FIGS, Inc. (FIGS) Q3 2021 Earnings Call Transcript

FIGS, Inc. (FIGS -0.53%)
Q3 2021 Earnings Call
Nov 10, 2021, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon, and thank you for standing by. Welcome to the FIGS third quarter 2021 earnings conference call. [Operator instructions] Please be advised that reproduction of this call, in whole or in part, is not permitted without written authorization from FIGS. And as a reminder, this call is also being recorded.

I would now like to introduce your host for today's call, Ms. Carrie Gillard, vice president of investor relations. Ms. Gillard, please go ahead.

Carrie Gillard -- Vice President, Investor Relations

Good afternoon, and thank you for joining today's call to discuss FIGS third quarter 2021 results, which were released this afternoon and can be found on the FIGS website at ir.wearfigs.com. Presenting on today's call will be Trina Spear, our co-chief executive officer; and Jeff Lawrence, our chief financial officer. Heather Hasson, our co-chief executive officer, will 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 laws.

These may include predictions, expectations, or estimates, including about our anticipated financial performance, market opportunities, business strategy and plans and our operational capacity, and actual results could materially -- 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. These risks, 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 shareholder letter furnished today.

You 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 new information. Additionally, information discussed on this call concerning our industry, competitive position, and our markets are based on information from third-party sources and management estimates. These assumptions are also subject to risks, which could cause results to differ materially from those expressed in the estimates. Finally, this call will also contain certain non-GAAP metrics, which we believe are useful supplemental measures as well as certain key performance indicators, which we also believe are useful for understanding our business and performance.

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 Investor Relations portion of our website at ir.wearfigs.com. Now I would like to turn the call over to Trina Spear, co-chief executive officer, FIGS.

Trina Spear -- Co-Chief Executive Officer

Thanks, Carrie. Good afternoon, everyone, and we appreciate you joining us today to discuss our financial results and an update on the exciting things happening at FIGS. First, I will discuss a few business updates on today's call and then hand it over to Jeff to discuss our financial results and outlook. Our third quarter performance reflects the strong demand for our brand by healthcare professionals, the power of our unique and durable business model and the strength of our team.

We are transforming and expanding the $79 billion global healthcare apparel industry through 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 a direct-to-consumer brand. Our net revenues for the third quarter were $103 million, which represents growth of 34% compared to the third quarter of 2020. Excluding the $4.2 million nonrecurring related party sale from Q3 2020, net revenues grew 41%.

Our growth was driven by the continued expansion of our customer base and higher average order value for new and existing customers. Our total active customer base is now more than 1.7 million intensely loyal Awesome Humans, which keeps growing bigger and bigger every single day. We paired our revenue growth with a high level of profitability. We generated net income of $7 million and diluted earnings per share of $0.03 in the quarter or $0.05 on an 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. 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.

Our non-scrubs lifestyle 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 healthcare professionals love to wear every day. As a reminder, we are a uniform company focusing on outfitting the healthcare community to work, at work, from work, on-shift, off-shift, head to toe. To us, that means a complete layering system of innovative products that fit seamlessly into their lives to help them do their jobs better.

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. Our strategy with these core styles is to have a steady supply of products that healthcare professionals come back all year round to replenish and that enable them to be at their best. Through the direct connection we have with healthcare professionals, we're able to use their feedback in our data-driven design process to make products that are 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 to our best-selling Yola pants to ensure that these core styles are always growing and improving.

Alongside our core styles in core colors, we released limited-edition styles and colors just about weekly to keep things fresh and exciting, driving even more engagement and traffic to our 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 over time while also growing our net revenue per active customer every year. These launches allow us to deepen our connection with our healthcare professionals who come back to FIGS again and again.

While scrubs is the foundation of FIGS, the opportunity for our 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 as a complete layering system. What are they wearing under their scrubs like our underscrubs or sports bras or leggings, to their scrubs to what are they wearing over their scrubs, our vests or jackets or fleeces and more.

