FIGS 10-K & 10-Q changes, risk factors and insider trading

To manage the expansion of our business effectively, we must continue to implement our operational plans and strategies, improve and expand our infrastructure of people and information systems and expand, train and manage our employee base. We face significant competition for personnel, including in Southern California, where our headquarters is located, and in Goodyear, Arizona, where our fulfillment center 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 certain departments, to upgrade our management information systems and other processes and technology and to obtain more space for our 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.

We have 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, including new fabrics, hire additional personnel as needed, expand our operating infrastructure, Community Hubs footprint and TEAMS capabilities, 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, 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. In the near term, we expectfuture, our net revenues tocould decline,also andgrow overmore slowly than in the longpast termor our net revenues growth may slowdecline for a number of other reasons, including if we experience reduced 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. 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 have achieved.

Our success depends in large part upon widespread adoption of our products by healthcare professionals. In order to attract new customers and continue to expand our customer base, we must appeal to and attract healthcare professionals who identify with our products. If the number of healthcare professionals who are willing to purchase our products does not continue to increase, if we fail to deliver a high quality shopping experience or if our current or potential future customers are not convinced that our products are superior to alternatives, then our ability to retain existing customers, acquire new customers and grow our business may be harmed. We have made significant investments in enhancing our brand and attracting new customers, and we expect to continue to make significant investments to promote our products, including marketing campaigns that can be expensive and may not always result in new customers or increased sales of our products. These factors, in turn, have from time to time increased and may again increase our customer acquisition costs over time. As our brand becomes more widely known, we may not attract new customers or increase our net revenues at historical rates, or retain existing customers to the same extent as we have in the past. For example, weour haverate recently not addedof new customerscustomer atacquisition thehas samefluctuated ratesover as we have in the past.time. If we are unable to acquire new customers or retain existing customers who purchase products in numbers sufficient to grow our business, we may not be able to generate the scale necessary to drive beneficial network effects with our suppliers, our net revenues may decrease, and our business, financial condition,condition and operating results may be adversely affected.

Moreover, our success depends in part on the condition of the healthcare workforce. There have been reports of elevated fatigue and stress among workers in the healthcare industry, which we believe may behave impactingimpacted customer purchasing behavior.behavior from time to time. As a replenishment-driven healthcare apparel brand, demand for our products may be impacted by healthcare workforce-related stress, including if the number of employed healthcare workers were to decline.

We create differentiated brand marketing content and utilize performance marketing to drive customers from awareness to consideration to conversion, and promoting awareness of our brand and products is important to our ability to grow our business, drive customer engagement and attract new customers. Our marketing strategy includes brand marketing campaigns across platforms, including email, digital, display, site, direct-mail, commercials, social media, out-of-home campaigns, ambassadors and ambassadors,celebrities, as well as performance marketing efforts, including retargeting, paid search and product listing advertisements, paid social media advertisements, search engine optimization, personalized emails and mobile push notifications through our mobile app.

We have historically also benefited from social media, customer referrals and word of mouth to advertise our brand. Social networks are important as a source of new customers and as a means by which to connect with existing customers, and such importance may be increasing. In addition, we have implemented grassroots marketing efforts such as engaging with local doctors, nurses, and other healthcare professionals, some of whom we refer to as our 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, 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. Our future growth and profitability and the success of our brand will depend in part upon the effectiveness and efficiency of these marketing efforts.

In addition, customer complaints or negative publicity related to our website, mobile app, Community Hubs, products, product delivery times, customer data handling, marketing efforts, security practices or customer support, especially on blogs and social media websites,media, could diminish customer loyalty and community engagement.

Further, our new products and innovations, including to fit, style, and fabric, on existing and future productsproducts, may not, and from time to time have not, received the same level of customer acceptance as our products or innovations have in the past. Customer preferences could change, especially as we expand our product offerings beyond our core scrubwear, and our future success depends in part on our ability to anticipate and respond to these changes. If we fail to anticipate and respond in a timely manner to changing customer preferences or if customers do not accept our new products or innovations, including to fit, style and fabric, we could experience, among other things, lower sales, excess inventory or inventory shortages, markdowns and write-offs, increases in donations by us, and diminished brand loyalty.loyalty, some of which have occurred from time to time and could occur again in the future. Even if we are successful in anticipating customer needs and preferences, our ability to adequately address those needs and preferences will in part depend upon our continued ability to develop and introduce innovative, high quality products and designs and maintain our distinctive brand identity as we expand the range of products we offer. A failure to effectively introduce new products or innovations on existing products that appeal to our customers could result in a decrease in net revenues and excess inventory levels, which could adversely affect our business, financial condition and results of operations.

We compete against wholesalers of healthcare apparel, such as Careismatic Brands, Barco Uniforms, Landau Uniforms,Uniforms and Superior Group of Companies. Additionally, we compete with healthcare apparel specialty retailers, such as Scrubs & Beyond and Uniform Advantage, as well as digitally native brands such as JaanuuJaanuu, Mandala and Mandala.Fabletics. We also currently and in the future may continue to face competition from other large, diversified apparel brands with name recognition and well-established sales, manufacturing and distribution infrastructure that choose to expand into the production and marketing of healthcare apparel, such as Fabletics.apparel.

Our competitors may be able to achieve and maintain market share more quickly and effectively than we can. Similarly, if customers perceive the products offered by our competitors to be of higher quality than ours, or our competitors offer similar products at lower prices, our revenues may decline, which would adversely affect our business, financial condition and results of operations.

Many of our potential competitors promote their brands primarily through traditional forms of advertising, such as print media, and have substantial resources to devote to such efforts. Our competitors may also use traditional forms of advertising more quickly in new markets than we can. While we believe that our direct-to-consumer business model offers us competitive advantages, our competitors may also be able to increase sales in their new and existing markets faster than we do by emphasizing different distribution channels than we do, such asextensive wholesale capabilities and an extensive franchise networknetworks of retail stores, and many of our competitors have substantial resources to devote toward increasing sales in such ways. Competition may result in pricing pressures, reduced profit margins or lost market share or a failure to grow our market share, any of which could substantially harm our business, financial condition and results of operations.

We are dependent on our ability to continue to identify, attract, develop and retain qualified and highly skilled team members. In particular, we are highly dependent on the services of our co-founders, Heather Hasson and Trina Spear, who serve as our Executive ChairChairman 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. If the senior management team, including any new hires that we make, fails to work together effectively or to execute our plans and strategies on a timely basis, our business and future growth prospects could be harmed.

Our current operations and customer base are based largely in the United States, and our future growth depends in part on our ongoing expansion efforts outside of the United States. While we currently ship to certain countries in North America, Central America, South America, Europe, the Asia Pacific region and the Middle East, we have a relatively limited number of customerscustomers, employees and experience operating outside of the United States. We also have relatively 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 have from time to time encountered, and may in the future continue to 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’ differing tastes and preferences.

We may also encounter difficulty expanding into new markets because of limited brand recognition in those markets, leading to delayed acceptance of our apparel by customers there. In particular, we have no assurance that our marketing efforts will prove successful outside of the narrow geographic regions in which they have been used in the United States. The expansion into new markets may also present competitive, merchandising, forecasting and distribution challenges that are different from or more severe than those we currently face. ThereAs arewe expand into new markets and hire additional international employees, we will also otherbe riskssubject to a variety of foreign laws and costsregulations inherentregarding employment, labor, and workplace practices, which may differ significantly from those in doingthe businessUnited in international markets, including:States.

