Financial Performance - Gross margin for Q3 2021 was 55.1%, slightly down from 55.3% in Q3 2020, while the nine-month gross margin was 55.0%, up from 51.5% in the same period last year[100]. - Adjusted EBITDA for Q3 2021 was $21.666 million, down from $24.025 million in Q3 2020, with a nine-month total of $80.409 million compared to $50.511 million in the previous year[100]. - Free cash flow for the three months ended September 30, 2021, was $1,340,000, down from $13,877,000 in the same period of 2020, indicating a significant decline of 90.3%[115]. - Net income for the three months ended September 30, 2021, was $16.7 million, down from $19.4 million in the same period in 2020, with an effective tax rate increase to 13.9% from 9.8%[160]. - For the nine months ended September 30, 2021, net sales increased by 48.1% to $651.6 million, driven by a 40.4% increase in orders and a 13.4% increase in average order value[161]. Customer Metrics - Active customers increased to 1.678 million in Q3 2021, up from 1.504 million in Q3 2020, while total orders placed rose to 1.830 million from 1.141 million year-over-year[100]. - Active customers increased during the period ended September 30, 2021, compared to the same period in 2020, driven by increased demand due to easing restrictions and government stimulus payments[118]. - Total orders placed increased in the three and nine months ended September 30, 2021, relative to the same periods in 2020, attributed to heightened demand from easing restrictions and stimulus payments[120]. Sales and Revenue - Net sales for the three months ended September 30, 2021, increased by 61.6% to $244.1 million compared to $151.0 million in the same period in 2020, driven by a 60.4% increase in the number of orders and a 19.0% increase in average order value[152]. - REVOLVE segment net sales increased by 56.4% to $204.2 million for the three months ended September 30, 2021, compared to $130.6 million in the same period of 2020[137]. - FWRD segment net sales increased by 94.8% to $39.9 million for the three months ended September 30, 2021, compared to $20.5 million in the same period of 2020[138]. - Net sales to customers outside of the United States increased by 49.0% to $45.6 million for the three months ended September 30, 2021, compared to $30.6 million in the same period of 2020[139]. Marketing and Expenses - The company plans to increase marketing investments to capture consumer demand as economies reopen, which may lead to higher marketing costs as a percentage of net sales[129]. - Marketing expenses increased by 148.4% to $47.0 million, representing 19.2% of net sales, driven by higher investments in customer acquisition and brand marketing initiatives[157]. - Selling and distribution expenses surged by 83.8% to $38.4 million, accounting for 15.7% of net sales, attributed to increased shipping and handling fees and a higher return rate[156]. - General and administrative expenses are expected to increase in the near term as the company plans to invest in its team to support future growth[147]. Inventory and Fulfillment - The company reduced inventory receipts significantly in 2020 due to COVID-19, impacting sales demand, but has since increased inventory purchases to meet recovering demand[134]. - The company expects fulfillment expenses to fluctuate in the short term due to increased return rates and input cost pressures[143]. - Fulfillment expenses for the three months ended September 30, 2021, were $5.8 million, a 38.9% increase, but decreased as a percentage of net sales to 2.4% from 2.8% in 2020 due to automation efficiencies[155]. Economic Impact and Future Outlook - The COVID-19 pandemic initially caused a significant decline in net sales starting in March 2020, but sales returned to growth in 2021 due to easing restrictions and government stimulus[94]. - The overall economic environment and consumer behavior significantly impact the company's business, with macroeconomic factors influencing customer spending patterns[125]. - The COVID-19 pandemic continues to pose risks to net sales and gross margins, with unpredictable long-term impacts[137]. - The company plans to use existing cash and cash equivalents to meet anticipated cash needs for at least the next 12 months, although liquidity assumptions may prove incorrect[172][175].

