Revolve Group, Inc. 10-K

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page No. REVOLVE GROUP, INC. Reports of Independent Registered Public Accounting Firm 73 Consolidated Balance Sheets 77 Consolidated Statements of Income 78 Consolidated Statements of Comprehensive Income 79 Consolidated Statements of Changes in Stockholders’ Equity 80 Consolidated Statements of Cash Flows 81 Notes to Consolidated Financial Statements 82 72 R eport of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors Revolve Group, Inc.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Revolve Group, Inc. and subsidiaries (the Company) as of December 31, 2023 and December 31, 2022, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2023, 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, 2023 and December 31, 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 27, 2024 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Sales return reserve As discussed in Note 2 to the consolidated financial statements, the Company has recorded a sales return reserve as of December 31, 2023 of $63.8 million. The Company establishes a reserve for merchandise returns, based on historical experience, merchandise mix, and expected future returns, which is recorded as a reduction of sales. 73 We identified the evaluation of the sales return reserve as a critical audit matter. There was auditor judgment required to evaluate the impact of recent sales return experience that could impact the rate of historical experience used to estimate the sales return reserve. The following are the primary procedures we performed to address this critical audit matter. 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, 2023. In addition, we analyzed actual returns received by the Company after December 31, 2023 to evaluate management’s estimate as of December 31, 2023. We assessed the Company’s ability to estimate by comparing the historically recorded sales return reserve to actual subsequent period returns. /s/ KPMG LLP We have served as the Company’s auditor since 2014. Los Angeles, California February 27, 2024 74 Report of Registered Independent Public Accounting Firm To the Stockholders and Board of Directors Revolve Group, Inc.: Opinion on Internal Control Over Financial Reporting We have audited Revolve Group, Inc. and subsidiaries' (the Company) internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – 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, 2023 and December 31, 2022, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2023, and the related notes (collectively, the consolidated financial statements), and our report dated February 27, 2024 expressed an unqualified opinion on those consolidated financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 75 /s/ KPMG LLP Los Angeles, California February 27, 2024 76 REVOLVE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED B ALANCE SHEETS (In thousands, except share and per share data) December 31, 2023 2022 Assets Current assets: Cash and cash equivalents $ 245,449 $ 234,724 Accounts receivable, net 12,405 5,421 Inventory 203,587 215,224 Income taxes receivable 1,625 2,974 Prepaid expenses and other current assets 65,523 59,874 Total current assets 528,589 518,217 Property and equipment (net of accumulated depreciation of $ 17,994 and $ 13,081 as of December 31, 2023 and December 31, 2022, respectively) 7,763 8,934 Right-of-use lease assets 36,440 22,964 Intangible assets, net 1,875 1,600 Goodwill 2,042 2,042 Other assets 2,172 807 Deferred income taxes, net 30,005 24,754 Total assets $ 608,886 $ 579,318 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 47,821 $ 50,789 Income taxes payable — 229 Accrued expenses 40,714 38,266 Returns reserve 63,780 63,381 Current lease liabilities 6,863 5,844 Other current liabilities 30,442 22,577 Total current liabilities 189,620 181,086 Non-current lease liabilities 34,126 18,659 Total liabilities 223,746 199,745 Stockholders’ equity: Class A common stock, $ 0.001 par value; 1,000,000,000 shares authorized as of December 31, 2023 and December 31, 2022; 38,693,589 and 40,766,510 shares issued and outstanding as of December 31, 2023 and December 31, 2022, respectively. 39 41 Class B common stock, $ 0.001 par value; 125,000,000 shares authorized as of December 31, 2023 and December 31, 2022; 32,597,119 and 32,597,119 shares issued and outstanding as of December 31, 2023 and December 31, 2022, respectively. 33 33 Additional paid-in capital 116,713 110,338 Retained earnings 268,355 269,161 Total stockholders’ equity 385,140 379,573 Total liabilities and stockholders’ equity $ 608,886 $ 579,318 The accompanying notes are an integral part of these consolidated financial statements. 77 REVOLVE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STAT EMENTS OF INCOME (In thousands, except per share data) Year Ended December 31, 2023 2022 2021 Net sales $ 1,068,719 $ 1,101,416 $ 891,390 Cost of sales 514,520 509,093 401,567 Gross profit 554,199 592,323 489,823 Operating expenses: Fulfillment 36,654 31,804 21,322 Selling and distribution 197,052 190,419 133,506 Marketing 171,774 181,648 140,398 General and administrative 126,585 115,312 89,306 Total operating expenses 532,065 519,183 384,532 Income from operations 22,134 73,140 105,291 Other (income) expense, net ( 15,627 ) ( 3,476 ) 563 Income before income taxes 37,761 76,616 104,728 Provision for income taxes 9,614 17,919 4,888 Net income $ 28,147 $ 58,697 $ 99,840 Earnings per share of Class A and Class B common stock: Basic $ 0.39 $ 0.80 $ 1.38 Diluted $ 0.38 $ 0.79 $ 1.34 Weighted average number of shares of Class A and Class B common stock outstanding: Basic 72,961 73,314 72,513 Diluted 73,583 74,520 74,547 The accompanying notes are an integral part of these consolidated financial statements. 78 REVOLVE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS O F COMPREHENSIVE INCOME (In thousands) Year Ended December 31, 2023 2022 2021 Net income $ 28,147 $ 58,697 $ 99,840 Other comprehensive income (loss): Cumulative translation adjustment 1,958 ( 2,887 ) ( 442 ) Total other comprehensive income (loss) 1,958 ( 2,887 ) ( 442 ) Total comprehensive income $ 30,105 $ 55,810 $ 99,398 The accompanying notes are an integral part of these consolidated financial statements. 79 REVOLVE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (In thousands, except share data) Common Stock Additional Paid-in Retained Total Stockholders’ Number Amount Capital Earnings Equity Balance as of December 31, 2020 71,396,706 $ 71 $ 86,040 $ 113,953 $ 200,064 Issuance of Class A common stock from exercise of stock options and vesting of restricted stock units 1,836,615 2 12,764 — 12,766 Equity-based compensation — — 4,786 — 4,786 Cumulative translation adjustment — — — ( 442 ) ( 442 ) Net income — — — 99,840 99,840 Balance as of December 31, 2021 73,233,321 73 103,590 213,351 317,014 Issuance of Class A common stock from exercise of stock options and vesting of restricted stock units 130,308 1 886 — 887 Equity-based compensation — — 5,862 — 5,862 Cumulative translation adjustment — — — ( 2,887 ) ( 2,887 ) Net income — — — 58,697 58,697 Balance as of December 31, 2022 73,363,629 $ 74 $ 110,338 $ 269,161 $ 379,573 Issuance of Class A common stock from exercise of stock options and vesting of restricted stock units 125,933 — 536 — 536 Repurchases of Class A common stock ( 2,198,854 ) ( 2 ) — ( 30,911 ) ( 30,913 ) Equity-based compensation — — 5,839 — 5,839 Cumulative translation adjustment — — — 1,958 1,958 Net income — — — 28,147 28,147 Balance as of December 31, 2023 71,290,708 $ 72 $ 116,713 $ 268,355 $ 385,140 The accompanying notes are an integral part of these consolidated financial statements. 