FIGS Inc.

02/27/2025 | Press release | Distributed by Public on 02/27/2025 15:25

Annual Report for Fiscal Year Ending December 31, 2024 (Form 10-K)

Management's Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements based upon current plans, expectations and beliefs involving risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in Part I, Item 1A. "Risk Factors" and other factors set forth in other parts of this Annual Report on Form 10-K. A discussion of the year ended December 31, 2023 compared to the year ended December 31, 2022 has been reported previously in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 28, 2024, under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations."
Overview
Our mission is to celebrate, empower and serve those who serve others.
We are a founder-led, direct-to-consumer healthcare apparel and lifestyle brand that seeks to celebrate, empower and serve current and future generations of healthcare professionals. We are committed to helping this growing, global community of professionals, whom we refer to as Awesome Humans, look, feel and perform at their best-24/7, 365 days a year. We create technically advanced apparel and products that feature an unmatched combination of comfort, durability, function and style, all at an affordable price. In doing so, we have redefined what scrubs are-giving rise to our tag-line: why wear scrubs, when you can #wearFIGS?
By elevating scrubs and creating premium products for healthcare professionals, we revolutionized the large and fragmented healthcare apparel market, branded a previously unbranded industry and de-commoditized a previously commoditized product. Most importantly, we built a community and lifestyle around a profession. As a result, we have become the industry's category-defining healthcare apparel and lifestyle brand.
We sell products purposefully designed to serve the particular needs of healthcare professionals primarily through our DTC digital platform, consisting of our website, mobile app and TEAMS business. We also operate physical retail stores, which we call Community Hubs, and which represent a first-of-its-kind retail experience for healthcare professionals.
Our offerings include scrubwear and non-scrubwear, such as outerwear, underscrubs, footwear, compression socks, lab coats, loungewear and other apparel. We primarily design all of our products in-house, leverage third-party suppliers and manufacturers to produce our product components and finished products, and generally utilize shallow initial buys and data-driven repurchasing decisions to test new products. We directly and actively coordinate with our suppliers on every step of our product development and production process to ensure that our extremely high quality standards are met. We also have a dynamic merchandising model with lessened inventory risk, as a result of the largely non-discretionary, replenishment-driven nature of scrubwear and a focus on our core scrubs offerings.
At December 31, 2024, we had approximately 2.7 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.
In the year ended December 31, 2024, we had the following results compared to the comparable periods in 2023:
◦Expanded our community of active customers by 3.0% from approximately 2.6 million at December 31, 2023 to approximately 2.7 million at December 31, 2024;
◦Net revenues increased from $545.6 million to $555.6 million in the year ended December 31, 2024 representing 1.8% year-over-year growth;
◦Gross margin decreased 1.5 percentage points from 69.1% to 67.6% in the year ended December 31, 2024;
◦Net income decreased from $22.6 million to $2.7 million in the year ended December 31, 2024;
◦Net income margin decreased from 4.1% to 0.5% in the year ended December 31, 2024;
◦Adjusted EBITDA decreased from $86.0 million to $51.8 million in the year ended December 31, 2024, representing an adjusted EBITDA margin of 9.3%;
◦Cash flows from operating activities decreased from $100.9 million to $81.2 million in the year ended December 31, 2024; and
◦Free cash flow decreased from $84.6 million to $64.1 million in the year ended December 31, 2024.
See the section titled "Key Operating Metrics and Non-GAAP Financial Measures" for information regarding adjusted EBITDA, adjusted EBITDA margin and free cash flow, including a reconciliation to the most directly comparable financial measures prepared in accordance with GAAP.
Recent Developments
Fulfillment Enhancement
During the year ended December 31, 2024, we completed our previously announced fulfillment enhancement project and transitioned all fulfillment operations from our previous City of Industry, California facility to a new facility we have leased in Goodyear, Arizona, which is operated by a third-party logistics provider. In connection with the project and transition, during the year ended December 31, 2024, we incurred approximately $14.1 million in capital expenditures, approximately $0.4 million of which was incurred during the three months ended December 31, 2024. We do not expect to incur additional material capital expenditure costs in connection with the project and transition. We believe these investments in our fulfillment capabilities will enable us to more optimally serve our customers, drive efficiency and support us as we scale over the long term.
