Revolve Group, Inc.

Good afternoon. My name is Abby and I will be your conference operator today. At this time, I would like to welcome everyone to Revolve's first quarter 2022 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press the star won once again. Thank you. And at this time, I'd like to turn the conference over to Eric Randerson, Vice President of Investor Relations at Revolve. Thank you, and you may begin.

Good afternoon, everyone, and thanks for joining us to discuss Revolve's first quarter 2022 results. Before we begin, I'd like to mention that we have posted a presentation containing Q1 financial highlights to our Investor Relations website located at investors.revolve.com. I would also like to remind you that this conference call will include forward-looking statements, including statements related to our current expectations regarding the continued impact of the COVID-19 pandemic on our business, operations, and financial results, including near-term stay-outs in greater China, our growth in market opportunities and related macro and industry trends, our plans to broaden our offerings, our plans to expand our operations footprint and the expected impact on delivery times, our marketing investments and events, our seasonality pattern, our freight costs, the convergence of year-over-year growth rates of active customers and net sales, NRL for net sales, growth margin, operating expenses, and effective tax rate. These statements are subject to various risks, uncertainties, and assumptions that could cause their actual results to differ materially from these statements, including the risks mentioned in this afternoon's press release, as well as other risks and uncertainties disclosed under the caption, risk factors and elsewhere in our findings with the Securities Exchange Commission, including, without limitations, our annual report on Form 10-K for the year ended December 31, 2021, and our subsequent quarterly reports on Form 10-Q, all of which can be found on our website at investors.revolve.com. We undertake no obligation to revise or update any forward-looking statements or information except as required by law. During our call today, we will also reference certain non-GAAP financial information, including adjusted EBITDA 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 these measures, Their limitations and our rationale for using them can be found in this afternoon's press release and in our SPC filings. Joining me on the call today are our co-founders and co-CEOs, Mike Karamikolas and Michael Mintegg, as well as Jesse Timmermans, our CFO. Following our prepared remarks, we'll open the call to your questions. With that, I'll turn it over to Mike.

Hello, everyone. We started the year out strong with another incredible quarter, highlighted by continued momentum across both segments. In the first quarter of 2022, our net sales were $283 million, a 58% increase year over year. The very strong results further accelerated our multi-year growth rate versus pre-pandemic periods and underscore our team's ability to navigate through what continues to be a very challenging macro environment. As founders, we've been focused on profitable growth from day one, and this quarter was no exception, continuing our long track record of delivering a unique combination of growth and profitability, Net income was $23 million, or 30 cents per share, in the first quarter, and adjusted EBITDA was $32 million, an increase of 35% year-over-year. Cash flow generation in the first quarter was nothing short of incredible. We generated a record $54 million in operating cash flow and $53 million in free cash flow, an exceptional increase of 62% year-over-year for both measures, further bolstering an already strong balance sheet. Looking at net sales performance by geography, the US was incredibly strong, increasing 66% year-over-year, outpacing 28% growth in the international markets that faced a much more difficult comparison. All international regions increased year-over-year, highlighted by outstanding growth in Canada and the UK, where we've made excellent progress with our localization initiatives. Late in the first quarter, we began to experience weaker trends in Greater China after COVID-19 restrictions negatively impacted consumer demand and logistics. With the current state of affairs, in the near term, we expect continued softness in Greater China, which generated a low single-digit percentage of our total net sales in the first quarter. Now, circling back to our consolidated results, our results on a multi-year basis demonstrate just how much our business has strengthened during the past few years. Consider that in the past three years, our net sales have more than doubled, our adjusted EBITDA has nearly quadrupled, and our free cash flow today is almost 5x the free cash flow we reported in the first quarter of 2019. Our results for the past several quarters demonstrate that we are gaining meaningful market share. Our technology-driven DNA, data-driven merchandising, operational excellence, and digitally native approach have enabled us to connect in a very powerful and authentic way with the next generation consumer and provide us with even more opportunity to address more aspects of our life and capture more share of our wallet. Our first quarter results offer encouraging indications of our progress. For instance, we added over 200,000 active customers in the first quarter, significantly exceeding our prior record achieved just three months ago. Only two quarters ago, I was thrilled that we added more than 100,000 active customers for the first time, and now we surpassed twice that amount. Equally exciting is that our fast-growing base of active customers is becoming more productive, illustrating our success in capturing a greater share of wallet. In fact, for the trailing 12-month period, net sales per active customer were $488, an increase of 17% year-over-year. These exceptional results reinforce the path forward in the very large market opportunity we are pursuing, where purchasing power has continued to shift in our directions. Even with the recent growth acceleration, we still serve only 2 million active customers, representing what we believe to be just 3% penetration of our target demographic in the U.S. market. The early stage of our expansion and the much larger global market opportunity where the Revolve brand translates across geography is what gives us confidence to keep the pedal down on our marketing and brand building investments. Our first quarter results demonstrate that our investments are working. Our continued strength and consistent delivery of results also reflect our long-term focus on building trust with our customer through our brand over the last nearly 20 years. Core to building this trust is operational excellence and exceptional service levels. We founded Revolve with a laser focus on customer satisfaction is key to our long-term success. With this customer-centric mindset from the outset, serving our customer incredibly well, is consistent with an unrelenting organizational focus on the customer that is built into our DNA. Our net promoter score once again remained at world-class record level in the first quarter, underscoring how much customers love our brands and value our service levels. Importantly, we are on track to begin operating our first East Coast warehouse in the second half of this year, which we believe will even further raise the bar on our ability to delight customers with even faster delivery times for some of our key geographies. Having gained her trust, we've been able to expand our revenue per customer through category expansion, increased customer loyalty that has driven more orders per customer in recent periods, and increased overlap between Revolve and Ford active customers. Recall that approximately one year ago, we launched the Ford loyalty program that encouraged cross-shopping between Revolve and Ford. This was followed by more cross-marketing of the Ford destination to Revolve customers. Each month since the launch, we've expanded the overlap between Revolve and Ford active customers, yet the overlap is still less than 5%. This is particularly exciting considering that at Ford's average order value of around $650, every additional 1% overlap between Revolve and Ford active customers could drive more than $10 million in incremental net sales annually. Over the longer term, we believe that the foundation of our teams consistent delivery of operational excellence, the strength of our brands, competitive differentiation, and customer loyalty will enable us to not only continue to acquire new customers and gain market share, but also significantly broaden our offerings to serve more aspects of our life and expand our share of her wallet. Now, over to Michael for an update on our exciting brand momentum. Thanks, Mike.