With our non-scrub 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 experience perspective, we use our data segmentation strategies to bring the most dynamic, fun and personalized shopping experience possible through innovative new features and content that we're creating every day. One great example has been the launch of our kits. By bundling multiple items together to curate different looks, we made it simpler and more convenient for customers to purchase everything they need with one click.

Of course, it's still early on, but in just the 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 AOV and units per transaction, and it also leads to an even greater uptake of our lifestyle offering. With a strong retention rate of around 50%, our 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 expands our total addressable market far beyond the $79 billion healthcare 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 is no doubt that the most authentic way for new healthcare professionals to learn about FIGS is through other healthcare professionals who already wear 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.

In the third quarter, we were particularly pleased with our ability to attract more healthcare professionals to our brand. Because we were so efficient from a performance marketing standpoint, 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 healthcare professionals and inspire the next generation to become them. Beyond marketing, our brand building comes from the impact initiatives that we're so passionate about.

From our $500,000 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 donated around the world in the quarter, we show up in authentic and meaningful ways that impact our community. This devotion to our mission and our community is what makes FIGS so special and is a big part of why healthcare professionals feel so connected to our brand. From an operations 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.

Health care professionals need our products to do their jobs, and it's our responsibility to get those products to them as quickly and efficiently as possible. We continue to monitor the dynamic supply chain challenges 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 disruptions, with all of our manufacturing facilities currently operating at near or full productivity. As a company that has grown 68% through the first 3 quarters of 2021, and that grew 138% in 2020, we have always leveraged the strength of our business model to navigate through the impact of COVID-19.

Some of our biggest differentiators 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 Q4, 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 airfreight, primarily to ensure we get our limited-edition styles and colors and 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 are seeing from our healthcare professionals. 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 strengths to drive toward $1 billion-plus in 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.

We are building the brand for healthcare professionals, the fastest-growing job segment in the United States. Our business, like the healthcare 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 healthcare professionals. 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.

Jeff Lawrence -- Chief Financial Officer

Thanks, Trina, and good afternoon, everyone. We are excited to share with you the financial results of our third quarter, so 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 nonrecurring 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. We continued 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 AOV, to $102 in the quarter compared to $99 in Q3 of 2020. Gross margin for Q3 decreased one percentage point to 72.7% compared to Q3 2020.

This change 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 increase was primarily related to expansion of our third-party warehouse as well as increased 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 than in the first half of 2021. As a result, we drove incremental investments in brand marketing to drive top-of-the-funnel awareness. General and administrative expense for Q3 was $28.4 million, representing 27.7% of net revenues compared to 10.9% in Q3 2020.

This increase was primarily driven by: noncash 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 contributions. 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. Our 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 $0.03 in diluted earnings per share for the quarter. Diluted EPS as adjusted was $0.05 in Q3 compared to $0.12 in Q3 2020. The decrease in diluted earnings per share, as adjusted, is primarily due to a decrease in pre-tax income, largely driven by higher noncash comp, costs associated with being a public company and investments in our team.

Finally, our adjusted EBITDA for Q3 was $22.2 million. Adjusted EBITDA margin was 21.6% for Q3 compared to 33.5% in Q3 of 2020. This change was 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 DTC space as one of the select brands able to produce real and substantial cash flows while also delivering 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 IR website for the required disclosures and reconciliations. Moving to the balance sheet. Our cash position at quarter-end was strong with cash and cash equivalents of $181 million.

We were also excited to announce during the quarter that we entered into a new $100 million revolving credit facility with more favorable borrowing terms than our previous facility. We have the capital to continue to grow this amazing brand the right way. Moving on to our outlook. As Trina explained, we raised our outlook for 2021 net revenues to be $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. As Trina mentioned, given these challenges, we proactively made the decision to air freight more goods during Q4 based on the demand for our products, coupled with the reality of operating a global supply chain in a COVID-19 world. Based on our visibility today, what that means for the fourth quarter is we anticipate spending approximately $8 million to $10 million in air freight.

