FIGS, INC. You should read the following discussion and analysis of our financial condition and results of operations together with our condensed financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q, as well as our audited financial statements and related notes included in our Annual Report on Form 10-K for the year endedDecember 31, 2021 , filed with theSecurities and Exchange Commission ("SEC") onMarch 10, 2022 (the "2021 Annual Report on Form 10-K"). This discussion contains forward-looking statements based upon current plans, expectations and beliefs involving risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in Part II, Item 1A. "Risk Factors" and other factors set forth in other parts of this Quarterly Report on Form 10-Q. 16
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Our mission is to celebrate, empower and serve those who serve others.
We are a founder-led, direct-to-consumer healthcare apparel and lifestyle brand that seeks to celebrate, empower and serve current and future generations of healthcare professionals. We are committed to helping this growing, global community of professionals, whom we refer to as Awesome Humans, look, feel and perform at their best-24/7, 365 days a year. We create technically advanced apparel and products that feature an unmatched combination of comfort, durability, function and style, all at an affordable price. In doing so, we have redefined what scrubs are-giving rise to our tag-line: why wear scrubs, when you can #wearFIGS? We have revolutionized the large and fragmented healthcare apparel market. We branded a previously unbranded industry and de-commoditized a previously commoditized product-elevating scrubs and creating premium products for healthcare professionals. Most importantly, we built a community and lifestyle around a profession. As a result, we have become the industry's category-defining healthcare apparel and lifestyle brand. We generate revenue by selling technically advanced apparel for the modern healthcare professional. Our offerings include scrubwear, as well as lifestyle apparel and other non-scrub offerings, such as lab coats, underscrubs, outerwear, loungewear, compression socks and footwear. We design all of our products in-house, leverage third-party suppliers and manufacturers to produce our raw materials and finished products, and utilize shallow initial buys and data-driven repurchasing decisions to test new products. We directly and actively manage every step of our product development and production process to ensure that our extremely high quality standards are met. We also have a highly efficient merchandising model-due to the largely non-discretionary, replenishment nature of healthcare apparel, we maintain low inventory risk driven by a high volume of repeat purchases and a focus on our core scrubs offerings. We primarily market and sell our products through our digital platform, consisting of our website and mobile app, to a rapidly growing community of loyal customers. AtJune 30, 2022 , we had approximately 2.0 million active customers. Our customers come to us through word of mouth referrals, as well as through our data-driven brand and performance marketing efforts. See the section titled "Key Operating Metrics and Non-GAAP Financial Measures" for a definition of active customers.
In the three and six months ended
•Expanded our community of active customers by 26.2% from approximately 1.6
million at
•Net revenues increased from$101.1 million to$122.2 million for the three months endedJune 30, 2022 , and from$188.2 million to$232.3 million for the six months endedJune 30, 2022 , representing 20.9% and 23.5% year-over-year growth, respectively; •Gross margin decreased 2.7 percentage points from 73.3% to 70.6% for the three months endedJune 30, 2022 , and 1.6 percentage points from 72.5% to 70.9% for the six months endedJune 30, 2022 ; •Net operating income (loss) increased from$(32.1) million to$9.5 million for the three months endedJune 30, 2022 , and from$(16.0) million to$23.2 million in the six months endedJune 30, 2022 ; •Adjusted EBITDA decreased from$26.8 million to$21.5 million for the three months endedJune 30, 2022 , and decreased from$51.1 million to$46.5 million for the six months endedJune 30, 2022 , representing an Adjusted EBITDA Margin of 17.6% and 20.0%, respectively;
•Cash flows from operations decreased from
•Free cash flow decreased from
See the section titled "Key Operating Metrics and Non-GAAP Financial Measures" for information regarding Adjusted EBITDA, Adjusted EBITDA Margin and free cash flow, including a reconciliation to the most directly comparable financial measures prepared in accordance withU.S. generally accepted accounting principles ("GAAP"). 17
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COVID-19 and Macroeconomic Update
During the quarter endedJune 30, 2022 , the ongoing COVID-19 pandemic and the global macroeconomic environment have continued to negatively impact global supply chains and cause challenges to logistics, including causing ocean freight reliability and capacity issues, increased volatility in ocean freight transit times, port congestion, increased ocean and air freight rates and labor shortages. Certain of our ocean freight providers, as well as some of our suppliers and manufacturers, have previously experienced delays and shutdowns, and could experience delays and shutdowns again in the future due to the COVID-19 pandemic. As we continue to seek to timely and cost effectively fulfill orders and ship products to our customers, we have continued to take measures to mitigate these macroeconomic challenges to which we are not immune. For example, to meet our customers' expectations, in the quarter endedJune 30, 2022 , we continued to ship goods earlier from our manufacturers and suppliers when possible and adjusted shipments to alternate origin and destination ports to largely mitigate delays. We have also continued to use more expensive air freight, which increased our cost of goods sold. We have also adjusted our product and color launch calendar to accommodate new delivery timelines. We believe we have generally managed effectively through COVID-19 supply chain challenges, including as a result of our replenishment-driven model, and we expect to continue to take measures to mitigate these challenges. In the quarter endedJune 30, 2022 we continued to manage supply-chain related challenges, including volatility in ocean freight transit times, and we expect we will continue to contend with unpredictable ocean transit times, elevated ocean and air freight rates and other COVID-19 related supply chain challenges at least through the end of 2022. To continue to mitigate these challenges going forward, we expect to continue to use air freight at least through the end of 2022 and until ocean freight transit times become more predictable. In the quarter endedJune 30, 2022 , we also experienced higher than expected inventory receipts largely due to volatility in ocean freight transit times, which in turn resulted in increased costs associated with storing such inventory. As a general matter, our inventory investments will fluctuate with the needs of our business. For example, entering new locations and expanding to new categories all require additional investments in inventory. Shifts in inventory levels may result in fluctuations in the percentage of full price sales, levels of markdowns, merchandise mix, as well as gross margin. Nevertheless, because more than 85% of our production utilizes our main scrubwear fabric technology FIONx and a substantial amount of our revenue is generated by our core scrubwear styles in core colors, which are in demand year-round, we have been able to produce our raw materials and finished products farther in advance and hold greater inventory without significant risk of obsolescence or exposure to seasonality. In the quarter endedJune 30, 2022 , we also continued to see trends soften due to macroeconomic factors such as high inflation and shifts in consumer spending patterns. While we believe our largely non-discretionary, replenishment-driven business model is particularly resilient even in the current environment, we are not completely immune to these factors, which, in turn, could adversely affect our results of operations, in the near term. We continue to monitor the impacts of the COVID-19 pandemic, which may continue to adversely affect workforces, supply chains, economies and financial markets globally, potentially leading to an economic downturn or recession and a reduction in consumer spending or an inability for our suppliers, vendors or other parties with whom we do business to meet their contractual obligations, any of which could negatively impact our business and results of operations.
Key Factors Affecting Our Performance
We believe that our performance and future success depend on a number of factors that present significant opportunities for us. There have been no material changes to such factors from those described in our 2021 Annual Report on Form 10-K under the heading "Key Factors Affecting Our Performance." Those factors also pose risks and challenges, including those discussed in Part II, Item 1A. "Risk Factors" of this Quarterly Report on Form 10-Q.
Components of our Results of Operations
Net Revenues
Net revenues consist of sales of healthcare apparel, footwear and other products
primarily through our digital platform. We recognize product sales at the time
control is transferred to the customer, which is when the product is shipped to
the customer. Net revenues represent the sale of these items and shipping
revenue, net of estimated returns and
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discounts. Net revenues are primarily driven by the growth in the number of active customers, the frequency with which customers purchase and the average order value ("AOV").
Cost of Goods Sold Cost of goods sold consists principally of the cost of purchased merchandise and includes import duties and other taxes, freight-in, defective merchandise returned by customers, inventory write-offs and other miscellaneous shrinkage. Our cost of goods sold has and may continue to fluctuate with the cost of the raw materials used in our products and freight costs.
Gross Profit and Gross Margin
We define gross profit as net revenues less cost of goods sold. Gross margin is gross profit expressed as a percentage of net revenues. Our gross margin has fluctuated historically and may continue to fluctuate from period to period based on a number of factors, including the timing and mix of the product offerings we sell as well as our ability to reduce costs, in any given period.
Operating Expenses
Our operating expenses consist of selling, marketing and general and administrative expenses.
Selling
Selling expenses represent the costs incurred for fulfillment, selling and distribution. Fulfillment expenses consist of costs incurred in operating and staffing a third-party fulfillment center, including costs associated with inspecting and warehousing inventories and picking, packaging and preparing customer orders for shipment. Selling and distribution expenses consist primarily of shipping and other transportation costs incurred in delivering merchandise to customers and from customers returning merchandise, merchant processing fees and packaging. We expect fulfillment, selling and distribution costs to increase in absolute dollars as we increase our net revenues.
