Q3 2021 Figs Inc Earnings Call
Good afternoon, and thank you for standing by welcome to the Big stirred quarter 2021 earnings Conference call.
At this time all participants 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 reproduction of disco and who are in part is not permitted without reading a tourist season from six.
And as a reminder, this call is also being recorded.
I would now like to introduce your hosts for today's call Ms. Currie Gilliard, Vice President of Investor Relations Miss Gilliard. Please go ahead.
Good afternoon, and thank you for joining today's call to discuss fixed Eric Coir, 20th 121 results, which were released this afternoon and can be found on the things website at <unk> Dot <unk> dot com presenting on today's call will be transfer our co Chief Executive Officer, and Jeff Lawrence, Our Chief Financial Officer, Heather happen or co Chief Executive Officer.
We'll also be available to answer questions. During the Q&A portion of the call I want to remind everyone that management's remarks on this call that do not relate to past events should be considered forward looking statements within the meaning of the federal Securities Law. These may include predictions expectation or estimate, including about our anticipated financial performance market opportunity.
Business strategy can plant in our operational capacity and actual results could materially could differ materially from those mentioned.
These forward looking statements also involved substantial risks and uncertainties, some which may be outside of our control that could cause actual results to differ materially. These risks among others are discussing our filings with the FEC. We encourage you to review these filings for a discussion of these factors, including are poorly report on Form 10-Q filed today and our shareholder letter furnished today you should.
Not place undue reliance on these forward looking statements would speak only as of today and we undertake no obligation to update or revise them for new information. Additionally, information discuss on this call concerning our industry competitive position in our markets are based on information from third party sources and management estimate. These assumptions are also subject to risk, which could cause results can be different.
Nearly from those expressed in the estimates.
Finally, this call will also contain certain non-GAAP metrics, which we believe are useful supplemental measure measure as well as certain key performance indicators, which we also believe are useful for understanding our business and performing reconciliations of these non-GAAP measures to their most comparable GAAP measures and definitions of these indicators are included in our shareholder letter, which can be found on the <unk>.
Investor Relations portion of our website at <unk> Dot <unk> Dot com now I would like to turn the Colorado Trina sphere co Chief Executive Officer fixed.
Thanks, Gary Good afternoon, everyone and we appreciate you joining us today to discuss our financial results in an update on the exciting things happening. It fixed first I will discuss a few business updates on today's call and then hand, it over to Jeff discuss our financial results and outlook.
Our third quarter performance reflects the strong demand for our brand by health care professionals, the power of our unique and durable business model and the strength of our team we are transforming and expanding the 79 billion dollar global health care apparel industry throw an obsession with creating innovative products that celebrate empower and serve our community of.
Awesome humans.
From a financial perspective, we are generating revenue growth and profitability metrics that are exceptional for direct to consumer brand or net revenues for the third quarter $103 million, which represents growth of 34% compared to the third quarter of 2020.
Excluding the 4.2 million dollar non-recurring related party sale from 232020 net revenues grew 41% or growth was driven by the continued expansion of our customer base and higher average order value for new and existing customers are total active customer base is now more than 1.7.
Intensely loyal awesome, humans, which keeps growing bigger and bigger every single day.
We pared our revenue growth with a high level of profitability, we generated net income of $7 million and diluted earnings per share of three cents in the quarter or five cents on it adjusted basis.
We also achieved an adjusted EBITDA margin of 21.6% showing how we've unlocked the powerful combination of top line growth and bottom line profitability give.
Given our strong results and the momentum we see in our business. We are raising our 2021 full year net revenue outlook to $410 million compared to our previous outlook of $395 million.
The most exciting thing is that even with the results. We've seen we still have so many opportunities right in front of US we're still underpenetrated in the United States are non scrubbed lifestyle offering offerings continue to gain traction and the international opportunity is largely untapped.
Everything from a product standpoint starts with creating high quality comfortable and functional products that health care professionals love to wear everyday as a reminder, we are a uniform company focusing on outfitting healthcare the health care community to work at work from work on shift off shift head to toe to us that means a.
Fleet layering system of innovative products that fit seamlessly into their lives to help them do their jobs better today.
Today more than 80% of our net revenues come from 13 core styles seven on the women's side and six on the men's side or strategy with these core styles is to have a steady supply of products that health care professionals come back all year round to replenish and that enable them to be at their best.
Through the direct connection we have with health care professionals were able to use their feedback and are data driven design process to make products that our technical comfortable and supremely functional by solving the real problems they face.
We also create franchises around these core styles.
Like what we did in the third quarter, where we added our yoga inspired waistband tar best selling yola pant to ensure that these core styles are always growing and improving.
Alongside our core styles in court colors, we release limited edition styles and colors, just about weekly to keep things fresh and exciting driving even more engagement in traffic charges will digital platforms in fact over 80% of our sales come from repeat customers on our first day of a color drop as they come back to bolster their favorite styles with new.
Colors like surgical green and dusk.
This strategy enables us to drive even greater loyalty overtime, while while also growing our net revenue per active customer every year.