80 REVOLVE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEM ENTS OF CASH FLOWS (In thousands) Year Ended December 31, 2023 2022 2021 Operating activities: Net income $ 28,147 $ 58,697 $ 99,840 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 5,094 4,791 4,508 Equity-based compensation 5,839 5,862 4,786 Deferred income taxes, net ( 5,251 ) ( 5,695 ) ( 5,245 ) Changes in operating assets and liabilities: Accounts receivable ( 6,984 ) ( 782 ) ( 18 ) Inventories 11,637 ( 43,965 ) ( 75,987 ) Income taxes receivable 1,349 401 7,314 Prepaid expenses and other current assets ( 5,649 ) ( 17,760 ) ( 22,221 ) Other assets ( 1,365 ) 1,939 ( 2,246 ) Accounts payable ( 2,968 ) ( 3,556 ) 15,008 Income taxes payable ( 229 ) 229 ( 195 ) Accrued expenses 2,448 4,367 9,166 Returns reserve 399 14,085 23,694 Right-of-use lease assets and current and non-current lease liabilities 3,010 1,162 ( 448 ) Other current liabilities 7,865 3,661 4,357 Net cash provided by operating activities 43,342 23,436 62,313 Investing activities: Purchases of property and equipment ( 4,198 ) ( 5,167 ) ( 2,195 ) Net cash used in investing activities ( 4,198 ) ( 5,167 ) ( 2,195 ) Financing activities: Proceeds from the exercise of stock options, net 536 887 12,766 Repurchases of Class A common stock ( 30,913 ) — — Net cash (used in) provided by financing activities ( 30,377 ) 887 12,766 Effect of exchange rate changes on cash and cash equivalents 1,958 ( 2,887 ) ( 442 ) Net increase in cash and cash equivalents 10,725 16,269 72,442 Cash and cash equivalents, beginning of year 234,724 218,455 146,013 Cash and cash equivalents, end of year $ 245,449 $ 234,724 $ 218,455 Supplemental disclosure of cash flow information: Cash paid during the period for: Income taxes, net of refund $ 12,995 $ 23,031 $ 3,014 Operating leases $ 7,012 $ 5,858 $ 5,321 Supplemental disclosure of non-cash activities: Lease assets obtained in exchange for new operating lease liabilities $ 20,452 $ 21,938 $ 1,440 The accompanying notes are an integral part of these consolidated financial statements. 81 REVOLVE GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Description of Business Revolve Group, Inc., or REVOLVE, is an online fashion retailer for Millennial and Generation Z consumers. Through our websites and mobile apps we deliver an aspirational customer experience from a vast yet curated offering. 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. Note 2. Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States, or GAAP, and applicable rules and regulations of the Securities and Exchange Commission. The accompanying consolidated financial statements include the balances of Revolve Group, Inc. and all of its subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. These reclassifications had no effect on the reported results of operations. Our fiscal year ends on December 31 of each year. Use of Estimates The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include: the allowance for sales returns, the valuation of deferred tax assets, inventory, equity‑based compensation, valuation of goodwill, reserves for income tax uncertainties and other contingencies, and breakage of store credit and gift cards. Net Sales Revenue is primarily derived from the sale of apparel merchandise through our sites and, when applicable, shipping revenue. We recognize revenue through the following steps: (1) identification of the contract, or contracts, with the customer; (2) identification of the performance obligations in the contract; (3) determination of the transaction price; (4) allocation of the transaction price to the performance obligations in the contract; and (5) recognition of revenue when, or as, we satisfy a performance obligation. A contract is created with our customer at the time the order is placed by the customer, which creates a performance obligation to deliver the product to the customer. We recognize revenue for the performance obligation at the time control of the merchandise passes to the customer, which is at the time of shipment. In addition, we have elected to treat shipping and handling as fulfillment activities and not a separate performance obligation. We have a Loyalty Club program within the REVOLVE and FWRD segments. Eligible customers who enroll in the program will generally earn points for every dollar spent and will automatically receive a $ 20 reward once they earn 2,000 points . We defer revenue based on an allocation of the price of the customer purchase and the estimated standalone selling price of the points earned. Revenue is recognized once the reward is redeemed or expires or once unconverted points expire. Rewards generally expire 90 days after they are issued and unconverted points generally expire if a customer fails to engage in any activity that generates points for a period of one year or if their participation in the program is otherwise terminated. In accordance with our policy on returns and exchanges, merchandise returns are generally accepted for full refund if returned within 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 82 of sales is also reduced and an offsetting asset is recorded within prepaid expenses and other current assets for expected merchandise to be returned. The following table presents a rollforward of our sales return reserve for the years ended December 31, 2023, 2022 and 2021 (in thousands): December 31, 2023 2022 2021 Beginning balance $ 63,381 $ 49,296 $ 25,602 Returns ( 1,505,490 ) ( 1,396,396 ) ( 870,445 ) Provisions 1,505,889 1,410,481 894,139 Ending balance $ 63,780 $ 63,381 $ 49,296 We may also issue store credit in lieu of cash refunds or exchanges and sell gift cards without expiration dates to our customers. Store credits issued and proceeds from the issuance of gift cards are recorded as deferred revenue and recognized as revenue when the store credit or gift cards are redeemed or upon inclusion in our store credit and gift card breakage estimates. Revenue recognized in net sales on breakage on store credit and gift cards was $ 2.6 million, $ 1.7 million and $ 1.2 million for the years ended December 31, 2023, 2022 and 2021, respectively. Sales taxes and duties collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from net sales. We currently collect sales taxes in all states that have adopted laws imposing sales tax collection obligations on out-of-state retailers and are subject to audits by state governments of sales tax collection obligations on out-of-state retailers in jurisdictions where we do not currently collect sales taxes, whether for prior years or prospectively. No significant interest or penalties related to sales taxes are recognized in the accompanying consolidated financial statements. We have exposure to losses from fraudulent credit card charges. We record losses when incurred related to these fraudulent charges as amounts have historically been insignificant. See Note 12, Segment Information , for disaggregation of revenue by reportable segment, geographic area and product category. Cost of Sales 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 valuation adjustments, and other miscellaneous shrinkage . Fulfillment 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 shipping and other transportation costs incurred delivering merchandise to customers and customers returning merchandise, customer service costs, merchant processing fees, shipping supplies and other selling expenses. The amount of shipping and handling costs included in selling and distribution is $ 128.1 million, $ 120.8 million, and $ 84.8 million for the years ended December 31, 2023, 2022 and 2021, respectively. 