For context, in the third quarter, we spent about $1 million on air freight. While this will significantly impact our gross margin for Q4, we currently anticipate more favorable shipping dynamics as we enter into 2022. Keeping all of this in mind and zooming out a bit, we would like to remind folks that despite these near-term supply chain challenges, 2021 is shaping up to be another amazing year for us financially, with full year revenues expected to be up 56% compared to 2020. In addition, 2021 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 results in the most challenging environments while further shining a light on our structurally advantaged 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 and annual adjusted EBITDA margin of 70% or more and 20% or more, respectively, over each of the next 3 fiscal years. We could not be more optimistic about where our business is headed.

And with that, I will turn it over to Heather to kick off our Q&A.

Heather Hasson -- Co-Chief Executive Officer

Thanks, Jeff. Before turning to analyst questions, we're first going to answer some questions we received from retail shareholders through the Say platform. We feel strongly about providing a voice to our retail investors for the same reason we were the first company to provide access to an IPO through Robinhood. It's fundamental to our mission that we maintain a direct connection to the healthcare community, that we empower them and that we make sure that they have a seat at the table.

That's why we wanted people outside of Wall Street, especially healthcare professionals, to be able to participate in our IPO. 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 5 of the most up-voted questions that we have received. All right.

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, celebrate and serve healthcare professionals. We believe the world is a better place with more healthcare professionals, not less.

As a group, they range from scientists and innovators who are tasked with solving some of humanity's toughest problems to nurses, EMTs, and doctors, all of whom make the world more interesting, uplifting and a far safer place for the rest of us. So we want to see more of them. Part of FIGS' strategy to achieve our vision means doing everything we can to ensure that serving as a healthcare professional is an astoundingly wonderful experience, so much that we help to inspire members of the next generation to become healthcare professionals themselves. And this happens with growth, specifically, and this is key, our brand growing well beyond just scrubs.

For example, Trina spoke earlier about our goal to commercially address the unique product requirements of healthcare professionals, which obviously encompass a market far larger than scrubs. Further, we intend to keep addressing their particular needs not only when they're at work but also when they're not. Of course, leveraging our brand equity beyond scrubs will meaningfully grow our addressable market at a macro level. Separately, there's a big opportunity to grow internationally.

Scrubs is a $12 billion 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 healthcare professionals everywhere are demanding the highest quality products.

In short, international growth represents a massive opportunity and is 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 serving about 3% of the U.S.

market today, so there's quite the growth opportunity here at home. In fact, the number of healthcare professionals in the U.S. is expected to grow by 15% through 2029, meaning FIGS has the potential to enjoy tremendous expansion over the next decade. Circling back to my earlier comments, we spent an enormous amount of time thinking about what healthcare professionals care about and how we can improve their lives, and then we innovate around those needs.

For example, last quarter, we announced a program to give out $500,000 in tuition grants for healthcare students. We handed out more than $1 million worth of product in medical professionals in need, and we service a wonderful partnership with Memorial Sloan Kettering Cancer Center. So to sum it up, we believe that revolutionizing healthcare apparel meaningfully improves the experience of being a healthcare professional and increasing market share, innovating new products, and helping inspire our enter the healthcare industry and are all examples of how we achieve our long-term vision of helping improve healthcare overall. And I'd like to thank Tony P.

for that question, and I'll pass it off to Trina for the next one.

Trina Spear -- Co-Chief Executive Officer

Thanks, Heather. The next question is from Connor S., who asks, as supply chains 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? OK. So from a supply chain perspective, we're in a really strong position because we have three structural advantages: number one, we're a uniform company, which means that our customers need our products in order to do their jobs, so demand is predictable. We have a nonseasonal business and we have a replenishment-driven business.

This gives us an incredible amount of visibility into 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 bring in goods farther in advance. Second, we have a highly consistent fabrication and style profile. As we've discussed, more than 90% of our product is made with the same fabrication, FIONx, and more than 80% of our volume comes from 13 core scrubwear styles.

