ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 2022 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO Delaware 46-2005653 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 2834 Colorado Avenue, 90404 (Address of principal executive offices) (Zip Code) Title of each class Trading Symbol(s) Name of each exchange on which registered Class A common stock, $0.0001 par value per share FIGS New York Stock Exchange x o o Large accelerated filer x Accelerated filer o Non-accelerated filer o Smaller reporting company o Emerging growth company o $1,153,336,659. Page We also have developed an advocacy program designed to address some of the biggest challenges, including the need for equitable compensation, access to mental health services, workplace safety, reduced administrative burdens, and training, which are facing healthcare professionals today. In addition to our many other philanthropic efforts, advocacy at FIGS will continue to be an important way in which we support our community of Awesome Humans. 2022. community. Our Healthcare professionals change environments frequently and need comfortable high-quality products that help them do their jobs in every situation they face. That’s why we approach our products as a complete layering system—the FIGS Layering System—which includes what healthcare professionals wear under their scrubs (such as underscrubs, sports bras and leggings), the scrubs themselves, and what they wear over their scrubs (such as vests, jackets and fleeces). high proportion of our customer mix that is comprised of students and young professionals whose earnings will grow over the course of their careers, we believe we are well positioned to retain and increase engagement of these customers, expanding our share of their uniform and lifestyle wardrobe over time. we have established a unique approach to capturing granular data from all stages of the order Our Technology our main scrubwear fabric technology FIONx, which enables us to achieve consistency and scale. Our in-house production team selects our fabric and trim suppliers, directly manages the relationships between these suppliers and our finished product manufacturers, and drives our production allocation strategy and production schedules. as of December 31, 2022. We Further, pursuant to our Vendor Manual, our Tier I Suppliers are contractually required to hold Tier II Suppliers to substantially the same standards to which we hold our Tier I Suppliers, regardless of whether such Tier II suppliers are subject to our monthly reviews. us, and we have a contractual right to terminate, without a cure period, our relationship with any Tier I Supplier who fails to meet our ethical standards. in. competition, a decrease in the growth or reduction in the size of our overall market or if we cannot capitalize on growth opportunities. If our net revenues do not grow at a greater rate than our operating expenses, we will not be able to maintain the level of profitability that we healthcare professionals, some of whom we refer to as our One such brand, Fabletics, has recently done so. team members. duration and constitute at-will employment. We have not obtained key man life insurance policies on any of our senior management team. As a result, we would have no way to cover the financial loss if we were to lose the services of members of our senior management team. ability to fulfill orders on the timeline to which we have been accustomed. The COVID-19 pandemic may continue to adversely affect workforces and supply chains globally, potentially impacting the operations of our third-party logistics provider, which could negatively impact our business and results of operations. As a result of these supply chain challenges, we have from time to time contended, and may continue to contend with, supply chain-related delays, which from time to time have, and may in the future, result in delays receiving finished products from our manufacturers, impact our ability to keep certain products in stock and interrupt product and color launch schedules. us and our independent manufacturers are consistent with ethical business practices. Such negative publicity could harm our brand image, business, financial condition and results of operations. provide services to us on favorable terms, or at all, which could require us to adjust how we use our information technology systems, including our website, or switch to alternative third-party service providers which could be costly, cause interruptions and could ultimately adversely affect our business, financial condition, results of operations and growth prospects. changing these systems, including impairment of our ability to fulfill customer orders, potential disruption of our internal control structure, capital expenditures, additional administration and operating expenses, acquisition and retention of sufficiently skilled personnel to implement and operate the new systems, demands on management time, the introduction of errors or vulnerabilities and other risks and costs of delays or difficulties in transitioning to or integrating new systems into our current systems. These implementations, modifications and upgrades may not result in productivity improvements at a level that outweighs the costs of implementation, or at all. Additionally, difficulties with implementing new technology systems, delays in our timeline for planned improvements, significant system failures or our inability to successfully modify our information systems to respond to changes in our business needs may cause disruptions in our business operations and adversely affect our business, financial condition and results of operations. of our website and mobile app on mobile devices. Additionally, in order to deliver a consistent shopping experience to mobile devices, it is important that our mobile app is designed effectively and works well with a range of mobile technologies, systems, networks, and standards that we do not control. We may not be successful in developing relationships with key participants in the mobile industry or in developing products that operate effectively with these technologies, systems, networks, or standards. In the event that it is more difficult for our customers to access and use our mobile app on their mobile devices or if our customers choose not to access or use our mobile app on their mobile devices or use mobile products that do not offer access to our platform, our sales and growth prospects could be adversely impacted. affect the manner in which we provide our services, the geographical location or segregation of our relevant systems and operations, and could adversely affect our business, financial condition and results of operations. UK. in some foreign countries where we choose to do business. Thus, it may be more difficult for us to successfully challenge the use of our intellectual property rights by other parties in these countries. If we fail to program to hedge transactional exposures in foreign currencies. However, in the future, we may use derivative instruments, such as foreign currency forward and option contracts, to hedge certain exposures to fluctuations in foreign currency exchange rates. The use of such hedging activities may not offset any or more than a portion of the adverse financial effects of unfavorable movements in foreign exchange rates over the limited time the hedges are in place and may introduce additional risks if we are unable to structure effective hedges with such instruments. fluctuations in product mix; capital markets. We also maintain warehouse space with other third-party logistics providers pursuant to service agreements. duty. Trial on the false advertising claims concluded on November 3, 2022, with the jury rendering a verdict fully in favor of FIGS, rejecting SPI’s claims and finding that FIGS did not engage in false advertising. On February 22, 2023, the parties entered into a settlement agreement. As part of that settlement agreement, on February 22, 2023, SPI dismissed all litigation with prejudice and neither party was obligated to make any payments or assume any other obligations to the other (except for administrative obligations required by the settlement agreement). directors. seasonality, and are generally able to time the sourcing of our product components and manufacture of our core scrubwear styles in core colors without being solely dependent on cyclical demand trends. 2022. campaigns across platforms, including email, digital, display, site, direct-mail, commercials, social media and mouth. value (“AOV”). 2021 Year ended Year ended 2021 2020 2021 2020 (in thousands) (as a percentage of net revenues) Net revenues $ 419,591 $ 263,112 100.0 % 100.0 % Cost of goods sold 118,370 72,888 28.2 27.7 Gross profit 301,221 190,224 71.8 72.3 Operating expenses Selling 81,923 51,896 19.5 19.7 Marketing 58,713 38,852 14.0 14.8 General and administrative(1) 149,602 41,536 35.7 15.8 Total operating expenses 290,238 132,284 69.2 50.3 Net income from operations 10,983 57,940 2.6 22.0 Other income (loss), net (1,124 ) 136 (0.3 ) 0.1 Net income before provision for income taxes 9,859 58,076 2.3 22.1 Provision for income taxes 19,415 8,318 4.6 3.2 Net income (loss) and comprehensive income (loss) $ (9,556 ) $ 49,758 (2.3 )% 18.9 % Year ended Change 2021 2020 % (in thousands) Net revenues $ 419,591 $ 263,112 59.5 % AOV. Year ended Change 2021 2020 % (in thousands) Cost of goods sold $ 118,370 $ 72,888 62.4 % Gross profit 301,221 190,224 58.4 % Gross margin 71.8 % 72.3 % (0.5 )% 2021. product mix shift. Year ended Change 2021 2020 % (in thousands) Operating expenses: Selling $ 81,923 $ 51,896 57.9 % Marketing 58,713 38,852 51.1 % General and administrative 149,602 41,536 260.2 % Total operating expenses 290,238 132,284 119.4 % partially offset by increased public company costs. Year ended Change 2021 2020 % (in thousands) Other income (loss), net $ (1,124 ) $ 136 (926 )% Year ended Change 2021 2020 % (in thousands) Provision for income taxes $ 19,415 $ 8,318 133.4 % Year ended 2021 2020 Net revenues per active customer $ 224 $ 202 Year ended 2021 2020 Average order value $ 105 $ 94 Year ended 2021 2020 (in thousands, except margin) Net income (loss) $ (9,556 ) $ 49,758 Add (deduct): Other income (loss), net 1,124 (136 ) Gain/loss on disposal — 2 Provision for income taxes 19,415 8,318 Depreciation and amortization expense(1) 1,424 946 Stock-based compensation and related expense(2) 83,516 8,713 Transaction costs 1,139 296 Expenses related to non-ordinary course disputes(3) 8,183 1,197 Adjusted EBITDA $ 105,245 $ 69,094 Adjusted EBITDA Margin 25.1 % 26.3 % Year ended 2021 2020 (in thousands) Net cash provided by operating activities $ 66,437 $ 21,748 Less: capital expenditures (2,712 ) (2,262 ) Free cash flow $ 63,725 $ 19,486 Facility (other than $4.4 million of outstanding letters of credit) and available borrowings of $95.6 million. Year ended 2021 2020 (in thousands) Net cash provided by operating activities $ 66,437 $ 21,748 Net cash used in investing activities (2,712 ) (2,262 ) Net cash provided by financing activities 75,572 294 Net increase in cash, cash equivalents, and restricted cash $ 139,297 $ 19,780 commitments. was used to estimate the fair value of options granted during the year ended December 31, 2022: A hypothetical 10% change in our inventory reserves estimate as of December 31, 2022 would not result in a material impact on our financial statements. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. , stockholders' equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and our report dated February 28, 2023 expressed an unqualified opinion thereon. As of December 31, December 31, Assets Current assets Cash and cash equivalents $ 195,374 $ 58,133 Restricted cash 2,056 0 Accounts receivable 2,441 5,780 Inventory, net 86,068 49,735 Prepaid expenses and other current assets 7,400 6,665 Total current assets 293,339 120,313 Non-current assets Property and equipment, net 7,613 6,529 Deferred tax assets 10,239 6,507 Other assets 560 506 Total non-current assets 18,412 13,542 Total assets $ 311,751 $ 133,855 Liabilities and stockholders’ equity Current liabilities Accounts payable $ 14,604 $ 11,965 Accrued expenses 24,677 6,682 Accrued compensation and benefits 6,464 4,214 Sales tax payable 3,728 3,076 Gift card liability 5,590 3,019 Deferred revenue 596 1,781 Returns reserve 2,761 1,677 Income tax payable 3,973 105 Total current liabilities 62,393 32,519 Non-current liabilities Deferred rent and lease incentive 3,542 3,659 Other non-current liabilities 243 0 Total liabilities 66,178 36,178 Commitments and contingencies (Note 10) Stockholders’ equity Common stock — par value $0.0001 per share, 0 and 207,000,000 shares — 15 Class A common stock — par value $0.0001 per share, 1,000,000,000 and 0 shares 15 — Class B common stock — par value $0.0001 per share, 150,000,000 and 0 shares 1 — Preferred stock — par value $0.0001 per share, 100,000,000 and 0 shares — — Additional paid-in capital 227,626 70,175 Retained earnings 17,931 27,487 Total stockholders’ equity 245,573 97,677 Total liabilities and stockholders’ equity $ 311,751 $ 133,855 Year ended December 31, 2021 2020 2019 Net revenues $ 419,591 $ 263,112 $ 110,494 Cost of goods sold 118,370 72,888 31,158 Gross profit 301,221 190,224 79,336 Operating expenses Selling 81,923 51,896 24,840 Marketing 58,713 38,852 33,193 General and administrative 149,602 41,536 21,650 Total operating expenses 290,238 132,284 79,683 Net income (loss) from operations 10,983 57,940 (347 ) Other income (loss), net Interest income (expense) (239 ) 136 460 Other expense (885 ) 0 (1 ) Total other income (loss), net (1,124 ) 136 459 Net income before provision for income taxes 9,859 58,076 112 Provision for income taxes 19,415 8,318 0 Net income (loss) and comprehensive income (loss) $ (9,556 ) $ 49,758 $ 112 Earnings (loss) attributable to Class A and Class B common stockholders Basic earnings (loss) per share $ (0.06 ) $ 0.32 $ 0 Diluted earnings (loss) per share $ (0.06 ) $ 0.30 $ 0 Weighted-average shares outstanding—basic 159,177,713 153,327,308 153,052,983 Weighted-average shares outstanding—diluted 159,177,713 163,331,348 153,624,013 Common Stock Class A Common Stock Class B Common Stock Contribution Additional (Accumulated Deficit) Total Stockholders' Shares Amount Shares Amount Shares Amount Receivable Paid-in Capital Retained Earnings Equity December 31, 2018 153,052,983 $ 15 0 $ 0 0 $ 0 $ (14,000 ) $ 60,891 $ (22,383 ) $ 24,523 Stock-based compensation — — — — — — — 179 — 179 Capital contribution — — — — — — 14,000 — — 14,000 Net income — — — — — — — — 112 112 December 31, 2019 153,052,983 $ 15 0 $ 0 0 $ 0 $ 0 $ 61,070 $ (22,271 ) $ 38,814 Stock-based compensation — — — — — — — 8,713 — 8,713 Stock option exercises 1,391,868 — — — — — — 392 — 392 Net income — — — — — — — — 49,758 49,758 December 31, 2020 154,444,851 $ 15 0 $ 0 0 $ 0 $ 0 $ 70,175 $ 27,487 $ 97,677 Issuance of Class A Common Stock upon (142,851,852 ) (14 ) 142,851,852 14 — — — — — — Issuance of Class B Common Stock upon (12,148,029 ) (1 ) — — 12,148,029 1 — — — — Issuance of Class A Common Stock upon — — 4,636,364 1 — — — 95,100 — 95,101 Issuance of Class A Common Stock upon — — 1,880,548 — — — — — — — Issuance of Class A Common Stock upon — — 1,468,324 — (1,468,324 ) — — — — — Issuance of Class B Common Stock upon — — (1,478,482 ) — 1,478,482 — — — — — Restricted Stock surrendered for employees' tax liability — — — — �� — — — (21,556 ) — (21,556 ) Capital contribution — — — — — — — 1,301 — 1,301 Stock-based compensation — — — — — — — 81,139 — 81,139 Stock option exercises 555,030 — 2,739,651 — — — — 907 — 907 Tax benefit of deductible IPO transaction costs — — — — — — — 560 — 560 Net loss — — — — — — — — (9,556 ) (9,556 ) December 31, 2021 — $ — 152,098,257 $ 15 12,158,187 $ 1 $ — $ 227,626 $ 17,931 $ 245,573 Year ended 2021 2020 2019 Cash flows from operating activities: Net income (loss) $ (9,556 ) $ 49,758 $ 112 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization expense 1,424 946 517 Benefit for deferred income taxes (3,732 ) (6,507 ) 0 Loss on disposal of property and equipment — 2 120 Stock-based compensation 81,139 8,713 179 Changes in operating assets and liabilities: Accounts receivable 3,339 (4,023 ) (1,266 ) Inventory (36,333 ) (35,435 ) (763 ) Prepaid expenses and other current assets (735 ) (4,672 ) 254 Other assets 127 38 (342 ) Accounts payable 2,855 1,207 2,715 Accrued expenses 17,983 4,266 464 Deferred revenue (1,185 ) 794 (712 ) Accrued compensation and benefits 2,250 2,366 713 Returns reserve 1,084 901 267 Sales tax payable 652 527 636 Income tax payable 4,428 105 0 Gift card liability 2,571 2,028 722 Deferred rent and lease incentive (117 ) 734 2,915 Other non-current liabilities 243 0 0 Net cash provided by operating activities 66,437 21,748 6,531 Cash flows from investing activities: Purchases of property and equipment (2,712 ) (2,262 ) (4,761 ) Net cash used in investing activities (2,712 ) (2,262 ) (4,761 ) Cash flows from financing activities: Proceeds from issuance of Class A common stock in initial public offering, net of underwriting discounts 95,881 0 0 Payments of initial public offering issuance costs, net of reimbursements (780 ) 0 0 Payment of debt issuance and financing costs (181 ) (98 ) 0 Proceeds from capital contributions 1,301 0 14,000 Proceeds from stock option exercises 907 392 0 Tax payments related to net share settlements on restricted stock units (21,556 ) 0 0 Net cash provided by financing activities 75,572 294 14,000 Net increase in cash, cash equivalents, and restricted cash 139,297 19,780 15,770 Cash, cash equivalents, and restricted cash, beginning of period $ 58,133 $ 38,353 $ 22,583 Cash, cash equivalents, and restricted cash, end of period $ 197,430 $ 58,133 $ 38,353 Supplemental disclosures: Cash paid for income taxes, net of refunds received $ 15,004 $ 18,162 $ 0 Cash paid for interest $ 0 $ 0 $ 0 Property and equipment included in accounts payable and accrued expenses $ 32 $ 236 $ 770 Deferred offering costs recorded in stockholders' equity upon initial public offering, net of related tax impacts $ 220 $ 0 $ 0 and Macroeconomic Update Basis of Presentation Stock Split Use of Estimates Loss Contingencies Fair Value of Financial Instruments Concentrations of Credit Risk Cash and Cash Equivalents Restricted Cash The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported on the accompanying balance sheets that sum to the total of the same such amounts shown in the statements of cash flows (in thousands): December 31, 2021 2020 Cash and cash equivalents $ 195,374 $ 58,133 Restricted cash 2,056 0 Total cash, cash equivalents, and restricted cash $ 197,430 $ 58,133 Inventory, Net Property and Equipment, Net Property and equipment are recorded at cost, net of accumulated depreciation and amortization. The Company depreciates property and equipment using the straight-line method over the estimated useful lives of the assets, which range from three to ten years. Estimated useful life (years) Furniture and fixtures 7 Office equipment 5 Machinery and equipment 10 Computer equipment 3 Software and website development 5 Leasehold improvements Shorter of the lease term or Capitalized website costs include salary and benefit costs for Company employees and contractors that develop the website. When the development phase is substantially complete and the website is ready for its intended purpose, capitalized costs are amortized using the straight-line method over the five-year useful life. Cloud Computing Costs Impairment of Long-Lived Assets Leases Sales Tax Deferred Offering Costs Revenue Recognition to a customer are treated as a fulfillment activity, and as a result, any fees received from customers are included in the transaction price for the performance obligation of providing goods to the customer. The following table presents the disaggregation of the Company’s net revenues for the years ended December 31, 2022, 2021, Year ended 2021 2020 2019 By geography: United States $ 390,514 $ 253,723 $ 109,932 Rest of the world 29,077 9,389 562 $ 419,591 $ 263,112 $ 110,494 By product: Scrubwear $ 363,050 $ 227,988 $ 97,629 Non-Scrubwear/Lifestyle 56,541 35,124 12,865 $ 419,591 $ 263,112 $ 110,494 Cost of Goods Sold Selling Expenses General and Administrative Expenses Stock-Based Compensation use of the Black-Scholes option-pricing model to estimate the fair value of stock options granted requires the input of various assumptions which are as follows: zero. Income Taxes 2022. Comprehensive Income (Loss) Earnings (loss) per Share Segment Information Recently Issued Accounting Pronouncements leases. 3. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES Fair Value Measurement as of December 31, 2021 Level 1 Level 2 Level 3 Total Assets Money market funds $ 141,104 $ 0 $ 0 $ 141,104 $ 141,104 $ 0 $ 0 $ 141,104 Fair Value Measurement as of December 31, 2020 Level 1 Level 2 Level 3 Total Assets Money market funds $ 50,219 $ 0 $ 0 $ 50,219 $ 50,219 $ 0 $ 0 $ 50,219 Accounts receivable consisted of the following (in thousands): December 31, 2021 2020 Trade $ 1,653 $ 1,704 Other 788 4,076 $ 2,441 $ 5,780 Prepaid expenses and other current assets consist of the following (in thousands): December 31, 2021 2020 Inventory deposits $ 798 $ 963 Prepaid expenses 5,440 1,406 Prepaid taxes 0 3,493 Other 1,162 803 $ 7,400 $ 6,665 Property and equipment, net consists of the following (in thousands): December 31, 2021 2020 Furniture and fixtures $ 855 $ 808 Office equipment 809 765 Machinery and equipment 1,348 752 Computer equipment 953 610 Software and website design 2,997 1,704 Leasehold improvements 3,083 3,017 Capital projects in progress 431 312 Total property and equipment 10,476 7,968 Less: accumulated depreciation and amortization (2,863 ) (1,439 ) Property and equipment, net $ 7,613 $ 6,529 Accrued expenses consist of the following (in thousands): December 31, 2021 2020 Accrued inventory $ 16,243 $ 3,151 Accrued shipping 1,077 656 Accrued selling expenses 2,073 1,394 Accrued legal expenses 588 986 Accrued marketing expenses 673 102 Credit card liabilities 3,160 276 Other accrued expenses 863 117 $ 24,677 $ 6,682 On March 10, 2022, the Company cancelled all outstanding letters of credit under the 2020 Facility. On In 2022, the Company’s Executive Chair and Chief Executive Officer (the “Founders”) paid the Company, at their election, an aggregate amount of $0.4 million for certain of the Company’s professional fees in connection with the Follow-on Offering in which they participated as selling stockholders. 2022 1,963 2023 2,023 2024 2,093 2025 2,166 2026 2,242 Thereafter 7,206 $ 17,693 Inventory Purchase Obligations LEASES December 31, 2021 2020 Current income tax provision Federal $ 17,790 $ 9,087 State 5,357 5,738 Total current provision 23,147 14,825 Deferred income tax benefit Federal (3,014 ) (3,504 ) State (718 ) (3,003 ) Total deferred benefit (3,732 ) (6,507 ) Provision for income taxes $ 19,415 $ 8,318 2022. A reconciliation from the income tax expense using the December 31, 2021 2020 2019 Tax expense at U.S. statutory rate $ 2,083 $ 12,196 $ 23 State tax expense, net of federal benefit 606 4,176 0 Non-deductible expenses 344 (2,116 ) 0 Stock-based compensation (28,727 ) 0 0 Excess compensation limitations 45,359 0 0 Foreign-derived intangible income deduction (455 ) 0 0 R&D tax credit benefit (230 ) 0 0 Unrecognized tax benefits 280 0 0 Change in valuation allowance 0 (5,994 ) (75 ) Other 155 56 52 Provision for income taxes $ 19,415 $ 8,318 $ 0 Significant components of the deferred income taxes are as follows (in thousands): December 31, 2021 2020 Deferred tax assets Net operating losses $ 1,217 $ 1,490 Uniform capitalization adjustment to inventory 2,808 1,135 Stock-based compensation 3,032 1,503 Accrued compensation and benefits 1,341 1,032 Tenant improvement allowance 386 459 Inventory reserve 1,063 991 Deferred rent 552 564 Returns reserve 731 469 Sales tax accrual 437 528 Other 417 148 Total deferred tax assets 11,984 8,319 Less: valuation allowance 0 0 Total net deferred tax assets 11,984 8,319 Deferred Tax Liabilities Property and equipment (1,745 ) (1,812 ) Total deferred tax liabilities (1,745 ) (1,812 ) Net deferred tax assets $ 10,239 $ 6,507 There were no known uncertain tax positions during the year or as of the year ended December 31, 2020. The following table summarizes the activity related to our unrecognized tax benefits during the year ended December 31, 2022 and 2021 (in thousands): Balance as of December 31, 2020 $ 0 Increases related to current year tax positions 50 Decreases related to current year tax positions 0 Increases related to prior year tax positions 117 Changes due to lapse of statute of limitations 0 Settlement with taxing authorities 0 Balance as of December 31, 2021 $ 167 The assumptions that the Company used to determine the grant date fair value of stock options granted were as follows, presented on a weighted-average basis: December 31, 2021 2020 2019 Risk free interest rate 1.15 % 0.42 % 1.81 % Expected volatility 48 % 44 % 57 % Expected dividend yield 0 % 0 % 0 % Expected term (in years) 6.25 6.45 6.25 Stock Options Outstanding Number Weighted Average Weighted Average Aggregate Outstanding at December 31, 2020 39,837,195 $ 3.49 8.87 $ 101 Granted 3,843,666 19.94 Exercised (3,346,352 ) 0.90 Forfeited (2,462,829 ) 5.82 Outstanding at December 31, 2021 37,871,680 $ 5.24 8.02 $ 846 Exercisable at December 31, 2021 24,466,168 $ 3.44 7.53 $ 590 2020. A summary of Number of Weighted average Unvested restricted stock at December 31, 2020 5,410,440 $ 4.51 Granted 1,079,864 31.77 Vested (2,793,436 ) 5.38 Forfeited (28,700 ) 34.18 Unvested restricted stock at December 31, 2021 3,668,168 $ 11.65 Year ended December 31, 2021 2020 2019 Numerator: Net income (loss) $ (9,556 ) $ 49,758 $ 112 Denominator: Weighted-average shares—basic 159,177,713 153,327,308 153,052,983 Effect of dilutive stock options — 10,004,040 571,030 Effect of dilutive restricted stock 0 0 0 Weighted-average shares—diluted 159,177,713 163,331,348 153,624,013 Earnings (loss) per share: Basic earnings (loss) per share $ (0.06 ) $ 0.32 $ 0 Effect of dilutive stock options and restricted stock — (0.02 ) 0 Diluted earnings (loss) per share $ (0.06 ) $ 0.30 $ 0 The Company excluded the following weighted average common equivalent shares from the computation of Year ended December 31, 2021 2020 2019 Stock options to purchase common stock 40,164,214 31,485,366 15,697,638 Restricted stock units 4,316,091 5,410,440 — Name Age Position(s) Heather Hasson Director, Co-Founder and Catherine Spear Director, Co-Founder and Sheila Antrum Director A. G. Lafley Director Jeffrey Wilke Director Chair. Name Age Position(s) Heather Hasson Director, Co-Founder and Catherine Spear Director, Co-Founder and Daniella Turenshine Chief Financial Officer Plan category Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights Number of Securities Available for Future Issuance Under Equity Compensation Plans (excludes securities reflected in first column) Equity compensation plans approved by security holders(1) 15,362,581(2) Restricted Stock Units 3,668,169(3) _ _ Options to Purchase Class A Common Stock 37,871,680(4) $5.24(5) _ Equity compensation plans not approved by security holders _ _ _ Total 41,539,849 $5.24 15,362,581 2022) The exhibits listed below are filed as part of this Annual Report on Form 10-K. 101.SCH Inline XBRL Taxonomy Extension Calculation Linkbase Document * 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document * 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document * 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document * 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) * * Filed herewith. ** Furnished herewith. # Indicates a management contract or compensatory plan FIGS, INC. Date: By: /s/ Catherine Spear Name: Catherine Spear Title: /s/ Catherine Spear ( /s/ Daniella Turenshine Chief Financial Officer Daniella Turenshine (Principal Financial and Accounting Officer) /s/ Heather Hasson Director Sheila Antrum /s/ A.G. Lafley Director Michael Soenen /s/ Jeffrey Wilke Director J. Martin Willhite☒x2021☐o001-39549001-40448
, Suite 100 Santa Monica,, CA(424) (424) 300-8330Yesx ☐No Noo ☒YES ☐Yes Noo ☒No Yesx ☒ NO ☐No Yesx ☒ NO ☐No ☐☐☒☐☒☐oYES ☐Yes Noo No ☒x2021,2022, the last business day of the Registrant's most recently completed second fiscal quarter, was$4,484,975,898.February 28, 2022,January 31, 2023, there were 152,109,210159,383,436 shares of the Registrant’s Class A common stock, par value $0.0001, outstanding and 12,158,1877,210,795 shares of the Registrant’s Class B common stock, $0.0001 par value per share outstanding.2022 2023 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K are incorporated herein by reference in Part III of this Annual Report on Form 10-K where indicated.Table of ContentsPagePART IItem 1.PART I516647514851495149525053525453556467656987968796879688978998911009110191101921019310295104statements.statements within the meaning of the Private Securities Litigation Reform Act of 1955, as amended. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this Annual Report on Form 10-K may be forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expects,“expect,” “plans,“plan,” “anticipates,“anticipate,” “could,” “intends,“intend,” “targets,“target,” “projects,“project,” “contemplates,“contemplate,” “believes,“believe,” “estimates,“estimate,” “forecasts,“forecast,” “predicts,“predict,” “potential”“potential,” “strategy,” “strive” or “continue” or the negative of these terms or other similar expressions. Forward-looking statements contained in this Annual Report on Form 10-K include without limitation statements regarding our future results of operations and financial position, industry, business and businessmacroeconomic trends, the impact of the COVID-19 pandemic and macroeconomic pressures, our use of ocean and air freight, our expectation that we may continue to contend with elevated ocean freight expense, air freight rates and global supply chain challenges, our plans for addressing increased inventory on hand, equity compensation, businessour marketing strategy, plans,competition, market growth and our business strategy, plans and objectives for future operations.2021.2022. The forward-looking statements in this Annual Report on Form 10-K are based upon information available to us as of the date of this Annual Report on Form 10-K, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.3only recently achieved profitabilitynot always been profitable and may not be profitable in the future.Ambassadors,ambassadors, including through the use of social media. We may not be able to maintain and enhance our brand if we experience negative publicity related to our marketing efforts or use of social media, fail to maintain and grow our network of Ambassadorsambassadors or otherwise fail to meet our customers’ expectations.personnel and senior management.any changes in, or disruptions to, our shipping arrangements couldhave in the past and may in the future adversely affect our business, financial condition and results of operations.Our business may be subject to uncertainty as a result of the COVID-19 pandemic.