FIGS, Inc. (FIGS)

CIK: 0001846576. SIC: 2300 Apparel & Other Finishd Prods of Fabrics & Similar Matl. Latest 10-K as of: 2026-02-26.

SIC breadcrumb: Manufacturing > SIC Major Group 23 > SIC 2300 Apparel & Other Finishd Prods of Fabrics & Similar Matl

SEC company page: https://www.sec.gov/edgar/browse/?CIK=1846576. Latest filing source: 0001628280-26-012333.

Selected Fundamentals

Financials

Annual standardized facts from SEC companyfacts as of latest extracted filing date 2026-02-26. Source: https://data.sec.gov/api/xbrl/companyfacts/CIK0001846576.json. Derived margins, ratios, and free cash flow are computed from the extracted annual SEC facts.

Flow metrics use full-year FY periods from 10-K/10-K/A filings; balance-sheet metrics use FY-end instants. Free cash flow = operating cash flow - capital expenditures. Missing metrics are omitted rather than fabricated.

Ratios

ROE and ROA use period-end equity/assets. Liabilities / equity uses total liabilities divided by stockholders' equity. Current ratio uses current assets divided by current liabilities when both are reported.

Financial Charts

Quarterly

Quarterly standardized facts from SEC companyfacts as of latest extracted filing date 2026-05-07. Source: https://data.sec.gov/api/xbrl/companyfacts/CIK0001846576.json.

Flow metrics use discrete quarter-length periods from 10-Q/10-Q/A filings. Q4 revenue and net income are derived only when annual FY and nine-month YTD facts exist for the same fiscal year; derived Q4 values are labeled. EPS Q4 is not derived.

Quarterly Charts

Macro Cross-References

• CPIAUCSL - Consumer Price Index for All Urban Consumers: All Items in U.S. City Average
• UNRATE - Unemployment Rate
• FEDFUNDS - Federal Funds Effective Rate
• CES0500000003 - Average Hourly Earnings of All Employees, Total Private
• DFEDTARU - Federal Funds Target Range - Upper Limit
• DFEDTARL - Federal Funds Target Range - Lower Limit
• DGS3MO - Market Yield on U.S. Treasury Securities at 3-Month Constant Maturity
• DGS2 - Market Yield on U.S. Treasury Securities at 2-Year Constant Maturity
• DGS10 - Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity
• DGS30 - Market Yield on U.S. Treasury Securities at 30-Year Constant Maturity
• T10Y2Y - 10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity
• CPILFESL - Consumer Price Index for All Urban Consumers: All Items Less Food and Energy
• CPIUFDSL - Consumer Price Index for All Urban Consumers: Food
• CPIENGSL - Consumer Price Index for All Urban Consumers: Energy
• CUSR0000SAH1 - Consumer Price Index for All Urban Consumers: Shelter
• PCEPI - Personal Consumption Expenditures: Chain-type Price Index
• PCEPILFE - Personal Consumption Expenditures Excluding Food and Energy: Chain-type Price Index
• PPIACO - Producer Price Index by Commodity: All Commodities
• T10YIE - 10-Year Breakeven Inflation Rate
• U6RATE - Total Unemployed, Plus All Marginally Attached Workers Plus Total Employed Part Time for Economic Reasons
• PAYEMS - All Employees, Total Nonfarm
• CIVPART - Labor Force Participation Rate
• EMRATIO - Employment-Population Ratio
• UNEMPLOY - Unemployed
• CE16OV - Employment Level
• ICSA - Initial Claims
• JTSJOL - Job Openings: Total Nonfarm
• JTSQUR - Quits: Total Nonfarm
• GDPC1 - Real Gross Domestic Product
• A191RL1Q225SBEA - Real Gross Domestic Product: Percent Change from Preceding Period
• INDPRO - Industrial Production: Total Index
• TCU - Capacity Utilization: Total Index
• HOUST - New Privately-Owned Housing Units Started: Total Units
• PERMIT - New Privately-Owned Housing Units Authorized in Permit-Issuing Places: Total Units
• RSAFS - Advance Retail Sales: Retail Trade
• PCE - Personal Consumption Expenditures
• DSPIC96 - Real Disposable Personal Income
• PSAVERT - Personal Saving Rate
• M2SL - M2
• BOPGSTB - U.S. International Trade in Goods and Services: Balance
• MSPUS - Median Sales Price of Houses Sold for the United States
• HSN1F - New One Family Houses Sold: United States
• RHORUSQ156N - Homeownership Rate in the United States
• TTLCONS - Total Construction Spending: Total Construction in the United States
• RRVRUSQ156N - Rental Vacancy Rate in the United States
• TOTALSL - Total Consumer Credit Owned and Securitized
• REVOLSL - Revolving Consumer Credit Owned and Securitized
• DRCCLACBS - Delinquency Rate on Credit Card Loans, All Commercial Banks
• GDP - Gross Domestic Product
• GPDI - Gross Private Domestic Investment
• GCE - Government Consumption Expenditures and Gross Investment
• PCEC - Personal Consumption Expenditures
• NETEXP - Net Exports of Goods and Services
• GFDEBTN - Federal Debt: Total Public Debt
• GFDEGDQ188S - Federal Debt: Total Public Debt as Percent of Gross Domestic Product
• FYFSD - Federal Surplus or Deficit
• FGRECPT - Federal Government Current Receipts
• FGEXPND - Federal Government: Current Expenditures
• MANEMP - All Employees, Manufacturing
• USCONS - All Employees, Construction
• USTRADE - All Employees, Retail Trade
• USFIRE - All Employees, Financial Activities
• USGOVT - All Employees, Government
• AWHAETP - Average Weekly Hours of All Employees, Total Private
• DGORDER - Manufacturers' New Orders: Durable Goods
• NEWORDER - Manufacturers' New Orders: Nondefense Capital Goods Excluding Aircraft
• BUSINV - Total Business Inventories
• EXPGS - Exports of Goods and Services
• IMPGS - Imports of Goods and Services
• IR - Import Price Index (End Use): All Commodities
• PPIFIS - Producer Price Index by Commodity: Final Demand

