Q2 2021 Figs Inc Earnings Call
Good afternoon, and thank you for standing by welcome to the fixed second quarter 2021 earnings conference call at this time.
Our disciplines are in a listen only mode. After the speaker's presentation. There will be a question and answer session and instructions will follow at that time. Please be advised that rep production of this call in whole or in part is not permitted without written authorization from figs and as a reminder, this call is being recorded.
Today's call will be co chief executive officers have there Hassan and treating a spear and chief Financial Officer, Jeff Lawrence.
So I hand, the conference over to Jeff Lawrence. Please go ahead.
Thanks, Gino and good afternoon, everyone. Thank you for joining today's call to discuss our second quarter results, which we released this afternoon and can be found on our website at IR Dot where fags dot com.
With me today on the call are the co chief executive officers of Fig, Heather happen entering a sphere.
I want to remind everyone that management's remarks on this call may contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095 that are based on current management expectations.
These may include without limitation predictions expectations targets, our estimates, including regarding our anticipated financial performance and actual results could differ materially from those mentioned.
These forward looking statements also involve substantial risks and uncertainties some of which may be outside of our control that could cause actual results to differ materially from those expressed in or implied by such statements.
These factors and uncertainties among others are discussed in our filings with the SEC.
We encourage you to review these filings for a discussion of these factors, including our quarterly report on Form 10-Q filed today and our earnings release furnished today, both of which are also available on the investor portion of our website at IR Dot where fags dotcom.
Should not place undue reliance on these forward looking statements, which speak only as of today and we undertake no obligation to update or revise them for any new information.
This call will also contain certain non-GAAP financial measures, including net income as adjusted diluted EPS as adjusted adjusted EBITA and adjusted EBITDA margin, which we believe are useful supplemental measures that assists in evaluating our ability to generate earnings provide consistency and comparability with our.
Past performance and facilitate period to period comparison of our core operating results and the results of peer companies.
This call will also discuss key performance indicators, such as active customers and average order value, which we also believe are useful for understanding our business and performance.
Reconciliations of these non-GAAP measures to the most comparable GAAP measures and definitions of these indicators are included in our quarterly report on Form 10-Q and in our earnings release.
Lastly, information discussed on this call concerning our industry competitive position in the markets in which we compete.
In which we operate is based on information from third party sources and management estimates.
Estimates may also be derived from third party sources as well as internal research and are based on our knowledge of our industry and assumptions, we believe to be reasonable.
These assumptions are also subject to uncertainty and risks, which could cause results to differ materially from those expressed in the estimates.
Now I would like to turn the call over to Heather happen co Chief Executive officer of pigs.
Thank you, Jeff and thank you all for joining our first earnings call.
We're extremely pleased to have delivered such strong financial performance in our first quarter as a public company.
On a successful IPO.
From starting out right.
Selling slabs out of the back of my car to now reaching quarterly revenue of over $100 million and $1.6 million active customers I'm, So thankful to our incredible community of health care professionals and the entire <unk> team.
And we feel like we're just getting started.
We begin every dance things with emission of celebrating empowering and serving awesome humans.
It's the name we used for health care professionals, because that's what they are.
For awesome humans, there are no time us nobody matches for better luck next times.
There are people, who give everything ive themselves to cheering diseases saving lives and providing comfort.
And we need more of them because humanity cannot survive without them and because they enable us to live in a world where innovation is truly possible. So our duty at Fig is to do such a great job and celebrating empowering and serving health care professionals that we inspire the next generation Judy come on.
It's important to remember just how many lives Biggs can impact the health care apparel industries estimated to be $12 billion in the United States and $79 billion globally.
And the health care sector is our largest and fastest growing job segment in the United States employing over 20 million health care professionals in 2020.
So the opportunity for Fig is massive and we succeeded by approaching it differently than others, we focus in three primary areas.
Changing the product <unk>.
<unk>, the distribution model and creating a community.
On the product side, we did away with the typical typical commoditize and uncomfortable scrubbed that health care professionals previously had to wear.
No more boxes V neck tops and drawstring pants, instead, we've redefined the industry by making exceptional products that are comfortable technical functional and stylish.
We do this through a combination of materials science fashion and deep knowledge of what health care professionals truly need and want and.
Our products span from head to toe both on shifting off shift, we're known for making intensely precise colors and we've created the concept of color jobs and generally a new color standards for the industry.
For example, our signature best selling colored graphite is now a hospital standard color <unk>.
And our proprietary refined X fabric embodies our commitment to technical comfort.
The concept that health care professionals can have access to products that are both technical and comfortable.
Product innovation is the lifeblood of fish and that will never change.
We also ran imagine the distribution model, so that health care professionals, working 12, or even 16 hours a day no longer need to go to a retail store to dig through racks of scribes located right next to bed Tan and knee braces.
What they deserve is a seamless direct to consumer experience that is digitally native and specifically cater to their unique needs.
That's why we continue to invest to make the experience as customized and convenient as possible.
Finally, we've created a community around the profession.
Our $1.6 million active customers from a deep emotional connection with our biggest brand because we interact with them in an authentic and personalized way.
And because we are so devoted to the profession.
As an example, we launched you're awesome humans make history campaign as part of our IPO.
This campaign, which we're continuing to run throughout the year showcases the extraordinary achievements of our.
Humans campaigns like this not only help build our brand and accelerate our product launches. They also meet our mission by sharing the world are awesome humans incredible stories, inspiring next generation to become them.
Because this is the reason why we wake up every single day.
So with that I'd like to turn the call over to Trina My co founder and co CEO to provide an overview of Q2 and more about where we're heading.
Other.
Before I get started I just want to reiterate what Heather said about our OSM human.
They are why we show up and do what we do every day, we are so inspired by them and we hope to make them proud.
In terms of Q2, Jeff will walk you through our financial results in more detail shortly.