•the Class B stockholders hasour co-founders, Heather Hasson and Trina Spear, Tulco, LLC and Thomas Tull and certain related persons and trusts have the effect of concentrating voting control with Ms. Hasson, Ms. Spear and Mr. Tull, who together hold the majority of the voting power of our co-foundersoutstanding capital stock, which may limit or preclude your ability to influence corporate matters, including the election of directors and co-Chief Executive Officers, and Tulco, LLC.generate revenue by selling technically advanced apparel forsell products purposefully designed to serve the modernparticular needs of healthcare professional.professionals primarily through a convenient direct-to-consumer (“DTC”) digital platform, consisting of our website and mobile app. Our offerings include scrubwear as well as lifestyle apparel and other non-scrub offerings,non-scrubwear, such as lab coats, underscrubs, outerwear, loungewear, compression socks, footwear and masks.other lifestyle apparel. We primarily design all of our products in-house, leverage third-party suppliers and manufacturers to produce our raw materialsproduct components and finished products, and generally utilize shallow initial buys and data-driven repurchasing decisions to test new products. We directly and actively managecoordinate and supervise every step of our product development and production process to ensure that our extremely high quality standards are met. We also have a highly efficientdynamic merchandising model—due to the largely non-discretionary, replenishmentreplenishment-driven nature of healthcare apparel,scrubwear, we maintain lowlessened inventory risk driven by a relatively high volume of repeat purchases and a focus on our core scrubs offerings. We primarily market and sell our products through our digital platform, consisting of our website and mobile app, to a rapidly growing community of loyal customers.From 2017 to 2021, we grew annual net revenues from $17.6 million to $419.6 million, representing a compound annual growth rate (“CAGR”) of 121%.We Are Obsessed with Our Community of Awesome Humans.We are dedicated to empowering and celebrating every healthcare professional across all disciplines and levels of experience. We purposefully design products to serve their particular needs and we sell those products through a convenient direct-to-consumer (“DTC”) digital platform tailored to their around-the-clock lifestyle. of healthcare professionals at scale. Our Ambassador Program consists of Awesome Humans from around the world who represent a diverse cross-section of the healthcare industry and help us interact with our community and drive engagement with our community.engagement. Our differentiated approach to creating authentic and meaningful relationships with our community has allowed us to build a growing base of approximately 1.92.3 million active customers as of December 31, 20212022 who are passionate about and loyal to our brand.Innovation Drives Our Product Development.Our design philosophy is rooted in Technical Comfort the conviction that design, comfort and function are non-negotiable. While multi-billion-dollar companies were focused on athletes, we believed that nobody was sufficiently focused on healthcare professionals—extraordinary people who deserve to look, feel and perform at their best. As a result, we developed cutting-edge fabric technologies and product designs to specifically address their needs. Our core proprietary fabric technology, called FIONx, offers four-way stretch, anti-odor, anti-wrinkle and moisture-wicking properties. Our scrubs feature easy-to-access zippered pockets for professional and personal items such as stethoscopes, scissors, smartphones and ID badges. Our lifestyle apparel and other non-scrub offerings, such as lab coats, underscrubs, outerwear, loungewear, compression socks, footwear and masks, are specifically designed for the needs and preferences of the medical community.We Are a Digitally Native Direct-to-Consumer Brand.We are a digitally native DTC brand that utilizes technology to deliver a differentiated customer experience. We disrupted the industry’s historical brick-and-mortar distribution model and built the largest DTC platform in healthcare apparel. By selling directly through our digital platform, we control all aspects of a seamless, convenient customer experience. Further, we are able to engage with our community of healthcare professionals before, during and after purchase, through our digital platform, email, social media,5podcasts, in-person events and numerous other channels. This direct engagement enables us to establish personal relationships at scale and provides us with valuable customer data and feedback that we leverage across our organization to better serve our community.We Leverage Data Science to Connect with and Serve Our Community.We leverage our rich customer data set, bolstered by the inherent benefits of our DTC model, to serve our community more effectively and efficiently. We develop proprietary and customized data solutions designed to optimize our product innovation, inventory analytics, marketing efforts and operational efficiency. We also have teams of data scientists, data engineers and data analysts working directly with each key functional area of the Company. This approach enables us to gather and manage extensive data, and rapidly and directly apply that data to deliver valuable insights that improve our core operating activities and decision-making processes. Our vast and growing data set plays a critical role in driving new customer acquisition as well as in our community engagement and retention strategy.We Give Back to the Community We Serve.By providing clean scrubs to these individuals, we aim to empower them and improve the quality of care they provide. To date, through Threads for Threads, we have donated hundreds of thousands of FIGS scrubs and other products to medicalhealthcare professionals in need around the world.In an effort to empower and support our healthcare community, we We have also given in a variety of other ways, including through medical giving trips, tuition and student loan repayment grants, to the next generation of healthcare professionals, financial support to charitable organizations, that help uplift the healthcare community, and a wide range of other partnerships and giving initiatives that support the vulnerable communities that our healthcare community servesand the communities that they serve every day.There are approximately 20 millionprofessionals in the United States. According to the Bureau of Labor Statistics, employment in healthcare occupations in the United States is projected to grow 16% from 2020 to 2030, much faster than the average for all occupations, adding about 2.6 million new jobs. Healthcare occupations are also projected to add more jobs than any other occupational group.Within this growingapparel market healthcare apparel is a fundamentally attractive industry underpinned by its scale, recurring nature and compelling growth outlook. There are approximately 22 million healthcare professionals in the United States, according to the U.S. Census Bureau’s 2019 American Community Survey. Furthermore, according to the Bureau of Labor Statistics, as of September 2022, employment in healthcare occupations in the United States is projected to grow 13% from 2021 to 2031, much faster than the average for all occupations, adding about 2 million new jobs. With an expanding agingcommissioned.commissioned (the “Frost & Sullivan Study”). Unlike most other categories in the apparel sector, the healthcare apparel industryscrubwear, due to its frequent wear as a uniform, is largely non-discretionary, replenishment driven, recession resistant and much less susceptible to fashion or fad risk. Hospitals, medical offices, clinics and laboratories routinely require healthcare professionals such as doctors, nurses and medical technicians to wear scrubs, lab coats and other medical apparel during every shift, and the vast majority of medical professionals purchase their own uniforms. Due to frequent wear,Supported by these key trends, the healthcare apparel continuously needsindustry is expected to be replenished, resultingdemonstrate strong and consistent growth, with the total addressable market in highly predictable, recurring demand for such products.the United States expected to grow by a 6.1% CAGR between 2020 and 2025, from approximately $12.0 billion to approximately $16.0 billion, according to the Frost & Sullivan Study.lifestylenon-scrubwear offerings; (iii) brand obscurity and limited brand loyalty resulting from sales under third-party licenses and lack of control over the product; (iv) antiquated distribution through a fragmented network of discount brick-and-mortar medical supply stores; (v) lack ofstores and lacking DTC distribution; (vi)(v) lack of a direct connection with the end customer and;customer; and (vii)(vi) structurally challenged margin profiles impacting incumbent manufacturers’ ability to invest in product innovation, marketing and customer experience.replenishmentreplenishment-driven nature of its productsscrubwear and the secular growth of the healthcare sector. Healthcare professions are also among the fastest growing occupations in the United States. With an expanding aging population, proliferation of chronic illness, greater access to healthcare in the United States and an increasing focus on health and wellness, the demand for healthcare professionals continues to6grow. Further, the shift to eCommerce is rapidly accelerating as consumersConsumers continue to embrace the convenience of online and mobile shopping. For healthcare professionals who work long shifts and all hours of the day and night, the convenience of eCommerce is even more necessary. Lastly, Consumersconsumers are increasingly attracted to, and interested in engaging with, purpose-driven brands using social media channels.Supported by these key trends, the healthcare apparel industry is expected to demonstrate strong and consistent growth, with the total addressable market in the United States expected to grow by a 6.1% CAGR over the next five years, from approximately $12.0 billion in 2020 to approximately $16.0 billion in 2025, according to the Frost & Sullivan study.2021,2022, our deeply loyal community consisted of approximately 1.92.3 million active customers. Our brand awareness is driven largely by word of mouth among healthcare professionals who are passionate about FIGS, and whose passion quickly spreads through hospitals and healthcare institutions, where thousands of healthcare professionals often work in close proximity to one another. In addition, through our digital platform and social media presence, we provide venues for our community to engage with each other on common ground. We are proud that our products and digital platform are connecting healthcare professionals and bridging gaps that previously existed across varying disciplines and experience levels.+80+79 through December 31, 2021.industry. Our design philosophy stems from an unwavering focus on whatindustry designed to specifically address the needs of healthcare professionals need from their apparel in orderprofessionals—extraordinary people who deserve to look, feel and perform at their best. Our innovative products are designed, sourced and manufactured from the fiber level. Ourlevel and our proprietary FIONx fabric technology is made from what we believe to be the best combination of materials, and is core-spun for maximum durability to withstand the demands of a healthcare professional’s work without sacrificing comfort. We design products that offerFIONx technical features such asinclude four-way stretch, anti-odor, anti-wrinkle, and moisture-wicking properties. Our approachscrubs also feature easy-to-access zippered pockets for professional and productspersonal items such as stethoscopes, scissors, smartphones and ID badges. Our non-scrubwear, such as lab coats, underscrubs, outerwear, loungewear, compression socks and footwear, are distinct from thosealso specifically designed for the needs and preferences of legacy manufacturers, who offer poorly fitting scrubs and other commoditizedthe healthcare apparel offerings.medicalhealthcare professionals. By owning all aspects of the customer experience, including website and app design, marketing content, storytelling and post-purchase customer engagement, we deliver an elevated, personalized and seamless experience.that we leverage in all aspectsset, bolstered by the inherent benefits of our business,DTC model, to serve our community more effectively and efficiently. We develop proprietary and customized data solutions designed to optimize our product innovation, inventory analytics, marketing efforts and operational efficiency. Our data team works directly with key functional areas of the Company, including apparel design and merchandising, customer acquisition and retention, demand forecasting and inventory optimization,optimization. This approach enables us to gather and manage extensive data, and rapidly and directly apply that data to deliver valuable insights that improve our core operating activities and decision-making processes, leading to operational efficiencies throughout our supply chain, inventory management and new product development.Highly Effective Our vast and growing data set also plays a critical role in driving new customer acquisition as well as in our community engagement and customer retention strategy.highly effectivedynamic merchandising strategy, anchored by our recurring, functional offering of 13 core scrubwear styles, which represented over 80%78% of our net revenues in 2021. We2022, and which we offer these core scrubwear stylesyear-round in six core colorscolors. To complement our scrubwear offering, we also offer non-scrubwear products, which together with our scrubwear, are intentionally designed to be worn as well as limited edition colorsa Layering System from base layer to generate excitement around the brand and create a sense of purchase urgency. In addition to our core scrubwear styles, we offer scrubs in limited edition styles, which represented 5% of our net revenues in 2021. The remaining 14% of net revenues in 2021 was generated from sales of our lifestyle apparel and other non-scrub offerings, which include lab coats, underscrubs, outerwear, loungewear, compression socks, footwear, masks and other products. For our limited edition colors and styles, we utilize a disciplined buying approach with shallow initial buys and data-driven repurchasing decisions to minimize inventory risk while creating scarcity.outer layer. We also launch limited edition colors, limited edition styles or new products almost every week,7driving which not only drive excitement, but also drive our core business by encouraging recurring traffic to our digital platform where customers often purchaseplatform. We utilize a disciplined buying approach for limited edition products, along with our core offerings. These launches not onlygenerally shallow initial buys and data-driven repurchasing decisions to lower inventory risk, create scarcity and drive interest in the limited edition products themselves, they also drive our core business. This innovative, lower-risk merchandising strategy drives recurring demand while maintaining inventory efficiency.demand. As an additional benefit, our approachproduct portfolio has resulted in a return rate of approximately 10% in 20202021 and 2021,2022, which is far lower than the broader online apparel return rates that tend to be in the 30% to 40% range.Attractive Financial Profile Driving Robust Growth, Profitability and Cash Flow GenerationOur business model supports our attractive financial profile characterized by robust growth, profitability and cash flow generation. As a successful DTC brand with a highly effective merchandising model, we benefit from structurally advantaged product margins. Through our DTC strategy, we leverage data in our marketing initiatives to drive efficient customer acquisition and retention, which has contributed to our rapid growth and strong profitability. In 2021, we delivered net revenues growth of 59.5%, gross margins of 71.8%, operating income margins of 2.6% and Adjusted EBITDA margins of 25.1%. Due to our modest capital expenditure requirements, we enjoy significant cash flow generation.company culture, strategic vision and operational execution are driven by our visionary co-founders, and co-Chief Executive Officers, Heather Hasson and Trina Spear. Our company culture mirrorsSpear, who currently serve as our founders’Executive Chair and Chief Executive Officer, respectively, are the visionaries of our company. Each serves a unique role—Ms. Spear executes on the Company’s strategic vision and operations, and Ms. Hasson focuses on developing product innovation. Together, their shared mission to celebrate, empower and serve those who serve others.others drives our company culture. We understand that authentically serving humans starts from within, and we are passionate about supporting our community and ensuring that our company reflects the world we want to live in. We are committed to operating responsibly and promoting ethical andOur Growth StrategiesIn 2020, the total addressable market of the U.S. healthcare apparel industry was approximately $12.0 billion, according to the Frost & Sullivan study. Notwithstanding our rapid growth, we estimate that our share of this U.S. healthcare apparel industry is approximately 3.5%, presenting substantial opportunity for further growth. We believe we are well-positioned to significantly expand our market share and drive sustainable growth and profitability by executing on the following strategies:Continue to Increase Customer LoyaltyWe have the opportunity to create customers for life—customers who return to FIGS repeatedly throughout their medical careers. Healthcare apparel continuously needs to be replenished, resulting in highly predictable, recurring demand. As a result, customer loyalty and retention will continue to be a key driver of our growth. We encourage repeat purchases by introducing innovative limited edition styles, products and color drops. Customers who we retain also tend to spend more with us over time. By leveraging data analytics and developing new personalization capabilities, we plan to continue to deepen our existing customer relationships to further improve our strong customer retention and engagement.We also inspire customer loyalty by building authentic relationships with our community and by creating thoughtful brand and performance marketing focused on retention. For example, through our #FIGSLOVE program, we send special gifts, such as embroidered lab coats, to members of our community when they graduate from school, open a new practice or reach other career milestones. We aim to be part of their journey, building deep, lasting relationships along the way.Grow Brand Awareness and Attract New CustomersAs of December 31, 2021, we served a community of approximately 1.9 million active customers, which compares to a broader total addressable market of 20 million healthcare professionals in the United States. In addition, compared to the percentage of male healthcare professionals in the United States, our men’s business is proportionally underpenetrated, presenting significant opportunity to expand our customer base.We also have a significant opportunity to grow brand awareness and attract new customers to FIGS through word of mouth, brand marketing and performance marketing. Hospitals and other healthcare institutions, which often employ thousands of healthcare professionals working in close physical proximity on a daily basis, serve as ideal environments for growing awareness of our brand through word of mouth. Brand marketing and performance marketing also work together to drive millions of visits to our digital platform. We create differentiated brand marketing content to grow and retain our loyal community while highlighting the spirit of the FIGS brand. We leverage authentic relationships with healthcare professionals who serve as Ambassadors by exhibiting outsized engagement with our community through social media. We complement social media efforts with offline brand marketing strategies, such as billboards and commercials, that deliver emotional and inspiring content that drive brand awareness. Our digital-centric performance marketing efforts are designed to drive customers from awareness to consideration to conversion. These efforts include retargeting, paid search and product listing advertisements, paid social media advertisements, search engine optimization, personalized email and mobile push notifications through our app. Our highly productive, diversified strategy generates a significant return on new8customer acquisition investments resulting from high average order value, strong product margins and attractive repeat purchase behavior.Broaden Our Lifestyle OfferingsWe intend to continue to leverage healthcare professionals’ trust in our technical function, fit, comfort and style, as well as our rapid product development capabilities to broaden and deepen our product offerings. We have strategically expanded our addressable market over time by creating new innovative products and entering or creating new categories that are complementary to our core offerings. Our category expansion strategy is focused on outfitting the medical professional—on and off shift—to work, at work and from work. As a result, we created the FIGS Layering System, which features complementary products intentionally designed to be worn together from base layer to outer layer. Our customers often begin their FIGS journey with our core scrubs and expand their purchases to limited edition scrubs, lifestyle and other products that form a part of the FIGS Layering System. As we continue to expand our offerings to fully outfit the medical professional, we believe we have a significant opportunity to continue to expand our share of both the uniform and lifestyle wardrobe of our customers.Pursue International ExpansionWe believe there is a tremendous opportunity over the long term to serve healthcare professionals throughout the rest of the world. According to the Frost & Sullivan study, the number of healthcare professionals and medical students internationally is expected to grow from approximately 118 million in 2020 to an estimated 124 million in 2025, and the total addressable market for healthcare apparel outside of the U.S. is expected to grow from an estimated $67.0 billion in 2020 to an estimated $86.0 billion in 2025.Outside of the United States, we currently sell into Australia, Canada and the United Kingdom. Customer reception to date in these markets has been strong and has proven that our brand resonates with customers outside of the United States. Over time, we plan to enter other new markets. We intend to make strategic investments in these markets as we seek to enhance our ability to serve our international customers and further establish FIGS as a global brand.Utilize Data Science to Expand Our Community, Elevate Customer Experience and Drive Intelligent ReplenishmentWe expect to drive continued growth from our use of proprietary data science. Through hundreds of data attributes associated with millions of customers, we have a unique ability to welcome new healthcare professionals to our community and drive repeat business from them. As just one illustration of this, we are able to identify geographic regions where FIGS is under-represented, use our knowledge of existing community members to build machine learning-derived customer segments to identify who is most likely to purchase from us, and drive our customers to a digital experience that is pre-populated with the products most likely to appeal to them.Similarly, we believe that traditional fixed-time subscription models do not sufficiently leverage data and thus are disconnected from a healthcare professional’s actual needs. Instead, we use an intelligent replenishment model that is tied to individualized buying preferences. To us, it is fundamental that we cater to the unique preferences of each healthcare professional—how often they want to buy certain products, which products they are most likely to buy, and through which channel they are most likely to transact. By leveraging data science, we are able to answer these questions for each member of our large and growing community in increasingly accurate ways, and to create replenishment opportunities that are tied to those customized needs. Using data science to make the buying experience as seamless and accommodating as possible is a fundamental part of the value we create for our community and we believe will drive continued growth for our business.Enter New Professional MarketsOutside of the healthcare apparel industry, we believe we have a compelling long-term opportunity to enter into other uniform-wearing professional markets. In the United States, there are approximately 40 million people outside of healthcare in service-based industries that traditionally wear uniforms every day, such as food service, hospitality, construction and transportation. The occupational nature of these professions is generally hands-on, labor-intensive and often requires apparel with technical specifications. Furthermore, we believe the incumbent apparel manufacturers in these markets suffer from limitations similar to those faced by the legacy healthcare apparel manufacturers. In our view, these markets—similar to the healthcare apparel market—have long been underserved by incumbent apparel manufacturers and are ripe for disruption. We believe we are strategically positioned to leverage our core competencies to expand into these new markets in the future.WithWe leverage customer data, customer feedback, focus groups and practitioner testing to provide us with an intimate understanding of how medical professionals move, work and interact with colleagues and patients, we seekpatients. Our tight feedback loop through our digital platform and social media channels and our customer experience team enables us to design products that solve their unique needs.quickly incorporate ideas from our community into our product design. We are constantly challenging ourselves to create the highest quality and most innovative fabrications, styles and product features forthat meet the unique needs of healthcare professionals. Our apparel is comfortable, durable, functional and stylish, all at an affordable price point. As a result of our efforts, healthcare professionals now have a destination to outfit themselves with products that allow them to look, feel and perform at their best.9We Believe in Continuous InnovationThe needs of healthcare professionals are always changing, and we aim to understand and address their needs through direct interactions with our community. We leverage customer data, customer feedback, focus groups and practitioner testing to understand how to best serve healthcare professionals. Our tight feedback loop through our digital platform and social media channels, as well as our customer experience team, enables us to quickly incorporate ideas from our community into our product design.•Fabric Innovation for Comfort and Performance. Our core FIONx fabric is extremely soft and features antimicrobial technology for odor control and fabric durability, four-way stretch to allow for greater mobility, moisture-wicking properties to assist with body temperature regulation and anti-wrinkle for extra convenience.•Functional Innovation. Our scrubs have a large number of specially designed pockets to comfortably hold professional equipment, such as stethoscopes, tablets, charts, dental loupes and flushes. They also include bungee loops for security badges and other pockets for personal belongings, such as keys, phones, wallets and rings.•Fit Innovation. Our technical design team ensures our products are tailored to provide optimal fit, comfort and mobility. In addition, we believe in fit inclusivity and strive to outfit every healthcare professional. Accordingly, we offer seven sizes for women (XXS-2XL), six sizes for men (XS-2XL), three lengths for women (petite, regular, tall) and three lengths for men (short, regular, tall). We also offer various maternity offerings.•Style Innovation. We believe that healthcare professionals have the right to be stylish and look good while wearing their uniform. Our design and apparel team is comprised of experts from throughout the technical fashion world, ensuring that our products have a sophisticated silhouette in addition to being comfortable, high-performing and functional.Product Offeringsnon-scrubwear/lifestyle.non-scrubwear:threetwo men’s scrub tops and threefour men’s scrub pants. We offer these core styles in six core colors and in limited edition colors. Additionally, we frequently launch limited edition scrubwear styles in both core and limited edition colors.Non-Scrubwear/Lifestyle.Non-Scrubwear. Our non-scrubwear and lifestyle product offeringsproducts are intentionally designed as an integrated system that complements our scrubwear. These productsscrubwear, and are comprised of “base layer” and “outer layer” products:oojackets and lab coats.jackets. Our non-scrubwear product offerings also include our FIGSPRO offerings, which is our polished and performance-driven, office-ready collection. We also partner with New Balance to design and offer shoes that provide greater slip-resistance, cushion and moisture-repellent qualities that our healthcare professionals need. We also offer necessities such as face masks, scrub caps, lanyards, badge reels, tote bags, fanny packs, backpacks, baseball caps and beanies.We also offer kits, which feature various assortments of our products bundled together and which are a convenient way for our Awesome Humans to purchase products from across the FIGS Layering System with one click.includedinclude a wide range of experience levels and areas of expertise, including registered nurses, nurse practitioners, orthodontists, dental hygienists, pharmacists, physical therapists, occupational therapists, veterinarians, sales representatives, estheticians, speech pathologists, emergency medical technicians, surgeons and healthcare administrators, among others. Due to the10 Our fluidity in brand and performance marketing has led to the creationAmbassadors.ambassadors. We believe our campaigns and inspiring messaging contribute to high brand affinity among our community.nearly 700,000over 820,000 followers on Instagram, which is over twice the number of followers of our nearest competitor. We are proud of our robust following and above-average engagement rate. Social media is the primary place for our community to congregate, share stories, follow product launches and interact with our brand, and in turn, our community shares feedback that informs our product and content decisions. We strive to create content that has value and purpose—whether to amplify a cause, make people laugh, or to celebrate and educate about our product—and social media is where our creativity and deep connection to our community meet.Ambassadorsambassadors and their loyalty, love and involvement with our brand fosters organic sharing, storytelling and intimate connections with the millions of healthcare professionals in our community. Our Ambassador Program is a microcosm of our FIGS community—they are invaluable to us, they inspire and inform everything we do, and we would not be where we are today without them. is rooted in a digital centric approach that aims to offer the right products to the right healthcare professionals at the right times. Our sophisticated performance marketing efforts include retargeting, paid search and product listing advertisements, paid social media advertisements, search engine optimization, personalized email and mobile push notifications through our app. When combined with our community-driven brand marketing, our performance marketing supports attractive customer acquisition and retention metrics. Because we can pinpoint specifically who our customers are and where they live and work, we are able to target them with greater efficiency and less expense than other companies whose customers come from a much less defined group.TeamsTEAMS BusinessTeams,TEAMS, to revolutionize, consumerize and elevate what had previously been an outdated buying process for institutional customers. Through Teams,TEAMS, healthcare administrators and institutions can seamlessly and efficiently solicit individual orders and buy FIGS products for their teams with only a few clicks.organizations. Our TeamsTEAMS business is centered around partnering with institutional departments and medical offices that wish to standardize and professionalize their teams’organizations’ uniforms.We have teams ofOur data scientists, data engineers and data analysts workingteam works directly with each key functional area.areas of the Company. This approach enables the harvesting and management of extensive data, the development of a suite of proprietary tools, and the direct and rapid application of those data science inand tools to improve core operating activities and decision-making processes throughout the Company.11including:•Product. We develop detailed pictures of our customersincluding product development, supply chain, merchandising and use these personas to shape our unique understanding of them and to inform our product development. Through our models, we gain powerful insights into factors that are most likely to drive conversion, and we use those inferences as inputs into the product design and development process.•Supply Chain. We have built a proprietary integration for our product lifecycle from purchase order to manufacturing to shipping. This integration enables extensiveinventory management, and oversight of the product flow and fuels a variety of prediction models. By combining the product lifecycle data integration with sophisticated demand predictions, we can continuously assess the supply chain and improve efficiency.•Merchandising and Inventory Management. Through our customer ontology, we develop precisely defined customer segments and a mosaic representation of our customers. This approach enables us to understand buying behaviors, preferred DTC channels, product preferences and decision drivers. It also enables us to manage purchasing and inventory effectively and efficiently. We also use data-driven models to predict demand for our products. The high concentration of core scrubwear sales enables our models to be highly predictive, which reliably extends to limited edition launches, and we are able to anticipate optimal times for launch, including day of week and time of day.•Marketing. We use our customer ontology to create customized segments that can be launched efficiently across media channels. This precise segmentation supports highly tailored messaging and lower costs per impression. We employ a suite of dynamic learning tools to understand creative performance and behavior at the customer segment level. These tools enable us to effectively develop and place our creative assets. Combining our micro-segments and creative optimization enables us to create finely tuned campaigns that allow us to reach our target audiences with creative assets that we believe have the highest probability of driving conversion.