Revolve Group Announces Third Quarter 2019 Financial Results

Published

Net Sales Increased 22% to $154.2 million Net Income Increased 34% to $9.6 million Adjusted EBITDA Increased 40% to $14.4 million

LOS ANGELES--(BUSINESS WIRE)-- Revolve Group, Inc. (NYSE: RVLV), the next-generation fashion retailer for Millennial and Generation Z consumers, today announced financial results for the third quarter ended September 30, 2019.

“We delivered strong growth in net sales, profitability and cash flows in Q3, while continuing to invest in the large market opportunity ahead of us,” said co-founder and co-CEO Mike Karanikolas. “Our ability to drive profitable growth at scale illustrates our unique business model and the deep relationship we have established with our growing customer base,” added co-founder and co-CEO Michael Mente.

Third Quarter Financial Highlights

 

Three Months Ended September 30,

 

2019(1)

2018

YoY Change

 

(in thousands)

Net sales

$

154,197

 

$

125,909

 

22.5

%

Gross profit

$

82,678

 

$

66,385

 

24.5

%

Gross margin

 

53.6

%

 

52.7

%

 

Net income

$

9,559

 

$

7,140

 

33.9

%

Adjusted EBITDA (non-GAAP financial measure)

$

14,438

 

$

10,312

 

40.0

%

Net cash provided by operating activities

$

9,150

 

$

2,410

 

279.7

%

Free cash flow (non-GAAP financial measure)

$

7,448

 

$

1,822

 

308.8

%

(1) Third quarter 2019 financial results reflect $1.5 million in net sales realized as a result of a change in estimate related to store credit breakage.

Operational Metrics

Active customers

 

 

1,438

 

 

 

1,080

 

 

 

33.1

%

Orders placed

 

 

1,194

 

 

 

950

 

 

 

25.7

%

  • Total net sales of $154.2 million, a year-over-year increase of 22.5%
    • Revolve segment net sales of $135.4 million, a year-over-year increase of 23.7%
    • Forward segment net sales of $18.8 million, a year-over-year increase of 14.2%
  • Gross profit of $82.7 million, a year-over-year increase of 24.5%
  • Gross margin of 53.6%, a year-over-year increase of 89 basis points
  • Net income of $9.6 million, a year-over-year increase of 33.9%
  • Adjusted EBITDA (a non-GAAP financial measure) of $14.4 million, a year-over-year increase of 40.0%
  • Net cash generated by operating activities of $9.2 million, a year-over-year increase of 279.7%
  • Free cash flow of $7.4 million, a year-over-year increase of 308.8%
  • Cash and cash equivalents of $51.1 million, an increase of 14% from June 30, 2019, and no debt
  • 1,438,000 active customers in the trailing 12 months, a year-over-year increase of 33.1%
  • 1,194,000 orders placed, a year-over-year increase of 25.7%
  • Average order value (AOV) of $275, a year-over-year decrease of 1.8%

Outlook

Based on information available as of November 7, 2019, we are providing the following outlook for the full fiscal year ending December 31, 2019:

Net Sales

$598 - $606 million

20% - 22% growth

Adjusted EBITDA

$51 - $55 million

10% - 18% growth

8.5% - 9.1% 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.

Conference Call Information

Revolve Group management will host a call today at 4:30 pm ET / 1:30 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 8975837. 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) 859-2056 within the United States or (404) 537-3406 outside the United States. The replay ID is 8975837.

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 September 30, 2019, which we expect to file with the SEC on or before November 12, 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 and Other Operating Metrics

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.

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.

Definitions of our Non-GAAP financial measures and other operating metrics are presented below.

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.

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.

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.

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 STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per share data)

 

Three Months Ended September 30,

Nine Months Ended September 30,

 

2019

2018

2019

2018

Net sales

$

154,197

 

$

125,909

$

453,437

 

$

371,016

Cost of sales

 

71,519

 

 

59,524

 

209,587

 

 

174,866

Gross profit

 

82,678

 

 

66,385

 

243,850

 

 

196,150

Operating expenses:

 

 

 

 

 

 

 

 

 

 

Fulfillment

 

5,118

 

 

3,327

 

14,914

 

 

9,372

Selling and distribution

 

22,581

 

 

18,305

 

66,811

 

 

52,827

Marketing

 

23,127

 

 

18,956

 

67,539

 

 

55,470

General and administrative

 

19,019

 

 

16,280

 

57,124

 

 

47,365

Total operating expenses

 

69,845

 

 

56,868

 

206,388

 

 

165,034

Income from operations

 

12,833

 

 

9,517

 

37,462

 

 

31,116

Other (income) expense, net

 

(7

)

 

155

 

653

 

 

475

Income before income taxes

 

12,840

 

 

9,362

 

36,809

 

 

30,641

Provision for income tax

 

3,281

 

 

2,222

 

9,547

 

 

7,702

Net income

 

9,559

 

 

7,140

 

27,262

 

 

22,939

Less: Net loss attributable to non-controlling interest

 

 

 

 

 

 

47

Net income attributable to Revolve Group, Inc.