These launches allow us to deepen our connection with our health care professionals, who come back to fix again and again.
While scrubs out of the foundation of fix the opportunity for brand extends much further health care professionals change environments frequently and they need and deserve comfortable high quality products that help them do their jobs in every situation. They face that's why we approach our products is a complete layering system.
What are they were under their scrubs like are under Scrubs or sports bras are leggings to their scrubs to what are they wearing over their scrubs or verse or jackets are fleeces and more with.
With our non scrubbed lifestyle business accounting for 13% of our net revenues in the quarter. We are excited to continue to unlock this key growth driver for years to come.
From a digital experienced perspective, we use our data segmentation strategies to bring the most dynamic fun and personalised shopping experience possible through innovative new features and content that we're creating every day.
One Great example has been the launch of our kit by bundling multiple items together to curate different locks, we made it simpler and more convenient for customers to purchase everything they need with one clip.
Of course, it's still early on but in Justice six months. Since we debuted them we have seen that about one in six customers has purchased a kit.
This strategy helps us drive a higher L V and unit units per transaction and it also leads in either even greater uptick take of our lifestyle offerings.
With a strong retention rate of around 50% or data tells us that over time, our customers not only begin to add more of our lifestyle products, but also continue to buy them more frequently.
All of this expand our total addressable market far beyond the 79 billion dollar health care apparel market that already exists today.
Our marketing strategy is centered on building brand loyalty and engagement at every touch point, along the customer journey.
A big reason why we've been efficient with our spend is because so much of our customer acquisition happens organically.
There's no doubt that the most authentic way for new health care professionals to learn about figs is through other health care professionals, who already aware and love our brand this organic customer acquisition, which is over 60% of our traffic combined with our strong retention is how we've been able to maintain such an efficient marketing spend even.
As we've scaled so rapidly.
And the third quarter, we we're particularly pleased with our ability to attract more health care professionals to our brand.
Because we were so efficient from a performance marketing standpoint, we were we were able to invest those gains into top of the funnel brand initiatives aimed at growing awareness and brand love. This included the launch of a comprehensive out of home strategy, where our purpose is to celebrate the current generation of health care professionals and inspire the next.
Generation to become them.
Beyond marketing or brand building comes from the impact initiatives that were so passionate about.
From our 500000 dollar future icons Grant program, which helps students pay off their tuition to the $1.2 million of scrubs and masks and other products that we don't need it around the world in the quarter, we show up an authentic in meaningful ways that impact our community. This devotion to our mission and our community is what makes big so.
<unk> and is a big part of why health care professionals feel so connected to our brand.
From an operation standpoint, we know that in order to achieve our long term growth ambitions, we must balance our long term vision with an incredibly sharp focus on day to day execution, we are not a discretionary spend healthcare professionals need our products to do their jobs and it's our responsibility to get those products to them as quickly and efficiently as <unk>.
Possible.
We continue to monitor the dynamics supply chain challenge is being experienced by any company manufacturing products because of the ongoing COVID-19 pandemic, particularly those with supply chains around the world at figs. We are proud to say that we've been able to continue to produce our products at the highest quality possible and without significant disrupt.
<unk> with all of our manufacturing facilities currently operating at near her full productivity.
As a company that has grown 68% through the first three quarters of 2021 and that group, 138% in 2020, we've always leverage the strength of our business model to navigate through the impact of COVID-19.
Some of our biggest inferential haters include the fact that over 90% of our product is made from the same fabrication and more than 50% of our revenue is generated by our core styles in core colors.
This steadier volume enables our manufacturing partners to produce our raw materials and finished goods farther in advance and holds greater inventory without the risk of obsolescence. Additionally, the consistency of being a uniform company significantly reduces our exposure to seasonality because our customers require the same product year round while.
These differentiators have enabled us to continue to meet our demand expectations quarter after quarter, including bringing in more inventory early in two four we are not immune to the increasing transit times that nearly all companies are experiencing.
For the fourth quarter that meant making a proactive strategic decision to increase our spend on air freight primarily to ensure we get our limited edition styles and colors in time to meet forecasted customer demand.
While this creates a near term impact on our margin. This is the right thing to do to support our growth and the demand we're seeing from our health care professionals Rick.
We currently anticipate COVID-19 related supply chain pressures to begin to ease as we move into 2022.
Looking ahead, we remain incredibly confident in our ability to harness our shrinks to drive towards one $1 billion, plus and net revenue by 2025, while delivering against annual targets of 70% plus gross margin and 20% plus adjusted EBITDA margin over each of the next three years.
Yes.
We are building the brand for health care professionals, the fastest growing job segment in the United States our business like the health care community is amazing the scale, we have built across supply chain digital and community gives us sustainable competitive advantages that we will continue to optimize to put us in the best position to serve how.
Care professional the opportunity in front of US is massive and we are confident in our ability to continue to meet and exceed the high expectations of our community of awesome humans and shareholders.
With that I will hand, the call over to Jeff.
Thanks, Trina and good afternoon, everyone. We're excited to share with you the financial results of our third quarter, let's dive right in.