What does that do? It results in a very consistent high volume, low SKU count production, which makes us essentially a supplier's dream. Third, we're 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. And we have all this data that helps us to know what product they need and when they need it.

This allows us to provide 12- to 18-month rolling forecasts to our suppliers, and it also means we could adjust our calendar and our launch schedule, if there is any delay. We're not waiting on a PO 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 weather any macro challenges much better than other companies. Heather, next question is yours.

Heather Hasson -- Co-Chief Executive Officer

Question three. Adam H. asked whether we're considering other colors and whether we're aware that the Cleveland Clinic requires colors that we don't have. All right.

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 as thoughtful and purposeful as our innovative fabrics and designs. We strategically built color for a more dynamic customer experience, such as by layering in the tricolor launch that we had in Q3 and also by creating colors that are purposefully created for different parts of the year. I would be shocked if anyone in the industry put as much thought into color as we do.

And we're also highly knowledgeable about hospital standard 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 released other hospital standard colors on a periodic basis, like Hunter Green or Caribbean Blue, so that all the healthcare professionals are able to wear FIGS. We also think it's been really cool to see hospital departments and medical offices making FIGS their standard colors.

We've seen over and over again with groups swapping out their old gray for FIGS Graphite. Cleveland Clinic, we know what colors you wear. We got it, message received. We are on it.

Next question. Question four is from James S., who asked, for people of non-average sizes, are you planning to design sizes that are more friendly for those body types? We're so glad you asked this question, James. It's a great question. Size inclusivity is something we're really passionate about and we're committed to being the absolute best at.

We talked in our shareholder letter about our online model selector. Health care 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 who are 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, 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.

Trina Spear -- Co-Chief Executive Officer

Thanks, Heather. 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 to us that we maintain a direct relationship with our healthcare professionals. It's 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 really deliberate about stopping sales to resellers when we learn about them. We do this to protect our brand, but more importantly, to protect you as our healthcare professionals. After all, our products are not only premium, they're also super accessible. In 2020, about two-thirds of our customers earned less than $100,000 a year and about one-third earned less than $50,000.

So even though reselling really hasn't been a big problem for us, we're going to continue to monitor it going forward. OK. 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.

Questions & Answers:

Operator

Thank you, Ms. Trina. [Operator instructions] Our first question comes from the line of Bob Drbul from Guggenheim. Your line is open.

Bob Drbul -- Guggenheim Partners -- Analyst

Hey. Congratulations. Nice quarter, guys.

Trina Spear -- Co-Chief Executive Officer

Thank you.

Bob Drbul -- Guggenheim Partners -- Analyst

I guess I was wondering if we could spend a little bit of time just on the replenishment trends and days between purchases. Just what you're seeing from your customer base and if there's been really any major changes as we sort of -- as COVID continues to wane a bit on the outlook.

Trina Spear -- Co-Chief Executive Officer

Sure. Thank you so much. I mean, I think where we're focused is really on -- what we're looking at is spend over time and how often our customers are coming -- not only coming back to us but how much they're spending month-over-month and quarter-over-quarter and year-over-year. And what we're seeing is that those numbers are all going up into the right.

From a frequency of purchase, we're looking at that, too. We don't see any real deviation from what we've experienced in the past. And so we're really excited to see that our customers are coming back, not only -- and not only just for our scrubs, that's the other important thing to note. As they come back, they're adding our other items, our lifestyle, our outerwear, our compression socks, or under-scrubs.

They're adding those items, especially the longer they're with us. And not only that, their orders are going up over time the longer they're with us.

Bob Drbul -- Guggenheim Partners -- Analyst

OK. Thank you.

Operator

The next question comes from the line of Ed Yruma from KeyBanc. Please ask your question.

Ed Yruma -- KeyBanc Capital Markets -- Analyst

Hey. Good afternoon, guys. Just a quick one for me. I guess, first on marketing.

It 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'll continue to reinvest back in the brand? And just maybe even a little bit more color on that performance, given, I guess, all the IDSA issues that others are complaining about. And then just as a quick follow-up. We've noted in some local newspapers that there seems to be a high turnover of nurses and other healthcare professionals due to the vax mandate.

