FIGS, Inc.

opportunity for questions and answers at the end. If you would like to ask a question, please press star 1 on your telephone keypad. I'd now like to turn the conference over to our host, Jean Fontana. Please go ahead.

Thank you. Good afternoon, and thank you for joining today's call to discuss FIGS fourth quarter and full year 2022 results, which were released this afternoon and can be found in our earnings press release and in the stockholder presentation posted to 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 Ternsheim, 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 the 10-K 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 and key performance indicators, which we believe are useful supplemental measures for understanding our business. Definitions and reconciliations of these non-GAAP measures to their most comparable GAAP measures are included in the stockholder presentation we issued today. Now, I would like to turn the call over to Trina Spear.

Thank you, Jean. Looking back at 2023, we outperformed our expectations with net revenue growth of 8% and adjusted EBITDA margin of 15.8%. We reduced inventory by 33% and generated strong pre-cash flow of $85 million. Looking across the business, we grew our active customer base 13% versus last year. Additionally, we achieved 18% net revenue growth in non-scrubs 42% growth in our international business, and nearly 50% growth in our team's business. We also opened our first permanent retail location, our community hub in Los Angeles, with strong early reads in traffic and conversion. Importantly, we continue to lay the groundwork to scale our business with investments in infrastructure and technology. While we are proud of these accomplishments, recent trends have become more challenging. which I will speak to in more detail shortly. But I want to share right up front my fervent position that we are on the right course. During 2023, we took measures to right-size our inventory levels, which are leading to some after effects. However, the work we have underway to create a more solid foundation from product to marketing to operations will set us up to succeed in the future. We remain the distant leader in healthcare apparel and have the scale and balance sheet to opportunistically invest across numerous growth levers. Now, diving in a bit deeper to provide context on our 2024 net revenue outlook. With respect to the macro environment, we believe there are two factors that are impacting the healthcare apparel industry. First, we continue to see inflation weigh on consumers, including our healthcare community, two-thirds of whom make less than $100,000 a year. They have less spending power than they did two years ago and are being more intentional about how they spend every dollar. Second, we believe that the sustained fatigue and stress amongst healthcare professionals post-COVID may be impacting behavior. The traumatic experience of COVID followed by the sustained high demand for healthcare workers is taking its toll on our community and may be impacting their purchasing decisions. Our healthcare is human roundtable discussion this past November shined a light on just how much pressure they're under. And we believe we may be seeing this reflected through lower engagement metrics. We are in the trenches with our community on these challenges and are diligently working to help solve them through our awesome humans bill. Despite these external challenges, we remain optimistic about the state of the healthcare workforce long term, particularly given that healthcare and social assistant jobs are projected to be the fastest growing of any sector between 2022 and 2032, and are estimated to create about 45% of all projected job gains over that period. This is according to the Bureau of Labor Statistics. In addition, a recent survey by the University of Maryland Baltimore showed that 38% of Gen Z plans to pursue a career in healthcare. Outside of these macro factors, we've also taken a step back to assess our own performance. In 2023, one of our top priorities was to reduce inventory levels back to approximately 25 weeks of supply by year end. We were successful in meeting our goal with only a modest impact on our gross margin. We did this in part by bringing back a number of products from prior launches. For example, through our iconic FIGS 10 campaign, We relaunched 10 of our community's favorite colors in 10 weeks. At times, we also leveraged conversion-driven marketing, including promotional messaging, to move through our inventory. We believe this may have contributed to the lower frequency and active customer trends we're now seeing. Looking back, we think we got away from the cohesive brand-building strategy that ties our product launches to powerful storytelling campaigns. Our success has been based on brand excitement that ignites a word-of-mouth flywheel. This flywheel is what makes SIGS fundamentally different, and we're at our best when it's clicking. In 2024, our focus will be leveling up on innovation and rebuilding our brand momentum through a number of initiatives. As discussed last quarter, we are evolving our supply chain through best-in-class partners across continents to deliver the most advanced products to healthcare professionals. In addition to innovation in quality and new products, we are enhancing important details like our waistbands, our trims, zippers, fabrications. We have also embarked on an initiative to improve fit consistency across our assortment, which we are excited to roll out over the next year starting as early as Q2. As we continue to advance our technical capabilities, We also see opportunity to lean further into our layering system by becoming the category-defining brand across scrub wear, outerwear, footwear, underscrubs, compression socks, bags, and so much more for healthcare professionals. Non-scrubs represented 23% of net revenue in the fourth quarter, reflecting strong performance in a number of these categories, and we see meaningful runway ahead of us. The recent launch of our on-shift Sherpa bomber jacket was one of our biggest to date and is a great example of what we're able to bring to the market outside of core scrubs to address the needs of healthcare professionals on shift and off. Lastly, as we take our product innovation to the next level, we are introducing extremes. Extremes exemplifies how FIGS can serve even the most extraordinary needs of healthcare professionals. This year, we plan to introduce a series of innovative launches featuring technical products designed to solve problems for some of the most specialized fields within medicine. Last month, we launched our first extremes collection supported by an exciting marketing campaign featuring Dr. Luke Bennett, the medical performance director for HINSTA, the medical team supporting Formula One. Our large-scale storytelling campaigns will be designed to shine a spotlight not only on the extraordinary work that these healthcare professionals do every day, but also on just how extreme all healthcare professionals are. We have a series of exciting partnerships within sports medicine and other areas of healthcare as well, including search and rescue, large animal vets, and EMT. These big brand moments will be augmented with a series of evergreen and smaller product