10-Q 1 rvlv-20220930.htm 10-Q 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2022

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

 

REVOLVE GROUP, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

46-1640160

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

12889 Moore Street

Cerritos, California 90703

(Address of principal executive offices) (Zip code)

(562) 677-9480

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class:

 

Trading Symbol(s):

 

Name of each exchange on which registered:

Class A Common Stock, par value $0.001 per share

 

RVLV

 

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☒

As of October 26, 2022, 40,738,457 shares of the registrant’s Class A common stock and 32,597,119 shares of the registrant’s Class B common stock were outstanding.

 

 


REVOLVE GROUP, INC. AND SUBSIDIARIES

 

TABLE OF CONTENTS

 

PART I - FINANCIAL INFORMATION

 

 

 

Item 1. Financial Statements

 

5

 

 

 

Condensed Consolidated Balance Sheets

 

5

 

 

 

Condensed Consolidated Statements of Income

 

6

 

 

 

Condensed Consolidated Statements of Comprehensive Income

 

7

 

 

 

Condensed Consolidated Statements of Cash Flows

 

8

 

 

 

Notes to the Condensed Consolidated Financial Statements

 

9

 

 

 

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

 

18

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

37

 

 

 

Item 4. Controls and Procedures

 

38

 

 

 

 

 

 

PART II - OTHER INFORMATION

 

 

 

Item 1. Legal Proceedings

 

39

 

 

 

Item 1A. Risk Factors

 

39

 

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

74

 

 

 

Item 3. Defaults Upon Senior Securities

 

74

 

 

 

Item 4. Mine Safety Disclosures

 

74

 

 

 

Item 5. Other Information

 

74

 

 

 

Item 6. Exhibits

 

75

 

 

 

Signatures

 

76

 

 

 


SUMMARY RISK FACTORS

Our business is subject to numerous risks and uncertainties, including those highlighted in the section of this report captioned “Risk Factors.” The following is a summary of the principal risks we face:

Economic downturns and other macroeconomic conditions or trends may adversely affect consumer discretionary spending and our business, operating results and financial condition.
If we fail to effectively manage our growth, our business, financial condition and operating results could be harmed.
We purchase inventory in anticipation of sales, and if we are unable to manage our inventory effectively, our operating results could be adversely affected.
Merchandise returns could harm our business.
Consumer confidence, shopping behavior and spending have been and may continue to be negatively impacted by many factors beyond our control, including the COVID-19 pandemic and related economic impacts, supply chain disruptions, inflation, increasing interest rates and Russia’s war against Ukraine, which may adversely affect our business, operating results and financial condition.
The COVID-19 pandemic has materially adversely affected, and may continue to adversely affect, our business, financial position, results of operations and growth prospects.
If we are unable to anticipate and respond to changing customer preferences and shifts in fashion and industry trends in a timely and cost-effective manner, our business, financial condition and operating results could be harmed.
Our business depends on our ability to maintain a strong community of brands, engaged customers and influencers. We may not be able to maintain and enhance our existing brand community if we receive customer and influencer complaints, negative publicity or otherwise fail to live up to consumers’ expectations, which could materially adversely affect our business, operating results and growth prospects.
Use of social media and influencers may materially and adversely affect our reputation or subject us to fines or other penalties.
If we fail to acquire new customers, or fail to do so in a cost-effective manner, our financial results may be materially adversely impacted.
If we fail to retain existing customers, or fail to maintain average order value levels, we may not be able to maintain our revenue base and margins, which would have a material adverse effect on our business and operating results.
Our business, including our costs and supply chain, is subject to risks associated with sourcing, manufacturing and warehousing.
We rely on third-party suppliers, manufacturers, distributors and other vendors and they may not continue to produce products or provide services that are consistent with our standards or applicable regulatory requirements, which could harm our brand, cause consumer dissatisfaction, and require us to find alternative suppliers of our products or services.
Shipping is a critical part of our business and any changes in our shipping arrangements or any interruptions in shipping could adversely affect our operating results.
Our industry is highly competitive and if we do not compete effectively, our operating results could be adversely affected.
Our quarterly operating results may fluctuate, which could cause our stock price to decline.
We may be unable to accurately forecast net sales and appropriately plan our expenses in the future.
Our past growth rates are not indicative of expected results in the near term.

