, Inc.

Ladies and gentlemen, welcome to the FIGS first quarter 2022 earnings conference call and webcast. My name is Felicia and I'll be your operator today. Please note there'll be a questions and answer session. If you wish to join the queue, please press star followed by one on your telephone keypad. I will now hand over to Kerry Gillard, Vice President of Investor Relations. Please go ahead, Kerry.

Good afternoon, and thank you for joining today's call to discuss FIGS first quarter 2022 results, which we released this afternoon and can be found in our earnings press release and in the shareholder slide deck on our investor relations website at ir.warefigs.com. Presenting on today's call are Trina Speer, our co-founder and co-chief executive officer, and Daniela Ternschein, 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 shareholder slide deck and SEC filings, including 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 non-GAAP measures to their most comparable GAAP measures are included in the shareholder slide deck and earnings press release we issue today. Now, I'd like to turn the call over to Trina Spear, Co-Chief Executive Officer of SIGS.

Thanks, Carrie, and good afternoon, everybody. Thank you for joining us for our first quarter 2022 conference call. Before we start, I want to mention that today is International Nurses Day. It wraps up Nurses Week, one of our most important events where we go above and beyond to celebrate our nursing community. Here at FIGS, we are committed to celebrating, empowering, and serving our often humans every single day. Our healthcare professionals are the reason we exist, and we try to give back to them every chance we get. Now, let's talk about the business. SIGS delivered strong Q1 performance with 26% revenue growth year-over-year and an adjusted EBITDA margin of 23% as we further advanced our product innovation and broadened our reach. While these results were lower than our expectations, our ability to deliver outside growth and strong profitability in Q1 is a testament to our team, our business fundamentals, and our incredibly loyal customer base. This is especially true given the supply chain and macroeconomic headwinds that ramped up significantly during the quarter. Healthcare professionals are at the center of everything we do, and we approach every decision with them in mind. We're also building FIGs for the long term. Using these guide codes and the inherent strength of our business model, we remain confident in our ability to continue to achieve strong results despite these challenging conditions. Let's focus in on our key performance metrics. Net revenues were up 26% to $110 million, led by a significant increase in AOV and continued growth in revenue per customer. Our active customer base grew 31% over the last 12 months to nearly 2 million by the end of Q1. Our trailing 12-month net revenues for active customer increased $13 year-over-year to $226. We delivered a 16% increase year over year in our AOV to $116. Our lifestyle business grew 81% year over year to 18% of our net revenues, up from 12% in Q1 of last year. And our international business grew 59%, representing 8% of net revenues, up from 6% in Q1 of last year. Now, I'd like to share more about what we're seeing with our supply chain and customers since we last spoke to you in early March. As you may remember, beginning in Q3 of 2021, we began implementing mitigation strategies to help us get ahead of port congestion and longer transit time. We adjusted our transit time assumption, increased our weeks of supply for our core styles and core colors, and when necessary, utilized additional air freight. We built our 2022 plan based on these mitigation strategies and believed we were positioned well to navigate these challenges effectively. We also expected to have less reliance on the air freight in 2022 than we had had at the end of 2021. However, since early March, we've seen an intense and persistent surge in the volatility of ocean transit times for receiving our products, largely due to vessels being unexpectedly rerouted by carriers while in transit. Shipping times began to vary, ranging from as fast as 30 days to upwards of 120 days, and it's difficult to see this unpredictability ending soon. The lack of reliability has reduced our visibility into when our products will arrive, and without predictability, we are less able to mitigate these issues with longer lead times alone. This has impacted our ability to keep core products in stock and execute our color and product drops that fuel our growth. As a result, our Q1 revenue growth was lower than expected as we had to shift a planned color launch out of the quarter and were limited in our ability to keep in stock two of our most popular core franchise styles. For the rest of the year, we plan to significantly increase our use of air freight to reduce our exposure to these unpredictable transit times. While this will create additional gross margin pressure for the year, this is the right thing to do for our business and for our healthcare professionals. We have readjusted our product launch calendar to further mitigate these impacts and to more reliably deliver the innovative products our customers want and need. In addition to these supply chain challenges, as March progressed, we also began to see trends soften due to macroeconomic factors such as high inflation and shifts in consumer spending patterns. While our largely non-discretionary, replenishment-driven business model is enormously resilient in the current environment, we are not completely immune to these factors in the near term. So to summarize, Supply chain disruptions have intensified significantly since the beginning of March, and macroeconomic trends are probably having some impact on our customers. As a result, we are revising our full-year outlook, which Daniela will say more about in a moment. That all said, I want to remind everyone that we have a deep connection with our healthcare workers who live in their uniforms, and the demand for our brand remains strong. our leadership position, our incredibly strong brand, and our passionate community gives us considerable advantages in this climate. For example, in Q1, searches for the term scrubs grew 3% year over year as compared to 7% for the fourth quarter. In comparison, searches for the term figs grew 44% year over year in Q1 compared to 40% in the fourth quarter. Data like that is why we remain confident in our ability to achieve at least $1 billion in annual net revenue by 2025. Now, let's go into more detail on how we are advancing our key strategic priorities to drive to that $1 billion number. Our key areas of focus are product innovation, deepening the connection to our customers, and growing brand awareness. Let's start with product. Product innovation is our foundation. We are changing the definition of a healthcare professional's uniform. Our holistic approach focused on driving innovation