Revolve Group, Inc.

we will also reference certain non-GAAP financial information, including adjusted EBITDA, adjusted EBITDA margin, and free cash flow. We use non-GAAP measures in some of our financial discussions as we believe they provide valuable insights on our operational performance and underlying operating results. The presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for or superior to the financial information prepared and presented in accordance with GAAP, and our non-GAAP measures may be different from non-GAAP measures used by other companies. Reconciliations of non-GAAP measures to GAAP measures, as well as the definitions of each measure, their limitations, and our rationale for using them can be found in this afternoon's press release and in our SEC filings. Joining me on the call today are our co-founders and co-CEOs, Mike Karanikoulis and Michael Mente, as well as Jesse Timmermans, our CFO. Following our prepared remarks, we'll open the call for your questions. With that, I'll turn it over to Mike.

Good afternoon, everybody. We're excited to update you today on the momentum in our business that has been building since the last time we spoke. There are three key takeaways that I want everyone to walk away with today. First, we delivered record top and bottom line results in the second quarter with accelerating top line growth compared to 2019. The very strong revenue growth trajectory discussed in our Q1 investor call last quarter improved in May and June and has continued strong through July. We also meaningfully outpaced the record profitability we had delivered in the second quarter of 2020 at a time when Revolve uniquely reported very profitable results during the depths of COVID. in fact our net income in earnings per share more than doubled year over year on top of record q2 performance from a year ago second a powerful driver of our exceptional top line growth in q2 was the further acceleration of growth within our forward segment which grew more than 120 percent on a two-year growth basis versus the second quarter of 2019. a clear and measurable catalyst at forward was the launch of our forward loyalty program early in the second quarter that is fully integrated with Revolve. The amount of Forward customers coming directly from our existing Revolve customer base accelerated almost overnight after we launched the Forward Loyalty Program, contributing strongly to our Forward segment growth in the second quarter. Michael will talk more about our cross-marketing efforts between the Revolve and Forward segments, where the percentage of Revolve active customers who also shop on Forward is less than 5%. Third, as the world has started to reopen, we see our core customer coming back to us in a powerful way. In the second quarter, we generated record growth in new customers and unprecedented numbers of reactivated customers who hadn't purchased from us in several quarters while social events were on pause. As a result, we delivered our strongest quarterly sequential growth in active customers in nearly two years. With that as an introduction, I'll provide an overview of our second quarter results and recent developments. The strong growth in new customers, the return of our existing customers, and our ability to engage with her through our marketing and merchandising resulted in record net sales of $229 million in the second quarter, an increase of 60% year-over-year, and 41% on a two-year growth basis compared to the second quarter of 2019. This is 11 points higher than the 30% two-year growth we reported in the first quarter of 2021. Our profitability and cash flow in the second quarter were also outstanding. Net income was a record $32 million, or $0.42 per diluted share, up more than 100% on a year-over-year basis versus our prior record Q2 results from a year ago. On a trailing 12-month basis, we have now generated more than $100 million in adjusted EBITDA during some really challenging times over the past four quarters. That's higher than the combined adjusted EBITDA we generated in the four years leading up to our IPO in 2019. These results demonstrate how we have leveraged our scalable technology and operating platforms to drive higher margins over time. And the profitability is converting to substantial cash flow. For the first six months of 2021, we generated $65 million in free cash flow. This significantly strengthened our balance sheet and positions us to invest in future growth opportunities. Turning to our people and operations, with the very strong growth in net sales in the second quarter, we have shifted into aggressive hiring mode. We are bringing on talent not only to support consumer demand and exciting growth opportunities, but also to ensure we continue to serve our customer incredibly well. I would like to acknowledge and express my sincere thanks to our customer-facing teams in areas such as fulfillment and customer service, for your dedication and perseverance in handling such a strong uptick in customer orders in recent months while we scaled up the teams to add capacity. From a financial standpoint, it is gratifying to see evidence of scale efficiencies come through on the income statement, resulting from the higher demand. For instance, we delivered leverage on fulfillment costs as a result of automation efficiencies as well as our increased scale, and on general and administrative expense, where the costs are more fixed in nature and are spread out across a much larger base of revenue. These operational efficiencies were achieved despite an increasing return rate year over year and were key contributors to our record profitability in the second quarter. We also continued to manage our inventory very well. This is best illustrated by our gross margin expansion, heated