 


If we do not successfully optimize, operate and manage the expansion of capacity of our fulfillment centers, our business, financial condition and operating results could be harmed.
Our failure to adequately and effectively staff our fulfillment centers, through third parties or with our own employees, could adversely affect our customer experience and operating results.
Increases in labor costs, including wages, could adversely affect our business, financial condition and results of operations.
Failure to comply with federal, state and international laws and regulations and our contractual obligations relating to privacy, data protection and consumer protection, or the expansion of current or the enactment of new laws or regulations relating to privacy, data protection and consumer protection, could harm our reputation or adversely affect our business and our financial condition.
We have operations and do business in China, which exposes us to risks inherent in doing business there.
If we cannot successfully protect our intellectual property, our business would suffer.
We may be accused of infringing intellectual property or other proprietary rights of third parties.
The dual class structure of our common stock concentrates voting control with our executive officers, directors and their affiliates, which may depress the trading price of our Class A common stock.

 

Our risk factors are not guarantees that no such conditions exist as of the date of this report and should not be interpreted as an affirmative statement that such risks or conditions have not materialized, in whole or in part.

 


PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

REVOLVE GROUP, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share and per share data)

 

 

 

September 30,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

244,046

 

 

$

218,455

 

Accounts receivable, net

 

 

6,720

 

 

 

4,639

 

Inventory

 

 

213,328

 

 

 

171,259

 

Income taxes receivable

 

 

4,133

 

 

 

3,375

 

Prepaid expenses and other current assets

 

 

59,103

 

 

 

42,114

 

Total current assets

 

 

527,330

 

 

 

439,842

 

Property and equipment (net of accumulated depreciation of $12,771 and $9,347
   as of September 30, 2022 and December 31, 2021, respectively)

 

 

9,158

 

 

 

8,946

 

Right-of-use lease assets

 

 

24,646

 

 

 

6,566

 

Intangible assets, net

 

 

1,385

 

 

 

1,212

 

Goodwill

 

 

2,042

 

 

 

2,042

 

Other assets

 

 

3,095

 

 

 

2,746

 

Deferred income taxes

 

 

19,059

 

 

 

19,059

 

Total assets

 

$

586,715

 

 

$

480,413

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

53,189

 

 

$

54,345

 

Income taxes payable

 

 

439

 

 

 

 

Accrued expenses

 

 

44,491

 

 

 

33,899

 

Returns reserve

 

 

72,311

 

 

 

49,296

 

Current lease liabilities

 

 

5,769

 

 

 

3,766

 

Other current liabilities

 

 

23,140

 

 

 

18,916

 

Total current liabilities

 

 

199,339

 

 

 

160,222

 

Non-current lease liabilities

 

 

20,079

 

 

 

3,177

 

Total liabilities

 

 

219,418

 

 

 

163,399

 

Stockholders' equity:

 

 

 

 

 

 

Class A common stock, $0.001 par value; 1,000,000,000 shares
   authorized as of September 30, 2022 and December 31, 2021;
   
40,736,255 and 40,276,417 shares issued and outstanding as of September 30, 2022
   and December 31, 2021, respectively

 

 

41

 

 

 

40

 

Class B common stock, $0.001 par value; 125,000,000 shares authorized
   as of September 30, 2022 and December 31, 2021;
32,597,119 and
   
32,956,904 shares issued and outstanding as of September 30, 2022 and December 31,
   2021, respectively

 

 

33

 

 

 

33

 

Additional paid-in capital

 

 

108,495

 

 

 

103,590

 

Retained earnings

 

 

258,728

 

 

 

213,351

 

Total stockholders' equity

 

 

367,297

 

 

 

317,014

 

Total liabilities and stockholders’ equity

 

$

586,715

 

 

$

480,413

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5


REVOLVE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per share data)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Net sales

 

$

268,711

 

 

$

244,064

 

 

$

842,263

 

 

$

651,585

 

Cost of sales

 

 

126,329

 

 

 

109,588

 

 

 

383,228

 

 

 

293,226

 

Gross profit

 

 

142,382

 

 

 

134,476

 

 

 

459,035

 

 

 

358,359

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Fulfillment

 

 

8,072

 

 

 

5,776

 

 

 

23,272

 

 

 

15,452

 

Selling and distribution

 

 

46,477

 

 

 

38,354

 

 

 

145,030

 

 

 

95,470

 

Marketing

 

 

44,584

 

 

 

46,955

 

 

 

141,755

 

 

 

108,054

 