Net revenues for Q3 were up 33.7% to $102.7 million compared to Q3 last year, excluding the $4.2 million non-recurring related party sale in Q3 of 2020 net revenues grew 41.4%.
Our performance was driven primarily by strong order growth from both new and existing customers will continue to grow our customer base significantly with our active customer count north of $1.7 million.
Net revenues also benefited from an increase in average order value or a O V $202 and the border compared to $99.
<unk>.
Gross margin for Q3 decreased one percentage point to 72.7% compared to Q3 2020.
Fisheries was primarily driven by enhanced restocking standards and higher ocean freight rates offset in part by lower airfreight.
Let's move to operating expenses, starting with selling expense, which for Q3 was $19.9 million, representing 19.4% of net revenues compared to $18, 2% in Q3 2020. This.
This increase was primarily related to expansion of our third perished party warehouse as well as increase labor rates driving higher fulfillment costs.
Marketing expense for Q3 was $15.8 million, representing 15.4% of net revenues compared to 12.6% in Q3 2020.
We were also particularly pleased this quarter with the effectiveness of our performance marketing, which attracted new customers more efficiently, but in the first half of 2021.
As a result, we drove incremental investment in brand marketing to drive top of the funnel awareness.
General and administrative expense for Q3 with $28.4 million, representing 27.7% of net revenues compared to 10.9% in Q3 2020.
This increase was primarily driven by non-cash stock based compensation.
The incremental capabilities, we have built over the past year in key areas, such as product innovation operations and merchandising.
The first full quarter of public company costs.
And an increase in charitable contribution.
As we look ahead into 2022 and beyond we have the opportunity to leverage many of these investments as we drive even greater scale.
Moving down the P&L are effective tax rate for the third quarter was approximately 28%.
As discussed on our previous earnings call expenses associated with our IPO have driven our rate higher for the full year 2021.
Taking all this to the bottom line, our net income was $7 million or <unk> and diluted earnings per share for the quarter.
Diluted EPS as adjusted was five cents in Q3 compared to 12 stones in Q3 2020.
The decrease in diluted earnings per share as adjusted is primarily due to a decrease in pretax income.
Through my Iron.
Costs associated with being a public company and investments in our team.
Finally, our adjusted EBITDA for Q3 was $22.2 million adjusted.
Congested EBITDA margin was 21.6% for Q3 compared to 33.5% in Q3 of 2020.
This changes primarily driven by investments in our team to drive strategic initiatives costs related to becoming a public company and increased charitable donations.
We continue to stand out in a crowded ddc's space is one of the select brands able to produce real substantial cash flows while also deliver an exceptional top line growth and profitability.
We believe that these non-GAAP net revenues EPS and EBITDA metrics are important supplemental measures for understanding our results. We again refer you to our shareholder letter released earlier today and available on our website for the required disclosures and reconciliation.
Moving to the balance sheet, our cash position in order and was strong with cash and cash equivalents of $181 million.
We're also excited to announce during the quarter, we entered into a new $100 million revolving credit facility with more favourable borrowing terms in our previous facility.
We have the capital to continue to grow this amazing brand it the right way.
Moving onto our outlook.
<unk> explained we raised our outlook for 2021 net revenues to $410 million up from our previous outlook of $395 million. In addition, we currently anticipate providing 2022 net revenues guidance early next year.
From a supply chain perspective, we are monitoring the rapidly evolving macro challenges surrounding inbound freight, especially with the upcoming holiday season.
Is three dimensions, given the challenges we proactively made the decision airfreight more goods during queue for based on the demand for our products coupled with the realities of operating a global supply chain in a COVID-19 world.
Based on our visibility today, what that means for the fourth quarter, because we anticipate spending approximately $8 million to $10 million an air freight.
For context in the third quarter, we spend about $1 billion on airframe.
While this will significantly impact our gross margin for Q4, we currently anticipate more favorable shifting dynamics and we enter into 2022.
Keeping all of this in mind and zooming out of it we would like to remind folks that despite these near term supply chain challenges 2021 is shaping up to be a another amazing year for us financially with full year revenues expected to be a 56% compared to 2020.
In addition, 21 will again be a year in which we expect to achieve annual gross margin and adjusted EBITDA margin within our long term guidance.
This is an amazing statement that demonstrates our ability to produce strong result in the most challenging environments, while further shining a light on our structurally advantages margins.
The strength of our business model and continued strong demand for the brand give us confidence in our ability to achieve the long term financial targets that we provided on our last call.
As a reminder, these long term financial targets, including generating at least $1 billion in net revenues by 2025 as well as driving annual gross margin, an annual adjusted EBITDA margin of 70% or more than 20% or more respectively.
Over each of the next three fiscal years, we could not be more optimistic about where our business is headed.
And with that I will turn it over to Heather took your cough or Q&A.
Thanks, Jeff before turning to analysts questions first were first going to answer some questions. We received from retail shareholders through the same platform. We feel strongly we feel strongly about providing a voice to a retail investors for the same reason we were the first company to provide access to an IPO through robinhood it's fundamental.