by a record mix of net sales at full price and shallower markdowns in the second quarter. our clean inventory position at quarter end with low markdown levels further illustrates the competitive advantages of our data-driven merchandising that helps us to quickly adjust our assortment to align with the fast-moving shifts in consumer preference we increased our activity on the marketing front this quarter and we are planning to significantly increase our activity in the coming quarters we will be investing more than ever in what we believe are some truly exciting initiatives to be unveiled in the upcoming weeks We believe this is the right time to invest and that these investments will help us to further capitalize on our current business momentum, drive incremental consumer awareness and customer activity, and further elevate the brand for the next phase of growth. Shifting gears, our strong results have not come without challenge, and there remains uncertainty in the macro environment. We are closely monitoring the recent rise in COVID cases around the world and the varying levels of restrictions that are being reinstated, including here in Los Angeles recently. This serves as a reminder that we are not out of the woods yet. Relatedly, the industry-wide supply chain challenges had a progressively larger, albeit manageable impact in the last few months. This came through in a decrease in the percentage of on-time deliveries from our suppliers and in an increase in our inbound shipping rates. And finally, The potential challenges presented by the recent Apple iOS changes that I mentioned last quarter started to become evident late in the quarter, so it's an area we'll continue to focus on with our advertising partners. These headwinds are not unique to us and affect all companies. We believe Revolve is well-positioned to continue to effectively navigate through the many challenges presented in this very dynamic environment. I'll wrap up with a discussion of regional performance. I'm excited by the strong growth in the U.S. market, which increased 59% year over year in the second quarter and continues to be strong months after the most recent government stimulus payments. Meanwhile, our international business continues to perform very well and represents an exciting opportunity for future growth. International net sales grew 63% in the second quarter of 2021 relative to the prior year, driven by strength in all major regions in illustrating how well our brand is translating across cultures and geographies. Drilling into some specifics, our Q2 results illustrate how our international investments can drive growth and customer satisfaction. For instance, Canada was again a standout contributor for the Revolve segment after our recent launch of all-inclusive pricing that further raised the bar on our Canadian customer experience. Building on this success, in June we introduced all-inclusive pricing on our Ford segment for Canadian customers. It's early, yet the improved service offering has driven a powerful improvement in the growth trajectory at Ford off of a small base. Next up, we plan to launch all-inclusive pricing on Ford in the UK, another of our largest international markets, where we see a meaningful opportunity to expand our luxury offering. Before I turn it over to Michael, I will just reiterate that while there is still some uncertainty out there, our results demonstrate that we are continuing to navigate the challenges very effectively. Moving forward, we are focused on actively investing in our growth opportunity, and we are excited for the path that lies ahead.

Thanks, Mike. We are more excited than ever about the future of the Walls and Solar Brands and our ability to continue to capture consumer mindshare and wallet share over the long term. Our ability to react to the extreme shifts in demand and consumer preferences over the past 18 months has shown how scalable our platform is and how agile we can be. Last year, when travel and social activities were halted overnight, we were able to react very quickly with merchandise and marketing that connected with our new stay-at-home lifestyle. Our team and systems enabled us to manage through a very turbulent time, staying connected with our customer and delivering record profitability and cash flow in 2020. More recently, we were able to get ahead of the significant increase in demand and a shift in consumer preference as economies opened up. As our customers started traveling and socializing in person again, we quickly shifted our product mix and reactivated our powerful in-person brand marketing strategy. Outfits are going out on the town, and special events are once again among the styles in highest demand. Dresses and skirts return to outstanding year-over-year growth in the second quarter, even while we continue to drive growth in newer categories. As Mike mentioned, our loyal customers are coming back to us for these core offerings to look their best as they get out again. Our ability to get ahead of the increased demand for going out categories and have the right product for our customer at the right time was a key driver of the Revolve segment's acceleration in net sales in the second quarter of 2021. Combined with our successful management of inventory, we achieved a record percentage of net sales at full price in the second quarter. The strength of our operational execution, inventory management, and merchandise selection were leveraged throughout the business and were very evident in the success of Forward, our luxury segment that delivered Q2 results that were nothing short of incredible. While momentum has been building at Forward for some time, the second quarter was a breakout moment. Net sales increased 151% year over year and increased 122% on