UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip code)
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: |
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Trading Symbol(s): |
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Name of each exchange on which registered: |
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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.
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).
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.
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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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
As of October 25, 2023,
REVOLVE GROUP, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION |
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. Quantitative and Qualitative Disclosures About Market Risk |
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PART II - OTHER INFORMATION |
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
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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:
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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.
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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)
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September 30, |
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December 31, |
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2023 |
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2022 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, net |
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Inventory |
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Income taxes receivable |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment (net of accumulated depreciation of $ |
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Right-of-use lease assets |
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Intangible assets, net |
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Goodwill |
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Other assets |
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Deferred income taxes |
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Total assets |
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$ |
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$ |
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Liabilities and Stockholders’ Equity |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Income taxes payable |
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Accrued expenses |
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Returns reserve |
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Current lease liabilities |
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Other current liabilities |
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Total current liabilities |
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Non-current lease liabilities |
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Total liabilities |
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Stockholders’ equity: |
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Class A common stock, $ |
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Class B common stock, $ |
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Additional paid-in capital |
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Retained earnings |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7
REVOLVE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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2023 |
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2022 |
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2023 |
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2022 |
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Net sales |
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$ |
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$ |
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$ |
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$ |
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Cost of sales |
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Gross profit |
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Operating expenses: |
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Fulfillment |
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Selling and distribution |
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Marketing |
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General and administrative |
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Total operating expenses |
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Income from operations |
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Other income, net |
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Income before income taxes |
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Provision for income taxes |
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Net income |
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$ |
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$ |
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$ |
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Earnings per share of Class A and Class B |
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Basic |
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$ |
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$ |
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$ |
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Diluted |
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Weighted average number of shares of Class A and |
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Basic |
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Diluted |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
8
REVOLVE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In thousands)
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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2023 |
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2022 |
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2023 |
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2022 |
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Net income |
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$ |
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$ |
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$ |
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$ |
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Other comprehensive (loss) income: |
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Cumulative translation adjustment |
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Total other comprehensive (loss) income |
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Total comprehensive income |
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$ |
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$ |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
9
REVOLVE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
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Nine Months Ended September 30, |
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2023 |
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2022 |
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Operating activities: |
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Net income |
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$ |
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$ |
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Adjustments to reconcile net income to net cash provided by operating |
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Depreciation and amortization |
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Equity-based compensation |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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Inventories |
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Income taxes receivable |
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Prepaid expenses and other current assets |
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Other assets |
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Accounts payable |
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Income taxes payable |
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Accrued expenses |
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Returns reserve |
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Right-of-use lease assets and current and non-current lease liabilities |
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Other current liabilities |
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Net cash provided by operating activities |
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Investing activities: |
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Purchases of property and equipment |
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Net cash used in investing activities |
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Financing activities: |
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Proceeds from the exercise of stock options, net |
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Repurchases of Class A common stock |
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Net cash (used in) provided by financing activities |
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Effect of exchange rate changes on cash and cash equivalents |
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Net increase in cash and cash equivalents |
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Cash and cash equivalents, beginning of period |
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Cash and cash equivalents, end of period |
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$ |
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$ |
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Supplemental disclosure of cash flow information: |
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Cash paid during the period for: |
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Income taxes, net of refund |
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$ |
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$ |
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Operating leases |
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$ |
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$ |
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Supplemental disclosure of non-cash activities: |
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Lease assets obtained in exchange for new operating lease liabilities |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
10
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
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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):
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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2023 |
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2022 |
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2023 |
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2022 |
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Beginning balance |
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$ |
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$ |
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$ |
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$ |
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Returns |
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Provisions |
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Ending balance |
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$ |
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$ |
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$ |
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$ |
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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 $
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
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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 $
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
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
Option activity for the nine months ended September 30, 2023 under the 2013 Plan and 2019 Plan is as follows:
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Number of |
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Weighted |
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Weighted |
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Aggregate |
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Balance at January 1, 2023 |
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$ |
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$ |
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Granted |
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Exercised |
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Forfeited |
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Expired |
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— |
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Balance at September 30, 2023 |
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Exercisable at September 30, 2023 |
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Vested and expected to vest |
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RSU award activity for the nine months ended September 30, 2023 under the 2019 Plan is as follows:
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Class A |
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Weighted |
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Weighted |
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Aggregate |
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Unvested at January 1, 2023 |
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$ |
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$ |
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Granted (1) |
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Released |
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Forfeited (2) |
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Unvested at September 30, 2023 |
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There were
As of September 30, 2023, there was $
2023 Performance Option Awards
On September 15, 2023, the Company granted an aggregate of
Equity‑based compensation cost included in general and administrative expense in the accompanying condensed consolidated statements of income amounted to $
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.
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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 $
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 $
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 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Provision for income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Effective tax rate |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
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.
15
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 |
|
|
Retained |
|
|
Total |
|
||||||||
|
|
Number |
|
|
Amount |
|
|
Capital |
|
|
Earnings |
|
|
Equity |
|
|||||
|
|
(in thousands, except share data) |
|
|||||||||||||||||
Beginning balance |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Issuance of Class A common stock from exercise of |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Repurchases of Class A common stock |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Equity-based |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Cumulative translation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Ending balance |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
Three Months Ended September 30, 2022 |
|
|||||||||||||||||
|
|
Common Stock |
|
|
Additional |
|
|
Retained |
|
|
Total |
|
||||||||
|
|
Number |
|
|
Amount |
|
|
Capital |
|
|
Earnings |
|
|
Equity |
|
|||||
|
|
(in thousands, except share data) |
|
|||||||||||||||||
Beginning balance |
|