• complexity and other risks associated with current and future legal requirements in other countries, including legal requirements related to medical apparel, customer advertising protection, customerconsumer product safety, sustainability disclosure, artificial intelligence and data privacy and security frameworks, such as the EU GDPR and the UK GDPR;

We currently rely on third-party global logistics and shipping providers to ship raw materials, receive inbound inventory to our fulfillment center and retail stores, and deliver our products to our customers. If we are not able to negotiate acceptable pricing and other terms with these providers, or if these providers experience performance problems or other difficulties in delivering inventory, processing our orders or delivering our products to customers, it could negatively impact our results of operations and our customers’ experience. Furthermore, changes to the terms of our shipping arrangements or the imposition of surcharges, surge pricing or accessorials have in the past and may in the future adversely impact our margins and profitability. For example, volatility in the global oil markets, including as a result of Russia’s invasion of Ukraine, conflict in the Middle East and other wars or armed conflicts, and changes in global supply generally, have from time to time resulted in higher fuel prices, which shipping companies have from time to time passed on to their customers by way of increased fuel surcharges. We have from time to time experienced increased shipping costs as a result of these and other factors, 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.

Our supply of raw materials and ability to receive inbound inventory efficiently and ship merchandise to customers, including at costs to which we are accustomed, may also be negatively affected by military conflicts, political or social instability, terrorism or terrorism.global trade policy. For example, as a result of ongoing conflict in the Middle East, from time to time there have been disruptions in commercial shipping transiting the Red Sea and surrounding waterways. Such disruptions have affected globalGlobal ocean freight traffic,traffic causedhas also been impacted by the conflict and shifts in global trade policy, resulting in shipping delaysdelays, and increasedvolatility in freight costs.costs, Ascapacity aand result,transit wetimes. We have from time to time experienced delays in the delivery of raw materials to, and finished goods from, our manufacturers in Jordan and elsewhere,manufacturers, as well as elevated ocean freight rates and shipping costs. AlthoughTo address these impacts, we have notfrom experienced a material disruptiontime to ourtime supply chain and haveproactively sought alternative ways to ship raw materials and receive inventory, such asincluding selecting new vessel routes and alternative ports, using increased air freight from time to time, pre-negotiating ocean freight shipping rates, and adjusting our product launch schedule to account for delays,delays. ifIf there are continued or increased hostilities in the Middle East,East or continued uncertainty surrounding global trade policy, 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 business, financial condition and results of operations.

In addition, the operations of our third-party providers have in the past been disrupted, and may in the future again be disrupted, by pandemics or health crises. For example, in the past, the COVID-19 pandemic strained parcel carrier networks and caused extended outbound shipping times generally and additional shipping costs. Future pandemics, epidemics or outbreaks of an infectious disease may adversely affect workforces and supply chains globally, potentially impacting the operations of our third-party shipping providers, which could negatively impact our business, financial condition and results of operations.

We have in the past experienced, and may in the future experience, shipping delays for other reasons outside of our control. For example, weather, fires, floods, power loss, earthquakes, or other events specifically impacting our or 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, may negatively impact our ability to ship raw materials, receive inbound inventory and ship merchandise to customers efficiently and cost-effectively. A strike, threat of a strike, work slow-down or other disruptions at any of our third-party global providers, other parcel carriers or by port workers at major international shipping hubs, including at the ports of Los Angeles, Long Beach, New York and New Jersey, each of which we use to import our products into the U.S.,United States, could also significantly disrupt our business. For instance, the International Longshoremen’s Association, which represents workers at east coast ports, recently went on strike briefly,briefly in 2024, which caused us to select new vessel routes, use additional air freight and adjust our product launch schedule to mitigate delays. Additional strikes in the future could adversely affect our business, financial condition and results of operations.

We are also subject to risks related to damaged or lost goods by our inbound and outbound shipping vendors, which hashave occurred from time to time. If our goods are damaged or lost during transit, or not delivered in a timely fashion, our brand reputation could be adversely affected. Our customers could also become dissatisfied, require refunds or other financial accommodations and/or cease buying products from us. In addition, some claims may not be fully covered under our insurance policies or exceed recoverable limits. We may also incur additional costs shipping replacement goods and in maintaining heightened customer support, which has occurred from time to time. In such cases, our business, financial condition and results of operations could be adversely affected.

DuringWe therely year ended December 31, 2024, we completedon our previously announced transition of all fulfillment operations from our previous City of Industry location to a newsole fulfillment center we have leased in Goodyear, Arizona, which is leased by us and operated by a third-party logistics providerprovider, andfor isall nowof our sole location for product distribution. We also from time to time rely on several additional third-party storage locations to house inventory and for other logistics purposes. Our fulfillment center and storage locations include computer-controlled and automated equipment and rely on warehouse management systems to manage supply chain fulfillment operations, which means our operations are complicated, require coordination between our fulfillment, storage and retail operations, 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, some of which have occurred from time to time. In addition, because all of our products are distributed from our Goodyear fulfillment center, our operations could also be interrupted by labor difficulties, or by floods, fires or other natural disasters near our fulfillment center or other locations we may use from time to time. 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.

We base our current and future inventory needs and expense levels on our operating forecasts and estimates of future demand. To ensure adequate inventory supply, we must be able to forecast inventory needs and expenses and place orders sufficiently in advance with our suppliers and manufacturers, based on our estimates of future demand for particular products. Our ability to forecast demand for our products has from time to time been, and will continue to be, affected by various factors, including unanticipated changes in general market conditions, economic conditions or consumer confidence in future economic conditions and geopolitical conditions.conditions, including as a result of changes in global trade policy. Failure to accurately forecast demand has in the past, and may in the future, result in inefficient inventory supply or increased costs. This risk may be exacerbated by the fact that we may not carry a significant amount of inventory and may not be able to satisfy short-term demand increases. In addition, if we experience increased shipping times from our suppliers and manufacturers and/or production disruptions, we may experience 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, faster than anticipated ocean freight transit times following our decision to increase weeks of supply during periods of ocean freight transit time volatility, 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, increases in donations and the sale of excess inventory at discounted prices, some of which have occurred from time and which could cause our gross margin to suffer or impair the strength and premium nature of our brand.

Further, lowerLower than forecasted demand could also result in excess manufacturing capacity or reduced manufacturing efficiencies, which could result in lower margins. Conversely, if we underestimate customer demand, our suppliers and manufacturers may not be able to deliver products to meet our requirements, and we may be subject to higher costs in order to secure the necessary production capacity or we may incur increased shipping costs. An inability to meet customer demand and delays in the delivery of our products to our customers could result in reputational harm and damaged customer relationships and have an adverse effect on our business, financial condition and results of operations.

Moreover, while we devote significant attention to forecasting efforts, the volume, timing, value and type of the orders we receive are inherently uncertain. In addition, we cannot be sure the same growth rates, trends and other key performance metrics are meaningful predictors of future growth. Our business, as well as our ability to forecast demand, is also affected by changes in general domestic and global economic, business and geopolitical conditions, including inflationary pressures, tariffs and other trade barriers, and the degree of customer confidence in future economic conditions, and we anticipate that our ability to forecast demand due to these types of factors will be increasingly affected by conditions in international markets. A significant portion of our expenses is fixed, and as a result, we may be unable to adjust our spending in a timely manner to compensate for any unexpected shortfall in net revenues. Any failure to accurately predict net revenues or gross margins could cause our operating results to be lower than expected, which could adversely affect our financial condition.

