What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2020-08-13 compared with 2020-05-14 · 218 added, 146 removed, 307 unchanged (54% of the section changed)

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The focus on emerging and owned brands minimizes our assortment overlap with other retailers, supporting marketing efficiency, conversion and sales at full price.

We have invested in our robust and scalable internally-developed technology platform to meet the specific needs of our business and to support our customers’ experience.

We use proprietary algorithms and 17 years of d ata to efficiently manage our merchandising, marketing, product development, sourcing and pricing decisions.

Our platform works seamlessly across devices and analyzes browsing and purchasing patterns and preferences to help us make purchasing decisions, wh ich when combined with the small initial orders for new products, allows us to manage inventory and fashion risk.

We have also invested in our creative capabilities to produce high-quality visual merchandising that caters to our customers by focusing on st yle with a distinct point of view rather than on individual products.

We have invested in our robust and scalable internally-developed technology platform to meet the specific needs of our busines s and to support our customers’ experience.

We use proprietary algorithms and 17 years of data to efficiently manage our merchandising, marketing, product development, sourcing and pricing decisions.

Our platform works seamlessly across devices and analyze s browsing and purchasing patterns and preferences to help us make purchasing decisions, which when combined with the small initial orders for new products, allows us to manage inventory and fashion risk.

We have also invested in our creative capabilities to produce high-quality visual merchandising that caters to our customers by focusing on style with a distinct point of view rather than on individual products.

The combination of our online sales platform and our in-house creative photography allows us to showcase brands in a distinctive and compelling manner.

We are pioneers of social media and influencer marketing, using social channels and cultural events designed to deliver authentic and aspirational, yet attainable, experiences to attract and retain Millennial consumers, and these efforts have led to higher earned media value than competitors.

We are pioneers of social media and influencer marketing, using social channels and cultural events designed to deliver authentic and aspirational, yet attainable, experiences to attract and retain consumers, and these efforts have led to higher earned media value than competitors.

We complement our social media efforts through a variety of brand marketing campaigns and events, which generate a constant flow of authentic content.

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business and have grown internationally with limited investment and no physical presence.

We began offering a more localized shopping experience, including free express shipping, free returns and all-inclusive pricing, for customers in the United Kingdom and the European Union in May 2018, in Australia in late 2018, and in New Zealand and Singapore in January 2020.

In addition to expanding our global footprint of influencers, we are gradually increasing our level of investment in international expansion, by focusing on Europe, Australia and Canada as well as Asia Pacific over the long term.

We are gradually increasing our level of investment in international expansion, by focusing on Europe, Australia and Canada as well as Asia Pacific over the long term.

We will continue to invest in and develop international markets while maintaining our focus on the core U.S.

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The COVID-19 pandemic has had a materially negative impact on our net sales starting in the second week of March 2020 coincident with the escalation of the COVID-19 outbreak in the United States and elsewhere.

After increasing more than 20% year-over-year in January and February 2020 on a combined basis, net sales subsequently declined significantly year-over-year.

We also experienced weakness in our key operating metrics and headwinds in the factors affecting our performance which has continued into the second quarter.

Net sales began to decline significantly year-over-year beginning mid-March 2020.

Net sales remained lower year-over-year as we entered the second quarter of 2020, but improved each month before exiting the second quarter with year-over-year net sales growth as we continued to adjust our marketing and merchandising assortment and as states began reopening and easing shelter-in-place restrictions.

We also experienced weakness in some of our key operating metrics and headwinds in the factors affecting our performance which has continued into the third quarter.

For additional information see the section captioned “—Key Operating and Financial Metrics” and “—Factors Affecting Our Performance.”

As a result, we took several additional measures in response, including:

reducing executive salaries such that our co-Chief Executive Officers’ salaries were reduced by more than 99% to $1 and our Chief Operating Officer and Chief Financial Officers’ salaries were reduced by 50%.

reducing salaries for senior management by 35% to 45%;

reducing corporate staff overhead through furloughs or layoffs of approximately 40% of the existing corporate headcount;

a combination of salary and wage reductions for the remainder of our corporate employees;

reducing fulfillment, selling and distribution costs through a reduction in hours;

lowering operating costs and eliminating non-essential items;

reducing capital expenditures by delaying or cancelling select projects;

reducing planned inventory receipts by cancelling or delaying orders;

extending payment terms for both merchandise and non-merchandise vendor invoices.

In early April 2020, shortly after the pandemic began to materially impact our net sales and based on our projections at the time, we took aggressive actions to mitigate the effect of COVID-19 on our business by reducing non-payroll related operating costs and reducing payroll costs through a combination of pay cuts, employee furloughs and, to a lesser extent, layoffs.

We also eliminated or deferred non-essential capital expenditures, significantly reduced planned inventory receipts by canceling or delaying orders, in addition to extending payment terms for both merchandise and non-merchandise vendor invoices.

As our business operat ions and operating results improved throughout the second quarter of 2020 in part due to the easing of st ay-at-home orders and other state-imposed restrictions, we began the process of bringing back certain furloughed employees and returned the majority of our corporate employees , except for executives and senior management, to their pre-COVID -19 salaries and wages.

In addition, we accrued for discretionary bonuses related to second quarter performance with payment subject to full year performance.

In response to the improving trends in consumer demand, we sequentially increased our inventory purchases for fut ure periods and increased operating expenses t o support the business.

Our facilities and employees are based in Los Angeles County where the government has imposed restrictions designed to slow the spread of COVID-19.

The vast major ity of our corporate employees are working from home and we have implemented measures, such as personal protective equipment, temperature checks and social distancing, to protect the employees that preform certain limited functions, including those in our fulfillment center, that cannot be performed at home.

The vast majority of our corporate employees continue to work from home.

To protect the employees that perform certain limited functions that cannot be performed at home, including those in our fulfillment center, we have implemented measures, such as the requirement for personal protective equipment, mandatory temperature checks prior to entering the facility, social distancing, enhanced cleaning and sanitation and periodic testing.

Government restrictions on travel and social distancing have caused the postponement or cancellation of several REVOLVE brand marketing events including the #REVOLVEfestival, our ongoing #REVOLVEaroundtheworld series of activations as well as other social activities that drove demand for many of our products.

As of the date of this report, it is unclear when and to what extent such restrictions will be lifted, whether they will be reimposed if temporarily lifted or if the COVID-19 pandemic will spur long-term changes in consumer behavior.

As of the date of this report, many states have begun easing and lifting shelter-in-place orders, however, it is unclear whether these restrictions will be reimposed due to a recent surge of new cases or if the COVID-19 pandemic will spur long-term changes in consumer behavior.

