What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-02-23 compared with 2022-02-28 · 78 added, 283 removed, 679 unchanged (35% of the section changed)

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We have audited the accompanying consolidated balance sheets of Revolve Group, Inc.

and subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, changes in members’/stockholders’

and subsidiaries (the Company) as of December 31, 2022 and December 31, 2021, the related consolidated statements of income, comprehensive income, changes in members’/stockholders’

equity, and cash flows for each of the years in the three-year period ended December 31, 2022, and the related notes (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2021, in conformity with U.S.

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and December 31, 2021, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2022, in conformity with U.S.

generally accepted accounting principles.

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The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s process for estimating the sales return reserve.

This included controls related to the development of estimated return rates and the Company’s lookback analysis based on actual returns received subsequent to the period end.

We evaluated the design and tested the operating effectiveness of an internal control related to the Company’s lookback analysis over the sales return reserve based on actual returns received subsequent to period end.

We evaluated expected future returns by assessing the timing of the number of days between actual sales dates and actual return dates for the year ended December 31, 2022.

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Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, changes in members’/stockholders’

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2022 and December 31, 2021, the related consolidated statements of income, comprehensive income, changes in members’/stockholders’

equity, and cash flows for each of the years in the three-year period ended December 31, 2022, and the related notes (collectively, the consolidated financial statements), and our report dated February 23, 2023 expressed an unqualified opinion on those consolidated financial statements.

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Income from operations

Other expense, net

Other (income) expense, net

Income before income taxes

Provision for income taxes

Repurchase of Class B common stock upon

corporate conversion

Net income (loss) attributable to common

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

Earnings per share of Class A and Class B

common stock:

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(In thousands, except share data)

Class T Preferred

Class A Common

Members' Equity/

Total Members'/

Stockholders'

Total Stockholders'

Balance as of December 31, 2019

Corporate conversion

Repurchase of Class B common stock

Issuance of Class A

common stock upon initial public

offering, net of offering costs

Issuance of Class A common stock from

exercise of stock options

Issuance of Class A common stock from exercise of stock options and vesting of restricted stock units

Equity-based compensation

Cumulative effect of adoption of ASC 606

Cumulative translation adjustment

Balance as of December 31, 2020

Issuance of Class A common

stock from exercise of stock options and

vesting of restricted stock units

Issuance of Class A common stock from exercise of stock options and vesting of restricted stock units

Equity-based compensation

Cumulative translation

Cumulative translation adjustment

Balance as of December 31, 2021

Issuance of Class A common

stock from exercise of stock options and

vesting of restricted stock units

Issuance of Class A common stock from exercise of stock options and vesting of restricted stock units

Equity-based compensation

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Financing activities:

Proceeds from initial public offering, net of underwriting

discounts paid

Repurchase of Class B common stock upon corporate

Proceeds from borrowings on line of credit

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Income taxes, net of refund

Operating leases

Supplemental disclosure of non-cash activities:

Lease assets obtained in exchange for new operating lease liabilities

The accompanying notes are an integral part of these consolidated financial statements.

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Through our websites and mobile apps we deliver an aspirational customer experience from a vast yet curated offering.

Our dynamic platform connects a deeply engaged community of consumers, global fashion influencers, and emerging, established and owned brands.

Our dynamic platform connects a deeply engaged community of consumers, global fashion influencers, and a broad yet curated collection of brands.

We are headquartered in Los Angeles County, California.

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Our fiscal year ends on December 31 of each year.

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 our ability to acquire new customers and engage with our existing customers, and among other things, the easing of stay-at-home orders and other restrictions in certain states and countries, U.S.

government stimulus payments and the accelerated 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, has resulted in restrictions being reinstated in certain cities and states in the United States as well as certain key markets around the world.

We believe that our existing cash and cash e quivalents 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.

Reverse Split

On May 24, 2019, we effected a one-for-22.31 reverse split of all of our issued and outstanding Class T units and Class A units.

All figures have been presented on the basis of the reverse split wherever applicable for all the periods presented in these consolidated financial statements.

Corporate Conversion

Prior to our initial public offering, or IPO, we operated as a Delaware limited liability company under the name Revolve Group, LLC.