Macroeconomic conditions may adversely affect our business. While we believe our business is largely resistant to recessionary pressures due to the largely non-discretionary nature of scrubwear, consumer spending may decline if general economic conditions deteriorate, and demand for our products from time to time has been and may continue to be adversely affected. Significant risks and uncertainty in the global economy have emerged as a result of government policy decisions and geopolitical tensions, such as Russia'sRussia’s invasion of Ukraine and conflict in the Middle east,East, which have resulted in significant macroeconomic consequences. These have included increased fuel and energy prices and depressed financial markets from time to time, and as a result consumer behavior, confidence and spending patterns have been affected and may continue to be negatively impacted in the future. Other factors affecting consumers’ spending levels include, among others: high interest rates, the size and timing of federal stimulus programs, wages, levels of employment, inflation, recession and fears of recession or depression or entry into a recession or depression, housing costs, energy costs, income tax rates, tariffs, such as those recently announcedimplemented by the newUnited U.S.States presidentialin administration,recent years, financial market fluctuations, consumer perceptions of personal well-being and security, availability of consumer credit and consumer debt levels, and consumer confidence in future economic conditions.

Moreover, our success depends in part on the condition of the healthcare workforce. There have been reports of elevated fatigue and stress among workers in the healthcare industry, which we believe may behave impactingimpacted customer purchasing behavior.behavior from time to time. As a replenishment-driven healthcare apparel brand, demand for our products may be impacted by healthcare workforce-related stress, including if the number of employed healthcare workers were to decline.

These factors and their impact on our customers’ spending behavior have from time to time impacted, and we expect some of these to continue to impact in the future, the demand for our products, as well as our business, financial condition and results of operations.

We allow our customers to return our products, subject to our return policy. We generally accept merchandise returns for full refund or exchange within 30 days of the original purchase date. Our revenuenet isrevenues are reported net of 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. The introduction of new products, changes in customer confidence or shopping habits or other competitive and general economic conditions could cause actual returns to exceed our estimates. 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. In addition, from time to time, our products may be damaged in transit, which can also increase return rates. Returned goods may also be damaged prior to or in connection with the return process, which can and has from time to time impeded our ability to restock and resell returned goods. Competitive pressures could cause us to alter our return policies or our shipping policies, which could result in an increase in damaged products and an increase in product returns. If the rate of product returns increases significantly or if product return economics become less efficient, our business, financial condition and results of operations could be harmed.

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 cotton and rayon, from time to time has impacted and may in the future impact global prices and availability of raw materials from which some of our products are made. Furthermore, the TrumpUnited administrationStates has recentlyin recent years imposed newadditional tariffs on products manufactured in China. Although we do not import raw materials or product components to the U.S.United States from China directly, these tariffs may lead to increases in market costs for certain raw materials and components generally, further exacerbating price volatility and supply chain disruptions. Increases in the cost of raw materials or unavailability of raw materials, including as a result of current or future tariffs, could adversely affect our cost of goods sold, business, financial condition and results of operations.

• the imposition of new laws, regulations and executive orders, including those relating to our due diligence and disclosure of our supply chain as well as sustainability, labor conditions, quality and safety standards, imports, duties, tariffs,tariffs and other trade barriers, taxes and other charges on imports, as well as trade restrictions and restrictions on currency exchange or the transfer of funds;

We are committed to supporting our communities around the globe. Operating with compassion and integrity is core to our values, which makes our reputation sensitive to allegations of unethical or improper business practices, whether real or perceived. The failure, or alleged failure, of any of our suppliers or manufacturers to provide safe and humane factory conditions and oversight at their facilities could damage our reputation and brand, result in legal claims against us or cause us to seek alternate suppliers or manufacturers. For example, previously there have beenwere allegations thatrelating laborto the working conditions at aour Jordanian supplier of ours do not meet our high standards,supplier, and as a result, we areworked with that supplier to put measures in theplace processthat are consistent with our high standards. We also continue to shift some production to other countries as part of transitioningour awaysupply fromchain thatstrategy. supplier.These Whilesupply wechain relydecisions onmay subject us to additional costs and challenges, which could adversely affect our manufacturers’business, financial condition and suppliers’ compliance reporting as well as contractual provisions in our vendor manual in order to comply with regulations applicable to our products, expectationsresults of ethical business practices continually evolve and may be substantially more demanding than applicable legal requirements.operations.

We do not control our suppliers and manufacturers or their business, and they may not comply with our guidelines or applicable law. Moreover, while 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, expectations of ethical business practices continually evolve and may be substantially more demanding than applicable legal requirements. The products we sell are also subject to regulation by the Federal CustomerConsumer Product Safety Commission, the Federal Trade Commission and similar state and international regulatory authorities. Product safety, labeling and licensing concerns may require us to voluntarily remove selected merchandise from our inventory. Such recalls or voluntary removal of merchandise can result in, among other things, lost sales, diverted resources, potential harm to our reputation and increased customer service costs and legal expenses, which could adversely affect our results of operations. Moreover, failure of our suppliers or manufacturers to comply with applicable laws and regulations and contractual requirements could lead to litigation against us or cause us to seek other vendors, which could increase our costs and result in delayed delivery of our products, product shortages or other disruptions of our operations.

We conduct business with suppliers and manufacturers based in China, which exposes us to risks inherent in doing business there.

ConductingWe source raw materials and product components from, and conduct limited manufacturing in, the People’s Republic of China. We also sell our products to customers in China and use Chinese-owned social media and payment platforms to market to and transact with customers inside China. Doing business in China and using Chinese-owned social media and payment platforms as tools for marketing, messaging and transacting with customers in China exposes us to political, legal and economic risks.risks in China and elsewhere. In particular, the political, legal and economic climate in China is fluid and unpredictable. Our ability to operatedo business in China may be adversely affected by changes in U.S.United States and Chinese laws, regulations and executive orders, including those related to taxation, import and export tariffs and restrictions, custom duties, social media, economic sanctions and export controls, environmental regulations, land use rights, intellectual property, currency controls, network security, employee benefits, hygiene supervisionsupervision, consumer protection and other matters. For example, Presidentin Trumprecent recentlyyears the United States imposed new tariffs on products manufactured in China and China has imposed retaliatory tariffs on the U.S.United TheStates. While the U.S. tariffs on 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 directmaterial impacts from China’s retaliatory tariffs.tariffs, Giventrade theregulations recentare volumecontinuously ofevolving executive orders, however,and we cannot predict additional near-term changes in U.S.global trade policypolicy. andAdditional additionaltariffs, tariffsfuture trade barriers or adverse changes in applicable laws could increase our costs or otherwise adversely affect our business, financial condition and results of operations.

In addition, Chinese trade regulations are continuously evolving, and we may become subject to other forms of taxation, tariffs and duties. Furthermore,Finally, the third parties we rely on in China may disclose our confidential information or intellectual property to competitors or third parties, which could result in the illegal sale of counterfeit versions of our products. If any of these events occur, our business, financial condition and results of operations could be adversely affected.