But I'd like to give you a high level overview first as Heather said Q2 was a very strong quarter for us, reflecting the strength of our brand and the uniqueness of our business model, we had our first ever $100 million quarter with net revenues totaling $101 million representing growth of 58 <unk>.
We saw strong performance across the board both in the U S and internationally International grew to seven 9% of total net revenue compared to two 9% in Q2 of 2020.
Our total active customer base reached one 6 million deeply loyal often human and it's important to remember that we see a compounding effect as new health care professionals joined the fixed community.
This is a replenishment driven business with health care professionals constantly needing to replace their uniforms. So when we add new customers to our community there are likely to stay with us year after year throughout their careers as a data point on that in 2020, 62% of Barnett revenue came from repeat purchasers and we see that.
They become increasingly loyal over time with net sales per active customer continuing to grow.
But new customers don't only lead to retention and increase loyalty. We also see a multiplier effect from them because of the unique way that health care professionals interact with one another often in densely packed health care institution word of mouth leads to even more people wanting to purchase fix.
This kind of organic customer acquisition is how we've been able to maintain such an efficient marketing spend even as we've grown so rapidly.
Well, while our growth has been rapid we built a unique model to drive sustainable growth.
Unlike other health care apparel companies, we don't have to pay fees to license our brand from someone else and we don't have to give away a share of our revenue in a third party retailers. As a result, we are structurally advantaged gross margin, which reached 73, 3% in Q2, and we grew adjusted EBITDA to $26.8 million in Q2.
For an adjusted EBITDA margin of 26, 5%.
Part of what drove our Q2 performance, where the many color and style launches and other campaigns that we rolled out during the quarter something that is unique to fig. Our unique merchandising strategy is anchored by our 13 core scrubber styles health care professionals come back all year round to buy our core products and when we launch a limited edition colors and.
Miles just about weekly this newness drives excitement and traffic to our website.
In Q2, we launched limited edition colors pop Red truck Pink slate Jade Hydro green shocking pink that drove both new and repeat customers to our website we.
We launched the kits so that our Austin humans can get fully outfit is in one simple purchase rather than having to buy each piece individually.
We rolled out our high waisted, Zamora and yoga pants and added those styles are core because they became our best selling pants, and we look to build franchises around our best selling styles.
In line with our commitment to innovation, we launched our Fi on light fabrication, our new ultra lightweight and sustainable fabrication, which is made with recycled poly we.
We made countless approved improvements large and small to our e-commerce platform to make the experience even better.
Added 110000, new followers across all of our social platforms, and we celebrate a nurse's week with an integrated and multi dimensional campaign that resulted in our best social engagement ever generated sales I blew away our expectations and that was instrumental to our revenue growth in Q2.
Also Heather talked about the OSM humans make history campaign that we launched as part of our IPO. We're so proud of this campaign because its share of the extraordinary achievements and stories of our OSM human and hopefully inspire the next generation to become them.
Looking forward, we will continue to make investments throughout our business from product E. Commerce data science technology supply chain people and more to keep growing as the scaling sustainably most of our focus is in four key growth areas.
First we're focused on continuing to grow awareness of the things brand is we believe there's a significant opportunity to attract new customers to our community as we mentioned before more customers in the fixed ecosystem has a compounding effect as those customers interact with other health care professionals and densely packed environment. So we plan to invest heavily in connecting with the health care community.
To increase our penetration of this large and growing market SEC.
We're continuing to innovate on product and build out our lifestyle product offerings. So that we're truly meeting all of our health care professionals need to work at work from work on shift off chef head to tell this is what our health care professionals want and also expand our Tam beyond the massive $79 billion.
Global health care apparel market that already exists.
Third international remains a big opportunity for us as I mentioned earlier, we grew international from two 9% of net revenue a year ago to seven 9% in Q2, and we're still at only three markets outside of the U S, Canada, UK and Australia with the total addressable market expected to grow globally from an estimated.
67 billion in 2020 to 86 billion in 2025, the international opportunity is an important one for US our mission is to celebrate empower and serve as many health care professionals as we can this means making <unk> a truly global brand.
Finally, we're going to going to continue to leverage our unique advantages from a data perspective to bring new health care professionals into our community and ensure they stay with us for the entirety of their careers by having a direct relationship with our customers. We have access to hundreds of data attributes associated with millions of customer account.
This enables us to improve our business in many ways, because we know who our customers are at a granular level, we're able to interact and engage with them more meaningful individualized ways and by understanding their buying patterns, we're able to make increasingly accurate predictions about the products. They are likely to buy how often theyre likely to buy them and the quantities are likely.
Vitamin so by continuing to leverage our data capabilities, we can more easily acquire new customers increase our retention and operate even more effectively.
Of course, the best news for bags is that despite everything we've achieved so far and how strong our brand has become we still only have about a 3% market share in the United States. So the opportunity is massive and we remain confident that we have the team and resources in place to achieve over $1 billion in net revenue by 20.
25, and we're committed to making the investments investments needed to achieve this goal with that I will turn the call over to Jack to provide additional detail on our Q2 results.
Thanks, Tina and Heather and good afternoon, everyone.
I wanted to start by saying how honored I am to be part of such an amazing company and team. We have so much opportunity in front of us and I know, we will continue to do great things. We are truly just getting started.
With that said we are excited to share with you the results of our second quarter, So let's dive right in.
Net revenues for Q2 were up 57, 6% to $101.1 million driven primarily by strong order growth from both new and existing customers.
We also saw a 17% year over year increase in average order value or <unk> to a $103, which was driven by a favorable shift in product mix and an increase in units per transaction, partially driven by the positive response to our launch of bundled item kits.
We also noted a better than anticipated response from the health care community to our nurses week campaign quite simply the results from this campaign, our largest of the year were simply outstanding.
Gross margin for Q2 increased 280 basis points year over year to 73, 3% for the quarter. This improvement was primarily driven by a shift in sales mix away from lower margin products and a decrease in airfreight expenses as we use more airfreight in Q2.2020 due to the need to bring in extra inventory.