In connection with the IPO, Revolve Group, LLC converted into a Delaware corporation and

changed its name to Revolve Group, Inc.

so that the top-tier entity in our corporate structure was a corporation rather than a limited liability company, which we refer to as the Corporate Conversion.

In conjunction with the Corporate Conversion, all of the outstanding Class T and Class A units of Revolve Group, LLC were converted into an aggregate of 67,889,013 shares of our Class B common stock.

The holders of Class T units received an aggregate of 2,400,960 shares, representing the total preference amount for the Class T units.

The remaining 65,488,053 shares of our Class B common stock were allocated on a pro rata basis to the Class T and Class A unitholders based on the number of units held by each holder.

In connection with the Corporate Conversion, Revolve Group, Inc.

holds all property and assets of Revolve Group, LLC and assumed all of the debts and obligations of Revolve Group, LLC.

The members of the board of managers and the officers of Revolve Group, LLC became the members of the board of directors and the officers of Revolve Group, Inc.

Initial Public Offering

On June 7, 2019, we completed an IPO, in which we issued and sold 2,941,176 shares of our Class A common stock at a public offering price of $ 18.00 per share.

We received approximately $ 45.8 million in net proceeds after deducting $ 3.3 million of underwriting discounts and approximately $ 3.8 million in offering costs.

Upon the closing of the IPO, we used $ 40.8 million of the net proceeds from the offering to repurchase an aggregate of 2,400,960 shares of Class B common stock held by TSG6 L.P.

and certain of its affiliates, or TSG, and Capretto, LLC.

In June 2019, we issued and sold an additional 441,176 shares of Class A common stock at a price of $ 18.00 per share following the underwriters’

exercise of their option to purchase additional shares and received proceeds of $ 7.5 million, net of underwriting discounts and commissions of $ 0.5 million.

In connection with the IPO, 10,147,059 Class B shares were converted into Class A shares by the selling stockholders.

Use of Estimates

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the allowance for sales returns, the valuation of deferred tax assets, inventory, equity‑based compensation, valuation of goodwill, reserves for income tax uncertainties and other contingencies, and breakage of store credit and gift cards.

Deferred Offering Costs

Deferred offering costs of $ 3.8 million, which consisted of direct incremental legal, consulting, accounting fees and other direct costs relating to the IPO, were capitalized and offset against proceeds upon the consummation of the IPO, which became effective on June 6, 2019.

In the third and fourth quarters of 2019, we paid an additional $ 0.5 million in offering costs.

On January 1, 2019 we adopted Accounting Standard Update, or ASU, No.

2014-09, Revenue from Contracts with Customers (Topic 606) , and its subsequent updates, which replaces most existing revenue recognition guidance under Accounting Standards Codification, or ASC, 605.

It provides principles for recognizing revenue for the transfer of promised goods or services to customers with the consideration to which the entity expects to be entitled in exchange for those goods or services.

Upon the adoption of ASC 606 under the modified retrospective approach, we recorded a net increase of $ 0.3 million to beginning retained earnings as of January 1, 2019 resulting primarily from the recognition of breakage revenue from estimated unredeemed store credit and gift cards over the expected customer redemption period.

In addition, we prospectively included expected merchandise to be returned, net of related costs, within prepaid expenses and other current assets rather than including it in our inventory balance within our consolidated balance sheets.

Results for reporting periods beginning January 1, 2019 and thereafter are presented

under ASC 606, while prior period amounts have not been adjusted and continue to be reported in accordance with ASC 605.

Revenue is primarily derived from the sale of apparel merchandise through our sites and, when applicable, shipping revenue.

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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, merchandise mix and expected future returns, which is recorded as a reduction of sales.

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.

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Cost of sales consists of the purchase price of merchandise sold to customers and includes import duties, net of drawback claims, and other taxes, inbound freight costs, receiving costs, defective merchandise returned from customers, inventory write-offs, and other miscellaneous shrinkage .

Fulfillment expenses primarily consist of those costs incurred in operating and staffing the fulfillment center, including costs attributable to inspecting and warehousing inventories, picking, packaging and preparing customer orders for shipment.

Fulfillment expenses primarily consist of those costs incurred in operating and staffing the fulfillment centers, including costs attributable to inspecting and warehousing inventories, picking, packaging and preparing customer orders for shipment.

Fulfillment expenses also include the cost of warehousing facilities.