•Customer Experience. The integration of our customer ontology and predictions into the engineering of our DTC channels enables customized customer experiences. For example, we use customized email and SMS communication to deliver personalized recommendations and offers that are more likely to drive conversion. We continue to evolve the site experience to support tuned recommendations based on prediction models and to offer product bundles based on cluster analysis. Using our customer data, we make individual customer level predictions leading to direct and tailored outreach with messaging that has a higher probability of individualized success. As such, we can provide a high-quality customer experience by presenting products that our healthcare professionals need, exactly when they need them.raw materialsproduct components and finished products. We directly and actively managecoordinate and supervise every step of our product development and production process. The extent to which we manage production is differentiated from the typical model of primarily relying on third-party agents to manage production. We believe our approach has enabled us to produce premium products through greater control of the end-to-end production process.2021, nearly 90%2022, approximately 85% of our production utilized1280%78% of our net revenues in 2021.2022. Similar to our core FIONx fabric, the continuous production of our core scrubwear styles provides us with consistency and scale in our production. We manage a diversified supply chain, which spanned 149 countries and consisted of approximately 4034 global production partners in 2021.Further, we offer our manufacturing partners predictable and consistent growth in inventory purchases with little seasonality.regularlyalso source new suppliers and manufacturers to support our ongoing innovation and growth, particularly in our non-scrub categories, and we carefully evaluatenon-scrubwear categories.newof our direct suppliers and manufacturers (“Tier I Suppliers”) to certain ethical requirements to help ensure they share our standards for quality of manufacturing, ethical working conditions and social and environmental sustainability practices. Our Tier I Suppliers are contractually required to adhere to the provisions of our Vendor Manual, through which they commit to providing working conditions that meet or exceed the labor standards established by the United Nations, local labor laws and the standards established by the Fair Labor Association. As part of our quality assurance procedures, FIGS team members visit all direct FIGS suppliersTier I Suppliers on average two times each month, and they visit all of our suppliers’Tier I Suppliers’ direct suppliers (“Tier II Suppliers”), to the extent nominated by FIGS, on average one time each month, to review their operations and our quality requirements.manufacturersTier I Suppliers to be certified through the Worldwide Responsible Accredited Production (“WRAP”) program, which is an independent organization dedicated tofocused on promoting safe, lawful, humane and ethical manufacturing. Furthermore, we requireThrough their commitment to adhere to our Vendor Manual, all suppliers and manufacturersof our Tier I Suppliers are contractually required to contractually commit to upholding these standards. As part of our suppliers’Tier I Suppliers’ required certification with WRAP, they undergocommit to regular audits by WRAP directly. directly to promote their compliance with WRAP’s 12 Principles, which are: (1) compliance with laws and workplace regulations, (2) prohibition of forced labor, (3) prohibition of child labor, (4) prohibition of harassment and abuse, (5) compensation and benefits, (6) hours of work, (7) prohibition of discrimination, (8) health and safety, (9) freedom of association and collective bargaining, (10) environment, (11) customs compliance and (12) security.mustare required to successfully pass every WRAP audit with no corrective actions or observations and maintain continuous certification without gaps. All FIGS suppliersTier I Suppliers must have a Gold or Platinum certification in order to continue to work with us.We ship our finished products to customers across the United States as well as internationally to Australia, Canada and the United Kingdom. As awhoseculture mirrors our mission is to celebrate, empower and serve those who serve others, weothers. We understand that authentically serving humans starts from within. At FIGS,within, and we are creatingpassionate about supporting our community and enabling our company to reflect the world we want to live in, and we work hard to ensure that our company reflects what we want to see in our community.2021,2022, we employed 264313 team members in the United States across our Santa Monica, California headquarters, our City of Industry, California fulfillment center location and remote locations. As of December 31, 2022, 93% of our employees were permanent employees. Additionally, we rely on independent contractors and temporary personnel to supplement our workforce from time to time. None of our employees is represented by a labor union. We have not experienced any work stoppages, and we consider our relations with our employees to be good.experience. experience, and utilize dedicated technology from a leading third-party provider to drive inclusive hiring at every level. We also continuously assess our hiring process to identify areas for development and to improve our inclusive hiring strategies. We are deeply committed to creating a diverse and inclusive team through new sourcing methods, reducing unconscious bias across the recruitment life cycle and promoting fair and consistent hiring practices.between December 2021 andin January 2022,2023, we are proud that:1360%38% of our board of directors identified as women and 20%25% identified as members of underrepresented minorities;64%approximately 70% of our leadership team identified as women, 9%30% identified as agendermen and 30% identified as members of underrepresented minorities;racial or ethnic groups; and69%approximately 66% of our total workforce identified as women, 2%31% identified as men, 1% identified as non-binary, 1% identified as genderqueer or genderfluid, 1%agender and 58% identified as agender and 61%members of underrepresented racial or ethnic groups.minorities.racial or ethnic groups; andensuring thatenabling every single person at FIGS hasto have a platform to be seen, heard and celebrated. To accomplish this goal, we are intensely focused on our culture, team-building initiatives and well-being. Our employee-led Culture Committee strives to foster an empowering, supportive and healthy experience for all FIGS employees and helps ensure thatenable all FIGS voices areto be represented and heard, by routinely organizing Company-wide events and initiatives. Weinitiatives focused on diversity and inclusion. Our Culture Committee programming also offerprovides a way for our employees several well-being perks, including food delivery stipends,to give back to the community, driving connections and access to virtual workouts, mental health, behavioral health, therapy and self-care providers.making an impact on a wide variety of organizations in need.documented processes and training, including for our team members at our fulfillment center.center, and we ensure that our third-party logistics provider, which operates our fulfillment center, maintains robust safety practices as well. We also maintain a whistleblower hotline through which employees can report health and safety risks. We continually strive to improve our safety processes. risks, among other concerns.fiscalthe year 2021,ended December 31, 2022, due to the COVID-19 pandemic, we also continued to implement safety protocols to protect our employees when working on-site, including protocols regarding social distancing and face coverings, temperature checks and testing. In addition, the vast majority of our employees continue to work remotely.The healthcare apparel industry includes established companies as well as new entrants. We compete against wholesalers of healthcare apparel, such as Careismatic Brands, Barco Uniforms, Landau Uniforms and Superior Group of Companies. Additionally, we compete with healthcare apparel aggregated retailers, such as Scrubs & Beyond and Uniform Advantage, as well as DTC brands such as Jaanuu.Area.Area and relevant legislation in the UK. Our products sold outside of the United States may be subject to tariffs, treaties and various trade agreements, as well as laws affecting the importation of consumer goods.1420212022 compliance with these laws and regulations, including any applicable environmental regulations, has not had, and in any material subsequent period is not expected to have, a material effect on our capital expenditures, results of operations or competitive position.tag lines.taglines.2021,2022, we owned nine11 U.S. trademark registrations, had 1218 pending U.S. trademark applications, owned 6981 foreign trademark registrations and had 2372 pending foreign trademark applications.2021,2022, we had two allowed12 granted U.S. design patents, teneight pending U.S. design patent applications, pending, 5262 granted foreign design registrations and 12 pending foreign design registrations, each of which relates to our core scrubwear. Additionally, as of December 31, 2021, we also had an additional four U.S. design patent applications pending, five granted foreign design registrations, and ten28 pending foreign design applications, forwhich relate to our core scrubwear and other apparel designs. The term of protection for design patents and design registrations is limited in duration and depends on the jurisdiction in which they are granted. AlthoughThe terms for our U.S. design patent applications have not yet issued, the term for any resulting issued design patents in the U.S. generally extendsextend 15 years from the date of patent grant.2025,the years ranging between 2030 and 2047, at which point we intend to renew them, to the extent they are renewable. Some of our issued U.S. design patents will expire in 2036, while others will expire in 2037. We intend to pursue additional intellectual property protection to the extent we believe it would be beneficial and cost-effective.ashowever such information could be deemed to be material information.15risks, some of which are described below.risks. You should carefully consider the risks and uncertainties described below, together with all of the other information in this Annual Report on Form 10-K. The risks10-K and uncertainties described below are notin our other filings with the only ones we face. Additional risks and uncertainties that we are unaware of or that we deem immaterial may also become important factors that adversely affect our business.SEC. The realization of any of these risks and uncertainties could have a material adverse effect on our reputation, business, financial condition, results of operations, growth and future prospects as well as our ability to accomplish our strategic objectives. In that event, the market price of our Class A common stock could decline and you could lose part or all of your investment.Risks Related to Our BusinessWe have experienced significant and rapid growth. Net revenues increased from $263.1 million in 2020 to $419.6 million in 2021. revenuerevenues growth to slow or decline and may adversely affect our margins andmay slow forcould be negatively impacted due to a number of other reasons, including if there is a slowdown in the growth of demand for our products, increased competition, a decrease in the growth or reduction in the size of our overall market or if we cannot capitalize on growth opportunities. Failure to continue to grow our net revenues or improve or maintain margins would adversely affect our business, financial condition and results of operations. You should not rely on our historical rate of growth as an indication of our future performance.We have expanded our operations rapidly since our founding in 2013. We have rapidly increased employee headcount since our inception to support the growth in our business. To support our continued growth, we must effectively integrate, develop and motivate a large number of new employees. We face significant competition for personnel, including in Southern California, where our headquarters is located. To attract top talent, we may need to increase our employee compensation levels to remain competitive in attracting and retaining talented employees. In addition, we could be required to continue to expand our sales and marketing, product development and distribution functions, to upgrade our management information systems and other processes and technology and to obtain more space for our expanding workforce. Additionally, the growth of our business places significant demands on our existing management and other employees. Failure to manage our employee base and hiring needs effectively, including successfully integrating our new hires, may adversely affect our business, financial condition and results of operations.only recently achieved profitabilityhave not always been profitable and may not be profitable in the future.a history of operating losses and only recently achieved profitability.not always been profitable. We expect our operating expenses to increase in the future as we increase our sales and marketing efforts, continue to invest in developing new products, hire additional personnel, expand our operating infrastructure and expand into new geographies. Further, as a public company, we incur additional legal, accounting and other expenses that we did not incur as a private company. Additionally, stock-based compensation expense related to equity awards has been and may from time to time be a significant expense in future periods.periods, which impacts our net income. These efforts and additional expenses may be more costly than we expect, and we cannot guarantee that we will be able to increase our net revenues to offset our increased operating expenses. Our net revenues growth may slow for a number of other reasons, including if we experience reduced demand for our products, increased16recentlyhave achieved.Ambassadorsambassadors or suppliers. Even isolated incidents involving our company, suppliers, agents or third-party service providers, or the products we sell, could erode the trust and confidence of our customers and damage the strength of our brand, especially if such incidents result in adverse publicity, governmental investigations, product recalls or litigation.materially adversely affected.Ambassadors,ambassadors, as well as performance marketing efforts, including retargeting, paid search and product listing advertisements, paid social media advertisements, search engine optimization, personalized email and mobile push notifications through our mobile app.17Ambassadors,ambassadors, to assist us by introducing our brand and culture to their communities. Our social media and grassroots efforts must be tailored to each particular market. Thismarket, which requires substantial efforts as we enter new markets, as well as ongoing attention and resources. We also seek to engage with our customers and build awareness of our brands through sponsoring unique events and experiences. If our marketing efforts and messaging are not appropriately tailored to and accepted by the healthcare community, we may fail to attract customers and our brand and reputation may be harmed. In addition, our marketing initiatives may become increasingly expensive as competition increases, and generating a meaningful return on those initiatives may be difficult. Our future growth and profitability and the success of our brand will depend in part upon the effectiveness and efficiency of these marketing efforts. Our and generating a meaningful return on those initiatives may be difficult or unpredictable. EvenMoreover, even if we successfully increase net revenues as a result of our marketing efforts, it may not offset the additional marketing expenses we incur.Ambassadors,ambassadors, including through the use of social media. We may not be able to maintain and enhance our brand if we experience negative publicity related to our marketing efforts or use of social media, fail to maintain and grow our network of Ambassadorsambassadors or otherwise fail to meet our customers’ expectations.Ambassadorsambassadors to help raise awareness of our brand and engage with our community. Our ability to maintain relationships with our existing Ambassadorsambassadors and to identify new Ambassadorsambassadors is critical to expanding and maintaining our customer base. As our market becomes increasingly competitive or as we expand internationally, recruiting and maintaining new Ambassadorsambassadors may become increasingly difficult. If we are not able to develop and maintain strong relationships with our Ambassadorambassador network, our ability to promote and maintain awareness of our brand may be adversely affected. Further, if we incur excessive expenses in this effort, our business, financial condition and results of operations may be adversely affected.Ambassadorsambassadors use third-party social media platforms to raise awareness of our brand and engage with our community. As existing social media platforms evolve and new platforms develop, we and our Ambassadorsambassadors must continue to maintain a presence on these platforms and establish presences on emerging popular social media platforms. If we are unable to cost-effectively use social media platforms as marketing tools, our ability to acquire new customers and our financial condition may suffer. Furthermore, as laws and regulations governing the use of these platforms evolve, any failure by us, our Ambassadors,ambassadors, our sponsors or third parties acting at our direction to abide by applicable laws and regulations in the use of these platforms could subject us to regulatory investigations, class action lawsuits, liability, fines or other penalties and adversely affect our business, financial condition and results of operations. In addition, an increase in the use of social media for product promotion and marketing may cause an increase in the burden on us to monitor compliance of such materials, and increase the risk that such materials could contain problematic product or marketing claims in violation of applicable regulations. For example, in some cases, the Federal Trade Commission has sought enforcement action where an endorsement has failed to clearly and conspicuously disclose a financial relationship or material connection between an influencer and an advertiser.Ambassadorsambassadors could engage in behavior or use their platforms in a manner that reflects poorly on our brand or is in violation of applicable regulations or platform terms of service, and may be attributed to us. Negative commentary regarding us, our products or Ambassadorsambassadors and other third parties who are affiliated with us, whether accurate or not, may be posted on social media platforms at any time and may adversely affect our reputation, brand and business. The harm may be immediate, without affording us an opportunity for redress or correction and could have an adverse effect on our business, financial condition and results of operations.medicalhealthcare apparel could be harmed.and brand image, distribution model, as well as customer experience and service. The industry is highly competitivecompetitive and includes established companies as well as new entrants. Some of our competitors also have longer operating histories, larger market share and greater resources than we do.Jaanuu. In addition, weJaanuu and Mandala. We also currently and in the future may continue to face future competition from large, diversified apparel companiesbrands with brandname recognition and well-established sales, manufacturing and distribution infrastructure that choose to expand into the production and marketing of medicalhealthcare apparel. Some of our competitors have longer operating histories, larger market share and greater resources than we do.personnel and senior management.integrate and retain qualified and highly skilled personnel, including senior management, designers, product managers, engineers, data scientists and logistics and supply chain personnel.team members. In particular, we are highly dependent on the services of our co-founders, and co-Chief Executive Officers, Heather Hasson and Trina Spear, who serve as our Executive Chair and Chief Executive Officer, respectively, and who are critical to the development of our business, future vision and strategic direction. We also heavily rely on the continued service and performance of other members of our senior management team, who provide leadership, contribute to the core areas of our business and help us to efficiently execute our business.team. If the senior management team, including any new hires that we make, fails topersonnelteam members could make it more difficult to manage our operations research, development, production and marketing activities, reduce our employee retention and net revenues and impair our ability to compete. Although we have entered into employment offer letters or agreements with certain of our key personnel,team members, these agreements have no specific19personnelteam members is often intense, especially in Southern California, where our headquarters is located. We may not be successful in attracting integrating or retaining qualified personnelteam members to fulfill our current or future needs. We may experience difficulty in hiring and retaining highly skilled employees with appropriate qualifications. Failure to manage our employee base and hiring needs effectively, including successfully integrating our new hires, or to retain and motivate our current personnelteam members may adversely affect our business, financial condition and results of operations.Our future growth depends in part on our expansion efforts outside of the United States. withand our future growth depends in part on our ongoing expansion efforts outside of the United States. While we have shipping capabilities to Australia, Belgium, Canada, France, Germany, Ireland, Israel, Italy, New Zealand, the Netherlands, Spain, the United Arab Emirates and the United Kingdom. Therefore,Kingdom, we have a limited number of customers and experience operating outside of the United States. We also have limited experience with regulatory environments and market practices outside of the United States and cannot guarantee that we will be able to penetrate or successfully operate in any market outside of the United States. In connection with our expansion efforts, we may encounter obstacles we do not face in the United States, including cultural and linguistic differences, differences in regulatory environments and market practices, difficulties in keeping abreast of market, business and technical developments and foreign customers’ tastes and preferences.;20the effectsRussia’s invasion of “Brexit,” which could have an adverse impact on our operations in that location, and the conflict between Russia and Ukraine.any changes in, or disruptions to, our shipping arrangements couldhave in the past and may in the future adversely affect our business, financial condition and results of operations.For example,Furthermore, changes to the terms of our shipping arrangements or the imposition of surcharges or surge pricing have in the past and may in the future adversely impact our margins and profitability. For example, the ongoing volatility in the global oil markets, including as a result of Russia’s invasion of Ukraine, has from time to time resulted in higher fuel prices, which many shipping companies have passed on to their customers by way of increased fuel surcharges. We have from time to time experienced increased shipping costs as a result, and these costs may continue to increase in the future. We may not be able to or choose to pass such increases on to our customers in the future.andand/or these providers’ control, including pandemic, weather, fire, flood, power loss, earthquakes, acts of war, or terrorism or other events specifically impacting other shipping partners, such as labor disputes or shortages, financial difficulties, system failures and other disruptions to the operations of the shipping companies on which we rely. For example, a strike by employees of any of our third-party global providers or a port worker strike, work slow-down or other transportation disruption in the ports of Los Angeles or Long Beach, California, where we generally import our products into the U.S., could significantly disrupt ourThe operations of the third-party providers on which we rely may also be disrupted by the ongoing COVID-19 pandemic. For example, strained parcel carrier networks have resulted in extended outbound shipping times generally and additional shipping costs. The COVID-19 pandemic may continue to adversely affect workforces and supply chains globally, potentially impacting the operations of our third-party shipping providers, which could negatively impact our business and results of operations.system,systems, our ability to meet customer expectations, manage inventory, complete sales and achieve objectives for operating efficiencies could be harmed.includesand storage locations include computer-controlled and automated equipment and reliesrely on a warehouse management systemsystems to manage supply chain fulfillment operations, which means itsour operations are complicated, require coordination between our fulfillment center and may bestorage locations and are subject to a number of risks related to cybersecurity, the proper operation of software and hardware, including connections between software and/or hardware, electronic or power interruptions or other system failures. In addition, because all of our products are distributed from our City of Industry fulfillment center, our operations could also be interrupted by labor difficulties, or by floods, fires or other natural disasters near our fulfillment center.center and storage locations. We maintain business interruption insurance, but it may not adequately protect us from the adverse effects that could result from significant disruptions to our distribution system, such as the long-term loss of customers or an erosion of our brand image. Moreover, if we or our third-party logistics provider are unable to adequately staff our fulfillment center to meet demand or if the cost of such staffing is higher than historical or projected costs due to mandated wage increases, regulatory changes, hazard pay, international expansion or other factors, some of which has occurred from time to time and may occur again in the future, our results of operations could be harmed.21Accordingly,In addition, if we fail to accurately forecast customer demand,experience increased excess inventory levels or a shortage of products available for sale. Alternatively, if we advance the timing of inventory shipments to mitigate perceived freight transit time volatility and/or sales below our expectations, we may experience excess inventory levels. For example, volatility in ocean freight transit times and sales below our expectations as a result of inflationary pressure on consumer spending have from time to time resulted in increased levels of inventory on hand, which has from time to time resulted in increased storage needs and costs. Inventory levels in excess of customer demand may also result in inventory write-downs or write-offs and the sale of excess inventory at discounted prices, which would cause our gross marginsmargin to suffer and could impair the strength and premium nature of our brand.speculation onrising interest rates, inflation, geopolitical tensions, volatility in the commodities market, the relative valuations and fluctuations of the currencies of producer versus customer countries and other factors that are generally unpredictable and beyond our control. In addition, the U.S. government’s presumptive import ban on materials mined, produced, or manufactured wholly or in part in the Xinjiang region of China, the source of a large portion of certain raw materials, including rayon, may impact global prices and availability of raw materials from which some of our products are made. Increases in the cost of raw materials could adversely affect our cost of goods sold, business, financial condition and results of operations.22We believe the COVID-19 pandemic has accelerated the awareness of the FIGS brand and a shift in purchasing decisions that will continue to drive future growth; however, there can be no assurance that these trends will continue and the ultimate impact of the COVID-19 pandemic on our business remains uncertain.continued to negatively impactimpacted global supply chains and causefrom time to time caused challenges to logistics, including causing ocean freight delaysreliability and unreliability,capacity issues, increased volatility in ocean freight transit times, port congestion, increased ocean and air freight rates, labor shortages and labor shortages.ocean freight delays. As a result, certain of our ocean freight providers, as well as some of our suppliers and manufacturers, particularly those operating in Vietnam, have from time to time experienced delays and shutdowns, and could experience delays and shutdowns again in the future due to the COVID-19 pandemic.The COVID-19 pandemic may For example, during the year ended December 31, 2022, we incurred increased freight costs as a result of global supply chain disruption, which adversely impacted our gross margin. If we continue to adversely affect workforces,experience higher costs due to significant and sustained supply chains, economieschain disruption, we may not be able to, or may not choose to, fully offset such higher costs through price increases, which could harm our business, financial condition and results of operations.markets globally, potentially leading to an economic downturnmarket volatility, changes in the labor market and geopolitical tensions, continuing supply chain disruptions, a reduction in consumer spending, or an inability for our suppliers, vendors or other parties with whom we do business to meet their contractual obligations, any of which could negatively impact our business and results of operations.below,in this Annual Report on Form 10-K, any of which could have a material effect on us. Though we continue to monitor the COVID-19 pandemic closely, the situation is changing rapidly, including a resurgenceperiodic resurgences in many countries, and additional impacts may arise that we are not aware of currently.We currentlycurrentlyas of December 31, 2022 being produced by our twothree largest manufacturing suppliers in South and South East Asia. We are continuously working to diversify our sourcing and manufacturing capabilities.or raw materials or product components from current sources, and we may be unable to locate alternative materials suppliers of comparable quality at an acceptable price, or at all. In addition, if we experience significantly increased demand, or if we need to replace or discontinue our relationship with an existing supplier or manufacturer, which has occurred from time to time, we may be unable to locate additional supplies of fabrics, or raw materials or product components or additional manufacturing capacity on terms that are acceptable to us, or at all, or we may be unable to locate any supplier or manufacturer with sufficient capacity to meet our requirements or to fill our orders in a timely manner. Identifying a suitable supplier is an involved process that requires us to become satisfied with its quality control, responsiveness and service, financial stability and labor and other ethical practices. Even if we are able to expand existing or find new manufacturing or fabric sources, we may encounter delays in production and added costs as a result of the time it takes to train our suppliers and manufacturers in our methods, products, and quality control standards.TheFor example, the ongoing COVID-19 pandemic has negatively impacted global supply chains and caused challenges to logistics, including from time to time causing ocean freight delaysreliability and unreliability,capacity issues, increased volatility in ocean freight transit times, port congestion, increased ocean and air freight rates, and labor shortages. In addition,shortages and ocean freight capacity issues continue to persist worldwide due to the COVID-19 pandemic as there is much greater demand for shipping and reduced capacity. As a result, certaindelays. Certain of our ocean freight providers, as well as some of our suppliers and manufacturers, particularly those operating in Vietnam, have from time to time experienced delays and shutdowns, and could experience delays and shutdowns again in the future. As a result of these supply chain challenges, we have from time to time contended, and may again contend with, supply chain-related delays, which from time to time have, and may in the future, result in delays receiving finished products from our manufacturers, impact our ability to keep certain products in stock and interrupt product and color launch schedules.which has in the past increased our cost of23goods sold, and we may from time to time need to continue to use more expensive air freight in the future. Any delays,future, which has in the past and may in the future increase our cost of goods sold. For example, during the three months and year ended December 31, 2022, our gross margin was impacted by higher freight costs compared to the same periods in 2021, which we believe was as a result of inflation due, in part, to global supply chain disruptions and the COVID-19 pandemic. We continue to monitor the impact of inflation on raw materials, freight, labor, rent, and other costs in order to minimize its effects. A high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross margin and selling, general, and administrative expenses as a percentage of net revenue if we are unable, or choose not to, increase the selling prices of our products in proportion with these increased costs. Further, any delays, interruption or increased costs in the supply of fabric or the manufacture of our products, or extended period of global supply chain disruption, could also have an adverse effect on our ability to meet customer demand for our products and result in lower net revenues, increased cost of goods sold and lower net income from operations, both in the short and long term.current conflict between Russia and Ukraine,ongoing political crisis in Sri Lanka, terrorism, labor disputes and economic instability resulting in the disruption of trade from foreign countries in which our products are manufactured;manufacturerssuppliers or suppliersmanufacturers to comply with product safety, labor or other laws, provide safe conditions for our or their workers or use or be transparent about ethical business practices may damage our reputation and brand and harm our business.WeWhile we rely on our manufacturers’ and suppliers’ compliance reporting as well as contractual provisions in our vendor manual, in order to comply with regulations applicable to our products. This is further complicated by the fact thatproducts, expectations of ethical business practices continually evolve and may be substantially more demanding than applicable legal requirements.24employees.employees. For example, hourly wages for employees of our third-party logistics provider have from time to time increased as a result of inflationaryadverseadverse effect on our business, financial condition and results of operations.and fulfillment center as well asand the majority of our employees are located, is very competitive. If prevailing rates are driven higher by market forces or otherwise but we fail to pay such higher wages, we could suffer increased employee turnover, adversely affecting our business. While nonenone of our domestic employees is currently covered by a collective bargaining agreement, any attempt by our employees to organize a labor union could also result in increased legal and other associated costs.25leasetechnological functionality, and have leased additional warehouse space to serve as fulfillmentstorage centers as our business continues to grow. IfAs we continue to add fulfillment andcapabilities, technology, warehouse capabilities addand space, product categories with different fulfillment requirements or change the mix in products that we sell, our fulfillment network has and will become increasingly complex and operating it will become more challenging. The expansion of our fulfillment center capacity may put pressure on our managerial, financial, operational and other resources. We cannot assure you that we will be able to locate suitable facilities on commercially acceptable terms in accordance with our expansion plans, nor can we assure you that we will be able to recruit qualified managerial and operational personnel to support our expansion plans. In addition, we may be required to further expand our capacity sooner than we anticipate. If we are unable to secure new facilities for the expansion of our fulfillment operations, recruit qualified personnel to support any such facilities or effectively control expansion-related expenses, our order fulfillment and shipping