Foster to meet incremental demand.
Selling expense for Q2 was $19.2 million or 19% of net revenues, which was a 1.1 percentage point improvement compared to a year ago. This improvement was primarily driven by leverage within shooting driven by the increase in our average order value.
Marketing expense for Q2 was $15.5 million or 15, 3% of net revenues up one six percentage points compared to a year ago.
Marketing expense increased as a result of greater investment in performance marketing. We are proud of our continued ability to efficiently attract new customers to our brand.
G&A increased to $71.5 million in Q2 compared to a year ago. This increase was primarily driven by higher stock based compensation in connection with our IPO. We also invested more in personnel and hired key team members to bolster our capabilities as we move forward on our strategic initiatives.
Our tax provision was $8.5 million for the quarter and was up from the prior year.
The provision was unfavorably impacted by the increased stock based compensation expense associated with the IPO.
Net income and diluted earnings per share were both down year over year due to the aforementioned stock based compensation expenses in connection with our IPO and an increase in taxes offset in part by our outstanding operational results.
Diluted EPS as adjusted was eight <unk> in Q2 compared to nine cents in the prior year Duluth.
Diluted EPS as adjusted includes adjustment for IPO transaction costs expenses related to non ordinary course disputes and stock based compensation expenses in connection with our IPO as well as income tax impacts.
Finally, our adjusted EBITDA for Q2 was $26.8 million up 54, 5% over the prior year. The adjusted EBITDA margin was 26, 5%. We are very proud of our business and financial model and our ability to produce real and substantial cash flows.
<unk>.
We believe that these non-GAAP metrics are important supplemental measures for understanding our results and we again refer you to our 10-Q and our earnings release issued earlier today for the required disclosures and reconciliations.
Moving on to the balance sheet, our cash position at quarter end was strong with total cash and cash equivalents of $164 million, we have the capital to continue to invest and grow this amazing brand the right way.
Before we get to guidance, we thought we'd share a bit about our investment philosophy here at figs.
We are building this company for the long term and with the health care community in mind, we do that by actively building capabilities and the things that matter the most to our brand and our Michigan.
We're also mindful of the way we built those capabilities for example, we want to own more of what's truly strategic while outsourcing more of other areas and maybe most importantly, we will invest responsibly appropriate levels of return are the focus of everything that we do here at big and that discipline will continue into the future.
Sure.
While we acknowledge that we have built market leading capabilities already we will invest to stay ahead.
With that as a backdrop and again, recognizing the large and growing $79 billion global health care apparel market.
The following investment areas going forward.
First you'll see continued deep investment in innovation, particularly around our products as mentioned earlier on this call. We launched <unk> in light, our new ultra lightweight and sustainable fabrication, which is made with recycled poly.
We will continue to bring innovation first approach to all new development.
You'll also see smart investments in marketing, both performance and brand marketing.
We want to continue to drive brand awareness and convert more of those aware of the fixed brand into active customers. Once we acquire them and bring them into our funnel, we endeavor to create loyal brand fans, who not only replenished their shrubs frequently but also explore our ever growing set of lifestyle offerings. It is a flywheel. We are incredibly proud of and one that we believe will flow.
Even more with continued investment.
Of course, you can't do all of this without investment and execution and the data and technology space. While we have already built some really dynamic and effective tools to help us analyze act and drive more topline growth. We know there's so much more we can continue to do over time in this important area and we are committed to doing just that.
Finally people since our founding we've attracted retained and motivated a group of leaders and team members, who are simply the best human capital will remain a priority for US we will continue to ensure we have the right folks at the table to help us achieve our long term goals.
We believe we have earned our competitive mode, but we're also big believers and investing to stay ahead, and we will continue to invest to win in the long run.
Now, let's move on to guidance, we are long term focused here at figs.
As a result, the financial guidance, we shared with you all will generally be longer term in nature of course dynamic businesses like ours will have some inevitable variability in certain periods, particularly as we ramp investments, but we will remain focused on building the brand the right way and aim to grow both revenues and profit responsibly over the long term.
The metrics you will hear US talk about most often are as follows net revenues gross.
Gross margin and adjusted EBITDA you.
You will also hear us talk about kpis, such as active customers and average order value.
We believe these measures to be very useful in understanding our business and our performance and that is why you will hear us speak to them often.
Having said that I will start with reiterating what Trina just spoke about a minute ago. We aim to be a billion dollar plus net revenue global brand in 2025, we are energized and excited by the challenge and are working hard every day to make it a reality.
For full year 2021, specifically, we expect to earn net revenues of approximately $395 million, we will not be providing quarterly net revenue guidance. We currently anticipate providing 2020 to annual net revenue guidance early next year.
Before moving away from revenues I would like to remind everyone that we had a $4.2 million related party sale in Q3 of 2020 that we do not anticipate recurring in 2021. This will affect comparability between the back half of 'twenty, one and 2020.
One more callout relating to 2021, we currently expect that our effective tax rate for quarters, three and four will be approximately 33% to 37%.
Let's now transition to our margin expectations going forward.
As you saw in the first half of 2021, our financial model is capable of producing outstanding growth.
We also note that the first half of 2021 did not have many investments and expenses that we expect to incur in the back half of 2021 for example, the significant costs of being a public company.
Expenses relating to human capital are also expected to be higher in the back half of 2021, as we continued to build our teams and capabilities. Finally, we shifted certain marketing spend from the first half, which we currently plan to accelerate in the back half of 2021.
In addition to these callouts, we remain deeply engaged in ensuring that our supply chain continues to operate efficiently.
While our operations team has done a wonderful job of managing the business to date, we acknowledge the dynamic and shifting macro supply chain challenges being experienced by almost all apparel companies as a result of the ongoing COVID-19, pandemic, particularly those who have supply chains in Asia.
As a reminder, we are manufacturing partners across Asia, and South America and have exposure in countries, such as Vietnam, and Sri Lanka, which are experiencing a resurgence in COVID-19 due to the Delta variant.
