Revolve Group, Inc. [RVLV] Filings

10-Q 1 rvlv-20220331.htm 10-Q 10-Q

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 March 31, 2022


☐	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 April 26, 2022, 40,711,048 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		34

Item 4. Controls and Procedures		35


PART II - OTHER INFORMATION

Item 1. Legal Proceedings		36

Item 1A. Risk Factors		36

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		70

Item 3. Defaults Upon Senior Securities		70

Item 4. Mine Safety Disclosures		70

Item 5. Other Information		70

Item 6. Exhibits		71

Signatures		72

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:

•

If we fail to effectively manage our growth, our business, financial condition and operating results could be harmed.

•

The COVID-19 pandemic has materially adversely affected, and may continue to adversely affect, our business, financial position, results of operations and growth prospects.

•

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.

•

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.

•

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.

•

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.

•

We rely on consumer discretionary spending, which may be adversely affected by economic downturns and other macroeconomic conditions or trends.

•

Consumer confidence, shopping behavior and spending has 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 and Russia’s war against Ukraine, which may adversely affect our business, operating results and financial condition.

•

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, and it 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)


	March 31,		December 31,
	2022		2021
Assets
Current assets:
Cash and cash equivalents	$	270,607	$	218,455
Accounts receivable, net		11,386		4,639
Inventory		179,245		171,259
Income taxes receivable		466		3,375
Prepaid expenses and other current assets		58,127		42,114
Total current assets		519,831		439,842
Property and equipment (net of accumulated depreciation of $10,418 and $9,347 as of March 31, 2022 and December 31, 2021, respectively)		8,867		8,946
Right-of-use lease assets		16,618		6,566
Intangible assets, net		1,259		1,212
Goodwill		2,042		2,042
Other assets		3,107		2,746
Deferred income taxes		19,059		19,059
Total assets	$	570,783	$	480,413
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	75,126	$	54,345
Income taxes payable		2,761		—
Accrued expenses		40,622		33,899
Returns reserve		69,626		49,296
Current lease liabilities		3,829		3,766
Other current liabilities		25,207		18,916
Total current liabilities		217,171		160,222
Non-current lease liabilities		13,114		3,177
Total liabilities		230,285		163,399
Stockholders' equity:
Class A common stock, $0.001 par value; 1,000,000,000 shares authorized as of March 31, 2022 and December 31, 2021; 40,538,314 and 40,276,417 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively		41		40
Class B common stock, $0.001 par value; 125,000,000 shares authorized as of March 31, 2022 and December 31, 2021; 32,760,535 and 32,956,904 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively		33		33
Additional paid-in capital		105,206		103,590
Retained earnings		235,218		213,351
Total stockholders' equity		340,498		317,014
Total liabilities and stockholders’ equity	$	570,783	$	480,413

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

REVOLVE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per share data)


	Three Months Ended March 31,
	2022			2021
Net sales	$	283,498		$	178,907
Cost of sales		129,087			82,242
Gross profit		154,411			96,665
Operating expenses:
Fulfillment		7,290			4,367
Selling and distribution		46,586			24,977
Marketing		45,250			26,228
General and administrative		26,835			19,878
Total operating expenses		125,961			75,450
Income from operations		28,450			21,215
Other (income) expense, net		(516	)		233
Income before income taxes		28,966			20,982
Provision for (benefit from) income taxes		6,398			(1,270	)
Net income	$	22,568		$	22,252
Earnings per share of Class A and Class B common stock:
Basic	$	0.31		$	0.31
Diluted	$	0.30		$	0.30
Weighted average number of shares of Class A and Class B common stock outstanding:
Basic		73,264			71,782
Diluted		74,803			74,033

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

REVOLVE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)


	Three Months Ended March 31,
	2022			2021
Net income	$	22,568		$	22,252
Other comprehensive (loss) income:
Cumulative translation adjustment		(701	)		104
Total other comprehensive (loss) income		(701	)		104
Total comprehensive income	$	21,867		$	22,356

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

REVOLVE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)


	Three Months Ended March 31,
	2022			2021
Operating activities:
Net income	$	22,568		$	22,252
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		1,102			1,149
Equity-based compensation		1,491			976
Deferred income taxes		—			2,423
Changes in operating assets and liabilities:
Accounts receivable		(6,747	)		(1,963	)
Inventories		(7,986	)		(5,183	)
Income taxes receivable		2,909			(4,700	)
Prepaid expenses and other current assets		(16,013	)		(5,813	)
Other assets		(361	)		(2,346	)
Accounts payable		20,781			10,349
Income taxes payable		2,761			637
Accrued expenses		6,723			1,016
Returns reserve		20,330			11,869
Right-of-use lease assets and current and non-current lease liabilities		(52	)		(222	)
Other current liabilities		6,291			2,765
Net cash provided by operating activities		53,797			33,209
Investing activities:
Purchases of property and equipment		(1,070	)		(736	)
Net cash used in investing activities		(1,070	)		(736	)
Financing activities:
Proceeds from the exercise of stock options, net		126			4,317
Net cash provided by financing activities		126			4,317
Effect of exchange rate changes on cash and cash equivalents		(701	)		104
Net increase in cash and cash equivalents		52,152			36,894
Cash and cash equivalents, beginning of period		218,455			146,013
Cash and cash equivalents, end of period	$	270,607		$	182,907
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes, net of refund	$	713		$	364
Operating leases	$	1,369		$	1,397
Supplemental disclosure of non-cash activities:
Lease assets obtained in exchange for new operating lease liabilities	$	11,105		$	1,440

