Revolve Group, Inc. [RVLV] Filings

10-Q 1 rvlv-20210930.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, 2021


☐	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 28, 2021, 39,482,536 shares of the registrant’s Class A common stock and 33,417,280 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		20

Item 3. Quantitative and Qualitative Disclosures About Market Risk		40

Item 4. Controls and Procedures		41


PART II. OTHER INFORMATION

Item 1. Legal Proceedings		42

Item 1A. Risk Factors		42

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		78

Item 3. Defaults Upon Senior Securities		78

Item 4. Mine Safety Disclosures		78

Item 5. Other Information		78

Item 6. Exhibits		79

Signatures		80

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 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.



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 center, our business, financial condition and operating results could be harmed.



Our failure to adequately and effectively staff our fulfillment center, 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.



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.

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,
	2021		2020
Assets
Current assets:
Cash and cash equivalents	$	221,605	$	146,013
Accounts receivable, net		6,715		4,621
Inventory		141,768		95,272
Income taxes receivable		10,443		10,689
Prepaid expenses and other current assets		39,315		20,330
Total current assets		419,846		276,925
Property and equipment (net of accumulated depreciation of $17,925 and $14,652 as of September 30, 2021 and December 31, 2020, respectively)		9,631		11,211
Intangible assets, net		1,218		1,260
Goodwill		2,042		2,042
Other assets		2,760		500
Deferred income taxes		13,814		13,814
Total assets	$	449,311	$	305,752
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	54,913	$	39,337
Income taxes payable		995		195
Accrued expenses		37,738		24,733
Returns reserve		50,842		25,602
Other current liabilities		21,688		15,821
Total current liabilities		166,176		105,688
Stockholders' equity:
Class A common stock, $0.001 par value; 1,000,000,000 shares authorized as of September 30, 2021 and December 31, 2020; 39,132,852 and 32,856,611 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively		39		33
Class B common stock, $0.001 par value; 125,000,000 shares authorized as of September 30, 2021 and December 31, 2020; 33,724,657 and 38,540,095 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively		34		38
Additional paid-in capital		99,150		86,040
Retained earnings		183,912		113,953
Total stockholders' equity		283,135		200,064
Total liabilities and stockholders’ equity	$	449,311	$	305,752

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,
	2021			2020		2021		2020
Net sales	$	244,064		$	151,036	$	651,585	$	439,895
Cost of sales		109,588			67,569		293,226		213,407
Gross profit		134,476			83,467		358,359		226,488
Operating expenses:
Fulfillment		5,776			4,158		15,452		12,450
Selling and distribution		38,354			20,870		95,470		61,703
Marketing		46,955			18,903		108,054		55,491
General and administrative		24,180			17,741		66,028		52,391
Total operating expenses		115,265			61,672		285,004		182,035
Income from operations		19,211			21,795		73,355		44,453
Other (income) expense, net		(158	)		253		339		300
Income before income taxes		19,369			21,542		73,016		44,153
Provision for income taxes		2,701			2,104		2,558		6,323
Net income	$	16,668		$	19,438	$	70,458	$	37,830
Earnings per share of Class A and Class B common stock:
Basic	$	0.23		$	0.28	$	0.97	$	0.54
Diluted	$	0.22		$	0.27	$	0.95	$	0.52
Weighted average number of shares of Class A and Class B common stock outstanding:
Basic		72,810			69,872		72,330		69,537
Diluted		74,881			72,281		74,449		73,155

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,
	2021			2020		2021			2020
Net income	$	16,668		$	19,438	$	70,458		$	37,830
Other comprehensive (loss) income:
Cumulative translation adjustment		(548	)		343		(499	)		(124	)
Total other comprehensive (loss) income		(548	)		343		(499	)		(124	)
Total comprehensive income	$	16,120		$	19,781	$	69,959		$	37,706

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,
	2021			2020
Operating activities:
Net income	$	70,458		$	37,830
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		3,390			3,646
Equity-based compensation		3,664			2,412
Deferred income taxes		—			(842	)
Changes in operating assets and liabilities:
Accounts receivable		(2,094	)		38
Inventories		(46,496	)		30,670
Income taxes receivable		246			(1,703	)
Prepaid expenses and other current assets		(18,985	)		4,246
Other assets		(2,260	)		28
Accounts payable		15,576			8,967
Income taxes payable		800			350
Accrued expenses		13,005			2,297
Returns reserve		25,240			(11,743	)
Other current liabilities		5,867			31
Net cash provided by operating activities		68,411			76,227
Investing activities:
Purchases of property and equipment		(1,768	)		(1,844	)
Net cash used in investing activities		(1,768	)		(1,844	)
Financing activities:
Proceeds from borrowings on line of credit		—			30,000
Repayment of borrowings on line of credit		—			(15,000	)
Payment of deferred offering costs		—			(41	)
Proceeds from the exercise of stock options, net		9,448			4,065
Net cash provided by financing activities		9,448			19,024
Effect of exchange rate changes on cash and cash equivalents		(499	)		(124	)
Net increase in cash and cash equivalents		75,592			93,283
Cash and cash equivalents, beginning of period		146,013			65,418
Cash and cash equivalents, end of period	$	221,605		$	158,701
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	—		$	295
Income taxes, net of refund	$	1,511		$	8,500

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 apps 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 in the United States, or GAAP, 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, 2021 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 financial information should be read in conjunction with the audited consolidated financial statements and the related notes thereto for the fiscal year ended December 31, 2020 contained in our Annual Report on Form 10-K filed with the SEC on February 25, 2021.

