Net Sales Increased 23% to $161.9 million

Net Income Increased 22% to $12.7 million

CERRITOS, Calif.--(BUSINESS WIRE)-- Revolve Group, Inc. (NYSE: RVLV), the next-generation fashion retailer for Millennial and Generation Z customers, today announced financial results for the second quarter ended June 30, 2019.

“We are pleased to announce record revenue and profit for our first quarter as a public company,” said co-founder and co-CEO Michael Mente. “We continue to execute with operational excellence, delivering robust sales, gross margin expansion and an increase of nearly 22% in net income all while making significant investments in our infrastructure and customer experience,” added co-founder and co-CEO Mike Karanikolas.

Second Quarter Financial Highlights:

• Net sales of $161.9 million, a year-over-year increase of 22.8%
  • Revolve segment net sales of $143.9 million, a year-over-year increase of 24.0%
  • Forward segment net sales of $18.0 million, a year-over-year increase of 14.4%
• Gross profit of $90.4 million, a year-over-year increase of 23.3%
• Gross margin of 55.8%, a year-over-year increase of 21 basis points
• Income from operations of $17.7 million, a year over year increase of 25.8%
• Net income was $12.7 million, a year-over-year increase of 21.7%
• Adjusted EBITDA (a non-GAAP financial measure) of $19.0 million, a year-over-year increase of 21.5%

Other Highlights:

• 1,359,000 active customers, a year-over-year increase of 36.2%
• 1,294,000 orders placed, a year-over-year increase of 30.8%

“Through our unique events and curated premium product offering, we continue to build our customer base and deepen the relationship with our already very loyal customer,” said Michael Mente. “This was highlighted in the quarter with our fifth annual #REVOLVEfestival and the launch of two new influencer brand collaborations – Song of Style with Aimee Song and the Camila Coelho Collection.”

Outlook

Expectations for the full fiscal year ending December 31, 2019:

Net Sales					$598 - $608 million					20% - 22% growth
Adjusted EBITDA					$51 - $56 million					10% - 20% growth 8.5% - 9.2% margin

We have not reconciled our adjusted EBITDA outlook to GAAP net income because we do not provide an outlook for GAAP net income due to the uncertainty and potential variability of other expense, net, and provision for income taxes and one-time expenses, net, which are reconciling items between adjusted EBITDA and GAAP net income. Because such items cannot be reasonably predicted, we are unable to provide a reconciliation of the non-GAAP financial measure outlook to the corresponding GAAP measure. However, such items could have a significant impact on GAAP net income.

Key Operating and Financial Metrics

We use the following metrics to assess the progress of our business, make decisions on where to allocate capital, time and technology investments and assess the near-term and long-term performance of our business.

		Three Months Ended June 30,								Six Months Ended June 30,
		2018				2019				2018				2019
		(in thousands, except average order value and percentages)
Gross margin			55.6	%			55.8	%			52.9	%			53.9	%
Adjusted EBITDA		$	15,610			$	18,968			$	24,307			$	27,517
Free cash flow		$	12,834			$	1,991			$	24,550			$	12,928
Active customers			998				1,359				998				1,359
Total orders placed			989				1,294				1,807				2,429
Average order value		$	281			$	275			$	281			$	268

Adjusted EBITDA and free cash flow are non-GAAP measures. See the section titled “Adjusted EBITDA” and “Free Cash Flow” below for information regarding our use of Adjusted EBITDA and free cash flow and their reconciliation to net income and net cash provided by operating activities, respectively.

Gross Margin

Gross profit is equal to our net sales less cost of sales. Gross profit as a percentage of our net sales is referred to as gross margin. Cost of sales consists of the purchase price of merchandise sold to customers and includes import duties and other taxes, freight in, defective merchandise returned from customers, receiving costs, inventory write-offs, and other miscellaneous shrinkage. Certain of our competitors and other retailers report cost of sales differently than we do. As a result, the reporting of our gross profit and gross margin may not be comparable to other companies.

Adjusted EBITDA

Adjusted EBITDA is a non-GAAP financial measure that we calculate as net income before other expense, net, taxes, depreciation and amortization, adjusted to exclude the effects of equity-based compensation expense and certain one-time expenses. Adjusted EBITDA is a key measure used by management to evaluate our operating performance, generate future operating plans and make strategic decisions regarding the allocation of capital. In particular, the exclusion of certain expenses in calculating Adjusted EBITDA facilitates operating performance comparisons on a period-to-period basis and, in the case of exclusion of the impact of equity-based compensation, excludes an item that we do not consider to be indicative of our core operating performance.