Logistics
As a result of ongoing conflict in the Middle East, there have been disruptions in commercial shipping transiting the Red Sea and surrounding waterways. Global ocean freight traffic has also generally been impacted, resulting in shipping delays and increased freight costs. As a result, during the three months and year ended December 31, 2024, we experienced delays in the delivery of raw materials to, and finished goods from, our manufacturers in Jordan and elsewhere, as well as elevated ocean freight rates and shipping costs. Although we have not experienced a material disruption to our supply chain or a material increase in costs as a result of Middle East conflict, we have proactively sought alternative ways to ship raw materials and receive inventory, such as selecting new vessel routes and alternative ports, and using increased air freight from time to time. We also pre-negotiated ocean freight shipping rates and adjusted our product launch schedule to account for delays. If there are continued or increased hostilities in the Middle East, there could be continued increases in shipping times and ocean and air freight rates, as well as other impacts to our supply chain, which could adversely affect our financial condition and results of operations. See Item 1A. "Risk Factors-Risks Related To Our Business-Shipping is a critical part of our business and changes in, or disruptions to, our shipping arrangements have in the past and may in the future adversely affect our business, financial condition and results of operations" and "-Our reliance on a limited number of third-party suppliers to provide materials for and produce our products could cause problems in our supply chain and subject us to additional risks."
Supplier Transition
We have a third party supplier in Jordan that currently accounts for a majority of our production. Following allegations of labor conditions at this supplier that do not meet our high standards, we are in the process of transitioning away from this supplier, which includes identifying new suppliers. We plan to conduct this transition over time, in a responsible manner that takes into consideration the needs of our suppliers' workers and without impacting our sourcing capacity and quality. However, this transition could subject us to additional costs and challenges, which could adversely affect our financial condition and results of operations. See Item 1A. "Risk Factors-Risks Related To Our Business- Our reliance on a limited number of third-party suppliers to provide materials for and produce our products could cause problems in our supply chain and subject us to additional risks" and "-Any failure by us or our suppliers or manufacturers 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."
Key Factors Affecting Our Performance
We believe that our performance and future success depend on a number of factors that present significant opportunities for us. These factors also pose risks and challenges, including those discussed in Part I, Item 1A. "Risk Factors" of this Annual Report on Form 10-K for the year ended December 31, 2024.
Brand Awareness and Loyalty
Our ability to promote and maintain brand awareness and loyalty is critical to our success. We have a significant opportunity to continue to grow our brand awareness and loyalty through word of mouth, brand marketing and performance marketing. We have made significant investments to strengthen the FIGS brand through our marketing strategy, which includes brand marketing campaigns across platforms, including email, digital, display, site, direct-mail, commercials, social media and 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.
Net Revenues per Active Customer
We believe net revenues per active customer is important to understanding our engagement and retention of our customers, and as such demonstrating the value we 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 non-scrubwear products, we have repeatedly drawn customers back to our digital 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 increase our net revenues per active customer.
Customer Retention and Engagement
Our continued success depends in part on our ability to retain, and drive repeat purchases from, our existing customers. We monitor retention across our entire customer base. Our goal is to attract and convert visitors into active customers and foster relationships that drive repeat purchases. As of December 31, 2024, we had approximately 2.7 million active customers, up from approximately 2.6 million active customers as of December 31, 2023.
Inventory Management
We leverage our technology to buy and manage our inventory, including product assortment and fulfillment center optimization. We generally make shallow initial inventory buys and then use data-driven repurchasing decisions to test new products, which allows us to manage inventory risk. To ensure sufficient availability of merchandise, we generally purchase inventory in advance and, because the vast majority of our production utilizes our main scrubwear fabric technology FIONx, and a substantial amount of our revenue is generated by our core scrubwear styles in core colors, which are in demand year-round, we can hold greater inventory without significant risk of obsolescence or exposure to seasonality.
