FIGS, Inc.

which we 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 CEO, and Kevin Fossey, our interim CFO. 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 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, CEO of FIGS.

Thank you, Todd. We delivered solid second quarter results. with revenue growth at the high end of our expected range and adjusted EBITDA margin above our expectations. Our U.S. growth inflected back into positive territory, driven by better repeat frequency trends. Our international growth accelerated, and scrubware also returned to year-on-year growth. Our balance sheet is in stellar shape, with a healthy inventory position, and we have the financial flexibility to scale our brand and our business. We are particularly pleased that alongside these Q2 results, we saw leading indicators of revenue improve. We teed up our company for our Olympics partnership, our most consequential marketing campaign ever, and we drove innovation in product, marketing, and supply chain. Our growth opportunity is massive, and our ability to capture that growth is unique. As we activate our product innovation and broaden our brand reach, we are exceptionally well-positioned to capitalize on that growth opportunity in the second half of this year and beyond. I want to lead with our partnership and outfitting of the Team USA medical team in the ongoing Olympic and Paralympic Games in Paris. Our Olympics campaign embodies the key strategic drivers we're pursuing for our company. First, we are above all a brand for healthcare. Our Olympics product is some of the best products we've ever made, and we have designed it to address the specific needs of the healthcare professionals who will wear it. We've talked about creating pinnacle products and how that pinnacle helps drive our core business. We have amazing new pinnacle products with innovative and solutions-oriented features, and this includes what we designed for the Olympics. The Olympics collection is on shift. Many of these healthcare professionals are working outside and they need durable, functional products that enable high performance. Other healthcare professionals can replicate the look and get the same solutions as their counterparts they see on screen at the games. They can then clearly experience those same design elements, the same colors, the same visual cues in the core products. Our design team went on site to Team USA House in Paris to hand deliver this product to the medical team supporting our Olympians. The medical team was blown away. While there is a core group that works with the U.S. Olympic Committee year-round, the majority of the medical team volunteers at times. Never before have they received this kind of focus with product design specifically for them and a commercial that tells their stories in an elevated way. We also hosted an incredible event to watch the opening ceremony in New York City on July 26th and a celebration of service in Paris earlier this week to honor the USA medical team. Next. We've talked about the importance of our top of funnel marketing campaigns, which allow us to tap into the emotional connection we have with our community. We are strategically allocating key marketing resources as we execute the kind of 360-degree marketing that will continue to elevate our brand. Shining a light on the USA Medical team is an absolute honor, and there are so many stories about them to be told. Stories that resonate deeply with not only the awesome humans from our healthcare community, but everyone inside and outside of healthcare. Dr. Gloria Bean represents the best of both of those worlds. She is epic. She's an orthopedic surgeon and broke gender barriers to earn her seat. She was the first woman accepted into the prestigious sports medicine program at the University of Pittsburgh, where she completed her training before serving on the U.S. medical teams for multiple Olympic and Paralympic Games. Every Olympics she goes to, she learns the language of that country. This is her eighth Olympics. We hope you've seen our anthemic brand film. We feature Team USA healthcare professionals, including Dr. Bean, and some of our FIGS brand ambassadors. But it really speaks to all healthcare professionals and showcases the dedication and the passion they put into their craft. It's airing across linear and streaming broadcasts. We're on buses, subways, and billboards. We're obviously on social. From awareness to consideration to conversion, this customer journey is very much the future of our brand. As we showed, it truly does take heart to build bodies that break records. Third and finally, we've spoken to you about our second community hub, which recently opened in Rittenhouse Square in Philadelphia. It has opened as an activation dedicated to our celebration of the Olympics, which is catapulting it onto the retail scene. It will transition to a mainline SIG presentation after the game. Our focus on product innovation and top of the funnel marketing continues to drive strong results. 