FIGS, Inc.

Good afternoon. Thank you for attending today's FIGS first quarter fiscal 2025 earnings conference call. My name is Jayla, and I'll be your moderator for today. All lines will be muted during the presentation portion of the call with opportunity for questions and answers at the end. And I'd like to turn the conference over to our host, Tom Shaw, the Senior Vice President of Investor Relations. Tom, you may proceed.

Good afternoon, and thank you for joining us to discuss FIGS first quarter 2025 results. which we released this afternoon. It can be found in our earnings press release and in the shareholder 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 Sarah Altred, 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 risk and uncertainties, and actual results could differ materially. These and other risks are discussed in our SDC filings, including in the 10Q we filed today. 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 the most comparable GAAP measures are included in the shareholder presentation we issued today. With that, I would now like to turn the call over to Trina.

Thanks, Tom. Good afternoon, everyone, and thanks for joining us. FIGS is off to a great start this year, with Q1 revenues up 5% year-over-year and outperforming our expectations. As we indicated on our late February earnings call, We started the quarter on a positive note, and we were able to sustain this momentum later in the period. While we are clearly in a dynamic macro environment, what is most important for FIGS is that we saw continued signs that scrubware trends are starting to normalize from the COVID overhang the past couple of years. This included a number of encouraging trends during the period. We were particularly pleased to see strong gains during our normal full price days, while also performing better than planned during our reduced set of promotional days. AOV growth shifted positive for the period and reached a record level for the company. At the same time, we saw ongoing momentum in our reactivation, bringing back customers who had not bought from our brand in over a year. These measures supported a return to positive growth in the U.S., which is pivotal for driving sustained growth. Bottom line performance also exceeded expectations, driven in large part by our top line improvements. adjusted EBITDA margin of 7.2%, came in above our 5.5% to 6% target, even as we heightened our focus on making strategic investments across the business. Our conviction in these investments is unchanged, given the opportunities we see to accelerate growth and drive greater contributions in key areas like international, our B2B teams business, and retail. Adding to these results, we continue to be fortified by our strong balance sheet. We believe our cash balance, cash flow generation and debt-free structure give us the ability to stand offense with our strategies while also solidifying our financial position against the macro uncertainties that have grown across the overall market. As we look ahead to those uncertainties and how we plan to operate, we think it is incredibly important to highlight what makes the FIG story and brand different. At the highest level, the healthcare industry backdrop remains compelling and resilient, supported by its essential nature in our economy. U.S. health care jobs are the backbone of our society and are expected to grow nearly 3x the rate of the overall job market over the next decade. We have seen similar pacing in recent months, including in April, where the broader health care sector added nearly 60,000 jobs during the month, representing nearly one-third of all jobs added. At the same time, wages have begun to improve following strong gains during the pandemic and the more recent period of underperformance. Within health care, the uniform of the community is scrubs. a replenishment category that centers around a tight range of highly productive styles. As we have discussed, we believe healthcare professionals stocked up during COVID, creating an overhang that contributed to slower growth the past two years. But as we would expect in a replenishment business, those same healthcare professionals need to keep buying their uniforms, ultimately leading to a normalization of consumption. This is all part of the FIG story. We changed the game in the scrubs market in 2013 breaking through an industry of ill-fitting, commoditized, non-technical goods to become the brand that is synonymous with quality, durability, style, and comfort. Our category leadership begins at the yarn level and how we differentiate across both fabric and construction to create products that are consistently superior and premium in the market, ultimately redefining expectations. Changing the game also requires ongoing thought leadership in the space. While copycats concentrate efforts on playing the fast follower game or the color drop game, we are focused on driving new innovation like our recently introduced Formex fabric. Exceeding our own high bar on superior fit, bringing on-trend silhouettes to the market like scrub leggings and wide leg scrub pants, and ultimately building a uniform layering system never seen before in the healthcare apparel industry. Importantly, this is much more than just an opportunity to take share. It's about the opportunity to create and redefine the market. And perhaps what differentiates us the most is how we celebrate, empower, and serve our community. We have opportunities to elevate the important work and needs of healthcare professionals in ways that have real and lasting impacts. Our year-long