Nevertheless, we are still vulnerable to demand and pricing shifts and to suboptimal selection and timing of merchandise purchases. For example, we previously experienced elevated inventory on hand, as a result of improvements in ocean transit times, following our decision to increase weeks of supply during periods of ocean transit time volatility, and softer sales trends due to adverse macroeconomic factors. We were successful in our efforts to address previous periods of excess inventory, but future inefficiencies in the timing of merchandise purchases and efforts to right-size inventory could have an adverse impact on our operating results.
In addition, our inventory investments will fluctuate with the needs of our business. For instance, entering new locations and expanding to new categories require additional investments in inventory. Shifts in inventory levels may result in fluctuations in the percentage of full price sales, levels of markdowns, merchandise mix, as well as gross margin.
Macroeconomic Environment
Our business and results of operations are subject to domestic and global economic conditions and their impact on consumer confidence. For example, we have seen sales growth impacted by variations in frequency trends from time to time, which we believe were due in part to adverse macroeconomic factors such as sustained inflationary pressures on consumer spending and we expect to continue to see the impact of inflation on our customers' purchasing activity in the near term. Our customers are also affected by other macroeconomic pressures, such as high interest rates, wages, levels of employment, inflation, fears of recession or depression or entry into a recession or depression, housing costs, energy costs, income tax rates, financial market fluctuations and consumer confidence in future economic conditions. We are also subject to macroeconomic pressures, such as inflation, which can impact the price of raw materials, labor, freight, and other costs of doing business.
In addition, we are subject to the prevailing trade policies of the U.S. and other countries in which we do business. We are actively monitoring the impacts of recent tariffs and potential future tariffs by the U.S., as well as potential related impacts, including retaliatory tariffs and indirect effects on capital markets or consumer discretionary spending. The U.S. tariffs on products manufactured in China only affect a small portion of our imports and we do not expect them to materially impact our business. We also currently do not anticipate direct impacts from China's retaliatory tariffs or the proposed U.S. tariffs on Mexico and Canada. Given the recent volume of executive orders, however, we cannot predict additional near-term changes in U.S. trade policy. Changes to the U.S. proposed tariff program, including the potential expansion to other countries, could impact our operating results.
While we believe our largely non-discretionary, replenishment-driven business model is resilient in challenging macroeconomic environments, adverse macroeconomic pressures have affected our results of operations and we expect them to continue to do so in the near term.
Components of Our Results of Operations
Net Revenues
Net revenues consist of sales of healthcare apparel, footwear and other products primarily through our digital platform. We recognize product sales at the time control is transferred to the customer, which is when the product is shipped to the customer. Net revenues represent the sale of these items and shipping revenue, net of estimated returns and discounts. Net revenues are primarily driven by the number of active customers, the frequency with which customers purchase and the average order value ("AOV"). See the section titled "-Key Operating Metrics and Non-GAAP Financial Measures" for a definition of average order value.
Cost of Goods Sold
Cost of goods sold consists principally of the cost of purchased merchandise and includes import duties and other taxes, freight-in, defective merchandise returned by customers, inventory write-offs and other miscellaneous shrinkage. Our cost of goods sold has and may continue to fluctuate with the cost of the raw materials used in our products and freight costs.
Gross Profit and Gross Margin
We define gross profit as net revenues less cost of goods sold. Gross margin is gross profit expressed as a percentage of net revenues. Our gross margin has fluctuated historically and may continue to fluctuate from period to period based on a number of factors, including the timing and mix of the product offerings we sell as well as our ability to reduce costs, in any given period.
Operating Expenses
Our operating expenses consist of selling, marketing and general and administrative expenses.
Selling
Selling expenses represent the costs incurred for fulfillment, selling and distribution. Fulfillment expenses consist of costs incurred in operating and staffing a third-party fulfillment center, including costs associated with inspecting and warehousing inventories and picking, packaging and preparing customer orders for shipment. Selling and distribution expenses consist primarily of shipping and other transportation costs incurred in delivering merchandise to customers and
from customers returning merchandise, merchant processing fees and packaging. We expect fulfillment, selling and distribution costs to increase in absolute dollars as we increase our net revenues.