Marketing
Marketing expenses consist primarily of online performance marketing costs, such as retargeting, paid search and product listing advertisements, paid social media advertisements, search engine optimization, personalized email and mobile push notifications through our app. Marketing expenses also include our spend on brand marketing channels, including billboards, podcasts, commercials, photo and video shoot development, expenses associated with our Ambassador Program and other forms of online and offline marketing. We expect our marketing expenses to increase in absolute dollars as we continue to grow our business.
General and Administrative
General and administrative expenses consist primarily of employee-related costs, including salaries, bonuses, benefits, stock-based compensation, other related costs and other general overhead, including certain third-party consulting and contractor expenses, certain facilities costs, software expenses, legal expenses and recruiting fees. We expect our general and administrative expenses to increase in absolute dollars as we continue to grow our business. We also anticipate that we will continue to incur significant additional legal, accounting, insurance, investor relations and other expenses to support our operations as a public company, including costs associated with our compliance with the Sarbanes-Oxley Act. Other Income (Loss), Net Other income (loss), net consists of interest income or expense associated with debt financing arrangements, amortization of debt issuance costs and interest income earned on investments, as well as gain or loss on foreign currency, primarily driven by payment to vendors for amounts not denominated inU.S. dollars.
Provision for Income Taxes
Our provision for income taxes consists of an estimate of federal and state income taxes based on enacted federal and state tax rates, as adjusted for allowable credits, deductions and uncertain tax positions.
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Seasonality
Unlike the traditional apparel industry, the healthcare apparel industry is generally not seasonal in nature. However, we historically have generated a greater proportion of net revenues, and incurred higher selling and marketing expenses, during the fourth quarter of the year compared to other quarters, in part due to our decision to conduct select promotions during the holiday season, and we expect these trends to continue.
Results of Operations
Three Months Ended
The following table sets forth information comparing the components of our results of operations for the periods indicated and our results of operations as a percentage of net revenues for the periods presented.
Three months ended Three months ended
June 30, June 30,
2022 2021 2022 2021
(in thousands) (as a percentage of net revenues)
Net revenues $ 122,247 $ 101,117 100.0 % 100.0 %
Cost of goods sold 35,899 26,964 29.4 26.7
Gross profit 86,348 74,153 70.6 73.3
Operating expenses
Selling 26,803 19,222 21.9 19.0
Marketing 20,824 15,488 17.0 15.3
General and administrative(1) 29,270 71,504 23.9 70.7
Total operating expenses 76,897 106,214 62.8 105.0
Net income from operations 9,451 (32,061) 7.8 (31.7)
Other income (loss), net 70 (31) 0.1 0.0
Net income before provision for income taxes 9,521 (32,092) 7.9 (31.7)
Provision for income taxes 4,669 8,454 3.8 8.4
Net income and comprehensive income $ 4,852 $ (40,546) 4.1 % (40.1) %
(1) Includes stock-based compensation expense of
Net Revenues
Three months ended
June 30, Change
2022 2021 %
(in thousands)
Net revenues
Net revenues increased by$21.1 million , or 20.9%, for the three months endedJune 30, 2022 , compared to the same period last year. The increase in net revenues was driven primarily by an increase in orders as a result of strong retention of existing customers and new customer acquisition and, to a lesser extent, an increase in AOV. 20
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Cost of Goods Sold
Three months ended
June 30, Change
2022 2021
(in thousands)
Cost of goods sold $ 35,899 $ 26,964 33.1 %
Gross profit 86,348 74,153 16.4 %
Gross margin 70.6 % 73.3 % (270) bps
Cost of goods sold increased by $8.9 million , or 33.1%, for the three months
ended June 30, 2022 , compared to the same period last year. This increase was
primarily driven by an increase in the total number of orders in the second
quarter of 2022 as compared to the same period in 2021.