PART I. FINANCIAL INFORMATION [Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) This section presents Revolve Group, Inc.'s unaudited condensed consolidated financial statements, including Balance Sheets, Statements of Income, and Cash Flows, for periods ending June 30, 2021, detailing financial position and performance Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $219,582 | $146,013 | | Inventory | $118,827 | $95,272 | | Total current assets | $389,621 | $276,925 | | **Total assets** | **$419,666** | **$305,752** | | **Liabilities & Equity** | | | | Accounts payable | $58,634 | $39,337 | | Returns reserve | $44,024 | $25,602 | | Total current liabilities | $155,218 | $105,688 | | Total stockholders' equity | $264,448 | $200,064 | | **Total liabilities and stockholders' equity** | **$419,666** | **$305,752** | Condensed Consolidated Statements of Income Highlights (in thousands, except per share data) | Metric | Q2 2021 | Q2 2020 | H1 2021 | H1 2020 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $228,614 | $142,784 | $407,521 | $288,859 | | Gross profit | $127,218 | $72,071 | $223,883 | $143,021 | | Income from operations | $32,929 | $18,804 | $54,144 | $22,658 | | Net income | $31,538 | $14,236 | $53,790 | $18,392 | | Diluted EPS | $0.42 | $0.20 | $0.72 | $0.26 | Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $66,556 | $61,887 | | Net cash used in investing activities | ($1,253) | ($1,381) | | Net cash provided by financing activities | $8,217 | $25,315 | | **Net increase in cash and cash equivalents** | **$73,569** | **$85,354** | - The company's business operations and results improved in the first half of 2021 due to increased demand from easing stay-at-home orders, U.S. government stimulus, and vaccine rollouts, though future impact of COVID-19 variants remains uncertain[27](index=27&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=20&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's analysis of the company's financial condition and operational results, highlighting strong recovery and growth in H1 2021 driven by easing COVID-19 restrictions and consumer demand [Overview and COVID-19 Impact](index=21&type=section&id=Overview%20and%20COVID-19%20Impact) This section provides an overview of REVOLVE's business model and the impact of the COVID-19 pandemic on its operations and sales recovery - REVOLVE is a next-generation fashion retailer for Millennial and Generation Z consumers, operating through two segments: REVOLVE (premium apparel) and FORWARD (luxury brands), leveraging a proprietary technology platform, data analytics, and influencer marketing[81](index=81&type=chunk)[82](index=82&type=chunk) - After a material negative impact from COVID-19 in 2020, net sales returned to growth in Q1 and Q2 2021, driven by easing restrictions, U.S. government stimulus, and vaccine rollouts, though future demand remains uncertain due to new COVID-19 variants[88](index=88&type=chunk)[89](index=89&type=chunk) [Key Operating and Financial Metrics](index=23&type=section&id=Key%20Operating%20and%20Financial%20Metrics) This section presents key operating and financial metrics, including gross margin, Adjusted EBITDA, active customers, and average order value, for comparative periods Key Metrics Comparison | Metric | Q2 2021 | Q2 2020 | H1 2021 | H1 2020 | | :--- | :--- | :--- | :--- | :--- | | Gross margin | 55.6% | 50.5% | 54.9% | 49.5% | | Adjusted EBITDA (in thousands) | $35,403 | $20,877 | $58,743 | $26,486 | | Active customers (in thousands) | 1,554 | 1,533 | 1,554 | 1,533 | | Total orders placed (in thousands) | 1,769 | 1,163 | 3,051 | 2,335 | | Average order value | $255 | $204 | $255 | $231 | Adjusted EBITDA Reconciliation (in thousands) | Line Item | Q2 2021 | Q2 2020 | H1 2021 | H1 2020 | | :--- | :--- | :--- | :--- | :--- | | Net income | $31,538 | $14,236 | $53,790 | $18,392 | | Other expense, net | $264 | $174 | $497 | $47 | | Provision for (benefit from) income taxes | $1,127 | $4,394 | ($143) | $4,219 | | Depreciation and amortization | $1,122 | $1,205 | $2,271 | $2,396 | | Equity-based compensation | $1,352 | $868 | $2,328 | $1,432 | | **Adjusted EBITDA** | **$35,403** | **$20,877** | **$58,743** | **$26,486** | [Results of Operations](index=32&type=section&id=Results%20of%20Operations) This section provides a detailed comparison of the company's operating results for the three and six-month periods ended June 30, 2021 and 2020 Comparison of Three Months Ended June 30, 2021 and 2020 | Metric | Q2 2021 | Q2 2020 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $228,614 | $142,784 | $85,830 | 60.1% | | Gross Profit | $127,218 | $72,071 | $55,147 | 76.5% | | Marketing Expenses | $34,871 | $14,638 | $20,233 | 138.2% | | Income from Operations | $32,929 | $18,804 | $14,125 | 75.1% | - The **60.1% increase in net sales** for Q2 2021 was driven by a **52.1% increase in orders placed** and a **25.0% increase in average order value**, reflecting strong consumer demand recovery[148](index=148&type=chunk) Comparison of Six Months Ended June 30, 2021 and 2020 | Metric | H1 2021 | H1 2020 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $407,521 | $288,859 | $118,662 | 41.1% | | Gross Profit | $223,883 | $143,021 | $80,862 | 56.5% | | Marketing Expenses | $61,099 | $36,588 | $24,511 | 67.0% | | Income from Operations | $54,144 | $22,658 | $31,486 | 138.9% | - The **41.1% increase in net sales** for H1 2021 was driven by a **30.7% increase in orders placed** and a **10.4% increase in average order value**[157](index=157&type=chunk) [Liquidity and Capital Resources](index=37&type=section&id=Liquidity%20and%20Capital%20Resources) This section analyzes the company's liquidity position and capital resources, including cash flows, working capital, and credit facilities Liquidity Position (in thousands) | Metric | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $219,582 | $146,013 | | Working capital | $234,403 | $171,237 | - The company amended its credit agreement on March 23, 2021, extending the expiration to March 23, 2026, providing up to **$75.0 million in revolver borrowings**, with no outstanding borrowings as of June 30, 2021[171](index=171&type=chunk) - For the six months ended June 30, 2021, net cash from operating activities was **$66.6 million**, primarily driven by higher net income, while net cash from financing activities was **$8.2 million** from stock option exercises[176](index=176&type=chunk)[179](index=179&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=40&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, foreign currency, and inflation, noting no material impact on financial condition or operations - The company's primary market risks are identified as interest rate changes, foreign currency fluctuations, and inflation[189](index=189&type=chunk) - Interest rate risk is low due to short-term cash equivalents and no floating-rate debt, foreign currency risk is not significant as most sales are in U.S. dollars, and inflation has not materially affected operations[190](index=190&type=chunk)[191](index=191&type=chunk)[192](index=192&type=chunk) [Controls and Procedures](index=41&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms management's conclusion that disclosure controls and procedures were effective as of June 30, 2021, with no material changes to internal control over financial reporting - Management concluded that as of June 30, 2021, the company's disclosure controls and procedures were effective to provide reasonable assurance that required information is recorded, processed, and reported in a timely manner[193](index=193&type=chunk) - There were no changes in internal control over financial reporting during the quarter ended June 30, 2021, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[194](index=194&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings](index=42&type=section&id=Item%201.%20Legal%20Proceedings) This section provides information on material pending legal proceedings, with further details available in Note 5 of the financial statements - The company settled a purported class action lawsuit related to employee wage-and-hour claims, with court approval on January 5, 2021, and payment during the first quarter of 2021[55](index=55&type=chunk) [Risk Factors](index=42&type=section&id=Item%201A.%20Risk%20Factors) This section details numerous risks, including ongoing COVID-19 impacts, intense competition, reliance on consumer spending, inventory management, technology dependence, regulatory changes, and the dual-class stock structure - The COVID-19 pandemic continues to pose a significant risk, with potential impacts from changing consumer behavior, supply chain disruptions, and the possibility of reinstated business restrictions[199](index=199&type=chunk)[201](index=201&type=chunk) - The company faces intense competition from department stores, specialty retailers, and other eCommerce companies, which could lead to pricing pressure and affect market