83 Marketing 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. Marketing expenses are primarily related to growing and retaining the customer base. General and Administrative 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 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 We maintain the majority of our cash and cash equivalents in money market funds and checking accounts with major financial institutions within the United States. Deposits in these institutions may exceed federally insured limits. Accounts Receivable, Net Accounts receivable are composed primarily of amounts due from financial institutions related to credit card sales. We do not maintain an allowance for doubtful accounts related to these receivables as payment is typically received in full within a few business days after the sale. 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, 2023 and 2022. Management evaluates the ability to collect accounts receivable based on a combination of factors. An allowance for doubtful accounts is maintained based on the length of time receivables are past due and the status of a customer’s financial position. Receivables are written off in the period deemed uncollectible after collection efforts have proven unsuccessful. We do not accrue interest on our trade receivables. Inventory Inventories are stated at the lower of cost and net realizable value. Cost is determined using the specific identification method. Cost of inventory includes import duties and other taxes and transport and handling costs. We make inventory valuation adjustments when it appears that the carrying cost of the inventory may not be recovered through subsequent sale of the inventory. We analyze the quantity of inventory on hand, the quantity sold in the past year, the anticipated sales volume, the expected sales price and the cost of making the sale when evaluating the value of our inventory. If the sales volume or sales price of specific products declines, additional write-downs may be required. Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets consist primarily of expected merchandise returns net of related costs, advanced payments on inventory to be delivered from vendors, prepaid packaging, and prepaid insurance. 84 Equity Investments We hold an equity investment in a privately held company without readily determinable fair value. This investment is measured at cost, less impairment and included in other assets in the accompanying consolidated balance sheets. Changes in fair value resulting from observable transactions for identical or similar investments of the same issuer are recorded in other income (expense), net. Property and Equipment, Net Property and equipment are stated at cost net of accumulated depreciation and amortization. Repair and maintenance costs are expensed as incurred. Depreciation is calculated on the straight‑line method over the estimated useful lives of the assets. The estimated useful lives of equipment and fixtures, and leasehold improvements range from three to five years or if shorter, the remaining lease term for leasehold improvements. The estimated useful life of our capitalized software is three years . Leases 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. 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. A right-of-use lease asset and lease liability are not recognized for leases with an initial term of 12 months or less, and the lease expense is recognized on a straight-line basis over the lease term. We also elected to combine lease and non-lease components on all new or modified leases into a single lease component. Impairment of Long-Lived Assets We review long‑lived assets for possible impairment whenever events or changes in circumstances indicate the carrying amount may not be recoverable. This determination includes evaluation of factors such as future asset utilization and future net undiscounted cash flows expected to result from the use of the assets. If circumstances require a long‑lived asset or asset group be tested for possible impairment, we first compare undiscounted cash flows expected to be generated by that asset group to its carrying amount. If the carrying amount of the long‑lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying amount exceeds its fair value. No impairment losses were recognized during the years ended December 31, 2023, 2022 and 2021. Goodwill Goodwill represents the excess of acquisition cost over the fair value of the related net assets acquired and is not subject to amortization. As of December 31, 2023 and 2022, we had goodwill of $ 2.0 million. We review our goodwill annually for impairment or when circumstances indicate its carrying value may not be recoverable. We perform this evaluation at the reporting unit level, comprised of the principle business units within our REVOLVE segment. In order to test for goodwill impairment, we compare the fair value of the reporting unit to its carrying value, including goodwill. If the fair value of the reporting unit is less than its carrying amount, goodwill is written down for the amount by which the carrying amount exceeds the reporting unit's fair value. However, the loss recognized cannot exceed the carrying amount of goodwill. We perform our annual impairment review of goodwill at December 31, and when a triggering event occurs between annual impairment tests. No goodwill impairment was recorded for the years ended December 31, 2023, 2022 and 2021. 85 Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and are recorded net on the face of the balance sheet. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. We recognize the effect of income tax positions only if those positions are more-likely than-not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50 % likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. Deferred tax assets are recognized to the extent it is believed that these assets are more likely than not to be realized. In assessing the realizability of deferred tax assets, management considers whether it is more-likely than-not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), projected future taxable income, and tax‑planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more‑likely than‑not that we will realize the benefits of these deductible differences, net of the valuation allowance. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced. Equity-based Compensation We measure equity-based compensation expense associated with the awards granted based on their estimated fair values at the grant date. For awards with service conditions only, equity-based compensation expense is recognized over the requisite service period using the straight-line method. For awards with service and performance conditions, we recognize the compensation expense if and when we conclude that it is probable that the performance condition will be achieved. The Company reassesses the probability of achieving the performance condition at each reporting date. Forfeitures are recorded as they occur. See Note 9, Equity-based Compensation , for additional details. Employee Benefit Plan We sponsor a qualified 401(k) defined contribution plan covering eligible employees. Participants may contribute a percentage of their pretax earnings annually, subject to limitations imposed by the Internal Revenue Service. We have the ability to make discretionary contributions to the 401(k) plan but have not done so to date. Commitments and Contingencies Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred. 86 Fair Value Measurements We utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. We determine fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. The carrying amounts for our cash and cash equivalents, accounts receivable, accounts payable, line of credit and accrued expenses approximate fair value due to their short-term maturities. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels: • Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities. • Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full-term of the asset or liability. • Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date. We consider all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. Our cash equivalents are comprised of money market funds, which are valued based on Level 1 inputs consisting of quoted prices in active markets. Our cash equivalents as of December 31, 2023 and 2022 were $ 212.0 million and $ 165.9 million, respectively. Comprehensive Income Comprehensive income consists of net income and foreign currency translation adjustments. 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 related to the collection and remittance of sales and use taxes. We do not have significant vendor concentrations. Accounting Pronouncements Not Yet Effective In November 2023, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures , which updates reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses and information used to assess segment performance. ASU 2023-07 is effective for us for annual periods beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The amendments should be applied retrospectively to all prior periods presented in the financial statements. We are currently in the process of evaluating the effects of this pronouncement on our consolidated financial statements and related disclosures. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures , which enhances income tax disclosures, primarily through changes to the rate reconciliation and disaggregation of income taxes paid. ASU 2023-09 is effective for us for annual periods beginning after December 15, 2024, with early adoption permitted. We are currently in the process of evaluating the effects of this pronouncement on our consolidated financial statements and related disclosures. 87 Note 3. Goodwill and Other Intangible Assets, Net The carrying value of goodwill as of December 31, 2023 and 2022, was $ 2.0 million. No goodwill impairment was recorded for the years ended December 31, 2023, 2022 and 2021. The gross amounts and accumulated amortization of our acquired identifiable intangible assets with finite useful lives as of December 31, 2023 and 2022, included in intangible assets, net in the accompanying consolidated balance sheets, are as follows (in thousands): December 31, Useful life 2023 2022 Customer relationships 3 – 6 years $ 381 $ 381 Trademarks (1) 4 – 10 years 4,218 3,763 Total intangible assets 4,599 4,144 Less accumulated amortization ( 2,724 ) ( 2,544 ) Total intangible assets, net $ 1,875 $ 1,600 (1) Includes $ 1.2 million and $ 1.0 million of intangible assets not subject to amortization as of December 31, 2023 and 2022, respectively. Our amortization expense for acquired identifiable intangible assets with finite useful lives was $ 0.1 million for each of the years ended December 31, 2023, 2022 and 2021. Future estimated amortization expense for acquired identifiable intangible assets is as follows (in thousands): Amortization Expense Year ending December 31: 2024 $ 188 2025 179 2026 163 2027 144 2028 133 Thereafter 242 Total amortization expense $ 1,049 Note 4. Property and Equipment, Net Property and equipment, net is summarized as follows (in thousands): December 31, 2023 2022 Office and warehouse equipment and fixtures $ 12,831 $ 12,169 Computer equipment and capitalized software 9,856 7,379 Leasehold improvements 2,683 2,081 Other 387 386 Total property and equipment 25,757 22,015 Less accumulated depreciation and amortization ( 17,994 ) ( 13,081 ) Total property and equipment, net $ 7,763 $ 8,934 Total depreciation and amortization expense for the years ended December 31, 2023, 2022 and 2021 was $ 5.0 million, $ 4.7 million, and $ 4.4 million, respectively. For the years ended December 31, 2023, 2022 and 2021, $ 2.7 million, $ 2.6 million, and $ 2.4 million, respectively, was recorded in general and administrative expense and $ 2.3 million, $ 2.1 million, and $ 2.0 million, respectively, was recorded in fulfillment expense in the accompanying consolidated statements of income. 88 Note 5. Leases 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. 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 and adjusted for items such as initial direct costs paid or incentives received. The following table includes the components of our lease expense recorded in fulfillment expenses and general and administrative expenses in the accompanying consolidated statements of income. Year Ended December 31, 2023 2022 2021 (in thousands) Operating lease expense $ 8,991 $ 6,138 $ 4,528 Short-term lease expense 105 119 183 Variable lease expense 876 465 247 Total $ 9,972 $ 6,722 $ 4,958 The following table presents future minimum lease payments and the impact of discounting as of December 31, 2023. December 31, 2023 (in thousands) 2024 $ 9,940 2025 10,797 2026 11,154 2027 9,559 2028 6,521 Thereafter 1,955 Total minimum lease payments 49,926 Less imputed interest ( 8,937 ) Present value of lease liabilities $ 40,989 The weighted-average remaining term for our leases as of December 31, 2023 and 2022 was 4.9 years and 5.1 years, respectively. The weighted-average discount rate for our leases as of December 31, 2023 and 2022 was 8.5 % and 5.0 %, respectively. Note 6. Line of Credit On March 23, 2021, we amended and restated ou r existing credit agreement to, among other things, extend the expiration date from March 23, 2021 to March 23, 2026 . On May 11, 2023, we amended the credit agreement to replace the LIBO reference rate with a term SOFR reference rate and made conforming changes throughout the credit agreement. The line of credit provides us with up to $ 75.0 million aggregate principal in revolver borrowings, based on eligible inventory and accounts receivable less reserves. Borrowings under the credit agreement accrue interest, at our option, at (1) a base rate equal to the highest of (a) the federal funds rate, plus 0.50 %, (b) the prime rate and (c) an adjusted term SOFR rate determined on the basis of a one-month interest period , plus 1.00 %, or (2) an adjusted term SOFR rate, subject to a floor of 0.00 %, in each case, plus a margin ranging from 0.25 % to 0.75 % per year in the case of base rate loans, and 1.25 % to 1.75 % per year in the case of term SOFR rate loans. No borrowings were outstanding as of December 31, 2023 and 2022. We are also obligated to pay other customary fees for a credit facility of this size and type, including an unused commitment fee. The credit agreement also permits us, in certain circumstances, to request an increase in the facility by an additional amount of up to $ 25.0 million (in an initial minimum amount of $ 10.0 million and in increments of 89 $ 5.0 million thereafter) at the same maturity, pricing and other terms. Our obligations under the credit agreement are secured by substantially all of our assets. The credit agreement also contains customary covenants restricting certain of our activities , including limitations on our ability to sell assets, engage in mergers and acquisitions, enter into transactions involving related parties, obtain letters of credit, incur indebtedness, repurchase stock or grant liens or negative pledges on our assets, make loans or make other investments. Under these covenants, we are prohibited from paying cash dividends with respect to our capital stock . We were in