As a result, we currently expect that we would experience downward pressure on gross margin. If for example, we need to increase the air freighting of products into the United States to ensure uninterrupted supply of the products, we know that our customers love.
We are currently unable to predict with certainty how long these pressures may persist or the possible future impact on margins we.
We do hope that this color both on net revenue comparability and possible expense movements is helpful to the investing community.
Let's now move to longer term margin guidance, we believe that we can achieve an annual gross margins of 70% or more over the next three fiscal years and annual adjusted EBITDA margins of 20% or more over that same time period, our business and financial models, our strong and resilient.
And we believe we are capable of achieving these outstanding levels of profitability.
We believe that this guidance that we're sharing today should provide the financial community with a very good sense on where we aim to go financially as a brand and we will share more as appropriate in the future.
Once again, we are very pleased with our financial results in Q2, and with that we will turn it back to the operator to open it up for questions.
Alright, so as a reminder to ask a question you will need to press star one on your telephone please.
Limit yourself to one question. If you have additional questions you can jump back into Q2 is all your question press the pound key please standby, while we compile the Q&A roster.
First question comes from the line of Adrian <unk> from Barclays. Your line is now open.
Oh, good afternoon, and congratulations on the IPO in your first quarter out here as a public company and the successes there.
How do I have a question for each of you. So Heather I wanted to know kind of.
How much newness innovation it has been put into the system.
This year versus last year in particular for the back half of the year and new product launches anything else that is on the on.
On the deck and then Trina can you talk about pricing strategy.
Is.
Or are you expected to kind of take normal.
Price increases on an annual basis, how do you think about that in a world of potential inflation and then for Jeff really focusing on that average unit cost trend. It sounds like you had net benefits this quarter because more air should we expect or sorry, less air should we expect that less air relative to last year or going forward.
Into the third quarter.
And is that offset by kind of breakpoint pricing, meaning volumes are going up.
Are you.
Thank you so much Adrian this is Gina.
In terms of our pricing strategy, we can start there.
We really feel like our products are priced accurately we use a lot of our data analytics to ensure that where we price. It really makes sense for our health care community.
You know, we're not necessarily going to move our pricing because of any inflation that the environment is in and I think we're constantly analyzing this from a data perspective to ensure that our pricing makes sense for this community I would remind you also that our products are extraordinarily accessible and affordable.
It's truly unique two thirds of our customers make less than $100000 and so it is it is our goal to ensure that our products are not only the highest quality.
<unk> in the industry, but also that they are affordable and accessible for our community.
Or do you want to talk about our newness strategy sure.
In terms of product innovation right. So things were centered around delivering functions for the health care professionals at all times.
We are going to continue to invest in materials science, we're going to continue to invest in innovation around product.
Probably beyond anything that anybody has ever seen.
And I'm Super excited about and the team is very excited about.
Adrian it's Geoff on your on your third part of Europe. Your one question so kudos to you.
As far as gross margin again, we're guiding longer term their fiscal.
Fiscal year 'twenty two to 'twenty four.
You obviously saw the results we put up in Q2, well well north of that when you look at Airfreight Q2 to Q2 last year Q2 last year was right at the beginning of the pandemic, we were growing like Crazy as we did again this quarter and so we did have more air freight last year Q2 than we had Q2 this year.
So again, we're not guiding specifically a back half of this year on margins, but what I would tell you is we've built a very robust and diversified supply chain network that not only has been able to keep up with our with our incredible rate of growth.
But we believe has allowed us to risk manage pretty effectively as well I think there are a lot of apparel companies out there that are worried about getting their products made as we sit here today, we're really not worried about that we believe we have the right partners in the right countries from a diversification perspective that we don't have the worry that I think a lot of other apparel manufacturers have.
I do think what we're concerned about and I'll refer you back to my prepared remarks, we wanted to make sure that we can get them into the United States. Obviously, the COVID-19 pandemic continues to have.
Sure.
A lot of trouble in a lot of challenge has been very dynamic and so as we look to the back half of this year. We don't know for sure which is why we didn't guide to it specifically, but we could see downward pressure on gross margin if we choose to airfreight in the products that we know our customers love. So the good news for US all of US will get to talk to you in another 90 days once Q3 shake.
But.
But I think really from a from a positive perspective, we believe we have the right supply chain partners in place. We think we're risk diversified enough. It's just about getting into the United States and that will come potentially with an extra cost that we are more than willing to make for our health care community.
Totally makes sense best of luck.
Thanks Adrian.
Next question comes from the line of Triple from Guggenheim Securities. Your line is now open.
Hi, congratulations.
Great quarter, congratulations on the IPO.
I'm going to try and sneak into Jeff I'm, sorry, I can't can't help myself, but.
Just wondering with the 17% increase in <unk>.
Is that something that you expect to continue in coming quarters and in years I don't know if you could talk about that longer term and I guess the second quick question is I think you mentioned a shift of marketing spend out of the first half and the second I was wondering if you can just quantify that for us. Please.
Yeah Bob.
Really appreciate you being on the call today, So <unk> first.
We're not we're not guiding specifically as you can see over the last year and a half it kind of slowly climb to hill, two or $100.100 million in Q2 of 2020, so part of that year over year was we did have we did have more masks, which are obviously lower lower price point, though and so theres some of that in there.
There, but we've also been able to really use the data and technology investments that we've made over the years to be smart about things like pricing to be smart about getting our health care professionals to maybe add one more thing to their basket that they need for when they go back on shifts for a midnight shifts. So so we're being smart about it I think we are bill.
<unk> <unk>, the right way with kind of smart increases to <unk> I think as <unk> mentioned earlier.
We try to remain really disciplined around taking price just for price steak right. That's not who we are we want to make sure that the value of the products really shine through again to our health care community. They deserve it our products as you know very accessible price points, but outstanding outstanding value. So.
We look at that.
Going forward again, not guiding specifically.
