Revolve Group, Inc. [RVLV] Filings

10-Q 1 rvlv-20230930.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 September 30, 2023


☐	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 25, 2023, 39,556,715 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 (Unaudited)		7

Condensed Consolidated Balance Sheets		7

Condensed Consolidated Statements of Income		8

Condensed Consolidated Statements of Comprehensive Income		9

Condensed Consolidated Statements of Cash Flows		10

Notes to the Condensed Consolidated Financial Statements		11

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		21

Item 3. Quantitative and Qualitative Disclosures About Market Risk		38

Item 4. Controls and Procedures		39


PART II - OTHER INFORMATION

Item 1. Legal Proceedings		40

Item 1A. Risk Factors		40

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		75

Item 3. Defaults Upon Senior Securities		76

Item 4. Mine Safety Disclosures		76

Item 5. Other Information		76

Item 6. Exhibits		77

Signatures		78

SUMMARY RISK FACTORS

Our business is subject to numerous risks and uncertainties, including those highlighted in the section of this report titled “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.

•

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 or 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 regulatory and tax obligations, 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.

•

The COVID-19 pandemic materially adversely affected, and may in the future adversely affect, our business, financial position, results of operations and growth prospects.

•

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.

•

We are exposed to fluctuations in currency exchange rates, which could negatively affect our operating results.

•

Our use of artificial intelligence and machine learning could adversely affect our business and operating results.

•

If we cannot successfully protect our intellectual property, our business would suffer.

•

We have in the past and may in the future 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,
	2023		2022
Assets
Current assets:
Cash and cash equivalents	$	266,899	$	234,724
Accounts receivable, net		12,614		5,421
Inventory		202,877		215,224
Income taxes receivable		7,555		2,974
Prepaid expenses and other current assets		63,578		59,874
Total current assets		553,523		518,217
Property and equipment (net of accumulated depreciation of $16,697 and $13,081 as of September 30, 2023 and December 31, 2022, respectively)		8,062		8,934
Right-of-use lease assets		38,041		22,964
Intangible assets, net		1,834		1,600
Goodwill		2,042		2,042
Other assets		1,241		807
Deferred income taxes		24,754		24,754
Total assets	$	629,497	$	579,318
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	44,479	$	50,789
Income taxes payable		1,435		229
Accrued expenses		42,639		38,266
Returns reserve		72,137		63,381
Current lease liabilities		6,249		5,844
Other current liabilities		30,465		22,577
Total current liabilities		197,404		181,086
Non-current lease liabilities		35,567		18,659
Total liabilities		232,971		199,745
Stockholders’ equity:
Class A common stock, $0.001 par value; 1,000,000,000 shares authorized as of September 30, 2023 and December 31, 2022; 39,979,289 and 40,766,510 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively		40		41
Class B common stock, $0.001 par value; 125,000,000 shares authorized as of September 30, 2023 and December 31, 2022; 32,597,119 and 32,597,119 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively		33		33
Additional paid-in capital		115,053		110,338
Retained earnings		281,400		269,161
Total stockholders’ equity		396,526		379,573
Total liabilities and stockholders’ equity	$	629,497	$	579,318

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 September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
Net sales	$	257,603		$	268,711		$	810,941		$	842,263
Cost of sales		124,371			126,329			390,791			383,228
Gross profit		133,232			142,382			420,150			459,035
Operating expenses:
Fulfillment		9,185			8,072			27,657			23,272
Selling and distribution		48,925			46,477			151,276			145,030
Marketing		39,581			44,584			129,421			141,755
General and administrative		35,217			28,498			91,861			86,497
Total operating expenses		132,908			127,631			400,215			396,554
Income from operations		324			14,751			19,935			62,481
Other income, net		(3,984	)		(1,440	)		(12,950	)		(3,769	)
Income before income taxes		4,308			16,191			32,885			66,250
Provision for income taxes		1,130			4,203			8,232			15,421
Net income	$	3,178		$	11,988		$	24,653		$	50,829
Earnings per share of Class A and Class B common stock:
Basic	$	0.04		$	0.16		$	0.34		$	0.69
Diluted	$	0.04		$	0.16		$	0.33		$	0.68
Weighted average number of shares of Class A and Class B common stock outstanding:
Basic		73,262			73,328			73,358			73,302
Diluted		73,716			74,354			74,058			74,598

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 September 30,						Nine Months Ended September 30,
	2023			2022			2023		2022
Net income	$	3,178		$	11,988		$	24,653	$	50,829
Other comprehensive (loss) income:
Cumulative translation adjustment		(1,414	)		(2,556	)		169		(5,452	)
Total other comprehensive (loss) income		(1,414	)		(2,556	)		169		(5,452	)
Total comprehensive income	$	1,764		$	9,432		$	24,822	$	45,377