By elevating scrubs and creating premium products for healthcare professionals,professionals that support them on and off-shift, 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 direct-to-consumer (“DTC”) digital platform, consisting of our website, mobile app and B2B business (“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.

◦Net income decreasedincreased from $22.6$2.7 million to $2.7$34.3 million in the year ended December 31, 20242025;

◦Net income margin decreasedincreased from 4.1%0.5% to 0.5%5.4% in the year ended December 31, 20242025;

◦Adjusted EBITDA decreasedincreased from $86.0$51.8 million to $51.8$74.5 million in the year ended December 31, 2024,2025, representing an adjusted EBITDA margin of 9.3%11.8%;

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, 2024.10-K.

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, inventory write-offs as well as gross margin.

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 tomay continue to see the impact of inflation on our customers’ purchasing activityactivity, infrom thetime nearto term.time. 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,freight and other costs of doing business.

In addition, we are subject to the prevailing trade policies of the U.S.United States and other countries in which we do business. WeThe changes to U.S. trade policy implemented in recent years, including the increased tariffs on imports, have increased our product costs, and we are activelycontinuously 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 recentunpredictable volumeand dynamic nature of executiveongoing orders,U.S. however,policy changes, we cannot predict additional near-term changes in U.S. trade policy.policy Changesand changes to the U.S. proposed tariff program,and includingtrade the potential expansion to other countries,policies could further impact our operating results.

Cost of goods sold consists principally of the cost of purchased merchandise and includes import dutiesduties, tariffs 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.costs and the impact of changes to applicable import duties and tariffs.

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 SMS marketing 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 ProgramProgram, events 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.

Unlike the traditional apparel industry, the healthcare apparel industry is generally not seasonal in nature. However, due to our general 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.

Net revenues increased by $9.9$75.5 million, or 1.8%,13.6%, for the year ended December 31, 2024,2025, compared to the prior year. The increase in net revenues was primarily driven by an increase in orders from new and existing customers, partiallyand offsetan by a decreaseincrease in AOV.

Cost of Goods SoldSold, Gross Profit and Gross Margin

Cost of goods sold increased by $11.3$31.3 million, or 6.7%,17.4%, for the year ended December 31, 2024,2025, compared to the prior year. ThisThe increase in costs of goods sold was primarily due to a higher totalunit numbersales, of orders in 2024 as compared to 2023tariffs and unfavorableinventory product mix shift.write-offs.

Gross profit decreasedincreased by $1.3$44.2 million, or 0.4%,11.8%, for the year ended December 31, 2024,2025, compared to the prior year,year. The increase in gross profit was primarily due to unfavorablehigher productunit mixsales shift.and improved discount rates, partially offset by tariffs and inventory write-offs.

Gross margin decreased 1.51.1 percentage points for the year ended December 31, 2024,2025, compared to the prior year. The decrease in gross margin was primarily relateddue to productthe miximpact shift.of tariffs, which negatively impacted gross margin by approximately 120 basis points, and inventory write-offs, partially offset by improved discount rates.

Operating expenses increased by $30.4$8.3 million, or 8.9%,2.2%, for the year ended December 31, 2024,2025, compared to the prior yearyear, and,driven asby higher selling expense and marketing expense. As a percentage of net revenues, increasedoperating expenses decreased by 4.46.7 percentage points, primarily driven by an increaseleverage in selling expensesexpense, marketing expense and marketinggeneral expenses.and administrative expense.

Selling expense increased by $16.8$3.9 million, or 13.4%,2.8%, for the year ended December 31, 2024,2025, compared to the prior year and, as a percentage of net revenues, increaseddecreased by 2.62.4 percentage points. The increasedecrease in selling expense as a percentage of net revenues was primarily due to higher fulfillment expenses associated within the transitionsame ofperiod last year following our fulfillment operationstransition to a new fulfillment center and leverage on higher shippingnet expenses due to lower AOV.revenues.

Marketing expense increased by $11.5$4.5 million, or 14.9%,5.1%, for the year ended December 31, 2024,2025, compared to the prior year and, as a percentage of net revenues, increaseddecreased by 1.81.1 percentage points. The increasedecrease in marketing expense as a percentage of net revenues was primarily duedriven toby higherlapping digitalof andprior brand marketingyear expenses related to our 2024 Olympics campaign.campaign, greater efficiency in our marketing spend in 2025 and leverage on higher net revenues.

General and administrative expense increaseddecreased by $2.2$0.1 million, or 1.6%,0.1%, for the year ended December 31, 2024,2025, compared to the prior year and, as a percentage of net revenues.revenues, decreased by 3.1 percentage points. The decrease in general and administrative expense as a percentage of net revenues was primarily due to leverage on higher net revenues and lower stock-based compensation expense, partially offset by increased investment in people, and higher depreciation and amortization expense.

Other income, net increaseddecreased for the year ended December 31, 2024,2025, compared to the prior year, primarily due to ana increasedecrease in interest income driven by higherlower short-terminterest investment balances.rates.

Provision for income taxes decreasedincreased by $6.6$1.3 million, or 36.0%,11.5%, for the year ended December 31, 2024,2025, compared to the prior year, primarily due to aan decreaseincrease in pretax income.

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 month12-month period divided by the current period active customers. Net revenues per active customer as of December 31, 20242025 and 2023,2024, respectively, are presented in the following table:

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 valueAOV 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, 20242025 and 2023,2024, respectively, are presented in the following table:

We calculate adjusted EBITDA as net income (loss) adjusted to exclude: other income (loss),income, 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. adjustedAdjusted EBITDA margin is calculated by dividing adjusted EBITDA by net revenues.

•adjusted EBITDA and adjusted EBITDA margin do not reflect other income (loss),income, net;

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.

As of December 31, 20242025 and 2023,2024, we had $85.6$82.0 million and $144.2$85.6 million of cash and cash equivalents, respectively. Since inception, we have financed operations primarily through cash flows from operating activities,activities and the sale of our capital stock and borrowings under credit facilities.stock.

In September 2021, we entered into a credit agreement with Bank of America, N.A. (as amended from time to time, the “Credit Agreement”) providing for a revolving credit facility in an amount of up to $100.0 million (as amended, the “2021 Facility”). TheOn November 3, 2025, we entered into a second amendment to the Credit Agreement, which, among other things, extends the maturity date of the 2021 Facility willfrom matureSeptember 7, 2026 to November 3, 2030 and reduces the annual commitment fee to 0.15% of the unused Revolving Facility (as defined in Septemberthe 2026.Credit Agreement). As of December 31, 2024,2025, we had no outstanding borrowings under the 2021 Facility (other than $4.9$8.4 million of outstanding letters of credit) and available borrowings of $95.1$91.6 million.

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 into 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. FollowingDuring the authorizationyear ended December 31, 2025, we repurchased 567,607 shares of theour increase,Class asA common stock for approximately $2.7 million. As of theDecember date31, hereof,2025, we havehad approximately $54.6$52.0 million available for future repurchases under the share repurchase program.