Marketing
Marketing expenses consist primarily of online performance marketing costs, 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. Marketing expenses also include our spend on brand marketing channels, including billboards, podcasts, commercials, photo and video shoot development, expenses associated with our Ambassador Program and other forms of online and offline marketing. We expect our marketing expenses to increase in absolute dollars as we continue to grow our business.
General and Administrative
General and administrative expenses consist primarily of employee-related costs, including salaries, bonuses, benefits, stock-based compensation, other related costs and other general overhead, including certain third-party consulting and contractor expenses, certain facilities costs, software expenses, legal expenses, recruiting fees and in-kind donations. We expect our general and administrative expenses to increase in absolute dollars as we continue to grow our business.
Other Income, Net
Other income, net consists of interest income, interest expense, amortization of debt issuance costs, as well as gain or loss on foreign currency, primarily driven by payment to vendors for amounts not denominated in U.S. dollars.
Provision for Income Taxes
Our provision for income taxes consists of an estimate of federal, state and foreign income taxes based on enacted federal, state, and foreign tax rates, as adjusted for allowable credits, deductions and uncertain tax positions.
Seasonality
Unlike the traditional apparel industry, the healthcare apparel industry is generally not seasonal in nature. However, due to our historical 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 these trends could continue.
Results of Operations
Year Ended December 31, 2024 Compared to Year Ended December 31, 2023
The following table sets forth information comparing the components of our results of operations for the periods indicated and our results of operations as a percentage of net revenues for the periods presented.
Year ended
December 31, 		Year ended
December 31,
2024 2023 2024 2023
(in thousands) (as a percentage of net revenues)
Net revenues $ 555,558 $ 545,646 100.0 % 100.0 %
Cost of goods sold 179,935 168,683 32.4 30.9
Gross profit 375,623 376,963 67.6 69.1
Operating expenses
Selling 141,909 125,149 25.5 22.9
Marketing 88,566 77,094 15.9 14.1
General and administrative(1)
142,883 140,675 25.7 25.8
Total operating expenses 373,358 342,918 67.2 62.8
Net income from operations 2,265 34,045 0.4 6.2
Other income, net 12,075 6,762 2.2 1.2
Net income before provision for income taxes 14,340 40,807 2.6 7.5
Provision for income taxes 11,620 18,170 2.1 3.3
Net income $ 2,720 $ 22,637 0.5 % 4.1 %
(1)Includes stock-based compensation expense of $42.7 million and $45.8 million for the years ended December 31, 2024 and 2023, respectively.
Net Revenues
Year ended
December 31, 		Change
2024 2023 %
(in thousands)
Net revenues $ 555,558 $ 545,646 1.8 %
Net revenues increased by $9.9 million, or 1.8%, for the year ended December 31, 2024, compared to the prior year. The increase in net revenues was primarily driven by an increase in orders from existing customers, partially offset by a decrease in AOV.
Cost of Goods Sold
Year ended
December 31, 		Change
2024 2023
%
(in thousands, except margin)
Cost of goods sold $ 179,935 $ 168,683 6.7 %
Gross profit 375,623 376,963 (0.4) %
Gross margin 67.6 % 69.1 % 1.5 %
Cost of goods sold increased by $11.3 million, or 6.7%, for the year ended December 31, 2024, compared to the prior year. This increase was primarily due to a higher total number of orders in 2024 as compared to 2023 and unfavorable product mix shift.
Gross profit decreased by $1.3 million, or 0.4%, for the year ended December 31, 2024, compared to the prior year, primarily due to unfavorable product mix shift.
Gross margin decreased 1.5 percentage points for the year ended December 31, 2024, compared to the prior year. The decrease in gross margin was primarily related to product mix shift.
Operating Expenses
Year ended
December 31, 		Change
2024 2023 %
(in thousands)
Operating expenses:
Selling $ 141,909 $ 125,149 13.4 %
Marketing 88,566 77,094 14.9 %
General and administrative 142,883 140,675 1.6 %
Total operating expenses 373,358 342,918 8.9 %
Operating expenses increased by $30.4 million, or 8.9%, for the year ended December 31, 2024, compared to the prior year and, as a percentage of net revenues, increased by 4.4 percentage points, primarily driven by an increase in selling expenses and marketing expenses.