times may be delayed and our business, financial condition and results of operations could be adversely affected.can therefore notcannot predict the effect on our sales and profitability of a prolonged downturn in the economy. It is possible that a prolonged downturn in the economy in markets in which we sell our products may harm our business, financial condition and results of operations. may consider opportunities to acquire or make investments in new or complementary businesses, facilities, technologies, offerings or products, or enter into strategic alliances, that may enhance or augment our capabilities, expand our outsourcing and supplier network, complement our current products or services or expand the breadth of our markets. Acquisitions, investments and other strategic alliances involve numerous risks, including:costs.costs26ismay be affected by seasonality.continued stronghistorical pattern of sequential growth, as well as our decision to conduct select promotions during the holiday season, we historically have generated a higher proportion of net revenues, and incurred higher selling and marketing expenses, during the fourth quarter of the year compared to other quarters, and we expect these trends to continue. and Data Security and Privacy27infrastructuresinfrastructures may not be fully integrated with existing systems on a timely basis, or at all. Any errors or vulnerabilities discovered in our software after commercial implementation or release could result in damage to our reputation, loss of customers, disruption to our eCommerce channels, loss of revenue or liability for damages, any of which could adversely affect our growth prospects and our business.featuresaccessibility of our website, which is particularly challenging given the rapid rate at which new technologies, customer preferences and expectations and industry standards and practices are evolving in the eCommerce industry. Our or our third-party vendors’ inability to continue to update, improve and scale our website or mobile app and the underlying technology infrastructure could harm our reputation and our ability to acquire, retain and serve our customers, which could adversely affect our business, financial condition and results of operations.2829information,data, as well as the personal information of our employees and customers. Some of our third-party service providers, such as identity verification and payment processing providers, also regularly have access to customer data. In an effort to protect sensitive information, we rely on a variety of security measures, including encryption and authentication technology licensed from third parties. However, advances in computer capabilities, increasingly sophisticated tools and methods used by hackers and cyber terrorists, new discoveries in the field of cryptography or other developments may result in our failure or inability to adequately protect sensitive information.as a result of the ongoing COVID-19 pandemic, certain functional areas of our workforce remainpredominantly remains in a remotehybrid work environment, which has heightened the risk of these potential vulnerabilities. Furthermore, due to political uncertainty and military actions associated with Russia’s invasion of Ukraine, we and our service providers may be vulnerable to heightened risks of cybersecurity incidents and from or affiliated with nation-state actors. Any of these incidents could lead to interruptions or shutdowns of our platform, loss or corruption of data or unauthorized access to or disclosure of personal data or other sensitive information. Cyberattacks could also result in the theft of our intellectual property, damage to our IT systems or disruption of our ability to make financial reports and other public disclosures required of public companies. We and our third-party vendors have from time to time been subject to attempted cyber, phishing, or social engineering and business email compromise attacks in the past, none of which individually or in the aggregate has led to costs or consequences that have materially impacted our business, however, we and our third-party vendors may continue to be subject to such attacks and other cybersecurity incidents in the future. If we gain greater visibility, we may face a higher risk of being targeted by cyberattacks. Advances in computer capabilities, new technological discoveries or other developments may result in cyberattacks or other incidentsFailure30information.data. These laws and regulations are still being tested in courts, and they are subject to new and differing interpretations by courts and regulatory officials. We are working to comply with the privacy, security and data protection laws and regulations that apply to us, and we anticipate needing to devote significant additional resources to complying with these laws and regulations. It is possible that these laws and regulations may be interpreted and applied in a manner that is inconsistent from jurisdiction to jurisdiction or inconsistent with our current policies and practices.is expected to taketook effect on January 1, 2023, and to createcreates obligations with respect to certain data relating to consumers as of January 1, 2022 and significantly expands the CCPA, including by introducing additional obligations such as data minimization and storage limitations, granting additional rights to consumers, such as correction of personal information and additional opt-out rights, and creates a new entity, the California Privacy Protection Agency, to implement and enforce the law. Personal information we handle may be subject to the CCPA and CPRA, which may increase our compliance costs and potential liability.the Virginia, Consumer Data Protection Act (the “VCDPA”) gives consumers rights similar to the CCPAColorado, Utah, and Connecticut also requires covered businesses to implement security measures and conduct data protection assessments. In addition, the Colorado Privacy Act (the “COPA”) closely resembles the VCDPA. The VCDPA and COPA will become effectiverecently passed comprehensive privacy laws that take effect in 2023 and be enforceable by their respective states’ Attorney General and/or district attorneys. Wewe must comply with the VCDPA and COPAthem if our operations fall within thetheir scope, of these laws, which may increase our compliance costs and potential liability. Similar laws have been proposed in other states and at the federal level, reflecting a trend toward more stringent privacy legislation in the United States.information.data. Our compliance with these changing, increasingly burdensome and sometimes conflicting regulations and requirements may cause us to incur substantial costs or require us to change our business practices, which may impact our financial condition. If we fail to comply with these regulations or requirements, we may be exposed to litigation expenses and possible significant liability, fees or fines. Further, any such claim, proceeding or action could harm our reputation, brand and business, force us to incur significant expenses in defense of such proceedings, distract our management, increase our costs of doing business, result in a loss of customers and suppliers or an inability to process credit card payments and may result in the imposition of monetary penalties. We may also be contractually required to indemnify and hold harmless third parties from the costs or consequences of non-compliance with any laws, regulations or other legal obligations relating to privacy or consumer protection or any inadvertent or unauthorized use or disclosure of data that we store or handle as part of operating our business.31, is a federal law that imposes significant restrictions on the ability to make telephone calls or send text messages to mobile telephone numbers without the prior consent of the person being contacted. The TCPA provides for substantial statutory damages for violations, which has generated extensive class-action litigation. In addition, class-action plaintiffs in the United States are employing novel legal theories to allege that federal and state eavesdropping/wiretapping laws and state constitutions prohibit the use of analytics technologies widely employed by website and mobile app operators to understand how their users interact with their services. Despite our compliance efforts, our use of text messaging communications or similar analytics technologies could expose us to costly litigation, government enforcement actions, damages and penalties, which could adversely affect our business, financial condition and results of operations.informationdata or other unauthorized or inadvertent access to or disclosure of such information. We may need to notify governmental authorities and affected individuals with respect to such incidents. For example, laws in all 50 U.S. states may require businesses to provide notice to consumers whose personal informationdata has been disclosed as a result of a data breach. These laws are not consistent with each other, and compliance in the event of a widespread data breach may be difficult and costly. We also may be required to notify consumers or other counterparties of a security incident, including a breach. Any actual or perceived security incident or breach, or breach of our contractual obligations, could harm our reputation and brand, expose us to potential liability or require us to expend significant resources on data security and in responding to any such actual or perceived breach.United Kingdom,UK, have laws and regulations which are more restrictive in certain respects than those in the United States. ForUnited KingdomUK have adopted the GDPR or a UK-only adoption of the GDPR (which took effect on January 1, 2021 under the UK Data Protection Act 2018 and the UK General Data Protection Regulation (as defined by the UK Data Protection Act 2018 as amended by the Data Protection, Privacy and Electronic Communications (Amendments etc) (EU Exit) Regulations 2019)), (the “UK GDPR”),GDPR respectively, which may apply to our collection, control, use, sharing, disclosure and other processing of data relating to an identified or identifiable living individual (personal data). The GDPR, UK GDPR and national implementing legislation in EEA member states and the United KingdomUK impose a strict data protection compliance regime including: providing detailed disclosures about how personal data is collected and processed (in a concise, intelligible and easily accessible form); granting newcomprehensive rights for data subjects in regard to their personal data (including, for example, the right to access data, the right to be “forgotten” and the right to data portability), as well as enhancing current rights (e.g., data subject access requests); requirements to have data processing agreements in place to govern the processing of personal data on behalf of other organizations; introducing the obligation to notify data protection regulators or supervisory authorities (and in certain cases, affected individuals) of significant data breaches; maintaining a record of data processing; and complying with the principal of accountability and the obligation to demonstrate compliance through policies, procedures, trainings and audits.United Kingdom.UK. Recent legal developments in the EEA and United KingdomUK have created complexity and uncertainty regarding transfers of personal data out of Europe. On July 16, 2020, the Court of Justice of the European Union (the “CJEU”), invalidated the EU-US Privacy Shield Framework (the “Privacy Shield”), under which personal data could be transferred from the EEA to US entities who had self-certified under the Privacy Shield scheme.Framework. While the CJEU upheld the adequacy of the standard contractual clauses (“SCCs”; a standard form of contract approved by the European Commission as an adequate personal data transfer mechanism, and potential alternative to the Privacy Shield), it made clear that reliance on them alone may not necessarily be sufficient in all circumstances. Use of the SCCs must now be assessed on a case-by-case basis taking into account the legal regime applicable in the destination country, in particular applicable surveillance laws and rights of individuals and additional measures and/or contractual provisions may need to be put in place. The CJEU went on to state that if a competent supervisory authority believes that the SCCs cannot be complied with in the destination country and the required level of protection cannot be secured by other means, such supervisory authority is under an obligation to suspend or prohibit that transfer. Moreover, the European Commission released an implementation decision for a new set of SCCs on June 4, 2021, which requires us to use new SCCs since September 28, 2021, and replace existing SCCs by December 27, 2022, and the European Data Protection Board hasand national regulators have released related guidelines. The UK’s Information Commissioner’s Office has also published new standard contractual clauses for cross-border transfers of UK personal data under the UK GDPR (“UK Clauses”). This new documentation is mandatory for relevant data transfers beginning September 21, 2022; existing standard contractual clauses arrangements entered into prior to that date must be migrated to the new documentation by March 21, 2024. We may have obligations to conduct transfer impact assessments for such cross-border data transfers and implement additional security measures. If we elect to relyReliance on the new SCCs weor UK Clauses may be requiredrequire us to expend significant resources to update our contractual arrangements and to comply with resulting obligations. As supervisory authorities issue further guidance on personal data export mechanisms, including circumstances where the SCCs or UK Clauses cannot be used, and/or start taking enforcement action, we could suffer additional costs, complaints and/or regulatory investigations or fines, and/or if we are otherwise unable to transfer personal data between and among countries and regions in which we operate, it could affect the manner in which we provide our products, the geographical location or segregation of our relevant systems and operations, and could adversely affect our business, financial condition and results of operation.32United KingdomUK from the European Union has created uncertainty with regard to the regulation of data protection in the United Kingdom.United Kingdom.UK. On June 28, 2021, the European Commission issued an adequacy decision under the GDPR which allows transfers of personal informationdata from the EEA to the United KingdomUK to continue without restriction for a period of four years ending June 27, 2025. During these four years, the European Commission could intervene if the United KingdomUK deviates from the level of data protection in place at the time of issuance of the adequacy decision. If the adequacy decision is withdrawn or not renewed, transfers of personal informationdata from the EEA to the United KingdomUK will require a valid transfer mechanism and we may be required to implement new processes and put new agreements in place to continue making such transfers. In September 2021,The UK government is considering reforms to the UK government launched a consultation on its proposals for wide-ranging reform ofGDPR and the UK data protection laws following Brexit.regime, which could lead to divergence from the EEA regime. There is a risk that any material changes which are made to the UK data protection regime could result in the Commission reviewing the UK adequacy The UK’s Information Commissioner’s Office launched a public consultation on its draft revised data transfers mechanisms in August 2021 and laid its proposal before Parliament, with the UK SCCs expected to come into force in March 2022, with a two-year grace period. We may need to implement both UK and EU versions of SCCs, which would require significant resources and necessitate significant cost.United Kingdom,UK, regulators are increasingly focusing on compliance with requirements in the online behavioral advertising ecosystem. Under the ePrivacy Directive, and national implementation laws and relevant legislation in the UK, informed consent is required for the placement of a cookie or similar technologies on a user’s device and for direct electronic marketing. The GDPR and UK GDPR also imposesimpose conditions on obtaining valid consent, such as a prohibition on pre-checked consents and a requirement to ensure separate consents are sought for each type of cookie or similar technology. In the European Union, current national laws that implement the ePrivacy Directive are expected to be replaced by an EU regulation known as the ePrivacy Regulation which will significantly increase fines for non-compliance. While the text of the ePrivacy Regulation is still under development, a recent European court decision and regulators’ recent guidance are driving increased attention to cookies and tracking technologies. As regulators, activists, consumer protection organizations and third parties increasingly enforce the strict approach in recent guidance, this could lead to substantial costs, require significant systems changes, limit the effectiveness of our marketing activities, divert the attention of our technology personnel, adversely affect our margins, increase costs and subject us to additional liabilities. Regulation of cookies and similar technologies, and any decline of cookies or similar online tracking technologies as a means to identify and potentially target individuals, may lead to broader restrictions and impairments on our marketing and personalization activities and may negatively impact our efforts to understand users.14.5 requiresrequire apps in the Apple App Store to opt in to the tracking of users across apps and websites owned by third parties for advertising and measurement purposes. Additionally, Google has announced plans to adopt similar restrictions regarding tracking activity across Android devices. Changes like this could reduce the quality of the data and related metrics that may be collected or used by us and/or our partners. In addition, such changes could inhibit the effectiveness of our targeted advertising and related activities.33ThirdIn addition, third parties from time to time have infringed, and may also knowingly or unknowinglyagain in the future infringe, on our intellectual property rights. In any of these cases,As a result, we from time to time have expended, and may be required toagain in the future expend, significant time and expenseresources to defend or enforce our rights.34applications pending forobtained design patents in the United States and have obtained or have applications pending forh corresponding industrial design registrations in other countries on certain aspects of some of our product designs.designs, and we have applications pending for additional design patents and industrial design registrations. In addition, our products are made using our proprietary blends of raw materials, fabrics and fabric treatments, which results in products unique to us; however, we do not own the intellectual property rights for the underlying fabric technology, fabrics treatments or fabrics. Our ability to obtain intellectual property protection for our products is therefore limited. As a result, our current and future competitors may attempt to imitate our products and fabrics and do so at lower prices. If our competitors are successful in doing so, our net revenues and profitability could suffer.In addition, certainMoreover, our products for sale in foreign countries arelowered. adversely affected.35The United Kingdom’s withdrawal from the European Union may have a negative effect on global economic conditions, financial markets and our business.Following a national referendum and enactment of legislation by the government of the United Kingdom, the United Kingdom formally withdrew from the European Union and ratified a trade and cooperation agreement governing its future relationship with the European Union. The agreement, which was applied provisionally from January 1, 2021 and entered into force on May 1, 2021, addresses trade, economic arrangements, law enforcement, judicial cooperation and a governance framework including procedures for dispute resolution, among other things. Because the agreement merely sets forth a framework in many respects and will require complex additional bilateral negotiations between the United Kingdom and the European Union as both parties continue to work on the rules for implementation, significant political and economic uncertainty remains about how the precise terms of the relationship between the parties will differ from the terms before withdrawal.These developments, or the perception that any related developments could occur, have had and may continue to have an adverse effect on global economic conditions and financial markets, and may significantly reduce global market liquidity, restrict the ability of key market participants to operate in certain financial markets or restrict our access to capital. Any of these factors could have an adverse effect on our business, financial condition and results of operations and reduce the price of Class A common stock.For example, we and our co-founders and co-Chief Executive Officers are currently defendants in two actions brought by Strategic Partners, Inc. (“SPI”). See Part I, Item 3. “Legal Proceedings” in this Annual Report on Form 10-K for additional information on this and other legal proceedings. While we believeCertain laws, particularly relating to EHS matters, may also impose liability without regard to fault or to the claims asserted by SPI in both actions are without basis or merit, and we intend to vigorously defend against such claims, these proceedings or anylegality of the action at the time of occurrence. Any investigations or inquiries by governmental agencies related to these or any other matters, could result in significant settlement amounts, damages, fines or other penalties, divert financial and management resources and result in significant legal fees. An unfavorable outcome of any particular proceeding could have an adverse impact on our business, financial condition and results of operations. In addition, the adoption of new regulations or changes in the interpretation of existing regulations may result in significant compliance costs or discontinuation of product sales and could impair the marketing of our products, resulting in significant loss of net revenues.36 apparel products are currently manufactured outside of the United States. The United States and the countries in which our products are produced or sold internationally have imposed and may impose additional quotas, duties, tariffs or other restrictions or regulations, or may adversely adjust prevailing quota, duty or tariff levels. Countries impose, modify and remove tariffs and other trade restrictions in response to a diverse array of factors, including global and national economic and political conditions, which make it impossible for us to predict future developments regarding tariffs and other trade restrictions. TradeFor example, the U.S. government has in recent years imposed increased tariffs on imports from certain foreign countries, and any imposition of additional tariffs by the United States could result in the adoption of tariffs by other countries, leading to a global trade war. While the U.S. government’s recent tariffs on certain imports from China only affect a small portion of our production, any such future tariffs by the United States or other countries could have a significant impact on our business.Proposals include significant changes toFor example, on August 16, 2022, President Biden signed into law the U.S. federal income taxationInflation Reduction Act of business entities including, among others, an increase2022 (“IRA”), which, beginning in the2023, will impose a 1% excise tax rate applicable to global low-taxed income and the imposition of minimum taxes or surtaxes on certain types of income.publicly traded company stock buybacks. Furthermore, over 130140 member jurisdictions of the G20/Organization for Economic Cooperation and Development (“OECD”) Inclusive Framework have joined the Two-Pillar Solution to Address the Tax Challenges of the Digitalization of the Economy as part of the OECD’s base erosion and profit sharing project (“BEPS”), which includes a reallocation of taxing rights among market jurisdictions and a global minimum tax rate of 15% intendedwhich are expected to become effective as of January 1, 2023.2024. As the proposalschanges to change U.S. federal income tax laws pursuant to the IRA remain subject to additional guidance from the Internal Revenue Service and the U.S. Department of Treasury and the implementation of the BEPS framework remainremains subject to further negotiation, we are currently unable to predict the extent to which any such changes to tax laws, statutes, rules, regulations or ordinances will occur and, if so, the ultimateultimately impact on our business. business is uncertain.such changes in tax laws have a negative impact on us, our suppliers, manufacturers or our customers(includingcustomers (including as a result of related uncertainty on the enactment of any current proposalsIRA which we are currently evaluating or the timing of the implementation of the global minimum tax rate under BEPS), such changes may adversely impact our business, financial condition, results of operations and cash flows. Finally, changes in the scope of our operations, including expansion to new U.S. and non-U.S. jurisdictions, could increase the amount of taxes to which we are subject (including as a result of the implementation of the global minimum tax rate under BEPS) and our effective tax rate.Existing and potential tariffs imposed by the U.S. government or a global trade war could increase the cost of our products, which could have an adverse effect on our business, financial condition and results of operations.The U.S. government has in recent years imposed increased tariffs on imports from certain foreign countries, and any imposition of additional tariffs by the United States could result in the adoption of tariffs by other countries, leading to a global trade war. While the U.S. government’s recent tariffs on certain imports from China only affect a small portion of our production, any such future tariffs by the United States or other countries could have a significant impact on our business. While we may attempt to renegotiate prices with suppliers or diversify our supply chain in response to tariffs, such efforts may not yield immediate results or37may be ineffective. We might also consider increasing prices to the end customer; however, this could reduce the competitiveness of our products and adversely affect net revenues. If we fail to manage these dynamics successfully, gross margins and profitability could be adversely affected. As of the date of this Annual Report on Form 10-K, tariffs have not had a material impact on our business, but increased tariffs or trade restrictions implemented by the United States or other countries in connection with a global trade war could have an adverse effect on our business, financial condition and results of operations.2021,2022, we had U.S. federal and state net operating loss carryforwards of approximately $1.5$1.4 million and $12.9$1.2 million, respectively. Unused U.S. federal net operating losses generated in tax years beginning after December 31, 2017, will not expire and may be carried forward indefinitely, but the deductibility of such federal net operating loss carryforwards in taxable years beginning after December 31, 2020, is limited to 80% of taxable income. Our ability to utilize our federal net operating carryforwards may be limited under Section 382 of the Internal Revenue Code of 1986, as amended. The limitations apply if we experience an “ownership change,” which is generally defined as a greater than 50 percentage point change (by value) in the ownership of our equity by certain stockholders over a rolling three-year period. Similar provisions of state tax law may also apply to limit the use of our state net operating loss carryforwards. We have previously experienced ownership changes, and although such prior ownership changes have not materially limited our utilization of affected net operating loss carryforwards, future changes in our stock ownership, which may be outside of our control, may trigger an ownership change that materially impacts our ability to utilize pre-change net operating loss carryforwards. In addition, there may be periods during which the use of net operating loss carryforwards is suspended or otherwise limited. For example, California generally suspended the use of California net operating loss carryforwards to offset taxable income in tax years beginning after 2019 and before 2022. Accordingly, our ability to use our net operating loss carryforwards to offset taxable income may be subject to such limitations or special rules that apply at the state level, which could adversely affect our results of operations.An active market may not be sustainable, and you may not be able to resell your shares at or above the price you paid for them.It is possible that an active or liquid market in our Class A common stock may not be sustainable. In the absence of an active trading market for our Class A common stock, you may not be able to resell any shares you hold at or above the price you paid for them or at all. We cannot predict the prices at which our Class A common stock will trade.be volatile or maycontinue to decline regardless of our operating performance, resulting in substantial losses for investors. significantly in response to numerous factors, many of which are beyond our control, including:LLC,LLC’s Permitted Transferees, as defined in our co-foundersamended and co-Chief Executive Officersrestated certificate of incorporation, our co-founders or our other executive officers andor directors;States;States and globally, such as a continued increase in inflation rates or interest rates;38following periods of volatility in the market price of their securities. Any similarand such litigation has been filed against us as well. This or future litigation against us could result in substantial costs, divert management’s attention and resources, and harm our business, financial condition and results of operations.dual classdual-class or multi-class share structures in certain of their indexes. In July 2017, S&P Dow Jones and FTSE Russell announced changes to their eligibility criteria for the inclusion of shares of public companies on certain indices, including the Russell 2000, the S&P 500, the S&P MidCap 400 and the S&P SmallCap 600, to exclude companies with multiple classes of shares of common stock from being added to these indices. Beginning in 2017, MSCI, a leading stock index provider, opened public consultations on their treatment of no-vote and multi-class structures and temporarily barred new multi-class listings from certain of its indices; however, in October 2018, MSCI announced its decision to include equity securities “with unequal voting structures” in its indices and to launch a new index that specifically includes voting rights in its eligibility criteria. As a result, our dual-class capital structure would makemakes us ineligible for inclusion in any of these indices, and mutual funds, exchange-traded funds and other investment vehicles that attempt to passively track these indices will not be investing in our stock. These policies are still fairly new, and it remains unclear what effect, if any, they will have on the valuations of publicly traded companies excluded from the indices in the longer term, but it is possible that they may depress these valuations compared to those of other similar companies that are included. Furthermore, we cannot assure you that other stock indices will not take a similar approach to S&P Dow Jones or FTSE Russell in the future. Exclusion from indices could make our Class A common stock less attractive to investors and, as a result, the market price of our Class A common stock could be adversely affected.As of December 31, 2021, we had stock options outstanding that, if fully exercised, would result in the issuance of 37,871,680shares of Class A common stock including 30,915,451 shares that are exchangeable for an equal number of shares of Class B common stock by our co-founders and co-Chief Executive Officers, Ms. Hasson and Ms. Spear. All of the shares of Class A common stock issuable upon the exercise of stock options, and the 15,362,581 shares of Class A common stock reserved for future issuance under our 2021 Plan and ESPP, will be registered for public resale under the Securities Act. Accordingly, these shares will be able to be freely sold in the public market upon issuance subject to then existing lock-up or market standoff agreements and applicable vesting requirements, except that any shares held by our affiliates, as defined in Rule 144 under the Securities Act, would only be able to be sold in compliance with Rule 144.Further, based on shares outstanding as of December 31, 2021, holders of 63,874,530 shares of our common stock have rights, subject to certain conditions, to require us to file registration statements for the public resale of such shares or to include such shares in registration statements that we may file for us or other stockholders.the Class B stockholders hasour co-founders, Heather Hasson and Trina Spear, Tulco, LLC and Thomas Tull and certain related persons and trusts, have the effect of concentrating voting control with our co-founders and co-Chief Executive Officers, HeatherMs. Hasson, and TrinaMs. Spear and Tulco, LLC,Mr. Tull, who together hold in the aggregate approximately 74.6%majority of the voting power of our outstanding capital stock, which may limit or preclude your ability to influence corporate matters, including the election of directors and the approval of any change of control transaction.39and co-Chief Executive Officers, Ms.Mses. Hasson and Ms. Spear, who also serve as our Executive Chair and Chief Executive Officer, respectively. These holders, along with Thomas Tull, chairman and chief executive officer of Tulco, LLC, ourrepresent a majority stockholder. These holders represent approximately 74.6% of the voting power of our outstanding capital stock as of December 31, 2021.2022.the Class B stockholders entered intoSpear, Tulco, LLC, Mr. Tull and certain related persons and trusts are party to a voting agreement with respect to the election of