Latest quarter (10-Q)

Latest 10-Q source: 0001628280-26-032216.

Extracted structurally from real Item 2 body heading to real Item 3/4 boundary. Published MD&A gate trimmed front/tail over-capture. Confidence: high. Filing date: 2026-05-07. Report date: 2026-03-31.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q, as well as our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2025, filed with the Securities and Exchange Commission (“SEC”) on February 26, 2026 (the “2025 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. Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to “FIGS,” the “Company,” “we,” “our” or “us” refer to FIGS, Inc. and its consolidated subsidiaries.

Overview

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?

By elevating scrubs and creating premium products for healthcare professionals that support them on and off-shift, we revolutionized the large and fragmented healthcare apparel market, branded a previously unbranded industry and de-commoditized a previously commoditized product. Most importantly, we built a community and lifestyle around a profession. As a result, we have become the industry’s category-defining healthcare apparel and lifestyle brand.

We sell products purposefully designed to serve the particular needs of healthcare professionals primarily through our direct-to-consumer (“DTC”) digital platform, consisting of our website, mobile app and B2B business (“TEAMS”). We also operate physical retail stores, which we call Community Hubs, and which represent a first-of-its-kind retail experience for healthcare professionals.

Our offerings include scrubwear and non-scrubwear, such as outerwear, underscrubs, footwear, compression socks, lab coats, loungewear and other apparel. We primarily design all of our products in-house, leverage third-party suppliers and manufacturers to produce our product components and finished products, and generally utilize shallow initial buys and data-driven repurchasing decisions to test new products. We directly and actively coordinate with our suppliers on every step of our product development and production process to ensure that our extremely high quality standards are met. We also have a dynamic merchandising model with lessened inventory risk, as a result of the largely non-discretionary, replenishment-driven nature of scrubwear and a focus on our core scrubs offerings.

At March 31, 2026, we had approximately 3.0 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 months ended March 31, 2026, we had the following results compared to the comparable period in 2025:

◦Expanded our community of active customers by 12.2% from approximately 2.7 million at March 31, 2025 to approximately 3.0 million at March 31, 2026;

◦Net revenues increased from $124.9 million to $159.9 million in the three months ended March 31, 2026 representing 28.0% year-over-year growth;

◦Gross margin increased 0.1 percentage points from 67.6% to 67.7% in the three months ended March 31, 2026;

◦Net income (loss) increased from $(0.1) million to $6.3 million in the three months ended March 31, 2026;

20

Table of Contents

◦Net income (loss) margin increased from (0.1)% to 3.9% in the three months ended March 31, 2026;

◦Adjusted EBITDA increased from $9.2 million to $13.9 million in the three months ended March 31, 2026, representing an adjusted EBITDA margin of 8.7%;

◦Cash flows from operating activities decreased from $9.2 million to $(3.2) million in the three months ended March 31, 2026; and

◦Free cash flow decreased from $7.9 million to $(5.6) million in the three months ended March 31, 2026.

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 reconciliations to the most directly comparable financial measures prepared in accordance with U.S. generally accepted accounting principles (“GAAP”).