Our mission that we maintain a direct connection to the health care community that we empower them and that we make sure that they have proceeded the table.
That's why we wanted people outside of Wall Street, especially healthcare professionals to be able to participate in our IPO and.
And it's also why we're excited to directly answer their questions on our earnings calls so with that we're going to answer five of the most up voted questions that we have received alright quest.
Question. One the first question is from Tony P, who asked what is the long term vision and strategy for figs.
Our long term vision and the strategy to achieve that vision begins with our mission, which is to empower celebrating Serb healthcare professionals.
We will leave the world a better place with more health care professionals not less.
As a group they ran from scientists and innovators, who are tasked with solving some of the humanities toughest problems to nurses E M T's and doctors all of whom make the world more interesting uplifting and is far safer place for the rest of us.
So we want to see more of them.
Part of the strategy to achieve our vision means doing everything we can to ensure that serving as a health care professional is an astoundingly wonderful experience. So much that we helped to inspire members of the next generation to become healthcare professionals themselves.
And this happens with growth specifically and this is key or.
Ah brand growing well beyond just scrubs.
For example, Trina spoke earlier about our goal to commercially address unique product requirements of health care professionals, which obviously encompass and market far larger than scrubs.
Further we intend to keep addressing their particular needs not only when they are at work, but also when they're not.
Of course, leveraging our brand equity beyond Scrubs, who will meaningfully grow our addressable market at a macro level.
Separately, there's a big opportunity to grow internationally scrubs as of 12 billion dollar industry in the U S, but almost 80 billion globally.
Unsurprisingly at least to us our initial experiences in Australia, Canada, and U K have clearly demonstrated that health care professionals everywhere are demanding the highest quality products.
In short international growth represents a massive opportunity and it's a critical component of our strategy to achieve our vision.
Of course, our long term vision also includes dressing every healthcare professional in the U S with figs, even with all of our growth in revenue, we're still only surfing about 3% of the U S market. Today. So this is quite the growth opportunity here at home and.
In fact, the number of health care professionals in the U S is expected to grow by 15% through 2029, meaning fix has the potential to enjoy tremendous expansion over the next decade.
Circling back to my earlier comments, we spend an enormous amount of time thinking about with healthcare professionals care about and how they can improve their lives and then we innovate around those needs. For example last quarter, we announced a program to give out $500000 in tuition grants for healthcare students. We ended up more than a million dollars worth of product medical professionals in need and we sort.
Service, a wonderful partnership with <unk> with Memorial Sloan Kettering Cancer Center.
So to sum it up we believe that Revolutionising healthcare parrow meaningfully improves the experience of being a health care professional and increasing market share innovating new products and helping inspire are used to enter the health care industry and and are all examples of how we achieve our long term vision of helping improve healthcare overall and I.
Like to thank Tony P for that question and I'll pass it off to train it for the next one.
The next question is from Connor S, who asked as supply chain has become a much larger issue than we realize.
And going into the holiday season, how does the company plan to try to curb the issue.
So from a supply chain perspective, we're in a really strong position because we have three structural advantages number one or a uniform company, which means at our customers need our products in order to do their jobs. So demand is predictable we've been nonseasonal business and we have a replenishment driven business.
This gives us an incredible amount of visibility and the products, we need to make when we need to make them and the quantities in which to make them in so in turn that allows us to lock in costing and capacity and bringing goods farther in advance.
We have a highly consistent fabrication in style profile as we've discussed more than 90% of our product is made with the same fabrication fine acts and more than 80% of our volume comes from 13 core scrub where styles what does that do it results in a very consistent high volume low SKU count production, which makes us SF.
And Ah suppliers Dream third where a direct to consumer company.
Because of that we're able to forecast even more accurately and farther in advance because we have a direct relationship with our 1.7 million customers. When we have all this data that helps us to know what product they need and when they need. It. This is this allows us to provide 12 to 18 months rolling forecast, so our suppliers and it also means.
We can adjust our calendar and our launch schedule. If there is any delay we're not waiting on appeal from a wholesaler that then we have to get from our supply chain. All these structural advantages allow us to be highly efficient from a production and supply chain standpoint, and allow us to whether any macro challenges much better than other companies Heather.
Next question as yours.
Listen three Adam H asked whether we're considering other colors as whether we're aware that the Cleveland clinic requires colors that we don't have.
Alright.
We talked in our shareholder letter about how we own color in the industry and we really believe we do our approach to color is this thoughtful and purposeful as our innovative fabrics and designs.
We strategically bill color for a more dynamic customer experience such as by layering in the Tri color launch that we had in Q3 and also by creating colors. There are purposefully created for different parts of the year.
I would be shocked if anyone in the industry puts as much thought into color as we do.
And.
Are also highly knowledgeable about hospital center colors, we know each institution has different guidelines and we know which colors are most important within the broader system in order to meet those needs we add to our core colors as we did with Burgundy and we release other hospital center colors on a periodic basis like Hunter green or Caribbean Blue So that all the health care.
Officials are able to wear fix.