share[215](index=215&type=chunk)[219](index=219&type=chunk) - The dual-class stock structure concentrates approximately **90% of voting power** with the co-chief executive officers and their affiliates, allowing them to control all matters submitted to stockholders for approval[357](index=357&type=chunk) - Evolving privacy laws, such as GDPR in Europe and CCPA/CPRA in California, as well as changes in tracking technologies by companies like Apple, could increase compliance costs and adversely affect customer acquisition and marketing effectiveness[296](index=296&type=chunk)[297](index=297&type=chunk)[303](index=303&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=77&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section reports on any unregistered sales of equity securities under the Securities Act of 1933, with the company reporting no such sales during the period - The company reported no unregistered sales of equity securities during the reporting period[374](index=374&type=chunk)

Financial Performance - Gross margin increased to 54.0% in Q1 2021 from 48.6% in Q1 2020[106] - Adjusted EBITDA rose to $23,340,000 in Q1 2021 compared to $5,609,000 in Q1 2020[106] - Free cash flow improved to $32,473,000 in Q1 2021 from $7,530,000 in Q1 2020[106] - Total net sales for Q1 2021 were $178.9 million, up 22.5% from $146.1 million in Q1 2020, driven by a 9.4% increase in the number of customer orders[160] - Operating income rose to $21.2 million in Q1 2021, compared to $3.9 million in Q1 2020, reflecting improved operational efficiency[158] - Income before income taxes was $21.0 million for the three months ended March 31, 2021, compared to $4.0 million in 2020, with an effective tax rate of (6.1%)[168] Customer Metrics - Active customers decreased slightly to 1,477,000 in Q1 2021 from 1,528,000 in Q1 2020[106] - Total orders placed increased to 1,282,000 in Q1 2021, up from 1,172,000 in Q1 2020[106] - Average order value decreased to $256 in Q1 2021 from $259 in Q1 2020[106] - Active customers decreased during the period ended March 31, 2021, compared to the same period in 2020, due to reduced customer activity from the COVID-19 pandemic[124] - Total orders placed increased in the three months ended March 31, 2021, relative to the same period in 2020, due to increased demand following the easing of stay-at-home orders[126] - Average order value for the three months ended March 31, 2021, was essentially flat compared to the same period in 2020, as shifts in product mix were offset by a higher percentage of full price sales[129] Marketing and Expenses - Marketing expenses increased to $26.2 million in Q1 2021, up from $22.0 million in Q1 2020, as the company resumed investment in marketing initiatives[153] - General and administrative expenses were $19.9 million in Q1 2021, compared to $18.9 million in Q1 2020, with expectations for further increases to support growth[154] - Marketing expenses increased by $4.3 million, or 19.5%, to $26.2 million for the three months ended March 31, 2021, compared to $21.9 million in the same period in 2020[166] - General and administrative expenses rose by $1.0 million, or 5.3%, to $19.9 million for the three months ended March 31, 2021, from $18.9 million in 2020, with a decrease in percentage of net sales from 12.9% to 11.1%[167] Cash Flow and Liquidity - Cash and cash equivalents increased to $182.9 million as of March 31, 2021, from $146.0 million as of December 31, 2020[170] - Net cash provided by operating activities was $33.2 million for the three months ended March 31, 2021, compared to $8.1 million in the same period in 2020[177] - Net cash used in investing activities was $0.7 million for the three months ended March 31, 2021, compared to $0.6 million in 2020[181] - Net cash provided by financing activities was $4.3 million for the three months ended March 31, 2021, primarily from cash proceeds from the exercise of stock options[183] - The company has a line of credit providing up to $75.0 million in revolver borrowings, with no borrowings outstanding as of March 31, 2021[174] - Working capital increased to $199.4 million as of March 31, 2021, from $171.2 million as of December 31, 2020[170] - The company believes existing cash and cash equivalents will be sufficient to meet anticipated cash needs for at least the next 12 months, barring any unforeseen circumstances related to COVID-19[171] Market and Operational Insights - The company has focused on expanding its international