Recent Developments

Global Trade Policy

We continue to monitor changes in policy impacting global trade, including tariffs, which have been dynamic, unpredictable and subject to ongoing modification. In February 2026, the United States Supreme Court ruled that the use of the International Emergency Economic Powers Act (“IEEPA”) to impose tariffs was not permitted, invalidating a significant portion of U.S. tariffs that had been in effect since April 2025. The Administration responded by invoking a 10% global tariff pursuant to Section 122 of the Trade Act of 1974 for 150 days, effective on February 24, 2026 and scheduled to expire on July 24, 2026, unless extended by Congress. The Administration also expressed an intention to raise such tariff to 15%, although no formal action implementing that increase has been issued. The Administration also initiated trade investigations that could result in additional future tariffs prior to or following the expiration of the Section 122 tariffs. The ruling, and the Administration’s subsequent actions, have created substantial uncertainty regarding the tariff environment, including with respect to (i) whether and to what extent refunds will be issued for tariffs previously collected under IEEPA, (ii) the scope and duration of tariffs imposed under Section 122 and any new or higher tariffs that may be imposed under alternative mechanisms and (iii) the outcome of pending legal challenges to the Section 122 tariffs and the potential for further legal challenges to any such tariffs. We have applied for a refund of approximately $20 million of IEEPA tariffs paid by us, however the ultimate extent and timing of such refunds remains uncertain.

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

Additionally, tariffs and other trade barriers, including those imposed by other countries on the United States, could adversely impact demand for our products domestically and in international markets. We cannot predict additional near-term changes in global trade policy, and additional tariffs or other trade barriers could further increase our costs or otherwise adversely affect our business, financial condition 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 2025 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.

21

Table of Contents

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 discounts. Net revenues are primarily driven by the number of active customers, the frequency with which customers purchase and the average order value (“AOV”). See the section titled “—Key Operating Metrics and Non-GAAP Financial Measures” for a definition of average order value.

Cost of Goods Sold

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

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 SMS marketing and mobile push notifications through our app. Marketing expenses also include our spend on brand marketing channels, including billboards, podcasts, commercials, photo and video shoot development, expenses associated with our Ambassador Program, events and other forms of online and offline marketing. We expect our marketing expenses to increase in absolute dollars as we continue to grow our business.

General and Ad

[Excerpt truncated for page length; source filing is linked above.]

Latest 10-K MD&A

Extracted from Item 7 to the first post-MD&A boundary after HTML sanitization. Confidence: high. Filing date: 2026-02-26. Report date: 2025-12-31.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes included elsewhere in this 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 I, Item 1A. “Risk Factors” and other factors set forth in other parts of this Annual Report on Form 10-K. A discussion of the year ended December 31, 2024 compared to the year ended December 31, 2023 has been reported previously in our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on February 27, 2025, under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Overview

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?

By elevating scrubs and creating premium products for healthcare professionals that support them on and off-shift, we revolutionized the large and fragmented healthcare apparel market, branded a previously unbranded industry and de-commoditized a previously commoditized product. Most importantly, we built a community and lifestyle around a profession. As a result, we have become the industry’s category-defining healthcare apparel and lifestyle brand.

We sell products purposefully designed to serve the particular needs of healthcare professionals primarily through our direct-to-consumer (“DTC”) digital platform, consisting of our website, mobile app and B2B business (“TEAMS”). We also operate physical retail stores, which we call Community Hubs, and which represent a first-of-its-kind retail experience for healthcare professionals.

Our offerings include scrubwear and non-scrubwear, such as outerwear, underscrubs, footwear, compression socks, lab coats, loungewear and other apparel. We primarily design all of our products in-house, leverage third-party suppliers and manufacturers to produce our product components and finished products, and generally utilize shallow initial buys and data-driven repurchasing decisions to test new products. We directly and actively coordinate with our suppliers on every step of our product development and production process to ensure that our extremely high quality standards are met. We also have a dynamic merchandising model with lessened inventory risk, as a result of the largely non-discretionary, replenishment-driven nature of scrubwear and a focus on our core scrubs offerings.

At December 31, 2025, we had approximately 2.9 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 year ended December 31, 2025, we had the following results compared to the comparable periods in 2024:

◦Expanded our community of active customers by 9.4% from approximately 2.7 million at December 31, 2024 to approximately 2.9 million at December 31, 2025;

◦Net revenues increased from $555.6 million to $631.1 million in the year ended December 31, 2025 representing 13.6% year-over-year growth;

◦Gross margin decreased 1.1 percentage points from 67.6% to 66.5% in the year ended December 31, 2025;

◦Net income increased from $2.7 million to $34.3 million in the year ended December 31, 2025;

◦Net income margin increased from 0.5% to 5.4% in the year ended December 31, 2025;

59

Table of Contents

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

◦Cash flows from operating activities decreased from $81.2 million to $61.2 million in the year ended December 31, 2025; and

◦Free cash flow decreased from $64.1 million to $53.0 million in the year ended December 31, 2025.

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 with GAAP.