Our supply chain has also been impacted by COVID-19.

Initially , the impact was largely isolated to production and shipping delays in China, but as COVID-19 spread worldwide the impact to our supply chain broadened.

The spread of COVID-19 has negatively impacted consumer demand, which has contributed to our ability to manage inventory receipts to reduced levels.

Through our efforts to provide a safe workplace for those employees in our fulfillment center, we have been able to meet fulfillment and shipping standards and have not experienced significant delays from our third-party shipping providers.

Howeve r, if further restrictions are placed on our operations, if there is an outbreak in our fulfillment center or if our third-party shipping providers fail to meet their service obligations, our customers’ orders and demand for our product may further decline and our brand and reputation may be damaged.

While we expect the effects of the pandemic and the related responses to negatively impact our operating results, cash flows and financial position, the duration and severity of pandemic is unpredictable and we cannot reasonably estimate the extent to which our business will be affected.

Initially, the impact was largely isolated to production and shipping delays in China, but as COVID-19 spread worldwide the impact to our supply chain broadened to include European nations.

The spread of COVID-19 also negatively impacted consumer demand.

In response, we reduced inventory receipts by canceling or delaying orders, which has led to a significant decline in our inventory balance.

With the improving trends in consumer demand during the second quarter, we began to increase our inventory purchases to support future expected demand.

As a result of the increase in inventory purchases, we expect our inventory balance to increase in the third and fourth quarters of 2020, as compared to the second quarter of 2020.

As compared to the prior year, we expect inventory to continue to be lower throughout 2020.

Despite our efforts to increase our inventory purchases in response to increased consumer demand, there is a risk that we may not be able to secure sufficient inventory to support this increased demand.

Furthermore, if consumer demand decreases again, we may not be able to respond quickly enough to adjust our inventory position accordingly.

While we expect the effects of the pandemic and the related responses to continue to negatively impact our operating results, the duration and severity of the COVID-19 pandemic is unpredictable and we cannot reasonably estimate the extent to which our business will continue to be affected.

Key Operating and Financial Metrics

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands, except average order value and percentages)

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

Gross margin is impacted by the mix of brands that we sell on our sites.

Gross margin is impacted by the mix of brands and categories of styles that we sell on our sites.

Gross margin on sales of owned brands is typically higher than that for third-party brands.

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Gross margin is impacted by the mix of sales at full price and markdowns, as well as the level of markdowns.

We expect both the quantity and depth of markdowns to increase in the short-term, in large part, as a result of the COVID-19 pandemic that has reduced consumer demand and led to increased promotional activity.

The quantity and depth of markdowns has been elevated in recent periods and may remain elevated in the short-term, in large part, as a result of the COVID-19 pandemic that has reduced consumer demand and led to increased promotional activity.

The COVID-19 pandemic has negatively impacted gross margins in several ways.

Product mix has shifted away from certain categories, such as dresses, with relatively high margins, to other categories, such as beauty, with lower margins.

The percentage of full price sales has decreased as we have reacted to significantly heightened promotional activities by our competitors, many of whom have physical storefronts and have been impacted even more than ecommerce companies, such as us.

In addition, contribution from the REVOLVE segment and owned brands has decreased as described below in the section captioned “—Factors Affecting Our Performance—Merchandise Mix.” As a result of our cost reduction efforts described above in the section captioned “—Recent Developments,” and as a result of work restrictions imposed by Los Angeles County that have impeded our ability to design new styles and develop new brands, we expect that contribution of owned brands will be adversely affected for at least the remainder of 2020.

The percentage of full price sales has decreased as we have reduced our inventory balance and reacted to heightened promotional activities by our competitors, many of whom have physical storefronts and have been impacted even more than eCommerce companies, such as us.

In addition, the contribution to net sales from our owned brands has decreased as described below in the section captioned “—Factors Affecting Our Performance—Merchandise Mix.” As a result of our cost reduction efforts described above in the section captioned “—Recent Developments,” and as a result of work restrictions imposed by Los Angeles County that have impeded our ability to design new styles and develop new brands, we expect that contribution of owned brands will be adversely affected for at least the remainder of 2020.

Certain of our competitors and other retailers report cost of sales differently than we do.

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Adjusted EBITDA

Adjusted EBITDA is a non-GAAP financial measure that we calculate as net income before other (income) expense, net, taxes, depreciation and amortization, adjusted to exclude the effects of equity-based compensation expense and certain non-routine expenses.

Adjusted EBITDA is a non-GAAP financial measure that we calculate as net income before other expense, net, taxes, depreciation and amortization, adjusted to exclude the effects of equity-based compensation expense and certain non-routine expenses.

Adjusted EBITDA is a key measure used by management to evaluate our operating performance, generate future operating plans and make strategic decisions regarding the allocation of capital.

In particular, the exclusion of certain expenses in calculating Adjusted EBITDA facilitates operating performance comparisons on a period-to-period basis and, in the case of exclusion of the impact of equity-based compensation, excludes an item that we do not consider to be indicative of our core operating performance.

A reconciliation of non-GAAP adjusted EBITDA to net income for the three months ended March 31, 2020 and 2019 is as follows:

Three Months Ended March 31,

A reconciliation of non-GAAP adjusted EBITDA to net income for the three and six months ended June 30, 2020 and 2019 is as follows:

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

Other (income) expense, net

(Benefit from) provision for income taxes

Other expense, net

Provision for income taxes

Depreciation and amortization

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Adjusted EBITDA

Non-routine items in the three months ended March 31, 2019 primarily relate to legal settlements.

Adjusted EBITDA was negatively impacted by decelerating net sales growth, lower gross margins, higher marketing as a percentage of net sales and cost pressure as a result of lower unit volume and average order values in the three months ended March 31, 2020 relative to the same period in 2019.

The COVID-19-related impacts that have contributed to those dynamics have been more pronounced in the second quarter of 2020 and we expect such dynamics to continue in future periods.

Non-routine items in the three and six months ended June 30, 2019 primarily relate to legal settlements.

Adjusted EBITDA for the three months ended June 30, 2020 was positively impacted by a substantial decrease in operating expenses, both in absolute dollars and as a percentage of net sales, partially offset by lower net sales and lower gross margins in the three months ended June 30, 2020 compared to the same period in 2019.

Adjusted EBITDA for the six months ended June 30, 2020 was negatively impacted by lower net sales and lower gross margins, partially offset by lower operating expenses in absolute dollars and as a percentage of net sales in the six months ended June 30, 2020 relative to the same period in 2019.

Free Cash Flow

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Free cash flow also reflects changes in working capital.