Gross profit increased by
Gross margin decreased by 2.7 percentage points for the three months ended
Operating Expenses
Three months ended
June 30, Change
2022 2021 %
(in thousands)
Operating expenses:
Selling $ 26,803 $ 19,222 39.4 %
Marketing 20,824 15,488 34.5 %
General and administrative 29,270 71,504 (59.1) %
Total operating expenses 76,897 106,214 (27.6) %
Operating expenses decreased by $29.3 million , or 27.6%, for the three months
ended June 30, 2022 , compared to the same period last year and, as a percentage
of net revenues, decreased by 42.2 percentage points, primarily driven by a
decrease in general and administrative expenses as described below.
Selling expense increased by $7.6 million , or 39.4%, for the three months ended
June 30, 2022 , compared to the same period last year and, as a percentage of net
revenues, increased by 2.9 percentage points. The increase in selling expense as
a percentage of net revenues was primarily driven by higher shipping expense as
a result of rate increases and, to a lesser extent, higher fulfillment expenses.
These higher expenses were partially offset by leverage in shipping and
fulfillment as a result of an increase in AOV.
Marketing expense increased by $5.3 million , or 34.5%, for the three months
ended June 30, 2022 , compared to the same period last year and, as a percentage
of net revenues, increased by 1.7 percentage points. The increase in marketing
expense as a percentage of net revenues was primarily due to increased
investment in brand marketing, including increased investments in our Ambassador
Program and offline marketing. This increase was partially offset by increased
efficiency of our performance marketing expenses.
General and administrative expense decreased by $42.2 million , or 59.1%, for the
three months ended June 30, 2022 , compared to the same period last year and, as
a percentage of net revenues, decreased by 46.8 percentage points. The decrease
in general and administrative expense as a percentage of net revenues was
primarily due to a decrease in stock-based compensation expense, partially
offset by increased public company costs.
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Other Income (Loss), Net
Three months ended
June 30, Change
2022 2021 %
(in thousands)
Other income (loss), net $ 70 $ (31) (325.8) %
Other income (loss), net increased for the three months ended June 30, 2022 ,
compared to the same period last year, primarily related to an increase in our
interest income driven by higher interest rates as well as a decrease in
interest expense related to our revolving credit commitment fee.
Provision for Income Taxes
Three months ended
June 30, Change
2022 2021 %
(in thousands)
Provision for income taxes $ 4,669 $ 8,454 (44.8) %
Provision for income taxes decreased by $3.8 million , or 44.8% for the three
months ended June 30, 2022 , compared to the same period last year, primarily due
to a decrease in pre-tax income excluding the impact of stock-based compensation
expense related to our initial public offering ("IPO") in the prior year. Our
effective tax rate was 49.0% for the quarter, up from the same period last year
primarily due to the impact of certain non-deductible items including
stock-based compensation expense.
Six Months Ended
The following table sets forth information comparing the components of our results of operations for the periods indicated and our results of operations as a percentage of net revenues for the periods presented.
Six months ended Six months ended
June 30, June 30,
2022 2021 2022 2021
(in thousands) (as a percentage of net revenues)Net revenues$ 232,348 $ 188,196 100.0 % 100.0 % Cost of goods sold 67,569 51,683 29.1 27.5 Gross profit 164,779 136,513 70.9 72.5 Operating expenses Selling 48,861 36,337 21.0 19.3 Marketing 36,232 26,327 15.6 14.0 General and administrative(1) 56,490 89,850 24.3 47.7 Total operating expenses 141,583 152,514 60.9 81.0 Net income from operations 23,196 (16,001) 10.0 (8.5) Other income (loss), net 78 (69) 0.0 (0.0) Net income before provision for income taxes 23,274 (16,070) 10.0 (8.5) Provision for income taxes 9,523 13,036 4.1 6.9
Net income and comprehensive income
5.9 % (15.5) %
(1) Includes stock-based compensation expense of
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Net Revenues
Six months ended
June 30, Change
2022 2021 %
(in thousands)
Net revenues $ 232,348 $ 188,196 23.5 %
Net revenues increased by $44.2 million , or 23.5%, for the six months ended
June 30, 2022 , compared to the same period last year. The increase in net
revenues was driven by both strong AOV growth and an increase in orders as a
result of strong retention of existing customers and new customer acquisition.
Cost of Goods Sold
Six months ended
June 30, Change
2022 2021
(in thousands)
Cost of goods sold $ 67,569 $ 51,683 30.7 %
Gross profit 164,779 136,513 20.7 %
Gross margin 70.9 % 72.5 % (160) bps
Cost of goods sold increased by $15.9 million , or 30.7%, for the six months
ended June 30, 2022 , compared to the same period last year. This increase was
primarily driven by an increase in the total number of orders in the first half
of 2022 compared to the same period in 2021.
