Revolve(RVLV) - 2019 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements 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 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] Condensed Consolidated Statements of Income 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 $40.8 million related to the repurchase of Class B common stock upon the corporate conversion for the IPO[13][78] Condensed Consolidated Statements of Cash Flows Cash Flow Summary (Nine Months Ended September 30) | Activity | 2019 ($ 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][171][172] Notes to the Condensed Consolidated Financial Statements - 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] - 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 $2.1 million for the first nine months of 2019[42][49] Segment Performance (Nine Months Ended Sep 30, 2019 vs 2018) | Segment | Net Sales 2019 ($ 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 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] - 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][142] - 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] Quantitative and Qualitative Disclosures About Market Risk 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] - 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] - Management does not believe that inflation has had a material effect on the business, financial condition, or results of operations[185] Controls and Procedures 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] - 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] PART II. OTHER INFORMATION Legal Proceedings 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] Risk Factors 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][196][199] - 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][198][209] - 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][223][237] - 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] Unregistered Sales of Equity Securities and Use of Proceeds 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] - $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] Defaults Upon Senior Securities The company reports no defaults upon senior securities during the period - None[350] Mine Safety Disclosures This item is not applicable to the company - Not applicable[351] Other Information 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] Exhibits 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]