We also saying it's been really cool to see hospital apartments in medical offices, making things. They are standard colors, we've seen over and over again with groups swapping out their old gray for fixed graphite.
They've been clinic, we know what colors you are we got it message received we are on it.
Next question question for.
Is from James S, who asked for people of non average sizes are you planning to design sizes are more friendly for those body types.
We're so glad you asked this question James is a great question.
Size inclusivity is something we're really passionate about and we're committed to being the absolute best that we talk to their shareholder letter about our online models collector healthcare professionals can use that to better visualize how certain products look across all body types and sizes.
In terms of our products themselves, we will not stop until we're as close to perfect. As we can get on sizing earlier. This year, we brought on a team with experience across the industry, where true experts on refining fit for all body types, they're working super Super hard to nail. This bottom line, we know how important sizing inclusivity is to our community.
<unk> and we're investing the resources to be the best at it being inclusive is a core value at figs Trina you get the last question.
Our last question comes from Cassidy G, who asked what we can do to stop online sites from buying up figs and reselling them at exorbitant prices.
As I mentioned, it's critical at us that we maintain a direct relationship with our health care professionals that is one of the reasons why we decided against using third party retailers in the first place our standard terms prohibit reselling and even though this hasn't been a big problem for US we're actively monitoring sites to find resellers and we're thoughtful.
And and really deliberate about stopping sales for resale or is when we learn about them. We do this to protect our brand, but more importantly to protect you as our health care professionals.
After all our products are not only premium they're also super accessible in 2020 about two thirds of our customers are less than $100000, a year and about one third or less than 50000, so even though reselling really hasn't been a big problem for us we're going to continue to moderate monitor it.
Going forward.
Okay. Thank you so much for everyone for these incredible questions. We can't wait to keep doing this on future calls for now we're going to turn it back to the operator for questions from our analysts.
Thank you Miss Trina at this time, we will now open it up for questions. If you have questions. Please press star one.
We ask each call or two please limit yourself to one question and one follow up.
Our first question comes from the line of Bob <unk> from Guggenheim. Your line is open.
Am congratulations so nice quarters.
Thank you.
I guess I was wondering if we could spend a little bit of time just on.
The replenishment trends in days between purchases you know just what you're seeing from your customer base and it just didn't really any major changes.
As we sort of.
Covid continues to wait a bit on the album.
Sure. Thank you so much I mean, I think we're we're focus is really on.
What we're looking at is spend over time, and how often our customers are coming back not only coming back to us, but how much they're spending a month over month in quarter over quarter and year over year and what we're seeing is that those numbers are all going up into the up into the right.
From a Ah.
Frequency of purchase we're looking at that too we don't see any real deviation from what we've experienced in the past.
So we're really excited to see that.
Our customers are coming back not only and not only just for our scribes. That's the other important thing to note as they come back they're adding our other items our lifestyle.
Are outerwear or compression socks are under scribes, they're adding those items, especially the longer there with us and not only that their orders are are going up over time no longer there with us.
Great. Thank you.
The next question comes from the line of Ed <unk> from Keybanc. Please ask your question.
Good afternoon, guys. Just a quick one for me I guess first on marketing sounds like some real success pivoting away from performance given some of the efficacy you're getting there I guess do you think this is a longer term trend and is it your expectation that you will continue to reinvest back into brand.
Maybe even a little bit more color on that performance given I guess, all the idea of a issues that others are complaining about and then just as a quick follow up with.
We've noted in some local newspapers that there seems to be a high turnover of nurses and other health care professionals do does the Vax mandate are you seeing any pockets of weakness in some of these geographies where the turnover is higher thank you.
Thank you so much for the question I mean, I think what we're seeing is from a marketing standpoint at exactly your point not a lot of challenge and I think it's because so much of our business is organic over 60% of our traffic is organic nonpaid, we're not reliant on the Facebook and the googles of the world. Although they are incredible.
<unk>.
And because so much of our business is replenishment.
It's a lot cheaper to retain a customer than it is to acquire one.
Over I mean over 60% of our revenue is from repeat customers. So as we've seen CAC decline as we've seen our performance marketing become more efficient we are taking those games and investing it into our brand more top of the funnel brand initiatives like or.
Amazing comprehensive out of home strategy that we put out to the world and the third quarter. So we're going to continue to do that in terms of what if we're seeing any weakness from a health care professional standpoint, we're not I think there are some pockets that were.
Registered nurses are becoming nurse practitioners and some people moving into other areas from hospital to office, but overall this industry is growing and it's growing fast it's the fastest growing industry.
In the United States.
We're excited to continue to show up for our community even long after this pandemic.
Thanks, so much.
Your next question comes comes from the line of Brian Neagle from open Heimer. Please ask your question.
Good afternoon.
Congrats on we continued success.
Thank you. It's my first question has to do with the supplied you're talking to prepared policies torquated about some of the efforts are taken to mitigate supply chain primarily earthquake.
Of course I have is.
Or the other or other issues in the supply chain it'll be even shipping itself that still to some extent limiting sales growth somewhat in other words, if we wanted that wants to poetry constraints sales growth has been stronger.