Gross profit increased by
Gross margin decreased 1.6 percentage points for the six months endedJune 30, 2022 , compared to the same period last year. The decrease in gross margin was primarily related to an increase in freight-in driven by higher utilization of more expensive air freight and increased ocean and air freight rates. Operating Expenses Six months ended June 30, Change 2022 2021 % (in thousands) Operating expenses: Selling$ 48,861 $ 36,337 34.5 % Marketing 36,232 26,327 37.6 %
General and administrative 56,490 89,850 (37.1) % Total operating expenses 141,583 152,514 (7.2) %
Operating expenses decreased by$10.9 million , or 7.2%, for the six months endedJune 30, 2022 , compared to the same period last year and, as a percentage of net revenues, decreased by 20.1 percentage points, primarily driven by a decrease in general and administrative expenses as described below. Selling expense increased by$12.5 million , or 34.5%, for the six months endedJune 30, 2022 , compared to the same period last year and, as a percentage of net revenues, increased by 1.7 percentage points. The increase in selling expense as a percentage of net revenues was primarily driven by higher shipping expense as a result of rate increases. This higher expense was partially offset by leverage in shipping as a result of an increase in AOV. 23
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Marketing expense increased by$9.9 million , or 37.6%, for the six months endedJune 30, 2022 , compared to the same period last year and, as a percentage of net revenues, increased by 1.6 percentage points. The increase in marketing expense as a percentage of net revenues was primarily due to increased investment in brand marketing, including increased investments in our Ambassador Program and offline marketing. This increase was partially offset by increased efficiency of our performance marketing expenses. General and administrative expense decreased by$33.4 million , or 37.1%, for the six months endedJune 30, 2022 , compared to the same period last year and, as a percentage of net revenues, decreased by 23.4 percentage points. The decrease in general and administrative expense as a percentage of net revenues was primarily due to a decrease in stock-based compensation expense, partially offset by increased public company costs. Other Income (Loss), Net Six months ended June 30, Change 2022 2021 % (in thousands) Other income (loss), net$ 78 $ (69) (213.0) %
Other income (loss), net increased for the six months ended
Provision for Income Taxes
Six months ended
June 30, Change
2022 2021 %
(in thousands)
Provision for income taxes $ 9,523 $ 13,036 (26.9) %
Provision for income taxes decreased by $3.5 million , or 26.9% for the six
months ended June 30, 2022 , primarily due to a decrease in pre-tax income
excluding the impact of stock-based compensation expense related to our IPO in
the prior year. Our effective tax rate was 40.9% for the six months ended
June 30, 2022 , up from the same period last year primarily due to the impact of
certain non-deductible items, including stock-based compensation expense.
Key Operating Metrics and Non-GAAP Financial Measures
We report our financial results in accordance with GAAP. In addition to the measures presented in our financial statements, we use the following key operational and business metrics to evaluate our business, measure our performance, develop financial forecasts and make strategic decisions. We believe the non-GAAP financial measures, Adjusted EBITDA, Adjusted EBITDA Margin and free cash flow, are useful in evaluating our performance. Our non-GAAP financial measures should not be considered in isolation from, or as substitutes for, financial information prepared in accordance with GAAP.
Active Customers, Net Revenues per Active Customer, and Average Order Value
The number of active customers is an important indicator of our growth as it
reflects the reach of our digital platform, our brand awareness and overall
value proposition. We define an active customer as a unique customer account
that has made at least one purchase in the preceding 12-month period. In any
particular period, we determine our number of active customers by counting the
total number of customers who have made at least one purchase in the preceding
12-month period, measured from the last date of such period.
As of June 30,
2022 2021
(in thousands)
Active customers 2,047 1,622
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We believe the growth in our net revenues per active customer demonstrates our
increased value proposition for our customer base. We define net revenues per
active customer as the sum of total net revenues in the preceding twelve month
period divided by the current period active customers.
As of June 30,
2022 2021
Net revenues per active customer
We define average order value ("AOV") as the sum of the total net revenues in a
given period divided by the total orders placed in that period. Total orders are
the summation of all completed individual purchase transactions in a given
period. We believe our relatively high average order value demonstrates the
premium nature of our product. As we expand into and increase our presence in
additional product categories and price points as well as expand
internationally, AOV may fluctuate.