a two-year growth basis compared to the second quarter of 2019. Ford also delivered record gross margins in the second quarter. The strong results underscore Ford's differentiated position in the market as a preferred destination for the next-generation consumer seeking curated luxury offerings. As another signal of our momentum, next week we are excited to launch yet another coveted luxury brand on the Ford site, the women's collection firm Tom Ford. Even more compelling is the power of the combined Revolve and Ford brands. From a customer and assortment perspective, the two brands are both synergistic and complementary. Revolve has historically been focused on the discovery of trend-driven ready-to-wear styles, where forward has been more heavily weighed towards the statement pieces in a wardrobe, shoes and handbags, categories that we know the Revolve customer loves and spends on. We have only recently started to invest to fully leverage our broader platform and custom rates to cross-market the Revolve and Forward offerings to maximize our long-term opportunity. Recall that our last quarter's investor call, we had just introduced our forward loyalty program that is fully integrated with our Revolve loyalty program. So, for the first time ever, we are now directly rewarding and incentivizing customers to cross-shop on Revolve and Forward. The results have far exceeded our expectations in the early going. We can see in the numbers that the launch of the Forward Loyalty Program was a meaningful contributor to the forward segment growth in the second quarter. After launching the Forward Loyalty Program, we saw a significant increase in the percentage of Laval's loyalty shoppers who cross-shopped forward. Encouragingly, this rate of overlap continued to increase throughout the second quarter. We estimate that the increase versus baseline levels alone generated more than 10% of forward net sales in the U.S. in the second quarter. and contributed more than 30 points to our year-over-year growth for the segment's U.S. results. More importantly, we believe we are just getting started. The percentage of Revolve Back to Customers who also shop on Ford remains below 5%, despite the highly complimentary merchandise I described. And we have yet to introduce any loyalty programs outside of the U.S., which is an exciting future opportunity. We see the global e-commerce market for luxury as offering significant growth potential, and we are excited to continue our investment and forward to capture this opportunity. We are also increasing the investment in our powerful brand marketing initiatives. The brand marketing team has been agile and responsive in this very dynamic environment, delivering the right inspiration to our customers at the right time. This increased level of activity and the aspirational content reflective of the current lifestyle, further supported by the appropriate merchandising mix with a key driver in the record new customer additions and the reactivation of our strong existing customer base that lapsed during the depths of the COVID pandemic last year. When it became clear that our customers were ready to travel again, we captured their attention by hosting exciting events in aspirational locations such as Bermuda, Tulum, and the Amalfi Coast. These events stimulated her desire for vacation items through our impactful social media content, contributing to the high level of customer engagement with our online shop for vacation items in Q2. Continuing the momentum of the increased level of investment in the second quarter to successfully capture consumer demand, we are aggressively gearing up for a much larger marketing playbook in the third quarter that will be headlined by some major brand marketing investments. I'm very excited about what's in store for us in the coming weeks with events and campaigns that will be unlike anything we have ever done. So stay tuned. I'll wrap up with an update on Own Brands, another contributor to our strong results for the quarter. Recall that we are now a few quarters into our reinvestment in Own Brands after a reset in early 2020 following the onset of COVID-19. The early results of our rebuild efforts are very encouraging. Strong consumer demand for our own brand styles led to a high percentage of sales at full price and exceptional gross margins for our own brands in the second quarter. Also exciting is that core style-based metrics within own brands were near record levels in the second quarter. If we continue to execute well and deliver on these core metrics as we scale up the number of styles we offer, the own brand business has the potential to deliver significant upside to our consolidated gross margin over the long term, especially given the recent strengths on our overall gross margin profile on a much lower mix of their own brands when compared to historical periods. In addition to the strong own brand metrics and margin profile, we are very excited about the continued expansion of our own brand capabilities and assortment. In the very near term, we plan to unveil an exciting collection that brings us into an entirely new zone for our offerings. We will continue to invest in our own brands throughout 2021 and beyond to maximize our long-term opportunity for these exclusive brands that remain core to our strategy. All told, the recent momentum across the business has been incredible. With our position in the market as a trusted premium lifestyle brand and our deep connection with today's consumer, combined with our strong team centered on data-driven decision-making, we have been able to deliver strong results during even the most challenging times. We are primed and ready to drive the next phase of growth. I'll turn it over to Jesse for a review of the financials.