presence, particularly in Europe, Australia, and Canada, while maintaining a core focus on the U.S. market[97] - The COVID-19 pandemic negatively impacted net sales starting in March 2020, but there was a recovery in demand in early 2021 due to easing restrictions and government stimulus[98] - The company has invested in technology and data analytics to optimize inventory management and enhance customer experience[94] - The contribution of owned brands to net sales is expected to remain lower than historical trends, adversely affecting overall gross margin[109] - Inventory management practices involve a data-driven approach to optimize merchandise assortment and fulfillment, but the company remains vulnerable to demand shifts[139] - The company has made capital investments in inventory, fulfillment centers, and logistics infrastructure to support growth and international expansion[141] Segment Performance - Financial results are influenced by performance across the two reporting segments, REVOLVE and FORWARD, as well as various geographic markets[142] - The REVOLVE segment accounted for 85.0% of net sales, generating $152.2 million in Q1 2021, a 22.2% increase from $124.5 million in Q1 2020[143] - The FORWARD segment represented 15.0% of net sales, with $26.7 million in Q1 2021, reflecting a 23.8% increase from $21.6 million in Q1 2020[144] - Net sales to international customers increased by 38.4%, reaching $35.6 million in Q1 2021, compared to $25.7 million in Q1 2020, contributing 19.9% of total net sales[145] - Cost of sales increased by 9.5% to $82.2 million in Q1 2021, but decreased as a percentage of net sales from 51.4% in Q1 2020 to 46.0% in Q1 2021[162] - Gross profit for Q1 2021 was $96.7 million, representing a gross margin of 54.0%, up from 48.6% in Q1 2020[158]

Financial Performance - REVOLVE generated $580.6 million in net sales in 2020, serving approximately 1.5 million active customers and offering over 120,000 unique styles[32]. - Approximately 77% of net sales in 2020 were at full price, demonstrating the effectiveness of the data-driven merchandising model[23][34]. - The average order value was $236 in 2020, reflecting the focus on premium merchandise[32]. - Net sales and gross margins declined in 2020, with expectations that COVID-19 will continue to affect operating results for some time[103]. - The company experienced a material negative impact on product demand due to COVID-19, leading to cost reductions such as furloughs and pay cuts[84]. - The company anticipates challenges in accurately forecasting net sales and planning expenses due to the unpredictable nature of the pandemic and its impact on consumer behavior[102]. - Economic downturns and macroeconomic conditions may adversely affect consumer discretionary spending, impacting the company's operating results[88]. - The company has experienced a decline in its customer base due to the COVID-19 pandemic, increased competition, and business maturation, which may continue to adversely affect revenue growth[105]. Sales Channels and Marketing - In 2020, mobile sales accounted for 60.4% of total orders, highlighting the significant growth in digital channels[28]. - REVOLVE's marketing strategy drove 53% of traffic from free and low-cost sources in 2020, indicating effective brand awareness efforts[36]. - The company has over 7.5 million Instagram followers across its brands as of December 31, 2020, leveraging social media and influencer marketing to enhance brand awareness[54]. - The collective social media following of owned brands exceeded 4.4 million on Instagram as of December 31, 2020, representing a 47% increase from the previous year[38]. - Customer purchases using mobile devices have significantly increased, and the company expects this trend to continue, although challenges in integrating mobile applications may impact future growth[151]. Operational Efficiency - The company ships approximately 98% of orders on the same day if placed before noon Pacific Time, and offers free two-day shipping and free returns to customers in the United States[61]. - The company has invested in automation for its fulfillment operations, enhancing efficiency and scalability in response to customer demand[60]. - The fulfillment center, located in Los Angeles County, is critical for operations, and any capacity issues could lead to delays in order fulfillment and harm customer relationships[136]. - The company expects to incur higher capital expenditures for fulfillment center