Three months ended Six months ended
June 30, June 30,
2022 2021 2022 2021
Average order value $ 109 $ 103 $ 112 $ 101 Adjusted EBITDA and Adjusted EBITDA Margin
We calculate Adjusted EBITDA as net income (loss) adjusted to exclude: other income (loss), net; gain/loss on disposal of assets; provision for income taxes; depreciation and amortization expense; stock-based compensation expense; transaction costs; and expenses related to non-ordinary course disputes. Adjusted EBITDA Margin is calculated by dividing Adjusted EBITDA by net revenues. Management believes that excluding certain non-cash items and items that may vary substantially in frequency and magnitude period-to-period from net income provides useful supplemental measures that assist in evaluating our ability to generate earnings, provide consistency and comparability with our past financial performance and facilitate period-to-period comparisons of our core operating results as well as the results of our peer companies.
There are several limitations related to the use of Adjusted EBITDA and Adjusted EBITDA Margin as analytical tools, including:
•other companies may calculate Adjusted EBITDA and Adjusted EBITDA Margin differently, which reduces their usefulness as a comparative measure;
•Adjusted EBITDA and Adjusted EBITDA Margin do not reflect other income (loss), net;
•Adjusted EBITDA and Adjusted EBITDA Margin do not reflect any gain or loss on disposal of assets;
•Adjusted EBITDA and Adjusted EBITDA Margin do not reflect our tax provision, which reduces cash available to us;
•Adjusted EBITDA and Adjusted EBITDA Margin do not reflect recurring, non-cash expenses of depreciation and amortization of property and equipment and, although these are non-cash expenses, the assets being depreciated and amortized may have to be replaced in the future;
•Adjusted EBITDA and Adjusted EBITDA Margin do not reflect the impact of stock-based compensation expense;
•Adjusted EBITDA and Adjusted EBITDA Margin do not reflect transaction costs; and
•Adjusted EBITDA and Adjusted EBITDA Margin do not reflect expenses related to non-ordinary course disputes.
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The following table reflects a reconciliation of Adjusted EBITDA to net income
(loss), the most directly comparable financial measure prepared in accordance
with GAAP:
Three months ended Six months ended
June 30, June 30,
2022 2021 2022 2021
(in thousands, except margin)
Net income (loss) $ 4,852 $ (40,546) $ 13,751 $ (29,106)
Add (deduct):
Other income (loss), net (70) 31 (78) 69
Provision for income taxes 4,669 8,454 9,523 13,036
Depreciation and amortization expense(1) 433 344 808 656
Stock-based compensation and related
expense(2) 8,808 56,716 17,254 61,731
Transaction costs - (186) - 339
Expenses related to non-ordinary course
disputes(3) 2,787 1,980 5,204 4,416
Adjusted EBITDA $ 21,479 $ 26,793 $ 46,462 $ 51,141
Adjusted EBITDA Margin 17.6 % 26.5 % 20.0 % 27.2 %
(1) Excludes amortization of debt issuance costs included in "Other income (loss), net."
(2) Includes stock-based compensation expense and payroll taxes related to equity award activity.
(3) Represents certain legal fees incurred in connection with the litigation claims described in the section titled "Legal Proceedings" appearing in this Quarterly Report on Form 10-Q.
Free Cash Flow
We calculate free cash flow as net cash provided by operating activities reduced by capital expenditures, including purchases of property and equipment and capitalized software development costs. We believe free cash flow is a useful measure of liquidity and an additional basis for assessing our ability to generate cash. There are limitations related to the use of free cash flow as an analytical tool, including: other companies may calculate free cash flow differently, which reduces its usefulness as a comparative measure; and free cash flow does reflect our future contractual commitments and it does not represent the total residual cash flow for a given period.
The following table presents a reconciliation of free cash flow to net cash (used in) provided by operating activities, the most directly comparable financial measure calculated in accordance with GAAP:
Six months ended June 30,
2022 2021
(in thousands)
Net cash (used in) provided by operating activities $ (26,535) $ 32,741
Less: capital expenditures (1,727) (1,023)
Free cash flow $ (28,262) $ 31,718 Liquidity and Capital Resources
As ofJune 30, 2022 andDecember 31, 2021 , we had$170.2 million and$195.4 million of cash and cash equivalents, respectively. Since inception, we have financed operations primarily through cash flow from operating activities, the sale of our capital stock and borrowings under credit facilities. InDecember 2020 , we entered into a credit agreement withJ.P. Morgan Chase Bank, N.A ., providing for a revolving credit facility in an initial amount of up to$50.0 million (the "2020 Facility"). OnSeptember 7, 2021 , we terminated the 2020 Facility. 26
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InSeptember 2021 , we entered into a credit agreement withBank of America, N.A . providing for a revolving credit facility in an amount of up to$100.0 million (the "2021 Facility"). The 2021 Facility will mature inSeptember 2026 . As ofJune 30, 2022 , we had no outstanding borrowings under the 2021 Facility (other than$4.4 million of outstanding letters of credit) and available borrowings of$95.6 million .