Recent Developments

Global Trade Policy

We continue to monitor changes in policy impacting global trade, including tariffs, which have been dynamic, unpredictable and subject to ongoing modification. In April 2025, the United States announced a baseline tariff of 10% on all imports, in addition to country-specific tariffs applicable to certain trading partners, including Vietnam and Jordan, which together account for nearly all of our production of finished goods. The rates and effective dates of these additional tariffs were adjusted on several occasions since they were announced in early 2025. In February 2026, the United States Supreme Court ruled that the use of the International Emergency Economic Powers Act (“IEEPA”) to impose tariffs was not permitted, invalidating a significant portion of tariffs that had been in effect since April 2025. The Administration responded by invoking alternative mechanisms to impose a 10% global tariff and by expressing an intention to subsequently raise such tariff to 15%. The Administration also initiated trade investigations that could result in additional future tariffs. The ruling, and the Administration’s subsequent actions, have created substantial uncertainty regarding the tariff environment, including with respect to (i) whether and to what extent refunds will be issued for tariffs previously collected under IEEPA, (ii) the timing and scope of any new tariffs that may be imposed under alternative mechanisms and (iii) the potential for further legal challenges to any such tariffs.

The tariffs in place prior to the February 2026 Supreme Court decision have increased our product costs, negatively impacting gross margin for the three months and year ended December 31, 2025 by 260 basis points and 120 basis points, respectively. We have implemented, and plan to continue to implement as needed, various mitigation strategies, which have included, and may in the future again include, adjusting the countries from which we source our products and renegotiating terms with suppliers, but we cannot be certain how effective they will be over the long term. Without taking into account mitigation efforts, we estimate, based on the information available to us today, that tariffs will negatively impact gross margin for 2026 by approximately 400 basis points. This estimate and actual impact may change materially as conditions evolve and new information becomes available.

Additionally, tariffs and other trade barriers, including those imposed by other countries on the United States, could adversely impact demand for our products domestically and in international markets. We cannot predict additional near-term changes in global trade policy, and additional tariffs or other trade barriers could further increase our costs or otherwise adversely affect our business, financial condition 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. These factors also pose risks and challenges, including those discussed in Part I, Item 1A. “Risk Factors” of this Annual Report on Form 10-K.

Brand Awareness and Loyalty

Our ability to promote and maintain brand awareness and loyalty is critical to our success. We have a significant opportunity to continue to grow our brand awareness and loyalty through word of mouth, brand marketing and performance marketing. We have made significant investments to strengthen the FIGS brand through our marketing strategy, which includes brand marketing campaigns across platforms, including email, digital, display, site, direct-mail, commercials, social media and ambassadors, as well as performance marketing efforts, including retargeting, paid search and product listing advertisements, paid social media advertisements, search engine optimization, personalized email and

60

Table of Contents

mobile push notifications through our app. We plan to continue to invest in our brand and performance marketing to help drive our future growth.

Net Revenues per Active Customer

We believe net revenues per active customer is important to understanding our engagement and retention of our customers, and as such demonstrating the value we provide for our customer base. We calculate net revenues per active customer as the total net revenues for a specified time period divided by the number of active customers during that same time period. Through our differentiated core products, limited edition color and style releases and non-scrubwear products, we have repeatedly drawn customers back to our digital platform. As we continue to expand our products to fully outfit the medical professional, we believe we have a significant opportunity to continue to expand our share of both the uniform and lifestyle wardrobe of our customers and to increase our net revenues per active customer over time. Our future growth will depend in part on our ability to increase our net revenues per active customer.

Customer Retention and Engagement

Our continued success depends in part on our ability to retain, and drive repeat purchases from, our existing customers. We monitor retention across our entire customer base. Our goal is to attract and convert visitors into active customers and foster relationships that drive repeat purchases. As of December 31, 2025, we had approximately 2.9 million active customers, up from approximately 2.7 million active customers as of December 31, 2024.

Inventory Management

We leverage our technology to buy and manage our inventory, including product assortment and fulfillment center optimization. We generally make shallow initial inventory buys and then use data-driven repurchasing decisions to test new products, which allows us to manage inventory risk. To ensure sufficient availability of merchandise, we generally purchase inventory in advance and, because the vast majority 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 can hold greater inventory without significant risk of obsolescence or exposure to seasonality.

Nevertheless, we are still vulnerable to demand and pricing shifts and to suboptimal selection and timing of merchandise purchases. For example, we previously experienced elevated inventory on hand, as a result of improvements in ocean transit times, following our decision to increase weeks of supply during periods of ocean transit time volatility, and softer sales trends due to adverse macroeconomic factors. We were successful in our efforts to address previous periods of excess inventory, but future inefficiencies in the timing of merchandise purchases and efforts to right-size inventory could have an adverse impact on our operating results.

In addition, our inventory investments will fluctuate with the needs of our business. For instance, entering new locations and expanding to new categories require additional investments in inventory. Shifts in inventory levels may result in fluctuations in the percentage of full price sales, levels of markdowns, merchandise mix, inventory write-offs as well as gross margin.