But I'll go back to one of the things Heather said, we have this layering system that we've innovated around and we continue to add lifestyle products that are just amazing. So I think theres opportunity there we're not guidance specifically.
But we're proud of what we've been able to put up so far and we'll continue to work at it hard Bob the second the second part of your question again was around what.
I think you said that you shifted some marketing spend out of the first half into the second half I was just wondering if you could quantify what that was a dollar number.
Yeah. So that was that was really just brand brand marketing, we're not putting a dollar amount to it.
We got a lot of <unk>.
Good an awesome brand exposure as part of our IPO that we didn't have to pay for.
And we're just really excited about the promotions.
I.
And that really promotion, but the brand activity with our through social and through our community that we have for the back half of the year. So we're going to lean into that a little bit in the back half of 2021, So youll see that.
Likely go up a little bit, but again for competitive reasons. We obviously can't talk about what that is but again, we'll work, we'll invest that responsibly and we feel good about where we're going.
Thanks, Jeff.
Thanks, Bob.
Next question comes from the line of Ed <unk> from Keybanc. Your line is now open.
Thanks for taking our questions and congrats on the quarter and on the IPO process. Just a quick one for me I guess first of all related to marketing and we've heard a lot of buzz about IBM and maybe how it's changing how people market as it relates to some of these privacy issues I guess any any changes youre seeing in your marketing effectiveness.
And then as a follow up it seems like you had a lot of compelling product introduction during the quarter.
Noted like compression socs.
Some of the unrest Grubbs I guess, how would you characterize some of these newer products and how they're maybe positively impacting the business. Thanks.
Sure. Thanks, Ed.
So first if you look at the full picture of what.
What we're doing in terms of our marketing standpoint, our marketing efficiency is really best in class and I think we are light years ahead of other digitally native direct to consumer companies on this front.
Marketing as a percent of sales.
15% for the quarter.
And you think back over the past eight years since we started the business no one thought a 100% digital e-commerce business could have that level of profitability like ours and spent only 15% are marketing while growing 58% in a quarter.
So why are we able to do that I think it's because we have structural advantages built around the word of mouth dynamics. The replenishment dynamics in this business, where we don't have to rely as much on performance marketing to be successful and so you know I think what you've heard around Iot iOS and privacy issues or Facebook algorithm is changing we're not.
Really impacted like other companies on that front. If you think about word of mouth for instance, health care professionals as I discussed you know they work in densely populated health care institutions are interacting with each other all the time in the break room in the coffee shop in the lobby and the hallway in between patient visits and they were looking they were looking at what the Raring and that's it.
Essentially free it's like a walking Billboard no marketing is really necessary for that and on the retention side of costs far less to retain a customer than to acquire one and where our retention business.
Over 60% of our business in 2020.
<unk> was from repeat purchasers. So as we scale, we will see more of our purchases come from repeat purchasers and that is something that we are excited to see over time.
And I think.
That's I think kind of how we think about the marketing side and the marketing effectiveness and to Jeff's point about the brand shift right I think where we're focused is on LTV driving community engagement, what we see from that is that as our LTV.
As we make these investments our LTV goes up so you might see some investments on the marketing side that are not going to pay off today.
And that's you know that's okay, right youre going to see that over time, as we shift to really not focusing as much on that immediate gratification or that direct response and really make those LTV focused investments.
And on the <unk>.
Product and introduction front.
Light you saw that with our new fabrication.
Really focus on sustainability Super lightweight material.
We saw an amazing amazing response from that.
Colors, we own color in this industry and you saw a number of color launches that were extraordinarily successful around nurse's week two in particular.
With.
With pop Rad in chalk tank.
Youre going to see.
This strategy around we launched we launched new styles, our health care professionals are waiting to see what we're launching next it sells out within a matter of hours or days or weeks and that's a really important part of our business.
Thanks, so much.
The next question comes from the line of Lorraine Hutchinson from Bank of America. Your line is now open.
Thanks, a lot good afternoon.
Jeff I just wanted to follow up on that.
The sourcing.
Question from earlier it sounds like you're comfortable that you will get the product you need but is there any way you could just kind of bracket the range of outcomes for the gross margin pressure in the back half.
Yeah, It's a great question and listen as much as we'd love to do it. It is just so dynamic and uncertain right now as we look to the back half of this year as you can imagine Lorraine.
What I do know is that for.
For a very long time, we have been able to produce.
Gross margins that are fundamentally structurally advantage right.
The right model for this community of direct to consumer model that is just run really really well and efficiently and so.
Due in part obviously of the robust and sophisticated supply chain that we built.
Among many facilities in many countries. So we'd love to give you a number we really wanted to give you a number but it is just so dynamic and shifting that we gave you a number we fear that it would be wrong. So and part of this is it also depends on how this does play out over the next 30.90 180 days. So I think the important part to note here is we're going to we're going to remain.
Nimble, we're going to continue to lean on our best in class manufacturing partners and network that we've built and we're confident that yes, we will get the product as we sit here today.
It's really about at least again as we sit here today and assess it it's really about just getting it into the United States and if we need to make that investment again.
To bring in more air and obviously that would have a downward pressure for some period of time on gross margin, we will absolutely do that and we will do that gladly because we know that the long term profile of financials doesn't really change once we get past the other side of this pandemic.
Thank you.
Thank you so much.
Next question comes from the line of Erinn Murphy from Piper Sandler Your line is now open.
Great. Thanks, good afternoon, and congratulations on a successful IPO.
GAAP Trina I wanted to follow up with you on the color dropped performance for the quarter could you just share kind of what.
Excuse me how many you launched this time last year and do you think it helped to drive repeat customers or did it just to kind of add another.
Purchase for existing customer or excuse me, new customers or existing and then Jeff just a clarification on the guidance of the 395 for the year would imply a low 20% revenue growth in the back half.