Selling expense increased by $16.8 million, or 13.4%, for the year ended December 31, 2024, compared to the prior year and, as a percentage of net revenues, increased by 2.6 percentage points. The increase in selling expense as a percentage of net revenues was primarily due to higher fulfillment expenses associated with the transition of our fulfillment operations to a new fulfillment center and higher shipping expenses due to lower AOV.
Marketing expense increased by $11.5 million, or 14.9%, for the year ended December 31, 2024, compared to the prior year and, as a percentage of net revenues, increased by 1.8 percentage points. The increase in marketing expense as a percentage of net revenues was primarily due to higher digital and brand marketing expenses related to our 2024 Olympics campaign.
General and administrative expense increased by $2.2 million, or 1.6%, for the year ended December 31, 2024, compared to the prior year and, as a percentage of net revenues.
Other Income, Net
Year ended
December 31, 		Change
2024 2023 %
(in thousands)
Other income, net $ 12,075 $ 6,762 79.0 %
Other income, net increased for the year ended December 31, 2024, compared to the prior year, primarily due to an increase in interest income driven by higher short-term investment balances.
Provision for Income Taxes
Year ended
December 31, 		Change
2024 2023 %
(in thousands)
Provision for income taxes $ 11,620 $ 18,170 (36.0) %
Provision for income taxes decreased by $6.6 million, or 36.0%, for the year ended December 31, 2024, compared to the prior year, primarily due to a decrease in pretax income.
Key Operating Metrics and Non-GAAP Financial Measures
We report our financial results in accordance with GAAP. In addition to the measures presented in our consolidated 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 GAAP.
Active Customers, Net Revenues per Active Customer, and Average Order Value
We believe the number of active customers is an important indicator of our growth as it reflects the reach of our digital platform, our brand awareness and overall value proposition. We define an active customer as a unique customer account that has made at least one purchase in the preceding 12-month period. In any particular period, we determine our number of active customers by counting the total number of customers who have made at least one purchase in the preceding 12-month period, measured from the last date of such period. Active customers as of December 31, 2024 and 2023, respectively, are presented in the following table:
As of December 31,
2024 2023
(in thousands)
Active customers 2,670 2,593
We believe measuring net revenues per active customer is important to understanding our engagement 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. Net revenues per active customer as of December 31, 2024 and 2023, respectively, are presented in the following table:
As of December 31,
2024 2023
Net revenues per active customer $ 208 $ 210
We define 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, price points and international markets, AOV may fluctuate. AOV for the years ended December 31, 2024 and 2023, respectively, are presented in the following table:
Year ended
December 31,
2024 2023
Average order value $ 113 $ 115
Adjusted EBITDA and Adjusted EBITDA Margin
We calculate adjusted EBITDA as net income (loss) adjusted to exclude: other income (loss), net; gain/loss on disposal of assets; provision for income taxes; depreciation and amortization expense; stock-based compensation and related expense; transaction costs; and expenses related to non-ordinary course disputes. adjusted EBITDA margin is calculated by dividing adjusted EBITDA by net revenues.
Management believes that excluding certain non-cash items and items that may vary substantially in frequency and magnitude period-to-period from net income provides useful supplemental measures that assist in evaluating our ability
to generate earnings, provide consistency and comparability with our past financial performance and facilitate period-to-period comparisons of our core operating results as well as the results of our peer companies.