General and administrative

 

 

28,498

 

 

 

24,180

 

 

 

86,497

 

 

 

66,028

 

Total operating expenses

 

 

127,631

 

 

 

115,265

 

 

 

396,554

 

 

 

285,004

 

Income from operations

 

 

14,751

 

 

 

19,211

 

 

 

62,481

 

 

 

73,355

 

Other (income) expense, net

 

 

(1,440

)

 

 

(158

)

 

 

(3,769

)

 

 

339

 

Income before income taxes

 

 

16,191

 

 

 

19,369

 

 

 

66,250

 

 

 

73,016

 

Provision for income taxes

 

 

4,203

 

 

 

2,701

 

 

 

15,421

 

 

 

2,558

 

Net income

 

$

11,988

 

 

$

16,668

 

 

$

50,829

 

 

$

70,458

 

Earnings per share of Class A and Class B
   common stock:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.16

 

 

$

0.23

 

 

$

0.69

 

 

$

0.97

 

Diluted

 

$

0.16

 

 

$

0.22

 

 

$

0.68

 

 

$

0.95

 

Weighted average number of shares of Class A and
   Class B common stock outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

73,328

 

 

 

72,810

 

 

 

73,302

 

 

 

72,330

 

Diluted

 

 

74,354

 

 

 

74,881

 

 

 

74,598

 

 

 

74,449

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

6


REVOLVE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Net income

 

$

11,988

 

 

$

16,668

 

 

$

50,829

 

 

$

70,458

 

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

Cumulative translation adjustment

 

 

(2,556

)

 

 

(548

)

 

 

(5,452

)

 

 

(499

)

Total other comprehensive loss

 

 

(2,556

)

 

 

(548

)

 

 

(5,452

)

 

 

(499

)

Total comprehensive income

 

$

9,432

 

 

$

16,120

 

 

$

45,377

 

 

$

69,959

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

7


REVOLVE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

 

 

Nine Months Ended September 30,

 

 

 

2022

 

 

2021

 

Operating activities:

 

 

 

 

 

 

Net income

 

$

50,829

 

 

$

70,458

 

Adjustments to reconcile net income to net cash provided by operating
   activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

3,519

 

 

 

3,390

 

Equity-based compensation

 

 

4,410

 

 

 

3,664

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(2,081

)

 

 

(2,094

)

Inventories

 

 

(42,069

)

 

 

(46,496

)

Income taxes receivable

 

 

(758

)

 

 

246

 

Prepaid expenses and other current assets

 

 

(16,989

)

 

 

(19,021

)

Other assets

 

 

(349

)

 

 

(2,260

)

Accounts payable

 

 

(1,156

)

 

 

15,576

 

Income taxes payable

 

 

439

 

 

 

800

 

Accrued expenses

 

 

10,592

 

 

 

13,005

 

Returns reserve

 

 

23,015

 

 

 

25,240

 

Right-of-use lease assets and current and non-current
   lease liabilities

 

 

825

 

 

 

(472

)

Other current liabilities

 

 

4,224

 

 

 

6,375

 

Net cash provided by operating activities

 

 

34,451

 

 

 

68,411

 

Investing activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(3,904

)

 

 

(1,768

)

Net cash used in investing activities

 

 

(3,904

)

 

 

(1,768

)

Financing activities:

 

 

 

 

 

 

Proceeds from the exercise of stock options, net

 

 

496

 

 

 

9,448

 

Net cash provided by financing activities

 

 

496

 

 

 

9,448

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(5,452

)

 

 

(499

)

Net increase in cash and cash equivalents

 

 

25,591

 

 

 

75,592

 

Cash and cash equivalents, beginning of period

 

 

218,455

 

 

 

146,013

 

Cash and cash equivalents, end of period

 

$

244,046

 

 

$

221,605

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

Income taxes, net of refund

 

$

15,909

 

 

$

1,511

 

Operating leases

 

$

4,033

 

 

$

4,029

 

Supplemental disclosure of non-cash activities:

 

 

 

 

 

 

Lease assets obtained in exchange for new operating lease liabilities

 

$

21,938

 

 

$

1,440

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

8


 

REVOLVE GROUP, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 1. Description of Business

Revolve Group, Inc., or REVOLVE, is an online retailer and fashion brand. Through our websites and mobile applications, we deliver an aspirational customer experience with a vast, yet curated, merchandise offering. Our dynamic platform connects a deeply engaged community of consumers, global fashion influencers, and emerging, established and owned brands. We are headquartered in Los Angeles County, California.