A reconciliation of non-GAAP free cash flow to cash provided by operating activities for the three months ended March 31, 2020 and 2019 is as follows:

Three Months Ended March 31,

A reconciliation of non-GAAP free cash flow to cash provided by operating activities for the three and six months ended June 30, 2020 and 2019 is as follows:

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

Net cash provided by operating

Purchases of property,

equipment and other

Purchases of property and

Free cash flow

Net cash used in investing activities

Net cash provided by (used in)

Net cash (used in) provided by

financing activities

Free cash flow for the three months ended June 30, 2020 was positively impacted by the significant reduction in the amount of inventory purchases, a decrease in capital expenditures and, to a lesser extent, favorable changes in working capital compared to the same period in 2019.

Free cash flow for the six months ended June 30, 2020 was positively impacted by the significant reduction in the amount of inventory purchases and a decrease in capital expenditures, partially offset by unfavorable changes in working capital compared to the same period in 2019.

Adjusted Diluted Earnings per Share

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

We believe adjusted diluted earnings per share, excluding the impact of the repurchase of our Class B common stock, is a measure that is useful to investors and management in understanding our ongoing operations and in analysis of ongoing operating trends.

See Note 8, Earnings (Net Loss) per Share, of our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for more information regarding our calculation of earnings (net loss) per share.

A reconciliation of non-GAAP adjusted diluted earnings per share to diluted earnings (net loss) per share for the three and six months ended June 30, 2020 and 2019 is as follows (in dollars):

Three Months Ended June 30,

Six Months Ended June 30,

Earnings (net loss) per share — diluted

Repurchase of Class B common stock, net

Adjusted earnings per share — diluted

Active Customers

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Total orders placed and total orders shipped in any given period may differ slightly due to orders that are in process at the end of any particular period.

Growth in total orders placed decelerated in the three months ended March 31, 2020 relative to the same period in 2019.

We expect that total orders placed will decrease in the second quarter of 2020 sequentially and relative to the same period in 2019 and may decrease in future periods as a result of the impact of the COVID-19 pandemic.

It is uncertain when total orders placed will return to growth.

Total orders placed decreased in the three and six months ended June 30 , 2020 relative to the same period s in 2019 due to reduced demand as a result of the COVID-19 pandemic.

A lthough the year-over-year comparison improved during the second quarter of 2020 , retu rning to a positive year-over-year comparison in June consistent with net sales trends , d ue to the COVID-19 pandemic, i t remains uncertain whether total orders placed will continue to remain positive on a year-over-year basis .

Average Order Value

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Average order value may also fluctuate as we expand into and increase our presence in additional product categories and price points, including the expansion of lower price points.

We expect average order value to decrease in the near term, primarily due to increased markdowns as well as a shift in mix to product categories with lower average selling prices due to the COVID-19 pandemic.

Average order value was relatively flat for the three months ended March 31, 2020 relative to the same period in 2019 driven by a lower percentage of full price sales, higher markdowns on our marked down product and a shift in mix toward lower price point product, offset by the strength of our FORWARD segment.

Average order value decreased for the three and six months ended June 30, 2020 relative to the same periods in 2019 driven by a shift in mix toward lower price point categories such as beauty, fewer units per order, a lower percentage of full price sales and higher markdowns on our marked down product.

We expect average order value to continue to be lower year-over-year in the near term, primarily due to increased markdowns as well as a shift in mix to product categories with lower average selling prices due to the COVID-19 pandemic.

Factors Affecting Our Performance

Impact of COVID-19 on Our Business

The recent COVID-19 pandemic had a material adverse impact on our business operations, operating results, and operating cash flows for the first quarter of 2020, in particular, during the last two weeks of the quarter.

The evolving COVID-19 pandemic has continued to have a material adverse impact on our results of operations in April and early May 2020, due to continued business restrictions and social distancing measures imposed in the United States and other countries, and the severe negative impact on macroeconomic conditions and consumer discretionary spending.

While the ultimate health and economic impact of the COVID-19 pandemic is highly uncertain, we expect that our business operations and results of operations, including our net sales, earnings and cash flows, will be materially adversely impacted through the remainder of 2020, including as a result of:

recent national COVID-19 requirements for social distancing, including requirements by government authorities around the world for people to remain at home and for the closure of non-essential businesses frequented by our customers for special social occasions;

the postponement or cancellation of several REVOLVE brand marketing events including the #REVOLVEfestival;

The recent COVID-19 pandemic had a material adverse impact on our business operations and operating results for the first and second quarters of 2020 due to continued business restrictions and social distancing measures imposed in the United States and other countries, and the severe negative impact on macroeconomic conditions and consumer discretionary spending.

As states began rolling back business restrictions and stay-at-home orders, our operating results improved, particularly in the latter half of the second quarter.

However, the COVID-19 pandemic is highly uncertain and we continue to expect that our business operations and results of operations will be adversely impacted through the remainder of 2020, including as a result of:

continued COVID-19 requirements for social distancing, including requirements by certain government authorities around the world for people to continue to remain at home and for the closure of non-essential businesses frequented by our customers for special social occasions;

certain states, in particular California, Florida and Texas, halting and even reversing the easing of business restrictions.

changing consumer spending habits, including a decrease in discretionary consumer spending for the apparel merchandise that we sell, as well as negative trends in consumer spending more generally due to the pandemic’s impact on consumers’ disposable income, credit availability, debt levels and consumer confidence;

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a slowdown in the global economy, an uncertain global economic outlook or a credit crisis.

We are focused on navigating these recent challenges presented by COVID-19 through preserving our liquidity and managing our cash flow by taking preemptive action to enhance our ability to meet our short-term liquidity needs.

Such actions include, incurring $30 million in revolver borrowings under our credit facility and adjusting our cost structure to sustain through this period of lower top line demand.

We are focused on navigating these recent challenges presented by COVID-19 through preserving our liquidity and managing our cash flow as well as temporarily adjusting our cost structure to more closely align with top line demand and meet our short-term liquidity needs.

For additional information, see the section captioned “—Recent Developments.”

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In addition, during periods of low unemployment, we generally experience higher labor costs.

The COIVD-19 pandemic has had a materially adverse impact on the macroeconomic environment in the United States and substantially all of our target markets.

The COVID-19 pandemic has had a materially adverse impact on the macroeconomic environment in the United States and substantially all of our target markets.

We believe consumer demand has also been adversely impacted by the current political environment, including recent large-scale social unrest across much of the United States and volatile international trade relations.