directors. This concentrated control limits or precludes our stockholders’ ability to influence corporate matters for the foreseeable future, including the election of directors, amendments of our organizational documents, and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction requiring stockholder approval. In addition, this may prevent or discourage unsolicitedunsolicited acquisition proposals or offers for our capital stock that you may feel are in your best interest as one of our stockholders.NYSENew York Stock Exchange and, as a result, qualify for, and rely on, exemptions from certain corporate governance requirements. You do not have the same protections afforded to stockholders of companies that are subject to such requirements.Ourco-Chief Executive Officers,Spear, and Tulco, LLC, and certain related persons and trusts entered into a voting agreement with respect to the election of directors. On March 21, 2022, in connection with a distribution by Tulco, LLC of all shares of the Company’s common stock then held by Tulco, LLC to its members on a pro rata basis, and as contemplated by the voting agreement, the existing parties to the voting agreement entered into an amendment and joinder with Thomas Tull, the founder, chairman and chief executive officer of Tulco, LLC and his family trust (together, the “Tull Parties”), under which the Tull Parties were acknowledged as permitted transferees under the voting agreement and joined as parties to the voting agreement, with the same rights and obligations as the other investor parties thereto. and Ms. Spear and Tulco, LLCthe Tull Parties together control a majority of the voting power of our outstanding common stock and have entered into a voting agreement with respect to the election of directors. As a result, we are a “controlled company” within the meaning of the corporate governance standards of the NYSE.New York Stock Exchange (“NYSE”). Under these rules, a listed company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements, including:a majority of independent directors on our board of directors ornominating and corporate governance and compensation committees consisting entirely of independent directors. Accordingly, you do not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the NYSE.We are an “emerging growth company” and our compliance with the reduced reporting and disclosure requirements applicable to “emerging growth companies” may make our Class A common stock less attractive to investors.We are an “emerging growth company,” as defined in the JOBS Act, and we have elected to take advantage of certain exemptions and relief from various reporting requirements that are applicable to other public companies that are not “emerging growth companies.” These provisions include, but are not limited to: being exempt from compliance with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act; being exempt from any rules that could be adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotations or a supplement to the auditor’s report on financial statements; being subject to reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements; and not being required to hold nonbinding advisory votes on executive compensation or on any golden parachute payments not previously approved.In addition, while we are an “emerging growth company,” we will not be required to comply with any new financial accounting standard until such standard is generally applicable to private companies. As a result, our financial statements may not be comparable to companies that are not “emerging growth companies” or elect not to avail themselves of this provision.We may remain an “emerging growth company” until as late as December 31, 2026, the fiscal year-end following the fifth anniversary of the completion of our IPO, though we may cease to be an “emerging growth company” earlier under certain circumstances, including if (1) we have more than $1.07 billion in annual net revenues in any fiscal year, (2) we become a “large accelerated filer,” with at least $700 million of equity securities held by non-affiliates as of the end of the second quarter of that fiscal year or (3) we issue more than $1.0 billion of non-convertible debt over a three-year period.40The exact implications of the JOBS Act are still subject to interpretations and guidance by the SEC and other regulatory agencies, and we cannot assure you that we will be able to take advantage of all of the benefits of the JOBS Act. In addition, investors may find our Class A common stock less attractive to the extent we rely on the exemptions and relief granted by the JOBS Act. If some investors find our Class A common stock less attractive as a result, there may be a less active trading market for our Class A common stock and our stock price may decline or become more volatile.commence coverage ofcover us, or if industry analysts cease coverage of us, the trading price for our Class A common stock would be negatively affected. If one or more of the analysts who cover us downgrade our Class A common stock or publish inaccurate or unfavorable research about our business, our Class A common stock price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our Class A common stock could decrease, which might cause our Class A common stock price and trading volume to decline.athe chief executive officer, or the board of directors, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors;41Our quarterly results of operations may fluctuate, and if our operating and financial performance in any given period does not meet the guidance that we have provided to the public or the expectations of our investors and securities analysts, the trading price of our Class A common stock may decline.Our quarterly results of operations may fluctuate for a variety of reasons, many of which are beyond our control. These reasons include those described in these risk factors as well as the following:•fluctuations in product mix;•our ability to effectively launch and manage new products;•fluctuations in the levels or quality of inventory;•fluctuations in capacity as we expand our operations;•our success in engaging existing customers and attracting new customers;•the amount and timing of our operating expenses;42•the timing and success of new products launches;•the impact of competitive developments and our response to those developments;•our ability to manage our existing business and future growth; and•economic and market conditions, particularly those affecting our industry.Fluctuations in our quarterly results of operations may cause those results to fall below the guidance that we have provided to the public or the expectations of our investors and securities analysts, which could cause the trading price of our Class A common stock to decline. Fluctuations in our results could also cause a number of other problems. For example, analysts or investors might change their models for valuing our Class A common stock, we could experience short-term liquidity issues, our ability to retain or attract key personnel may diminish and other unanticipated issues may arise.In addition, we believe that our quarterly results of operations may vary in the future and that period-to-period comparisons of our results of operations may not be meaningful. You should not rely on the results of one quarter as an indication of future performance.TheOur estimates of market opportunity and forecasts of market growth included in this Annual Report on Form 10-K may prove to be inaccurate, and even if the markets in which we compete achieve the forecasted growth, our business could fail to grow at similar rates, or at all.The included in this Annual Report on Form 10-K may prove to be inaccurate. Market opportunity estimates and growth forecasts are subject to significant uncertainty and are based on assumptions and estimates, as well as information obtained from internal sources, market research, publicly available information and industry publications. We believe that these sources and estimates are reliable but have not independently verified them and cannot guarantee their accuracy or completeness. They may also not prove to be accurate, including as a result of any of the risks described in this Annual Report on Form 10-K.theour forecasts of market growth included in this Annual Report on Form 10-K should not be taken as indicative of our future growth.delaysreliability and unreliability,capacity issues, increased volatility in ocean freight transit times, port congestion, increased ocean and air freight rates, labor shortages and labor shortages.ocean freight delays. As a result, certain of our ocean freight providers, as well as some of our suppliers and manufacturers, particularly those operating in Vietnam, have from time to time experienced delays and shutdowns, and could experience delays and shutdowns again in the future.43From time to time, webein the future become involved in litigation and other proceedings, including matters related to commercial disputes, product liability, intellectual property, trade, customs laws and regulations, employment, regulatory compliance, securities and other claims related to our business. For example, we and our co-founders and co-Chief Executive Officers are currently defendants in two actions brought by SPI. See Part I, Item 3. “Legal Proceedings” in this Annual Report on Form 10-K for additional information about this and otherour legal proceedings. While we believe the claims asserted by SPI in both actions are without basis or merit, and we intend to vigorously defend against such claims, these or any other proceeding or audit could result in significant settlement amounts, damages, fines, penalties or other relief such as an injunction, divert financial and management resources and result in significant legal fees. An unfavorable outcome of any particular proceeding could exceed the limits of our insurance policies, or our insurance carriers may decline to fund such final settlements or judgments or all or part of the legal costs associated with the proceeding, which could have an adverse impact on our business, financial condition and results of operations. In addition, any such proceeding could negatively impact our brand equity and our reputation.Some of the merchandise we sellWe expect such expenses to further increase afterare no longerlost our status as an “emerging growth company.” company” as defined in the JOBS Act and as such, we no longer are entitled to rely on exemptions from certain compliance requirements that are applicable to companies that are emerging growth companies, including, but not limited to, not being required to have our independent registered public accounting firm audit our internal controls over financial reporting under Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation. As a public company without emerging growth company status, we are required to increase our disclosures in periodic reports, proxy statements and other SEC filings compared to our historical filings. These increased disclosure requirements may place a burden on our financial and management resources. If our additional disclosures in future SEC filings are perceived as insufficient or inadequate by investors or regulatory authorities, the market price of our stock could decline and we could be subject to actions by stockholders or regulatory authorities.transitioning to interacting with public company analysts and investors and complying with the increasingly complex laws pertaining to public companies, which may divert attention away from the day-to-day management of our business. Increases in costs incurred or diversion of management’s attention as a result of becomingbeing a publicly traded company may adversely affect our business, financial condition and results of operations.U.S. GAAP”) requires management to make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as discussed in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Annual Report on Form 10-K, the results of which form the basis for making judgments about the carrying values of assets, liabilities, equity, net revenues and expenses that are not readily apparent from other sources. Our results of operations may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our results of operations to fall below our publicly announced guidance or the expectations of securities analysts and investors, resulting in a decline in the market price of our Class A common stock.U.S. GAAP.U.S. U.S. GAAP principles or interpretations could also have a significant effect on our reported financial results and may even affect the reporting of transactions completed before the announcement or effectiveness of a change. It is difficult to predict the impact of future changes to accounting principles or our accounting policies, any of which could negatively affect our reported results of operations.44If weunableobligated to implement and maintain effective internal control over financial reporting and any failure to maintain effective internal controls may cause investors mayto lose confidence in the accuracy and completeness of our reported financial information and the market price of our Class A common stock may be negatively affected.controls.controls, pursuant to Section 404 of the Sarbanes-Oxley Act (“Section 404”). Section 404 also requires that beginning with our second annual report after the completion of the IPO, we provide a management report on the effectiveness of our internal control over financial reporting. If we have areporting, including disclosure of any material weaknessweaknesses identified by our management in our internal control over financial reporting. In addition, because we are no longer an “emerging growth company” as of December 31, 2022, Section 404we may not detect errors on a timelyan annual basis, starting with this Annual Report on Form 10-K.ourpossible remediation, requiring us to incur substantial costs and expend significant management efforts. We have engaged outside consultants, and have hired accounting and financial statements may be materially misstated. We are implementingstaff with appropriate public company experience and technical accounting knowledge needed to maintain the system and process and documentation necessary to perform the evaluation needed to comply with Section 404404.Sarbanes-Oxley Act. Wenecessary procedures and practices related to internal control over financial reporting, we may identify deficiencies that we may not be able to completeremediate in time to meet the deadline imposed by the Sarbanes-Oxley Act for compliance with the requirements of Section 404. In addition, we may encounter problems or delays in completing the remediation of any deficiencies identified by our evaluation,independent registered public accounting firm in connection with the issuance of their attestation report. Our testing, and any required remediationor the subsequent testing (if required) by our independent registered public accounting firm, may reveal deficiencies in a timely fashion.During the evaluation and testing process, ifour internal controls over financial reporting that are deemed to be material weaknesses.when we are no longer an emerging growth company, our independent registered public accounting firm will be required to issue an attestation report on the effectiveness of our internal control over financial reporting. Eveneven if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm may conclude that there are material weaknesses with respect to our internal controls or the level at which our internal controls are documented, designed, implemented or reviewed. If we are unable to conclude that our internal control over financial reporting is effective, or when we are no longer an emerging growth company, if our auditorsindependent registered public accounting firm were to express an adverse opinion on the effectiveness of our internal control over financial reporting because we had one or more material weaknesses, investors could lose confidence in the accuracy and completeness of our financial disclosures, which could cause the price of our Class A common stock to decline. Internal control deficiencies could also result in a restatement of our financial results in the future.In addition, we will needfuture or restrict our future access to hire additional personnel to support our internal accounting and audit functions. If we are unable to hire additional personnel, our ability to report our results of operations on a timely and accurate basis could be impaired and we could suffer adverse regulatory consequences or violate NYSE listing standards. There could also be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our financial statements, which could have an adverse effect on our business, financial condition and results of operations.45other sustainabilitygovernance (“ESG”) matters affecting public companies. If we areExpectations regarding voluntary ESG initiatives and disclosures may result in increased costs (including but not effectivelimited to increased costs related to compliance, stakeholder engagement, contracting and insurance), changes in addressing environmental, social anddemand for certain products, enhanced compliance or disclosure obligations, or other sustainability matters affectingadverse impacts to our business, financial condition or results of operations.may suffer. Weit may also experience increased costs in orderimpede our ability to execute upon our sustainability goals,compete effectively to attract and those increased costs couldretain employees or customers, which may adversely impact our businessoperations.financial condition.4647a lease agreementand sublease agreements that expiresexpire in January 2030.2030 and 2026, respectively. We designed, built and use this location for product innovation and design, content creation, technology, customer experience and for general office use. We also maintain dedicated photo studio space at this location.oura third-party logistics provider’s location in City of Industry, California, which we lease pursuant to a services agreement.48co-foundersExecutive Chair and co-ChiefChief Executive Officers)Officer (the “Founders”) in Los Angeles County Superior Court, in which SPI alleged, among other things, false advertising, unfair business practices, untrue and misleading advertising, intentional interference with prospective economic relations, conversion and breach of fiduciary duty. The case was removed to the U.S. District Court for the Central District of California (the “Central District”) in March 2019. On September 3, 2019, SPI filed an additional action against our co-founders and co-Chief Executive Officersthe Founders (later naming us) in Los Angeles County Superior Court covering the samehas beenwas stayed until the conclusion of the Central District action. On August 10, 2021, the Central District partially granted our motion for judgment on the pleadings, dismissing without leave to amend certain of SPI’s claims for unfair business practices and the entirety of SPI’s claims for conversion, breach of fiduciary and aiding and abetting breach of fiduciary dutyour co-founders and co-Chief Executive Officersthe Founders in the U.S. District Court for the Southern District of New York, in which Miracle Ventures alleged causes of action for breach of fiduciary duty and fraud in connection with its decision to sell its shares of FIGS common stock to the Tull Family Trustanother FIGS stockholder in June 2017. AOn March 3, 2022, we filed a motion to dismiss the amended complaint. On November 1, 2022, the court granted our motion and dismissed the amended complaint, granting Miracle Ventures leave to attempt to replead only its breach of fiduciary claim. Miracle Ventures has since filed a second amended complaint, and a motion to dismiss that complaint is currently pending.theseour ongoing proceedings and, if determined adversely to us, our business and financial condition may be adversely affected.February 28, 2022,January 31, 2023, there were 315 registered holders of our Class A common stock and 67 registered holders of our Class B common stock. Because many of our shares of Class A common stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders.Boardboard of Directorsdirectors and would depend upon various factors, including our operating results, financial condition, and capital requirements, and restrictions that may be imposed by applicable law or contract, and other factors deemed relevant by our Boardboard of Directors.50
, as (as amended, (thethe “Registration Statement”) declared effective by the SEC on May 26, 2021.5120202021 compared to the year ended December 31, 20192020 has been reported previously in our final prospectus dated September 15,Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on September 17, 2021 pursuant to Rule 424(b) of the Securities Act (the “Prospectus”),March 10, 2022, under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”generate revenue by selling technically advanced apparel forsell products purposefully designed to serve the modernparticular needs of healthcare professional.professionals primarily through a convenient direct-to-consumer (“DTC”) digital platform, consisting of our website and mobile app. Our offerings include scrubwear as well as lifestyle apparel and other non-scrub offerings,non-scrubwear, such as lab coats, underscrubs, outerwear, loungewear, compression socks, footwear and masks.other lifestyle apparel. We primarily design all of our products in-house, leverage third-party suppliers and manufacturers to produce our raw materialsproduct components and finished products, and generally utilize shallow initial buys and data-driven repurchasing decisions to test new products. We directly and actively managecoordinate and supervise every step of our product development and production process to ensure that our extremely high quality standards are met. We also have a highly efficientdynamic merchandising model—due to the largely non-discretionary, replenishmentreplenishment-driven nature of healthcare apparel,scrubwear, we maintain lowlessened inventory risk driven by a relatively high volume of repeat purchases and a focus on our core scrubs offerings. We primarily market and sell our products through our digital platform, consisting of our website and mobile app, to a rapidly growing community of loyal customers.2021,2022, we had approximately 1.92.3 million active customers. Our customers come to us through word of mouth referrals, as well as through our data-driven brand and performance marketing efforts. See the section titled “Key Operating Metrics and Non-GAAP Financial Measures” for a definition of active customers.2021,2022, we had the following results compared to the comparable periods in 2020:2021:o◦46.0%22.5% from approximately 1.3 million at December 31, 2020 to approximately 1.9 million at December 31, 2021;o◦$263.1$419.6 million to $419.6$505.8 million in the year ended December 31, 2021,2022 representing 59.5%20.6% year-over-year growth;o◦0.51.7 percentage points from 72.3%71.8% to 71.8%70.1% in the year ended December 31, 2021;o◦operating income decreased(loss) increased from $57.9$(9.6) million to $11.0$21.2 million in the year ended December 31, 2021;o◦Net income (loss) margin increased from (2.3)% to 4.2% in the year ended December 31, 2022;increaseddecreased from $69.1$105.2 million to $105.2$87.3 million in the year ended December 31, 2021,2022, representing an Adjusted EBITDA Margin of 25.1%17.2%;o◦flowflows from operations increasedoperating activities decreased from $21.7$66.4 million to $66.4$(35.3) million in the year ended December 31, 2021;2022; ando◦increaseddecreased from $19.5$63.7 million to $63.7$(40.7) million in the year ended December 31, 2021.2022.53U.S. GAAP.We believeCOVID-19 pandemic has acceleratedfiscal year ended December 31, 2022, the awareness of the FIGS brand and a shift in purchasing decisions that will continue to drive future growth; however, there can be no assurance that these trends will continue.The ongoing COVID-19 pandemic hasand the global macroeconomic environment continued to negatively impact global supply chains and cause challenges to logistics, including causingelevated ocean freight delays, reliabilitytransit times and capacity issues, port congestion, increasedelevated ocean and air freight rates and labor shortages. Certainrates. Beginning in the second half of ourthe year, we began to see sequential improvements in ocean freight providers, as well as some of our suppliersrates, transit times, reliability and manufacturers, particularly those operating in Vietnam, have experienced delays and shutdowns, and could experience delays and shutdowns again in the future duecapacity, compared to the COVID-19 pandemic.Asfirst half of the year.seekcontinued to take measures to mitigate the impact of global supply chain challenges, as we sought to continue to timely and cost effectively fulfill orders and ship products to our customers,customers. In the quarter ended December 31, 2022, we have been ableutilized air freight to a lesser extent than we did during the prior year period. We did, however, incur elevated ocean freight expense as we sold through inventory previously inbounded during periods of higher ocean freight rates, which increased our cost of goods sold compared to the prior year period. In the fiscal year ended December 31, 2022, we utilized more expensive air freight relatively consistently throughout the year, and experienced elevated ocean freight rates, which increased our cost of goods sold year over year. Although ocean freight rates improved in the fourth quarter, we may continue to produce our products without significant disruptionscontend with elevated ocean freight expense and have taken successful measuresair freight rates, and we may continue to mitigate these macroeconomic challenges to which we are not immune. For example, to meet our customers’ expectations, we haveuse air freight and incur air freight expense from time to time shipped goods earlier when possible and adjusted shipments to alternate origin and destination ports to avoid delays. We have also from time to time used faster but more expensive air freight inas supply chain challenges further normalize.2021,2022, we also continued to experience elevated inventory on hand, as a result of improvements in ocean transit times and sales below our expectations earlier in the year, which in turn resulted in increased costs associated with storing such inventory. We are continuing to work to address our cost of goods sold.Our replenishment-driven model has also been a key part of our ability to navigate these challenges. Nearly 90%increased inventory by adjusting future inventory purchases accordingly. Nevertheless, because approximately 85% of our production utilizesin 2022 utilized our main scrubwear fabric technology FIONx and almost halfa substantial amount of our revenue is generated by our core scrubwear styles in core colors, which are in demand year-round. As a result,year-round, we have been able to produce our raw materials and finished products farther in advance andcan hold greater inventory without significant risk of obsolescence or exposure to seasonality.have managed effectively through COVID-19 logistical challenges. We neverthelessbelieve our largely non-discretionary, replenishment-driven business model is resilient in challenging macroeconomic environments, we expect we willcurrent macroeconomic pressures to affect our results of operations in the near term.contend with elevated ocean and air freight rates, unpredictable ocean transit times and other COVID-19 related logistical challenges. The COVID-19 pandemic may also continue to adversely affect workforces,monitor the impacts of current macroeconomic conditions. An economic slowdown or recession, financial market volatility, changes in the labor market, geopolitical tensions, continuing supply chains, economies and financial markets globally, potentially leading to an economic downturn andchain disruptions, a reduction in consumer spending or an inability for our suppliers, vendors or other parties with whom we do business to meet their contractual obligations, any of which could negatively impact our business and results of operations.Initial Public OfferingOn June 1, 2021, we completed our initial public offering (“IPO”) by issuing 4,636,364 shares of our Class A common stock at a price to the public of $22.00 per share, resulting in net proceeds to us of $95.1 million, after deducting the underwriting discount and commissions of $6.1 million and deferred offering expenses of $0.8 million, net of reimbursements. The Company incurred a total of $8.7 million of expenses, before reimbursements, in connection with the IPO.Follow-on OfferingOn September 20, 2021, we completed a follow-on offering (the “Follow-on Offering”) in which Tulco, LLC, the Company’s majority stockholder, and our co-founders and co-Chief Executive Officers, as selling stockholders, sold an aggregate of 10,254,992 shares of the Company’s Class A common stock in a registered public offering at a price to the public of $40.25 per share. We did not sell any shares of Class A common stock in the Follow-on Offering and did not receive any of the proceeds from the sale of shares by the selling stockholders.In connection with the Follow-on Offering, 1,468,324 shares of the Company’s Class B common stock were converted at a 1:1 ratio into shares of the Company’s Class A common stock.2021.54Ambassadors,ambassadors, as well as performance marketing efforts, including retargeting, paid search and product listing advertisements, paid social media advertisements, search engine optimization, personalized email and mobile push notifications through our app. We plan to continue to invest in our brand and performance marketing to help drive our future growth. the growth in our net revenues per active customer demonstratesis important to understanding our increasingengagement and retention of our customers, and as such demonstrating the value propositionwe provide for our customer base. We calculate net revenues per active customer as the total net revenues for a specified time period divided by the number of active customers during that same time period. Through our differentiated core products, limited edition color and style releases and lifestyle apparel and other non-scrubnon-scrubwear products, we have repeatedly drawn customers back to our digital platform and increased our net revenues per active customer.platform. As we continue to expand our products to fully outfit the medical professional, we believe we have a significant opportunity to continue to expand our share of both the uniform and lifestyle wardrobe of our customers and to increase our net revenues per active customer over time. Our future growth will depend in part on our ability to continue to increase our net revenues per active customer.OurWe believe we exhibit efficient CAC through strategic investments in performance marketing, such as retargeting, paid search and product listing advertisements, paid social media advertisements, search engine optimization, personalized email and mobile push notifications through our app, compounded withand through strong brand awareness driven largely through word of mouth, have led to significant improvements in CAC.2021,2022, we had approximately 1.92.3 million active customers, up from approximately 1.31.9 million active customers as of December 31, 2020.2021. Over the last four years, we have consistently increased the percentage ofachieved robust net revenues from repeat customers while also continuing to increase the numbermaintaining a healthy level of new customers acquired.customer acquisitions. These newly acquired customers frequently make one or more repeat purchase in the same year, which is supplemented by the embedded growth from prior-year cohorts’ customers who continue to purchase from us. increasing share of our net revenues from customers who have made a previous purchase with us in a prior year reflects our customer loyalty and the net revenues retention behavior we see in our cohorts. We believe the increasingThe contribution from repeat customers is reflective of our ability to engage and retain our customers through our differentiated product offerings, community-driven brand and customized customer experience.experience, which is important for our results of operations. This cohort behavior demonstrates our ability to not only retain customers, but also to increasedrive our customers’ spend as they place orders more frequently.repeat orders.ourOur Results of Operationsvalue.55 our Follow-on Offering, debt financing arrangements, amortization of debt issuance costs and interest income earned on investments, as well as gain or loss on foreign currency, primarily driven by payment to vendors for amounts not denominated in U.S. dollars.continued stronghistorical pattern of sequential growth, as well as our decision to conduct select promotions during the holiday season, we historically have generated a higher proportion of net revenues, and incurred higher selling and marketing expenses, during the fourth quarter of the year compared to other quarters, and we expect these trends to continue.2021,2022 Compared to Year Ended December 31, 202056
December 31,
December 31,Year ended
December 31,Year ended
December 31,2022 2021 2022 2021 (in thousands) (as a percentage of net revenues) Net revenues $ 505,835 $ 419,591 100.0 % 100.0 % Cost of goods sold 151,375 118,370 29.9 28.2 Gross profit 354,460 301,221 70.1 71.8 Operating expenses Selling 118,449 81,923 23.4 19.5 Marketing 77,692 58,713 15.4 14.0 120,653 149,602 23.9 35.7 Total operating expenses 316,794 290,238 62.6 69.2 Net income from operations 37,666 10,983 7.4 2.6 Other income (loss), net 1,061 (1,124) 0.2 (0.3) Net income before provision for income taxes 38,727 9,859 7.7 2.3 Provision for income taxes 17,541 19,415 3.5 4.6 Net income (loss) and comprehensive income (loss) $ 21,186 $ (9,556) 4.2 % (2.3) % $8.72021, respectively.Year ended
December 31,Change 2022 2021 % (in thousands) Net revenues $ 505,835 $ 419,591 20.6 % 2021 and 2020, respectively.Net Revenues
December 31,Net revenues increased by $156.5 million, or 59.5%, for the year ended December 31, 2021,2022, compared to the prior year. The increase in net revenues was primarily driven by an increase in orders asfrom existing and new customers and, to a result of new customer acquisition coupled with strong retention of existing customers. Our average order value also increased from $94 to$105 which contributed to thelesser extent, an increase in net revenues.