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)


	Nine Months Ended September 30,
	2023			2022
Operating activities:
Net income	$	24,653		$	50,829
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		3,752			3,519
Equity-based compensation		4,229			4,410
Changes in operating assets and liabilities:
Accounts receivable		(7,193	)		(2,081	)
Inventories		12,347			(42,069	)
Income taxes receivable		(4,581	)		(758	)
Prepaid expenses and other current assets		(3,704	)		(16,989	)
Other assets		(434	)		(349	)
Accounts payable		(6,310	)		(1,156	)
Income taxes payable		1,206			439
Accrued expenses		4,373			10,592
Returns reserve		8,756			23,015
Right-of-use lease assets and current and non-current lease liabilities		2,236			825
Other current liabilities		7,888			4,224
Net cash provided by operating activities		47,218			34,451
Investing activities:
Purchases of property and equipment		(3,114	)		(3,904	)
Net cash used in investing activities		(3,114	)		(3,904	)
Financing activities:
Proceeds from the exercise of stock options, net		486			496
Repurchases of Class A common stock		(12,584	)		—
Net cash (used in) provided by financing activities		(12,098	)		496
Effect of exchange rate changes on cash and cash equivalents		169			(5,452	)
Net increase in cash and cash equivalents		32,175			25,591
Cash and cash equivalents, beginning of period		234,724			218,455
Cash and cash equivalents, end of period	$	266,899		$	244,046
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes, net of refund	$	11,580		$	15,909
Operating leases	$	5,649		$	4,033
Supplemental disclosure of non-cash activities:
Lease assets obtained in exchange for new operating lease liabilities	$	20,452		$	21,938

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 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, 2023 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, 2022 contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or the SEC, on February 23, 2023.

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 net sales 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. 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.

We have a Loyalty Club program within the REVOLVE and FWRD segments. 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 60 days of the original purchase date and merchandise 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, 2023 and 2022 (in thousands):


	Three Months Ended September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
Beginning balance	$	66,350		$	69,793		$	63,381		$	49,296
Returns		(369,241	)		(349,597	)		(1,149,770	)		(1,055,567	)
Provisions		375,028			352,115			1,158,526			1,078,582
Ending balance	$	72,137		$	72,311		$	72,137		$	72,311

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 $0.8 million and $0.3 million for the three months ended September 30, 2023 and 2022, respectively, and $1.9 million and $1.2 million for the nine months ended September 30, 2023 and 2022, 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 net sales 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. On May 11, 2023, we amended the credit agreement to replace the LIBO reference rate with a term SOFR reference rate and made conforming changes throughout the credit agreement. 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 term SOFR rate determined on the basis of a one-month interest period, plus 1.00%, or (2) an adjusted term SOFR 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 term SOFR rate loans. No borrowings were outstanding as of September 30, 2023 and December 31, 2022.

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 $10.0 million and in increments of $5.0 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 certain of our activities and 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, 2023 and December 31, 2022.

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 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, 2022 and 2023, the number of shares available under the 2019 Plan was increased by 2.0 million shares, 3.7 million shares and 3.7 million shares, respectively. As of September 30, 2023, approximately 9.3 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, 2023 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, 2023		2,596,718		$	17.60		7.0	$	23,408
Granted		2,644,196			13.95		9.8
Exercised		(98,383	)		7.08		—
Forfeited		(65,894	)		28.48		—
Expired		(12,516	)		28.23		—
Balance at September 30, 2023		5,064,121			15.73		8.2		7,210
Exercisable at September 30, 2023		1,387,093			14.01		5.6		3,704
Vested and expected to vest		3,537,836			16.89		7.4		6,355

RSU award activity for the nine months ended September 30, 2023 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, 2023		28,374		$	37.26		0.4	$	632
Granted (1)		134,206			25.48		0.4		—
Released		(30,125	)		33.47		—
Forfeited (2)		(88,985	)		28.68		—
Unvested at September 30, 2023		43,470			21.10		0.6		592

(1)

Includes an adjustment of 5,100 shares underlying performance-based RSU awards made during the nine months ended September 30, 2023. The vesting of such RSUs is based upon the Company’s current performance against predefined financial targets.

(2)

Includes an adjustment of (85,089) shares underlying performance-based RSU awards made during the nine months ended September 30, 2023. The vesting of such RSUs is based upon the Company’s current performance against predefined financial targets.

There were 2,108,795 options and no RSUs granted during the three months ended September 30, 2023 and 2,644,196 options and 129,106 RSUs granted during the nine months ended September 30, 2023. The weighted average grant-date fair value of options granted during the three and nine months ended September 30, 2023 was $6.82 and $7.26, respectively. The weighted average grant-date fair value of RSUs granted during the nine months ended September 30, 2023 was $16.52 per share.