Macroeconomic Environment

Our business and results of operations are subject to domestic and global economic conditions and their impact on consumer confidence. For example, we have seen sales growth impacted by variations in frequency trends from time to time, which we believe were due in part to adverse macroeconomic factors such as sustained inflationary pressures on consumer spending and we may continue to see the impact of inflation on our customers’ purchasing activity, from time to time. Our customers are also affected by other macroeconomic pressures, such as high interest rates, wages, levels of employment, inflation, fears of recession or depression or entry into a recession or depression, housing costs, energy costs, income tax rates, financial market fluctuations and consumer confidence in future economic conditions. We are also subject to macroeconomic pressures, such as inflation, which can impact the price of raw materials, labor, freight and other costs of doing business.

In addition, we are subject to the prevailing trade policies of the United States and other countries in which we do business. The changes to U.S. trade policy implemented in recent years, including the increased tariffs on imports, have increased our product costs, and we are continuously monitoring potential related impacts, including retaliatory tariffs and indirect effects on capital markets or consumer discretionary spending. Given the unpredictable and dynamic nature of

61

Table of Contents

ongoing U.S. policy changes, we cannot predict additional near-term changes in U.S. trade policy and changes to U.S. tariff and trade policies could further impact our operating results.

While we believe our largely non-discretionary, replenishment-driven business model is resilient in challenging macroeconomic environments, adverse macroeconomic pressures have affected our results of operations and we expect them to continue to do so in the near term.

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 discounts. Net revenues are primarily driven by the number of active customers, the frequency with which customers purchase and the average order value (“AOV”). See the section titled “—Key Operating Metrics and Non-GAAP Financial Measures” for a definition of average order value.

Cost of Goods Sold

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

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 SMS marketing and mobile push notifications through our app. Marketing expenses also include our spend on brand marketing channels, including billboards, podcasts, commercials, photo and video shoot development, expenses associated with our Ambassador Program, events and other forms of online and offline marketing. We expect our marketing expenses to increase in absolute dollars as we continue to grow our business.

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

62

Table of Contents

and contractor expenses, certain facilities costs, software expenses, legal expenses, recruiting fees and in-kind donations. We expect our general and administrative expenses to increase in absolute dollars as we continue to grow our business.

Other Income, Net

Other income, net consists of interest income, interest expense, amortization of debt issuance costs, as well as gain or loss on foreign currency, primarily driven by payment to vendors for amounts not denominated in U.S. dollars.

Provision for Income Taxes

Our provision for income taxes consists of an estimate of federal, state and foreign income taxes based on enacted federal, state, and foreign tax rates, as adjusted for allowable credits, deductions and uncertain tax positions.

Seasonality

Unlike the traditional apparel industry, the healthcare apparel industry is generally not seasonal in nature. However, due to our general historical pattern of sequential growth, as well as our decision to conduct select promotions during the holiday season, we historically have generated a higher proportion of net revenues, and incurred higher selling and marketing expenses, during the fourth quarter of the year compared to other quarters, and these trends could continue.

Results of Operations

Year Ended December 31, 2025 Compared to Year Ended December 31, 2024

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.

Year ended

December 31,

Year ended

December 31,

2025

2024

2025

2024

(in thousands)

(as a percentage of net revenues)

Net revenues

$

631,098 

$

555,558 

100.0 

%

100.0 

%

Cost of goods sold

211,259 

179,935 

33.5 

32.4 

Gross profit

419,839 

375,623 

66.5 

67.6 

Operating expenses

Selling

145,851 

141,909 

23.1 

25.5 

Marketing

93,105 

88,566 

14.8 

15.9 

General and administrative(1)

142,736 

142,883 

22.6 

25.7 

Total operating expenses

381,692 

373,358 

60.5 

67.2 

Net income from operations

38,147 

2,265 

6.0 

0.4 

Other income, net

9,060 

12,075 

1.4 

2.2 

Net income before provision for income taxes

47,207 

14,340 

7.5 

2.6 

Provision for income taxes

12,957 

11,620 

2.1 

2.1 

Net income

$

34,250 

$

2,720 

5.4 

%

0.5 

%

(1)Includes stock-based compensation expense of $26.9 million and $42.7 million for the years ended December 31, 2025 and 2024, respectively.

63

Table of Contents

Net Revenues

Year ended

December 31,

Change

2025

2024

%

(in thousands)

Net revenues

$

631,098 

$

555,558 

13.6 

%

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

Cost of Goods Sold, Gross Profit and Gross Margin

Year ended

December 31,

Change

2025

2024

(in thousands, except margin)

Cost of goods sold

$

211,259 

$

179,935 

17.4 

%

Gross profit

419,839 

375,623 

11.8 

%

Gross margin

66.5 

%

67.6 

%

(110) bps

Cost of goods sold increased by $31.3 million, or 17.4%, for the year ended December 31, 2025, compared to the prior year. The increase in costs of goods sold was primarily due to higher unit sales, tariffs and inventory write-offs.