Customer Acquisition and Retention and Growth in Brand Awareness

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Prior to the onset of COVID-19, social media and influencer-based marketing continued to gain popularity and the market for these channels became increasingly competitive.

Although competition has abated in recent weeks, we believe we were able to maintain the effectiveness and efficiency of these channels through those periods of increased competition.

With the travel restrictions and social distancing measures imposed in response to the COVID-19 pandemic, we are unable to engage with our customers through activations such as #REVOLVEfestival, #REVOLVEaroundtheworld and other travel and social related activities.

As a result, we have shifted our brand marketing messaging and strategy to address the change in behavior and preferences of our customer.

With the onset of COVID-19, competition abated on both social media platforms as well as within the performance marketing channels we utilize to drive traffic.

This resulted in favorable pricing.

As competition and demand increased throughout the second quarter of 2020, pricing also began to increase.

Despite the changing external environment and competitive landscape, we believe we have been able to maintain the effectiveness and efficiency of these channels.

With the travel restrictions and social distancing measures imposed in response to the COVID-19 pandemic, we have been and will continue to be unable to engage with our customers through activations such as #REVOLVEfestival, #REVOLVEaroundtheworld and other travel and social related activities.

As a result, we have shifted our brand marketing messaging and strategy to address the changes in behavior and preferences of our customer.

If our efforts do not connect with our customer or fail to cost-effectively promote our brand or convert impressions into new customers, our net sales growth and profitability will be adversely affected.

Furthermore, if competition returns to or exceeds pre-COVID-19 levels, our operating results may be adversely affected.

Furthermore, if competition for social media and influencer-based marketing channels returns to or exceeds pre-COVID-19 levels, our operating results may be adversely affected.

Our success is impacted not only by efficient and profitable customer acquisition and growth in brand awareness, but also by our ability to retain customers and encourage repeat purchases.

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The mix between owned and third-party net sales and the pace of growth for owned brand net sales will vary.

In the near term, shifts in merchandise mix as a result of changes in customer demand due to COVID-19, as well as a decrease in the contribution of owned brands, will adversely impact our overall gross margin.

In the near term, shifts in merchandise mix as a result of changes in customer demand due to COVID-19, as we ll as a decrease in the contribution of owned brands, will adversely impact our overall gross margin.

In the longer term, shifts in merchandise mix driven by changes in customer demand may result in fluctuations in our gross margin from period to period.

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We utilize a data-driven “read and react” buying process to merchandise and curate the latest on-trend fashion.

We make shallow initial inventory buys, and then use our proprietary technology tools to identify and re-order best sellers, taking into account customer feedback across a variety of key metrics, which allows us to manage inventory and fashion risk.

We generally make shallow initial inventory buys, and then use our proprietary technology tools to identify and re-order best sellers, taking into account customer feedback across a variety of key metrics, which allows us to manage inventory and fashion risk.

To ensure sufficient availability of merchandise, we generally purchase inventory in advance and frequently before apparel trends are confirmed.

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Shifts in inventory levels may result in fluctuations in the percentage of full price sales, levels of markdowns, merchandise mix, as well as gross margin.

We believe our efforts to manage inventory levels have impacted the percentage of sales at full price, gross margins on marked-down merchandise, and gross margin in the current period and will likely continue to impact the percentage of sales at full price, gross margin on marked-down merchandise, and gross margin in the near term.

In addition, our sales demand has been adversely impacted as a result of COVID-19, which will add additional pressure to our inventory position.

In response, we have significantly reduced planned inventory receipts by canceling or delaying orders.

These efforts have impacted and may continue to impact our inventory balance and the pace of growth in net sales in the near term.

We believe our level of inventory in comparison to our net sales has impacted the percentage of sales at full price, gross margins on marked-down merchandise, and overall gross margin in the current period and will likely continue to impact the percentage of sales at full price, gross margin on marked-down merchandise, and overall gross margin in the near term.

In addition, our sales demand has been adversely impacted as a result of COVID-19.

In response, we have significantly reduced inventory receipts by canceling or delaying orders, which has led to a significant decline in our inventory balance.

As our sales demand improved sequentially throughout the second quarter, we increased our inventory purchases to support this demand.

Our response may continue to impact the pace of growth in net sales in the near term as we may not have sufficient inventory or the appropriate assortment to meet customer demand.

Investment in our Operations and Infrastructure

We have made investments over time to grow our client base and enhance our offerings.

We have made investments over time to grow our customer base and enhance our offerings.

Over the long term, we expect to continue to make capital investments in our inventory, fulfillment center, and logistics infrastructure as we launch new brands, expand internationally and drive operating efficiencies.

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Our financial results are affected by the performance across our two reporting segments, REVOLVE and FORWARD, as well as across the various geographies in which we serve our customers.

The REVOLVE segment contributes to a majority of our net sales, representing 85.2% and 89.3% of our net sales for the three months ended March 31, 2020 and 2019, respectively.

During the three months ended March 31, 2020 and 2019, REVOLVE generated $124.5 million and $122.7 million in net sales, respectively, representing an increase of 1.5%.

The net sales increase in the three months ended March 31, 2020, as compared to the same period in 2019, was primarily due to an increase in the number of orders placed by customers, partially offset by a decrease in average order value.

The REVOLVE segment contributes to a majority of our net sales, representing 88.9% of our net sales for both the three months ended June 30, 2020 and 2019 and 87.0% and 89.1% of our net sales for the six months ended June 30, 2020, and 2019, respectively.

During the three months ended June 30, 2020 and 2019, REVOLVE generated $126.9 million and $143.9 million in net sales, respectively, representing a decrease of 11.8%.

During the six months ended June 30, 2020 and 2019, REVOLVE generated $251.4 million and $266.6 million in net sales, respectively, representing a decrease of 5.7%.

The net sales decreases in the three and six months ended June 30, 2020, as compared to the same periods in 2019, were primarily due to a decrease in average order value as well as a decrease in the number of orders placed by customers, partially offset by fewer merchandise returns.

We believe COVID-19 and, to a lesser extent our efforts to manage inventory levels, have materially impacted, and will continue to impact net sales and our gross margin in the near term.

The FORWARD segment contributes to a smaller portion of our overall net sales, representing 14.8% and 10.7% or our net sales for the three months ended March 31, 2020 and 2019, respectively.

During the three months ended March 31, 2020 and 2019, FORWARD generated $21.6 million and $14.7 million in net sales, respectively, representing an increase of 47.0%.

The net sales increase in the three months ended March 31, 2020, as compared to the same period in 2019, was primarily due to increases in the number of orders placed by customers and average order value.