Free Cash Flow

Free cash flow is a non-GAAP financial measure that we calculate as net cash provided by (used in) operating activities less net cash used in capital expenditures. We view free cash flow as an important indicator of our liquidity because it measures the amount of cash we generate. Free cash flow also reflects changes in working capital.

Adjusted Diluted Earnings per Share

Adjusted diluted earnings per share is a non-GAAP financial measure that we calculate as diluted earnings (net loss) per share adjusted to exclude the per share impact of the issuance and repurchase of Class B common stock as part of our initial public offering.

Active Customers

We define an active customer as a unique customer account from which a purchase was made across our platform at least once in the preceding 12-month period. In any particular period, we determine our number of active customers by counting the total number of customers who have made at least one purchase in the preceding 12-month period, measured from the last date of such period. We view the number of active customers as a key indicator of our growth, the reach of our sites, the value proposition and consumer awareness of our brand, the continued use of our sites by our customers and their desire to purchase our products. Our number of active customers drives both net sales and our appeal to vendors.

Total Orders Placed

We define total orders placed as the total number of customer orders placed by our customers across our platform in any period. We view total orders placed as a key indicator of the velocity of our business and an indication of the desirability of our products and sites to our customers. Total orders placed, together with average order value, is an indicator of the net sales we expect to recognize in a given period. Total orders placed and total orders shipped in any given period may differ slightly due to orders that are in process at the end of any particular period.

Average Order Value

We define average order value as the sum of the total gross sales from our sites in a given period divided by the total orders placed in that period. We believe our high average order value demonstrates the premium nature of our product. Average order value varies depending on the site through which we sell merchandise.

Forward-Looking Statements

This press release contains ‘‘forward-looking statements’’ within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical or current fact included in this press release are forward-looking statements, including but not limited to statements regarding our future growth and our financial outlook for the full fiscal year 2019. Forward-looking statements include statements containing words such as “expect,” “anticipate,” “believe,” “project,” “will” and similar expressions intended to identify forward-looking statements. These forward-looking statements are based upon our current expectations. Forward-looking statements involve risks and uncertainties. Our actual results and the timing of events could differ materially from those anticipated in such forward-looking statements as a result of these risks and uncertainties, which include, without limitation, risks related to general economic conditions, our fluctuating operating results, seasonality in our business, our ability to acquire products on reasonable terms, our online business model, demand for our products, our ability to attract customers in a cost effective manner, the strength of our brand, competition, fraud, system interruptions, our ability to fulfill orders and other risks and uncertainties included under the caption “Risk Factors” and elsewhere in our filings with the Securities and Exchange Commission, including, without limitation, the final prospectus related to our initial public offering filed with the SEC on June 7, 2019 and the Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, which we expect to file with the SEC on or before August 14, 2019. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. All forward-looking statements are qualified in their entirety by this cautionary statement, and Revolve Group, Inc. undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date hereof.

Use of Non-GAAP Financial Measures

To supplement our condensed consolidated financial statements, which are prepared and presented in accordance with Generally Accepted Accounting Principles in the United States of America (GAAP), we reference in this press release and the accompanying tables the following non-GAAP financial measures: adjusted EBITDA, free cash flow and adjusted diluted earnings per share. Adjusted EBITDA is net income before other expense, net, taxes, depreciation and amortization, adjusted to exclude the effects of equity-based compensation expense, and certain one-time expenses. Free cash flow is net cash provided by (used in) operating activities less net cash used in capital expenditures. Adjusted diluted earnings per share is diluted earnings (net loss) per share adjusted to exclude the per share impact of the issuance and repurchase of Class B common stock as part of our initial public offering.

The presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP, and our non-GAAP measures may be different from non-GAAP measures used by other companies.

We use these non-GAAP financial measures to evaluate our operating performance, generate future operating plans and make strategic decisions regarding the allocation of capital. Our management believes that these non-GAAP financial measures provide meaningful supplemental information regarding our performance and liquidity by excluding certain expenses that may not be indicative of our ongoing core operating performance. We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when analyzing historical performance and liquidity and when planning, forecasting, and analyzing future periods.

For a reconciliation of these non-GAAP financial measures to GAAP measures, please see the tables captioned “Reconciliation of Non-GAAP Financial Measures” included at the end of this release.

