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Equity-based Compensation | 12 Months Ended
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Dec. 31, 2019
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract] |
Equity-based Compensation | Note 8. Equity-based Compensation In 2013, Twist and Advance adopted equity incentive plans, which we refer to collectively as the 2013 Plan, pursuant to which the board of managers could grant options to purchase Class A units to officers and employees. Options could be granted with an exercise price equal to or greater than the unit’s fair value at the date of grant. All issued awards have 10 year terms and generally vest and become fully exercisable annually over five years of service from the date of grant. Awards will become fully vested upon the sale of the company. On March 15, 2018, in connection with the reorganization described in Note 2, Significant Accounting Policies, to which Revolve Group, Inc. issued Class T and Class A units to its members in exchange for the Class T and Class A units of Twist, all outstanding options to purchase Class A units of Twist granted under the Twist Holdings, LLC 2013 Equity Incentive Plan, each of which we refer to as a Twist Option, were exchanged for options to purchase Class A units of Revolve Group, Inc. under the 2013 Plan. The number of Revolve Group, Inc. Class A units and the per unit exercise price of each converted option was adjusted from the underlying Twist Option by taking into account the implied values of Twist and Revolve Group, Inc. as of immediately before the exchange and in a manner that did not result in an increase to the intrinsic value of the converted option. As no incremental value was created for the option holders as a result of the restructuring, no incremental equity-based compensation expense was recorded for the year ended December 31, 2018 related to the exchange. In connection with the reorganization described in Note 2, Significant Accounting Policies, the 2013 Plan was amended to increase the maximum number of Class A units available to be issued to 6,207,978. Upon the effectiveness of the Corporate Conversion on June 6, 2019, as discussed in Note 2, Significant Accounting Policies, the options to purchase Class A units of Revolve Group, LLC were converted into options to purchase Class B common stock of Revolve Group, Inc. on a 1:1 basis and in a manner that did not result in an increase to the intrinsic value of the converted option. In September 2018, the board of directors adopted the 2019 Equity Incentive Plan, or the 2019 Plan, which became effective in June 2019. Under the 2019 Plan, a total of 4,500,000 shares of our Class A common stock are reserved for issuance as options, stock appreciation rights, restricted stock, restricted stock units, or RSUs, performance units or performance shares. Upon the completion of our IPO, the 2019 Plan replaced the 2013 Plan, however, the 2013 Plan will continue to govern the terms and conditions of the outstanding awards previously granted under that plan. The number of shares that will be available for issuance under our 2019 Plan also will increase annually on the first day of each year beginning in 2020, in an amount equal to the least of: (1) 6,900,000 shares, (2) 5% of the outstanding shares of all classes of our common stock as of the last day of the immediately preceding year and (3) such other amount as our board of directors may determine. All future grants going forward will be issued under the 2019 Plan. As of December 31, 2019, approximately 4.5 million common shares remain available for future issuance under the 2019 Plan. The grant-date fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model. The Black-Scholes option pricing model requires inputs such as expected term, fair value per unit of our Class A shares, expected volatility and risk-free interest rate. These inputs are subjective and generally require significant analysis and judgment to develop. We utilized the simplified method for calculating expected term for the years ended December 31, 2019, 2018 and 2017 as there was no exercise history prior to our IPO, using the average of the vesting period and the contractual life of the option. The dividend yield is 0%, as we have not paid, nor do we expect to pay, dividends. The risk-free interest rate is based on the implied yield available on U.S. Treasury issues with an equivalent remaining term. Expected volatility was historically estimated based on the average historical volatility of similar entities with publicly traded shares. For the