Revolve Group, Inc. (NYSE:RVLV) Q3 2020 Earnings Conference Call November 11, 2020 4:30 PM ET Company Participants Erik Randerson - Vice President-Investor Relations Mike Karanikolas - Co-Founder and Co-Chief Executive Officer Michael Mente - Co-Founder and Co-Chief Executive Officer Jesse Timmermans - Chief Financial Officer Conference Call Participants Edward Yruma - KeyBanc Capital Markets Ross Sandler - Barclays Oliver Chen - Cowen Mark Altschwager - Baird Michael Binetti - Credit Suisse Kimberly Greenb ...

Form 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to . Commission file number: 001-38927 (Mark One) REVOLVE GROUP, INC. (Exact name of Registrant as Specified in its Charter) (State or other jurisdiction of incorporation ...

Financial Performance - Gross margin decreased to 48.6% in Q1 2020 from 51.5% in Q1 2019[101] - Adjusted EBITDA for Q1 2020 was $5,609,000, down from $8,549,000 in Q1 2019[110] - Free cash flow decreased to $7,530,000 in Q1 2020 from $10,937,000 in Q1 2019[101] - Adjusted EBITDA was negatively impacted by lower gross margins and higher marketing costs as a percentage of net sales in Q1 2020[111] - Free cash flow for the three months ended March 31, 2020, was $7.53 million, down from $10.94 million in the same period in 2019, reflecting a decrease of 31.9%[112] - Net income for the three months ended March 31, 2020, was $4.156 million, compared to $4.962 million in the same period in 2019[147] - Operating cash flow for the three months ended March 31, 2020, was $8.1 million, a decrease of 49.3% compared to $15.9 million for the same period in 2019[166] Customer Metrics - Active customers increased to 1,528,000 in Q1 2020, up from 1,262,000 in Q1 2019[101] - Active customers are defined as unique customer accounts making at least one purchase in the preceding 12 months, serving as a key growth indicator for the company[113] - Total orders placed in Q1 2020 were 1,172,000, compared to 1,135,000 in Q1 2019[101] - Total orders placed decreased in growth rate for the three months ended March 31, 2020, compared to the same period in 2019, with expectations of further declines due to the COVID-19 pandemic[115] - The increase in net sales was primarily driven by a 3.3% increase in the number of orders placed by customers[149] Sales and Revenue - The REVOLVE segment generated $124.5 million in net sales for the three months ended March 31, 2020, a 1.5% increase from $122.7 million in 2019, primarily driven by an increase in orders placed[132] - The FORWARD segment saw a significant increase in net sales, reaching $21.6 million for the three months ended March 31, 2020, up 47.0% from $14.7 million in 2019[133] - Net sales to customers outside the United States contributed 17.6% of total net sales for the three months ended March 31, 2020, amounting to $25.7 million, an increase of 17.4% from $21.9 million in 2019[135] - Net sales for the three months ended March 31, 2020, increased by $8.732 million, or 6.4%, to $146.075 million compared to $137.343 million in the same period in 2019[148] Impact of COVID-19 - The COVID-19 pandemic led to a significant decline in net sales after a 20% year-over-year increase in January and February 2020[95] - The COVID-19 pandemic has materially impacted the company's operations, with expectations of continued adverse effects on net sales, earnings, and cash flows throughout 2020[119] - The company reduced executive salaries by over 99% to $1 and senior management salaries by 35% to 45% in response to the pandemic[96] - The company has incurred $30 million in revolver borrowings under its credit facility to manage liquidity during the COVID-19 pandemic[120] - The merchandise mix and inventory management strategies are expected to fluctuate due to changes in customer demand and the impact of COVID-19, affecting gross margins in the near term[129] Expenses and Costs - Cost of sales rose by $8.536 million, or 12.8%, to $75.125 million, with the cost of sales as a percentage of net sales increasing to 51.4% from 48.5%[151] - Gross profit for the three months ended March 31, 2020, was $70.950 million, representing 48.6% of net sales, down from 51.5% in the same period in 2019[147] - Fulfillment expenses remained relatively stable at $4.493 million, with a slight decrease in percentage of net sales to 3.1% from 3.3%[152] - Selling and distribution expenses increased by $1.188 million, or 5.8%, to $21.779 million, with the percentage of net sales slightly decreasing to 14.9%[153] - Marketing expenses rose by $2.452 million, or 12.6%, to $21.950 million, with the percentage of net sales increasing to 15.0% from 14.2%[154] - General and administrative expenses decreased by $0.395 million, or 2.0%, to $18.874 million, with the percentage of net sales declining to 12.9% from 14.0%[155] Cash and Liquidity - As