Selling and Distribution

Selling and distribution expenses consist of customer service, shipping and other transportation costs incurred delivering merchandise to customers and customers returning merchandise, merchant processing fees, and shipping supplies.

The amount of shipping and handling costs included in selling and distribution is $ 120.8 million, $ 84.8 million, and $ 52.3 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Marketing expenses are expensed as incurred and consist primarily of targeted online performance marketing costs, such as paid search/product listing ads, paid social, retargeting, affiliate marketing, search engine optimization, personalized email marketing and mobile “push”

communications through our app.

Marketing expenses are expensed as incurred and consist primarily of targeted online performance marketing costs, such as paid search/product listing ads, affiliate marketing, paid social, retargeting, search engine optimization, personalized email marketing and mobile “push”

communications through our mobile applications.

Marketing expenses also include brand marketing investments, including events, fees paid to influencers, and other forms of online and offline marketing.

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General and administrative expenses consist primarily of payroll and related benefit costs and equity‑based compensation expense for employees involved in general corporate functions including merchandising, marketing, studio and technology, as well as costs associated with the use by these functions of facilities and equipment, including depreciation, rent and other occupancy expenses.

Earnings (Net Loss) per Share

Basic earnings (net loss) per share is computed by dividing the net income (loss) attributable to common stockholders by the weighted-average number of common shares outstanding during the period.

Diluted earnings (net loss) per share represents net income (loss) divided by the weighted-average number of common shares outstanding, inclusive of the effect of dilutive stock options and restricted stock units, or RSUs.

See Note 10, Earnings (Net Loss) per Share , for further information.

Earnings per Share

Basic earnings per share is computed by dividing the net income attributable to common stockholders by the weighted-average number of common shares outstanding during the period.

Diluted earnings per share represents net income divided by the weighted-average number of common shares outstanding, inclusive of the effect of dilutive stock options and restricted stock units, or RSUs.

See Note 10, Earnings per Share , for further information.

Cash and Cash Equivalents

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We carry the remaining portion of accounts receivable at invoiced amounts less allowances for doubtful accounts and other deductions.

Allowance for doubtful accounts was

insignificant at both December 31, 2021 and 2020.

Allowance for doubtful accounts was insignificant at both December 31, 2022 and 2021.

Management evaluates the ability to collect accounts receivable based on a combination of factors.

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As of January 1, 2021, upon the adoption of ASU No.

2016-02, Leases (Topic 842) as noted below, operating leases with a term greater than one year are recorded on the consolidated balance sheets as right-of-use lease assets and lease liabilities at the commencement date.

2016-02, Leases (Topic 842) , operating leases with a term greater than one year are recorded on the consolidated balance sheets as right-of-use lease assets and lease liabilities at the commencement date.

These balances are initially recorded at the present value of future minimum lease payments calculated using our incremental borrowing rate and expected lease term, which includes options to extend or terminate the lease which we are reasonably certain to exercise and adjusted for items such as initial direct costs paid or incentives received.

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Comprehensive income consists of net income and foreign currency translation adjustments.

Related Party Transactions

TSG is a related party of TSG6 L.P., a former investor in our Company.

We incurred $ 0.5 million of management fees from TSG for the year ended December 31, 2019.

There were no management fees incurred from TSG for the years ended December 31, 2021 and 2020.

Upon the closing of our IPO, our management agreement with TSG was terminated.

There were no amounts owed to TSG as of December 31, 2021 and 2020.

As of December 31, 2020, TSG6 L.P.

was no longer an investor in our Company.

Certain Risks and Concentrations

We are subject to certain risks, including dependence on third‑party technology providers and hosting services for our website servers, exposure to risks associated with online commerce security, credit card fraud, as well as the interpretation of state and local laws and regulations in regards to the collection and remittance of sales and use taxes.

We are subject to certain risks, including dependence on third‑party technology providers and hosting services for our website servers, exposure to risks associated with online commerce security, credit card fraud, as well as the interpretation of state and local laws and regulations related to the collection and remittance of sales and use taxes.

We do not have significant vendor concentrations.

Recent Accounting Pronouncements

On December 31, 2021, we lost an emerging growth company status due to our becoming a "large accelerated filer" as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended, which required us to significantly accelerate our compliance efforts to, for example, engage our independent registered public accounting firm to attest to the effectiveness of our internal controls as required by Section 404(b) of the Sarbanes-Oxley Act in our Annual Report on Form 10-K.