Cash flows from operating activities decreased by $19.8$20.0 million for the year ended December 31, 2024,2025, 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 impacttiming of non-cashcash adjustments,payments related to accrued expenses of $3.8$55.2 million. In addition, cash provided by operating activities decreased due to lowerhigher inventory purchases of $55.7$15.5 million and the timing of cash received related to deferred revenue of $3.1 million. The decrease in operating cash flows was partially offset by an increase in our net income, including the impact of non-cash adjustments, of $15.2 million, increasedthe timing of cash payments of operatingaccounts lease liabilitiespayable of $5.6$14.1 million, the timing of cash payments of accrued compensation and benefits of $5.5$13.1 million, the timing of income tax payments of $4.8$3.8 million, andthe timing of cash payments of prepaid expenses and other current assets of $2.0$3.6 million. The decrease in operating cash flows was partly offset by the timing of cash payments related to accrued expenses of $52.6 millionmillion, and the timing of cash paymentsreceived relatedfrom toaccounts deferred revenuereceivable of $3.1$3.6 million.

Cash flows from investing activities increased by $22.3$31.0 million for the year ended December 31, 2024,2025, compared to the same period last year. The increase in cash flows from investing activities was primarily due to anthe increasepurchase of equity securities of a privately held company, including transaction costs, of $27.3 million in the prior year, with no comparable activity in the current year. In addition, purchases of property and equipment decreased by $8.9 million and maturities of available-for-sale securities ofincreased $147.3by million,$4.8 million. This was 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$10.0 million.

Cash flows from financing activities consistsconsist 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 decreasedincreased by $45.4$43.8 million as compared to the same period last year. The decreaseincrease in financing cash flows was primarily due to a decrease in repurchases of Class A common stock of $45.4$42.8 million.

Other than the determination of returns reserve discussed above, there is not significant judgementjudgment 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.

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, 20242025:

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-downswrite-offs may be required. A hypothetical 10% change in our inventory reserves estimate as of December 31, 20242025 would not result in a material impact on our consolidated financial statements.

There are also other risks and costs inherent in doing business in international markets, some of which have occurred from time to time, including:

• fluctuations in inflationary conditions, which could increase our costs of doing business in certain countries and/or affect our or our international customers' purchasing power;

• fluctuations in currency exchange rates and the requirements of currency control regulations, which might restrict or prohibit conversion of other currencies into U.S. dollars; and

• political or social unrest, economic instability or armed conflict in a specific country or region in which we operate, including, for example, Russia’s invasion of Ukraine, conflict with Iran and other conflict in the Middle East.East; and

Our supply of raw materials and ability to receive inbound inventory efficiently and ship merchandise to customers, including at costs to which we are accustomed, may also be negatively affected by military conflicts, political or social instability, terrorism or global trade policy. For example, as a result of ongoing conflict in the Middle East, including the conflict involving the United States, Israel and Iran, from time to time there have been disruptions in commercial shipping, including to supply chain routes in the region that we have historically used to transport raw materials to, and finished product from, our Jordanian manufacturing partners.partner. Global ocean freight traffic has also been impacted by the conflict and shifts in global trade policy, resulting in periodic shipping delays, and volatility in freight costs, capacity and transit times. As a result, we have from time to time experienced delays in the delivery of raw materials to, and finished goods from, our manufacturers, as well as elevated ocean freight rates and shipping costs. To address these impacts, we have from time to time proactively sought alternative ways to ship raw materials and receive inventory, including selecting new vessel routes and ports, using increased air freight from time to time, pre-negotiating ocean freight shipping rates, and adjusting our product launch schedule to account for delays. If there are continued or increased hostilities in the Middle East or continued uncertainty surrounding global trade policy, 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 business, financial condition and results of operations.

If we experience problems with our distribution center’s operational infrastructure, our ability to meet customer expectations, manage inventory, complete salessales, ship products and achieve objectives for operating efficiencies could be harmed.

We currently rely on our sole fulfillment center in Goodyear, Arizona, which is leased by us and operated by a third-party logistics provider, for all of our product distribution. We also from time to time rely on several additional third-party storage locations to house inventory and for other logistics purposes. Our fulfillment center and storage locations include computer-controlled and automated equipment and rely on warehouse management systems to manage supply chain fulfillment operations, which means our operations are complicated, require coordination between our fulfillment, storage and retail operations, 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, some of which have occurred from time to time. In addition, because all of our products are distributed from our Goodyear fulfillment center, our operations could also be interrupted by labor difficulties, or by floods, fires or other natural disasters near our fulfillment center or other locations we may use from time to time. 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.

We base our current and future inventory needs and expense levels on our operating forecasts and estimates of future demand. To ensure adequate inventory supply, we must be able to forecast inventory needs and expenses and place orders sufficiently in advance with our suppliers and manufacturers, based on our estimates of future demand for particular products. Our ability to forecast demand for our products has from time to time been, and will continue to be, affected by various factors, including unanticipated changes in general market conditions, economic conditions or consumer confidence in future economic conditions and geopolitical conditions, including as a result of changes in global trade policy. Failure to accurately forecast demand has in the past, and may in the future, result in inefficient inventory supply or increased costs. This risk may be exacerbated by the fact that we may not carry a significant amount of inventory and may not be able to satisfy short-term demand increases.increases, including as a result of the withhold release order (“WRO”) issued by U.S. Customs and Border Protection (“CBP”) against certain garments produced by our Jordanian manufacturing partner. In addition, if we experience increased shipping times from our suppliers and manufacturers and/or production disruptions, we may experience 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, faster than anticipated ocean freight transit times following our decision to increase weeks of supply during periods of ocean freight transit time volatility, 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.

Our supply chain consists of a diversified network of global production partners spread across multiple continents. We source the vast majority of the fabrics used in our products from a limited number of suppliers in China, and we source the other raw materials and product components used in our products from suppliers located predominantly in the Asia Pacific region. We then work with manufacturing partners to produce our products in facilities located in Southeast Asia, the Middle East, China and South America. During the quarter ended MarchJune 31,30, 2026, greaterapproximately than half and greater than one-third60% of our finished goods were produced by suppliers in Vietnam and Jordan,approximately respectively.one-third by our Jordanian manufacturing partner. Limited production also occurred in China and other countries. WeAs continuouslya workresult of the WRO issued by CBP on June 23, 2026 against certain garments produced by our Jordanian manufacturing partner, our products produced by this partner may not currently be imported into the United States, and we may ultimately be unable or choose not to strengthensell ourrecently sourcingfinished and manufacturing capabilities, whichproduct from timethis to time includes diversifying manufacturing operations geographically and strategically refining our manufacturing base into high-quality manufacturing partners to improve product quality and consistency.partner. We have alsoinstituted implemented,various strategies to mitigate the impact of the WRO, including transitioning raw materials and planfuture production to continueour toother implementmanufacturing aspartners, needed,although variousdoing mitigationso strategiesmay inincrease responserisks toassociated with our reliance on a limited number of third party suppliers. Overall, we expect the sustained elevated U.S. tariff levels, which have included, and may in the future again include, adjusting the countries from which we source our products and renegotiating prices with suppliers, but we cannot be certain how effective these measuresWRO will be over the long term. These efforts may also subject us to additional risks and costs, which may adversely impact our resultsnet ofrevenues, operationsgross margin, and inventory levels in the shortsecond term.half of 2026.