Note 2. Significant Accounting Policies

Basis of Presentation

Our unaudited condensed consolidated interim financial information has been prepared in accordance with Article 10 of Regulation S-X. As permitted under those rules, certain footnotes or other financial information that are normally required by generally accepted accounting principles, or GAAP, in the United States can be condensed or omitted. These financial statements have been prepared on the same basis as our annual audited financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for the fair statement of our financial information. These interim results are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2022 or for any other interim period or for any other future year. All intercompany transactions and balances have been eliminated in consolidation. Our fiscal year ends on December 31 of each year.

The accompanying unaudited condensed consolidated financial statements and related notes thereto should be read in conjunction with the audited consolidated financial statements and the related notes thereto for the fiscal year ended December 31, 2021 contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or the SEC, on February 28, 2022.

Impact of COVID-19 on Our Business

There continues to be uncertainty around the COVID-19 pandemic and its impact on our business operations and operating results. While demand for our products improved, the extent of this increased demand in the future remains uncertain. A resurgence of the pandemic may result in business restrictions and social distancing mandates, the cancellation of large, in-person brand marketing events, supply chain disruptions, changes in consumer behavior and an increase in the cost of goods sold.

We believe that our existing cash and cash equivalents and cash flows from operations will be sufficient to meet our anticipated cash needs for at least the next 12 months. However, our liquidity assumptions may prove to be incorrect given the continued uncertainty of the COVID-19 pandemic, and we could exhaust our available financial resources sooner than we currently expect.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant

9


 

items subject to such estimates and assumptions include: the allowance for sales returns, the valuation of deferred tax assets, inventory, equity‑based compensation, goodwill, and breakage of store credit and gift cards.

Net Sales

Revenue is primarily derived from the sale of apparel merchandise through our sites and, when applicable, shipping revenue. In accordance with ASC 606, we recognize revenue through the following steps: (1) identification of the contract, or contracts, with the customer; (2) identification of the performance obligations in the contract; (3) determination of the transaction price; (4) allocation of the transaction price to the performance obligations in the contract; and (5) recognition of revenue when, or as, we satisfy a performance obligation. A contract is created with our customer at the time the order is placed by the customer, which creates a performance obligation to deliver the product to the customer. We recognize revenue for the performance obligation at the time control of the merchandise passes to the customer, which is at the time of shipment. In addition, we have elected to treat shipping and handling as fulfillment activities and not a separate performance obligation.

In March 2020 we launched the REVOLVE Loyalty Club within the REVOLVE segment and in April 2021 we expanded the program to include the FWRD segment. Eligible customers who enroll in the program will generally earn points for every dollar spent and will automatically receive a $20 reward once they earn 2,000 points. We defer revenue based on an allocation of the price of the customer purchase and the estimated standalone selling price of the points earned. Revenue is recognized once the reward is redeemed or expires or once unconverted points expire. Rewards generally expire 90 days after they are issued and unconverted points generally expire if a customer fails to engage in any activity that generates points for a period of one year or if their participation in the program is otherwise terminated.

In accordance with our policy on returns and exchanges, merchandise returns are generally accepted for full refund if returned within 30 days of the original purchase date and may be exchanged up to 60 days from the original purchase date. We modified our policy during the holiday season to extend the return and exchange period. In addition, to provide our customers with more flexibility to return or exchange during this time of increased social distancing as a result of the COVID-19 pandemic, merchandise returns for purchases made starting in March 2020 may be accepted for full refund if returned within 60 days of the original purchase date and may be exchanged up to 90 days from the original purchase date. At the time of sale, we establish a reserve for merchandise returns, based on historical experience, merchandise mix and expected future returns, which is recorded as a reduction of sales. Accordingly, cost of sales is also reduced and an offsetting asset is recorded within prepaid expenses and other current assets for expected merchandise to be returned.