December 31,Year ended
December 31,Change 2022 2021 (in thousands) Cost of goods sold $ 151,375 $ 118,370 27.9 % Gross profit 354,460 301,221 17.7 % Gross margin 70.1 % 71.8 % (170) bps $45.5$33.0 million, or 62.4%27.9%, for the year ended December 31, 2021,2022, compared to the prior year. This increase was primarily driven by an increase in thedue to a higher total number of orders in the fourth quarter of 20212022 as compared to the same period in 2020.$111.0$53.2 million, or 58.4%17.7%, for the year ended December 31, 2021,2022, compared to the prior year, primarily due to thean increase in the total number of orders.0.51.7 percentage points for the year ended December 31, 2021,2022, compared to the prior year. The decrease in gross margin was primarily related to higher mix of promotional sales and, to a lesser extent, an increase in freight-in due to the utilization of more expensive air freight and increasedelevated ocean freight rates partially offset by lower discounts and a decrease in returns.57
December 31,Year ended
December 31,Change 2022 2021 % (in thousands) Operating expenses: Selling $ 118,449 $ 81,923 44.6 % Marketing 77,692 58,713 32.3 % General and administrative 120,653 149,602 (19.4) % Total operating expenses 316,794 290,238 9.1 % $158.0$26.6 million, or 119.4%9.1%, for the year ended December 31, 2021,2022, compared to the prior year and, as a percentage of net revenues, decreased by 6.6 percentage points, primarily driven by a decrease in general and administrative expense as described below.18.93.9 percentage points, primarily driven by increasespoints. The increase in general and administrativeselling expense as described below.a percentage of net revenues was primarily due to higher fulfillment expenses, including increased storage costs and, to a lesser extent, higher shipping expense as a result of rate increases.Selling$30.0$19.0 million, or 57.9%32.3%, for the year ended December 31, 2021,2022, compared to the prior year and, as a percentage of net revenues, increased by 1.4 percentage points. The increase in marketing expense as a percentage of net revenues was primarily due to increased investment in brand marketing, including increased investments in our Ambassador Program and commercials.0.211.8 percentage points. The decrease in selling expense as a percentage of net revenues was primarily due to leverage in shipping as a result of an increase in average order value.Marketing expense increased by $19.9 million, or 51.1%, for the year ended December 31, 2021, compared to the prior year and, as a percentage of net revenues, decreased by 0.8 percentage points. The decrease in marketing expense as a percentage of net revenues was primarily due to leverage in performance marketing driven by strong retention of existing customers.General and administrative expense increased by $108.1 million, or 260.2%, for the year ended December 31, 2021, compared to the prior year and, as a percentage of net revenues, increased by 19.9 percentage points. The increase in general and administrative expense as a percentage of net revenues was primarily due to an increasea decrease in stock-based compensation expense, in connection with the IPO and to a lesser extent, higher investment in human capital.
December 31,Year ended
December 31,Change 2022 2021 % (in thousands) Other income (loss), net $ 1,061 $ (1,124) 194.4 % decreasedincreased for the year ended December 31, 2021, compared to the prior year, primarily related to expenses associated with the Follow-on Offering.Provision for Income Taxes
December 31,Provision for income taxes increased by $11.1 million, or 133.4%, for the year ended December 31, 2021,2022, compared to the prior year, primarily due to an increase in our interest income driven by higher interest rates.Year ended
December 31,Change 2022 2021 % (in thousands) Provision for income taxes $ 17,541 $ 19,415 (9.7) % U.S. GAAP. In addition to the measures presented in our financial statements, we use the following key operational and business metrics to evaluate our business, measure our performance, develop financial forecasts and make strategic decisions. We believe the non-GAAP financial measures, Adjusted EBITDA, Adjusted EBITDA Margin and free cash flow, are useful in evaluating our performance. Our non-GAAP financial measures should not be considered in isolation from, or as substitutes for, financial information prepared in accordance with U.S. GAAP.58As of December 31, 2022 2021 (in thousands) Active customers 2,294 1,872 the growth in ourmeasuring net revenues per active customer demonstratesis important to understanding our increasingengagement and retention of customers, and as such, our value proposition for our customer base. We define net revenues per active customer as the sum of total net revenues in the preceding twelve month period divided by the current period active customers.
December 31,As of December 31, 2022 2021 Net revenues per active customer $ 221 $ 224 average order value (“AOV”)AOV as the sum of the total net revenues in a given period divided by the total orders placed in that period. Total orders are the summation of all completed individual purchase transactions in a given period. We believe our relatively high average order value demonstrates the premium nature of our product. As we expand into and increase our presence in additional product categories and price points as well as expand internationally, AOV may fluctuate.
December 31,Year ended
December 31,2022 2021 Average order value $ 112 $ 105 U.S.GAAP and presents Adjusted EBITDA Margin with net income (loss) margin, the most directly comparable financial measure prepared in accordance with GAAP:
December 31,Year ended
December 31,2022 2021 (in thousands, except margin) Net income (loss) $ 21,186 $ (9,556) Add (deduct): Other income (loss), net (1,061) 1,124 Provision for income taxes 17,541 19,415 1,924 1,424 37,533 83,516 Transaction costs — 1,139 10,128 8,183 Adjusted EBITDA $ 87,251 $ 105,245 Net Revenue $ 505,835 $ 419,591 4.2 % (2.3) % Adjusted EBITDA Margin 17.2 % 25.1 % Management believesWe believe free cash flow is a useful measure of liquidity and an additional basis for assessing our ability to generate cash. There are limitations related to the use of free cash flow as an analytical tool, including: other companies may calculate free cash flow differently, which reduces its usefulness as a comparative measure; and free cash flow does reflect our future contractual commitments and it does not represent the total residual cash flow for a given period.U.S. GAAP.
December 31,Year ended
December 31,2022 2021 (in thousands) Net cash (used in) provided by operating activities $ (35,329) $ 66,437 Less: capital expenditures (5,348) (2,712) Free cash flow $ (40,677) $ 63,725 20212022 and 2020,2021, we had $195.4$159.8 million and $58.1$195.4 million of cash and cash equivalents, respectively. Since inception, we have financed operations primarily through cash flowflows from operating activities, and the sale of our capital stock.stock and borrowings under credit facilities.“2020 Facility”“2020 Facility”). On September 7, 2021, we terminated the 2020 Facility. As of December 31, 2021, letters of credit with an aggregate face amount of $1.9 million remained outstanding under the 2020 Facility but our reimbursement obligations were secured by cash collateral pledged by us to JPMorgan Chase Bank, N.A. in the amount of approximately $2.1 million or 105% of the amounts outstanding.(the “2021 Facility”(as amended, the “2021 Facility”). The 2021 Facility will mature in September 2026. As of December 31, 2021, we had letters of credit aggregating to $2.5 million outstanding under the 2021 Facility and available borrowings of $97.5 million. As of December 31, 2021,2022, we had no outstanding borrowings under the 2021 Facility.60
December 31,Year ended
December 31,2022 2021 (in thousands) Net cash (used in) provided by operating activities $ (35,329) $ 66,437 Net cash used in investing activities (5,848) (2,712) Net cash provided by financing activities 3,522 75,572 Net (decrease) increase in cash, cash equivalents, and restricted cash $ (37,655) $ 139,297 Net cashincreaseddecreased by $44.7$101.8 million for the year ended December 31, 2021,2022, compared to the same period last year. We saw an increaseThe decrease in operating cash provided from operating activities as a result of improvements in net income, excluding the impact of non-cash adjustments of $75.7 million. In addition, we saw an increase in cash provided as a result offlows was due to a net change in operating assets and liabilities of $28.3$94.7 million primarily driven by higher accrued expense balances frominventory purchases of $55.6 million, the timing of payments during the period, lower accounts receivable balances fromagainst accrued expenses of $16.5 million, the timing of collections during the period, and higher income tax payable balances frompayments of $8.4 million, and the timing of tax paymentscash collections related to accounts receivable of $7.8 million during the period.$2.7$5.8 million for the year ended December 31, 20212022 increased by $0.5$3.1 million as compared to the same period last year.20212022 and 20202021 were primarily related to capitalized software development costs, purchases of machinery and equipment, and purchases of computer equipment.61Cash flows from financing activities for the year ended December 31, 2020 were not material.commitments. U.S. GAAP requires us to make estimates and judgments that affect the amounts reported in those financial statements and accompanying notes. Although we believe that the estimates we use are reasonable, due to the inherent uncertainty involved in making those estimates, actual results reported in future periods could differ from those estimates. We believe that the following accounting policiesestimates are those that involve a high degreethe most significant level of judgment and complexity.estimation uncertainty. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our financial condition and results of our operations. See Note 2 to our audited financial statements appearing elsewhere in this Annual Report on Form 10-K for a description of our other significant accounting policies.RSUsrestricted stock units (“RSUs”) to employees, non-employee directors, and consultants. We measure and recognize stock-based compensation expense for all stock option awards granted to employees and non-employees based on their estimated fair values as of the grant date using the Black-Scholes option-pricing model. Our use of the Black-Scholes option-pricing model to estimate the fair value of stock options granted requires the input of various assumptions. The following range of assumptions which are as follows:Risk free interest rate 1.71 - 4.08 % Expected volatility 34 - 40 % Expected dividend yield 0 % Expected term (in years) 5.63 - 6.25 62the vesting period of the respective award based on the grant date fair value of the award.four years. We account for forfeitures as they occur.likely than not50% likely of being realized. We believe our recorded tax liabilities are adequate to cover all open tax years based on our assessment. This assessment relies on estimates and assumptions and involves significant judgments about future events. A hypothetical 10% change in our recorded tax liabilities as of December 31, 2022 would not result in a material impact on our financial statements. To the extent that our view as to the outcome of these matters changes, we will adjust income tax expense in the period in which such determination is made. We classify interest and penalties related to income taxes as income tax expense.632021,2022, we had cash and cash equivalents and restricted cash of $197.4$159.8 million. Interest-earning instruments carry a degree of interest rate risk. We do not enter into investments for trading or speculative purposes and have not used any$100.0 $100.0 million. Because the 2021 Facility bears interest at a variable rate, we will be exposed to market risks relating to changes in interest rates if we have a meaningful outstanding balance. At December 31, 2021,2022, there were no outstanding borrowings under the 2021 Facility.do not believe thatcontinue to monitor the impact of inflation has had a materialon raw materials, freight, labor, rent and other costs in order to minimize its effects. A high rate of inflation in the future may have an adverse effect on our business, financial conditionability to maintain current levels of gross margin and selling, general, and administrative expenses as a percentage of net revenue if we are unable, or resultschoose not to, increase the selling prices of operations. If our costs become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and resultsproducts in proportion with these increased costs.2021,2022 and 2020,2021, the related statements of operations and comprehensive income (loss), stockholders’ stockholders' equity and cash flows for each of the three years in the period ended December 31, 2021,2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 20212022 and 2020,2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021,2022, in conformity with U.S. generally accepted accounting principles.Public Company Accounting Oversight Board (United States) (PCAOB)PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.Auditing of Internal Controls Over Financial Reporting Over Revenue Description of the Matter As described in Note 2 to the financial statements, the Company recognized net revenues of $505.8 million for the year ended December 31, 2022. The Company recognizes revenue at a point in time when it satisfies a performance obligation and transfers control of the products to the respective customers, which occurs when the goods are transferred to a common carrier.
The Company’s revenue recognition process utilizes multiple third-party service providers which provide hosting, software and revenue transaction processing services. While revenue consists of a high volume of individually low monetary value transactions, the initiation, processing and recording of transactions relies upon the information provided by the third parties. This process is dependent on the effective design and operation of multiple systems and tools, processes, data sources and controls which required significant audit effort and auditor judgment in evaluating the sufficiency of audit evidence over the Company’s internal controls over revenue recognition.How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls over the Company’s accounting for revenue, which included identifying and testing the Company’s internal controls over the data utilized. We identified and tested the relevant systems and tools used for the determination of initiation, processing, and recording of revenue. We identified and tested management’s controls over the data used to recognized revenue. We also tested management’s controls over the movement of data between the systems, and tools used for the recording of revenue transactions in the general ledger. Also, we evaluated the service auditors’ reports on which the Company relies.
To test the Company’s recognition of revenue, our audit procedures included, among others, testing the correlation of revenue recognized to accounts receivable and cash receipts and testing the completeness and accuracy of the underlying data within the third-party systems by agreeing amounts recognized as revenue to customer invoices, third party bills of lading, and cash receipts. Additionally, we performed various analytical review procedures, including disaggregated revenue analysis and gross margin analysis to assess reasonableness of the amounts recorded. We also examined the agreements between the Company and the third-party service providers to understand the services provided.Auditing of Internal Controls Over Financial Reporting Over Inventory Description of the Matter As described in Note 2 to the financial statements, the Company’s inventory consists of finished goods.
The Company’s process for tracking changes in inventory quantities utilizes multiple third-party service providers which provide inventory management systems and hosting, inventory storage, receiving, shipping and periodic physical inventory counting. The processing and recording of changes in inventory quantities by the Company relies upon the information provided by the third parties. This process is dependent on the effective design and operation of multiple systems and tools, processes, data sources and controls which required significant audit effort and auditor judgment in evaluating the sufficiency of audit evidence over the Company’s internal controls over changes in inventory quantities.
/s/ Ernst & Young LLPHow We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls over the Company’s accounting for changes in inventory quantities, which included identifying and testing the Company’s internal controls over the data utilized. We identified and tested the relevant systems and tools used for the determination of initiation, processing, and recording of changes in inventory quantities. We identified and tested management’s controls over the data used to record changes in inventory quantities. We also tested management’s controls over the movement of data between the systems and tools used for the recording of changes in inventory quantities. Also, we evaluated the service auditors’ reports on which the Company relies.