of March 31, 2020, cash and cash equivalents increased to $103.6 million from $65.4 million as of December 31, 2019, representing a 58.2% increase[159] - The company drew down $30 million from its line of credit in March 2020 due to the uncertainty caused by the COVID-19 pandemic[159] - As of March 31, 2020, the company had $30 million outstanding on its line of credit, with a weighted-average interest rate of 2.3%[162] - The company believes existing cash and cash equivalents will be sufficient to meet anticipated cash needs for at least the next 12 months[161] - The company has raised a total of $68.3 million from the sale of equity units since inception, net of costs and expenses[160] - The company has no material off-balance sheet arrangements as of March 31, 2020[173] - The company is in compliance with all covenants under its credit agreement as of March 31, 2020[163] Infrastructure and Expansion - The logistics infrastructure supports free express shipping and returns, with a new centralized warehouse facility expected to support growth beyond 2023[93] - The company is gradually increasing investment in international expansion, focusing on Europe, Australia, Canada, and Asia Pacific[94]

Financial Performance - In 2019, Revolve generated $601.0 million in net sales, serving approximately 1.5 million active customers and offering over 500 brands with more than 110,000 unique styles[29]. - Approximately 79% of total net sales in 2019 were from products sold at full retail price, indicating effective data-driven merchandising[30]. - The average order value was $275 in 2019, reflecting the focus on premium merchandise and differentiation from mass market retailers[29]. - In 2019, net sales contributions were approximately 40% from emerging third-party brands, 23% from established third-party brands, 36% from owned brands, and 1% from other sources[43]. Digital and Mobile Growth - Mobile orders accounted for 56.2% of total orders and 53.7% of total net sales in 2019, highlighting the significant growth in digital channels[25]. - Revolve's marketing strategy drove 51% of traffic from free and low-cost sources in 2019, enhancing customer acquisition efficiency[33]. - Approximately 75% of marketing expenses are devoted to performance marketing efforts, including retargeting and paid social[48]. Owned Brands and Product Offering - Owned brands contributed 36.1% of the REVOLVE segment's net sales in 2019, with a steady increase from 20.2% in 2017[35]. - The company has developed a portfolio of 24 owned brands and utilizes proprietary data analytics to identify market gaps and emerging trends[43]. - The company offers over 45,000 apparel and footwear styles, with approximately 84% of net sales coming from apparel and nearly all from women's products in 2019[43]. Customer Experience and Retention - Revolve aims to deepen customer relationships to improve revenue retention and increase wallet share through enhanced customer experience[39]. - The company ships approximately 98% of orders on the same day if placed before noon Pacific Time, enhancing customer experience[53]. - The company is testing a loyalty program and a preferred customer program for high-value customers, offering benefits such as early access to new styles[52]. Technology and Innovation - The proprietary technology platform manages hundreds of millions of data points, optimizing merchandising, marketing, and product development[36]. - The technology platform includes a database built over 17 years with hundreds of thousands of styles and millions of customer interactions, creating a strategic asset of hundreds of millions of data points[49]. - Revolve intends to continue innovating across its user interface, technology platform, and supply chain to enhance customer experience and reduce lead times[41]. - The company has a proven history of leveraging its technology platform to expand capacity and increase service levels in a capital-efficient manner[54]. Economic and Market Risks - The COVID-19 pandemic may materially impact net sales and other operating results due to supply chain disruptions, particularly for products sourced from China[45]. - Most sales are denominated in U.S. dollars, minimizing significant foreign currency risk[369]. - Operating expenses are subject to fluctuations in foreign currency exchange rates, particularly the British Pound[369]. - Foreign currency transaction gains and losses have not been material to consolidated financial statements[369]. - Inflation has not had a material effect on the company's business or financial condition[370]. - The company continues to monitor inflation impacts to minimize effects through pricing strategies and cost reductions[370]. - There is a risk that significant inflationary pressures may not be fully offset by price increases[370].