Are you seeing any pockets of weakness in some of these geographies where the turnover is higher?

Trina Spear -- Co-Chief Executive Officer

Thank you so much for the question. I mean, I think what we're seeing is, from a marketing standpoint, it's 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 Facebooks and the Googles of the world, although they are incredible partners. 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 and as we've seen our performance marketing become more efficient, we are taking those gains and investing it into our brand, more top-of-the-funnel brand initiatives like our amazing comprehensive out-of-home strategy that we put out to the world in the third quarter. So we're going to continue to do that.

In terms of -- if we're seeing any weakness from a healthcare 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 hospitals to office. But overall, this industry is growing and it's growing fast. It's the fastest-growing industry in the United States, and we're excited to continue to show up for our community even long after this pandemic.

Ed Yruma -- KeyBanc Capital Markets -- Analyst

Thanks so much.

Operator

Your next question comes from the line of Brian Nagel from Oppenheimer. Please ask your question.

Brian Nagel -- Oppenheimer and Company -- Analyst

Hi, good afternoon. Congrats on the continued success.

Trina Spear -- Co-Chief Executive Officer

Thank you.

Brian Nagel -- Oppenheimer and Company -- Analyst

So my first question has to do with supply chain. You're talking -- in the prepared comments, you talked quite a bit about just some of the efforts you're taking to mitigate supply chain and primarily, airfreight. But the question I have is, are there other issues in the supply chain or maybe even shipping itself that's still, to some extent, limiting sales growth somewhat? In other words, if there weren't supply chain constraints, would sales growth have been stronger?

Trina Spear -- Co-Chief Executive Officer

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 factories and our mills around the world are pretty much at full capacity. And from a demand side, our healthcare professionals are demanding FIGS products and 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 airfreight more, to get those products for our healthcare professionals, would we be able to see more revenue if we were able to get more products? Potentially.

But I think what we've done is we forecasted a really healthy growth rate coupled with profitability that is best in class to be able to meet the demand that we're seeing. But we're continually evaluating that. And I think one of the unique things that we also have here at FIGS is that ability to forecast that demand in a really accurate way because we're DTC, because we're data-driven.

Brian Nagel -- Oppenheimer and Company -- Analyst

Very helpful. Perfect. And just a quick follow-up to that, also with regard to supply chain. You talked a lot about the innovation, whether it be colors or other products.

Have you continued to push on innovation as hard as you want despite some of these supply chain constraints?

Trina Spear -- Co-Chief Executive Officer

Oh, yes. I mean, Heather, like, we may 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's really that -- the ocean freight where we're seeing the challenge at port, but that's not stopping us from innovating every single day at FIGS to provide the highest quality products to our healthcare professionals every single day.

Brian Nagel -- Oppenheimer and Company -- Analyst

Got it. Appreciate all the color. Thank you.

Trina Spear -- Co-Chief Executive Officer

One thing I just want to add is we just came out with a huge ad. So talking about innovation, if you haven't seen that check it out, it's awesome.

Operator

You are next, Erinn Murphy of Piper Sandler. Your line is open.

Erinn Murphy -- Piper Sandler -- Analyst

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 gives you guys the confidence to raise the full year by more than the third quarter beat? And then a second question for Jeff. Specifically on the gross margin in the fourth quarter, you did talk about the added air freight. But just curious if there's any other puts or takes we need to be aware of.

It's a holiday season. You guys weren't 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.

Trina Spear -- Co-Chief Executive Officer

Thanks, Erinn. Yes, I mean, I think 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 to actually outperform that as well. I think we're seeing strong demand signals across the market.

And we have a ton of strategies in place across our marketing teams and our merchandising teams so that we can really not only meet but potentially exceed these numbers that we've put out, so -- And in Q4 specifically, we are -- holiday is 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 -- we're just excited to see that. And the other thing I would just mention is when we look at the numbers for 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, you have anything to add?