The United States has announced and implemented changes to U.S. trade policy in recent years, including increasing tariffs on imports, in some cases significantly, and potentially modifying or terminating existing trade agreements, which, in certain instances, has prompted retaliatory trade measures by other countries. These measures have increased our product costs. The changes to U.S. trade policy and the tariff environment have also been dynamic, unpredictable and subject to ongoing modification. For example, in April 2025, the United States announced a new universal baseline tariff of 10% on all U.S. imports, plus additional country-specific tariffs applicable to certain trading partners, including Vietnam and Jordan.partners. Since that announcement, tariff rates and effective dates have been adjusted on several occasions. In February 2026, the United States Supreme Court ruled that the use of the International Emergency Economic Powers Act (“IEEPA”) to impose tariffs was not permitted, invalidating a significant portion of tariffs that had been in effect since April 2025. While the ruling struck down the IEEPA-based tariffs, it doesdid not address the Administration’s ability to impose tariffs using other mechanisms. The Administration responded by invoking a 10%10.0% global tariff pursuant to Section 122 of the Trade Act of 1974 for(the 150“Trade days,Act”), effective on February 24, 20262026, andwhich scheduled to expireexpired on July 24, 2026. On July 23, 2026, unless extended by Congress. Thethe Administration alsoimposed expressednew antariffs intentionranging from 10.0%-12.5% pursuant to raiseSection such301 tariffof the Trade Act, effective July 24, 2026. These tariffs are intended to 15%, although no formal action implementing that increase has been issued. The Administration also initiated trade investigations that could result in additional future tariffs prior to or following the expiration ofreplace the Section 122 tariffs.tariffs and affect imports from approximately 60 countries and territories, including those where our suppliers are located. As of the date hereof, goods manufactured in Vietnam and Jordan are subject to tariff rates of 12.5% and 10.0%, respectively.

The ruling, and the Administration’s subsequent actions, have created substantial uncertainty regarding the tariff environment, including with respect to (i) whether and to what extent refunds will be issued for tariffs previously collected under IEEPA, (ii) the scope and duration of the new tariffs imposed under Section 122301 and any new or higher tariffs that may be imposed under alternative mechanisms and (iiiii) the outcome of pending legal challenges to the Section 122 tariffs and the potential for further legal challenges to anythose, suchthe tariffs.Section We have applied for a refund of approximately $20 million of IEEPA301 tariffs paid by us, however the ultimate extent and timingany offuture such refunds remains uncertain.tariffs. Any prolonged uncertainty or volatility in tariff policy could disrupt our supply chain planning, increase our costs and adversely affect our ability to price our products competitively. Moreover, tariffs and other trade barriers, including those imposed by other countries on the United States, could adversely impact demand for our products domestically and in international markets, which in turn could adversely affect our inventory levels. Given that substantially all of our products are currently manufactured outside of the United States, additional trade actions by the United States or other countries could further increase our product costs and harm our business, financial condition and results of operations.

Moreover, our products could be held for inspection by U.S. Customs and Border Protection (“CBP”), which has occurred from time to time, in connection with the U.S.’s trade restrictions related to the Xinjiang region of China, or for other reasons. Although we have not experienced material shipping delays as a result of such inspections, future inspections could cause material delays and unexpectedly affect our inventory levels. CBP has also in the past held and may in the future hold our goods for inspection or challenge or disagree with our classification of our imports, or our valuation or country of origin determinations. While we haven’thave not experienced material delays or duty or tariff liabilities in such instances, such challenges could in the future result in material delays or duty or tariff liabilities, including duties or tariffs on past imports, as well as penalties and interest.

We are committed to supporting our communities around the globe. Operating with compassion and integrity is core to our values, which makes our reputation sensitive to allegations of unethical or improper business practices, whether real or perceived. The failure, or alleged failure, of any of our suppliers or manufacturers to provide safe and humane factory conditions and oversight at their facilities could damage our reputation and brand, result in legal claims against usus, subject our goods to detention or exclusion, or cause us to seek alternate suppliers or manufacturers.manufacturers, which could affect our business, financial condition and results of operations. For example, previously there were allegations relating to the working conditions at our Jordanian supplier,manufacturing partner. On June 23, 2026, CBP issued a WRO against certain garments produced by that partner. As a result of the WRO, our products produced by this partner may not currently be imported into the United States, and as a result, we workedmay withultimately thatbe supplierunable or choose not to putsell measuresrecently infinished placeproduct thatfrom arethis consistentpartner. We have instituted various strategies to mitigate the impact of the WRO, including transitioning raw materials and future production to our other manufacturing partners, although doing so may increase risks associated with our highreliance standards.on Wea alsolimited number of third party suppliers. These developments have subjected us, and may continue to evaluate our countries of production as part of our overall supply chain strategy. These supply chain decisions may subject usus, to additional costs and challenges, including supply chain disruption, and increased sourcing and logistics costs, which couldwe expect to adversely affect our business,net financialrevenues, conditiongross margin and resultsinventory levels in the second half of operations.2026.

Certain legacy trade restrictions related to the Xinjiang region of China could also impact our business. The U.S. Government has taken several steps to address forced labor concerns in the Xinjiang Uyghur Autonomous Region of China, including sanctions on specific entities and individuals; withhold release orders (“WROs”) issued by CBP that prohibit the entry of imports of certain items from Xinjiang; and the Uyghur Forced Labor Prevention Act, which imposes a rebuttable presumption against U.S. imports of any items from Xinjiang and specifically targets the cotton and apparel industry as high-priority sectors for enforcement. We do not intentionally source any products or materials from the Xinjiang region (either directly or indirectly through our supply chain) and we prohibit our suppliers and manufacturers from doing business with or sourcing from any company or entity located in China’s Xinjiang region. However, the presumptive ban on virtually all imports from that region has from time to time affected and could in the future affect the global sourcing and availability of raw materials, such as cotton and rayon, used in the manufacturing of certain of our products and/or lead to our products being held for inspection by CBP and delayed, which has occurred from time to time, or rejected for entry into the United States, which could unexpectedly affect our inventory levels, result in other supply chain disruptions, or cause us to be subject to penalties, fines or sanctions. Even if we were not subject to penalties, fines or sanctions, if products we source are linked in any way to the Xinjiang region, our reputation could be harmed. If our vendors are unable to obtain raw materials or finished goods from the countries where we or they wish to purchase them, either because of such regulatory changes or for any other reason, or if the cost of doing so should increase, or any new restrictions imposed on U.S. companies that do business in China or other changes that lead to restrictions on our ability to do business in China, including near-term changes in global trade policy and additional tariffs or future trade barriers our business, financial condition and results of operations could be adversely affected.

Opening Community Hubs also subjectsubjects us to costs and risks related to compliance with labor and employment laws. We may face significant exposure to changes in laws governing our relationships with our workforce, including wage and hour laws and regulations, fair labor standards, minimum wage requirements, overtime pay, unemployment tax rates, union protections, workers’ compensation rates, pension contributions, citizenship requirements and payroll taxes, which could cause our business, financial condition and results of operations to be adversely affected. These laws also change frequently, exist at federal, state, and local levels, and may be difficult to interpret and apply. There is also a risk of potential claims related to discrimination and harassment, health and safety, wage and hour laws, criminal activity, personal injury, and other claims, any of which could have an adverse effect on our business, financial condition and results of operations.

We currently rely on our sole fulfillment center in Goodyear, Arizona, which is leased by us and operated by a third-party logistics provider, for all of our product distribution. We also expect to open additional facilities in the future as our business expands. As we continue to add fulfillment capabilities, technology, warehouse capabilities and 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. Moreover, the expansion of fulfillment operations could result in significantly increased costs, expenses and/or shipping times, disruptions and complications related to inventory planning and product launch schedules, impeded customer service and reduced sales. The expansion of our fulfillment capacity from time to time has also put pressure on our managerial, financial, operational and other resources, as well as temporarily affected shipping times, caused shipping disruptions and resulted in increased costs. We cannot assure you that we will be able to locate additional 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.