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents Revolve Group, Inc.'s unaudited condensed consolidated financial statements for the period ended September 30, 2019, covering balance sheets, income, cash flows, and detailed notes [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Balance Sheet Summary (as of September 30, 2019 vs. December 31, 2018) | Account | Sep 30, 2019 ($ thousands) | Dec 31, 2018 ($ thousands) | | :--- | :--- | :--- | | **Total Assets** | **221,731** | **162,074** | | Cash and cash equivalents | 51,145 | 16,369 | | Inventory | 103,744 | 102,220 | | **Total Liabilities** | **100,941** | **82,256** | | **Total Stockholders' Equity** | **120,790** | **79,818** | - Total assets grew by **36.8%** from year-end 2018, primarily driven by a significant increase in cash and cash equivalents following the company's IPO[10](index=10&type=chunk) [Condensed Consolidated Statements of Income](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) Income Statement Highlights (in thousands, except per share data) | Metric | Q3 2019 | Q3 2018 | YoY Change | Nine Months 2019 | Nine Months 2018 | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Net Sales | $154,197 | $125,909 | +22.5% | $453,437 | $371,016 | +22.2% | | Gross Profit | $82,678 | $66,385 | +24.5% | $243,850 | $196,150 | +24.3% | | Net Income | $9,559 | $7,140 | +33.9% | $27,262 | $22,939 | +18.8% | | Diluted EPS | $0.13 | $0.10 | +30.0% | $(0.25) | $0.33 | N/A | - The net loss per share for the nine months ended September 30, 2019 was primarily due to a one-time, non-cash charge of **$40.8 million** related to the repurchase of Class B common stock upon the corporate conversion for the IPO[13](index=13&type=chunk)[78](index=78&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash Flow Summary (Nine Months Ended September 30) | Activity | 2019 ($ thousands) | 2018 ($ thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | 31,833 | 28,037 | | Net cash used in investing activities | (11,457) | (1,665) | | Net cash provided by (used in) financing activities | 14,567 | (16,880) | | **Net increase in cash** | **34,776** | **9,412** | - The significant increase in cash from financing activities in 2019 was driven by net proceeds from the IPO of **$57.1 million**, partially offset by a **$40.8 million** repurchase of Class B common stock. The increase in cash used for investing activities was due to purchases of property and equipment, primarily for fulfillment center infrastructure[19](index=19&type=chunk)[171](index=171&type=chunk)[172](index=172&type=chunk) [Notes to the Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) - On June 7, 2019, the company completed its IPO, issuing 2,941,176 shares of Class A common stock at $18.00 per share, receiving net proceeds of approximately **$45.8 million** after initial underwriting discounts and offering costs[34](index=34&type=chunk) - The company adopted the new revenue recognition standard (ASC 606) on January 1, 2019, resulting in the recognition of breakage revenue from unredeemed store credit and gift cards, amounting to **$1.8 million** in Q3 2019 and **$2.1 million** for the first nine months of 2019[42](index=42&type=chunk)[49](index=49&type=chunk) Segment Performance (Nine Months Ended Sep 30, 2019 vs 2018) | Segment | Net Sales 2019 ($ thousands) | Net Sales 2018 ($ thousands) | Gross Profit 2019 ($ thousands) | Gross Profit 2018 ($ thousands) | | :--- | :--- | :--- | :--- | :--- | | REVOLVE | 402,021 | 322,588 | 223,091 | 178,336 | | FORWARD | 51,416 | 48,428 | 20,759 | 17,814 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=20&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's performance, highlighting a **22.5%** increase in Q3 2019 net sales driven by **33.1%** active customer growth, covering key metrics, operational factors, and liquidity significantly boosted by the IPO Key Operating Metrics (as of September 30) | Metric | 2019 | 2018 | Change | | :--- | :--- | :--- | :--- | | Active customers (in thousands) | 1,438 | 1,080 | +33.1% | | Total orders placed (Q3, in thousands) | 1,194 | 950 | +25.7% | | Average order value (Q3) | $275 | $280 | -1.8% | - Net sales growth of **22.5%** in Q3 2019 was primarily driven by a **33.1%** increase in active customers, partially offset by a slight decrease in average order value. The decrease in average order value is attributed to the REVOLVE segment comprising a larger percentage of sales[140](index=140&type=chunk) - Gross margin for Q3 2019 improved to **53.6%** from **52.7%** in Q3 2018, mainly due to a favorable merchandise mix and higher margins in the FORWARD segment[139](index=139&type=chunk)[142](index=142&type=chunk) - Fulfillment expenses increased by **53.8%** in Q3 2019 year-over-year, a result of expanding fulfillment center infrastructure and adding automation, which