options granted during 2017, the fair value per Class A share was calculated by us using a market multiples valuation approach by applying a multiple to historical financial performance and adjusting for changes in cash, third-party debt, liquidation preferences of holders of our preferred units, and assumed cash to be received from option exercises. For the options granted during 2018 and 2019, we relied on valuations of our Class A shares prepared by an independent third-party valuation firm in accordance with the guidance provided by the American Institute of Certified Public Accountants 2013 Practice Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation, the results of which were aligned with our internal valuation approach. We have not issued any option awards to employees subsequent to our IPO, however, the fair of any future option award grants will be based on observable market prices and volatility will be based on the historical volatility of our common shares validated against the volatility rates of similar entities with publicly traded shares. All historical data presented in the tables within this footnote have been recast to retroactively reflect all share and per share data of options as if they had been issued by Revolve Group, Inc. and that both the reverse split and Corporate Conversion had occurred. See Note 2, Significant Accounting Policies, for further information regarding the reverse split and Corporate Conversion. The weighted average assumptions for the grants in the years ended December 31, 2019, 2018 and 2017 are provided in the following table:
|  | December 31, |
|  | 2019 |  |  | 2018 |  |  | 2017 |
Valuation assumptions: |  |  |  |  |  |  |  |  |  |  |  |
Expected dividend yield |  |  | — | % |  |  | — | % |  |  | — | %
Expected volatility |  |  | 37.3 | % |  |  | 43.4 | % |  |  | 40.2 | %
Expected term (years) |  |  | 6.5 |  |  |  | 6.5 |  |  |  | 6.5 |
Risk-free interest rate |  |  | 2.4 | % |  |  | 2.6 | % |  |  | 1.9 | %
Option activity under the 2013 Plan is as follows:
|  | Number of Shares |  |  | Weighted Average Exercise Price |  |  | Weighted Average Remaining Contractual Term |  |  | Aggregate Intrinsic Value (000's) |
Balance at January 1, 2019 |  |  | 5,139,304 |  |  | $ | 6.22 |  |  |  | 7.1 |  |  | $ | 48,416 |
Granted |  |  | 67,232 |  |  |  | 15.62 |  |  |  | 9.3 |  |  |  |  |
Exercised |  |  | (208,578 | ) |  |  | 3.60 |  |  |  |  |  |  |  |  |
Forfeited |  |  | (79,619 | ) |  |  | 15.62 |  |  |  |  |  |  |  |  |
Expired |  |  | (2,265 | ) |  |  | 15.62 |  |  |  |  |  |  |  |  |
Balance at December 31, 2019 |  |  | 4,916,074 |  |  |  | 6.30 |  |  |  | 5.6 |  |  |  | 59,368 |
Exercisable at December 31, 2019 |  |  | 3,521,797 |  |  |  | 4.26 |  |  |  | 4.7 |  |  |  | 49,705 |
Vested and expected to vest |  |  | 4,805,523 |  |  |  | 6.30 |  |  |  | 5.5 |  |  |  | 58,001 |
RSU award activity under the 2019 Plan is as follows:
|  | Class A Common Stock |  |  | Weighted Average Grant Date Fair Value |  |  | Weighted Average Remaining Contractual Term |  |  | Aggregate Intrinsic Value (000's) |
Unvested at January 1, 2019 |  |  | — |  |  | $ | — |  |  |  | — |  |  | $ | — |
Granted |  |  | 13,130 |  |  |  | 19.04 |  |  |  | 3.6 |  |  |  | — |
Vested |  |  | — |  |  |  | — |  |  |  |  |  |  |  |  |
Forfeited |  |  | — |  |  |  | — |  |  |  |  |  |  |  |  |
Unvested at December 31, 2019 |  |  | 13,130 |  |  |  | 19.04 |  |  |  | 3.6 |  |  |  | 242 |
There were 67,232 options and 13,130 RSUs granted during the year ended December 31, 2019. The weighted average grant-date fair value of options and RSUs granted during the year ended December 31, 2019 was $15.62 per share and $19.04 per share, respectively. As of December 31, 2019, there was $5.9 million of total unrecognized compensation cost related to unvested options and RSUs granted under the 2013 Plan and 2019 Plan, which is expected to be recognized over a weighted average service period of 3.8 years. Equity‑based compensation cost that has been included in general and administrative expense in the accompanying consolidated statements of income amounted to $2.1 million, $1.4 million, and $0.9 million for the years ended December 31, 2019, 2018, and 2017 respectively. An excess income tax benefit of $0.6 million was recognized in the consolidated statements of income for equity‑based compensation arrangements for the year ended December 31, 2019. There was no such excess income tax benefit recognized in the consolidated statements of income for the years ended December 31, 2018 and 2017.

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