Furthermore, as an emerging growth company, we had elected under the JOBS Act to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable

to private companies.

Due to our ceasing to be an emerging growth company on December 31, 2021, we are no longer eligible to delay adoption of such new or revised accounting pronouncements applicable to public companies.

Recently Adopted Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board, or 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 effective for emerging growth companies 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 lost our emerging growth company status at the end of fiscal year ended December 31, 2021, we adopted ASU 2016-02 during the fourth quarter of 2021 using the modified retrospective adoption method utilizing the simplified transition option available in ASC 842, which allows entities to continue to apply the legacy guidance in ASC 840, including its disclosure requirements, in the comparative periods presented in the year of adoption.

The effective date of adoption was January 1, 2021 and as part of our adoption we retrospectively adjusted financial statements for the first three quarters of 2021.

As of the effective date of adoption, we recognized a r ight-of-use lease asset of $ 9.7 million which was adjusted for $ 1.3 million previously recorded as deferred rent and $ 0.4 million previously recorded as prepaid rent and recorded $ 4.5 million in current operating lease liabilities and $ 5.9 million in operating lease liabilities, net of current portion.

In addition, we have chosen to apply the transition package of three practical expedients which allow companies not to reassess whether agreements contain leases, the classification of leases, and the capitalization of initial direct costs.

The Company did not elect the practical expedient to use hindsight when determining the lease term.

As a result of adopting ASU 2016-02, the impact to our consolidated balance sheets as of March 31, 2021, June 30, 2021 and September 30, 2021 was as follows (in thousands):

March 31, 2021

Prepaid expenses and other current assets

Total current assets

Right-of-use lease assets

Liabilities and stockholders' equity:

Current lease liabilities

Other current liabilities

Total current liabilities

Non-current lease liabilities

Total liabilities

Total liabilities and stockholders’

June 30, 2021

Prepaid expenses and other current assets

Total current assets

Right-of-use lease assets

Liabilities and stockholders' equity:

Current lease liabilities

Other current liabilities

Total current liabilities

Non-current lease liabilities

Total liabilities

Total liabilities and stockholders’

September 30, 2021

Prepaid expenses and other current assets

Total current assets

Right-of-use lease assets

Liabilities and stockholders' equity:

Current lease liabilities

Other current liabilities

Total current liabilities

Non-current lease liabilities

Total liabilities

Total liabilities and stockholders’

As a result of adopting ASU 2016-02, the impact to our consolidated statements of cash flows for the three months ended March 31, 2021, six months ended June 30, 2021 and nine months ended September 30, 2021, was as follows (in thousands):

Three Months Ended March 31, 2021

Prepaid expenses and other current assets

Right-of-use lease assets and current and

non-current lease liabilities

Other current liabilities

Six Months Ended June 30, 2021

Prepaid expenses and other current assets

Right-of-use lease assets and current and

non-current lease liabilities

Other current liabilities

Nine Months Ended September 30, 2021

Prepaid expenses and other current assets

Right-of-use lease assets and current and

non-current lease liabilities

Other current liabilities

As a result of adopting ASU 2016-02, there was no impact to our consolidated statements of income.

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.

As we lost our emerging growth company status at the end of fiscal year ended December 31, 2021, we adopted ASU 2016-13 during the fourth quarter of 2021.

The effective date of adoption was January 1, 2021 .

This standard did not have a have a material 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.

As we lost our emerging growth company status at the end of fiscal year ended December 31, 2021, we adopted ASU 2017-04 during the fourth quarter of 2021.

The effective date of adoption was January 1, 2021 .

This standard did not have a have a material impact on our consolidated financial statements and related disclosures.

In December 2019, the FASB issued ASU No.

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.

As we lost our emerging growth company status at the end of fiscal year ended December 31, 2021, we adopted ASU 2019-12 during the fourth quarter of 2021.

The effective date of adoption was January 1, 2021 .

This standard did not have a have a material impact on our consolidated financial statements and related disclosures.

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.

Goodwill and Other Intangible Assets, Net

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For the years ended December 31, 2022, 2021 and 2020, $ 2.6 million, $ 2.4 million, and $ 2.4 million, respectively, was recorded in general and administrative expense and $ 2.1 million, $ 2.0 million, and $ 2.1 million, respectively, was recorded in fulfillment expense in the accompanying consolidated statements of income.