I think what we've done is.
We've been Super strategic about it so we're not having a problem, making our products right, our our factories and our mills are around the world are pretty much at full capacity and from a demand side are health care professionals are demanding figs products.
And we're in we're seeing that demand and so what we've done and that's really why we made that decision for in the fourth quarter, where we're bringing we're utilizing air freight more is to get those products for our health care professionals.
Would the wood.
Would we be able to see more revenue.
If we were to get more products potentially but I think what we've done is we forecast at a really healthy growth rate coupled with profitability that as best in class to be able to meet the demand that we're seeing.
We're continually evaluating that and I think one of the unique things that we also have ear. It fixed is that ability to forecast that demand and a really accurate way because we're due to see because we are data driven.
You're very helpful. Perfect just a quick follow up to that and also with regard to supply.
You talk log authorization would be colors or other products.
If you continue to push on innovation as hard as you want despite some your supply chain constraints.
Oh, Yeah I mean.
Heather.
Innovate or die nothing will stop us from innovating I think we have a really robust.
Design innovation technical design.
Production and product development process around everything that we create.
Making the products is something that we're not seeing an issue with it is really that the.
The Ocean freight where we're seeing the challenge support, but that's not stopping us from innovating every single day it fixed to provide the highest quality products to our health care professionals every single day.
Okay, Bruce it all of course, thank you.
Oh, one thing I just want to add as we just came out with a with a huge AD. So is talking about innovation. If you haven't seen that check it out it's awesome.
Your next Erin Murphy, a Piper Sandler your line is open.
Great. Thank you. Good afternoon, two quick ones for me as well Trina first for you could you talk a little bit more about what you're seeing in the business. Currently that give you guys the confidence to read the full year by more than the third quarter beats and then a second question for Jeff specifically on the gross margin in the fourth quarter you did talk about that.
Added airfreight, but just curious if there's any other pets or takes we need to be aware of it as a holiday season, you guys went public last year. So just curious what would be a typical promotional calendar for you in the fourth quarter and then anything else we need to be mindful of on the gross margin line. Thanks, so much.
Thanks, Aaron Yeah, I mean, I think we feel really we feel really good I think that's why you saw us raise our outlook by $15 million from 395 million to 410 million and then we actually look too actually.
Outperformed that as well.
We're seeing a strong demand signals across the market.
And we have a ton of strategies in place across our.
Our marketing teams in our merchandising team so that we can really.
Not only meat, but potentially exceed these numbers that we've put out so.
And queue for specifically, we are holidays here and we're super excited about everything we have lined up and we're planning actually to be less promotional than we have in the past.
And.
That's awful.
We're just excited to see that and.
The other thing I would just mentioned is when we look at the numbers for a Q4 based on the $410 million that we've put out our fourth quarter will be larger than our entire business was in 2019. So we're just really excited to see the growth.
That we're seeing.
Jeff do you have anything that.
No not really are and just on the gross margin for Q4 again.
Great We think is transitory.
Proactively and strategically to make sure we're getting a product and to meet the demand but.
There's some there's some small puts and takes but nothing that I would really call out we do have structurally advantage margins and it'll just be one more quarter, where I think we demonstrate that again.
Great. Thank you both so much.
And Heather thanks.
The next question comes from the line of blurring Hutchinson.
Bank of America. Your line is open.
Okay could afternoon, when you think about the eight to 10 million of incremental airplanes.
One way that we should think about into next to do you see that just the paid in peak season passes and then are there any <unk> particular around pricing that you might think about if you'd call Linda.
Thank you so much for that question I mean, we really don't see that at all as a run right in.
This is a transitory.
Mm strategic decision that we've made.
Going into 2022, we are doing a lot on our end to navigate this and it's not just that we see the world opening up in in the supply chain Presser's easing also we've made very.
Big moves in terms of bringing in more inventory earlier, we have the ability to do that because of how amazing our relationships that are with our manufacturers and from a pricing standpoint.
Our brand is super strong and we have very strong pricing power, but we are going to continue to look to be affordable and accessible to our health care professionals, we don't see any need to increase our pricing as a sand today, we've locked in our costing with our with our partners and so we feel really good about where we are.
Thank you.
Your next question comes from the line of John Kernan from calling please ask your question.
Awesome, Thanks, and congrats on the great results I'm really tough to tears.
Yeah, we can always email from Islam.
Yeah, the full year revenue day in the fourth quarter imply for for revenue debit can you give us any more color on active customers an average order value.
The genre values been a nice driver.
Revenue this year.
Just curious on on some of the metrics.
Hi, Joel gross enacted customers and maybe the year over your average change an average all the values we go into the fourth quarter.
Sure I mean, we've been very encouraged by our average order value. If you if you remove the 4.2 million.
Related party sell our average order value year over year, one from $93 to $102. So we're really.
Feel good about that I think from an active customers we've grown our active customers.
We have 1.7 million active customers and that's from $1.1 million a year ago.
So from both fronts were feeling really great about our ability to continue to not only increase our customers keep bringing new health care professionals into this brand, but also having them.