2024 is an exciting year of bringing real innovation through design, collaboration, fabrication, and fit. Almost every single launch in Q2 performed above our expectations. We launched our flare scrub legging, essentially creating a category that didn't exist previously. It's performing extremely well. On our last call, we discussed our indestructible collection, highlighting Dr. Chloe, a wildlife veterinarian working in South Africa. The combination of unparalleled durability and a compelling narrative resonated with our community. Collaborations are an ongoing strength for us, as our brand and franchise attract the highest quality partners. Our Star Wars May the Fourth Be With You collaboration with Lucasfilm was highly successful. We also had more incredible launches with New Balance, including both the Rose and 327 model, which combined style, function, and comfort. We partner in a strategic way with companies that are aligned with us, earning fantastic engagement. Our layering system is also working. We offer products for on-shift and off-shift, head-to-toe, to-work, at-work, from-work, inside and out. In the second quarter, our non-scrubber category grew by 13%. and reached 18% of sales. These products expand our TAM, position us as a lifestyle brand, and help drive our core over the long run. As I'll describe later, this impacts gross margin as the new products ramp, but as we gain scale in these new categories and the core follows, we expect to see margins improve. Customers are embracing our product innovation, type of funnel marketing, and collaboration. They are coming back to our brand more frequently. continuing a trend we shared with you on our last conference call. Another important trend that is moving in a positive direction is branded search. There are now equal number of searches online for figs as there are for scrubs. This indicates that we own Mindshare for the category, which was always our goal. But we have more to look forward to in the second half of the year. On product, we achieved $440 million of net revenues in scrubs alone in 2023, almost entirely from a single fabrication . Competitors have tried to copy us, but we're building more and more distance from them. Our product is too innovative, too high quality, too technical, too tailored in the literal design sense and in its laser-like focus on our community and its needs. As we move through the second half and continue to update and upgrade our fit in a way that works for all bodies. As a DTC company, we know more about our customers than anyone. and our fit upgrades will allow us to direct them to the right fit and sizing with greater consistency. Our other growth initiatives are also progressing well. International had a record quarter, with year-on-year revenue growth accelerating to 32% from 29% in the first quarter of 2024, reflecting the reclassification of duty subsidies, which negatively impacted international growth by 12 percentage points. We have fantastic marketing opportunities to go deep in high potential country that we're going to pursue over time. We sell internationally, but we haven't even come close to fully capitalizing on the potential of international. As we think about the revenue opportunity of our company, there's so much there and the competitive set overseas is so much more limited. Our brand has amazing cache and we're just getting started with what we can do. Our team is also at a record quarter. We launched our expanded catalog, impacting over 2,000 organizations. We also launched an exciting new virtual storefront for team members of VEG, Veterinary Emergency Group, one of our largest team customers, to enable them to use VEG funds to buy figs as their uniforms. We're excited that this customizable feature can be scaled to support current and future team customers. It is incredible to see more and more concierge clinics looking to outfit their teams in figs and cover the expense for their employees. Our retail push is also continuing to pace. We continue to see 40% of our Community Hub transactions from customers that are new to the brand. Our retail customers proving to be sticky. Customers who make their first purchase in the store are buying from FIGS more frequently than those who make their first purchase online. Our Century City Community Hub is delivering on its ambitious plan and is achieving a stellar $1,800 of sales per square foot. And again, We couldn't be more excited to launch the Rittenhouse Community Hub in Philly, which is four times larger than our Century City location, and through both products and programming, will be a one of a kind hub for our community there. With respect to our operations, we have massively upgraded our logistics infrastructure to improve our cost profile at our current size and enhance our customer service. We now have the footprint to support a much larger company. We recently opened our new distribution facility in Arizona, and have nearly completed our transition out of our legacy facility in California. We've increased our footprint by more than 75% while reducing our rent per square foot substantially. Our new facility is state-of-the-art with extensive use of robotics. 60% of the facility is completely automated, essentially people-free, with over 700 robots picking and allocating products and extensive automated conveyors moving orders through our facility. We've more than doubled our potential throughput and tripled space for our embroidery workshop to personalize and customize our products for our healthcare professionals. As expected, the distribution center move increased our selling expenses as a percent of revenue with our estimated full year transitional costs continuing to be approximately $13 million. Even as we've expanded our product offering, geared up for the Olympics, and managed our transition into our new DC, Inventory remains in excellent shape. Our inventory declined 29% year-over-year, while revenues grew 4.4%. As a reminder, we're structurally advantaged when it comes to inventory, because as a