During the fourth quarter of 2021 we adopted ASU 2016-02.

The effective date of adoption was January 1, 2021 and as part of our adoption we retrospectively adjusted financial statements for the first three quarters of 2021.

See Note 2, Significant Accounting Policies for more information.

We lease office and warehouse space and equipment used in connection with our operations under various operating leases, some of which provide for rental payments on a graduated basis, rent holidays and other incentives.

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Variable lease expense

Rental expense was $ 4.7 million for the year ended December 31, 2020, and is included in fulfillment expenses and general and administrative expenses in the accompanying consolidated statements of income.

The following table presents future minimum lease payments and the impact of discounting as of December 31, 2022.

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Present value of lease liabilities

(1) Excludes approximately $ 6.3 million of future minimum lease payments (undiscounted basis) for leases that had not commenced as of December 31, 2021.

These leases are expected to commence in 2022 with lease terms ranging from three months to ten years from commencement.

In addition, excludes approximately $ 7.3 million of future minimum lease payments (undiscounted basis) for a lease that we entered into in January 2022.

This lease commenced in February 2022 and has a term of five years from commencement.

The weighted-average remaining term for our leases as of December 31, 2021 was 1.9 years.

The weighted-average discount rate for our leases as of December 31, 2021 was 1.7 %.

Supplemental cash flow information related to our leases is as follows:

Year Ended December 31,

(in thousands)

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows - operating leases

Supplemental non-cash information:

Lease assets obtained in exchange for new operating lease liabilities

A schedule of the future minimum lease payments under noncancelable operating leases as of December 31, 2020, in accordance with ASC 840, was as follows:

December 31, 2020

(in thousands)

Total minimum lease payments

Rental expense was $ 4.7 million and $ 5.4 million for the years ended December 31, 2020 and 2019, respectively, and is included in fulfillment expenses and general and administrative expenses in the accompanying consolidated statements of income.

The weighted-average remaining term for our leases as of December 31, 2022 and 2021 was 5.1 years and 1.9 years, respectively.

The weighted-average discount rate for our leases as of December 31, 2022 and 2021 was 5.0 % and 1.7 %, respectively.

Line of Credit

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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 consolidated financial statements.

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 consolidated financial statements.

Tax Contingencies

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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.

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 are 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 which, as of December 31, 2020, still remained accrued within accrued expenses on the accompanying consolidated balance sheet.

On January 5, 2021, the court granted approval of the settlement, which was subsequently paid by the Company during the first quarter of 2021.

On March 15, 2022, we received a cease and desist letter alleging copyright infringement and related claims.

As of December 31, 2022, we had accrued $ 6.3 million to general and administrative expenses for estimated losses and legal fees that we expected to incur in connection with these claims.

On February 3, 2023, we entered into a final settlement agreement with the claimant and ultimately expect to pay approximately $ 1.3 million in settlement costs and legal fees related to this matter, net of insurance proceeds.

We have obligations under operating leases for office and fulfillment facilities.

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Deferred revenue

Research and development expenses

Lease liabilities

Net operating loss

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Accrued expenses and reserves

Right-of-use lease assets

Total gross deferred liabilities

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We do not anticipate there will be a material change in our recognition of uncertain tax positions in the next 12 months.

The tax years ended December 31, 2018 through 2021 remain subject to possible examination by the Internal Revenue Service and the tax years ended December 31, 2017 through 2021 remain subject to possible examination by

state tax jurisdictions.

The tax years ended December 31, 2019 through 2022 remain subject to possible examination by the Internal Revenue Service and the tax years ended December 31, 2018 through 2022 remain subject to possible examination by state tax jurisdictions.

No interest or penalties related to income taxes are recognized in the accompanying consolidated financial statements.

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In addition, the 2013 Plan was amended to increase the maximum number of Class A units available to be issued to 6,207,978 .

Upon the effectiveness of the Corporate Conversion on June 6, 2019, as discussed in Note 2, Significant Accounting Policies , the options to purchase Class A units of Revolve Group, LLC were converted into options to purchase Class B common stock of Revolve Group, Inc.