To test the Company’s accounting for changes in inventory quantities, our audit procedures included, among others, obtaining external confirmations of inventory quantities on-hand from the third-party service providers, performing test counts of inventory on-hand on a sample basis, and testing of inventory receipts and shipments near year-end. Additionally, we performed various analytical review procedures, including gross margin analyses and inventory turnover, to assess the reasonableness of the quantities recorded. We also examined the agreements between the Company and the third-party service providers to understand the services provided.March 10,66We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the balance sheets of the Company as of December 31, 2022 and 2021, the related statements of operations and comprehensive income (loss)
2021
2020
authorized as of December 31, 2021 and December 31, 2020, respectively;
0 and 154,444,851 shares issued and outstanding as of December 31, 2021 and December 31, 2020, respectively
authorized as of December 31, 2021 and December 31, 2020, respectively;
152,098,257 and 0 shares issued and outstanding as of December 31, 2021 and December 31, 2020, respectively
authorized as of December 31, 2021 and December 31, 2020, respectively;
12,158,187 and 0 shares issued and outstanding as of December 31, 2021 and December 31, 2020, respectively
authorized as of December 31, 2021 and December 31, 2020, respectively;
0 shares issued and outstanding as of December 31, 2021 and December 31, 2020As of December 31,
2022December 31,
2021Assets Current assets Cash and cash equivalents $ 159,775 $ 195,374 Restricted cash — 2,056 Accounts receivable 6,866 2,441 Inventory, net 177,976 86,068 Prepaid expenses and other current assets 11,883 7,400 Total current assets 356,500 293,339 Non-current assets Property and equipment, net 11,024 7,613 Operating lease right-of-use assets 15,312 — Deferred tax assets 10,971 10,239 Other assets 1,257 560 Total non-current assets 38,564 18,412 Total assets $ 395,064 $ 311,751 Liabilities and stockholders’ equity Current liabilities Accounts payable $ 20,906 $ 14,604 Operating lease liabilities 3,408 — Accrued expenses 26,164 24,677 Accrued compensation and benefits 3,415 6,464 Sales tax payable 3,374 3,728 Gift card liability 7,882 5,590 Deferred revenue 2,786 596 Returns reserve 3,458 2,761 Income tax payable — 3,973 Total current liabilities 71,393 62,393 Non-current liabilities Operating lease liabilities, non-current 15,756 — Deferred rent and lease incentive — 3,542 Other non-current liabilities 176 243 Total liabilities 87,325 66,178 Commitments and contingencies (Note 10) Stockholders’ equity Class A common stock — par value $0.0001 per share, 1,000,000,000 shares authorized as of December 31, 2022 and December 31, 2021; 159,351,307 and 152,098,257 shares issued and outstanding as of December 31, 2022 and December 31, 2021, respectively 16 15 Class B common stock — par value $0.0001 per share, 150,000,000 shares authorized as of December 31, 2022 and December 31, 2021; 7,210,795 and 12,158,187 shares issued and outstanding as of December 31, 2022 and December 31, 2021, respectively — 1 Preferred stock — par value $0.0001 per share, 100,000,000 shares authorized as of December 31, 2022 and December 31, 2021; zero shares issued and outstanding as of December 31, 2022 and December 31, 2021 — — Additional paid-in capital 268,606 227,626 Retained earnings 39,117 17,931 Total stockholders’ equity 307,739 245,573 Total liabilities and stockholders’ equity $ 395,064 $ 311,751 Year ended December 31, 2022 2021 2020 Net revenues $ 505,835 $ 419,591 $ 263,112 Cost of goods sold 151,375 118,370 72,888 Gross profit 354,460 301,221 190,224 Operating expenses Selling 118,449 81,923 51,896 Marketing 77,692 58,713 38,852 General and administrative 120,653 149,602 41,536 Total operating expenses 316,794 290,238 132,284 Net income from operations 37,666 10,983 57,940 Other income (loss), net Interest income (expense) 1,708 (239) 136 Other expense (647) (885) — Total other income (loss), net 1,061 (1,124) 136 Net income before provision for income taxes 38,727 9,859 58,076 Provision for income taxes 17,541 19,415 8,318 Net income (loss) and comprehensive income (loss) $ 21,186 $ (9,556) $ 49,758 Earnings (loss) attributable to Class A and Class B common stockholders Basic earnings (loss) per share $ 0.13 $ (0.06) $ 0.32 Diluted earnings (loss) per share $ 0.11 $ (0.06) $ 0.30 Weighted-average shares outstanding—basic 165,268,185 159,177,713 153,327,308 Weighted-average shares outstanding—diluted 187,547,474 159,177,713 163,331,348
exchange of Common Stock
exchange of Common Stock
initial public offering, net of offering costs and related tax impacts
vesting of Restricted Stock, net of tax withholdings
exchange of Class B Common Stock
exchange of Class A Common StockClass A Common Stock Class B Common Stock Additional
Paid-in Capital(Accumulated Deficit)
Retained EarningsAmount Amount December 31, 2019 153,052,983 $ 15 — $ — — $ — $ 61,070 $ (22,271) $ 38,814 Stock-based compensation — — — — — — 8,713 — 8,713 Stock option exercises 1,391,868 — — — — — 392 — 392 Net income — — — — — — — 49,758 49,758 December 31, 2020 154,444,851 $ 15 — $ — — $ — $ 70,175 $ 27,487 $ 97,677 Issuance of Class A Common Stock upon exchange of Common Stock (142,851,852) (14) 142,851,852 14 — — — — — Issuance of Class B Common Stock upon exchange of Common Stock (12,148,029) (1) — — 12,148,029 1 — — — Issuance of Class A Common Stock upon initial public offering, net of offering costs and related tax impacts — — 4,636,364 1 — — 95,100 — 95,101 Issuance of Class A Common Stock upon vesting of Restricted Stock, net of tax withholdings — — 1,880,548 — — — — — — Issuance of Class A Common Stock upon exchange of Class B Common Stock — — 1,468,324 — (1,468,324) — — — — Issuance of Class B Common Stock upon exchange of Class A Common Stock — — (1,478,482) — 1,478,482 — — — — — — — — — — (21,556) — (21,556) Capital contribution — — — — — — 1,301 — 1,301 Stock-based compensation — — — — — — 81,139 — 81,139 Stock option exercises 555,030 — 2,739,651 — — — 907 — 907 Tax benefit of deductible IPO transaction costs — — — — — — 560 — 560 Net loss — — — — — — — (9,556) (9,556) December 31, 2021 — $ — 152,098,257 $ 15 12,158,187 $ 1 $ 227,626 $ 17,931 $ 245,573 Issuance of Class A Common Stock upon
vesting of Restricted Stock— — 1,777,374 — — — — — — Issuance of Class B Common Stock upon
exchange of Class A Common Stock— — (1,352,608) — 1,352,608 — — — — Issuance of Class A Common Stock upon
exchange of Class B Common Stock— — 6,300,000 1 (6,300,000) (1) — — — Capital contribution — — — — — — 479 — 479 Stock-based compensation — — — — — — 37,458 — 37,458 Stock option exercises and employee stock purchases — — 528,284 — — — 3,043 — 3,043 Net income — — — — — — — 21,186 21,186 December 31, 2022 — $ — 159,351,307 $ 16 7,210,795 $ — $ 268,606 $ 39,117 $ 307,739
December 31,Year ended
December 31,2022 2021 2020 Cash flows from operating activities: Net income (loss) $ 21,186 $ (9,556) $ 49,758 Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: Depreciation and amortization expense 1,924 1,424 946 Deferred income taxes (732) (3,732) (6,507) Non-cash operating lease cost 2,381 — — Loss on disposal of property and equipment — — 2 Stock-based compensation 37,458 81,139 8,713 Changes in operating assets and liabilities: Accounts receivable (4,425) 3,339 (4,023) Inventory (91,908) (36,333) (35,435) Prepaid expenses and other current assets (4,483) (735) (4,672) Other assets (197) 127 38 Accounts payable 6,315 2,855 1,207 Accrued expenses 1,487 17,983 4,266 Deferred revenue 2,190 (1,185) 794 Accrued compensation and benefits (3,049) 2,250 2,366 Returns reserve 697 1,084 901 Sales tax payable (354) 652 527 Income tax payable (3,973) 4,428 105 Gift card liability 2,292 2,571 2,028 Deferred rent and lease incentive — (117) 734 Operating lease liabilities (2,071) — — Other non-current liabilities (67) 243 — Net cash (used in) provided by operating activities (35,329) 66,437 21,748 Cash flows from investing activities: Purchases of property and equipment (5,348) (2,712) (2,262) Purchases of held-to-maturity securities (500) — — Net cash used in investing activities (5,848) (2,712) (2,262) Cash flows from financing activities: Proceeds from issuance of Class A common stock in initial public offering, net of underwriting discounts — 95,881 — Payments of initial public offering issuance costs, net of reimbursements — (780) — Payment of debt issuance and financing costs — (181) (98) Proceeds from capital contributions 479 1,301 — Proceeds from stock option exercises and employee stock purchases 3,043 907 392 Tax payments related to net share settlements on restricted stock units — (21,556) — Net cash provided by financing activities 3,522 75,572 294 Net (decrease) increase in cash, cash equivalents, and restricted cash (37,655) 139,297 19,780 Cash, cash equivalents, and restricted cash, beginning of period $ 197,430 $ 58,133 $ 38,353 Cash, cash equivalents, and restricted cash, end of period $ 159,775 $ 197,430 $ 58,133 Supplemental disclosures: Cash paid for income taxes, net of refunds received $ 11,903 $ 15,004 $ 18,162 Property and equipment included in accounts payable and accrued expenses $ 19 $ 32 $ 236 Deferred offering costs recorded in stockholders’ equity upon initial public offering, net of related tax impacts $ — $ 220 $ — other non-scrub offerings,non-scrubwear, such as lab coats, underscrubs, outerwear, activewear, loungewear, compression socks footwear and masks.footwear. The Company markets and sells its products primarily in the United States. Sales are primarily generated through the Company’s digital platforms.Impact of In response to public health directives and orders, and to help minimize the risk of the virus to employees, the Company has taken precautionary measures, including implementing work from home policies for certain employees. has alsoand global macroeconomic environment have negatively impacted global supply chains and caused challenges to logistics, including causingelevated ocean freight delaystransit times and unreliability, port congestion, increasedelevated ocean and air freight rates, and labor shortages, and has the potential to significantly impactimpacted the Company’s manufacturing supply chain, distribution, logistics and other services.services. The COVID-19 maypandemic has also led to adverse macroeconomic conditions, including a reduction in consumer spending, which has and could continue to adversely affect workforces,negatively impact the Company’s business and results of operations.chains, economies and financial markets globally, potentially leading to an economic downturn andchain disruptions, a reduction in consumer spending or an inability for the Company'sCompany’s suppliers, vendors or other parties with whom it does business to meet their contractual obligations, which could negatively impact the Company'sCompany’s business and results of operations.Initial Public OfferingOn June 1, 2021, the Company completed an initial public offering (the “IPO”) by issuing 4,636,364 shares of Class A common stock at a price to the public of $22.00 per share, resulting in net proceeds of $95.1 million, after deducting the underwriting discount and commissions of $6.1 million and deferred offering expenses of $0.8 million, net of reimbursements. The Company incurred a total of $8.7 million of expenses, before reimbursements, in connection with the IPO.Follow-on OfferingOn September 20, 2021, the Company completed a follow-on offering (the “Follow-on Offering”) in which Tulco, LLC, the Company’s majority stockholder, and our co-founders and co-Chief Executive Officers, as selling stockholders, sold an aggregate of 10,254,992 shares of the Company’s Class A common stock in a registered public offering at a price to the public of $40.25 per share. The Company did not sell any shares of Class A common stock in the Follow-on Offering and did not receive any of the proceeds from the sale of shares by the selling stockholders.In connection with the Follow-on Offering, 1,468,324 shares of the Company’s Class B common stock were converted at a 1:1 ratio into shares of the Company’s Class A common stock.U.S. GAAP”). Certain reclassifications have been made to prior-year amounts to conform to the current presentation.9-for-onenine-for-one forward stock split of its issued and outstanding common stock, stock options and RSUs. Accordingly, all share and per share information has been retroactively adjusted to reflect the stock split for all periods presented.71 U.S. GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods presented. Significant estimates include, but are not limited to, the valuation of the net realizable value of inventory, reserves for sales returns, allowances for doubtful accounts, stock-based compensation, contingent sales tax liability, and the useful lives and recoverability of long-lived assets. Actual results could differ from those estimates. The Company did 0t have assets or liabilities classified as Level 3 on its balance sheets as of December 31, 2021 and 2020. The Company’s cash equivalents, which are funds held in a money market account, are measured at fair value on a recurring basis. The carrying amount of cash equivalents was $141.1 million and $50.2million as of December 31, 2021 and 2020, respectively, which approximates fair value and was determined based upon Level 1 inputs. The money market account is valued using quoted market prices with no valuation adjustments applied and is categorized as Level 1.72Company'sCompany’s reimbursement obligations under its outstanding letters of credit.December 31, 2022 2021 Cash and cash equivalents $ 159,775 $ 195,374 Restricted cash — 2,056 Total cash, cash equivalents, and restricted cash $ 159,775 $ 197,430 throughthrough the Company’s digital platforms. Trade accounts receivable is reported net of an allowance for doubtful accounts, which was 0zero as of December 31, 20212022 and 2020.2021. Other receivablesreceivables generally relate to amounts due to the Company that result from activities that are not related to the direct sale of the Company’s products.Company'sCompany’s allowance to write down inventory to the lower of cost or net realizable value was $0.4 million and $0.8$0.4 million as of December 31, 20212022 and 2020, respectively.2021.73reviewstests its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the asset or group of assets to the future undiscounted cash flows expected to be generated by the asset or asset group. If the evaluation of the forecasted cash flows indicates that the carrying value of the assets is not recoverable, the assets are written down to their fair value. NaNNo such impairments were identified for the years ended December 31, 2022, 2021, 2020, and 2019.2020.Deferred Rent and Lease Incentivecertain facilitiesoffice space under non-cancelable operating leases.leases for its corporate headquarters. The Company’s leasesCompany determines whether an arrangement is a lease at inception of the agreement and reassesses that conclusion if the agreement is modified. At lease commencement, which is generally contain escalatingwhen the Company takes possession of the asset, the Company records a lease liability and corresponding right-of-use asset. Lease liabilities represent the present value of minimum lease payments over the expected lease term, which includes options to extend or rent holiday periods. Rentterminate the lease when it is reasonably certain those options will be exercised. The present value of the lease liability is determined using the Company’s incremental borrowing rate at the lease commencement date. Right-of-use assets and lease liabilities are established on the balance sheets for leases with an expected term greater than one year. Leases with an initial term of 12 months or less are not recorded on the balance sheets. The Company does not allocate consideration between lease and non-lease components.termterm. Right-of-use assets are tested for impairment whenever events or changes in circumstances indicate that the carrying value of the lease, beginning when the Company takes possession of the leased space. The difference between the rent expense and cash paid to landlords is recorded as a deferred rent liability in the accompanying balance sheets.In certain cases, the Company receives allowances for construction and leasehold improvements from its landlords which are recorded as a deferred lease credit in the accompanying balance sheets and amortizes the deferred lease credit as a reduction of rent expense in the accompanying statements of income and comprehensive income over the term of the lease.we satisfythe Company satisfies the performance obligations.74$2.8$3.5 million and $1.7$2.8 million as of December 31, 2022 and 2021, and 2020, respectively.2020, and 20192020 (in thousands):
December 31,Year ended
December 31,2022 2021 2020 By geography: United States $ 462,126 $ 390,514 $ 253,723 Rest of the world 43,709 29,077 9,389 $ 505,835 $ 419,591 $ 263,112 By product: Scrubwear $ 415,937 $ 363,050 $ 227,988 Non-Scrubwear 89,898 56,541 35,124 $ 505,835 $ 419,591 $ 263,112 750.Company'sCompany’s Class A common stock as reported on the New York Stock Exchange. measures the fair value of restricted stock units (“RSUs”) granted to employees based on the fair value of its Class A common stock on the grant date. The Company’s RSU grants vest upon the satisfaction of either a service condition or both a service condition and a performance condition. The service condition is generally satisfied ratably over four years. The performance condition related to the Company's outstanding performance-based awards was satisfied in connection with the IPO.The Company classifies stock-based compensation expense in its statements of income and comprehensive income in the same manner in which the award recipient’s cash compensation costs are classified. For the years ended December 31, 2022, 2021, 2020, and 20192020 the Company recorded stock-based compensation expense of $81.1$37.5 million, $8.7$81.1 million, and $0.2$8.7 million, respectively, which are all recorded in general and administrative expense on the statements of incomeoperations and comprehensive income.2019,2020, the Company recorded a valuation allowance against its deferred tax assets as it was more likely than not that the Company would not be able to realize its deferred tax assets. During 2020,2021, the Company determined that all its deferred tax assets were realizable due to the Company'sCompany’s three-year cumulative pretax book income position, resulting in the full release of the valuation allowance. The Company is 0tnot recording a valuation allowance against any of its deferred tax assets as of December 31, 2021.76 As of December 31, 2021, the Company had $0.2 million uncertain tax positions relating to late filing penalties of certain 2020 state tax returns and on utilization of R&D tax credits. There were 0 known uncertain tax positions as of December 31, 2020.2020 and 2019,2020, there was 0no difference between net income (loss) and comprehensive income (loss).("basic EPS"(“Basic EPS”) is calculated by dividing net income (loss) by the weighted-average number of common shares outstanding during the year. Diluted earnings (loss) per share ("diluted EPS"(“Diluted EPS”) is calculated by dividing net income (loss) by the weighted-average number of common and common equivalent shares outstanding during the year. Common equivalent shares are excluded from the computation of diluted earnings per share in periods for which they have an anti-dilutive effect.co-chief executive officers.Chief Executive Officer. The Company manages its operations as a single segment for the purposes of assessing performance and making operating and resource allocation decisions. Therefore, the Company has concluded that it has 1one reportable segment.2016- 02, 2016-02, Leases (Topic 842), as subsequently amended, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors), and replaces the existing guidance in ASC 840, Leases. The new standard also requires lessees to recognize operating and finance lease liabilities and corresponding right-of-use assets on the balance sheet and to provide enhanced disclosures surrounding the amount, timing and uncertainty of cash flows arising from leasing arrangements. The Company is requiredIn July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements. ASU 2018-11 provides entities another option for transition, allowing entities to adoptnot apply the new standard onin the comparative periods they present in their financial statements in the year of adoption. Effective January 1, 2022, and will report its adoption on Form 10-Q for the first quarter of 2022. Upon adoption, the Company expects to applyadopted ASU 2016-02 using the availableoptional transition practical expedients.method provided by ASU 2018-11. The Company estimateselected certain practical expedients permitted under the impacttransition guidance, including the election to carryforward historical lease classification and the short-term lease practical expedient. In addition, the Company elected the lease and non-lease components practical expedient, which allowed it to calculate the present value of adoption to result in the establishmentfixed payments without performing an allocation of material lease liabilities with a similar corresponding impact to total assets, as well as enhanced disclosures. The Company does not expect the adoptionand non-leasehave an impactthe Company’s statements of operations and comprehensive income or the Company’s statements of cash flows. Refer to Note 11 for the Company’s expanded disclosures on its Statement of Cash Flows, or Net income (loss) from operations in its Statement of Operations and Comprehensive Income (Loss).This update isThese updates are effective for entities other than public business entities, including emerging growth companies that elected to defer compliance with new or revised financial accounting standards until a company that is not an issuer is required to comply with such standards, for annual reporting periods beginning after December 15, 2021. The Company does not expect the adoption of this standardadopted these updates on January 1, 2022 and noted no material effect to have a material impact on its financial statements and related disclosures.does not expect the adoption of this standardadopted ASU 2019-12 on January 1, 2022 and noted no material effect to have a material impact on its financial statements and related disclosures.7720212022 and 2020,2021, the Company’s cash equivalents consisted of money market funds. The cash equivalents are classified as Level 1 financial assets as these assets are valued using quoted market prices in active markets without any valuation adjustment. The following table summarizes the Company'sCompany’s financial assets measured at fair value on a recurring basis (in thousands):Fair Value Measurement as of
December 31, 2022Level 1 Level 2 Level 3 Total Assets Money market funds $ 102,908 $ — $ — $ 102,908 $ 102,908 $ — $ — $ 102,908 Fair Value Measurement as of
December 31, 2021Level 1 Level 2 Level 3 Total Assets Money market funds $ 141,104 $ — $ — $ 141,104 $ 141,104 $ — $ — $ 141,104 0no transfers between fair value levels during the years ended December 31, 20212022 and 2020.2021. The carrying values of other current assets, accounts payable and accrued expenses approximate their fair values due to the short-term nature of these assets and liabilities.Other accounts receivable as of December 31, 2021 and 2020 is primarily comprised of receivables related to vendor refunds and amounts due to the Company that result from activities that are not related to the direct sale of the Company’s products.December 31, 2022 2021 Trade $ 6,288 $ 1,653 Other 578 788 $ 6,866 $ 2,441 December 31, 2022 2021 Inventory deposits $ 2,086 $ 798 Prepaid expenses 6,588 5,440 Prepaid taxes 2,186 — Other 1,023 1,162 $ 11,883 $ 7,400 78December 31, 2022 2021 Furniture and fixtures $ 1,189 $ 855 Office equipment 937 809 Machinery and equipment 2,853 1,348 Computer equipment 1,486 953 Software and website design 6,209 2,997 Leasehold improvements 3,126 3,083 Capital projects in progress 11 431 Total property and equipment 15,811 10,476 Less: accumulated depreciation and amortization (4,787) (2,863) Property and equipment, net $ 11,024 $ 7,613 2020, and 20192020 on property and equipment was $1.4$1.9 million, $0.9$1.4 million, and $0.5$0.9 million, respectively.December 31, 2022 2021 Accrued inventory $ 8,906 $ 16,243 Accrued shipping 2,149 1,077 Accrued selling expenses 10,648 4,832 Accrued legal expenses 395 588 Accrued marketing expenses 1,747 923 Other accrued expenses 2,319 1,014 $ 26,164 $ 24,677 On September 5, 2017, the Company, as borrower, entered into a credit agreement with First Choice Bank, as lender, administrative agent and promissory note issuer for a $5.0 million revolving credit facility (the “2017 Facility”). On October 5, 2018, the principal amount of the 2017 Facility was increased to$10.0 million. On January 7, 2019, the Company amended the 2017 Facility to extend the maturity date to January 12, 2022 and carved out of the 2017 Facility two standby letters of credit. The Company had letters of credit aggregating to $2.3 million as of December 31, 2019. Availability under the 2017 Facility was$7.7 million as of December 31, 2019. On January 10, 2020, the Company amended and extended a letter of credit, increasing the aggregate of letters of credit to $2.4 million. In December 2020, the 2017 Facility was terminated.$50.0$50.0 million revolving credit facility, including capacity to issue letters of credit (the “2020 Facility”). The 2020 Facility had a maturity date of December 2, 2025 (“2020 Facility Maturity Date”). Subject to certain conditions, the 2020 Facility also provided for an additional $25.0$25.0 million of capacity. Borrowings under the 2020 Facility were payable on the 2020 Facility Maturity Date and bore interest at LIBOR (with a 0.5%0.5% floor) plus 1.75%1.75%. The interest rate for undrawn amounts was 0.25%0.25%. On September 7, 2021, the Company terminated the 2020 Facility. Upon the termination of the 2020 Facility, letters of credit with an aggregate face amount of approximately $3.2$3.2 million were outstanding but the reimbursement obligations of the Company were secured by cash collateral pledged by the Company to JPMorgan Chase Bank, N.A. in the amount of approximately $3.3$3.3 million or 105%105% of the amounts outstanding. On October 28, 2021, the Company cancelled letters of credit with an aggregate face amount of $1.3$1.3 million. As of December 31, 2021, letters of credit with an aggregate face amount of $1.9$1.9 million remained outstanding. TheAs of December 31, 2021, the reimbursement obligations of the Company were secured by cash collateral pledged by the Company to JPMorgan Chase Bank, N.A. in the amount of approximately $2.1$2.1 million or 105%105% of the amounts outstanding.79$100.0$100.0 million revolving credit facility, including capacity to issue letters of credit (the “2021 Facility”). The 2021 Facility is secured by substantially all assets of the Company and its material subsidiaries, subject to customary exceptions. The 2021 Facility has a maturity date of September 7, 2026 (“2021 Facility Maturity Date”). As of December 31, 2021,2022, the Company had letters of credit aggregating to $2.5$4.4 million outstanding under the 2021 Facility and available borrowings of $97.5$95.6 million. As of December 31, 2021,2022, the Company had no outstanding borrowings under the 2021 Facility. Borrowings under the 2021 Facility are payable on the 2021 Facility Maturity Date. Borrowings bear interest at either (a) the Eurodollar Rate (as defined in the 2021 Facility) plus 1.125%1.125% or (b) the Base Rate (as defined in the 2021 Facility) plus 0.125%0.125%. The interest rate for undrawn amounts is 0.175%0.175%. Costs associated with entering into the 2021 Facility were not material.9. RELATED PARTY TRANSACTIONSMay 14, 2018,February 27, 2023, the Company entered into a common stock purchase agreementfirst amendment (the “First Amendment”) to the 2021 Facility. The First Amendment amends the Credit Agreement to replace the London interbank offered rate (“LIBOR”) with a term rate based on the Secured Overnight Financing Rate (“SOFR”), together with certain administrative changes to facilitate such replacement. Except as amended by the First Amendment, the remaining terms of the Credit Agreement remain in full force and effect.an existinga former stockholder, pursuant to which the Company issued and sold 36,675,000 shares of common stock for a total purchase price of $50.0 million. As consideration, on May 14, 2019, Tulco, LLC paid $17.5 million in cash and cancelled the $2.5 million owed by the Company to Tulco, LLC pursuant to a promissory note dated as of February 22, 2018. The remaining $30.0 million of capital contributions were payable upon the Company’s achievement of certain milestones at defined dates in the years ended December 31, 2018 and December 31, 2019. During the year ended December 31, 2018, $16.0 million of contributions were made. The remaining $14.0 million contribution was made during the year ended December 31, 2019.Tulco, LLC paid for certain of the Company’s professional fees which were expensed as incurred during the year ended December 31, 2019 and amounted to $0.1$0.1 million. The professional fees were reimbursed by the Company in 2020.$4.2$4.2 million of masks and other products to Tulco, LLC, the amounts of which are included in net revenues for the year ended December 31, 2020.$4.9$4.9 million and the Company received payment of the reimbursements during the year ended December 31, 2021. In addition, Tulco, LLC reimbursed the Company for certain of the Company'sCompany’s professional fees in connection with their participation as a selling stockholder in the Follow-on Offering.Company’s follow-on offering, completed on September 20, 2021 (the “Follow-on Offering”). These reimbursements totaled $0.5 million.