There are several limitations related to the use of adjusted EBITDA and adjusted EBITDA margin as analytical tools, including:
•other companies may calculate adjusted EBITDA and adjusted EBITDA margin differently, which reduces their usefulness as a comparative measure;
•adjusted EBITDA and adjusted EBITDA margin do not reflect other income (loss), net;
•adjusted EBITDA and adjusted EBITDA margin do not reflect any gain or loss on disposal of assets;
•adjusted EBITDA and adjusted EBITDA margin do not reflect our tax provision, which reduces cash available to us;
•adjusted EBITDA and adjusted EBITDA margin do not reflect recurring, non-cash expenses of depreciation and amortization of property and equipment and, although these are non-cash expenses, the assets being depreciated and amortized may have to be replaced in the future;
•adjusted EBITDA and adjusted EBITDA margin do not reflect the impact of stock-based compensation and related expense;
•adjusted EBITDA and adjusted EBITDA margin do not reflect transaction costs; and
•adjusted EBITDA and adjusted EBITDA margin do not reflect expenses related to non-ordinary course disputes.
The following table reflects a reconciliation of adjusted EBITDA to net income, the most directly comparable financial measure prepared in accordance with GAAP and presents adjusted EBITDA margin with net income margin, the most directly comparable financial measure prepared in accordance with GAAP:
Year ended
December 31,
2024 2023
(in thousands, except margin)
Net income $ 2,720 $ 22,637
Add (deduct):
Other income, net (12,075) (6,762)
Provision for income taxes 11,620 18,170
Depreciation and amortization expense(1)
6,694 2,942
Stock-based compensation and related expense(2)
42,837 47,757
Expenses related to non-ordinary course disputes(3)
- 1,256
Adjusted EBITDA $ 51,796 $ 86,000
Net Revenues $ 555,558 $ 545,646
Net income margin(4)
0.5 % 4.1 %
Adjusted EBITDA Margin 9.3 % 15.8 %
(1)Excludes amortization of debt issuance costs included in "Other income, net."
(2)Includes stock-based compensation expense, payroll taxes and costs related to equity award activity.
(3)Exclusively represents attorney's fees, costs and expenses incurred by the Company in connection with the Company's now-concluded litigation against Strategic Partners, Inc.
(4)Net income margin represents net income as a percentage of net revenues.
Free Cash Flow
We calculate free cash flow as net cash (used in) provided by operating activities reduced by capital expenditures, including purchases of property and equipment and capitalized software development costs. We believe free cash flow is a useful supplemental 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 that other companies may calculate free cash flow differently, which reduces its usefulness as a comparative measure, and free cash flow does not reflect our future contractual commitments, nor does it represent the total residual cash flow for a given period.
The following table presents a reconciliation of free cash flow to net cash (used in) provided by operating activities, the most directly comparable financial measure calculated in accordance with GAAP.
Year ended
December 31,
2024 2023
(in thousands)
Net cash provided by operating activities $ 81,162 $ 100,915
Less: capital expenditures (17,021) (16,348)
Free cash flow $ 64,141 $ 84,567
Liquidity and Capital Resources
As of December 31, 2024 and 2023, we had $85.6 million and $144.2 million of cash and cash equivalents, respectively. Since inception, we have financed operations primarily through cash flows from operating activities, the sale of our capital stock and borrowings under credit facilities.
In September 2021, we entered into a credit agreement with Bank of America, N.A. providing for a revolving credit facility in an amount of up to $100.0 million (as amended, the "2021 Facility"). The 2021 Facility will mature in September 2026. As of December 31, 2024, we had no outstanding borrowings under the 2021 Facility (other than $4.9 million of outstanding letters of credit) and available borrowings of $95.1 million.
See Note 9 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for more information regarding the 2021 Facility.
In August 2024, our board of directors authorized a share repurchase program for up to $50.0 million of our outstanding Class A common stock, with no expiration date. During the year ended December 31, 2024, we repurchased 9,304,940 shares of our Class A common stock for approximately $45.4 million. As of December 31, 2024, we had approximately $4.6 million available for future repurchases under the share repurchase program. On February 27, 2025, our board of directors authorized an increase of $50.0 million in the share repurchase program, bringing the total authorization for repurchases under the program to up to $100.0 million of our outstanding Class A common stock. Following the authorization of the increase, as of the date hereof, we have approximately $54.6 million available for future repurchases under the share repurchase program.
In November 2024, we entered into a Series A Preferred Stock Purchase Agreement with OOG, Inc. ("OOG") pursuant to which we purchased 27,454,727 shares of OOG's Series A-1 Preferred Stock for an aggregate price of $25.0 million, representing a minority interest in OOG. See Note 16 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for more information regarding the transaction.