Gross profit increased by $44.2 million, or 11.8%, for the year ended December 31, 2025, compared to the prior year. The increase in gross profit was primarily due to higher unit sales and improved discount rates, partially offset by tariffs and inventory write-offs.

Gross margin decreased 1.1 percentage points for the year ended December 31, 2025, compared to the prior year. The decrease in gross margin was primarily due to the impact of tariffs, which negatively impacted gross margin by approximately 120 basis points, and inventory write-offs, partially offset by improved discount rates.

Operating Expenses

Year ended

December 31,

Change

2025

2024

%

(in thousands)

Operating expenses:

Selling

$

145,851 

$

141,909 

2.8 

%

Marketing

93,105 

88,566 

5.1 

%

General and administrative

142,736 

142,883 

(0.1)

%

Total operating expenses

381,692 

373,358 

2.2 

%

Operating expenses increased by $8.3 million, or 2.2%, for the year ended December 31, 2025, compared to the prior year, driven by higher selling expense and marketing expense. As a percentage of net revenues, operating expenses decreased by 6.7 percentage points, primarily driven by leverage in selling expense, marketing expense and general and administrative expense.

Selling expense increased by $3.9 million, or 2.8%, for the year ended December 31, 2025, compared to the prior year and, as a percentage of net revenues, decreased by 2.4 percentage points. The decrease in selling expense as a percentage of net revenues was primarily due to higher fulfillment expenses in the same period last year following our transition to a new fulfillment center and leverage on higher net revenues.

64

Table of Contents

Marketing expense increased by $4.5 million, or 5.1%, for the year ended December 31, 2025, compared to the prior year and, as a percentage of net revenues, decreased by 1.1 percentage points. The decrease in marketing expense as a percentage of net revenues was primarily driven by lapping of prior year expenses related to our 2024 Olympics campaign, greater efficiency in our marketing spend in 2025 and leverage on higher net revenues.

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

Other Income, Net

Year ended

December 31,

Change

2025

2024

%

(in thousands)

Other income, net

$

9,060 

$

12,075 

(25.0)

%

Other income, net decreased for the year ended December 31, 2025, compared to the prior year, primarily due to a decrease in interest income driven by lower interest rates.

Provision for Income Taxes

Year ended

December 31,

Change

2025

2024

%

(in thousands)

Provision for income taxes

$

12,957 

$

11,620 

11.5 

%

Provision for income taxes increased by $1.3 million, or 11.5%, for the year ended December 31, 2025, compared to the prior year, primarily due to an increase in pretax income.

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 consolidated 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

We believe the number of active customers is an important indicator of our growth as it reflects the reach of our digital platform, our brand awareness and overall value proposition. We define an active customer as a unique customer account that has made at least one purchase in the preceding 12-month period. In any particular period, we determine our number of active customers by counting the total number of customers who have made at least one purchase in the preceding 12-month period, measured from the last date of such period. Active customers as of December 31, 2025 and 2024, respectively, are presented in the following table:

As of December 31,

2025

2024

(in thousands)

Active customers

2,921 

2,670 

65

Table of Contents

We believe measuring net revenues per active customer is important to understanding our engagement and retention of customers, and as such, our value proposition for our customer base. We define net revenues per active customer as the sum of total net revenues in the preceding 12-month period divided by the current period active customers. Net revenues per active customer as of December 31, 2025 and 2024, respectively, are presented in the following table:

As of December 31,

2025

2024

Net revenues per active customer

$

216 

$

208 

We define AOV as the sum of the total net revenues in a given period divided by the total orders placed in that period. Total orders are the summation of all completed individual purchase transactions in a given period. We believe our relatively high AOV demonstrates the premium nature of our product. As we expand into and increase our presence in additional product categories, price points and international markets, AOV may fluctuate. AOV for the years ended December 31, 2025 and 2024, respectively, are presented in the following table:

Year ended

December 31,

2025

2024

Average order value

$

120 

$

113 

Adjusted EBITDA and Adjusted EBITDA Margin

We calculate adjusted EBITDA as net income adjusted to exclude: other income, net; gain/loss on disposal of assets; provision for income taxes; depreciation and amortization expense; stock-based compensation and related expense; transaction costs; and expenses related to non-ordinary course disputes. 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, 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 and related 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.

66

Table of Contents

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

Year ended

December 31,

2025

2024

(in thousands, except margin)

Net income

$

34,250

$

2,720

Add (deduct):

Other income, net

(9,060)

(12,075)

Provision for income taxes

12,957

11,620

Depreciation and amortization expense(1)

9,035

6,694

Stock-based compensation and related expense(2)

27,304

42,837

Adjusted EBITDA(3)

$

74,486

$

51,796

Net Revenues

$

631,098

$

555,558

Net income margin(4)

5.4 

%

0.5 

%

Adjusted EBITDA Margin

11.8 

%

9.3 

%

(1)Excludes amortization of debt issuance costs included in “Other income, net.”