Below the mid 30% run rate and our long term model. So my question is is the 10 percentage point Delta. There is that just related to lapping that third party related sale from last year and then if so is there one quarter that's more impacted as it moved across the back half just help us kind of think about that that shift. Thank you.
Sure.
Thank you Aaron it's great to speak with you again from a color drop perspective, we launched a similar amount of colors in Q2.2021, as we launch in Q2.2020.
And they were extraordinarily successful this year, we're super excited to see the engagement around our color launches and I think you know.
In terms of repeat versus new it's a really exciting thing that we see yes, when we dropped a new color are our customer.
Customers that are already in our community are super excited they are they are the ones that know about it but on those days of launch we see a significant percent of our net revenue actually be being new customers and I think that's where you see that word of mouth dynamic where you know you're meeting the break room or fixed just launched shocking pink and hydro Green did you see that Oh, no I didn't.
How 'bout, though.
Our website, where were fixed dot com and check it out so we're super encouraged by that and it's very much the flywheel effect that you see in our business, where not only do these drops bring excitement and newness to our community, but also drive new people to try us out.
Hey, Aaron it's Geoff on your question on the net revenue guidance for 2021.
<unk> hundred 95 net revenues is the number.
And again long term, we have a goal of being a $1 billion plus net revenue brand in 2025 related party sale that I noted earlier did occur in Q3 of 2020. So as you think about potentially how how you might want to think about that hopefully that's helpful. I think also the guidance that we're giving you. The 395 is one we're comfortable with today, but it is.
Also acknowledges just the challenges generally again in supply chain and generally obviously, we always have an opportunity to outperform the guidance that we're comfortable giving you with today and we will work really hard to try to do all that but 395 net revenues is the number that we're comfortable with today, that's a 50% increase over 2020.
And again you know.
We're not just about revenue growth were about profitable revenue growth. So again, all those things kind of kind of put together gets us real comfortable with that number for today.
And the one thing I would add to just to what Jeff said I think you know.
If you look at the full picture.
Our experienced very steep growth, we increased our net revenue 58% year over year. If you look at the first half of the year Theres always going to be some bumping is around quarters, but we really look for look at longer period of times. If you look at the first half of 2020 versus the first half of 2021, we grew net revenues by almost 100% and you know as we mentioned in the.
The prepared remarks, we see ourselves as having at least $1 billion in net revenue by 2025.
And so we're super encouraged by the future long term prospects of this business.
Thank you both.
Next question comes from line of Brian Nagel from Oppenheimer. Your line is now open.
Hi, good morning, good afternoon.
Congratulations on a nice quarter.
Yeah.
Sure.
Sure.
We pushed off interest we talked a lot about the new product launches and the colors.
Just the margin profile change with new product launches or is it basically the same as what we're looking at.
Okay.
With respect to the supply chain.
This is just one point of clarification you talked about.
Okay.
It reflects a lot of them.
Sure.
Good questions.
In normal times.
42 years. So this will just really be an extraordinary base.
Yeah, Brian Thanks.
I'll take that I'll take the second part of that first just around air freight.
We are very well healed and sophisticated inventory planning capabilities.
And in normal times Airfreight Airfreight is something that that's more of an exception to the rule because normally youre able to plan effectively you put it on a boat and with the lack of variability that we've seen you generally get it in time, you don't have to worry about it obviously COVID-19 is up ended that entire that entire system. So.
Going forward on the other side of the pandemic again, given our inventory planning capabilities. We have today continued investments that we will do there.
Now this is largely going to be.
Ocean.
In the out years I will also tell you, though that if we get incremental demand that we didn't forecast. If we're launching injection color that we're really excited about those might be decisions, where where we at least consider air freighting kind of on the other side of the pandemic on the.
The product launches and gross margin kind of by product launches like the short answer is bigger than a bread basket. They have similar margin profiles you got to remember our underlying.
<unk> on X fabrication it makes up the vast majority of both our core and our injection styles. So we really get the scaling effects, there and that really does kind of kind of bleed through to to having a similar margin profile.
I appreciate all the color congrats again, thank you.
Thanks, Brian.
Next question comes from the line of John Kernan from Cowen and company. Your line is now open.
Hi, All this is John Cardoso on for John Kernan, Congrats again on a great quarter coming out of the IPO and thanks for taking my questions.
So I guess the first question I have is I guess, how is the competitive environment change from I guess when the pandemic started to now as you've seen kind of rising brand awareness and kind of further established yourselves.
As a significant player in the market and I'll have a follow up after that as well.
Sure so from a competitive standpoint, the environment is very similar actually to well we've seen.
Since we started I think there's really two types of competitors right. There's the old school players that where theres two types actually there is the people that make product companies that make products and they're really licensing its name from another type company and then they sell it to.
Companies that sell the product retailers across the country that then sell it to the end customer and so in that outdated model of the companies that are selling their product to the retailer. They don't really understand the customer. They don't have any data on the customer they don't even know their name and then the retailers and selling it to the to the consumer these are stores in strip malls and the ottaway locations.
That close at five P M. As a health care professional that oftentimes is working 12 hour 16 hour shifts you get off shifts at seven P. M. It's very difficult.
To travel to some out of the way store to get your scribes. So that's the way the industry existed for the last 100 years prior to us disrupting it I think newer companies have come on since we started off for us in.
<unk> had tried to essentially they tried to kind of replicate what we've done and I think what we've seen is that it's really really really hard to replicate we've built the level of customer trust with our community.
That has taken about a decade to build them in.
And brands are harder and harder to build I think over the last 10 years. It was hard to build the brand over the next 10 years, it's going to be even harder and customers are smart health care professionals are even smarter and they want that authentic connection with a brand that stands for something that they can stand behind and so we're going to continue to show up for our health care professionals.
And do things differently and be there as they actually are on the Frontlines. The right now and our job is to support them in every way we can.
Okay understood I.
I guess, just one quick follow up.
Comment kind of on current customer trends.
<unk> mix of your marketing efforts and kind of how that's flowed through to the customer acquisition costs and about the intersection of that.