created temporary overcapacity[143](index=143&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=35&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section outlines the company's exposure to market risks, including interest rate changes, foreign currency fluctuations, and inflation, concluding these are not currently material to financial condition or operations - The company's exposure to interest rate risk is considered minimal due to the short-term nature of its cash equivalents and the absence of outstanding floating-rate debt[183](index=183&type=chunk) - Foreign currency risk is not significant as most sales are denominated in U.S. dollars. While some operating expenses are in foreign currencies (notably the British Pound), the impact has not been material[184](index=184&type=chunk) - Management does not believe that inflation has had a material effect on the business, financial condition, or results of operations[185](index=185&type=chunk) [Controls and Procedures](index=36&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2019, with no material changes to internal control over financial reporting during the quarter - Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2019, providing reasonable assurance that required information is recorded, processed, and reported in a timely manner[187](index=187&type=chunk) - There were no changes in internal control over financial reporting during the quarter ended September 30, 2019, that have materially affected, or are reasonably likely to materially affect, internal controls[188](index=188&type=chunk) [PART II. OTHER INFORMATION](index=37&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Legal Proceedings](index=37&type=section&id=Item%201.%20Legal%20Proceedings) The company reports it is not currently a party to any material legal proceedings, though it may become involved in ordinary course business matters - As of the filing date, Revolve Group, Inc. is not a party to any material legal proceedings[191](index=191&type=chunk) [Risk Factors](index=37&type=section&id=Item%201A.%20Risk%20Factors) This section outlines key risks including managing rapid growth, intense competition, anticipating fashion trends, reliance on social media, inventory management, cybersecurity threats, and the dual-class stock structure concentrating voting power - Business risks include the failure to effectively manage growth, anticipate changing customer preferences and fashion trends, and intense competition from department stores, specialty retailers, and other eCommerce companies[193](index=193&type=chunk)[196](index=196&type=chunk)[199](index=199&type=chunk) - The company is heavily reliant on social media and its network of over 3,500 influencers for marketing. Any damage to its brand community or negative publicity on these platforms could materially harm the business[197](index=197&type=chunk)[198](index=198&type=chunk)[209](index=209&type=chunk) - Operational risks include effective inventory management, as the company purchases inventory in anticipation of sales and is vulnerable to demand shifts. The company also faces risks from merchandise returns and reliance on third-party suppliers and shipping vendors[220](index=220&type=chunk)[223](index=223&type=chunk)[237](index=237&type=chunk) - The dual-class stock structure concentrates approximately **98%** of voting power with pre-IPO stockholders, with the co-CEOs controlling **68%** of the voting power. This limits the influence of Class A stockholders and may depress the trading price[326](index=326&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=69&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reports no unregistered equity sales for the period and confirms the use of approximately **$53.3 million** in IPO proceeds, with **$40.8 million** used to repurchase Class B common stock - The company received aggregate net proceeds of approximately **$53.3 million** from its IPO in June 2019[349](index=349&type=chunk) - **$40.8 million** of the IPO proceeds were used to repurchase 2,400,960 shares of Class B common stock from TSG6 L.P. and Capretto[349](index=349&type=chunk) [Defaults Upon Senior Securities](index=69&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reports no defaults upon senior securities during the period - None[350](index=350&type=chunk) [Mine Safety Disclosures](index=69&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[351](index=351&type=chunk) [Other Information](index=69&type=section&id=Item%205.%20Other%20Information) This section discloses a subsequent event: a **$285,000** special bonus awarded to the Chief Operating Officer on November 6, 2019 - On November 6, 2019, the Company's Chief Operating Officer, David Pujades, was awarded a special bonus of **$285,000**[352](index=352&type=chunk) [Exhibits](index=70&type=section&id=Item%206.%20Exhibits) This section provides an index of all exhibits filed as part of the Form 10-Q, including corporate governance documents, equity plans, and required CEO/CFO certifications - The report includes an index of exhibits, such as corporate governance documents, equity plans, and required CEO/CFO certifications (Exhibits 31.1, 31.2, 32.1)[355](index=355&type=chunk)