Our cash requirements have primarily been for working capital and capital expenditures. We believe that existing cash and cash equivalents, cash flows from operations and available borrowings under our 2021 Facility, if needed, will be sufficient to support our working capital and capital expenditure requirements for at least the next 12 months.
Our future capital requirements may vary materially from those currently planned and will depend on many factors, including our rate of revenue growth, the timing and extent of international expansion efforts and other growth initiatives, the expansion of our marketing activities and overall economic conditions. To the extent that current and anticipated future sources of liquidity are insufficient to fund our future business activities and cash requirements, we may be required to seek additional equity or debt financing. The sale of additional equity would result in additional dilution to our stockholders. The incurrence of additional debt financing would result in debt service obligations and the instruments
governing such debt could provide for operating and financing covenants that would restrict our operations. There can be no assurances that we will be able to raise additional capital when needed or on terms acceptable to us. The inability to raise capital if needed would adversely affect our ability to achieve our business objectives.
Historical Cash Flows
The following table summarizes our cash flows for the periods presented:
Year ended
December 31,
2024 2023
(in thousands)
Cash flows from operating activities $ 81,162 $ 100,915
Cash flows from investing activities (94,924) (117,187)
Cash flows from financing activities (44,766) 670
Net change in cash, cash equivalents, and restricted cash $ (58,528) $ (15,602)
Operating Activities
Cash flows from operating activities consist primarily of net income adjusted for certain items including depreciation and amortization, stock-based compensation expense and the effect of changes in operating assets and liabilities.
Cash flows from operating activities decreased by $19.8 million for the year ended December 31, 2024, compared to the same period last year. We saw a decrease in cash provided from operating activities as a result of a decrease in our net income, excluding the impact of non-cash adjustments, of $3.8 million. In addition, cash provided by operating activities decreased due to lower inventory purchases of $55.7 million, increased cash payments of operating lease liabilities of $5.6 million, the timing of cash payments of accrued compensation and benefits of $5.5 million, timing of income tax payments of $4.8 million, and timing of cash payments of prepaid expenses and other current assets of $2.0 million. The decrease in operating cash flows was partly offset by the timing of cash payments related to accrued expenses of $52.6 million and the timing of cash payments related to deferred revenue of $3.1 million.
Investing Activities
Cash flows from investing activities consists of capital expenditures and purchases of investments.
Cash flows from investing activities increased by $22.3 million for the year ended December 31, 2024, compared to the same period last year. The increase in cash flows from investing activities was primarily due to an increase in maturities of available-for-sale securities of $147.3 million, offset by an increase in purchases of available-for-sale securities of $96.8 million and the purchase of investment in equity securities of a privately held company of $27.5 million.
Financing Activities
Cash flows from financing activities consists primarily of proceeds and payments related to transactions involving our common stock, borrowings, and fees associated with our existing line of credit.
Cash flows from financing activities were $(44.8) million for the year ended December 31, 2024. Cash flow from financing activities decreased by $45.4 million as compared to the same period last year. The decrease in financing cash flows was primarily due to repurchases of Class A common stock of $45.4 million.
Contractual Obligations and Commitments
Our most significant contractual obligations relate to purchase commitments on inventory and operating lease obligations on our facilities. See Note 10 to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K for a description of our contractual obligations and commitments.
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements in conformity with GAAP requires us to make estimates and judgments that affect the amounts reported in those consolidated 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 estimates are those that involve the most significant level of 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 consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K for a description of our other significant accounting policies.
Revenue Recognition
Our primary source of revenues is from sales of healthcare apparel, footwear and other products primarily through our digital platform.
We determine revenue recognition through the following steps in accordance with Topic 606:
•identification of the contract, or contracts, with a customer;
•identification of the performance obligations in the contract;
•determination of the transaction price;
•allocation of the transaction price to the performance obligations in the contract; and
•recognition of revenue when, or as, we satisfy a performance obligation.