Jeff Lawrence -- Chief Financial Officer

No. Not really. Erinn, just on the gross margin for Q4, again, airfreight, we think is transitory. Did it proactively and strategically to make sure we're getting the product in to meet the demand.

But there's some small puts and takes but nothing that I'd really call out. We do have structurally advantaged margins, and it will just be one more quarter where I think we demonstrate that again.

Erinn Murphy -- Piper Sandler -- Analyst

Great. Thank you both so much, and Heather, thanks.

Operator

The next question comes from the line of Lorraine Hutchinson of Bank of America. Your line is open.

Lorraine Hutchinson -- Bank of America Merrill Lynch -- Analyst

Thanks. Good afternoon. When you think about the $8 million to $10 million of incremental air freight, is that a run rate that we should think about into next year? Or do you see that dissipating as peak season passes? And then are there any offsets, particularly around pricing, that you might think about as these costs linger?

Trina Spear -- Co-Chief Executive Officer

Thank you so much for that question. I mean, we really don't see that at all as a run rate and this is a transitory strategic decision that we've made. So 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 and the supply chain pressures 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 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 healthcare professionals. We don't see any need to increase our pricing. As it stands today, we've locked in our costing with our partners and so we feel really good about where we are.

Lorraine Hutchinson -- Bank of America Merrill Lynch -- Analyst

Thank you.

Operator

Your next question comes from the line of John Kernan from Cowen. Please ask your question.

John Kernan -- Cowen and Company -- Analyst

Awesome. Thanks, and congrats on the great results on really tough compares. Maybe we can start out with what you're seeing here with the comps given the full year revenue guide in the fourth quarter -- implied fourth quarter revenue guide, but can you give us any more color on active customers and average order value? Average order value has been a nice driver of revenue this year. And just curious on some of the metrics.

Sequential growth in active customers and maybe the year-over-year average -- change in average order value as we go into the fourth quarter.

Trina Spear -- Co-Chief Executive Officer

Sure. I mean, we've been very encouraged by our average order value. If you remove the $4.2 million related party sale, our average order value year over year went from $93 to $102. So we 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. And so from both fronts, we're feeling really great about our ability to continue to not only increase our customers and keep bringing new healthcare professionals into this brand, but also having them spend more with us. I think a function -- few things really drove that.

Number one, just higher units per transaction. I think there's a layering system in how we're bringing our products together is really a big part of that. The second piece is kits. One in six customers in the last six months has bought a kit, and that's really driving this increase where we're able to -- you're able to get an entire look with 1 click.

And then the third thing is we did have less mask sales this year, and that's driving it a bit. But those are the key inputs there.

John Kernan -- Cowen and Company -- Analyst

And then maybe just one follow-up on marketing in the fourth quarter. Just looking at it on a dollar growth basis and a rate basis, how should we think about marketing in Q4? It's been right around 15% the last two quarters. Curious if you're stepping things up this fourth quarter on a dollar rate basis.

Trina Spear -- Co-Chief Executive Officer

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 our 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 reinvest it in our brands. And so we're going to continue to do that going forward.

And 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 healthcare 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 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.

John Kernan -- Cowen and Company -- Analyst

Got it. Thank you. Best of luck.

Operator

Your next question comes from the line of Michael Binetti of Credit Suisse. Please ask your question.

Michael Binetti -- Credit Suisse -- Analyst

Hi, guys. Thanks for taking our questions here. Congrats on a nice quarter. Just a couple on the model here as we're kind of looking at probably what questions we're going to have later tonight while we get through this.

But Trina, would you mind reconciling, you mentioned to Bob earlier that spend for customers headed up into the right. we tried to watch the revenue per customer number each quarter. That was down about 10% in the 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 could 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 ball, but on the gross margins, would you mind giving us a sense of how much each of the three drivers you listed in the third quarter were between higher ocean freight and lower air freight? And then I'm not sure I'd love to know what enhanced restocking standards means, if that's a new cost that's in the business going forward?