Upon the effectiveness of the Corporate Conversion on June 6, 2019, the options to purchase Class A units of Revolve Group, LLC were converted into options to purchase Class B common stock of Revolve Group, Inc.

on a 1:1 basis and in a manner that did not result in an increase to the intrinsic value of the converted option.

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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 to approximately 5.0 million shares.

As of December 31, 2022, approximately 8.2 million common shares remain available for future issuance under the 2019 Plan.

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Treasury issues with an equivalent remaining term.

For the options granted in 2021, expected volatility is estimated based on the average historical volatility of the Company's stock.

For the options granted in 2020 and 2019, expected volatility is estimated based on the average historical volatility of similar entities with publicly traded shares.

For the options granted during 2019, we relied on valuations of our Class A shares prepared by an independent third-party valuation firm in accordance with the guidance provided by the American Institute of Certified Public Accountants 2013 Practice Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation, the results of which were aligned with our internal valuation approach.

For the options granted during 2021 and 2020, the fair value is based on observable market prices.

All historical data presented in the tables within this footnote have been recast to retroactively reflect all share and per share data of options as if they had been issued by Revolve Group, Inc.

and that both the reverse split and Corporate Conversion had occurred.

See Note 2, Significant Accounting Policies, for further information regarding the reverse split and Corporate Conversion.

For the options granted in 2022 and 2021, expected volatility is estimated based on the average historical volatility of the Company's stock.

For the options granted in 2020, expected volatility is estimated based on the average historical volatility of similar entities with publicly traded shares.

The fair value of options granted is based on observable market prices.

The weighted average assumptions for the grants in the years ended December 31, 2022, 2021 and 2020 are provided in the following table:

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The vesting of such RSUs is based upon the Company’s current performance against predefined financial targets.

There were 171,105 options and 26,787 RSUs granted during the year ended December 31, 2021.

The weighted average grant-date fair value of options and RSUs granted during the year ended December 31, 2021 was $ 22.99 per share and $ 49.68 per share, respectively.

(2) Includes an adjustment of ( 44,648 ) shares underlying performance-based RSU awards made during the year ended December 31, 2022.

The vesting of such RSUs is based upon the Company’s current performance against predefined financial targets.

There were 470,011 options and 69,887 RSUs granted during 2022.

The weighted average grant-date fair value of options and RSUs granted during 2022 was $ 19.91 per share and $ 43.36 per share, respectively.

As of December 31, 2022, there was $ 14.0 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 3.5 years.

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An excess income tax benefit of $ 0.5 million, $ 17.6 million and $ 9.6 million was recognized in the consolidated statements of income for equity‑based compensation arrangements for the years ended December 31, 2022, 2021 and 2020, respectively.

Earnings (Net Loss) per Share

Basic and diluted earnings (net loss) per share is presented in conformity with the two-class method required for multiple classes of common stock.

In connection with our IPO, we established two classes of authorized common stock:

Class A common stock and Class B common stock.

Earnings per Share

Basic and diluted earnings per share is presented in conformity with the two-class method required for multiple classe s of common stock.

The rights of the holders of Class A and Class B common stock are identical, except for voting and conversion rights.

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Each share of Class B common stock is entitled to ten votes per share and is convertible at any time into one share of Class A common stock.

Basic earnings (net loss) per share is computed by dividing the net income (loss) attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period.

Diluted earnings (net loss) per share represents net income divided by the weighted-average number of shares of common stock outstanding, inclusive of the effect of dilutive stock options and RSUs.

For the year ended December 31, 2019, our potential dilutive shares relating to stock options and RSUs were not included in the computation of diluted earnings (net loss) per share as the effect of including these shares in the calculation would have been anti-dilutive.

Basic earnings per share is computed by dividing the net income attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period.

Diluted earnings per share represents net income divided by the weighted-average number of shares of common stock outstanding, inclusive of the effect of dilutive stock options and RSUs.

The undistributed earnings are allocated based on the participation rights of shares of Class A and Class B common stock as if the earnings for the year have been distributed.

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Similarly, outstanding options to purchase Class B common stock and RSUs that are dilutive are included in the calculation of diluted earnings for both Class A and Class B common stock.

For the calculation of basic and diluted earnings (net loss) per share for the year ended December 31, 2019, the $ 40.8 million of Class B shares issued and subsequently repurchased in connection with our IPO to satisfy the total preference amount for the Class T Units is treated as a dividend and subtracted from net income available to common stockholders on a proportionate basis.