compliance with all financial covenants as of December 31, 2023 and 2022. Note 7. Commitments and Contingencies Contingencies We record a loss contingency when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. We also disclose material contingencies when we believe a loss is not probable but reasonably possible. Accounting for contingencies requires us to use judgment related to both the likelihood of a loss and the estimate of the amount or range of loss. Although we cannot predict with assurance the outcome of any litigation or tax matters, we do not believe there are currently any such actions that, if resolved unfavorably, would have a material impact on our operating results, financial position and cash flows. Indemnifications In the ordinary course of business, we may provide indemnifications of varying scope and terms to vendors, directors, officers and other parties with respect to certain matters. We have not incurred any material costs as a result of such indemnifications and have not accrued any liabilities related to such obligations in our consolidated financial statements. Tax Contingencies We are subject to income taxes in the United States and the United Kingdom, or UK. Significant judgment is required in evaluating our tax positions and determining our provision for income taxes. During the ordinary course of business, there are transactions and calculations for which the ultimate tax determination is uncertain. We establish reserves for tax-related uncertainties based on estimates or whether, and the extent to which, additional taxes will be due. These reserves are established when we believe that certain positions might be challenged despite our belief that our tax return positions are fully supportable. We adjust these reserves in light of changing facts and circumstances, such as the outcome of tax audits. Our provision for income taxes does not include any reserve provision because we believe that all of our tax positions are highly certain. Legal Proceedings In March 2022, we received a cease and desist letter alleging copyright infringement and related claims. During 2022, we ac crued $ 6.3 million to general and administrative expenses for estimated losses and legal fees that we expected to incur in connection with these claims and during the three months ended March 31, 2023, we accrued an additional $ 0.3 million for estimated legal fees. In February, 2023, we entered into a final settlement agreement with the claimant and paid approximately $ 1.5 million in settlement costs and legal fees related to this matter, net of insurance proceeds. The related insurance proceeds of $ 5.1 million were recorded within other income, net in the accompanying statements of income. In March 2023, we received a separate cease-and-desist letter alleging copyright infringement and related claims. During 2023, we accrued $ 7.3 million to general and administrative expenses for estimated losses and legal fees that we expected to incur in connection with these claims. In November 2023, we entered into a final settlement agreement with the claimant and paid $ 7.3 million in settlement costs and legal fees related to this matter. As of the date of this report, we expect to receive approximately $ 2.6 million in insurance proceeds related to this matter. We record insurance proceeds related to legal matters within other income (expense), net in the period in which they are received. 90 In February 2024, the U.S. Fish and Wildlife Service served us with a notice of violation and proposed civil penalty, alleging that we have violated certain administrative requirements under the Endangered Species Act and the Lacey Act in connection with our export and import of certain items of merchandise. During the fourth quarter of 2023, we accrued $ 2.8 million to general and administrative expenses for estimated losses and legal fees related to this matter, which remains pending as of the date of this report. While we believe the amount accrued is adequate based on the information available to us as of the date of this report, the ultimate loss and associated legal expenses may differ from the amount accrued. Leases We have obligations under operating leases for office and fulfillment facilities. For a description of our leases, please see Note 5, Leases . Note 8. Income Taxes The components of income before income tax expense are as follows (in thousands): Year Ended December 31, 2023 2022 2021 Domestic $ 31,942 $ 66,966 $ 94,770 Foreign 5,819 9,650 9,958 $ 37,761 $ 76,616 $ 104,728 The components of the provision for income tax expense (benefit) are as follows (in thousands): December 31, 2023 Current Deferred Total U.S. federal $ 8,758 $ ( 2,853 ) $ 5,905 State and local 4,740 ( 2,398 ) 2,342 Foreign 1,367 — 1,367 $ 14,865 $ ( 5,251 ) $ 9,614 December 31, 2022 Current Deferred Total U.S. federal $ 16,480 $ ( 4,249 ) $ 12,231 State and local 5,300 ( 1,446 ) 3,854 Foreign 1,834 — 1,834 $ 23,614 $ ( 5,695 ) $ 17,919 December 31, 2021 Current Deferred Total U.S. federal $ 6,233 $ ( 4,696 ) $ 1,537 State and local 2,008 ( 549 ) 1,459 Foreign 1,892 — 1,892 $ 10,133 $ ( 5,245 ) $ 4,888 91 The components of net deferred tax assets (liabilities) are as follows (in thousands): December 31, 2023 2022 Deferred tax assets: Accrued liabilities, reserves and other $ 16,689 $ 16,050 UNICAP 6,081 5,219 Tax basis goodwill 1,024 1,240 Investment in FWRD 4,032 3,555 Equity-based compensation 3,638 2,665 Deferred revenue 4,077 2,086 Research and development expenses 1,332 781 Lease liabilities 11,511 6,606 Net operating loss 24 28 Gross deferred tax assets 48,408 38,230 Valuation allowance ( 23 ) ( 27 ) Deferred tax assets, net of valuation allowance 48,385 38,203 Deferred tax liabilities: Accrued expenses and reserves ( 6,255 ) ( 5,424 ) State taxes ( 1,322 ) ( 570 ) Depreciation ( 569 ) ( 1,264 ) Right-of-use lease assets ( 10,234 ) ( 6,191 ) Total gross deferred liabilities ( 18,380 ) ( 13,449 ) Net deferred tax assets $ 30,005 $ 24,754 As of December 31, 2023, and 2022, gross federal and state operating loss carryforwards were insignificant. In accordance with ASC 740-30-25-17, we intend that the undistributed net earnings from continuing operations as well as the future net earnings of the foreign subsidiaries to be permanently reinvested in our operations outside of the U.S. Our effective tax rate was different than the statutory U.S. federal income tax rate for the following reasons: December 31, 2023 2022 2021 Computed “expected” tax expense 21.0 % 21.0 % 21.0 % State and local income taxes, net of federal tax benefit 5.0 4.0 1.1 Foreign-derived intangible income ( 1.4 ) ( 1.1 ) ( 0.4 ) Permanent items 0.7 0.2 0.1 Equity-based compensation ( 0.3 ) ( 0.7 ) ( 16.8 ) Other 0.5 — ( 0.3 ) 25.5 % 23.4 % 4.7 % For the years ended December 31, 2023, 2022 and 2021, we filed a consolidated federal and state income tax return for Revolve Group, Inc. We believe that there are no uncertain tax positions that would impact the accompanying consolidated financial statements. 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, 2020 through 2023 remain subject to possible examination by the Internal Revenue Service and the tax years ended December 31, 2019 through 2023 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. 