And yes, I mean as I discussed I think the.
We've been.
We operate differently right I think word of mouth.
And it has driven a lot of our business and that is something that we don't pay for we have best in class.
<unk> metrics, we have best in class CAC and that you don't see really any digitally native direct to consumer company.
It is a function of how are our community is interacting with each other it's also a function of how strong the replenishment dynamics and retention dynamics are in our business that people come to us and they love our product and they come back on average every 98 days to replenish their uniform or coming back over and over and over again to replenish their uniform and so we.
You've seen over 60% of our net revenue was coming from repeat purchasers and we're going to see that continue to increase over time I think that is the what is.
Driving that that marketing efficiency that is truly unique.
To us ethics.
Great. Thanks, again, heavier Trina and Jeff and congrats again.
Thank you.
Next question comes from the line of Lauren Chung from Morgan Stanley. Your line is now open.
Okay, great. Thanks for taking my question just to follow up on sort of the implied back half guide.
Guidance is there anything that you're seeing in July that's causing you to be more cautious or is that sort of holistically. How you think the back half could play out just given some of the supply dynamics that you you talked about and then secondly.
The color that you can share specifically on the cohort of customers that you acquired in the second quarter last year sort of the Covid cohort. If you will how has their retention trended versus previous cohorts as.
As well as our ltvs. Thanks, so much.
Sure. So I think it for I think it's important to be mindful of.
You know the macro challenges affecting everyone and that's really why we're providing the $395 million guidance I think our demand is extremely strong we have structurally advantaged.
Sexually advantage in a number of different ways from our supply chain, but with the current COVID-19 environment.
Getting product out of Asia into our into the U S. As a risk I think definitely in the short term, but we are committed to doing everything we can to solve it and get our products to our health care professionals. So they can look good feel good and perform at their best I think it's important to note that we've had such strong growth throughout our history I mean.
We serve health care professionals, who need uniforms, no matter whats happening in the world they need to replenish those uniforms regularly and they have careers that are on average 36 years' long. So I think no matter what the environment is we're going to continue to show up for our community.
And we feel we feel really confident in the guidance that we provided.
We hope that.
Yeah, and I would point you back to the $1 billion number by 2025 that that annual number in 2025 is really where we're focused over the long run.
In terms of our cohorts.
Sorry, the second question Laurence in terms of our cohorts we've seen are.
Our retention for Q1, sorry, Q2 of 2020 versus Q2 of 2021, we've seen our retention the cohorts the retention of those cohorts be acting in a very similar way ltvs are trending positively and that's really something to keep in mind right.
<unk>.
<unk>.
Is an important metric, but what we're really focused on the annual spend in LTV because that is where we are focused over the long term health of our business our health care professionals are coming back over and over throughout their career and so those are the metrics we're focused on.
Great. Thank you.
Next question comes from the line of Dana Telsey from Telsey Advisory Group. Your line is now open.
Good afternoon, and congratulations on the success of the IPO and solid results today.
Tremendous sales growth that you saw this quarter, how did the category mix shifts to just did anything moved from that 82% of course scrubbed the 13% lifestyle. Another what do you see there and is there any update on the penetration of men and women in terms of what you saw.
Sure I mean, I think it's generally the same I think we've seen our business grow.
Grow very rapidly over over the time period and for the most part are our overall scrubber business is growing our outerwear business is drawing our compression sock business is growing our under scrubs are growing so that mix shift is around what you saw previously.
And not just across across the board I think women versus men continue to see really.
It's around what it what it was that what you've seen in the past I think we have nothing to note on that as well.
Yes, the one thing I'd add to that Dana.
There's one thing I'd add to that Dana that Trina mentioned as you know lifestyle, you know approximately $11 million of sales in the quarter up 60% year over year and the percent of sales.
Even though we're selling a lot less mass than we did last year. So the lifestyle.
I think people should not sleep on the lifestyle aspect of this brand.
A lot of investment in it we're getting a lot of out of it and we will continue to make sure that we invest there.
And then just on the marketing side is there anything in the second half an event towards things that will be new this year that weren't there last year that we should note.
Yes, I mean really for competitive reasons, we really we really wont speak to specific brand campaigns in the back half but.
I'm looking across the table at Heather She's Super excited as you'd love to share a lot of this with you, but we wont today, but I can tell you that it'll it'll continue to excite the health care community. It will continue to increase.
Awareness of our of our wonderful brand and listen we know that once we get folks aware of our brand and we get them into our funnel they become loyal fans.
You remember from our IPO, if you come in you buy from US 50% of the time you come back and buy again within 12 months. So while that's a phenomenal stat compared to anybody that we compete with we also look at that other 50% and use data to figure out how can we get it to 60 or 70% so.
We're super excited about it we've got really cool brand things coming your way.
But we're not going to add Heather talked to you about it today.
Thank you congratulations.
Thanks Dana.
Next question comes from line of Michael Binetti from Credit Suisse. Your line is now open.
Hey, guys. Thanks for taking all my questions here and I'll add my congrats on the on the IPO in the quarter.
I do have a couple of just.
It's hard for us to find companies with EBITDA margins in the low twenty's or what you guys called 20, plus that have gross margins at 70, plus so I know you talked about some of the priorities on the investments, but can you crosswalk us from you've been pretty consistently delivering.
In the mid to high twenties range in the last few quarters can you crosswalk us too over whatever you know.
Next year or two takes you to the lower end of the 20 plus range from here with the grocers that you described.
Then I guess.
As we think about the growth algorithm from here how much do you think comes from.
Two higher growing numbers of health care professionals entering the franchise versus expanding in the closet to health care pros that you have but more importantly from non health care workers, you pointed to lifestyle, but that's that's the real.
Tam Expander is if you start to break into closets of non health care, maybe any financial metrics, you could tell us that or some early indicators that you see.
And making headway with that customer.
Yes, Thanks, Mike.
