Revolve Group, Inc. (RVLV) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Revolve Group's 2020 Annual Meeting of Stockholders. I would now like to turn the meeting over to Mike Karanikolas, Chairman of the Board, Co-CEO and Co-founder of the Revolve Group. Please go ahead, sir.

Good morning, everyone. On behalf of REVOLVE, welcome to the 2020 Annual Meeting of the Stockholders. I am Mike Karanikolas, a Co-founder, Co-Chief Executive Officer and a director of REVOLVE, and I will conduct the business of this meeting. At this time, I call the meeting to order. I would like to begin by introducing the other members of our Board of Directors and executive team who are virtually present at the meeting today, namely, Michael Mente, Co-founder and Co-CEO; Hadley Mullin, Jennifer Baxter Moser and Marc Stolzman; Jesse Timmermans, our Chief Financial Officer; David Pujades, our Chief Operating Officer; Raissa Gerona, our Chief Brand Officer; Mitch Moseley, our Chief Executive Officer, Owned Brands; Lauren Yerkes, our Vice President of Buying and Merchandising; Kai Li, our Vice President of International; Jodi Lumsdaine Chapin, our General Counsel and Corporate Secretary; and Erik Randerson, our Vice President, Investor Relations. In addition, a representative from KPMG LLP, the company's independent registered public accounting firm, is also virtually present at today's meeting. I will now ask Ms. Chapin, our General Counsel and Corporate Secretary, to conduct the formal part of this meeting.

Thank you, Mike. Good morning all. Each of you should be able to view the meeting agenda as well as a short list of rules of conduct for this meeting on the web portal. These rules were provided to allow for an orderly and informative meeting. We thank you for your cooperation in following them. [Operator Instructions] Questions that are germane to the meeting's agenda will be addressed after the formal portion of the meeting has ended. The focus of today's meeting is to address and vote on the matters described in the company's proxy statement dated April 28, 2020. The formal portion of our meeting will conclude after voting. Following voting, Mike will deliver a brief company update and conduct a Q&A session to respond to any questions that are submitted through the web portal. For today's meeting, I will serve as the inspector of elections. I have signed an oath of office, which will be filed with the minutes of this meeting. Notice of the REVOLVE 2020 Annual Meeting of Stockholders has been duly given in accordance with the company's bylaws and other applicable laws. The company's agents have certified that a notice of Internet availability of proxy materials related to today's meeting was mailed on or about April 28, 2020, to all stockholders of record as of April 17, 2020. Copies of the notice and related affidavit of mailing will be filed with the minutes of this meeting. Only stockholders of record at the close of business on April 17, 2020, are entitled to vote at today's meeting. As of the close of business on April 17, 2020, there were 15,812,563 shares of Class A common stock outstanding, each entitled to 1 vote per share; and 53,568,912 shares of Class B common stock outstanding, each entitled to 10 votes per share. A complete list of stockholders of record as of April 17, 2020, has been prepared and certified by our registrar and transfer agent. This list has been made available to stockholders for any purpose germane to this meeting for 10 days preceding this meeting. As the inspector of election, I hereby report that at today's meeting, more than a majority of shares entitled to vote are represented either virtually or by proxy. Based on that report, I hereby declare a quorum present and this meeting duly convened for the purpose of transacting business. As you know from the proxy statement, there are 2 proposals before us today. I will briefly describe each of the proposals before we proceed to voting. The first proposal is to elect 5 directors. The directors elected at today's meeting will hold office for a 1-year term until their successors are elected and qualified at the next annual meeting or until their earlier death, resignation or removal. The 5 candidates who have been unanimously nominated by the Board of Directors are Mike Karanikolas, Michael Mente, Hadley Mullin, Jennifer Baxter Moser and Marc Stolzman. These individuals were nominated by the Board. Each of these 5 nominees has indicated that they are able and willing to serve if elected. More detailed information concerning the 5 nominees can be found in the proxy statement. The 5 nominees receiving the highest number of affirmative votes shall be elected as directors. The Board recommends a vote for the election of each of these 5 nominees. The second proposal is to ratify the Audit Committee's selection of KPMG LLP as the company's independent registered public accounting firm. KPMG LLP will audit the company's consolidated financial statements for the 2020 fiscal year ending December 31, 2020. As the company's independent registered public accounting firm, KPMG LLP will audit the consolidated financial statements for the 2020 fiscal year and perform certain audit-related services. KPMG LLP may also perform certain nonaudit-related services that are preapproved by the Audit Committee of the Board. Stockholder ratification of the selection of KPMG LLP is not required by the bylaws or by any other applicable legal requirements. However, the Board is seeking ratification of this selection as a matter of good corporate practice. The affirmative vote of a majority of the voting power of our Class A common stock and Class B common stock voting together as a single class virtually present or represented by proxy and entitled to vote on this proposal will be required for its approval. Our Board recommends a vote for this proposal. We will now proceed to vote on the proposals. It is 11:07 a.m. and the polls are now open. If you have previously submitted a proxy card, it is not necessary for you to vote today, unless you wish to change your vote. If you were a stockholder of record on the close of business on April 17, 2020, and you desire to vote at today's meeting, please click on the Vote Here button on the web portal. We will now pause for voting. [Voting]