uniformed player, the products we sell are relatively non-discretionary, seasonless, and much less subject to fashion risk. Healthcare professionals need them to do their jobs. We also continue to advocate for our community. We mobilized our impact effort during Q2 by bringing 16 extraordinary healthcare professionals to Capitol Hill and the White House. Our advocacy resulted in several important wins on our Awesome Humans bill, including a commitment from congressional leadership to pass critical mental health support for healthcare professionals this year. As we enter the back half, we are delighted to welcome Sarah Outred as our new Chief Financial Officer. Sarah spent almost 17 years at Lululemon, and for the past three years served as senior vice president of financial planning and analysis. She has firsthand experience growing in an innovative lifestyle brand as she helped the company grow revenue more than 30-fold to over $10 billion, built a 700-store retail footprint, and scaled into more than 25 countries across the globe. We want to thank Kevin Foste for stepping up and serving ably as interim CFO and are delighted that he will continue on in his prior role as VP Corporate Controller. To summarize our quarter and achievements, our Olympics effort is yielding amazing product and an unprecedented, highly effective marketing campaign. Our innovation machine is humming and we have impactful enhancements in sight for fit and fabrication. Our marketing is resonating and customers are coming back to our brand. International teams and community hubs are all in the early stages of their long-term growth trajectories. And our logistics capabilities set us up to drive powerful growth going forward. Moving to the outlook, I will let Kevin dive in, but would like to briefly touch on revenue, gross margin, and adjusted EBITDA margins. We are raising our 2024 full-year revenue growth outlook to a range of flat to positive 2% growth, the prior range of negative 2% to positive 2% growth. This reflects our second quarter outperformance and our current visibility to Q3 and the second half overall, despite a choppy U.S. consumer backdrop. We expect gross margin for full year 2024 to be 150 to 200 basis points lower than 2023. The reason for this is that our newness is working better and faster than we expected, with our new pinnacle products, new scrubware styles, and new non-scrubware products outperforming. The fact that our newness is resonating is very important. It means we are becoming a lifestyle brand and we are creating TAM in an industry where many of these categories did not previously exist. Our new pinnacle products also help drive the core. So over time, we expect their success will help grow our already high gross margin core products. And although our new products have lower gross margin today, as they gain volume and scale, We expect them to have a margin curve that is similar to the one we have historically experienced with our core scrubware. All of these factors make us optimistic about our newness strategy and its impact on gross margin over the long term. In terms of our adjusted EBITDA margin outlook, we are not flowing the full gross margin impact at the bottom line, as we expect to offset some of the impact within marketing and G&A. As a result, we are guiding to 9.5% to 10% adjusted EBITDA margin for the year. Our balance sheet is in stellar shape. We ended the quarter with over $268 million in the bank, a record level, and with zero debt. Our shareholders' equity is also at a record and exceeded $400 million for the first time in our history. We have the cash flow dynamics and the capital to fund our growth ambition. With all of this in mind, we're announcing that our board has authorized a $15 million share repurchase program. We're pleased that our strong financial profile and long-term outlook enable us to evolve our capital allocation strategy and return value to our shareholders through a share repurchase program. With that, I'll turn it over to Kevin.

Thank you, Trina, and good afternoon. For the second quarter, we are pleased that net revenues and adjusted EBITDA margins came in ahead of our guidance. The inflection of our frequency trends and the return to growth in our U.S. and scrubs business indicate the long-term growth opportunity is still ahead of us. As we reignite industry-leading product innovation and powerful top-of-funnel marketing campaigns, we are confident that we are on the right track to drive long-term, sustainable growth. I will begin my discussion with a detailed review of our second quarter results, followed by an update on our financial outlook. Starting with our second quarter results. Net revenues increased 4.4% to $144.2 million as compared to Q2 last year. Net revenues reflect higher orders from existing customers offset by lower AOV. Active customers for the trailing 12-month period increased 6.1% compared to the same period last year. Average order value decreased 1.7% to $113 and net revenues per active customer decreased 2.3% to $210 versus the same period last year, mainly driven by the accounting reclass related to duty subsidies for international customers. Looking at product categories, non-scrubs grew 13%, reaching 18% of net revenues, as Trina noted. Gross margin for Q2 was 67.4% compared to 69.5% in Q2 of 2023. The decline in gross margin rate was primarily due to the product category mix shift that Trina described, as well as the reclass to duty subsidies. Our selling expense for Q2 was $36.9 million, representing 