 

9,559

 

 

7,140

 

27,262

 

 

22,986

Less: Repurchase of Class B common stock upon

corporate conversion

 

 

 

 

(40,816

)

 

Net income (loss) attributable to common

stockholders

$

9,559

 

$

7,140

$

(13,554

)

$

22,986

Earnings (net loss) per share of Class A and Class B

common stock:

 

 

 

 

 

 

 

 

 

 

Basic

$

0.14

 

$

0.11

$

(0.25

)

$

0.35

Diluted

$

0.13

 

$

0.10

$

(0.25

)

$

0.33

Weighted average Class A and Class B common shares

outstanding:

 

 

 

 

 

 

 

 

 

 

Basic

 

68,871

 

 

41,936

 

53,376

 

 

41,936

Diluted

 

72,658

 

 

44,798

 

53,376

 

 

44,458

REVOLVE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except unit, share and per share data)

 

September 30,

December 31,

 

2019

2018

Assets

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

$

51,145

$

16,369

Accounts receivable, net

 

5,600

 

5,337

Inventory

 

103,744

 

102,220

Income taxes receivable

 

13

 

Prepaid expenses and other current assets

 

26,213

 

15,227

Total current assets

 

186,715

 

139,153

Property and equipment, net

 

14,890

 

5,907

Intangible assets, net

 

322

 

564

Goodwill

 

2,042

 

2,042

Other assets

 

669

 

731

Deferred income taxes

 

17,093

 

13,677

Total assets

$

221,731

$

162,074

Liabilities and Members'/Stockholders' Equity

 

 

 

 

Current liabilities:

 

 

 

 

Accounts payable

$

25,812

$

20,219

Income taxes payable

 

506

 

917

Accrued expenses

 

21,106

 

18,398

Returns reserve

 

37,469

 

29,184

Other current liabilities

 

16,048

 

13,538

Total current liabilities

 

100,941

 

82,256

Members' equity:

 

 

 

 

Class T Preferred Units, no par value—zero and 23,551,834 units authorized,

issued and outstanding as of September 30, 2019 and December 31, 2018,

respectively.

 

 

15,000

Class A Common Units, no par value—zero and 41,936,219 units authorized,

issued and outstanding as of September 30, 2019 and December 31, 2018,

respectively.

 

 

3,548

Stockholders' equity:

 

 

 

 

Class A common stock, $0.001 par value; 1,000,000,000 and zero shares

authorized as of September 30, 2019 and December 31, 2018, respectively;

13,529,603 and zero shares issued and outstanding as of September 30, 2019

and December 31, 2018, respectively.

 

14

 

Class B common stock, $0.001 par value; 125,000,000 and zero shares authorized

as of September 30, 2019 and December 31, 2018, respectively; 55,340,994 and

zero shares issued and outstanding as of September 30, 2019 and December 31,

2018, respectively.

 

55

 

Accumulated members' equity

 

 

61,270

Additional paid-in capital

 

72,884

 

Retained earnings

 

47,837

 

Total members'/stockholders' equity

 

120,790

 

79,818

Total liabilities and members’/stockholders’ equity

$

221,731

$

162,074

 

REVOLVE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

 

Nine Months Ended September 30,

 

2019

 

2018

Operating activities:

 

 

 

 

 

 

 

Net income

$

27,262

 

 

$

22,939

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

2,716

 

 

 

2,209

 

Equity-based compensation

 

1,545

 

 

 

864

 

Deferred income taxes

 

(3,416

)

 

 

1,982

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

(263

)

 

 

(1,196

)

Inventories

 

(15,540

)

 

 

(13,601

)

Income taxes receivable

 

(13

)

 

 

(1,648

)

Prepaid expenses and other current assets

 

34

 

 

 

(1,621

)

Other assets

 

62

 

 

 

(372

)

Accounts payable

 

5,593

 

 

 

806

 

Income taxes payable

 

(411

)

 

 

 

Accrued expenses

 

2,708

 

 

 

4,504

 

Returns reserve

 

8,285

 

 

 

11,596

 

Other current liabilities

 

3,271

 

 

 

1,575

 

Net cash provided by operating activities

 

31,833

 

 

 

28,037

 

Investing activities:

 

 

 

 

 

 

 

Purchases of property and equipment

 

(11,457

)

 

 

(1,665

)

Net cash used in investing activities

 

(11,457

)

 

 

(1,665

)

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

 

(1,697

)

 

 

(1,780

)

Proceeds from the exercise of stock options, net

 

3

 

 

 

 

Net cash provided by (used in) financing activities

 

14,567

 

 

 

(16,880

)

Effect of exchange rate changes on cash and cash equivalents

 

(167

)

 

 

(80

)

Net increase in cash and cash equivalents

 

34,776

 

 

 