If we are unable to continue to generate revenue and gross profit growth in the FORWARD segment, through the period impacted by COVID-19 and beyond, our financial results would be adversely impacted.

Net sales to customers outside of the United States contributed to 17.6 % and 16.0 % of our net sales for the three months ended March 31, 2020 and 2019 , respectively.

During the three months ended March 31, 2020 and 2019 , net sales to customers outside of t he United States were $ 25.7 million and $ 21.9 million, respectively, representing an increase of 17.4 %.

Net sales to customers outside of the United States is impacted by various factors including import and export taxes, currency fluctuations and other ma croeconomic conditions describ ed in “ — Overall Economic Trends” above.

The FORWARD segment contributes to a smaller portion of our overall net sales, representing 1 1.1 % o f our net sales for both the three months ended June 30 , 2020 and 2019 and 13.0% and 10.9% of our net sales for the six months ended June 30, 2020 and 2019, respectively .

During the three months ended June 30 , 2020 and 2019 , FORWARD generated $ 15.9 million and $ 18.0 million in net sales, respectively, representing a de crease of 11.6 %.

During the six months ended June 30, 2020 and 2019 , FORWARD generated $ 37.5 million and $ 32.6 million in net sales, respectively, representing an in crease of 14.8 % .

The net sales de crease in the three months ended June 30 , 2020 , as compared to the same period in 2019 , was primarily due to a decrease in average order value as well as a decrease in the number of orders placed by customers .

The net sales in crease in the six months ended June 30, 2020 , as compared to the same period in 2019, was primarily due to an increase in the number of orders placed by customers partially offset by a decrease in average order value and fewer merchandise returns .

If we are unable to continue to generate revenue and gross profit growth in the FORWARD segment, through the period impacted by COVID-19 and beyond, our financial results would be adversel y impacted.

Net sales to customers outside of the United States contributed to 18.6% and 16.0% of our net sales for the three months ended June 30, 2020 and 2019, respectively, and 18.1% and 16.0% for the six months ended June 30, 2020 and 2019, respectively.

During the three months ended June 30, 2020 and 2019, net sales to customers outside of the United States were $26.5 million and $25.8 million, respectively, representing an increase of 2.6%.

During the six months ended June 30, 2020 and 2019, net sales to customers outside of the United States were $52.3 million and $47.8 million, respectively, representing an increase of 9.4%.

Net sales to customers outside of the United States are impacted by various factors including import and export taxes, currency fluctuations and other macroeconomic conditions described in “—Overall Economic Trends” above.

Increases in taxes and negative movements in currencies have also had, and may continue to have, an adverse impact on our financial results.

In addition, although net sales to customers outside the United States have also been, and likely will continue to be, negatively impa cted by the COVID-19 pandemic, through the date of this report overall net sales to international customers have been relatively stronger than net sales to customers i n the United States.

In addition, although net sales to customers outside the United States have also been, and likely will continue to be, negatively impacted by the COVID-19 pandemic, through the date of this report overall net sales to international customers have been relatively stronger than net sales to customers in the United States.

Seasonality in our business does not follow that of traditional retailers, such as typical concentration of net sales in the holiday quarter.

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Net sales represent the sales of these items and shipping revenue when applicable, net of estimated returns and promotional discounts.

Net sales are primarily driven by growth in the number of our customers, the frequency with which customers purchase and average order value.

Net sales are primarily driven by growth in the number of our customers, the frequency with which customers purchase and average order value, all of which have been negatively impacted by the COVID-19 pandemic.

Cost of Sales

Cost of sales consists of our purchase price for merchandise sold to customers and includes import duties and other taxes, freight-in, defective merchandise returned from customers, receiving costs, inventory write-offs, and other miscellaneous shrinkage.

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

Cost of sales is primarily driven by growth in orders placed by customers, the mix of the product available for sale on our sites and transportation costs related to inventory receipts from our vendors.

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Fulfillment expenses also include the cost of warehousing facilities.

We expect fulfillment expenses to temporarily decrease in absolute dollars, in the near term, as we scale down our business in response to decreased consumer demand due to the COVID-19 pandemic and a reduction in hours worked in our fulfillment center.

Over the long term, we expect fulfillment expenses to decrease as a percentage of net sales, but we expect fulfillment expenses to increase as a percentage of net sales in the short term as we are not able to fully offset the impact of COVID-19.

Over the long term, we expect fulfillment expenses to decrease as a percentage of net sales, but we expect fulfillment expenses to fluctuate as a percentage of net sales in the short term as we may not able to fully offset the impact of COVID-19.

Selling and Distribution Expenses

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

We expect selling and distribution expenses to temporarily decrease in absolute dollars, in the near term, as we scale down our business in response to decreased consumer demand due to the COVID-19 pandemic.

Over the long term, we expect selling and distribution costs to decrease as a percentage of net sales, but we expect selling and distribution expenses to increase as a percentage of net sales in the short term as we are not able to fully offset the impact of COVID-19.

Over the long term, we expect selling and distribution costs to decrease as a percentage of net sales, but we expect selling and distribution expenses to fluctuate as a percentage of net sales in the short term as we may not able to fully offset the impact of COVID-19.

Marketing Expenses

Marketing expenses consist primarily of targeted online performance marketing costs, such as retargeting, paid search/product listing ads, affiliate marketing, paid social, search engine optimization, personalized email marketing and mobile “push” communications through our app .

Marketing expenses also include our spend on brand marketing channels, including payments to influencers, events and other forms of online and offline marketing.

Marketing expenses also include our spend on brand marketing channels, including events, payments to influencers and other forms of online and offline marketing.

Marketing expenses are primarily related to growing and retaining our customer base, building the REVOLVE and FORWARD brands and expanding our owned brand presence.

Over the long term, we expect marketing expenses to increase in absolute dollars as we continue to scale our business, but remain relatively consistent as a percentage of net sales.

As a result of the impact on consumer discretionary spending and the required social distancing due to the COVID-19 pandemic, we will reduce our marketing investment in absolute dollars.

As a result of the impact on consumer discretionary spending and the required social distancing due to the COVID-19 pandemic, we have reduced our marketing investment in absolute dollars and as a percentage of net sales, which we expect to continue over the near-term.

General and Administrative Expenses

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General and administrative expenses are primarily driven by increases in headcount required to support business growth and meet our obligations as a public company.

Because our general and administrative expenses are largely fixed and do not fluctuate with net sales, the near term impact of COVID-19 will increase general and administrative expenses as a percentage of net sales.

We reduced costs in this area by reducing non-payroll related expenditures and we have reduced our payroll related expenses through salary, wage and schedule reductions, furloughs and to a lesser extent, layoffs.