Revenue is recognized upon shipment when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Our revenue is reported net of sales returns and discounts. We estimate our liability for product returns based on historical return trends and an evaluation of current economic and market conditions. We record the expected customer refund liability as a reduction to revenue, and the expected inventory right of recovery as a reduction of cost of goods sold. If actual return costs differ from previous estimates, the amount of the liability and corresponding revenue are adjusted in the period in which such costs occur.
Other than the determination of returns reserve discussed above, there is not significant judgement required in the determination of performance obligations, allocation of our sales price, or the recognition of revenue. See Note 2 to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K for further discussion.
Stock-Based Compensation
We have granted stock-based awards consisting primarily of stock options and restricted 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 was used to estimate the fair value of options granted during the year ended December 31, 2024:
Risk free interest rate 4.0 - 4.2 %
Expected volatility 41 %
Expected dividend yield 0 %
Expected term (in years) 6.25
Risk-free interest rate-determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award.
Expected volatility- we derive our volatility from the average historical stock volatilities of several peer public companies over a period equivalent to the expected term of the awards. We expect to continue to do so until such time as we have adequate historical data regarding the volatility of our own traded stock price.
Expected dividend yield-we have not paid, and do not currently anticipate paying, cash dividends on our common stock; therefore, the expected dividend yield is assumed to be zero.
Expected term-the expected term of stock options granted to employees has been determined utilizing the "simplified" method for awards that qualify as "plain-vanilla" options, which calculates the expected term as the average of the time-to-vesting and the contractual life of options.
Fair value of common stock-the fair value of our common stock is the closing stock price of our Class A common stock as reported on the New York Stock Exchange.
For employee and non-employee options, we recognize compensation expense based on the grant date fair value of the award over the requisite service period, which is generally four years. We account for forfeitures as they occur.
We measure the fair value of RSUs granted to employees and non-employees based on the fair value of our Class A common stock on the grant date. Our 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 our outstanding performance-based awards was satisfied in connection with the IPO.
See Note 2 to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K for further discussion.
Inventory
Inventories are stated at the lower of cost and net realizable value. Cost is determined using an average cost method. Cost of inventory includes import duties and other taxes and transport and handling costs. We write down inventory where it appears that the carrying cost of the inventory may not be recovered through subsequent sale of the inventory. We analyze the quantity of inventory on hand, the quantity sold in the past year, the anticipated sales volume, the expected sales price and the cost of making the sale when evaluating the value of our inventory. If the sales volume or sales price of specific products declines, additional write-downs may be required. A hypothetical 10% change in our inventory reserves estimate as of December 31, 2024 would not result in a material impact on our consolidated financial statements.
Income Taxes
We are subject to income taxes in the United States. We compute our provision for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using the currently enacted tax rates that are expected to apply to taxable income for the years in which those tax assets and liabilities are expected to be realized or settled. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized and the charge is recorded to earnings.
Significant judgment is required in determining our uncertain tax positions. We continuously review issues raised in connection with all ongoing examinations and open tax years to evaluate the adequacy of our tax liabilities. We evaluate uncertain tax positions under a two-step approach. The first step is to evaluate the uncertain tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained upon examination based on its technical merits. The second step is, for those positions that meet the recognition criteria, to measure the largest amount of benefit that is more than 50% 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, 2024 would not result in a material impact on our consolidated 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.
Loss Contingencies
We may be involved in legal proceedings, claims and regulatory, tax or government inquiries and investigations that arise in the ordinary course of business resulting in loss contingencies. We accrue for loss contingencies when losses become probable and are reasonably estimable. If the reasonable estimate of the loss is a range and no amount within the
range is a better estimate, the minimum amount of the range is recorded as a liability. We do not accrue for contingent losses that, in our judgment, are considered to be reasonably possible, but not probable; however, we disclose the range of such reasonably possible losses. Loss contingencies considered remote are generally not disclosed.
Recent Accounting Pronouncements
Refer to Note 2 to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K for a discussion of accounting pronouncements recently adopted and recently issued accounting pronouncements not yet adopted and their potential impact to our consolidated financial statements.