92 Note 9. Equity-based Compensation In 2013, Twist Holdings, LLC, or Twist, and Advance Holdings, LLC, or Advance, which subsequently became part of Revolve Group, Inc., adopted equity incentive plans that we refer to collectively as the 2013 Plan, pursuant to which the board of managers could grant options to purchase Class A units to officers and employees. Options could be granted with an exercise price equal to or greater than the unit’s fair value at the date of grant. All issued awards have 10 year terms and generally vest and become fully exercisable annually over five years of service from the date of grant. Awards will become fully vested upon the sale of the company. The then-outstanding options to purchase Class A units were converted into options to purchase shares of our Class B common stock in connection with our corporate conversion in June 2019 . In September 2018, the board of directors adopted the 2019 Equity Incentive Plan, or the 2019 Plan, which became effective in June 2019. Under the 2019 Plan, a total of 4,500,000 shares of our Class A common stock are reserved for issuance as options, stock appreciation rights, restricted stock, restricted stock units, or RSUs, performance units or performance shares. Upon the completion of our IPO, the 2019 Plan replaced the 2013 Plan, however, the 2013 Plan continues to govern the terms and conditions of the outstanding awards previously granted under that plan. The number of shares that will be available for issuance under our 2019 Plan also will increase annually on the first day of each year in an amount equal to the least of: (1) 6,900,000 shares, (2) 5 % of the outstanding shares of all classes of our common stock as of the last day of the immediately preceding year and (3) such other amount as our board of directors may determine. As of December 31, 2023, approximately 9.1 million common shares remain available for future issuance under the 2019 Plan. Our board of directors determined no t to increase the number of shares reserved for issuance under the 2019 Plan as of January 1, 2024 . The grant-date fair value of RSUs is measured on the grant date based on the closing fair market value of our Class A common stock. The grant-date fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model. The Black-Scholes option pricing model requires inputs such as expected term, fair value per unit of our Class A shares, expected volatility and risk-free interest rate. These inputs are subjective and generally require significant analysis and judgment to develop. We utilized the simplified method for calculating expected term using the average of the vesting period and the contractual life of the option. The dividend yield is 0 %, as we have not paid, nor do we expect to pay, dividends. The risk-free interest rate is based on the implied yield available on U.S. Treasury issues with an equivalent remaining term. Expected volatility is estimated based on the average historical volatility of the Company ’s stock. The fair value of options granted is based on observable market prices. For awards with service and performance conditions, we recognize the compensation expense if and when we conclude that it is probable that the performance condition will be achieved. The Company reassesses the probability of achieving the performance condition at each reporting date. The weighted average assumptions for the grants in the years ended December 31, 2023, 2022 and 2021 are provided in the following table: December 31, 2023 2022 2021 Valuation assumptions: Expected dividend yield — % — % — % Expected volatility 46.2 % 47.3 % 41.1 % Expected term (years) 6.5 6.5 6.5 Risk-free interest rate 4.3 % 2.4 % 1.2 % 93 Option activity under the 2013 and 2019 Plans is as follows: Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term Aggregate Intrinsic Value (in thousands) Balance at January 1, 2023 2,596,718 $ 17.60 7.0 $ 23,408 Granted 2,841,203 13.92 9.6 Exercised ( 103,107 ) 7.29 — Forfeited ( 77,415 ) 26.79 — Expired ( 27,959 ) 27.90 — Balance at December 31, 2023 5,229,440 15.62 8.0 18,882 Exercisable at December 31, 2023 1,379,783 14.03 5.4 6,824 Vested and expected to vest 3,828,378 16.55 7.4 13,951 RSU award activity under the 2019 Plan is as follows: Class A Common Stock Weighted Average Grant Date Fair Value Weighted Average Remaining Contractual Term Aggregate Intrinsic Value (in thousands) Unvested at January 1, 2023 28,374 $ 37.26 0.4 $ 632 Granted (1) 134,206 25.48 0.2 — Vested ( 31,975 ) 32.47 Forfeited (2) ( 97,469 ) 28.51 Unvested at December 31, 2023 33,136 19.91 0.4 549 (1) Includes an adjustment of 5,100 shares underlying performance-based RSU awards made during the year ended December 31, 2023. The vesting of such RSUs is based upon the Company’s current performance against predefined financial targets. (2) Includes an adjustment of ( 93,573 ) shares underlying performance-based RSU awards made during the year ended December 31, 2023. The vesting of such RSUs is based upon the Company’s current performance against predefined financial targets. There were 2,841,203 options and 129,106 RSUs granted during 2023. The weighted average grant-date fair value of options and RSUs granted during 2023 was $ 7.24 per share and $ 25.48 per share, respectively. As of December 31, 2023, there was $ 17.5 million of total unrecognized compensation cost related to unvested RSUs and time-based options granted under the 2013 Plan and 2019 Plan, which is expected to be recognized over a weighted average service period of 3.4 years. 2023 Performance Option Awards On September 15, 2023, the Company granted an aggregate of 1,701,479 performance-based options to certain members of management with an exercise price of $ 13.05 and a grant-date fair value of $ 6.79 . In addition, on November 3, 2023, the Company granted 49,971 performance-based options to a member of management with an exercise price of $ 13.35 and a grant-date fair value of $ 6.94 . Collectively, we refer to these option awards as the 2023 Performance Option Awards. The 2023 Performance Option Awards are subject to multiple vesting tranches that vest upon achievement of certain predefined financial milestones. As of December 31, 2023, we had $ 2.1 million of total unrecognized stock-based compensation expense for the financial milestones that were considered probable of achievement, which will be recognized over a weighted-average period of 2.3 years. As of December 31, 2023, we had unrecognized stock-based compensation expense of $ 9.5 million for the operational milestones that were considered not probable of achievement. During 2023, we recorded stock-based compensation expense of $ 0.3 million related to the 2023 Performance Option Awards. Equity‑based compensation cost that has been included in general and administrative expense in the accompanying consolidated statements of income amounted to $ 5.8 million, $ 5.9 million, and $ 4.8 million for the 94 years ended December 31, 2023, 2022 and 2021, respectively. An excess income tax benefit of $ 0.1 million, $ 0.5 million and $ 17.6 million was recognized in the consolidated statements of income for equity‑based compensation arrangements for the years ended December 31, 2023, 2022 and 2021, respectively. Note 10. 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. Each share of Class A common stock is entitled to one vote per share. 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 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. As the liquidation and dividend rights are identical for both classes, the undistributed earnings are allocated on a proportionate basis. The calculation of diluted earnings per share for Class A common stock assumes the conversion of Class B common stock, while diluted earnings per share of Class B common stock does not assume the conversion of Class A common stock as Class A common stock is not convertible into Class B common stock. 