Impact of COVID-19 on Our Business

The COVID-19 pandemic had a material adverse impact on our business operations and operating results for 2020. In particular, as a result of social distancing and stay at home orders around the world that commenced in March 2020, demand for our largest product categories that are focused on social occasions had been significantly negatively impacted. Furthermore, during 2020 we were unable to host large-scale, in-person events that are key to driving awareness, traffic and new customers. As our net sales, business operations and operating results improved in mid-2020, we began to sequentially increase our inventory purchases and incur certain operating expenses to support the improving trends in consumer demand.

Our net sales, business operations and operating results continued to improve throughout 2021 due to increased demand as a result of the easing of stay-at-home orders and other restrictions in certain states and countries, U.S. government stimulus payments and the accelerating rollout of vaccinations in the United States and some of our other key markets. With the improving trends, we continued to invest in inventory to support the consumer demand, increased our investment in headcount and cautiously increased the frequency and scale of in-person marketing activations. While demand for our products improved, the extent of this increased demand in the future remains uncertain. In particular, the recent rise of cases primarily as a result of COVID-19 variants, especially within unvaccinated populations, has resulted in restrictions being reinstated in certain cities and states within in the United States as well as certain key markets around the world.

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, reserves for income tax uncertainties and other contingencies, 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.

In March 2020 we launched the REVOLVE Loyalty Club within the REVOLVE segment and in April 2021 we expanded the program to include the FORWARD (FWRD) segment. Eligible customers who enroll in the program will generally earn points for every dollar spent. Points earned will automatically convert into a $20 reward once the Loyalty Club member earns 2,000 points. We defer revenue based on an allocation of the price of the customer purchase and the 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 modify 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 and expected future returns, which is recorded as a reduction of sales and cost of sales.

The following table presents a rollforward of our sales return reserve for the three and nine months ended September 30, 2021 and 2020 (in thousands):


	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
Beginning balance	$	44,024		$	28,336		$	25,602		$	35,104
Returns		(254,974	)		(124,142	)		(602,232	)		(383,316	)
Provisions		261,792			119,167			627,472			371,573
Ending balance	$	50,842		$	23,361		$	50,842		$	23,361

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 for the three and

nine months ended September 30, 2021 was $0.3 million and $0.8 million, respectively, and $0.2 million and $1.2 million for the three and nine months ended September 30, 2020, 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

Under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, we meet the definition of an emerging growth company. We have elected to use this extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act and as a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates. We will lose our emerging growth company status as of December 31, 2021, when we become a “large accelerated filer” as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended.

In December 2019, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to the accounting for income taxes. ASU 2019-12 is currently effective for us for annual periods beginning after December 15, 2021 and interim periods within fiscal years beginning after December 15, 2022, with early adoption permitted. As we expect to lose our emerging growth company status at the end of fiscal year ending December 31, 2021, we will reflect the adoption of ASU 2019-12 as of January 1, 2021 in our Annual Report on Form 10-K for the year ending December 31, 2021. We do not expect that this ASU will have a significant impact on our consolidated financial statements and related disclosures.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which simplifies the accounting for goodwill impairment by removing step two from the goodwill impairment test. Under this new guidance, if the carrying amount of a reporting unit exceeds its estimated fair value, an impairment charge shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. The update also eliminates the requirement for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment. This guidance is currently effective for us for annual or interim goodwill impairment tests in fiscal years beginning December 15, 2021 with early adoption permitted. As we expect to lose our emerging growth company status at the end of fiscal year ending December 31, 2021, we will reflect the adoption of ASU 2017-04 as of January 1, 2021 in our Annual Report on Form 10-K for the year ending December 31, 2021. We do not expect that this ASU will have a significant impact on our consolidated financial statements and related disclosures.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). Under this ASU, a lessee is generally required to recognize the lessee’s rights and obligations resulting from leases on the balance sheet by recording a right-of-use asset and a lease liability. The new standard requires lessees to classify leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. In November 2019, the FASB issued ASU No. 2019-10 extending the effective date of this new lease standard by one year. In June 2020, the FASB issued ASU No. 2020-05, further extending the effective date by one year making it currently effective for us for annual periods beginning after December 15, 2021 and interim periods within fiscal years beginning after December 15, 2022, with early adoption permitted. As we expect to lose our emerging growth company status at the end of fiscal year ending December 31, 2021, we will reflect