(2)Includes stock-based compensation expense, payroll taxes and costs related to equity award activity.

(3)For the year ended December 31, 2025, reflects $171,000 of stock-based compensation expense and payroll taxes inadvertently not reflected in our previously disclosed Adjusted EBITDA results for the three months ended March 31, 2025.

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

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 supplemental measure of liquidity and an additional basis for assessing our ability to generate cash. There are limitations related to the use of free cash flow as an analytical tool, including that other companies may calculate free cash flow differently, which reduces its usefulness as a comparative measure, and free cash flow does not reflect our future contractual commitments, nor does it represent the total residual cash flow for a given period.

The following table presents a reconciliation of free cash flow to net cash provided by operating activities, the most directly comparable financial measure calculated in accordance with GAAP.

Year ended

December 31,

2025

2024

(in thousands)

Net cash provided by operating activities

$

61,170 

$

81,162 

Less: capital expenditures

(8,168)

(17,021)

Free cash flow

$

53,002 

$

64,141 

Liquidity and Capital Resources

As of December 31, 2025 and 2024, we had $82.0 million and $85.6 million of cash and cash equivalents, respectively. Since inception, we have financed operations primarily through cash flows from operating activities and the sale of our capital stock.

67

Table of Contents

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

See Note 9 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for more information regarding the 2021 Facility.

In August 2024, our board of directors authorized a share repurchase program for up to $50.0 million of our outstanding Class A common stock, with no expiration date. On February 27, 2025, our board of directors authorized an increase of $50.0 million to the share repurchase program, bringing the total authorization for repurchases under the program to up to $100.0 million of our outstanding Class A common stock. During the year ended December 31, 2025, we repurchased 567,607 shares of our Class A common stock for approximately $2.7 million. As of December 31, 2025, we had approximately $52.0 million available for future repurchases under the share repurchase program.

Our cash requirements have primarily been for working capital and capital expenditures. We believe that existing cash and cash equivalents, cash flows from operations and available borrowings under our 2021 Facility, if needed, will be sufficient to support our 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 cash 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:

Year ended

December 31,

2025

2024

(in thousands)

Cash flows from operating activities

$

61,170 

$

81,162 

Cash flows from investing activities

(63,961)

(94,924)

Cash flows from financing activities

(969)

(44,766)

Effect of foreign currency exchange rate changes on cash and cash equivalents

100 

— 

Net change in cash, cash equivalents, and restricted cash

$

(3,660)

$

(58,528)

Operating Activities

Cash flows from operating activities consist 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 flows from operating activities decreased by $20.0 million for the year ended December 31, 2025, compared to the same period last year. We saw a decrease in cash provided from operating activities as a result of the timing of cash payments related to accrued expenses of $55.2 million. In addition, cash provided by operating activities decreased due to higher inventory purchases of $15.5 million and the timing of cash received related to deferred revenue of $3.1 million. The decrease in operating cash flows was partially offset by an increase in our net income, including the impact of non-

68

Table of Contents

cash adjustments, of $15.2 million, the timing of cash payments of accounts payable of $14.1 million, the timing of cash payments of accrued compensation and benefits of $13.1 million, the timing of income tax payments of $3.8 million, the timing of cash payments of prepaid expenses and other current assets of $3.6 million, and the timing of cash received from accounts receivable of $3.6 million.

Investing Activities

Cash flows from investing activities consists of capital expenditures and purchases of investments.

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

Financing Activities

Cash flows from financing activities consist primarily of proceeds and payments related to transactions involving our common stock, borrowings, and fees associated with our existing line of credit.

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

Contractual Obligations and Commitments

Our most significant contractual obligations relate to purchase commitments on inventory and operating lease obligations on our facilities. See Note 10 to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K for a description of our contractual obligations and commitments.

Critical Accounting Policies and Estimates

The preparation of our consolidated financial statements in conformity with GAAP requires us to make estimates and judgments that affect the amounts reported in those consolidated financial statements and accompanying notes. Although we believe that the estimates we use are reasonable, due to the inherent uncertainty involved in making those estimates, actual results reported in future periods could differ from those estimates. We believe that the following accounting estimates are those that involve the most significant level of estimation uncertainty. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our financial condition and results of our operations. See Note 2 to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K for a description of our other significant accounting policies.

Revenue Recognition

Our primary source of revenues is from sales of healthcare apparel, footwear and other products primarily through our digital platform.

We determine revenue recognition through the following steps in accordance with Topic 606:

•identification of the contract, or contracts, with a customer;

•identification of the performance obligations in the contract;

•determination of the transaction price;

•allocation of the transaction price to the performance obligations in the contract; and

•recognition of revenue when, or as, we satisfy a performance obligation.