See Note 8 to our condensed financial statements included elsewhere in this Quarterly Report on Form 10-Q for more information regarding the 2021 Facility.
Our cash requirements have primarily been for working capital and capital expenditures. We believe that existing cash and cash equivalents and available borrowings under our 2021 Facility, if needed, will be sufficient to support working capital and capital expenditure requirements for at least the next 12 months. Our future capital requirements may vary materially from those currently planned and will depend on many factors, including our rate of revenue growth, the timing and extent of international expansion efforts and other growth initiatives, the expansion of our marketing activities and overall economic conditions. To the extent that current and anticipated future sources of liquidity are insufficient to fund our future business activities and requirements, we may be required to seek additional equity or debt financing. The sale of additional equity would result in additional dilution to our stockholders. The incurrence of additional debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations. There can be no assurances that we will be able to raise additional capital when needed or on terms acceptable to us. The inability to raise capital if needed would adversely affect our ability to achieve our business objectives.
Historical Cash Flows
The following table summarizes our cash flows for the periods presented:
Six months ended
June 30,
2022 2021
(in thousands)
Net cash (used in) provided by operating activities $ (26,535) $ 32,741
Net cash used in investing activities (2,227) (1,023)
Net cash provided by financing activities 1,552 74,117
Net (decrease) increase in cash, cash equivalents, and
restricted cash $ (27,210) $ 105,835
Operating Activities
Cash (used in) provided by operating activities consists primarily of net income
adjusted for certain items including depreciation and amortization, stock-based
compensation expense and the effect of changes in operating assets and
liabilities.
Cash (used in) provided by operating activities decreased by $59.3 million for
the six months ended June 30, 2022 , compared to the same period last year. The
change in operating cash flows was primarily due to a net change in operating
assets and liabilities of $56.1 million driven by higher inventory purchases and
the timing of payments against payable and accrued expense balances during the
comparable six month period in 2021.
Investing Activities
Cash used in investing activities relates to capital expenditures and other investing activities.
Cash used in investing activities increased by$1.2 million for the six months endedJune 30, 2022 , compared to the same period last year. The change in investing cash flows was primarily due to an increase in capital expenditures and cash used for the purchase of held-to-maturity securities.
Capital expenditures during the six months ended
Capital expenditures during the six months endedJune 30, 2021 were primarily related to purchases of computer equipment, purchases of furniture and fixtures, and capitalized software development costs. 27
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Financing Activities
Cash provided by financing activities consists primarily of proceeds and payments related to transactions involving our common stock, borrowings, and fees associated with our existing line of credit.
Cash provided by financing activities of$1.6 million for the six months endedJune 30, 2022 was primarily attributable to proceeds from stock option exercises and employee stock purchases. Cash provided by financing activities was$74.1 million for the six months endedJune 30, 2021 , which was attributable to proceeds from our IPO and proceeds from stock option exercises, partially offset by tax payments related to net share settlements on restricted stock units.
Contractual Obligations and Commitments
There have been no material changes to our contractual obligations from those described in our 2021 Annual Report on Form 10-K.
Refer to Note 9 to our condensed financial statements appearing elsewhere in this Quarterly Report on Form 10-Q for commitments entered into during the six months endedJune 30, 2022 .
Critical Accounting Policies and Estimates
Our condensed financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q are prepared in accordance with GAAP. The preparation of financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from our estimates. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. Our critical accounting policies are described under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Estimates" in our 2021 Annual Report on Form 10-K, and in Note 2 to our condensed financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.
Recent Accounting Pronouncements
Refer to Note 2 to our condensed financial statements appearing elsewhere in this Quarterly Report on Form 10-Q for a discussion of accounting pronouncements recently adopted and their impact to our financial statements.
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