25.6% of net revenues compared to 24.4% in Q2 of 2023. The decrease in selling expense as a percentage of net revenues primarily reflects transitory expenses associated with the transition to our new fulfillment center. Marketing expense for Q2 2024 was $23 million, representing 15.9% of net revenues compared to 15.1% in Q2 2023. The increase in marketing expense as a percentage of net revenues was primarily due to our strategic investment in the biggest marketing campaign that we have ever done, our first-of-its-kind partnership outfitting the team USA medical team at the Olympic Games. G&A for Q2 was $35.8 million, representing 24.8% of net revenues, compared to 25.2% in Q2 of 2023. The decrease in G&A expense as a percentage of net revenues was primarily due to lower stock-based compensation expense and lower legal fees. The decrease was partially offset by a one-time scrubware donation. Taking this to the bottom line, second quarter net income was $1.1 million, or diluted EPS, of one cent compared to second quarter 2023 net income of $4.6 million or two cents in diluted EPS. Adjusted EBITDA for Q2 was $12.9 million with an adjusted EBITDA margin of 9% compared to 13.7% in Q2 of 2023. Touching on our balance sheet, we finished the second quarter with cash and cash equivalents and short-term investments of $268.5 million with no debt. Inventory declined 29% to $119.3 million versus Q2 last year as we continue to track to our plan of bringing inventory back to normalized levels by the end of the year. This is our fourth consecutive quarter of improved inventory turns. We are very proud of our ability to significantly reduce inventory while maintaining healthy margins and generating sales growth, illustrating the resiliency in our business models. Capital expenditures for the second quarter totaled $9 million. This is primarily related to the build-up of our new distribution center. And finally, we delivered strong free cash flow of $7.5 million in the second quarter. Turning to our outlook, based on our Q2 performance and strong response to our product launches and brand initiatives, we are raising our full-year net revenue outlook, as Trina noted, to flat to positive 2% growth compared to 2023 and versus prior guidance of negative 2% to positive 2% growth. We are pleased by the momentum of our business coming out of the second quarter and the success of our Olympic campaign. As we mentioned last quarter, we are committed and focused on driving product innovation across scrubs and non-scrubs assortments, including new categories. As we evolve our product mix, we expect the shift into non-scrubware as well as the shift into new scrubware styles to impact our gross margin. As a result, We expect our 2024 gross margin to be 150 to 200 basis points lower than the prior year. It is important to note that we remain confident that we can maintain healthy gross margins over the long term. As we invest in new innovation, fabrications, and product categories, we anticipate realizing economies of scale over the long run. We expect new innovation to provide a halo effect over our higher margin core business as we are working on several initiatives, including evaluating our pricing and costing along with optimizing our supply chain strategies, which we believe will enhance margins over time. Regarding selling expenses, transitory costs are still estimated at approximately $13 million. A majority of these costs are now expected in the third quarter, including some costs initially planned for the second quarter. We anticipate the transition to be largely complete by the end of the third quarter. With respect to marketing, our increased investments are beginning to pay off. We are pleased with the results from our Olympic marketing campaign and continue to expect the bulk of this investment to be incurred in the third quarter. For G&A, we continue to carefully manage our expenses as we are identifying further cost efficiencies to offset our reduced gross margin outlook. As a result of these factors, we are updating our full-year adjusted EBITDA margin to the range of 9.5% to 10%. Notably, as Trina described, we are not flowing the full gross margin impact to the bottom line, and we are instead expecting to offset some of the impact from marketing and G&A. Turning to our third quarter 2024 outlook, we expect net revenue growth of approximately 1%. We expect gross margin to have a similar trend year over year to what we experienced in Q2, largely due to our product mix shift that we discussed earlier. Looking at operating expenses, For selling expense, we expect deleverage of approximately 250 basis points compared to the prior year. With respect to marketing, we continue to plan for the highest marketing investment in the third quarter. These higher expenses will be partially offset by continued efficiencies in G&A expenses. To that extent, we expect third quarter adjusted EBITDA margin to be approximately 5.5 to 6%. Our capital expenditures expectation for 2024 continues to be about $18 and $19 million, including $13 to $14 million in fulfillment enhancement related costs. In closing, we're encouraged to see that our strategy around product innovation and top of funnel marketing is working and driving positive trends in our business. Moving forward, we'll continue to capitalize on our robust balance sheet and cash flow dynamics to strategically invest in our future growth and drive long-term shareholder value. With that, I will turn it over to the operator to kick off our Q&A session. Operator?