In addition, the net losses for the year ended December 31, 2019 were not allocated to our participating security as the Class T preferred units were not contractually obligated to share in the Company’s losses.

Basic and diluted earnings (net loss) per share and the weighted-average shares outstanding have been computed for all periods shown below to give effect to the reverse split, the Corporate Conversion and the repurchase of shares of Class B common stock that occurred in connection with our IPO.

See Note 2, Significant Accounting Policies, for further information regarding the reverse split and Corporate Conversion.

The following table presents the calculation of basic and diluted earnings (net loss) per share:

The following table presents the calculation of basic and diluted earnings per share:

Year Ended December 31,

Repurchase of Class B common stock

Net income (loss) attributable to

common stockholders - basic

Reallocation of undistributed earnings

as a result of conversion of Class B

to Class A shares

Reallocation of undistributed earnings

to Class B shares

Net income (loss) attributable to

common stockholders - diluted

Weighted average shares used to

compute earnings (net loss) per

share —

Conversion of Class B to Class A

common shares outstanding

Effect of dilutive stock options

Weighted average number of shares

used to compute earnings (net loss)

per share —

Earnings (net loss) per share:

The following have been excluded from the computation of basic and diluted earnings (net loss) per share as their effect would have been anti-dilutive (in thousands):

Net income attributable to common stockholders - basic

Reallocation of undistributed earnings as a result of conversion of Class B to Class A shares

Reallocation of undistributed earnings to Class B shares

Net income attributable to common stockholders - diluted

Weighted average shares used to compute earnings per share —

Conversion of Class B to Class A common shares outstanding

Effect of dilutive stock options and RSUs

Weighted average number of shares used to compute earnings per share —

Earnings per share:

The following have been excluded from the computation of basic and diluted earnings per share as their effect would have been anti-dilutive (in thousands):

Year Ended December 31,

Stock options to purchase common

shares and RSUs

Stock options to purchase common shares

Segment Information

We have two reportable segments, REVOLVE and FWRD, each offering apparel, shoes, accessories, and beauty products available for sale to customers through their respective websites.

We have two reportable segments, REVOLVE and FWRD, each offering apparel, shoes, accessories, beauty and home products available for sale to customers through their respective websites.

Our reportable segments have been identified based on how our chief operating decision makers manage our business, make operating decisions, and evaluate operating performance.

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Advanced payments on inventory to be delivered from vendors

Prepaid insurance

Total prepaid expenses and other current assets

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Other current liabilities consist of the following (in thousands):

Loyalty Club liability

Total other current liabilities

CHANGES IN AND DISAGREEMENTS WITH ACCOU NTANTS ON ACCOUNTING A ND FINANCIAL DISCLOSURE

CHANGES IN AND DISAGREEMENTS WITH ACCOU NTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

CONTROL S AND PROCEDURES

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Management’s Report on Internal Control over Financial Reporting

Our management, including our principal executive officer and principal financial officer, is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act.

13a-15(f) and 15d-15(f) of the Exchange Act.

Our internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

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The information required under this Item is incorporated herein by reference to the information set forth in the Proxy Statement.

CERTAIN RELATIONSHIPS AND RELATE D TRANSACTIONS, AND DIRECTOR INDEPENDENCE

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required under this Item is incorporated herein by reference to the information set forth in the Proxy Statement.

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(b) Financial Statement Schedules .

Schedules are omitted because the required information is inapplicable, not material or the information is presented in the consolidated financial statements or related notes.

Schedules are omitted because the required information is inapplicable or immaterial, or the information is presented in the consolidated financial statements or related notes.

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August 12, 2019

Bylaws of Revolve Group, Inc.

August 12, 2019

Amended and Restated Bylaws of Revolve Group, Inc.

October 27, 2022

Specimen Common Stock Certificate of the registrant

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Description of Securities

February 26, 2020

Form of Director and Executive Officer Indemnification Agreement

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October 9, 2018

Executive Employment Agreement between Eminent, Inc.

and David Pujades

October 9, 2018

Subsidiaries of the Registrant

February 28, 2022

Consent of KPMG LLP, Independent Registered Public Accounting Firm

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data