9,412

 

Cash and cash equivalents, beginning of period

 

16,369

 

 

 

10,588

 

Cash and cash equivalents, end of period

$

51,145

 

 

$

20,000

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

Interest

$

 

 

$

87

 

Income taxes, net of refund

$

13,388

 

 

$

7,368

 

REVOLVE GROUP, INC. AND SUBSIDIARIES

SEGMENT INFORMATION

(Unaudited)

The following table summarizes our net sales and gross profit for each of our reportable segments (in thousands):

 

Three Months Ended September 30,

Nine Months Ended September 30,

Net sales

2019

2018

2019

2018

REVOLVE

$

135,426

$

109,473

$

402,021

$

322,588

FORWARD

 

18,771

 

16,436

 

51,416

 

48,428

Total

$

154,197

$

125,909

$

453,437

$

371,016

Gross profit

 

 

 

 

REVOLVE

$

74,991

$

61,236

$

223,091

$

178,336

FORWARD

 

7,687

 

5,149

 

20,759

 

17,814

Total

$

82,678

$

66,385

$

243,850

$

196,150

 

The following table lists net sales by geographic area (in thousands):

 

Three Months Ended September 30,

Nine Months Ended September 30,

 

2019

2018

2019

2018

United States

$

128,234

$

103,280

$

379,694

$

301,506

Rest of the world

 

25,963

 

22,629

 

73,743

 

69,510

Total

$

154,197

$

125,909

$

453,437

$

371,016

 

REVOLVE GROUP, INC. AND SUBSIDIARIES

KEY OPERATING AND FINANCIAL METRICS

(Unaudited)

(In thousands, except average order value and percentages)

 

Three Months Ended September 30,

Nine Months Ended September 30,

 

2019

2018

2019

2018

 

(in thousands, except average order value and percentages)

Gross margin

 

53.6

%

 

52.7

%

 

53.8

%

 

52.9

%

Adjusted EBITDA

$

14,438

 

$

10,312

 

$

41,955

 

$

34,619

 

Free cash flow

$

7,448

 

$

1,822

 

$

20,376

 

$

26,372

 

Active customers

 

1,438

 

 

1,080

 

 

1,438

 

 

1,080

 

Total orders placed

 

1,194

 

 

950

 

 

3,623

 

 

2,756

 

Average order value

$

275

 

$

280

 

$

270

 

$

281

 

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 nine months ended September 30, 2019 and 2018 is as follows (in thousands):

 

Three Months Ended September 30,

Nine Months Ended September 30,

 

2019

2018

2019

2018

 

(in thousands)

Net income

$

9,559

 

$

7,140

 

$

27,262

$

22,939

Excluding:

 

 

 

 

 

 

 

 

 

 

Other (income) expense, net

 

(7

)

 

155

 

 

653

 

475

Provision for income tax

 

3,281

 

 

2,222

 

 

9,547

 

7,702

Depreciation and amortization

 

1,132

 

 

750

 

 

2,716

 

2,209

Equity-based compensation

 

513

 

 

352

 

 

1,545

 

864

One-time expenses, net(1)

 

(40

)

 

(307

)

 

232

 

430

Adjusted EBITDA

$

14,438

 

$

10,312

 

$

41,955

$

34,619

(1)

One-time expenses, net in the nine months ended September 30, 2019 primarily relate to legal settlements. One time-expenses, net in the three and nine months ended September 30, 2018 primarily relate to our entity restructuring and our initial public offering.

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

 

Three Months Ended September 30,

Nine Months Ended September 30,

 

2019

2018

2019

2018

 

(in thousands)

 

Net cash provided by operating activities

$

9,150

 

$

2,410

 

$

31,833

 

$

28,037

 

Purchases of property and equipment

 

(1,702

)

 

(588

)

 

(11,457

)

 

(1,665

)

Free cash flow

$

7,448

 

$

1,822

 

$

20,376

 

$

26,372

 

Net cash used in investing activities

$

(1,702

)

$

(588

)

$

(11,457

)

$

(1,665

)

Net cash (used in) provided by financing activities

$

(968

)

$

(1,780

)

$

14,567

 

$

(16,880

)

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

 

Three Months Ended September 30,

Nine Months Ended September 30,

 

2019

2018

2019

2018

 

Class A

Class B

Class B

Class A

Class B

Class B

Earnings (net loss) per share — diluted

$

0.13

$

0.13

$

0.10

$

(0.25

)

$

(0.25

)

$

0.33

Repurchase of Class B common stock, net

 

 

 

 

0.63

 

 

0.63

 

 

Adjusted earnings per share — diluted

$

0.13

$

0.13

$

0.10

$

0.38

 

$

0.38

 

$

0.33

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20191107005962/en/

Investors:

Erik Randerson, CFA 562.677.9513 IR@revolve.com

or

Media:

Kendall Sargeant kendall.sargeant@revolve.com

Source: Revolve Group, Inc.

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