As of September 30, 2023, there was $17.9 million of total unrecognized compensation cost related to unvested RSUs and time-based options granted under the 2013 Plan and 2019 Plan, which is expected to be recognized over a weighted average service period of 3.5 years.

2023 Performance Option Awards

On September 15, 2023, the Company granted an aggregate of 1,701,479 performance-based options to certain members of management with an exercise price of $13.05 and a grant-date fair value of $6.79, which we refer to as the 2023 Performance Option Awards. The 2023 Performance Option Awards are subject to multiple vesting tranches that vest upon achievement of certain predefined financial milestones. As of September 30, 2023, we had $1.2 million of total unrecognized stock-based compensation expense for the financial milestones that were considered probable of achievement, which will be recognized over a weighted-average period of 2.7 years. As of September 30, 2023, we had unrecognized stock-based compensation expense of $10.4 million for the operational milestones that were considered not probable of achievement. During the three and nine months ended September 30, 2023, we recorded stock-based compensation expense of $0.02 million related to the 2023 Performance Option Awards.

Equity‑based compensation cost included in general and administrative expense in the accompanying condensed consolidated statements of income amounted to $1.2 million and $1.5 million for the three months ended September 30, 2023 and 2022, respectively, and $4.2 million and $4.4 million for the nine months ended September 30, 2023 and 2022, respectively. There was no excess income tax benefit recognized during the three months ended September 30, 2023 and 2022. There was an excess income tax benefit of $0.2 million and $0.6 million recognized in the condensed consolidated statements of income for equity-based compensation arrangements for the nine months ended September 30, 2023 and 2022, 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

In March 2022, we received a cease-and-desist letter alleging copyright infringement and related claims. During the year ended December 31, 2022, we accrued $6.3 million to general and administrative expenses for estimated losses and legal fees that we expected to incur in connection with these claims and during the three months ended March 31, 2023, we accrued an additional $0.3 million for estimated legal fees. On February 3, 2023, we entered into a final settlement agreement with the claimant and paid approximately $1.5 million in settlement costs and legal fees related to this matter, net of insurance proceeds. The related insurance proceeds of $5.1 million were recorded within other income, net in the accompanying statements of income.

In March 2023, we received a separate cease-and-desist letter alleging copyright infringement and related claims. This matter has not proceeded to litigation as of the date of this report. During the three and nine months ended September 30, 2023, we accrued $6.6 million and $6.7 million, respectively, to general and administrative expenses for estimated losses, legal fees and other costs that we expect to incur in connection with these claims. The accrual for estimated losses is based on currently available information and may change as new information becomes available or circumstances change.

Note 6. Income Taxes

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


	Three Months Ended September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
Income before income taxes	$	4,308		$	16,191		$	32,885		$	66,250
Provision for income taxes		1,130			4,203			8,232			15,421
Effective tax rate		26.2	%		26.0	%		25.0	%		23.3	%

The effective tax rate was relatively flat during the three months ended September 30, 2023, as compared to the same period in 2022. The increase in the effective tax rate for the nine months ended September 30, 2023, as compared to the same period in 2022, was primarily due to a decrease in excess tax benefits related to the exercise of non-qualified stock options and FDII deduction benefits.

Note 7. Stockholders’ Equity and Stock Repurchase Program

Changes in stockholders’ equity for the three and nine months ended September 30, 2023 and 2022 were as follows:


	Three Months Ended September 30, 2023
	Common Stock						Additional Paid-in		Retained			Total Stockholders’
	Number			Amount			Capital		Earnings			Equity
	(in thousands, except share data)
Beginning balance		73,478,017		$	74		$	113,749	$	292,219		$	406,042
Issuance of Class A common stock from exercise of stock options and vesting of restricted stock units		5,610			—			76		—			76
Repurchases of Class A common stock		(907,219	)		(1	)		—		(12,583	)		(12,584	)
Equity-based compensation		—			—			1,228		—			1,228
Cumulative translation adjustment		—			—			—		(1,414	)		(1,414	)
Net income		—			—			—		3,178			3,178
Ending balance		72,576,408		$	73		$	115,053	$	281,400		$	396,526

Three Months Ended September 30, 2022

Common Stock

Additional 
Paid-in

Retained

Total
Stockholders’

Number

Amount

Capital

Earnings

Equity

(in thousands, except share data)

Beginning balance

Revolve Group, Inc. [RVLV] Filings
10-Q	[2023-11-01]
10-Q	[2023-08-02]
10-Q	[2023-05-03]
10-K	[2023-02-23]
10-Q	[2022-11-02]
10-Q	[2022-08-03]
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]