The following table presents a roll-forward of our sales return reserve for the three and nine months ended September 30, 2022 and 2021 (in thousands):

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Beginning balance

 

$

69,793

 

 

$

44,024

 

 

$

49,296

 

 

$

25,602

 

Returns

 

 

(349,597

)

 

 

(254,974

)

 

 

(1,055,567

)

 

 

(602,232

)

Provisions

 

 

352,115

 

 

 

261,792

 

 

 

1,078,582

 

 

 

627,472

 

Ending balance

 

$

72,311

 

 

$

50,842

 

 

$

72,311

 

 

$

50,842

 

 

We may also issue store credit in lieu of cash refunds and sell gift cards without expiration dates to our customers. Store credits issued and proceeds from the issuance of gift cards are recorded as deferred revenue and recognized as revenue when the store credit or gift cards are redeemed or upon inclusion in our store credit and gift card breakage estimates. Revenue recognized in net sales on breakage on store credit and gift cards was $0.3 million and $0.3 million for the three months ended September 30, 2022 and 2021, respectively, and $1.2 million and $0.8 million for the nine months ended September 30, 2022 and 2021, respectively.

Sales taxes and duties collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from net sales. We currently collect sales taxes in all states that have adopted laws imposing sales tax collection obligations on out-of-state retailers and are subject to audits by state governments of sales tax collection obligations on out-of-state retailers in jurisdictions where we do not currently collect sales taxes,

10


 

whether for prior years or prospectively. No significant interest or penalties related to sales taxes are recognized in the accompanying condensed consolidated financial statements.

We have exposure to losses from fraudulent credit card charges. We record losses when incurred related to these fraudulent charges as amounts have historically been insignificant.

See Note 9, Segment Information, for disaggregation of revenue by reportable segment, by geographic area and by major product category.

Accounting Pronouncements Not Yet Effective

There have been no new accounting pronouncements not yet effective that have significance, or potential significance, to our consolidated financial statements.

Note 3. Line of Credit

On March 23, 2021, we amended and restated our existing credit agreement to, among other things, extend the expiration date from March 23, 2021 to March 23, 2026. The line of credit provides us with up to $75.0 million aggregate principal in revolver borrowings, based on eligible inventory and accounts receivable less reserves. Borrowings under the credit agreement accrue interest, at our option, at (1) a base rate equal to the highest of (a) the federal funds rate, plus 0.50%, (b) the prime rate and (c) an adjusted LIBO rate determined on the basis of a one-month interest period, plus 1.00%, or (2) an adjusted LIBO rate, subject to a floor of 0.00%, in each case, plus a margin ranging from 0.25% to 0.75% per year in the case of base rate loans, and 1.25% to 1.75% per year in the case of LIBO rate loans. No borrowings were outstanding as of September 30, 2022 and December 31, 2021.

We are also obligated to pay other customary fees for a credit facility of this size and type, including an unused commitment fee. The credit agreement also permits us, in certain circumstances, to request an increase in the facility by an additional amount of up to $25.0 million (in an initial minimum amount of $10 million and in increments of $5 million thereafter) at the same maturity, pricing and other terms. Our obligations under the credit agreement are secured by substantially all of our assets. The credit agreement also contains customary covenants restricting our activities, including limitations on our ability to sell assets, engage in mergers and acquisitions, enter into transactions involving related parties, obtain letters of credit, incur indebtedness or grant liens or negative pledges on our assets, make loans or make other investments. Under the covenants, we are prohibited from paying cash dividends with respect to our capital stock. We were in compliance with all financial covenants as of September 30, 2022 and December 31, 2021.

Note 4. Equity-based Compensation

In 2013, Twist Holdings, LLC, or Twist, and Advance Holdings, LLC, or Advance, which became Revolve Group, Inc., adopted equity incentive plans, which we refer to collectively as the 2013 Plan, pursuant to which the board of managers could grant options to purchase Class A units to officers and employees. Options could be granted with an exercise price equal to or greater than the unit’s fair value at the date of grant. All issued awards have 10-year terms and generally vest and become fully exercisable annually over five years of service from the date of grant. Awards will become fully vested upon the sale of the Company. In March 2018, the 2013 Plan was amended to increase the maximum number of Class A units to 6,207,978.