While these efforts will help mitigate the adverse impact of COVID-19, we may not be able to fully offset the impact.

Due to the COVID-19 pandemic, we reduced costs in this area in the second quarter by reducing non-payroll related expenditures and reducing our payroll-related expenses through salary, wage and schedule reductions, furloughs and to a lesser extent, layoffs.

As our business operations and operating results improved throughout the second quarter of 2020 due to adjustments in our marketing and merchandise assortment as well as the easing of stay-at-home orders and other state-imposed restrictions on businesses, we began the process of bringing back certain furloughed employees and returned the majority of our corporate employees, except for executives and senior management, to their pre-COVID-19 salaries and wages.

In addition, we accrued for discretionary bonuses related to second quarter performance with payment subject to full year performance.

However, if state-mandated restrictions are reimposed or if the reopening of states is delayed, general and administrative expenses may increase as a percentage of net sales in the short-term as expenses are largely fixed and do not fluctuate with net sales.

In the long-term, we expect general and administrative expenses to decline as a percentage of net sales as we scale our business and leverage investments in these areas.

Other (Income) Expense, Net

Other (income) expense, net consists primarily of interest income on our money market funds and interest expense and other fees associated with our line of credit.

Other Expense, Net

Other expense, net consists primarily of interest expense and other fees associated with our line of credit and interest income on our money market funds.

Results of Operations

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The period-to-period comparison of financial results is not necessarily indicative of future results.

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

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Income from operations

Other (income) expense, net

Other expense, net

Income before income taxes

(Benefit from) provision for income taxes

Three Months Ended March 31,

Provision for income taxes

Three Months Ended June 30,

Six Months Ended June 30,

Cost of sales

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Income from operations

Other (income) expense, net

Other expense, net

Income before income taxes

(Benefit from) provision for income taxes

Comparison of the three months ended March 31, 2020 and 2019

Three Months Ended March 31,

Provision for income taxes

Comparison of the Three Months Ended June 30, 2020 and 2019

Three Months Ended June 30,

(dollars in thousands)

The increase in net sales for the three months ended March 31, 2020 , as compared to the same period in 2019 , was primarily due to sales to a larger number of customers, as the number of orders placed by customers increased 3.3% in the three months ended March 31, 2020 as compared to the same period for 2019 .

Net sales in the REVOLVE segment increased 1.5% to $124.5 million in the three months ended March 31, 2020 compared to net sales of $122.7 million in the same period in 2019.

Net sales generated from our FORWARD segment increased 47.0% to $21.6 million in the three months ended March 31, 2020 compared to net sales of $14.7 million in the same period in 2019.

After increasing more than 20% year-over-year in January and February 2020 on a combined basis, net sales in March 2020 were adversely impacted by COVID-19, thus adversely impacting sales for the quarter.

The decrease in net sales for the three months ended June 30, 2020, as compared to the same period in 2019, was primarily due to a decrease in average order value to $204 from $275 due to lower average order values within both segments and a decrease in the number of orders placed by customers of 10.1%.

These decreases were partially offset by a decrease in the amount of returned merchandise.

Net sales in the REVOLVE segment decreased 11.8% to $126.9 million in the three months ended June 30, 2020 compared to net sales of $143.9 million in the same period in 2019.

Net sales generated from our FORWARD segment decreased 11.6% to $15.9 million in the three months ended June 30, 2020 compared to net sales of $18.0 million in the same period in 2019.

Cost of Sales

Three Months Ended March 31,

Three Months Ended June 30,

(dollars in thousands)

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Percentage of net sales

The increase in cost of sales for the three months ended March 31, 2020, as compared to the same period in 2019, was primarily due to an increase in the volume of merchandise sold.

The increase in cost of sales as a percentage of net sales was due to a lower mix of REVOLVE merchandise sales, which generally carry a higher margin than that of the FORWARD segment, as well as lower gross margins within the REVOLVE segment as a result of higher markdown mix, which yielded lower gross margins as well as a lower mix of owned brand sales, which generally carry higher gross margins than that of third party brands.

This was partially offset by higher gross margin year over year within the FORWARD segment.

The decrease in cost of sales for the three months ended June 30, 2020, as compared to the same period in 2019, was primarily due to a decrease in the volume of merchandise sold combined with lower receiving costs and inventory write-offs, partially offset by a higher mix of third-party brand sales, which generally carry higher cost of sales than that of owned brand goods.

The increase in cost of sales as a percentage of net sales was due to a higher percentage of markdown sales and deeper markdowns within the markdown component of net sales, combined with a shift in category mix of merchandise sales and a higher mix of third party brand sales as compared to the same period in 2019.

Third-party brand sales generally carry lower gross margins than that of owned brand sales.

Fulfillment Expenses

Three Months Ended March 31,

Three Months Ended June 30,

(dollars in thousands)

1 unchanged sentence

Percentage of net sales

The decrease in fulfillment expenses for the three months ended March 31, 2020, as compared to the same period in 2019, was the result of a decrease in the incremental costs associated with moving into our new fulfillment center in the prior year and a reduction in rent expense during the transition period.

The decrease in fulfillment expenses as a percentage of net sales was due to lower moving costs and rent expense as well as efficiencies gained through the consolidation and automation of our fulfillment center that took place in 2019.

The decrease in fulfillment expenses for the three months ended June 30, 2020, as compared to the same period in 2019, was the result of a decrease in the number of units processed.

The decrease in fulfillment expenses as a percentage of net sales was primarily due to efficiencies gained through the consolidation and automation of our fulfillment center in the prior year combined with lower returned merchandise received.

Selling and Distribution Expenses

Three Months Ended March 31,

Three Months Ended June 30,

(dollars in thousands)

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Percentage of net sales

The increase in selling and distribution expenses for the three months ended March 31, 2020, as compared to the same period in 2019, was the result of the increase in the number of orders shipped partially offset by lower merchant processing fees.

Shipping and handling costs increased $0.7 million and customer service expenses increased $0.3 million while merchant processing fees decreased $0.2 million for the three months ended March 31, 2020 as compared to the same period in 2019.

The decrease in selling and distribution expenses for the three months ended June 30, 2020, as compared to the same period in 2019, was primarily the result of a decrease in both the number of orders shipped and returned combined with lower merchant processing fees, customer service costs, and packaging expenses.

Shipping and handling costs decreased $3.0 million, merchant processing fees decreased $1.0 million, customer service expenses decreased $0.3 million, and packaging expenses decreased $0.3 million for the three months ended June 30, 2020 as compared to the same period in 2019.