Spend more with US I think a function a few things really drove that numb.
A number one just hire units per transaction I think the layering system an hour, bringing our products together is really a big part of that the second piece is kit one in six customers in the last six months has bought a kit and that's really driving this increase.
We're able to you're able to get an entire look with one click and then the third thing is we did have less mask sales. This.
This year and that's driving it a bit but those are those are the key the key inputs there.
Got it thanks, and then maybe just one follow up on marketing in the fourth quarter.
Just looking at it on a dollar dollar growth basis in a race basis, asking me think about marketing.
Two four it's been right around 15% the last two quarters curious if you're stepping things up this fourth quarter on.
On a dollar rate basis.
Sure I think marketing has as we've talked about we've become.
And we continue to be extremely efficient from a marketing standpoint, especially from a performance marketing standpoint, and I think what we're going to continue to see are those gains and we're going to take that and reinvested in our brand and so we're going to continue to do that going forward.
And you know.
I think the other point to note from a marketing perspective is that in the fourth quarter.
It's a high repeat business right. It's when all of our health care professionals are coming back they're getting all of our latest and greatest of what we're offering they're also gifting to all of their friends and colleagues and so it's a high repeat or we expect it to be a high repay repeat as a percent of total so we're really excited.
Not only by the growth that we hope to see but also by the efficiency from a marketing standpoint.
Got it. Thank you that's the work.
Your next question comes from the line of Michael Binetti of credit Smith.
Just ask you a question.
Thanks for taking our questions here congrats on a on a nice quarter.
Just a couple of <unk> on the model here is we're kind of looking probably what questions are going to have later tonight, while we get through this but would.
Would you mind reconciling you mentioned to bother earlier that spend for customers headed up until it right. We tried to watch the revenue per customer number each quarter that was down about 10% third quarter versus last year. When we exclude the 4.2 million so improved a little bit I think from the negative 11 last quarter, but since we don't have a lot of history here to understand seasonality on these metrics maybe you can just help.
US reconcile the math, we have on paper here versus what you were thinking about with that comment and then I guess this is maybe jump all the <unk> I'm a gross margin would you mind, giving us a sense of how much each of the three drivers you listed in the in the third quarter, where between higher Ocean freight and lower air freight and then I'm not.
Sure I'd.
Love to know what enhanced restocking standards means.
That's a new concept in the business going forward.
Sure. Okay. So first on the revenue proactive customer inactive customer is any customer that's been with US. The last 12 months. So in order to make that formula work. The revenue has to be in LTM revenue figure and so if you look at L. LTM revenue per active customer in the third quarter.
Versus the second quarter, it's gone up about $3 from 216 to 219. So I would just make that note because it is going up into the right quarter over quarter over quarter.
So it's just LTM Rev over active customer and then I think on the point sorry.
I'm sorry.
Thanks for the clarification.
Okay, and then in terms of the.
Sorry Ocean freight.
Volume so we basically shipped in less units than we did a year ago, but they cost us more of the rate per unit was higher and so that's the difference year over year and then enhance restocking standards are essentially.
When a return comes in we've put in tighter quality controls at our warehouse so that.
The unit that are going back onto our shelves are of the highest quality and we've been to actually doing this for for for about the last since earlier this year, but I think it's just that there wasn't a lot of other noise and gross margin. So it set out but you won't be really seeing this.
As a as a something we don't expect to really see this going forward is a big driver at all.
Okay. So it it's it seems like when you say in the quarter Airfreight was.
Was lower with the Ocean was high it seems like you're moving units that would've been the past gone through you're afraid over the ocean. So is it once we get past that you're afraid inflation and fourthquarter, maybe six run in the first quarter.
You will be doing a higher mix of units on ocean and that should be economically beneficial to where you were in the past or is that a is that an incorrect assumption.
The assumption of moving.
Actually.
The fourth quarter, we are we're taking a bit of a head on an air freight right. We look to move those units going forward to ocean as we bring our goods in earlier, so that assumption will be <unk> is correct in terms of the other puts and takes Jeff do you want to just run through some of the other ones between besides the enhanced restocking standards in the air freight and.
Yeah. My Great question, I mean on gross margin. Besides the restocking standards, which again, we've been doing for awhile feel really good about because it means that the customer will have even a better experience. It was great already but now even better going forward. We've been doing it just happened to pop on the rack, that's a little bit bigger than the ocean rates, which are going the same direction.
And an airframe year over year ago in the other way. So that's how I would side those three kind of rank order and as we think about getting into 2022 are prepared remarks, we don't have a crystal ball, but we were pretty confident that we're going to we're going to see less airfreight overall that we're seeing in in queue for as we get into 22. So we don't think it.
Is going to be an air freight business.
Ongoing that was really just a reaction to the in transit issues that everyone's having and really the luxury we have which is we can get the products made and we have a lot of demand. So it was a really a simple choice for us to make but one that as we get into 22 will be talking a lot more about boats and planes.
Okay. Thanks, a lot.
Your next question comes from the line of Adrian E. Barclays. Your line is open.