Revenue is recognized upon shipment when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Our revenue is reported net of sales returns and discounts. We estimate our liability for product returns based on historical

69

Table of Contents

return trends and an evaluation of current economic and market conditions. We record the expected customer refund liability as a reduction to revenue, and the expected inventory right of recovery as a reduction of cost of goods sold. If actual return costs differ from previous estimates, the amount of the liability and corresponding revenue are adjusted in the period in which such costs occur.

Other than the determination of returns reserve discussed above, there is not significant judgment required in the determination of performance obligations, allocation of our sales price, or the recognition of revenue. See Note 2 to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K for further discussion.

Stock-Based Compensation

We have granted stock-based awards consisting primarily of stock options and restricted stock units (“RSUs”) to employees, non-employee directors, and consultants.

We measure and recognize stock-based compensation expense for all stock option awards granted to employees and non-employees based on their estimated fair values as of the grant date using the Black-Scholes option-pricing model. Our use of the Black-Scholes option-pricing model to estimate the fair value of stock options granted requires the input of various assumptions. The following range of assumptions was used to estimate the fair value of options granted during the year ended December 31, 2025:

Risk free interest rate

4.1 

%

Expected volatility

43 

%

Expected dividend yield

0 

%

Expected term (in years)

5.5

Risk-free interest rate—determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award.

Expected volatility— we derive our volatility from the average historical stock volatilities of several peer public companies over a period equivalent to the expected term of the awards. We expect to continue to do so until such time as we have adequate historical data regarding the volatility of our own traded stock price.

Expected dividend yield—we have not paid, and do not currently anticipate paying, cash dividends on our common stock; therefore, the expected dividend yield is assumed to be zero.

Expected term—the expected term of stock options granted to employees has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options, which calculates the expected term as the average of the time-to-vesting and the contractual life of options.

Fair value of common stock—the fair value of our common stock is the closing stock price of our Class A common stock as reported on the New York Stock Exchange.

For employee and non-employee options, we recognize compensation expense based on the grant date fair value of the award over the requisite service period, which is generally four years. We account for forfeitures as they occur.

We measure the fair value of RSUs granted to employees and non-employees based on the fair value of our Class A common stock on the grant date. Our RSU grants vest upon the satisfaction of either a service condition or both a service condition and a performance condition. The service condition is generally satisfied ratably over four years. The performance condition related to our outstanding performance-based awards was satisfied in connection with the IPO.

See Note 2 to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K for further discussion.

Inventory

Inventories are stated at the lower of cost and net realizable value. Cost is determined using an average cost method. Cost of inventory includes import duties and other taxes and transport and handling costs. We write down inventory where it appears that the carrying cost of the inventory may not be recovered through subsequent sale of the

70

Table of Contents

inventory. We analyze the quantity of inventory on hand, the quantity sold in the past year, the anticipated sales volume, the expected sales price and the cost of making the sale when evaluating the value of our inventory. If the sales volume or sales price of specific products declines, additional write-offs may be required. A hypothetical 10% change in our inventory reserves estimate as of December 31, 2025 would not result in a material impact on our consolidated financial statements.

Income Taxes

We are subject to income taxes in the United States. We compute our provision for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using the currently enacted tax rates that are expected to apply to taxable income for the years in which those tax assets and liabilities are expected to be realized or settled. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized and the charge is recorded to earnings.

Significant judgment is required in determining our uncertain tax positions. We continuously review issues raised in connection with all ongoing examinations and open tax years to evaluate the adequacy of our tax liabilities. We evaluate uncertain tax positions under a two-step approach. The first step is to evaluate the uncertain tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained upon examination based on its technical merits. The second step is, for those positions that meet the recognition criteria, to measure the largest amount of benefit that is more than 50% likely of being realized. We believe our recorded tax liabilities are adequate to cover all open tax years based on our assessment. This assessment relies on estimates and assumptions and involves significant judgments about future events. A hypothetical 10% change in our recorded tax liabilities as of December 31, 2025 would not result in a material impact on our consolidated financial statements. To the extent that our view as to the outcome of these matters changes, we will adjust income tax expense in the period in which such determination is made. We classify interest and penalties related to income taxes as income tax expense.

Loss Contingencies

We may be involved in legal proceedings, claims and regulatory, tax or government inquiries and investigations that arise in the ordinary course of business resulting in loss contingencies. We accrue for loss contingencies when losses become probable and are reasonably estimable. If the reasonable estimate of the loss is a range and no amount within the range is a better estimate, the minimum amount of the range is recorded as a liability. We do not accrue for contingent losses that, in our judgment, are considered to be reasonably possible, but not probable; however, we disclose the range of such reasonably possible losses. Loss contingencies considered remote are generally not disclosed.

Recent Accounting Pronouncements

Refer to Note 2 to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K for a discussion of accounting pronouncements recently adopted and recently issued accounting pronouncements not yet adopted and their potential impact to our consolidated financial statements.