focus on where do you wear fags is a great example, including our impactful work during International Women's Month, showing how much our message resonated within our community and beyond our Women's Month film went viral. Our film and campaign capture the experience of female healthcare professionals in ways that truly made them feel seen, leading the campaign to an astonishing 100 million impressions. Collectively, this is not easy work, but it is what defines brand leadership in this community and drives our passionate following. No one else does this with this kind of scale and this kind of impact. Ultimately, it gives us the opportunity to bring new healthcare professionals into our community, build more connections, and create more reasons to choose FIGS. Measuring our recent impact and progress, I would like to spend some time in our recent customer engagement, as well as our efforts to expand our reach to more customers. The past few months have been an incredible stretch of the year for our community. Each March, graduating medical students learn which residency programs they will be matched with. Match Day provides a great example of how FIGS is on the ground and in person during monumental moments for young healthcare professionals. And we plan to extend the range of student experiences across celebrations in schools in the years to come. This is truly an authentic way to drive engagement and create a long-term pathway into the brand at such an important moment at the start of their medical career. Next up is our Scrubs That Don't Suck campaign. The goal is simple. Allow healthcare professionals to get rid of their old, itchy, scratchy, ill-fitting scrubs and upgrade to figs, AKA scrubs that don't suck. This is not only a huge opportunity to acquire new customers, it allows us to do so responsibly by recycling those old scrubs into products that are far more useful. Following a successful test last year, we are excited to now make this program permanent. We think this is another powerful differentiator for our brand, and we're encouraged with our recent activation in Houston, which tripled the volume of donations seen at last year's corresponding event in Philly. I'll have more on Houston in a moment. Finally, we are in the midst of one of our most important events of the year, Nurses Week. This week-long event puts our nursing community in the spotlight to celebrate their immeasurable contribution to society. We've always gone big for nurses week, but this year we're setting a new bar. We were excited to extend our, where do you wear fixed campaign with a new film focused on nurses that has quickly become viral itself. Like our women's day film. It's our goal to have every nurse watch it and feel truly seen and valued. We then elevate this campaign by featuring it across a range of outlets from connected TV to premium out of home placements. So everyone gets the message that it's nurses, not just athletes and celebrities who should be inspiring the next generation. And this is just a start, as we have many other surprises that will be playing out over the next week. Having impacts like these are amplified by evolving how and where we go to market. Last call, we highlighted the need to accelerate our investments to better reach new and existing customers, and we are well underway on these efforts. Let's start with our vast international opportunity, where over 80% of global healthcare professionals are, yet they represented only 15% of our net revenue in 2024. To date, we have taken an efficient centralized approach to our global expansion, which has served us well given our E commerce focus and ability to leverage a common digital platform. We have then been able to analyze these markets to prioritize and calibrate further investments to drive outside impact across localization awareness and engagement. Our fundamental approach here is unchanged in 2025, though you will see us harness technology to expand our regional approach to new markets, while also investing heavier across our localized efforts in our more seasoned markets. Later this quarter, we also plan to officially debut FIGS in Japan. The Japanese market is highly attractive with over 5 million healthcare workers, a highly concentrated population in urban markets, and a consumer focus towards products that offer both fashion and function. Given the complexities of entering this market, we're investing heavier out of the gate with a goal to support more meaningful growth in 2026 and beyond. Similar to the US, we believe we can differentiate the brand and win by supporting the healthcare community in unprecedented ways, though these are actions that will take time to scale. In addition to these foundational investments, we're also on track to enter the South Korean market in the second half of this year. Next up is the team's business. As we have indicated, we estimate 15% of the scrubs industry has been driven by institutions buying for their teams. At the same time, we have seen a broad commercialization of healthcare, meaning new pockets of opportunity are rising within concierge medicine, med spas, and other similarly modern ways to be cared for. Think about some of the clinics you may interact with, dermatology, veterinary, cryotherapy, fertility, et cetera, all addressing specific needs in new ways. These are fast-growing spaces that are increasingly looking to drive premium experiences, both for employees and for patients. While these are obvious opportunities, we also see the ability to outfit sales reps who work side by side with healthcare