Great. Thank you very much and pregnancy the momentum continuing Trina I was wondering if you can actually talk about your sourcing base the largest countries manufacture and your total for each exposure does what happened in the supply chain. This year make you think about more diversification. So that's the first one and then just just.
Staying on the air Air to Ocean.
What would normally ocean to air percentage B, what is in the fourth quarter and how are you thinking about it for first quarter as you kind of roll off the peak. Thank you very much.
Think daydream.
We have a very diversified supplier network or in over 30 facilities across 13 countries.
So having that diversification has been incredibly important in and it's a function of.
<unk> business model of us being a uniform company of replenishment driven business, having such a high volume low SKU count visit there's not one manufacturer in this world.
That I think I don't know for sure that wouldn't want to partner with us. So that's been amazing I think from a from a country perspective, you know everyone's talking about Vietnam. So we might as well just talk about it I think where people I've seen the most disruption has really been in.
Southern Vietnam and.
We produce and mainly central and northern Vietnam from that country's perspective, although we are in many other countries as well.
So I think and we're seeing it all open up and I think other companies are talking about this as well is that a lot of the production itself issues have been.
<unk> and it's really just continues to be from an in from an in transit standpoint from a freight sample ocean freight standpoint, and from a port standpoint.
And with that I'll pass it over to Jeff to discuss the second part of that question.
Adrian based on the question is if you think about getting products into the United States again again, we're very fortunate right.
We can get them made all the factories at or near full capacity and really robust customer demand both in the U S and international so for US we're very very blessed advantage. The only have to kind of worried about the in transit times and listen everyone knows about what's going on with the boats in the port. So we will bemoan that but as you as you think.
[noise] about our business.
Versus plane. If you go back pre COVID-19 almost onto 100 per cent of what we were doing was on a boat.
<unk> comes into 20, and obviously extended into 2021.
As much as 25% of our units we started putting on airplanes and of course, the right, especially today's rate for an airplane versus last year can be 810 times more expensive than a unit.
So as we get to queue for tier, which is why we'll call analysis $8 million to $10 million of what we believe to be transitory airfreight pressure.
Those units.
<unk> is there going up for a quarter, but.
What I would tell you is in the normal world almost everything was on a boat that's what we're going to try to get back to you utilize our balance sheet. Paul P. O's forward really continue to use the balance sheet to our advantage.
Obviously for Q4, it's a little bit different but we're going to get past this and we will get back again, mostly doable worldcom soon.
Alright, good to hear thank you.
Our final question comes from the line of Brueck Ruge of Goldman Sachs. Please ask you a question.
Good afternoon, and thank you so much for taking my question Trina I'll I'll just start with you in high school, a little bit about the piece of new customer acquisition that that brand is realizing as you think about the brand awareness Goodbye major market at this point, where do you see the most whites thanks for brand awareness and customer adoption in the.
Added state specifically.
Among the profile of new customers that you're that you're reaching now versus later and then.
It sounds like there's a lot of confidence in achieving that's four two outlook for topline momentum can you talk a little bit about what puts and takes that'll make me holding you back from from from putting that number a little bit higher given the strong momentum that you're seeing in the business. Thank you.
Thank you. So much broke you know I think one of the unique things about our business is how much of it is driven by word of mouth or health care professionals are in densely populated institution and we've talked about this but it's really important right or every fixed customer is a walking billboard acquiring that next customer.
Her for us they're passing each other in line in the lobby at the Starbucks or walk into their next patient during the break room and that organic customer acquisition. I think we've mentioned say over 60% of our traffic is organic that organic customer acquisition is driving this company and is driving our customer acquisition. So we feel really good about the <unk>.
Piece of customer acquisition, and I think we don't see.
A lot of.
Differences across institutions or across markets and I think we have to think about it as we're really seeing tipping points in.
In different markets, where once we have a certain percentage of that institution, if that tipping point, where fixed takes off and becomes the majority of health care professionals within and.
We are suit, we're really underpenetrated, we have a 3% market share in the United States, we have essentially a zero percent market share internationally and so the growth is Ah it's.
It's a massive opportunity in front of us on all fronts.
Jeff.
Question around the queue for.
Why guide with 100 venue of the first thing I would tell you is we're really optimistic about the business in general not just in 90 days sprint, but more importantly, longterm with $1 billion plus.
Goldeye by 2025 of whom we feel great about so.
That guide is $50 better more optimistic than where we were in 90 days ago. So we feel better about it since the last time, we talk to you about it and again, we think there is a reason for that and it's all the reasons you already know.
Huge active customers huge industry is growing fastest growing jobs segment and the fact that as of right. Now we don't have a lot of competitors are really punch in back right. Now we're basically have on our way, we're executing and as a result, we continue to build build share and feel feel good about it so I'll get the $410 million again, it's another race.
Obviously will work really hard to try to.
Perform that as we always do.
Bullets, and we feel right about the customer right now we just have to go execute which we feel worried about.
Thank you.
And that concludes today's conference call. Thank you again for participating you may now disconnect.
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