Conference call information

Revolve Group management will host a call today at 5 pm ET/2 pm PT to discuss today’s results in more detail. To participate, please dial (866) 393-4306 within the United States or (734) 385-2616 outside the United States approximately 10 minutes before the scheduled start of the call. The conference ID for the call is 1299819. The conference call will also be accessible, live via audio broadcast, on the Investor Relations section of the Revolve Group website at investors.revolve.com. A replay of the conference call will be available online at investors.revolve.com. In addition, an audio replay of the call will be available for one week following the call and can be accessed by dialing (855) 859-2506 within the United States or (404) 537-3406 outside the United States. The replay ID is 1299819.

About Revolve Group, Inc.

Revolve Group, Inc. (RVLV) is the next-generation fashion retailer for Millennial and Generation Z consumers. As a trusted, premium lifestyle brand, and a go-to online source for discovery and inspiration, we deliver an engaging customer experience from a vast yet curated offering of apparel, footwear, accessories and beauty styles. Our dynamic platform connects a deeply engaged community of millions of consumers, thousands of global fashion influencers, and hundreds of emerging, established and owned brands.

We were founded in 2003 by our co-CEOs, Michael Mente and Mike Karanikolas. We sell merchandise through two differentiated segments, REVOLVE and FORWARD, that leverage one platform. Through REVOLVE we offer a highly curated assortment of full-price premium apparel and footwear, accessories and beauty products from emerging, established and owned brands. Through FORWARD we offer an assortment of iconic and emerging luxury brands. For more information, visit www.revolve.com.

REVOLVE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except unit, share and per share data)
		December 31,				June 30,
		2018				2019
Assets
Current assets:
Cash and cash equivalents		$	16,369			$	44,845
Accounts receivable, net			5,337				8,373
Inventory			102,220				102,533
Income taxes receivable			—				1,142
Prepaid expenses and other current assets			15,227				25,374
Total current assets			139,153				182,267
Property and equipment, net			5,907				14,239
Intangible assets, net			564				403
Goodwill			2,042				2,042
Other assets			731				695
Deferred income taxes			13,677				15,918
Total assets		$	162,074			$	215,564
Liabilities and Members'/Stockholders' Equity
Current liabilities:
Accounts payable		$	20,219			$	29,687
Income taxes payable			917				881
Accrued expenses			18,398				22,138
Returns reserve			29,184				36,355
Other current liabilities			13,538				15,240
Total current liabilities			82,256				104,301
Members' equity:
Class T Preferred Units, no par value—23,551,834 and zero units authorized, issued and outstanding as of December 31, 2018 and June 30, 2019, respectively.			15,000				—
Class A Common Units, no par value—41,936,219 and zero units authorized, issued and outstanding as of December 31, 2018 and June 30, 2019, respectively.			3,548				—
Stockholders' equity:
Class A common stock, $0.001 par value; zero and 1,000,000,000 shares authorized as of December 31, 2018 and June 30, 2019, respectively; zero and 13,529,411 shares issued and outstanding as of December 31, 2018 and June 30, 2019, respectively.			—				14
Class B common stock, $0.001 par value; zero and 125,000,000 shares authorized as of December 31, 2018 and June 30, 2019, respectively; zero and 55,340,994 shares issued and outstanding as of December 31, 2018 and June 30, 2019, respectively.			—				55
Accumulated members' equity			61,270				—
Additional paid-in capital			—				72,736
Retained earnings			—				38,458
Total members'/stockholders' equity			79,818				111,263
Total liabilities and members’/stockholders’ equity		$	162,074			$	215,564

REVOLVE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)
		Three Months Ended June 30,								Six Months Ended June 30,
		2018				2019				2018				2019
Net sales		$	131,802			$	161,897			$	245,107			$	299,240
Cost of sales			58,470				71,479				115,342				138,068
Gross profit			73,332				90,418				129,765				161,172
Operating expenses:
Fulfillment			3,263				5,301				6,045				9,796
Selling and distribution			18,669				23,639				34,522				44,230
Marketing			21,161				24,914				36,514				44,412
General and administrative			16,145				18,836				31,085				38,105
Total operating expenses			59,238				72,690				108,166				136,543
Income from operations			14,094				17,728				21,599				24,629
Other expense, net			123				444				320				660
Income before income taxes			13,971				17,284				21,279				23,969
Provision for income tax			3,504				4,543				5,480				6,266
Net income			10,467				12,741				15,799				17,703
Less: Net loss attributable to non-controlling interest			—				—				47				—
Net income attributable to Revolve Group, Inc.			10,467				12,741				15,846				17,703
Less: Repurchase of Class B common stock upon corporate conversion			—				(40,816	)			—				(40,816	)
Net income (loss) attributable to common stockholders		$	10,467			$	(28,075	)		$	15,846			$	(23,113	)
Earnings (net loss) per share of Class A and Class B common stock:
Basic		$	0.16			$	(0.57	)		$	0.24			$	(0.51	)
Diluted		$	0.15			$	(0.57	)		$	0.23			$	(0.51	)
Weighted average Class A and Class B common shares outstanding:
Basic			41,936				49,025				41,936				45,481
Diluted			44,394				49,025				44,289				45,481