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

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 fashion retailer for Millennial and Generation Z consumers. Through our websites and mobile applications we deliver an aspirational customer experience from 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 the Securities and Exchange Commission’s, or the SEC, 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 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 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 rollforward of our sales return reserve for the three months ended March 31, 2022 (in thousands):


	Three Months Ended March 31,
	2022			2021
Beginning balance	$	49,296		$	25,602
Returns		(318,392	)		(135,341	)
Provisions		338,722			147,210
Ending balance	$	69,626		$	37,471

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 $0.5 million and $0.2 million for the three months ended March 31, 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, 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 March 31, 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 March 31, 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 the 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, the 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 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 March 31, 2022, approximately 8.3 million shares of Class A common stock remain available for future issuance under the 2019 Plan.

Option activity for the three months ended March 31, 2022 under the 2013 and 2019 Plans is as follows:


	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value (thousands)
Balance at January 1, 2022		2,342,271		$	13.48		7.5	$	100,232
Granted		308,937			46.83		9.8
Exercised		(51,399	)		9.59		—
Forfeited		(31,687	)		32.83		—
Expired		(400	)		10.32		—
Balance at March 31, 2022		2,567,722			17.33		7.6		93,895
Exercisable at March 31, 2022		692,155			11.23		6.2		29,391
Vested and expected to vest		2,567,722			17.33		7.6		93,895

RSU award activity for the three months ended March 31, 2022 under the 2019 Plan is as follows:


	Class A Common Stock			Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value (thousands)
Unvested at January 1, 2022		32,336		$	43.94		0.6	$	1,812
Granted (1)		61,032			45.63		0.9
Released		(23,003	)		46.86
Forfeited(2)		(33,978	)		45.65
Unvested at March 31, 2022		36,387			43.33		1.0		1,954

(1)

Includes an adjustment of 1,165 shares underlying performance-based RSU awards made during the three months ended March 31, 2022. The vesting of such RSUs is based upon the Company’s current performance against predefined financial targets.

(2)

Includes an adjustment of (33,978) shares underlying performance-based RSU awards made during the three months ended March 31, 2022. The vesting of such RSUs is based upon the Company’s current performance against predefined financial targets.

There were 308,937 options and 59,867 RSUs granted during the three months ended March 31, 2022. The weighted average grant-date fair value of options granted during the three months ended March 31, 2022 was $23.75 per share. The weighted average grant-date fair value of RSUs granted during the three months ended March 31, 2022 was $45.63 per share.

As of March 31, 2022, there was $17.4 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 3.7 years.

Equity‑based compensation cost that has been included in general and administrative expense in the accompanying condensed consolidated statements of income amounted to $1.5 million and $1.0 million for the three months ended March 31, 2022 and 2021, respectively. There was an excess income tax benefit of $0.5 million and $6.7 million recognized in the condensed consolidated statements of income for equity‑based compensation arrangements for the three months ended March 31, 2022 and 2021, respectively.

Note 5. Commitments and Contingencies

Contingencies

We record a loss contingency when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. We also disclose material contingencies when we believe a loss is not probable but reasonably possible. Accounting for contingencies requires us to use judgment related to both the likelihood of a loss and the estimate of the amount or range of loss. Although we cannot predict with assurance the outcome of any litigation or tax matters, we do not believe there are currently any such actions that, if resolved unfavorably, would have a material impact on our operating results, financial position and cash flows.

Indemnifications

In the ordinary course of business, we may provide indemnifications of varying scope and terms to vendors, directors, officers and other parties with respect to certain matters. We have not incurred any material costs as a result of such indemnifications and have not accrued any liabilities related to such obligations in our condensed consolidated financial statements.

Tax Contingencies

We are subject to income taxes in the United States and the U.K. Significant judgment is required in evaluating our tax positions and determining our provision for income taxes. During the ordinary course of business, there are transactions and calculations for which the ultimate tax determination is uncertain. We establish reserves for tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. These reserves are established when we believe that certain positions might be challenged despite our belief that our tax return positions are fully supportable. We adjust these reserves in light of changing facts and circumstances, such as the outcome of tax audits. Our provision for income taxes does not include any reserve provision because we believe that all of our tax positions are highly certain.