professionals. Large institutions that are ripe for modernization and internationally, where we are just beginning and we believe the mix could be even higher. Commending well under 10% of our business today, we are evolving our team's approach so we can actively go after these pockets of opportunity, many of which require relationships and solutions that cater to individual needs. We previously announced the hiring of a dedicated leader for this business in January, and she has been actively calibrating the business for growth. This includes the hiring of our first outbound team members during Q1, and we're excited to have already booked our first outbound orders with one of the largest healthcare companies in the world. It also includes more tactical initiatives, including tech investments to drive simplicity and scale, marketing investments to develop teams' assets and drive awareness, and inventory investments to meet a wider range of buying needs. Most importantly, this is a business that we own and that positions us to expand our competitive moat in the market. Finally, we remain bullish on the role our community hubs can play. Our work shows that over 60% of healthcare professionals want to try or feel a product before purchase, which means that having a physical presence is critical. As a barometer of impact from our first two stores, we continue to see nearly 40% of our customers at these locations are new to FIGS. And that includes our home market in LA, where we already have the highest brand penetration. Additionally, 30% of acquired customers from these locations go on to become omnichannel purchasers. We remain committed to testing and investing in this nascent channel. This includes efforts that are very much aligned with our brand in terms of building community engagement. We've already hosted a range of events here to date, including match day and wellness sessions during nurses week that extend our larger efforts to have a local feel and impact. As we hinted earlier, we were excited with our efforts in Houston during the quarter and are thrilled to announce our next community hub location there at rice village. This location puts us just blocks away from the Texas medical center, the world's largest medical complex with over a hundred thousand employees across 61 institutions. The center supports more than 10 million patient encounters during the year and includes some of the nation's top-rated facilities, like the MD Anderson Cancer Center. We are also working to finalize details for two additional locations we plan to open by the end of the year. Before handing the call over to Sarah, I would like to provide some color on how we are navigating this evolving operating environment, starting with Harris and some perspective on our supplier base. The majority of our production today comes from Jordan, followed by Vietnam, and then very small contributions from China and Peru. The recently imposed tariffs create risk for us, and given the speed at which global trade policy is evolving, it's important to pinpoint where they will ultimately land and how much they will increase our cost over time. That said, we believe we're uniquely positioned with suppliers for three reasons. First, the majority of our assortment is non-seasonal. Second, our products are replenishment-driven. And third, our mix is centered around high volume, low skew count core scrubware. This is how we've managed to be so nimble in making meaningful production moves in recent years, effectively giving us cross-source capabilities with a strong set of partners. So even though we're not immune from cost pressure as a result of tariffs, we do have built-in advantages as we weigh our future actions. Finally, as we work to mitigate the impact of tariffs, it's important to emphasize that we'll never compromise on the key to FIG's success. We are a product company first and foremost, and the quality of our product is a big driver of what truly sets us apart. Before FIGS, our community had to settle for bad products and a bad experience. We changed all that. And regardless of any short-term trade uncertainty, we're going to keep moving forward. We have put ourselves in a position to invest in our growth and to serve our community at the highest level. And we're going to take advantage of that strength because that's what our community deserves, full stop. So in terms of our long-term prospects, we remain extremely confident. In terms of how the tariffs will impact us over the short term, as Sarah will outline, the financial impacts are challenging to forecast, so we're laying out what we think is a reasonable set of assumptions and outcomes based on what we see today. Ultimately, this impacts our expected range of adjusted EBITDA margin outcomes for the year, but gives us a framework to make thoughtful brand decisions that allow us to continue to strengthen our position. We entered the year with a clear focus on how we will continue to serve our community and an understanding of what we needed to lean into from an investment perspective. This will require added discipline as we adjust to a range of outcomes, but will remain instrumental in our approach. We are fortunate that with our category leadership, our competitive advantage, and a strong financial profile, we are in a position to both take and create share to widen our competitive moat. Great brands are able to uniquely harness macro challenges, and we will continue to boldly lead and define this industry going forward. With that, I'll turn it over to Sarah to review the quarter and our updated financial plan.