Marketing Expenses

Three Months Ended March 31,

Three Months Ended June 30,

(dollars in thousands)

1 unchanged sentence

Percentage of net sales

The increase in marketing expenses for the three months ended March 31, 2020, as compared to the same period in 2019, was primarily due to increased marketing investments to acquire customers and retain existing customers to drive higher net sales.

We experienced an increase of $2.2 million for the three months ended March 31, 2020 as compared to the same period in 2019, in marketing expenses related to REVOLVE branded marketing events.

Performance marketing expenses also increased $0.2 million in the three months ended March 31, 2020 as compared to the same period in 2019.

The decrease in marketing expenses for the three months ended June 30, 2020, as compared to the same period in 2019, was primarily due to reduced investment in both brand marketing activations and performance marketing campaigns The reduced marketing investment was driven primarily by the cancelation of several brand marketing events, including the #REVOLVEfestival combined with cost-control efforts and efficiencies in marketing investments due to COVID-19.

As a result, we experienced a decrease of $6.6 million in brand marketing expenses and a decrease of $3.7 million in performance marketing expenses for the three months ended June 30, 2020 as compared to the same period in 2019.

General and Administrative Expenses

Three Months Ended March 31,

Three Months Ended June 30,

(dollars in thousands)

1 unchanged sentence

Percentage of net sales

The decrease in general and administrative expenses in absolute dollars and as a percentage of net sales for the three months ended March 31, 2020 as compared to the same period in 2019, resulted primarily from efficiencies gained from scale and non-routine costs in the first quarter of 2019 that did not recur in the first quarter of 2020, partially offset by an increase in costs to operate as a public company.

Three Months Ended March 31,

The decrease in general and administrative expenses in absolute dollars and as a percentage of net sales for the three months ended June 30, 2020 as compared to the same period in 2019, was due to the cost reduction actions

taken in response to the COVID-19 pandemic which resulted in a $1.3 million decrease in salaries and related benefits due to salary and wage reductions, furloughs and , to a lesser extent, layoffs, a decrease of $0.7 million related to lower profess ional services and other occupancy costs, and a $1.0 million decrease in other costs as result of the eli mination of non-essential items.

Three Months Ended June 30,

(dollars in thousands)

Income before income taxes

(Benefit from) provision for income taxes

Provision for income taxes

Effective tax rate

Due to the impact of the recent COVID-19 pandemic, we are unable to reliably estimate our annual effective tax rate for the three months ended March 31, 2020.

Therefore, to calculate the benefit from income taxes we have utilized the actual effective tax rate for the current period.

The decrease in the effective tax rate for the three months ended March 31, 2020, as compared to the same period in 2019, was primarily due to an excess tax benefit related to the exercise of non-qualified stock options during the first quarter of 2020.

Liquidit y and Capital Resources

The decrease in the effective tax rate for the three months ended June 30, 2020 as compared to the same period in 2019, was primarily due to an excess tax benefit related to the exercise of non-qualified stock options during the second quarter of 2020.

Comparison of the Six Months Ended June 30, 2020 and 2019

Six Months Ended June 30,

(dollars in thousands)

The decrease in net sales for the six months ended June 30, 2020, as compared to the same period in 2019, was primarily due to a decrease in average order value to $231 from $268 in the same period in 2019 and a decrease in the number of orders placed by customers of 3.9% as compared to the same period in 2019.

These decreases were partially offset by a decrease in the amount of returned merchandise.

Net sales in the REVOLVE segment decreased 5.7% to $251.4 million in the six months ended June 30, 2020 compared to net sales of $266.6 million in the same period in 2019.

Net sales generated from our FORWARD segment increased 14.8% to $37.5 million in the six months ended June 30, 2020 as compared to net sales of $32.6 million in the same period in 2019.

Cost of Sales

Six Months Ended June 30,

(dollars in thousands)

Cost of sales

Percentage of net sales

The increase in cost of sales for the six months ended June 30, 2020, as compared to the same period in 2019, was primarily due to a higher mix of third-party brand sales, which generally carry higher cost of sales than that of owned brand goods, partially offset by a decrease in volume of merchandise sold.

The increase in cost of sales as a percentage of net sales was due to a shift in category mix of merchandise sales, a higher percentage of markdown sales and deeper markdowns within the markdown sales, combined with a higher mix of third party brand sales as compared to the same period in 2019.

Third-party sales generally carry lower gross margins than that of owned brand sales.

Fulfillment Expenses

Six Months Ended June 30,

(dollars in thousands)

Fulfillment expenses

Percentage of net sales

The decrease in fulfillment expenses for the six months ended June 30, 2020, as compared to the same period in 2019, was primarily the result of a decrease in the number of units processed and a decrease in the incremental costs associated with moving into our new fulfillment center in the prior year.

The decrease in fulfillment expenses as a percentage of net sales was primarily due to lower moving costs and rent expense, efficiencies gained through the consolidation and automation of our fulfillment center that took place in 2019 combined with lower returned merchandise received.

Selling and Distribution Expenses

Six Months Ended June 30,

(dollars in thousands)

Selling and distribution expenses

Percentage of net sales

The decrease in selling and distribution expenses for the six months ended June 30, 2020, as compared to the same period in 2019, was the result of a decrease in both the number of orders shipped and returned combined with lower merchant processing fees.

Shipping and handling costs decreased $2.3 million and merchant processing fees decreased $1.2 million for the six months ended June 30, 2020 as compared to the same period in 2019.

Marketing Expenses

Six Months Ended June 30,

(dollars in thousands)

Marketing expenses

Percentage of net sales

The decrease in marketing expenses for the six months ended June 30, 2020, as compared to the same period in 2019, was primarily due to reduced investment in both brand marketing activations and performance marketing campaigns.

The reduced marketing investment was driven primarily by the cancelation of several brand marketing events, including the #REVOLVEfestival combined with cost-control efforts and efficiencies in marketing investments due to COVID-19.

As a result, we experienced a decrease of $4.4 million in brand marketing expenses and a decrease of $3.4 million in performance marketing expenses for the six months ended June 30, 2020 as compared to the same period in 2019.

General and Administrative Expenses

Six Months Ended June 30,

(dollars in thousands)

General and administrative expenses

Percentage of net sales

The decrease in general and administrative expenses in absolute dollars and as a percentage of net sales for the six months ended June 30, 2020 as compared to the same period in 2019, was due to the cost reduction actions taken

in response to the COVID-19 pandemic which resulted in a $1.1 million decrease in salaries and related benefits due to salary and wage reductions, furloughs and layoffs, and a $2.8 million decrease in other operating e x penses as result of the elimination of non-essential items, partially offset by an increase of $0.5 million in costs to ope rate as a public company.