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) The company's financial statements show significant asset growth post-IPO, increased sales, and a net loss to common stockholders due to a one-time stock repurchase [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheet reflects substantial growth in assets and equity following the company's IPO - Total assets increased from **$162.1 million** to **$215.6 million**, driven by a cash increase to **$44.8 million** post-IPO[10](index=10&type=chunk) - Total liabilities grew from **$82.3 million** to **$104.3 million**, reflecting business expansion[10](index=10&type=chunk) - Stockholders' equity increased from **$79.8 million** to **$111.3 million** following the IPO and corporate conversion[10](index=10&type=chunk) Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2018 | June 30, 2019 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $16,369 | $44,845 | | Inventory | $102,220 | $102,533 | | Total current assets | $139,153 | $182,267 | | Total assets | $162,074 | $215,564 | | **Liabilities & Equity** | | | | Total current liabilities | $82,256 | $104,301 | | Total members'/stockholders' equity | $79,818 | $111,263 | | Total liabilities and members'/stockholders' equity | $162,074 | $215,564 | [Condensed Consolidated Statements of Income](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) The income statement shows higher net sales and operating income but a net loss for common stockholders due to a large stock repurchase - Net income increased to **$12.7 million** for Q2 2019 from $10.5 million in Q2 2018; however, a **$40.8 million** stock repurchase led to a net loss attributable to common stockholders of **$28.1 million**[12](index=12&type=chunk) Key Income Statement Data (in thousands, except per share data) | Metric | Q2 2018 | Q2 2019 | H1 2018 | H1 2019 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $131,802 | $161,897 | $245,107 | $299,240 | | Gross profit | $73,332 | $90,418 | $129,765 | $161,172 | | Income from operations | $14,094 | $17,728 | $21,599 | $24,629 | | Net income | $10,467 | $12,741 | $15,799 | $17,703 | | Net income (loss) attributable to common stockholders | $10,467 | $(28,075) | $15,846 | $(23,113) | | Diluted EPS | $0.15 | $(0.57) | $0.23 | $(0.51) | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash flows reflect strong operating performance, increased investment in assets, and significant financing activity from the IPO and stock repurchase - Net cash from operating activities was **$22.7 million** for H1 2019, a slight decrease from the prior year due to working capital changes[18](index=18&type=chunk) - Net cash used in investing activities increased significantly to **$9.8 million** from $1.1 million, driven by property and equipment purchases[18](index=18&type=chunk) - Net cash from financing activities was **$15.5 million**, primarily from **$57.1 million** in IPO proceeds offset by a **$40.8 million** stock repurchase[18](index=18&type=chunk) [Notes to the Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) The notes detail the company's IPO, corporate conversion, adoption of ASC 606, and segment performance - The company completed its IPO in June 2019, raising approximately **$53.3 million** in net proceeds after costs and a share repurchase[32](index=32&type=chunk)[33](index=33&type=chunk) - **$40.8 million** of IPO proceeds were used to repurchase 2,400,960 shares of Class B common stock[32](index=32&type=chunk) - The adoption of revenue standard ASC 606 on January 1, 2019, resulted in a net increase of **$0.3 million** to beginning retained earnings[40](index=40&type=chunk) Segment Net Sales (in thousands) | Segment | Q2 2018 | Q2 2019 | H1 2018 | H1 2019 | | :--- | :--- | :--- | :--- | :--- | | REVOLVE | $116,102 | $143,944 | $213,115 | $266,595 | | FORWARD | $15,700 | $17,953 | $31,992 | $32,645 | | **Total** | **$131,802** | **$161,897** | **$245,107** | **$299,240** | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=20&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes sales growth to customer and order increases, while noting improved gross margins and higher operating expenses from expansion - The increase in net sales was primarily driven by a **36.2%** increase in active customers and a **30.8%** increase in orders placed[138](index=138&type=chunk) - Fulfillment expenses increased **62.5%** year-over-year for the quarter, attributed to higher unit volume and fulfillment center