Like other eCommerce companies, we (along with our supply chain partners and other third-party vendors) are vulnerable to hacking, malware, computer viruses, unauthorized access, phishing or social engineering attacks, ransomware and extortion-based attacks, credential stuffing attacks, denial-of-service attacks, bugs, misconfigurations, exploitation of software vulnerabilitiesvulnerabilities, AI-based attacks and other real or perceived cyberattacks. Additionally, our workforce predominantly remains in a hybrid work environment, which has heightened the risk of these potential vulnerabilities. Cyberattacks are expected to accelerate on a global basis in frequency and magnitude as threat actors are becoming increasingly sophisticated in using techniques and tools. 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, operational disruptions, or disruption of our ability to make financial reports and other public disclosures required of public companies. There can also be no assurance that our cybersecurity risk management program and processes, including our policies, controls or procedures, will be fully implemented, complied with or effective in protecting our IT Systems and Confidential Information.

An increasing number of the IT Systems upon which we rely offer artificial intelligence capabilities, including those based on machine learning and large language models. We currently use third-party artificial intelligence toolstools, including agentic AI, to aid with certain business purposes, including in the operation of our Goodyear, Arizona fulfillment center, marketing efforts, data summarization and interpretation, coding, market research, asset development, administrative tasks and customer support.

We expect that increased investment will be required in the future to continuously improve our use of artificial intelligence technologies. As with many technological innovations, there are significant risks involved in developing, maintaining and deploying these technologies and there can be no assurance that the usage ofof, or our investments inin, such technologies will always enhance our products or services or be beneficial to our business, including our efficiency or profitability. In particular, if the models underlying our artificial intelligence technologies are incorrectly designed or implemented; trained or reliant on incomplete, inadequate, inaccurate, biased or otherwise poor quality data, or on data to which we do not have sufficient rights or in relation to which we and/or the providers of such data have not implemented sufficient legal compliance measures; used without sufficient oversight and governance to ensure their responsible use; and/or adversely impacted by unforeseen defects, technical challenges, cybersecurity threats or material performance issues, the performance of our business, as well as our reputation could suffer or we could incur liability resulting from the violation of laws or contracts to which we are a party or civil claims. Further, use of artificial intelligence platforms by our team members, whether authorized or unauthorized, may increase the risk that our proprietary information will be unintentionally disclosed or undermine our claims to certain intellectual property.

Because we use artificial intelligence technologies licensed from third parties, our ability to continue to use such technologies at the scale we need may beis dependent on access to specific third-party software and infrastructure. We cannot control the availability or pricing of such third-party artificial intelligence technologies, especially in a highly competitive environment, and we may be unable to negotiate favorable economic terms with the applicable providers. If any such third-party artificial intelligence technologies become incompatible with our IT Systems or unavailable for use, or if the providers of such models unfavorably change the terms on which their artificial intelligence technologies are offered or terminate their relationship with us, our business will be harmed. In addition, to the extent any third-party artificial intelligence technologies are used as a hosted service, any disruption, outage, or loss of information through such hosted services could disrupt our operations or solutions, damage our reputation, cause a loss of confidence in our solutions, or result in legal claims or proceedings, for which we may be unable to recover damages from the affected provider.

We have obtained design patents in the United States and corresponding industrial design registrations in other countries on certain aspects of some of our product 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, fabricsfabric 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 business, financial condition and results of operations could be adversely affected.

We currently are the registrant of marks for our products in numerous jurisdictions and are the registrant of the internet domain name for the website wearfigs.com, as well as various related domain names. However, we have not registered our marks represented by our domain names in all major international jurisdictions. Domain names generally are regulated by internet regulatory bodies and may not be generally protectable as trademarks in and of themselves. As our business grows, we may incur material costs in connection with the registration, maintenance and protection of our marks. If we do not have or cannot obtain on reasonable terms the ability to use our marks in a particular country, or to use or register our domain name, we could be forced either to incur significant additional expenses to market our products within that country, including the development of a new brand and the creation of new promotional materials and packaging, or to elect not to sell products in that country. Either result could adversely affect our business, financial condition and results of operations.

The labeling, distribution, importation, marketing and sale of our products are subject to extensive regulation by various federal agencies, including the Federal Trade Commission, Consumer Product Safety Commission and state attorneys general in the United States, the Competition Bureau and Health Canada in Canada, as well as by various other federal, state, provincial, local and international regulatory authorities in the countries in which our products are distributed or sold. If we fail to comply with any of these regulations, we could become subject to enforcement actions or the imposition of significant penalties or claims, which could harm our results of operations or our ability to conduct our business. Certain laws, particularly relating to environmental, health and safety matters, may also impose liability without regard to fault or to the legality of the action at the time of occurrence. Any investigations or inquiries by governmental agenciesagencies, including as a result of the WRO against our Jordanian manufacturing partner, or otherwise, 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, difficulties in the marketing or sale of our products, the discontinuation of product sales, inventory write-offs, or increased donations, any of which could adversely affect our business, financial condition and results of operations.

Provisions in our amended and restated certificate of incorporation and our amended and restated bylaws may discourage, delay or prevent a merger, acquisition or other change in control of us or tender offer that stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares. These provisions could also limit the price that investors might be willing to pay in the future for shares of our Class A common stock, thereby depressing the market price of our Class A common stock. In addition, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management. Because our board of directors is responsible for appointing the members of our management team, these provisions could in turn affect any attempt by our stockholders to replace current members of our management team. AmongThese others,provisions, theseamong provisionsother include thatthings:

In August 2024, our board of directors authorized a share repurchase program to repurchase up to $50.0 million of our outstanding Class A common stock, with no expiration date. On February 27, 2025, our board of directors authorized an increase of $50.0 million into the share repurchase program, and on August 6, 2026, our board of directors authorized an additional increase of $100.0 million to the share repurchase program, bringing the total authorization for repurchases under the program to up to $100.0$200.0 million of our outstanding Class A common stock. As of the date hereof, we have approximately $43.2$119.2 million available for future repurchases of our Class A common stock under the share repurchase program.