It appears all stockholders have submitted their proxies or voted through the web portal at this time. If there are no objections, I now declare the polls closed at 11:08 a.m. The preliminary tabulation of votes received by proxy at this meeting indicate that the nominees for director named in the proxy statement have all been elected. It further indicates that the selection of KPMG LLP as the company's independent registered public accounting firm for the fiscal year ending 2020 has been ratified. Thank you, ladies and gentlemen. We will publicly report the final results of today's voting on a Form 8-K, which will be filed with the Securities and Exchange Commission within 4 business days of today's meeting. In my capacity as the inspector of elections, I will also execute a report that will be filed along with the minutes of this meeting. This concludes the official business scheduled for our meeting. We are adjourned. Thanks again to everyone, particularly our stockholders, for your time. I'll now turn things back over to Mike for a business update and Q&A.

I would like to thank each and every one of you for your attendance at today's meeting. We appreciate your continued interest and support of REVOLVE. Before we move on to Q&A, I would like to make a brief statement about this past year and what lies ahead for the company. [Operator Instructions] I'll start by saying that I hope each and every one of you and your families are staying safe and healthy. Earlier this week, we had the 1-year anniversary of our initial public offering on the New York Stock Exchange. It has been a very busy year, to say the least. In February, we closed our first year as a public company by announcing strong financial results. For the full year in 2019, net sales increased 21% to more than $600 million, and net income increased 16% to $36 million. Most important, our business continued to generate exceptional cash flows. Net cash generated from operating activities increased 73% to $46 million. Now shifting to our 2020 performance trends. We started the first quarter of 2020 with some positive trends as well. Looking at January and February 2020 on a combined basis, we achieved net sales growth exceeding 20% year-over-year. The strong start to the year gave us further confidence that our brands, messaging and assortment was resonating well with our consumers. These positive trends remained through the first week of March before COVID-19 became widespread in the U.S. and the related stay-at-home mandates changed the trajectory for us and many other discretionary consumer product companies. Overnight, the special social occasions that often serve as a catalyst for customers to buy from REVOLVE, particularly in the spring season, had been put on hold. As a result, beginning in the second week of March, our net sales trends were impacted meaningfully. In the final weeks of the first quarter, our net sales declined by nearly 50% year-over-year. Now I'm a big believer that challenge brings opportunity, and I'm very proud of how well our team has responded to COVID-19. First and foremost, our #1 priority is the health and safety of our employees. Beginning in mid-March, we transitioned all of our teams whose roles did not require them to physically be in the office to work from home. For those remaining in the workplace, we've completely revamped our operating procedures to implement rigorous health and safety guidelines. Even with the shift to working from home, our team has done an outstanding job pivoting our entire marketing and merchandising approach to engage customers, who are also sheltering in place at their homes. And these efforts are working. While styles for more formal events, particularly dresses, have not been selling well in the current environment, we've seen very positive year-over-year growth in selling at-home product categories like beauty, loungewear and denim. In fact, the beauty category has grown more than 100% year-on-year in recent periods. And we have continued to serve our customer incredibly well. We've always been known for REVOLVE's exceptional service levels. And during this time period, our e-commerce operations haven't skipped a beat. Our customer satisfaction metrics were at record levels during the height of the pandemic. Finally, while there are still many challenges ahead, as we reported on our recent investor conference call, I am encouraged that our year-over-year net sales trends improved meaningfully in April and through the first 10 days in May compared to the year-over-year declines that we experienced in the final weeks of March. And despite the impact of COVID-19, we reported positive net income and strong cash flow in the first quarter of 2020. Most importantly, I'm more confident than ever in REVOLVE's long-term trajectory and our ability to fundamentally reshape retail. The COVID-19 pandemic has been an incredible challenge to us all, to say the least, but I couldn't be prouder with how our team has responded to the challenge, which has solidified my view that we have really built something special here. Michael and I remain the company's 2 largest shareholders and, in fact, increased our stake in recent months. Over 17 years, we've navigated through numerous business cycles and challenges and have always come out stronger on the other side. Through challenge comes opportunity, and we believe the opportunity to build our brands and reshape retail is as big as ever. I want to thank our employees for your tireless contributions and our shareholders for your continued support of our vision. With that, we will move to questions if there's any questions. All right. Well, if there is no questions at this time, we'll adjourn this meeting. And thank you all for attending the REVOLVE 2020 Annual Meeting of Stockholders.

This now concludes the meeting. Thank you for joining, and have a pleasant day.