REVOLVE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
		Six Months Ended June 30,
		2018				2019
Operating activities:
Net income		$	15,799			$	17,703
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			1,459				1,584
Equity-based compensation			512				1,032
Deferred income taxes			1,410				(2,241	)
Changes in operating assets and liabilities:
Accounts receivable			(278	)			(3,036	)
Inventories			(6,061	)			(13,184	)
Income taxes receivable			3,590				(1,142	)
Prepaid expenses and other current assets			(704	)			(271	)
Other assets			(107	)			36
Accounts payable			(3,971	)			9,468
Income taxes payable			—				(36	)
Accrued expenses			4,215				3,137
Returns reserve			9,314				7,171
Other current liabilities			449				2,462
Net cash provided by operating activities			25,627				22,683
Investing activities:
Purchases of property and equipment			(1,077	)			(9,755	)
Net cash used in investing activities			(1,077	)			(9,755	)
Financing activities:
Proceeds from initial public offering, net of underwriting discounts paid			—				57,077
Repurchase of Class B common stock upon corporate conversion			—				(40,816	)
Repayment of line of credit			(15,100	)			—
Payment of deferred offering costs			—				(726	)
Net cash (used in) provided by financing activities			(15,100	)			15,535
Effect of exchange rate changes on cash and cash equivalents			(35	)			13
Net increase in cash and cash equivalents			9,415				28,476
Cash and cash equivalents, beginning of period			10,588				16,369
Cash and cash equivalents, end of period		$	20,003			$	44,845
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest		$	87			$	—
Income taxes, net of refund		$	355			$	9,674
Supplemental disclosure of non-cash activities:
Deferred offering costs accrued, unpaid		$	—			$	603

REVOLVE GROUP, INC. AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(Unaudited)

A reconciliation of non-GAAP adjusted EBITDA to net income for the three and six months ended June 30, 2018 and 2019 is as follows (in thousands):

		Three Months Ended June 30,								Six Months Ended June 30,
		2018				2019				2018				2019
Net income		$	10,467			$	12,741			$	15,799			$	17,703
Excluding:
Other expense, net			123				444				320				660
Provision for income tax			3,504				4,543				5,480				6,266
Depreciation and amortization			730				889				1,459				1,584
Equity-based compensation			403				521				512				1,032
One-time expenses, net(1)			383				(170	)			737				272
Adjusted EBITDA		$	15,610			$	18,968			$	24,307			$	27,517

__________________
(1)		One-time expenses, net in the three and six months ended June 30, 2018 primarily relate to our entity restructuring and our initial public offering. One-time expenses, net in the three and six months ended June 30, 2019 primarily relate to legal settlements.

A reconciliation of non-GAAP free cash flow to cash provided by operating activities for the three and six months ended June 30, 2018 and 2019 is as follows (in thousands):

		Three Months Ended June 30,								Six Months Ended June 30,
		2018				2019				2018				2019
Net cash provided by operating activities		$	13,471			$	6,759			$	25,627			$	22,683
Purchases of property and equipment			(637	)			(4,768	)			(1,077	)			(9,755	)
Free cash flow		$	12,834			$	1,991			$	24,550			$	12,928
Net cash used in investing activities		$	(637	)		$	(4,768	)		$	(1,077	)		$	(9,755	)
Net cash provided by (used in) financing activities		$	—			$	15,783			$	(15,100	)		$	15,535

A reconciliation of non-GAAP adjusted diluted earnings per share to diluted earnings (net loss) per share for the three and six months ended June 30, 2018 and 2019 is as follows (in dollars):

		Three Months Ended June 30,												Six Months Ended June 30,
		2018				2019								2018				2019
		Class B				Class A				Class B				Class B				Class A				Class B
Earnings (net loss) per share — diluted		$	0.15			$	(0.57	)		$	(0.57	)		$	0.23			$	(0.51	)		$	(0.51	)
Repurchase of Class B common stock, net			—				0.75				0.75				—				0.76				0.76
Adjusted earnings per share — diluted		$	0.15			$	0.18			$	0.18			$	0.23			$	0.25			$	0.25

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Source: Revolve Group, Inc.

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