launch campaigns throughout the year, as well as community events and activations that will enable us to engage healthcare professionals in person. The success of our brand has not just been about great product innovation and powerful brand marketing. It's the seamless integration of both that generates excitement, leading healthcare professionals to share their FIGS experience with one another We believe that our extremes initiative is integral in rebuilding the powerful word of mouth dynamic that helped us to surpass a half a billion dollars in 2022, just 10 years after our inception. To lead our integrated marketing strategy, Vinay Eaton has joined FIGS as chief marketing officer, bringing 15 years of experience, most recently as Nike's head of brand marketing for New York City. In addition to Nike, her background includes Ralph Lauren and Under Armour. We look forward to having her lead our brand and digital marketing efforts as we work to get back the secret sauce that has driven our success for over the last decade. While we're excited about our strategic initiatives to drive brand momentum, we know that building new and existing customer engagement in an environment of the headwinds facing our healthcare professionals will take time, which is reflected in our guidance. the healthcare industry is evolving, and we're taking steps to evolve with it while also leveraging our multiple growth levers. Starting with international, net revenue grew 42% in 2023 versus the same prior year period. The strong performance was driven by growth in our more established markets, stemming from localization efforts and targeting initiatives, as well as traction we were gaining in the 10 markets we entered in 2023. Mexico and the Philippines remain our top new markets, and as you may recall, this came with minimal marketing investment. We plan to add new markets in 2024 as we continue to build our brand globally. We are also excited to share that for the first time in our company's history, FIGS is partnering with medical teams behind sport, starting with Everton Football Club of the English Premier League, which is the most viewed sports league in the world. Our relationship with Everton's medical team demonstrates our commitment to celebrating healthcare professionals who have dedicated their lives to serving others, including athletes. Finally, in support of our growing international business, we plan to open a distribution center in Canada in 2025, which we believe will meaningfully improve our margin and enhance the customer experience with shorter shipping times. Our Teams business grew net revenue by 66% as compared to the fourth quarter last year. We successfully launched our Teams app open access test, enabling businesses of any size to purchase scrubs through our platform, which contributed to strong growth in the quarter. We believe that our ability to serve businesses of any size through this platform meaningfully increases our addressable market. In addition to serving these customers with premium products, We also offer personalization, including embroidery. During the holiday season, we created a customized experience for our largest Teams customer, a travel nurse agency, to offer a gifting experience to their employees. With healthcare evolving to become more specialized, personalized, and localized, we see tremendous opportunity to grow this business through an expanded assortment and exceptional online digital experience. The U.S. concierge medicine market is expected to double to $13.4 billion by 2030. We see this reflected in record membership growth amongst concierge clinics and in the increased M&A activity within the primary care space. These trends validate our efforts to expand our team's business. Turning to retail. We are pleased with the early results of our first community hub since our opening in early November. We believe that consumers still want that in-person shopping experience as evidenced by the fact that in 2023, e-commerce comprised only 15.6% of total retail sales in the United States. Our community hub is attracting new customers to the brand while also enabling us to serve existing customers with an additional shopping channel. Since opening in Century City, we've received requests from numerous healthcare professionals to open a store in their market. We are targeting a summer opening for our second community hub in Philadelphia. The 4,100 square foot location will enable us to deliver events and programming that align with our community pillars and advocacy efforts. The large store format will also enable us to better showcase our broader layering system, presenting an opportunity to drive higher AOV. To exceed half a billion dollars as a digital-only brand is something we're very proud of, and we believe that we can deliver an exceptional shopping experience across multiple channels. Our community hub rollout strategy will remain test, learn, apply, and win. And finally, we are laying the foundation to scale. We are undergoing the transition of our fulfillment operation to a best-in-class tech-enabled facility we will launch later this year. that will enable us to scale and provide a better customer experience. In conclusion, we recognize that industry dynamics are creating some near-term pressure, but we have been and will continue to take steps to offset these headwinds and position ourselves for long-term growth. We are unwavering in our belief that building a brand the right way takes time, but is the most authentic and valuable way to do it. We are positioning our company to capitalize on the opportunities in front of us while taking important steps to make us a stronger, more resilient company in the future. We remain bullish on our long-term opportunity for several reasons. We are the pinnacle brand in the healthcare apparel space. We've just hit 1 million followers on Instagram, showing how we have the most loved brand in the industry. We have ample market share opportunity across geographies, channels, and professions. We have long-term healthcare industry tailwinds. We have a strong balance sheet with $250 million in cash in short-term investments. We have no debt, and we continue to be a cash flow generative business. I remain confident that the strategies we have underway will lead to healthy, long-term, sustainable growth. Now, I want to take a moment to acknowledge the announcement related to Daniella Turnshine's decision to leave FIGS to assume a CFO role at another company. I am so grateful for her contributions over the last five and a half years as she helped us build the brand that serves those who serve others. Daniella has had the backs of our healthcare community and she has been an incredible leader and thought partner to me, and the whole FIGS family. She has also built out the best of the best finance team, leading us to over half a billion dollars in net revenue while also being profitable. We are fortunate to have Daniella with us through mid-April to ensure a smooth transition. Kevin Fausti, our corporate controller, has been part of the FIGS family for the last three years and we have every confidence in his ability to serve as our interim CFO. With that, I will turn the call over to Daniella to provide details on our fourth quarter and full year results and our outlook for 2024.