across our layering system, from base layer to outer layer, remains at the heart of our product design and development. This starts with our scrubware products, which represent over 80% of our revenue. In Q1, we released our reimagined Ion Light line collection, now known as FreeX. FreeX is a sustainable functional fabric engineered with 92% recycled poly and a mesh lined interior for breathable warmth. This unique fabrication is both fur and liquid repellent, which makes it perfect for our veterinarians and dentists. The collection is just one of the many ways we are innovating with specific professions in mind as we continue to serve the needs of our customers and drive brand loyalty. We're also seeing tremendous success in the franchises we are building around our 13 core styles. In Q1, we launched new slim styles like our slim Katarina scrub top, a fresh look on a timeless favorite with a more tapered fit. And just like we've seen with our high-waisted pants, this style is resonating with our customers. In the less than three months since it launched, this slim style already makes up 21% of core Katarina scrub top sales. Outside of scrubs, we are excited by the continued strong growth in our lifestyle offering, which were up 81% in the first quarter. On shift, off shift, head to toe, we are outfitting the medical community through our innovative layering system and driving increasingly higher purchases of complete looks with our complimentary color coordinated products. Our lifestyle products like underscrubs, outerwear and footwear are specifically designed with the needs of the healthcare professional in mind. These categories did not exist before FIGS. It's a market we created and we are expanding it every day. Let me say a bit more about footwear. In Q1, we upped our footwear game, debuting a new style with even more colors that strategically aligns and complements our full layering system, and it's working. Our footwear revenue in Q1 alone was larger than all of our footwear revenue in 2021, a great indicator of the progress we have made in this key category, as well as the ability of our brand to extend beyond scrubs. Our strategy of deepening and expanding our products is resonating with our community. As of today, we officially have over 2 million active customers. This is an important milestone for us as we continue to build a truly iconic brand. And as a reminder, this growing community comes back to SIGS again and again with almost 70% of our revenues coming from repeat customers. These individuals are our brand evangelists. They stay up until midnight to see our latest release and buy it before it sells out. And they spread the word to colleagues that the latest color and style has launched. This dynamic is incredibly difficult to replicate, and it motivates new customers to try FIGS. Our brand and the loyalty it drives transcends beyond making great products, and our engagement on social reflects the deep connections we have made. For instance, across our almost 1.2 million followers on social, we have an engagement rate of over 3% compared to the industry standard of approximately 1%, which means our healthcare professionals are interacting with our brand three times more frequently, and we continue to grow this relationship through unfiltered, authentic, honest conversation. We also look to build deeper connections with our customers through localized experiences, After a two-year hiatus due to COVID, we're very excited to be returning to our roots of in-person community building. In just a few days, we will be bringing almost 200 of our awesome humans on a retreat filled with yoga, meditation, and reflection. These are some of the most influential voices in healthcare, voices that deeply believe in our mission and absolutely love our products. And their authentic connection to FIGS further drives meaningful engagement with our community. While word of mouth remains our primary source of new customers, investing behind top of the funnel marketing strategy is a key focus for us in 2022. And with only 2 million active customers today, out of the 21 million healthcare professionals in the U.S. alone, we have so much room to grow. This year, we are targeting select cities, Seattle, Houston, Philadelphia, and Chicago, with powerful integrated marketing campaigns and activations, beginning with our pop-up experience in Houston that kicked off Nurses Week. We've intentionally chosen markets with dense concentrations of medical professionals where we are under-penetrated. Our active customer counts in these markets represent less than 12% of healthcare professionals in the area. And similar to the successful penetration these out-of-home strategies have driven in key cities like New York and Los Angeles, we are confident these brand activations will bring more often humans into the FIGS family. And our focus does not stop with the U.S. Healthcare professionals around the world are underserved by the legacy products and buying experiences available to them. That's why we are continuing to build out the FIGS experience in our international market, learning as we go, inspiring those Austin humans outside of the U.S., just as we have done domestically. In the quarter, international grew 59% year-over-year, and we are continuing to develop the experience with site-specific assets, a promotional strategy, greater localization, and an increased ambassador presence. Additionally, we are excited to announce that in April, we soft-launched seven new countries in the EU, Belgium, France, Germany, Ireland, Italy, Netherlands, and Spain. While we have a lot of work to do to scale overseas, we're seeing great early results. I'm incredibly proud of the work the team has done to expand our international presence, as this remains a massive area of untapped potential for FIGS. I'll close by saying this. Bigs continued to grow significantly in the first quarter, despite the headwinds created by unprecedented supply chain issues and macroeconomic uncertainty. Year over year, we grew revenue, users, AOV, and all other aspects of our business. We remain on track to reach at least $1 billion in annual net revenue by 2025. And I want to stress, because of the nature of our business, we believe our growth will be less impacted by the macroeconomic environment than others in the consumer space. FIGS is incredibly well positioned to continue to be the brand for healthcare professionals. Our business model is based on a largely non-discretionary replenishment-driven core product. Healthcare occupations are projected to add more jobs than any other occupational group through 2030, and the industry dynamics remain as strong as ever. Our management team is best in class, and through innovative products, a superior user experience, and a deep connection with our community, we've created a formidable boat as the clear D2C leader in the space. With that, I will hand the call over to our CFO, Daniela Tarnschein.