And I'll, let <unk> chime in here in a second but as far as view on Tam, but I'll take the second one first.
We think there's there's multiple ways to expand Tam here, we have a $12 billion total addressable market in health care apparel in the U S alone, we know its $79 billion globally.
Obviously that doesn't include other non health care.
Markets.
Regardless of what kind of work where that is so that's clearly an opportunity for us. It is clearly a longer term opportunity. We're really focused on the opportunity right in front of us with again, only only a 3% market share, but we also think about Tam expanding not just in in non healthcare.
They're all which again is longer term for us not today, but we look at these lifestyle offerings.
The under scrubbed the Sox the sports bra the leggings.
We continue to invest behind all that.
And so when we look at Tam expansion, we really view it both of those way and neither of those are in that 12, largely in that $12 billion odd number.
As it relates to the work kind of from historical EBITDA margins to what we are forecasting annually over the next three fiscal years.
Really a couple of things first you got the cost of being a public company as I mentioned in my prepared remarks, and then the second thing I think as you walk down the P&L, it's human capital. It's building the teams in building the capabilities around marketing and supply chain and in data analytics, we have the capital to spend we know we need to invest there.
Incrementally.
To achieve.
Our lofty long term goals, but we're pretty pretty confident about it.
And then there's all the other stuff that you don't anticipate particularly to your earlier point, if we do ultimately get up into and into other categories. So that's kind of how the work works for us and I'll ask Jean if she wants to add anything on I R. Heather on Tam.
Yeah, the only thing I would add is that that the.
12 billion dollar Tam for the United States at $79 billion Tam globally.
It really doesn't include many of the lifestyle offerings that we have for our health care community and so the way, we think about our Tam expand expansion and creating Pam everyday here is really about outfitting, our health care professionals with all of our lifestyle offerings from head to toe to work at work from work on ship.
Akshay. This is really about the health care professionals entire uniform. This layering system that we've referred to and so that's how we think about that in terms of.
And then I would just add on the are we growing the expanding the closet right I think that's what our layering system does and and the repeat customers that come back over and over again, but also.
Have.
Having more and more of its health care community. Once again, we have a 3% market share of that 12 billion not even inclusive, including kind of how we think about Tam, but we have a 3% market share in the U S of that $12 billion number. So we have a long runway in front of us.
And just to add onto to veteran and Jeff are layering system is that's really how that's all our health care products right. That's how we see our the uniform.
The new way of thinking about it and that's it.
You know what things, Dave we redefined what the uniform is so we're layering system is as our full ecosystem of products. It's comprised of really the best products to cover every one of their needs.
Just to reiterate what Trina said, its onshore and offshore and everything in between right in between them going to work.
The assortment consists of under scrubbed scrubbed jackets created specifically for temperatures of hospital environments and other necessities.
They are built to perform together and in any combination right. So that's that mix and match all of these different.
Styles.
And they worked together and it can be worn infinite combinations like you can mix and match and that's and that's the beauty of our business.
And it's also the lifeblood of our company.
Okay.
Okay operator.
Awesome.
Next question comes from line of fruit Roche from Goldman Sachs. So one is now open.
Hi, good afternoon, and thanks, so much for taking our question.
The brand continues to show very strong international momentum can you talk to the geographies, where you're seeing the most success and perhaps your plans for driving that growth over time.
Jeff.
The commentary so far on the call today on investing to build that growth momentum for the brand for the long term could you perhaps help us understand how you're thinking about the cadence of investing into those four big buckets of investment that you've talked to thank you.
Thanks, Brock so as you mentioned, we know international is a huge opportunity.
The market outside of the United States is at $66.7 billion market and we want to be a global brand. So in serve health care professionals everywhere I think.
Can't break out exactly what's coming from what but as you know we're in three countries right now or in the in Canada outside the U S and Canada, Australia, and the U K, we're seeing great progress from all markets.
And without even adding any new countries. This year over year, we've grown our international from two 9% of net revenues to seven 9% in just the last year or so.
It's really exciting I think it's maybe important to understand our strategy on international you know many companies.
Company's ecommerce companies.
What flipped that bought in and just opened a 100 countries overnight that is not our strategy, we really arent take a very thoughtful and strategic approach to our entering new markets.
And we really look to customize the experience and localize the currency and the language in in Fiat and people find people on the ground or we have an incredible ambassador program as you know find ambassadors on the browser that we can have it.
Expand our brand in the right way in a strategic way so international will be continue to be a really exciting part of the business and we're excited to see where we go next.
Hey Brook, it's Jeff Thanks for the question on the second one yeah listen we're super excited and energized by our goal of being $1 billion plus of net revenue brand in 2025, and as we think about the cadence of those investments first again anchor you to are our long term margin guidance that we gave just earlier today, 70%.
Plus gross margins annually over those next three fiscal years and 20% plus on adjusted EBITDA over that same time period. So part of the answer is regardless of any variability or bounce around we still think.
We are very comfortable with those I would anchor you. There you know when we think about the areas of investment and we've talked a lot about this today. So I won't go too deep into it you've got product you got brand you've got tax you've got people. There is probably less variability in those kind of those kind of happen when they happen and you build them kind of with the rate and pace that makes sense, but one that can.
Be a little bit more of a different cadence could be around supply chain operations right. As you think about potentially adding additional facilities in the future. You. Obviously, we just talked about international that's one that could be maybe a little bit more variable in the future, but again I think the punchline here is structurally advantaged margins, we think both we have and will.
We'll we'll be able to keep those over the next three fiscal years and again, we're really confident we can get to this $1 billion plus net revenue goals.
And there are no further questions at this time I will now turn the call over back to Trina for closing remarks.
Well. Thank you all so much for joining us for our first ever.
Quarter, we really look forward to connecting again in November for our third quarter earnings call. Thank you again.
This concludes today's conference call. Thank you for participating you may now disconnect.
[music].
Okay.
Yes.
[music].
Yes.
[music].
Yes.
[music].