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. In August 2023, our board of directors authorized a stock repurchase program of up to $ 100 million of our outstanding Class A common stock. Repurchases during any given fiscal period under the repurchase program reduce the weighted-average number of shares of common stock outstanding for the period. The following table presents the calculation of basic and diluted earnings per share: Year Ended December 31, 2023 2022 2021 Class A Class B Class A Class B Class A Class B Numerator Net income $ 15,572 $ 12,575 $ 32,531 $ 26,166 $ 51,426 $ 48,414 Reallocation of undistributed earnings as a result of conversion of Class B to Class A shares 12,575 — 26,166 — 48,414 — Reallocation of undistributed earnings to Class B shares — 132 — 526 — 1,403 Net income attributable to common stockholders - diluted $ 28,147 $ 12,707 $ 58,697 $ 26,692 $ 99,840 $ 49,817 Denominator Weighted average shares used to compute earnings per share — basic 40,364 32,597 40,632 32,682 37,350 35,163 Conversion of Class B to Class A common shares outstanding 32,597 — 32,682 — 35,163 — Effect of dilutive stock options and RSUs 622 622 1,206 1,206 2,034 2,034 Weighted average number of shares used to compute earnings per share — diluted 73,583 33,219 74,520 33,888 74,547 37,197 Earnings per share: Basic $ 0.39 $ 0.39 $ 0.80 $ 0.80 $ 1.38 $ 1.38 Diluted $ 0.38 $ 0.38 $ 0.79 $ 0.79 $ 1.34 $ 1.34 95 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, 2023 2022 2021 Stock options to purchase Class A and Class B common stock, and RSUs 1,365 534 456 Note 11. Stock Repurchase Program In August 2023, our board of directors authorized a stock repurchase program of up to $ 100 million of our outstanding Class A common stock. The timing and amount of any stock repurchases is determined based on market conditions, stock price and other factors, and the program does not require us to repurchase any specific number of shares of Class A common stock. The program has no expiration date but it may be modified, suspended or terminated at any time. The stock repurchase program is funded from available cash and cash equivalents. All repurchased shares under the share repurchase program will be retired. During 2023, we repurchased and retired 2,198,854 shares of Class A common stock for a total cost of $ 30.6 million, exclusive of broker fees and excise tax, at an average price of $ 13.91 per share. Broker fees and excise taxes incurred on share repurchases represent direct costs of the repurchase and are recorded as part of the cost basis. Note 12. Segment Information 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. Our chief operating decision makers are our co-chief executive officers. We evaluate the performance of our reportable segments based on net sales and gross profit. Management does not evaluate the performance of our reportable segments using asset measures. During the years ended December 31, 2023, 2022 and 2021, no customer represented over 10 % of net sales. The following tables summarize our net sales and gross profit for each of our reportable segments (in thousands): Year Ended December 31, 2023 2022 2021 Net sales REVOLVE $ 904,525 $ 921,676 $ 745,127 FWRD 164,194 179,740 146,263 Total $ 1,068,719 $ 1,101,416 $ 891,390 Gross profit REVOLVE $ 491,817 $ 514,585 $ 420,151 FWRD 62,382 77,738 69,672 Total $ 554,199 $ 592,323 $ 489,823 All of our long-lived assets and goodwill are located in the United States as of the years ended December 31, 2023, 2022 and 2021. The following table lists net sales by geographic area (in thousands): Year Ended December 31, 2023 2022 2021 United States $ 870,405 $ 914,364 $ 726,292 Rest of the world (1) 198,314 187,052 165,098 Total net sales $ 1,068,719 $ 1,101,416 $ 891,390 (1) No individual country exceeded 10% of total net sales for any period presented. 96 The following tables summarize net sales and percentage of net sales by product category for the years ended December 31, 2023, 2022 and 2021 (in thousands): Year Ended December 31, 2023 2022 2021 Net Sales Fashion Apparel $ 469,718 $ 508,282 $ 467,257 Dresses 315,237 332,358 223,203 Handbags, Shoes and Accessories 235,085 220,551 164,565 Beauty 41,612 32,618 30,049 Other (1) 7,067 7,607 6,316 Total net sales $ 1,068,719 $ 1,101,416 $ 891,390 As a percentage of net sales Fashion Apparel 44 % 46 % 52 % Dresses 29 % 30 % 25 % Handbags, Shoes and Accessories 22 % 20 % 19 % Beauty 4 % 3 % 3 % Other (1) 1 % 1 % 1 % Total net sales 100 % 100 % 100 % (1) Includes deferred revenue, shipping revenue and other revenue. Note 13. Detail of Certain Balance Sheet Accounts Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets consist of the following (in thousands): December 31, 2023 2022 Expected merchandise returns, net $ 26,127 $ 25,274 Advanced payments on inventory to be delivered from vendors 10,306 10,827 Other 29,090 23,773 Total prepaid expenses and other current assets $ 65,523 $ 59,874 Accrued Expenses Accrued expenses consist of the following (in thousands): December 31, 2023 2022 Marketing $ 14,113 $ 12,049 Salaries and related benefits 6,683 7,190 Legal matters 5 6,250 Sales taxes 5,332 3,934 Selling and distribution 3,927 3,550 Other 10,654 5,293 Total accrued expenses $ 40,714 $ 38,266 97 Other Current Liabilities Other current liabilities consist of the following (in thousands): December 31, 2023 2022 Store credit $ 13,389 $ 11,968 Loyalty Club liability 5,530 4,405 Gift cards 4,489 3,955 Other 7,034 2,249 Total other current liabilities $ 30,442 $ 22,577 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOU NTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. Item 9A. CONTROL S AND PROCEDURES Evaluation of Disclosure Controls and Procedures Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this report. Based on that evaluation, our co-chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of December 31, 2023. 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. 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. Our internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. Under the supervision and with the participation of our management, including our co-chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2023, based on the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, our co-chief executive officer and chief financial officer concluded that our internal control over financial reporting was effective as of December 31, 2023. Our independent registered public accounting firm, KPMG LLP, has audited the effectiveness of our internal control over financial reporting as of December 31, 2023, as stated in their report which is included herein. 98 Changes in Internal Control over Financial Reporting There was no change in our internal control over financial reporting during the three months ended December 31, 2023, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Inherent Limitation on Effectiveness of Internal Control The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating and evaluating the controls and procedures and the inability to eliminate misconduct completely. Accordingly, any system of internal control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not absolute assurances. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business, but cannot assure you that such improvements will be sufficient to provide us with effective internal control over financial reporting. Item 9B. OTHE R INFORMATION Securities Trading Plans of Directors and Executive Officers During our last fiscal quarter, the following directors and officers, as defined in Rule 16a-1(f), adopted a “Rule 10b5-1 trading arrangement” as defined in Regulation S-K Item 408, as follows: On December 11, 2023 , MMMK Development, Inc., or MMMK Development, an entity controlled by our co-chief executive officers , Mike Karanikolas and Michael Mente , adopted a Rule 10b5-1 trading arrangement providing for the sale from time to time of an aggregate of up to 4,813,100 shares of our Class A common stock. The trading arrangement is intended to satisfy the affirmative defense in Rule 10b5-1(c). The duration of the trading arrangement is until November 29, 2024 , or earlier if all transactions under the trading arrangement are completed. During our last fiscal quarter, no other director or officer, as defined in Rule 16a-1(f), adopted or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” each as defined in Regulation S-K Item 408. Item 9C. DISCL OSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS Not applicable. 99 PART III Item 10. DIRECTORS, EXECUTIVE OF FICERS AND CORPORATE GOVERNANCE The information required under this Item is incorporated herein by reference to the information set forth in our Proxy Statement for the 2024 Annual Meeting of Stockholders, or the Proxy Statement. Item 11. EXECUTI VE COMPENSATION The information required under this Item is incorporated herein by reference to the information set forth in the Proxy Statement. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OW NERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information required under this Item is incorporated herein by reference to the information set forth in the Proxy Statement. Item 13. 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. Item 14. PRINCIPAL ACCOU NTANT FEES AND SERVICES The information required under this Item is incorporated herein by reference to the information set forth in the Proxy Statement. 100 PART IV Item 15. EXHIBITS AND FINA NCIAL STATEMENT SCHEDULES The following documents are filed as part of this report or incorporated herein by reference: (a) Financial Statements. Our Consolidated Financial Statements listed in the “Index to Consolidated Financial Statements” under Part II, Item 8 of this report. (b) Financial Statement Schedules . Schedules are omitted because the required information is inapplicable or immaterial, or the information is presented in the consolidated financial statements or related notes. (c) Exhibits. The exhibits listed in the Exhibit Index immediately below are filed as part of this report or are incorporated by reference herein. 101 EXHIBIT INDEX Exhibit Number Description Form File No. Exhibit No. Filing Date Filed/ Furnished Herewith 3.1 Certificate of Incorporation of Revolve Group, Inc. 10-Q 001-38927 3.1 August 12, 2019 3.2 Amended and Restated Bylaws of Revolve Group, Inc. 8-K 001-38927 3.1 October 27, 2022 4.1 Specimen Common Stock Certificate of the registrant S-1/A 333-227614 4.1 November 21, 2018 4.2 Description of Securities 10-K 001-38927 4.2 February 23, 2023 10.1+ Form of Director and Executive Officer Indemnification Agreement S-1/A 333-227614 10.1 October 9, 2018 10.2+ Form of Registration Rights Agreement S-1/A 333-227614 10.2 October 9, 2018 10.3+ Advance Holdings, LLC 2013 Equity Incentive Plan S-1/A 333-227614 10.3 October 9, 2018 10.4+ Form of Option Agreement under the 2013 Advance Holdings, LLC Equity Incentive Plan S-1/A 333-227614 10.4 October 9, 2018 10.5+ 2019 Equity Incentive Plan S-1/A 333-227614 10.5 March 14, 2019 10.6+ Form of Notice of Stock Option Grant and Stock Option Agreement under the 2019 Equity Incentive Plan S-1/A 333-227614 10.6 March 14, 2019 10.7+ Form of Notice of Restricted Stock Unit Grant and Restricted Stock Unit Agreement under the 2019 Equity Incentive Plan S-1/A 333-227614 10.7 March 14, 2019 10.8+ 2019 Employee Stock Purchase Plan S-1/A 333-227614 10.8 March 14, 2019 10.9+ Revolve Group, Inc. Executive Incentive Compensation Plan S-1/A 333-227614 10.9 October 9, 2018 10.10+ Outside Director Compensation Policy S-1/A 333-227614 10.16 October 9, 2018 10.11 Amended and Restated Credit Agreement, dated as of March 23, 2021, by and among Alliance Apparel Group, Inc., Eminent, Inc., Advance Development, Inc, Revolve Group, Inc., Twist Holdings, LLC, the other guarantors from time to time party thereto, the lenders from time to time party thereto and Bank of America, N.A., as administrative agent and collateral agent for the lenders. 8-K 001-38927 10.1 March 26, 2021 10.12+ Executive Employment Agreement between Eminent, Inc. and Michael Karanikolas S-1/A 333-227614 10.12 October 9, 2018 10.13+ Executive Employment Agreement between Eminent, Inc. and Michael Mente S-1/A 333-227614 10.13 October 9, 2018 10.14+ Executive Employment Agreement between Eminent, Inc. and Jesse Timmermans S-1/A 333-227614 10.14 October 9, 2018 10.15 LIBOR Transition Amendment, dated as of May 11, 2023, to Amended and Restated Credit Agreement, dated as of March 23, 2021, by and among Alliance Apparel Group, Inc., Eminent, Inc., Advance Development, Inc, Revolve Group, Inc., Twist Holdings, LLC, the other guarantors from time to time party thereto, the lenders from time to time party thereto and Bank of America, N.A., as administrative agent and collateral agent for the lenders. 10-Q 001-38927 10.1 August 2, 2023 21.1 Subsidiaries of the Registrant X 102 23.1 Consent of KPMG LLP, Independent Registered Public Accounting Firm X 31.1 Certification of Principal Executive Officer Pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 X 31.2 Certification of Principal Financial Officer Pursuant to Rules 13a-15(d) and 15d-15(e) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 X 32.1* Certifications of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 X 97.1 Compensation Recovery Policy X 101.INS Inline XBRL Instance Document X 101.SCH Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents X 104 Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) X + Indicates a management contract or compensatory plan. * The certifications attached as Exhibit 32.1 accompanying this report are deemed furnished and not filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Revolve Group, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this report, irrespective of any general incorporation language contained in such filing. 103 Item 16. FORM 10-K SUMMARY None. 104 SIGNAT URES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. REVOLVE GROUP, INC. By: /s/ JESSE TIMMERMANS Jesse Timmermans Chief Financial Officer Dated: February 27, 2024 KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Michael Karanikolas, Michael Mente and Jesse Timmermans, and each of them, with full power of substitution and resubstitution and full power to act without the other, as his or her true and lawful attorney-in-fact and agent to act in his or her name, place and stead and to execute in the name and on behalf of each person, individually and in each capacity stated below, and to file, any and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing, ratifying and confirming all that said attorneys-in-fact and agents or any of them or their and his or her substitute or substitutes, may lawfully do or cause to be done by virtue thereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. Signature Title Date /s/ Michael Karanikolas Co-Chief Executive Officer and Director February 27, 2024 Michael Karanikolas (Principal Executive Officer) /s/ Michael Mente Co-Chief Executive Officer and Director February 27, 2024 Michael Mente /s/ Jesse Timmermans Chief Financial Officer February 27, 2024 Jesse Timmermans (Principal Financial and Accounting Officer) /s/ Melanie Cox Director February 27, 2024 Melanie Cox /s/ Jennifer Baxter Moser Director February 27, 2024 Jennifer Baxter Moser /s/ Oana Ruxandra Director February 27, 2024 Oana Ruxandra /s/ Marc Stolzman Director February 27, 2024 Marc Stolzman 105