Six Months Ended June 30,

(dollars in thousands)

Income before income taxes

Provision for income taxes

Effective tax rate

The decrease in the effective tax rate for the six months ended June 30, 2020, as compared to the same period in 2019, was primarily due to an excess tax benefit related to the exercise of non-qualified stock options during the six months ended June 30, 2020.

Liquidity and Capital Resources

The following tables show our cash and cash equivalents, accounts receivable and working capital as of the dates indicated:

March 31, 2020

June 30, 2020

December 31, 2019

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Working capital

As of March 31, 2020, the majority of our cash and cash equivalents was held for working capital purposes.

In March 2020, due to the uncertain environment created by the COVID-19 pandemic and out of an abundance of caution, we elected to draw down $30 million in borrowings under our line of credit.

As of June 30, 2020, the majority of our cash and cash equivalents was held for working capital purposes.

In March 2020, due to the uncertain environment created by the COVID-19 pandemic and out of an abundance of caution, we elected to draw down $30 million in borrowings under our line of credit of which $6.0 million was subsequently repaid in June 2020.

In addition, in the first part of April, we took preemptive actions to preserve our liquidity and manage our cash flow by reducing non-payroll related operating costs and reducing payroll costs through a combination of pay cuts, employee furloughs and to a lesser extent layoffs.

As our business operations and operating results gradually improved throughout the second quarter of 2020, in part due to a shift in our marketing and merchandise assortment and the easing of stay-at-home orders and other state-imposed restrictions on businesses, we began the process of bringing back certain furloughed employees and returned the majority of our corporate employees, except for executives and senior management, to their pre-COVID-19 salaries and wages.

In addition, we accrued for discretionary bonuses related to second quarter performance with payment subject to full year performance.

However, due to the continued uncertainty surrounding the COVID-19 pandemic, we plan to continue controlling our cost structure, capital expenditures and liquidity position through the efforts previously mentioned.

We believe that our existing cash and cash equivalents and cash flows from operations will be sufficient to meet our anticipated cash needs for at least the next 12 months, including the repayment of outstanding borrowings upon the expiration of our line of credit.

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Since our inception, we have financed our operations and capital expenditures primarily through cash flows generated by operations, private sales of equity securities, the incurrence of debt, as well as the net proceeds we received through our IPO.

As of March 31, 2020, we have raised a total of $68.3 million from the sale of equity units, net of costs and expenses associated with such financings, including net proceeds from our IPO.

As of June 30, 2020, we have raised a total of $68.3 million from the sale of equity units, net of costs and expenses associated with such financings, including net proceeds from our IPO.

Our primary use of cash includes operating costs such as merchandise purchases, compensation and benefits, marketing and other expenditures necessary to support our business growth.

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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 million and in increments of $5 million thereafter) at the same maturity, pricing and other terms.

As of March 31, 2020, we had $30.0 million outstanding on the line of credit.

The weighted-average interest rate of debt outstanding at March 31, 2020 was 2.3%.

As of June 30, 2020, we had $24.0 million outstanding on the line of credit.

The weighted-average interest rate of debt outstanding at June 30, 2020 was 2.2%.

No borrowings were outstanding as of December 31, 2019.

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Under these covenants, we are prohibited from paying cash dividends with respect to our capital stock.

We were in compliance with all covenants as of March 31, 2020 and December 31, 2019.

We were in compliance with all covenants as of June 30, 2020 and December 31, 2019.

Historical Cash Flows

Three Months Ended

(in thousands)

Six Months Ended

Net cash provided by operating activities

Net cash used in investing activities

Net cash provided by (used in) financing activities

Net cash provided by financing activities

Net Cash Provided by Operating Activities

Cash from operating activities consists primarily of net income adjusted for certain non-cash items, including depreciation, equity-based compensation, and the effect of changes in working capital and other activities.

For the three months ended March 31, 2020, we generated $8.1 million of operating cash flow as compared to $15.9 million for the same period in 2019.

The decrease in our operating cash flow was primarily due to unfavorable changes in working capital and to a lesser extent, a decrease in net income.

For the six months ended June 30, 2020, we generated $61.9 million of operating cash flow as compared to $22.7 million for the same period in 2019.

The increase in our operating cash flow was primarily due to favorable changes in working capital primarily due to lower inventory receipts, as well as an increase in net income.

Net Cash Used in Investing Activities

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Purchases of property and equipment may vary from period-to-period due to timing of the expansion of our operations.

Net cash used in investing activities was $0.6 million and $5.0 million for the three months ended March 31, 2020 and 2019, respectively.

The decrease was primarily due to capital expenditures incurred during the three months ended March 31, 2019 relating to the consolidation and automation of our fulfillment center infrastructure, which was completed in late 2019.

Net Cash Provided by ( Used in ) Financing Activities

Net cash used in investing activities was $1.4 million and $9.8 million for the six months ended June 30, 2020 and 2019, respectively.

The decrease was primarily due to capital expenditures incurred during the six months ended June 30, 2019 relating to the consolidation, expansion and automation of our fulfillment center infrastructure, which was completed in late 2019.

Net Cash Provided by Financing Activities

Until our IPO, our financing activities historically have primarily consisted of borrowings and repayments related to the existing line of credit.

Net cash provided by financing activities was $31.0 million for the three months ended March 31, 2020, which was attributable to proceeds from borrowings on our line of credit and the cash proceeds from the exercise of stock options.

Net cash used in financing activities was $0.2 million for the three months ended March 31, 2019, which was attributable to payments of deferred offering costs.

Net cash provided by financing activities was $25.3 million for the six months ended June 30, 2020, which was attributable to proceeds from borrowings on our line of credit, net of repayments, and the cash proceeds from the exercise of stock options.

Net cash provided by financing activities was $15.5 million for the six months ended June 30, 2019, which was attributable to the proceeds from our IPO, net of the repurchase of the preference amount, underwriting discounts, and offering expenses, in addition to payments of deferred offering costs.

Contractual Obligations

As of March 31, 2020, our principal obligations consist of obligations under operating leases for office and fulfillment facilities.

As of June 30, 2020, our principal obligations consist of obligations under operating leases for office and fulfillment facilities.

There have been no material changes in our contractual obligations and commitments, as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on February 26, 2020 .

Off-Balance Sheet Arrangements

As of March 31, 2020 and December 31, 2019 we did not have any material off balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.

As of June 30, 2020 and December 31, 2019 we did not have any material off balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.

Critical Accounting Policies

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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-Q

Item 2. Management’s Discussion and Analysis