In September 2018, our board of directors adopted the 2019 Equity Incentive Plan, or the 2019 Plan, which became effective in June 2019. Under the 2019 Plan, a total of 4,500,000 shares of our Class A common stock were reserved for issuance as options, stock appreciation rights, restricted stock, restricted stock units, or RSUs, performance units or performance shares. Upon the completion of our initial public offering, or IPO, the 2019 Plan replaced the 2013 Plan; however, the 2013 Plan will continue to govern the terms and conditions of the outstanding awards previously granted under that plan. The number of shares that will be available for issuance under our 2019 Plan also will increase annually on the first day of each year beginning in 2020, in an amount equal to the least of: (a) 6,900,000 shares, (b) 5% of the outstanding shares of all classes of our common stock as of the last day of the

11


 

immediately preceding year and (c) such other amount as our board of directors may determine. All future grants going forward will be issued under the 2019 Plan. On January 1, 2021, the number of shares available under the 2019 Plan was increased by 2.0 million shares and on January 1, 2022, the number of shares available under the 2019 Plan was further increased by 3.7 million shares. As of September 30, 2022, approximately 8.3 million shares of Class A common stock remain available for future issuance under the 2019 Plan.

Option activity for the nine months ended September 30, 2022 under the 2013 Plan and 2019 Plan is as follows:

 

 

 

Number of
Shares

 

 

Weighted
Average
Exercise Price

 

 

Weighted
Average
Remaining
Contractual
Term
(years)

 

 

Aggregate
Intrinsic
Value
(thousands)

 

Balance at January 1, 2022

 

 

2,342,271

 

 

$

13.48

 

 

 

7.5

 

 

$

100,232

 

Granted

 

 

357,312

 

 

 

44.56

 

 

 

9.2

 

 

 

 

Exercised

 

 

(81,286

)

 

 

10.66

 

 

 

 

 

 

 

Forfeited

 

 

(64,392

)

 

 

30.85

 

 

 

 

 

 

 

Expired

 

 

(3,262

)

 

 

20.28

 

 

 

 

 

 

 

Balance at September 30, 2022

 

 

2,550,643

 

 

 

17.48

 

 

 

7.1

 

 

 

22,599

 

Exercisable at September 30, 2022

 

 

958,410

 

 

 

11.80

 

 

 

6.0

 

 

 

10,079

 

Vested and expected to vest

 

 

2,550,643

 

 

 

17.48

 

 

 

7.1

 

 

 

22,599

 

 

RSU award activity for the nine months ended September 30, 2022 under the 2019 Plan is as follows:

 

 

 

Class A
Common
Stock

 

 

Weighted
Average
Grant Date
Fair Value

 

 

Weighted
Average
Remaining
Contractual
Term
(years)

 

 

Aggregate
Intrinsic
Value
(thousands)

 

Unvested at January 1, 2022

 

 

32,336

 

 

$

43.94

 

 

 

0.6

 

 

$

1,812

 

Granted (1)

 

 

71,052

 

 

 

43.42

 

 

 

0.5

 

 

 

 

Released

 

 

(27,641

)

 

 

48.04

 

 

 

 

 

 

 

Forfeited(2)

 

 

(44,648

)

 

 

45.92

 

 

 

 

 

 

 

Unvested at September 30, 2022

 

 

31,099

 

 

 

36.25

 

 

 

0.7

 

 

 

675

 

(1)
Includes an adjustment of 1,165 shares underlying performance-based RSU awards made during the nine months ended September 30, 2022. The vesting of such RSUs is based upon the Company’s current performance against predefined financial targets.
(2)
Includes an adjustment of (44,648) shares underlying performance-based RSU awards made during the nine months ended September 30, 2022. The vesting of such RSUs is based upon the Company’s current performance against predefined financial targets.

There were 12,698 options and no RSUs granted during the three months ended September 30, 2022 and 357,312 options and 69,887 RSUs granted during the nine months ended September 30, 2022. The weighted average grant-date fair value of options granted during the three and nine months ended September 30, 2022 was $12.00 per share and $22.39 per share, respectively. The weighted average grant-date fair value of RSUs granted during the nine months ended September 30, 2022 was $43.36 per share.

As of September 30, 2022, there was $14.5 million of total unrecognized compensation cost related to unvested options and RSUs granted under the 2013 Plan and 2019 Plan, which is expected to be recognized over a weighted average service period of 3.5 years.

Equity‑based compensation cost included in general and administrative expense in the accompanying condensed consolidated statements of income amounted to $1.5 million and $1.4 million for the three months ended September 30, 2022 and 2021, respectively, and $4.4 million and $3.7 million for the nine months ended September 30, 2022 and 2021, respectively. There was no excess income tax benefit recognized during the three months ended September 30, 2022. There was an excess income tax benefit of $2.2 million recognized in the condensed consolidated statements of income for equity‑based compensation arrangements for the three months ended

12


 

September 30, 2021, and $