Legal Proceedings

We were a defendant in a purported class action lawsuit filed in the Superior Court of California, Los Angeles County, which was filed in May 2019, arising from employee wage-and-hour claims under California law for alleged meal period, rest period, payment of wages at separation, wage statement violations, and unfair business practices. On January 6, 2020, we and the individual plaintiff in the case entered into a binding memorandum of understanding to settle the case. In December 2019, we accrued approximately $1.0 million to general and administrative expenses. On January 5, 2021, the court granted approval of the settlement, which was subsequently paid by the Company during the first quarter of 2021.

On March 15, 2022, we received a cease and desist letter alleging copyright infringement and related claims. This matter has not proceeded to litigation as of the date of this report and we have recorded an accrual for an amount equal to a self-insured retention under our insurance policy.

Note 6. Income Taxes

The following table summarizes our effective tax rate for the periods presented (in thousands):


	Three Months Ended March 31,
	2022			2021
Income before income taxes	$	28,966		$	20,982
Provision for (benefit from) income taxes		6,398			(1,270	)
Effective tax rate		22.1	%		(6.1	%)

The increase in the effective tax rate for the three months ended March 31, 2022, as compared to the same period in 2021, was primarily due to a decrease in excess tax benefits related to the exercise of non-qualified stock options.

Note 7. Stockholders’ Equity

Changes in stockholders’ equity for the three months ended March 31, 2022 and 2021 were as follows:


	Three Months Ended March 31, 2022
	Common Stock				Additional Paid-in		Retained			Total Stockholders'
	Number		Amount		Capital		Earnings			Equity
	(in thousands, except share data)
Beginning balance		73,233,321	$	73	$	103,590	$	213,351		$	317,014
Issuance of Class A common stock from exercise of stock options and vesting of restricted stock units		65,528		1		125		—			126
Equity-based compensation		—		—		1,491		—			1,491
Cumulative translation adjustment		—		—		—		(701	)		(701	)
Net income		—		—		—		22,568			22,568
Ending balance		73,298,849	$	74	$	105,206	$	235,218		$	340,498


	Three Months Ended March 31, 2021
	Common Stock				Additional Paid-in		Retained		Total Stockholders'
	Number		Amount		Capital		Earnings		Equity
	(in thousands, except share data)
Beginning balance		71,396,706	$	71	$	86,040	$	113,953	$	200,064
Issuance of Class A common stock from exercise of stock options and vesting of restricted stock units		766,809		1		4,316		—		4,317
Equity-based compensation		—		—		976		—		976
Cumulative translation adjustment		—		—		—		104		104
Net income		—		—		—		22,252		22,252
Ending balance		72,163,515	$	72	$	91,332	$	136,309	$	227,713

Note 8. Earnings per Share

Basic and diluted earnings per share is presented in conformity with the two-class method required for multiple classes of common stock. In connection with our IPO, we established two classes of authorized common stock: Class A common stock and Class B common stock. The rights of the holders of Class A and Class B common stock are identical, except for voting and conversion rights. Each share of Class A common stock is entitled to one vote per share. Each share of Class B common stock is entitled to ten votes per share and is convertible at any time into one share of Class A common stock.

Basic earnings per share is computed by dividing the net income attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period.

Diluted earnings per share represents net income divided by the weighted-average number of shares of common stock outstanding, inclusive of the effect of dilutive stock options and RSUs. The undistributed earnings are allocated based on the participation rights of shares of Class A and Class B common stock as if the earnings for the year have been distributed. As the liquidation and dividend rights are identical for both classes, the undistributed earnings are allocated on a proportionate basis.

The calculation of diluted earnings per share for Class A common stock assumes the conversion of Class B common stock, while diluted earnings per share of Class B common stock does not assume the conversion of Class A common stock as Class A common stock is not convertible into Class B common stock. Similarly, outstanding options to purchase Class B common stock and RSUs that are dilutive are included in the calculation of diluted earnings for both Class A and Class B common stock.

The following table presents the calculation of basic and diluted earnings per share:


	Three Months Ended March 31,
	2022				2021
	Class A		Class B		Class A		Class B
	(in thousands, except per share data)
Numerator
Net income	$	12,424	$	10,144	$	10,779	$	11,473
Reallocation of undistributed earnings as a result of conversion of Class B to Class A common stock		10,144		—		11,473

Revolve Group, Inc. [RVLV] Filings
10-Q	[2022-05-03]
10-K	[2022-02-28]
10-Q	[2021-11-04]
10-Q	[2021-08-05]
10-Q	[2021-05-07]
10-K	[2021-02-25]
10-Q	[2020-11-12]
10-Q	[2020-08-13]
10-Q	[2020-05-14]
10-K	[2020-02-26]
10-Q	[2019-11-07]
10-Q	[2019-08-12]
S-1	[2018-09-28]