operations, which may be made in advance of expected sales that may not materialize[137]. - The company has implemented cost-cutting measures including salary reductions and furloughs due to the COVID-19 pandemic, but many of these measures have been reversed, with corporate employees now receiving at or above pre-COVID wages[149]. Technology and Data Analytics - The technology platform includes a database built over 18 years with hundreds of thousands of styles and millions of customer interactions, creating a strategic asset of hundreds of millions of data points[55]. - The proprietary technology infrastructure is highly scalable, supporting growth in customer demand and vendor relationships[56]. - The company relies on accurate data analytics for key performance metrics, and inaccuracies could harm its reputation and business operations[99]. - The company plans to invest significantly in upgrading its information technology systems to support growth, which may involve substantial capital expenditures and operational risks[210]. - The company is increasingly dependent on information technology, and any disruptions could materially adversely affect its operations and financial results[208]. Inventory and Supply Chain Management - The company does not have long-term agreements with manufacturers, allowing flexibility in its supplier network across various geographies[51]. - The company faces challenges in managing inventory effectively, as demand can change significantly, influenced by various factors including the pandemic and consumer trends[121]. - Due to COVID-19, the company reduced inventory receipts, leading to a significant decline in inventory balance, but plans to increase inventory purchases as consumer demand improves[128]. - The company faces risks related to sourcing and manufacturing, with potential price fluctuations impacting operating results, especially as it expands into new product categories[132]. - The company relies on third-party suppliers and manufacturers, and disruptions in their operations could negatively impact product availability and quality[139]. Competition and Market Risks - The company faces significant competition in the retail industry, which may pressure pricing and affect gross margins[98]. - Fluctuations in quarterly operating results may lead to stock price declines if results fall below analyst expectations[90]. - Changes in consumer preferences and fashion trends must be anticipated to avoid excess inventory or markdowns that could negatively impact profitability[87]. - The company acknowledges that negative publicity or customer complaints could severely impact consumer confidence and brand reputation[110]. - The company is pursuing international expansion and strategic acquisitions as part of its growth strategy[107]. Regulatory and Compliance Risks - The company is subject to payment-related risks, including potential increases in interchange fees and compliance with regulations, which could adversely affect operating results[152]. - The company faces risks related to compliance with product safety and labor laws, which could damage its reputation and result in increased costs[166]. - The company collects significant amounts of personal data, and non-compliance with privacy laws could adversely affect its reputation and result in monetary penalties[174]. - The EU's GDPR imposes penalties of up to €20 million or 4% of worldwide turnover for non-compliance, which could materially affect the company's financial results[177]. - The company faces significant political, legal, and economic risks in China, which could adversely affect its operations and financial condition[186]. Future Outlook and Strategic Initiatives - The company plans to grow international sales by localizing the shopping experience and leveraging its influencer network[45]. - The company aims to deepen customer relationships to improve revenue retention and increase wallet share through enhanced customer experience[43]. - The company is focused on expanding its product offerings and must react quickly to shifts in consumer preferences to maintain its competitive edge[126]. - The company anticipates that maintaining and enhancing brand relationships will require substantial investments, which may not yield successful outcomes[109]. - The company aims to introduce new products in traditional categories and expand into adjacent categories, though success may be limited by inexperience and competitive pressures[129].