Trina Spear -- Co-Chief Executive Officer

Sure. OK. So first on the revenue per active customer, an active 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 an LTM revenue figure.

And so if you look at LTM revenue per active customer in the third quarter versus the second quarter, it's gone up about $3 from $2.16 to $2.19, so I would just make that note because it is going up into the right quarter-over-quarter-over-quarter. And so it's just LTM rev over active customer. And then I think on the -- sorry.

Michael Binetti -- Credit Suisse -- Analyst

Got it. Yes.

Trina Spear -- Co-Chief Executive Officer

And then in terms of the -- sorry, ocean freight volumes, so we basically shipped in less units than we did a year ago but they cost us more. The rate per unit was higher and so that's the difference year over year. And then enhanced restocking standards are essentially, when a return comes in, we've put in tighter quality controls at our warehouse so that the units that are going back on to our shelves are the highest quality. And we've been actually doing this for about the last -- I think earlier this year, but I think it's just that there wasn't a lot of other noise in gross margin.

So it's set out but you won't be really seeing this as a -- something -- we don't expect to really see this going forward as a big driver at all.

Michael Binetti -- Credit Suisse -- Analyst

OK. So it seems like when you say in the quarter, the air freight was lower, the ocean was higher. It seems like you're moving units that would have, in the past, gone through air freight over to ocean. So that once we get past the air freight inflation in fourth quarter, maybe it sticks around 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 an incorrect assumption?

Trina Spear -- Co-Chief Executive Officer

The assumption of moving actually the fourth quarter, we're taking a bit of a hit on airfreight, right? We look to move those units going forward to ocean as we bring our goods in earlier. So that assumption will be -- 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 enhancer stocking standards and the airfreight and, you know?

Jeff Lawrence -- Chief Financial Officer

Yes, Mike, great question. I mean, on gross margins side, that the restocking standard, which, again, we've been doing for a while, I 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 then airfreight year over year is going the other way. So that's how I would size those 3 kind of rank order. And as we think about getting into 2022, our prepared remarks, we don't have a crystal ball, but we're pretty confident that we're going to see less airfreight overall than we're seeing it in Q4 as we get into '22.

So we don't think it's going to be airfreight 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 really a simple choice for us to make but one that as we get into '22, we'll be talking a lot more about, both in volumes.

Michael Binetti -- Credit Suisse -- Analyst

OK. Thanks a lot, guys.

Operator

Your next question comes from the line of Adrienne Yih of Barclays. Your line is open.

Adrienne Yih -- Barclays -- Analyst

Great. Thank you very much, and great to see the momentum continuing. Trina, I was wondering if you can actually talk about your sourcing base, the largest country manufacturer and your total Far East exposure. Does what happened in the supply chain this year make you think about more diversification? So that's the first one.

And then, Jeff, just staying on the air to ocean, what would normally ocean to air percentage be? What is it in the fourth quarter? And how are you thinking about it for first quarter as you kind of roll off the peak?

Trina Spear -- Co-Chief Executive Officer

Thanks, Adrienne. As you know, we have a very diversified supplier network, we're in over 30 facilities across 13 countries. And so having that diversification has been incredibly important, and it's a function of this business model of us being a uniform company or replenishment-driven business, having such a high volume, low SKU count business. There's not 1 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 country perspective, everyone's talking about Vietnam, so we might as well just talk about it. I think where people have seen the most disruption has really been in Southern Vietnam. And we produce in mainly Central and Northern Vietnam from that country's perspective, although we are in many other countries as well.

And 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 eased. And it's really just continues to be, from an in-transit standpoint, from a freight -- 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.

Jeff Lawrence -- Chief Financial Officer

Adrienne, thanks for the question. As we 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 and advantaged to only have to kind of worry about the in-transit times, and listen, everyone knows about what's going on with the boats in the port so we won't bemoan that.