expansion[141](index=141&type=chunk) - The company's liquidity was strong with **$44.8 million** in cash and no debt outstanding on its **$75.0 million** line of credit as of June 30, 2019[156](index=156&type=chunk)[160](index=160&type=chunk) Key Operating Metrics | Metric | Q2 2018 | Q2 2019 | | :--- | :--- | :--- | | Active customers (thousands) | 998 | 1,359 | | Total orders placed (thousands) | 989 | 1,294 | | Average order value | $281 | $275 | Q2 2019 vs Q2 2018 Performance (in thousands) | Metric | Q2 2018 | Q2 2019 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $131,802 | $161,897 | $30,095 | 22.8% | | Gross Profit | $73,332 | $90,418 | $17,086 | 23.3% | | Income from Operations | $14,094 | $17,728 | $3,634 | 25.8% | [Quantitative and Qualitative Disclosures About Market Risk](index=35&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to market risks from foreign currency, interest rates, and inflation, though current impact is not material - The company's primary market risks include foreign currency fluctuations, interest rate changes, and inflation[178](index=178&type=chunk) - Foreign currency risk is limited as most sales are in U.S. dollars, but some operating expenses are subject to exchange rate fluctuations[180](index=180&type=chunk) - Interest rate risk is considered low due to short-term cash equivalents and no outstanding floating-rate debt[179](index=179&type=chunk) [Controls and Procedures](index=36&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of the end of the quarter - Management concluded that as of June 30, 2019, the company's disclosure controls and procedures were effective[183](index=183&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter[184](index=184&type=chunk) [PART II. OTHER INFORMATION](index=37&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Legal Proceedings](index=37&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently a party to any material legal proceedings but may be involved in ordinary course matters in the future - The company is not currently party to any material legal proceedings[187](index=187&type=chunk) - The company may become involved in various legal proceedings arising from the ordinary course of business in the future[187](index=187&type=chunk) [Risk Factors](index=37&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks related to business growth, competition, supply chain dependencies, cybersecurity, and its dual-class stock structure - Key business risks include managing growth, anticipating fashion trends, and maintaining its community of brands, customers, and influencers[189](index=189&type=chunk)[192](index=192&type=chunk)[193](index=193&type=chunk) - The company is vulnerable to cybersecurity attacks and must comply with complex data privacy regulations like **GDPR** and **CCPA**[251](index=251&type=chunk)[256](index=256&type=chunk) - A significant portion of manufacturing in China exposes the company to risks from trade tariffs, rising labor costs, and political instability[303](index=303&type=chunk)[307](index=307&type=chunk) - The **dual-class stock structure** concentrates approximately **98%** of voting power with pre-IPO stockholders, limiting the influence of Class A stockholders[326](index=326&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=69&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details Q2 stock option grants and the use of IPO proceeds for a significant Class B common stock repurchase - In Q2 2019, the company granted stock options to purchase **67,232 shares** of Class B common stock to employees[350](index=350&type=chunk) - The IPO generated net proceeds of approximately **$53.3 million** after expenses[351](index=351&type=chunk) - The company used **$40.8 million** of the net IPO proceeds to repurchase 2,400,960 shares of Class B common stock[351](index=351&type=chunk) [Other Information](index=70&type=section&id=Item%205.%20Other%20Information) The board granted Restricted Stock Units to a non-employee director in lieu of a 2019 annual meeting award - The board granted RSUs valued at **$100,000** to non-employee director Marc Stolzman on August 13, 2019[356](index=356&type=chunk) - This grant was made in place of a typical annual meeting grant, as no annual meeting will be held in 2019 following the IPO[356](index=356&type=chunk) [Exhibits](index=71&type=section&id=Item%206.%20Exhibits) This section provides an index of exhibits filed with the Form 10-Q, including key corporate and governance documents - The Exhibit Index lists key corporate documents, including the Certificate of Incorporation, Bylaws, and forms of various agreements and plans[359](index=359&type=chunk) - Certifications by the Principal Executive Officer and Principal Financial Officer pursuant to the Sarbanes-Oxley Act are included as exhibits[359](index=359&type=chunk)