Financial Performance - Gross margin for Q3 2020 was 55.3%, an increase from 53.6% in Q3 2019[107] - Adjusted EBITDA for Q3 2020 was $24.025 million, compared to $14.438 million in Q3 2019, reflecting a significant year-over-year increase[107] - Free cash flow for Q3 2020 was $13.877 million, up from $7.448 million in Q3 2019[107] - Net sales for the three months ended September 30, 2020, decreased by 2.0% to $151.036 million compared to $154.197 million in the same period in 2019[159] - For the nine months ended September 30, 2020, net sales decreased by 3.0% to $439.895 million compared to $453.437 million in 2019[169] - Net income for the three months ended September 30, 2020, increased to $19.438 million, compared to $9.559 million in the same period in 2019[168] Customer Metrics - Active customers reached 1.504 million in Q3 2020, an increase from 1.438 million in Q3 2019[107] - Active customers decreased sequentially in the third quarter of 2020 compared to the second quarter of 2020 due to a decline in new customers[123] - Existing customers account for a greater share of active customers over time, emphasizing the importance of customer retention[136] Sales and Orders - Total orders placed in Q3 2020 were 1,141, slightly down from 1,194 in Q3 2019[107] - Total orders placed decreased in the three and nine months ended September 30, 2020 compared to the same periods in 2019, attributed to reduced demand from the COVID-19 pandemic[125] - Average order value decreased to $232 in Q3 2020 from $275 in Q3 2019[107] - The average order value decreased to $232 from $275, and the number of orders placed by customers decreased by 4.4%[159] Impact of COVID-19 - The COVID-19 pandemic has negatively impacted net sales, with significant declines starting in mid-March 2020[99] - The company implemented cost-cutting measures in response to the pandemic, including reducing payroll costs and deferring non-essential capital expenditures[99] - The contribution of owned brands to net sales is expected to be adversely affected for at least the remainder of 2020 due to work restrictions impacting design and development[113] - The company experienced a decline in discretionary consumer spending for apparel merchandise due to the pandemic's impact on disposable income and consumer confidence[131] - The overall economic environment and changes in consumer behavior significantly impact the company's business operations and results[130] Cost Management - The company is focused on preserving liquidity and managing cash flow while adjusting its cost structure to align with top-line demand[130] - The company has reduced capital expenditures in response to the COVID-19 pandemic, impacting long-term growth strategies[141] - Marketing expenses have been reduced due to the impact of COVID-19, but the company plans to return to historical investment levels in the near future[153] - General and administrative expenses were reduced during the pandemic but are expected to increase as a percentage of net sales if restrictions are reimposed[154] Inventory and Merchandise - Inventory purchases were sequentially increased in response to improving consumer demand trends during the second and third quarters of 2020[101] - Inventory management strategies include shallow initial buys and data-driven re-ordering to mitigate fashion risk[140] - The merchandise mix shift due to COVID-19 is expected to adversely impact overall gross margin in the near term[138] Segment Performance - REVOLVE segment net sales decreased by 3.6% to $130.6 million for the three months ended September 30, 2020, compared to $135.4 million in the same period of 2019[143] - FORWARD segment net sales increased by 9.0% to $20.5 million for the three months ended September 30, 2020, compared to $18.8 million in the same period of 2019[144] - Net sales to customers outside the United States increased by 17.8% to $30.6 million for the three months ended September 30, 2020, compared to $26.0 million in the same period of 2019[146] Cash Flow and Liquidity - Net cash provided by operating activities increased to $76.2 million for the nine months ended September 30, 2020, compared to $31.8 million in 2019, primarily due to favorable changes in working capital and increased net income[188] - Cash and cash equivalents increased to $158.7 million as of September 30, 2020, compared to $65.4 million as of December 31, 2019[179] - Working capital increased to $142.9 million as of September 30, 2020, compared to $97.8 million as of December 31, 2019[179] - The company had $15.0 million outstanding on its line of credit as of September 30, 2020, with a weighted-average interest rate of 1.5%[183] Inflation and Economic Conditions - The company does not believe inflation has materially affected its business or financial condition[203] - The company continues to monitor inflation impacts to minimize effects through pricing strategies, productivity improvements, and cost reductions[203] - There is a risk that significant inflationary pressures could harm the company's financial condition and results of operations if costs cannot be offset by price increases[203]

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)