Revolve(RVLV) - 2021 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements 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] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) 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 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][82] - 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][89] Key Operating and Financial Metrics 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 | $26,486 | Results of Operations This section provides a detailed comparison of the company's operating results for the three and six-month periods ended June 30, 2021 and 2020 Comparison of Three Months Ended June 30, 2021 and 2020 | Metric | Q2 2021 | Q2 2020 | Change ($) | 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 | $14,125 | 75.1% | - The 60.1% increase in net sales for Q2 2021 was driven by a 52.1% increase in orders placed and a 25.0% increase in average order value, reflecting strong consumer demand recovery[148] Comparison of Six Months Ended June 30, 2021 and 2020 | Metric | H1 2021 | H1 2020 | Change ($) | 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] Liquidity and Capital Resources 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] - 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][179] Quantitative and Qualitative Disclosures About Market Risk 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] - 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][191][192] Controls and Procedures 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] - 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] PART II. OTHER INFORMATION Legal Proceedings 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] Risk Factors 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][201] - 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][219] - 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] - 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][297][303] Unregistered Sales of Equity Securities and Use of Proceeds 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]