At MarchJune 31,30, 2026, we had approximately 3.03.1 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 three and six months ended MarchJune 31,30, 2026, we had the following results compared to the comparable period in 2025:

◦Expanded our community of active customers by 12.2%13.2% from approximately 2.7 million at MarchJune 31,30, 2025 to approximately 3.03.1 million at MarchJune 31,30, 2026;

◦CashNet flowsrevenues increased from operating activities decreased from $9.2$152.6 million to $(3.2)$196.6 millionmillion, or 28.8%, in the three months ended MarchJune 31,30, 2026;2026, and ◦Free cash flow decreasedincreased from $7.9$277.5 million to $(5.6)$356.5 millionmillion, or 28.5%, in the threesix months ended MarchJune 31,30, 2026.2026;

We continue to monitor changes in policy impacting global trade, including tariffs, which have been dynamic, unpredictable and subject to ongoing modification. In February 2026, the United States Supreme Court ruled that the use of the International Emergency Economic Powers Act (“IEEPA”) to impose tariffs was not permitted, invalidating a significant portion of U.S. tariffs that had been in effect since April 2025. The Administration responded by invoking a 10%10.0% global tariff pursuant to Section 122 of the Trade Act of 1974 for(the 150“Trade days,Act”), effective on February 24, 20262026, andwhich scheduled to expireexpired on July 24, 2026. On July 23, 2026, unless extended by Congress. Thethe Administration alsoimposed expressednew antariffs intentionranging from 10.0%-12.5% pursuant to raiseSection such301 tariffof the Trade Act, effective July 24, 2026. These tariffs are intended to 15%, although no formal action implementing that increase has been issued. The Administration also initiated trade investigations that could result in additional future tariffs prior to or following the expiration ofreplace the Section 122 tariffs.tariffs and affect imports from approximately 60 countries and territories, including those where our suppliers are located. The ruling,ruling and the Administration’s subsequent actions,actions have created substantial uncertainty regarding the tariff environment, including with respect to (i) whether and to what extent refunds will be issued for tariffs previously collected under IEEPA, (ii) the scope and duration of the new tariffs imposed under Section 122301 and any new or higher tariffs that may be imposed under alternative mechanisms and (iiiii) the outcome of pending legal challenges to the Section 122 tariffs and the potential for further legal challenges to anythose, suchthe tariffs.Section We have applied for a refund of approximately $20 million of IEEPA301 tariffs paid by us, however the ultimate extent and timingany offuture such refunds remains uncertain.tariffs.

TheTariffs tariffs in place from April 2025 through the February 2026 Supreme Court decision under IEEPAhave increased our product costs, negatively impacting gross margin for the three months ended MarchJune 31,30, 2026. We have implemented, and plan to continue to implement as needed, various mitigation strategies, which have included, and may in the future again include, adjusting the countries from which we source our products and renegotiating terms with suppliers, but we cannot be certain how effective they will be over the long term. Without taking into account mitigation efforts and based on the information available to us today, we believe that tariffs will continue to negatively impact gross margin for 2026, although to a lesser extent than we previously disclosed in our 2025 Annual Report on Form 10-K. This estimate and actual impact may change materially as conditions evolve and new information becomes available.

Cost of goods sold consists principally of the cost of purchased merchandise and includes import duties, tariffs and other taxes, freight-in, defective merchandise returned by customers, inventory write-offs and other miscellaneous shrinkage. Our cost of goods sold has fluctuated and may continue to fluctuate with the cost of the raw materials used in our products and freight costs and the impact of changes to applicable import duties and tariffs.

Three Months Ended MarchJune 31,30, 2026 Compared to Three Months Ended MarchJune 31,30, 2025

(1)Includes stock-based compensation expense of $5.5$6.7 million and $7.2$7.6 million for the three months ended MarchJune 31,30, 2026 and 2025, respectively.

Net revenues increased by $35.0$44.0 million, or 28.0%,28.8%, for the three months ended MarchJune 31,30, 2026, compared to the prior year period. The increase in net revenues was primarily driven by an increase in orders from new and existing customers, and an increase inhigher AOV.

Cost of goods sold increaseddecreased by $11.2$1.6 million, or 27.6%,3.2%, for the three months ended MarchJune 31,30, 2026, compared to the prior year period. The increasedecrease in costscost of goods sold was primarily due to IEEPA tariff refunds, partially offset by higher unit sales and tariffs.

Gross profit increased by $23.8$45.6 million, or 28.2%,44.6%, for the three months ended MarchJune 31,30, 2026, compared to the prior year period. The increase in gross profit was primarily due to IEEPA tariff refunds, higher unit salessales, and positive impact from price increases, partially offset by tariffs.

Gross margin increased 0.18.2 percentage pointpoints for the three months ended MarchJune 31,30, 2026, compared to the prior year period. The increase in gross margin was primarily due to IEEPA tariff refunds, positive impactimpacts from price increases and ongoing efficiency efforts, largelypartially offset by higher tariffs and product mix shift.tariffs.

Operating expenses increased by $19.1$20.3 million, or 22.6%,21.9%, for the three months ended MarchJune 31,30, 2026, compared to the prior year period, driven by higher marketingselling expense, general and administrative expense, and sellingmarketing expense. As a percentage of net revenues, operating expenses decreased by 2.93.2 percentage points, primarily driven by leverage on higher net revenues in general and administrative expense, marketing expense and selling expense, partially offset by an increase in marketing expense.

Selling expense increased by $3.8$9.3 million, or 11.5%,26.9%, for the three months ended MarchJune 31,30, 2026, compared to the prior year period and, as a percentage of net revenues, decreased by 3.40.4 percentage points. The decrease in selling expense as a percentage of net revenues was primarily due to leverage on higher net revenues,revenues and favorable shipping rates, and lower fulfillment expense due to fulfillment center optimization.rates.

Marketing expense increased by $11.3$5.4 million, or 62.4%,23.2%, for the three months ended MarchJune 31,30, 2026, compared to the prior year period and, as a percentage of net revenues, increaseddecreased by 3.90.7 percentage points. The increasedecrease in marketing expense as a percentage of net revenues was primarily drivendue by our 2026 Winter Olympics campaign, partially offset byto leverage on higher net revenues.revenues and digital marketing efficiency.

General and administrative expense increased by $4.0$5.6 million, or 12.0%,16.2%, for the three months ended MarchJune 31,30, 2026, compared to the prior year period and, as a percentage of net revenues, decreased by 3.42.3 percentage points. The decrease in general and administrative expense as a percentage of net revenues was primarily due to leverage on higher net revenues and lower stock-based compensation expense, partially offset by increased investment in people, and higher depreciation and amortization expense.

Other income, net decreased for the three months ended MarchJune 31,30, 2026, compared to the prior year period, primarily due to foreign exchange loss, partially offset by an increase in interest income.loss.

Provision for income taxes decreasedincreased by $1.8$3.6 million, or 92.0%,72.4%, for the three months ended MarchJune 31,30, 2026, compared to the prior year period, primarily due to aan tax benefit related to stock-based compensationincrease in thepretax currentbook year. This tax benefit primarily resulted from higher stock price appreciation at the time of the award vesting.income.

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 MarchJune 31,30, 2026 and 2025, respectively, are presented in the following table:

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 12-month period divided by the current period active customers. Net revenues per active customer as of MarchJune 31,30, 2026 and 2025, respectively, are presented in the following table:

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 AOV 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 three and six months ended MarchJune 31,30, 2026 and 2025, respectively, are presented in the following table:

We calculate adjusted EBITDA as net income (loss) adjusted to exclude: other income, 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.disputes; and refunds recognized for IEEPA tariffs incurred on goods sold in the prior fiscal year. Adjusted EBITDA margin is calculated by dividing adjusted EBITDA by net revenues.

The following table reflects a reconciliation of adjusted EBITDA to net income (loss),income, the most directly comparable financial measure prepared in accordance with GAAP and presents adjusted EBITDA margin with net income (loss) margin, the most directly comparable financial measure prepared in accordance with GAAP:

(34)For the threesix months ended MarchJune 31,30, 2025, reflects $171,000 of stock-based compensation expense and payroll taxes inadvertently not reflected in our previously disclosed Adjusted EBITDA results for the samethree period.months ended March 31, 2025.

(45)Net income (loss) margin represents net income (loss) as a percentage of net revenues.