But as we think about our business, boat versus plane, if you go back pre-COVID, almost under 100% of what we were doing was on a boat. COVID comes into '20 and obviously extends into 2021, as much as 25% of our units, we started to putting on airplanes. And of course, the rate, especially today's rate for an airplane versus last year, can be now eight, 10 times per tons within a unit on a boat. As we get to Q4 here, which is why we're calling out this $8 million to $10 million of what we believe to be transitory air freight pressure, is because those units obviously are going up for a quarter.

But what I would tell you is in a 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, pull POs forward, really continue to use the balance sheet to our advantage. But obviously, for Q4, it's a little bit different, but we're going to get past this and we'll get back to, again, mostly to boat world coming soon.

Adrienne Yih -- Barclays -- Analyst

Great. Thank you.

Operator

Our final question comes from the line of Brooke Roach of Goldman Sachs. Please ask your question.

Brooke Roach -- Goldman Sachs -- Analyst

Good afternoon, and thank you so much for taking my question. Trina, I'd love to start with you and ask a little bit about the pace of new customer acquisition that the brand is realizing. As you think about the brand awareness of FIGS by major market at this point, where do you see the most whitespace for brand awareness and customer adoption in the United States specifically, and among the profile of new customers that you're reaching now versus later? And then for Jeff, it sounds like there's a lot of confidence in achieving that 4Q outlook for top line momentum. Can you talk a little bit about the puts and takes that are maybe holding you back from putting that number a little bit higher, given the strong momentum that you're seeing in the business?

Trina Spear -- Co-Chief Executive Officer

Thank you so much, Brooke. I think one of the unique things about our business is how much of it is driven by word of mouth. Our healthcare professionals are in densely populated institutions. And we've talked about this but it's really important, right? Our -- every FIGS customer is a walking billboard, acquiring that next customer for us.

They're passing each other in line, in the lobby, at the Starbucks. They're walking in their next patient, they're in the break room. And that organic customer acquisition, I think we've mentioned 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 pace of customer acquisition. And I think we don't see a lot of differences across institutions or across markets. And I think what I think about it is we're really seeing tipping points in different markets, where once we have a certain percentage of that institution, it's that tipping point where FIGS takes off and becomes the majority of healthcare professionals within. And we are really underpenetrated.

We have a 3% market share in the United States. We have essentially a 0% market share internationally. And so the growth is -- it's a massive opportunity in front of us on all fronts. Jeff?

Jeff Lawrence -- Chief Financial Officer

Yes, Brooke. My impression around Q4 imply guide with the $410 million. The first thing I would tell you is we're really optimistic about the business in general, not just in 90-day sprints but more importantly, long-term with $1 billion-plus goal by 2025, which we feel great about. So that guide is $15 better, more optimistic than where we were 90 days ago so we feel better about it since the last time we talked 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. It's growing, fastest-growing job segment. And the fact that as of right now, we don't have a lot of competitors really punching back right now.

We're basically having our way. We're executing. And as a result, we continue to build, share and feel good about it. So again, the $410 million, again, it's another raise.

Obviously, we'll work really hard to try to outperform that as we always do. But listen, we feel great about the customer right now. We just have to go execute which we feel great about.

Brooke Roach -- Goldman Sachs -- Analyst

Thank you.

Operator

[Operator signoff]

Duration: 55 minutes

Call participants:

Carrie Gillard -- Vice President, Investor Relations

Trina Spear -- Co-Chief Executive Officer

Jeff Lawrence -- Chief Financial Officer

Heather Hasson -- Co-Chief Executive Officer

Bob Drbul -- Guggenheim Partners -- Analyst

Ed Yruma -- KeyBanc Capital Markets -- Analyst

Brian Nagel -- Oppenheimer and Company -- Analyst

Erinn Murphy -- Piper Sandler -- Analyst

Lorraine Hutchinson -- Bank of America Merrill Lynch -- Analyst

John Kernan -- Cowen and Company -- Analyst

Michael Binetti -- Credit Suisse -- Analyst

Adrienne Yih -- Barclays -- Analyst

Brooke Roach -- Goldman Sachs -- Analyst

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