the adoption of ASC 842 as of January 1, 2021 in our Annual Report on Form 10-K for the year ending December 31, 2021. The standard requires recognizing and measuring leases using a modified retrospective approach or allowing for application of the guidance at the beginning of the period in which it is adopted by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption rather than at the beginning of the earliest comparative period presented. We plan to elect the package of practical expedients permitted under the transition guidance within the new standard, which among other things, will allow us to carry forward the historical lease classification of our existing leases. Upon adoption, we expect to recognize a right-of-use asset of approximately $10 million adjusted for $1.3 million previously recorded as deferred rent and $0.4 million previously recorded as prepaid rent and record approximately $5 million in current operating lease liabilities and $6 million in operating lease liabilities, net of current portion.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The standard requires entities to utilize a new impairment model, known as the current expected credit loss model which includes historical experience, current conditions, and reasonable and supportable forecasts. Under the new guidance, an entity recognizes an allowance for estimated credit losses upon recognition of the financial instrument. The new guidance also changes the impairment model for available-for-sale debt securities, requiring the use of an allowance to record estimated credit losses and subsequent recoveries. ASU 2016-13 is currently effective for us for annual periods beginning after December 15, 2022, including interim periods within those fiscal years. As we expect to lose our emerging growth company status at the end of fiscal year ending December 31, 2021, we will reflect the adoption of ASU 2016-13 as of January 1, 2021 in our Annual Report on Form 10-K for the year ending December 31, 2021. We do not expect that this ASU will have a significant impact on our consolidated financial statements and related disclosures.

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, 2021 and December 31, 2020.

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 covenants as of September 30, 2021 and December 31, 2020.

Note 4. Equity-based Compensation

In 2013, Twist Holdings, LLC and Advance Holdings, LLC 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 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. As of September 30, 2021, approximately 4.9 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, 2021 under the 2013 and 2019 Plans is as follows:


	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value (000's)
Balance at January 1, 2021		4,121,225		$	9.20		7.0	$	87,842
Granted		140,569			51.16		9.5
Exercised		(1,448,061	)		6.53		—
Forfeited		(42,878	)		15.69		—
Expired		(2,816	)		15.62		—
Balance at September 30, 2021		2,768,039			12.62		7.5		136,212
Exercisable at September 30, 2021		813,278			10.00		6.0		42,105
Vested and expected to vest		2,768,039			12.62		7.5		136,212

RSU award activity for the nine months ended September 30, 2021 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 (000's)
Unvested at January 1, 2021		20,140		$	15.89		1.2	$	628
Granted (1)		28,224			48.16		0.5
Released		(12,742	)		15.70
Forfeited		—			—
Unvested at September 30, 2021		35,622			41.53		0.7		2,200

(1)

Includes an adjustment of 11,763 shares underlying performance-based RSU awards made during the nine months ended September 30, 2021. The vesting of such RSUs is based upon the Company’s current performance against predefined financial targets.

There were 28,250 options and no RSUs granted during the three months ended September 30, 2021 and 140,569 options and 28,224 RSUs granted during the nine months ended September 30, 2021. The weighted average grant-date fair value of options granted during the three and nine months ended September 30, 2021 was $29.13 per share and $21.15 per share, respectively. The weighted average grant-date fair value of RSUs granted during the nine months ended September 30, 2021 was $48.16 per share.

As of September 30, 2021, there was $11.9 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 3.2 years.

Equity‑based compensation cost that has been included in general and administrative expense in the accompanying condensed consolidated statements of income amounted to $1.4 million and $1.0 million for the three months ended September 30, 2021 and 2020, respectively, and $3.7 million and $2.4 million for the nine months ended September 30, 2021 and 2020, respectively. There was an excess income tax benefit of $2.2 million and $3.4 million recognized in the condensed consolidated statements of income for equity‑based compensation arrangements for the three months ended September 30, 2021 and 2020, respectively, and $15.7 million and $5.1 million for the nine months ended September 30, 2021 and 2020, 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 defendant 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.

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,
	2021			2020			2021			2020
Income before income taxes	$	19,369		$	21,542		$	73,016		$	44,153
Provision for income taxes		2,701			2,104			2,558			6,323
Effective tax rate		13.9	%		9.8	%		3.5	%		14.3	%

The increase in the effective tax rate for the three months ended September 30, 2021, as compared to the same period in 2020, was primarily due to a decrease in excess tax benefits related to the exercise of non-qualified stock options. The decrease in the effective tax rate for the nine months ended September 30, 2021, as compared to the same period in 2020, was primarily due to an increase in excess tax benefits related to the exercise of non-qualified stock options.

Note 7. Stockholders’ Equity

Changes in stockholders’ equity for the three and nine months ended September 30, 2021 and 2020 were as follows:


	Three Months Ended September 30, 2021
	Common Stock				Additional Paid-in		Retained			Total Stockholders'
	Number		Amount		Capital		Earnings			Equity
	(in thousands, except share data)
Beginning balance		72,738,344	$	73	$	96,583	$	167,792		$	264,448
Issuance of Class A common stock from exercise of stock options and vesting of restricted stock units		119,165		—		1,231		—			1,231
Equity-based compensation		—		—		1,336		—			1,336
Cumulative translation adjustment		—		—		—		(548	)		(548	)
Net income		—		—		—		16,668			16,668
Ending balance		72,857,509	$	73	$	99,150

Revolve Group, Inc. [RVLV] Filings
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]