$0.5 million. The Company received payment of the amounts due from Tulco, LLC during the year ended December 31, 2021.2021.As discussed in Note 2, the$1.6 million and $1.9$1.6 million within sales tax payable on the Company’s balance sheets as of December 31, 20212022 and 2020, respectively,2021 as an estimate of contingent sales tax payable.Operating LeasesThe Company leases its office facilities and certain office equipment under non-cancelable operating leases that expire on various dates through December 2029. During the years ended December 31, 2021, 2020, and 2019, the Company recorded rent expense of $1.8 million, $1.8 million, and $1.9 million respectively.Future minimum lease payments under non-cancelable operating leases for the years succeeding December 31, 2021 are as follows (in thousands):8020212022 were approximately $42.0$50.5 million. These inventory purchase obligations can be impacted by various factors, including the timing of issuing orders and the timing of the shipment of orders.TheStrategic Partners, Inc. and Miracle Ventures I, LP. LP and a putative securities class action against the Company and certain of its executive officers and directors.INCOME TAXESprovisionCompany has an operating lease agreement for income taxesoffice space with an initial term expiring in 2030 (the “Lease”). The Lease terms provide for an option to extend or terminate the Lease, with extension terms that extend the lease term by five years. The Lease includes escalating rent payment provisions.is as follows (in thousands):The currentwere $2.8 million, $1.8 million, and deferred provision for income taxes$1.8 million, respectively. Short-term lease expense for the year ended December 31, 20192022 was $$3.7 million.Families First Coronavirus Response Act (“FFCR Act”),rates implicit in the Company’s outstanding leases are not determinable, the Company uses its incremental borrowing rate based on information available on the lease commencement date to determine the present value of lease payments.on March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) were each enacted in responseweighted-average discount rate related to the COVID-19 pandemic. The FFCRCompany’s operating leases at December 31, 2022 were as follows:Weighted-average remaining lease term 6.2 years Weighted-average discount rate 2.3 % Year ended December 31, 2023 $ 3,458 2024 3,578 2025 3,703 2026 2,346 2027 2,320 Thereafter 5,098 Total lease payments $ 20,503 Less: Imputed interest 1,339 Total lease liabilities $ 19,164 December 31, 2022 2021 2020 Current Federal $ 16,731 $ 17,790 $ 9,087 State 1,542 5,357 5,738 Total current provision 18,272 23,147 14,825 Deferred Federal (2,039) (3,014) (3,504) State 1,307 (718) (3,003) Total deferred benefit (732) (3,732) (6,507) Provision for income taxes $ 17,541 $ 19,415 $ 8,318 and the CARES Act contain numerous income tax provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods,2022 (“IRA”), which, among other things, implements a 15% alternative minimum tax credit refunds, modificationson corporations with book income in excess of $1 billion, a 1% excise tax on net stock repurchases and several tax incentives to promote clean energy. The effective date of these provisions is January 1, 2023. The Company will continue to monitor for updates to the net interest deduction limitations and technical correctionsCompany’s business along with guidance issued with respect to tax depreciation methods for qualified improvement property. The FFCR Act and CARES Act did not have a material impact onthe IRA to determine whether any adjustments are needed to the Company’s financial statements astax provision in future periods.$5.0$5.0 million of tax per year. A.B. 85 suspends the use of net operating losses for taxable years 2020, 2021, 2022 and 20222023 for certain taxpayers with taxable income of $1.0$1.0 million or more. The carryover period for any net operating losses that are suspended under this provision will be extended. A.B. 85 also requires that business incentive tax credits including carryovers may not reduce the applicable tax by more than $5.0$5.0 million for taxable years 2020, 2021, 2022 and 2022.2023. On February 9, 2022, Senate Bill 113 (“S.B.113”) was signed into law. S.B.113 shortened the previously enacted suspension of net operating loss deductions and eliminating the restrictions on the use of certain business tax credits for taxable years beginning on or after January 1, 2022. In connection with A.B. 85, the Company was not able to partially offset its California taxable income with its net operating losses for the year ended December 31, 2021.81USU.S. statutory federal income tax rate to the provision for income taxes is as follows (in thousands):December 31, 2022 2021 2020 Tax expense at U.S. statutory rate $ 8,133 $ 2,083 $ 12,196 State tax expense, net of federal benefit 1,498 606 4,176 Non-deductible expenses (380) 344 (2,116) Stock-based compensation 4,921 (28,727) — Excess compensation limitations 4,776 45,359 — Foreign-derived intangible income deduction (3) (455) — R&D tax credit benefit — (230) — Unrecognized tax benefits (39) 280 — Change in valuation allowance — — (5,994) Provision to return true up (1,823) (121) 56 Other 458 276 — Provision for income taxes $ 17,541 $ 19,415 $ 8,318 196.9%45.3%, 196.9%, and 14.3%14.30%, respectively. The effective tax rate in each of 2022 and 2021 is higher than the federal statutory tax rate mainly due to state tax expense and permanent disallowance of certain stock-based compensation for tax purposes. In 2021, the effective tax rate in 2020. This was mainly due to the tax law limitation on excess compensation for covered officers, partially offsetfurther driven up by the excess tax benefitlower pre-tax book income resulting from stock-based compensation. The Company completed an analysis related to the tax deductibility ofone-time IPO transaction costs, which resulted in a tax benefit of $0.6 million recorded as an increase to additional paid-in capital and a reduction of income tax payable in the three months ended December 31, 2021. For the year ended December 31, 2019, there was no income tax provision recorded, as the Company recorded a full valuation allowance on its net deferred tax asset and utilized net operating loss carryforwards to offset current taxes payable.charges. During 2020, the Company determined that all the deferred tax assets were realizable due to the Company'sCompany’s three-year cumulative pretax book income position, resulting in the full release in the valuation allowance. As of December 31, 2022 and 2021, the Company recorded 0no valuation allowance due to its cumulative pretax income position.December 31, 2022 2021 Deferred tax assets Net operating losses $ 371 $ 1,217 Uniform capitalization adjustment to inventory 5,741 2,808 Stock-based compensation 2,236 3,032 Accrued compensation and benefits 579 1,341 Lease liability 4,837 386 Inventory reserve 837 1,063 Deferred rent — 552 Returns reserve 873 731 Sales tax accrual 421 437 Other 969 417 Total deferred tax assets 16,864 11,984 Less: valuation allowance — — Total net deferred tax assets 16,864 11,984 Deferred tax liabilities Property and equipment (2,028) (1,745) Right-of-use asset (3,865) — Total deferred tax liabilities (5,894) (1,745) Net deferred tax assets $ 10,971 $ 10,239 2021,2022, the Company had available federal net operating loss (“NOL”) carryforwards of approximately $1.5$1.4 million, which begin to expire in 2034.2035. The Company also has available California NOL carryforwards of approximately $12.9$1.2 million as of December 31, 2021,2022, which begin to expire in 2035.2037. The utilizationusage of the Company’s federal and California NOL carryforwards has beenis subject to the limitations imposed by Section 382 of the Internal Revenue Code. Further, the Company’s California NOL was suspended by state legislation for tax years beginning before January 1, 2022.in 2021. The tax years ending December 31, 2013,2019, through December 31, 20202021 remain open and subject to audit by the Internal Revenue Service. The tax years ending December 31, 2013,2018, through December 31, 2020,2021, remain open and subject to audit by state tax authorities.82$0.2$0.2 million of uncertain tax positions, excluding interest and penalties. There were 0 known uncertain tax positions as of December 31, 2020. The Company’s policy is to recognize interest and penalties accrued on unrecognized tax liabilities as income tax expense. During the year ended December 31, 2021,2022, the Company recorded $0.1 million in interest and penalties.penalties were immaterial. During the year ended December 31, 2020, there were 0 such2021, the Company recorded $0.1 million in interest and penalties. There were no activities during the year ended December 31, 2022 related to the unrecognized tax benefits.December 31, 2022 2021 Beginning balance of unrecognized tax benefits $ 167 $ — Increases related to current year tax positions — 50 Decreases related to current year tax positions — — Increases related to prior year tax positions — 117 Changes due to lapse of statute of limitations — — Settlement with taxing authorities — — Ending balance of unrecognized tax benefits $ 167 $ 167 12.13. STOCK-BASED COMPENSATION51,716,934.51,716,934. Only incentive stock options, non-qualified stock options and RSUs were granted under the 2016 Plan.Company'sCompany’s 2021 Equity Incentive Award Plan (the “2021 Plan”). Additionally, any shares of common stock subject to awards granted under the 2016 Plan that expire, lapse or are terminated, exchanged for or settled in cash, surrendered, repurchased, canceled without having been fully exercised, or forfeited following the effective date of the 2021 Plan will become available for issuance under the 2021 Plan.Upon adoption, 14,592,452of the Company's Class A common stock were reserved for future issuance under the 2021 Plan whichincreases automatically on the first day of each calendar year beginning on January 1, 2022 and ending on and including January 1, 2031, equal to the lesser of (A) a number consists of (a) 10,197,941shares initiallyof Class A common stock such that the aggregate number of Shares available for issuance and (b) an additional 4,394,511 shares previously reserved for but unissuedgrant under the 2016 Plan on the effective date of the 2021 Plan that become available for issuance underimmediately following such increase shall equal 5% of the 2021 Plan.aggregate number of shares of Class A common stock and Class B common stock outstanding on the final day of the immediately preceding calendar year, and (B) such lesser number of shares of Class A common stock as determined by our Board. The 2021 Plan authorizes the granting of RSAs, RSUs, SARs, incentive stock options, non-qualified stock options, dividend equivalents, and other stock or cash awards to employees and consultants of the Company and its subsidiaries and members of the Board.In addition to the 2021 Plan, up to 1,605,647maythat will be issuedavailable for issuance and sale to eligible employees under the ESPP.ESPP increases automatically on the first day of each calendar year beginning on January 1, 2022 and ending on and including January 1, 2031, equal to the lesser of (A) 1% of the shares of Class A common stock and Class B common stock outstanding as of the last day of the immediately preceding fiscal year and (B) such lesser number of shares of Class A common stock as determined by our Board. The ESPP permits eligible employees to purchase shares of the Company'sCompany’s Class A common stock at a 15% discountpurchase price per share equal to 85% of the lesser of (i) the fair market value of the Company'sCompany’s Class A common stock on the first trading day of an applicable offering period or (ii) the last trading day of a purchase period in an applicable offering period. As of December 31, 2021 there have been 0 purchases of the Company's Class A common stock under the ESPP.832021,2022, the number of shares available for issuance under the 2021 Plan and ESPP was 7,086,625 and 3,206,369, respectively.December 31, 2022 2021 2020 Risk free interest rate 2.94 % 1.15 % 0.42 % Expected volatility 38 % 48 % 44 % Expected dividend yield 0 % 0 % 0 % Expected term (in years) 5.91 6.25 6.45
of Shares
Exercise Price
(per share)
Remaining Contractual
Term (in years)
Intrinsic
Value (in millions)Stock Options Outstanding Weighted Average
Exercise Price
(per share)Weighted Average
Remaining Contractual
Term (in years)Aggregate
Intrinsic
Value (in millions)Outstanding at December 31, 2021 37,871,680 $ 5.24 8.02 $ 846 Granted 5,597,050 12.44 Exercised (486,442) 5.19 Forfeited (584,377) 11.02 Outstanding at December 31, 2022 42,397,911 $ 6.11 7.38 $ 105 Exercisable at December 31, 2022 28,566,632 $ 4.27 6.85 $ 91 $115.1$3.2 million, $115.1 million, and $1.2$1.2 million, respectively. There were no exercises of stock options for the year ended December 31, 2019.2019 was $10.02, $3.53, and $0.25,$3.53, respectively. The grant date fair value of stock options vested during the years ended December 31, 2022, 2021 and 2020 and 2019 was $49.8$22.8 million, $4.8$49.8 million, and $0.2$4.8 million, respectively.2021,2022, total unrecognized compensation cost related to unvested stock option awards was $66.0$68.3 million, to be recognized over a weighted-average period of 3.32.6 years.employee'semployee’s continued service with the Company through the closing of the IPO, as described in our IPO Prospectus. Upon the modification of the stock options, the Company determined no incremental fair value was required to be recorded as the awards would continue to vest both prior to and post modification and the modification of the stock options did not change award valuation inputs or assumptions. The Company recorded $32.8$32.8 million of expense during the second quarter of 2021 as a result of the accelerated vesting of stock options.84$5.7$5.7 million of incremental fair value was required to be recorded$5.7$5.7 million of expense related to the stock option modification during the fourth quarter of 2021 as a result of the accelerated vesting of stock options.condition and granted no RSAs.condition. The service condition for these awards is satisfied over four years.years. The performance condition is satisfied upon the occurrence of a qualifying event, generally defined as a change of control transaction or an initial public offering. The performance condition for these awards was satisfied in connection with the IPO. Upon the satisfaction of the performance condition, the Company recorded $16.0$16.0 million of stock-based compensation expense related to these awards and withheld 762,359 shares of common stock, based on the IPO price of $22.00$22.00 per share, to satisfy the tax remittances of approximately $16.8$16.8 million.yearyears ended December 31, 2022 and 2021 was $72.6 million.$18.4 million and $72.6 million, respectively. There were 0no RSUs or RSAs that vested during the year ended December 31, 2020 or the year ended December 31, 2019.2021,2022, total unrecognized compensation cost related to unvested RSAs and RSUs was $33.7$34.8 million, to be recognized over a weighted-average period of 2.41.8 years. RSA and RSU activity under the 2016 Plan and 2021 Plan is as follows:
Shares
grant date fair value
per shareWeighted average
grant date fair value
per shareUnvested restricted stock units at December 31, 2021 3,668,168 $ 11.65 Granted 1,924,344 12.59 Vested (1,777,374) 9.35 Forfeited (266,707) 29.65 Unvested restricted stock units at December 31, 2022 3,548,431 $ 11.96 13.earnings (loss) per share (“basic EPS”)EPS and diluted earnings (loss) per share (“diluted EPS”)Diluted EPS attributable to common stockholders is calculated in conformity with the two-class method required for participating securities: Class A and Class B common stock. The rights of the holders of Class A and Class B common stock are identical, except with respect to voting, conversion, and transfer rights. Each share of Class A common stock is entitled to one vote per share and each share of Class B common stock is entitled to twenty votes per share. Each share of Class B common stock is convertible at any time at the option of the stockholder into one share of Class A common stock.basic Basic EPSdiluted earnings per shareDiluted EPS and a reconciliation of the weighted average number of common and common equivalent shares outstanding for the years ended December 31, 2022, 2021, 2020, and 20192020 (in thousands, except share and per share amounts).85Year ended December 31, 2022 2021 2020 Numerator: Net income (loss) $ 21,186 $ (9,556) $ 49,758 Denominator: Weighted-average shares—basic 165,268,185 159,177,713 153,327,308 Effect of dilutive stock options 20,362,453 — 10,004,040 Effect of dilutive restricted stock units Effect of dilutive restricted stock units 1,916,835 — — Weighted-average shares—diluted 187,547,474 159,177,713 163,331,348 Earnings (loss) per share: Basic earnings (loss) per share $ 0.13 $ (0.06) $ 0.32 Effect of dilutive stock options and restricted stock units Effect of dilutive stock options and restricted stock units (0.02) — (0.02) Diluted earnings (loss) per share $ 0.11 $ (0.06) $ 0.30 diluted earnings per shareDiluted EPS for the years ended December 31, 2022, 2021, 2020, and 20192020 because including them would have had an anti-dilutive effect:Year ended December 31, 2022 2021 2020 Stock options to purchase common stock 5,845,057 40,164,214 31,485,366 Restricted stock units 1,078,486 4,316,091 5,410,440 14. EMPLOYEE BENEFIT PLANThe Company maintains a defined contribution 401(k) plan for the benefitTable of all employees who have met the eligibility requirements. Participants may contribute up to Contents100% of their eligible compensation, subject only to annual limitations set by the Internal Revenue Service. The Company matches 100% of the participant contributions, up to the first 6% of the participant’s deferrals. For the years ended December 31, 2021, 2020, and 2019 the Company recorded expense for matching contributions of $1.1 million, $0.6 million, and $0.3 million respectively, within general and administrative expenses on the Company’s statements of operations and comprehensive income (loss).86NaNne.co-principalprincipal executive officersofficer and principal financial officer, evaluated, as of the end of the period covered by this Annual Report on Form 10-K, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, our co-principalprincipal executive officersofficer and principal financial officer concluded that, as of December 31, 2021,2022, our disclosure controls and procedures were effective at the reasonable assurance level.20212022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.Management'sThis Annual Report on Form 10-K does not include a report of management's assessment regardingor(as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with GAAP.attestation reportassessment of our independent registered public accounting firm due to a transition period established by the rules of SEC for newly public companies. Additionally, our independent registered accounting firm will not be required to opine on the effectiveness of our internal control over financial reporting pursuant to Section 404based on the criteria set forth in “Internal Control – Integrated Framework (2013)” issued by the Committee of Sarbanes-Oxley ActSponsoring Organizations of 2002 until we are no longerthe Treadway Commission.“emerging growth company”independent registered public accounting firm, as definedstated in the JOBS Act.their report included in Part II, Item 8 of this Annual Report on Form 10-K.CFO Employment AgreementOn December 9, 2021, the Board of Directors (the “Board”) of the Company appointed Daniella Turenshine as Chief Financial Officer of the Company. On March 8, 2022, we and Ms. Turenshine entered into an amended and restated employment letter agreement (the “Employment Agreement”), in connection with her appointment as our Chief Financial Officer. Pursuant to the Employment Agreement, Ms. Turenshine is eligible to receive an annual base salary of $500,000 and a target annual bonus opportunity of $300,000 for 2022, as determined by our board of directors, subject to her continued employment through the bonus payment date. In addition, Ms. Turenshine is eligible to participate in our standard benefit programs. Ms. Turenshine’s employment with us is at-will.Pursuant to the Employment Agreement, if Ms. Turenshine’s employment is terminated by us without “cause” or by her for “good reason” (each as defined in the Employment Agreement), and other than due to death or disability, Ms. Turenshine will receive the following severance payments and benefits: (i) continued payments of base salary for 12 months following the date of termination and (ii) up to 12 months of COBRA continuation. If Ms. Turenshine’s employment is terminated by us without “cause” or by her for “good reason” (and other than due to death or disability) during the 12-month period following a “change in control” (as defined in the Employment Agreement), Ms. Turenshine will receive the following additional severance payments and benefits: (i) a pro-rated target bonus for the year of termination, paid in a lump-sum and (ii) 100% accelerated vesting and exercisability of the RSUs and options granted in December 2021 in connection with her appointment as Chief Financial Officer.87The severance payments and benefits described above are subject to Ms. Turenshine’s timely execution and non-revocation of a release of claims in our favor. Ms. Turenshine entered into our standard employee confidential information and invention assignment agreement as a condition of her employment in November 2018.The foregoing description of the Employment Agreement does not purport to be complete and is qualified in its entirety by reference to the Employment Agreement, which is filed as Exhibit 10.15 to this Annual Report on Form 10-K and is incorporated herein by reference.March 9, 2022February 28, 2023, the Company distributed quarterly financial results for the three months ended December 31, 20212022 (the “Supplemental Information”), to supplement the annual financial results for the year ended December 31, 2021,2022, which the Company furnished to the SEC on March 8, 2022.February 28, 2023. The Supplemental Information is furnished as Exhibit 99.1 to this Annual Report on Form 10-K.informationSupplemental Information furnished in this Part II - Item 9B of this Annual Report on Form 10-K (including Exhibit 99.1) shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act or the Exchange Act, except as expressly provided by specific reference in such a filing.4041Co-Chief Executive OfficerChair3839Co-ChiefChief Executive Officer636475 Director Kenneth Lin 47 Director Michael Soenen 515256 Director J. Martin Willhite 5152our co-Chiefthe Executive Officer and as chairpersonChair of our board of directors. Ms. Hasson previously served as our Co-Chief Executive Officer until August 2022. Prior to co-founding FIGS, Ms. Hasson was an entrepreneur, having served as founder and CEO of Heather Hasson bags, a high-end bag line, and FIGS Ties, a tie and scarf company. Since January 2021, Ms. Hasson also has served as a member of the board of directors of G Squared Ascend I Inc. and G Squared Ascend II Inc., two blank check companies, and as a member of the board of directors of RxArt, a non-profit whose mission is to help children heal through the extraordinary power of visual art. Ms. Hasson holds a B.A. in Political Science from the University of Wisconsin-Madison. We believe that Ms. Hasson is qualified to serve as a member of our board of directors based on her experience in the apparel industry and the knowledge of our company she brings as our co-founder and co-Chief Executive Officer.co-ChiefChief Executive Officer and as a member of our board of directors. Prior to co-founding FIGS, Ms. Spear served as an Associate at the Blackstone Group Inc., a leading global alternative investment business, in the firm’s hedge fund group. Ms. Spear began her career at Citigroup Global Markets Inc., where she spent four years in its investment banking and private equity divisions. From August 2020 to July 2021, Ms. Spear also served as a member of the board of directors of One, a blank check company. Ms. Spear holds a B.A. in Economics from Tufts University and an M.B.A. from Harvard Business School. She was also selected to join the Aspen Institute’s Henry Crown Fellows in 2018. We believe that Ms. Spear is qualified to serve as a member of our board of directors based on the perspective and experience she brings as our co-founder and co-ChiefChief Executive Officer.space.industry.89ChairmanChairperson from 2004 to 2008. Mr. Soenen also currently serves on the boards of directors of several privately-held companies. Mr. Soenen holds a B.A. in Economics from Kalamazoo College. We believe that Mr. Soenen is qualified to serve as a member of our board of directors based on his broad leadership, operational and transactional experience.4041Co-Chief Executive OfficerChair3839Co-ChiefChief Executive Officer3233M.B.A. from Harvard Business School and an A.B. with High Honors in Finance and Economics from Princeton University.University and an M.B.A. from Harvard Business School.officers,officer, principal financial officer, principal accounting officer or controller or persons performing similar functions. A current copy of the Code of Business Conduct and Ethics is posted on the Investor Relations section of our website at ir.wearfigs.com under “Governance Documents” under the section entitled “Governance.” We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding amendment to, or waiver from, a provision of our Code of Business Conduct and Ethics, as well as NYSE’s requirement to disclose waivers with respect to directors and executive officers, by posting such information on our website at the address and location specified above. The information contained on our website is not incorporated by reference into this Annual Report on Form 10-K.9020222023 Annual Meeting of Stockholders to be filed with the SEC, within 120 days of the fiscal year ended December 31, 2021,2022, and is incorporated herein by reference.20222023 Annual Meeting of Stockholders to be filed with the SEC, within 120 days of the fiscal year ended December 31, 2021,2022, and is incorporated herein by reference.2021)Plan category Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights Number of Securities Available for Future Issuance Under Equity Compensation Plans (excludes securities reflected in first column) — — 10,292,994 (2) Restricted Stock Units 3,548,431 (3) — — Options to Purchase 42,397,911 (4) $ 6.11 (5) — Equity compensation plans not approved by security holders — — — Total 45,946,342 $ 6.11 10,292,994 will increaseincreases on the first day of each calendar year beginning on January 1, 2022 and ending on and including January 1, 2031, equal to the lesser of (A) a number of Shares (as defined in the 2021 Plan) such that the aggregate number of Shares available for grant under the 2021 Plan immediately following such increase shall equal 5% of the aggregate number of shares of Class A Common Stockcommon stock and Class B Common Stockcommon stock outstanding on the final day of the immediately preceding calendar year, and (B) such lesser number of Shares as determined by our board of directors. The number of shares authorized under our ESPP will increaseincreases on the first day of each calendar year beginning on January 1, 2022 and ending on and including January 1, 2031, equal to the lesser of (A) 1% of the shares of Class A Common Stockcommon stock and Class B Common Stockcommon stock outstanding as of the last day of the immediately preceding fiscal year and (B) such lesser number of Shares (as defined in the ESPP) as determined by our board of directors.(3) Consists The maximum number of 2,705,216 and 962,953 shares of Class A Common Stockcommon stock subject to issuance pursuant to our ESPP offering period outstanding as of December 31, 2022 is 3,206,369.35,144,96834,272,427 and 2,726,7128,125,484 outstanding options to purchase Class A Common Stockcommon stock under the 2016 Plan and 2021 Plan, respectively. Following the effectiveness of the 2021 Plan, no further grants were permitted to be made under the 2016 Plan, though existing awards remain outstanding.2021,2022, the weighted-average exercise price of outstanding options was $5.24.$6.11.20222023 Annual Meeting of Stockholders to be filed with the SEC, within 120 days of the fiscal year ended December 31, 2021,2022, and is incorporated herein by reference.20222023 Annual Meeting of Stockholders to be filed with the SEC, within 120 days of the fiscal year ended December 31, 2021,2022, and is incorporated herein by reference.9120222023 Annual Meeting of Stockholders to be filed with the SEC, within 120 days of the fiscal year ended December 31, 2021,2022, and is incorporated herein by reference.ExhibitsIncorporated by Reference Filed / Furnished Herewith Exhibit Number Exhibit Description Form File No. Exhibit Filing Date 3.1 * 3.2 * 4.1 S-1 333-255797 4.1 5/5/2021 4.2 S-1/A 333-255797 4.2 5/20/2021 4.3 10-K 001-40448 4.3 3/10/2022 10.1 8-K 001-40448 10.1 9/10/2021 10.1.1 * 10.2 S-1 333-255797 10.1 5/5/2021 10.3# * 10.4# S-1/A 333-255797 10.6 5/20/2021 10.5# S-1/A 333-255797 10.7 5/20/2021 10.6# * 10.7# 8-K 001-40448 10.1 8/4/2022 10.8# * 10.9# S-1/A 333-255797 10.14 5/20/2021 10.10# * 10.10.1# 8-K 001-40448 10.1 3/23/2022 10.11# * 10.12# 10-K 001-40448 10.15 3/10/2022 10.13# S-1/A 333-255797 10.15 5/20/2021 10.14# S-1/A 333-255797 10.16 5/20/2021 10.15 S-1 333-255797 10.10 5/5/2021 10.16# S-8 333-256585 99.1 5/28/2021 10.17# S-1 333-255797 10.3 5/5/2021 10.18# S-1 333-255797 10.4 5/5/2021 21.1 * 23.1 * 24.1 * 31.1 * 31.2 * 32.1 ** 32.2 ** 99.1 ** 101.INS Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. * 94Inline XBRL Taxonomy Extension Schema Document * 101.CAL March 10, 2022Co-ChiefChief Executive Officer and DirectorHeather HassonCatherine Spear and Catherine Spear,Daniella Turenshine, and each of them singly (with full power to each of them to act alone), his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution in each of them for him or her and in their name, place and stead, and in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as full to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.Signature Title Date SignatureTitleDateHeather HassonCatherine SpearCo-ChiefChief Executive Officer and Director March 10, 2022Heather Hasson (Co-Principal Executive Officer)/s/ Catherine Spear Co-Chief Executive Officer and Director March 10, 2022Co-PrincipalPrincipal Executive Officer) March 10, 2022Director February 28, 2023 Heather Hasson /s/ Sheila Antrum March 10, 2022Director February 28, 2023 A.G. Lafley /s/ Kenneth Lin Director February 28, 2023 Kenneth Lin /s/ Michael Soenen March 10, 2022Director February 28, 2023 Jeffrey Wilke /s/ J. Martin Willhite March 10, 202296