Form: 10-Q

Quarterly report pursuant to Section 13 or 15(d)

September 9, 2021

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 31, 2021

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to             

Commission file number: 001-35720

Graphic

(Exact name of registrant as specified in its charter)

Delaware

    

45-3052669

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification Number)

15 Koch Road
Corte Madera, CA

 

94925

(Address of principal executive offices)

 

(Zip Code)

Registrant’s telephone number, including area code: (415924-1005

Securities registered pursuant to Section 12(b) of the Act:

 

Common Stock, $0.0001 par value

RH

New York Stock Exchange, Inc.

(Title of each class)

(Trading symbol)

(Name of each exchange on which registered)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes     No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

 

  

Accelerated filer

 

Non-accelerated filer

 

  

  

Smaller reporting company

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes      No  

As of September 3, 2021, 21,413,557 shares of the registrant’s common stock were outstanding.

RH

INDEX TO FORM 10-Q

July 31, 2021

    

    

Page

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

3

Condensed Consolidated Balance Sheets (Unaudited)
as of July 31, 2021 and January 30, 2021

3

Condensed Consolidated Statements of Income (Unaudited)
for the three and six months ended July 31, 2021 and August 1, 2020

4

Condensed Consolidated Statements of Comprehensive Income (Unaudited)
for the three and six months ended July 31, 2021 and August 1, 2020

5

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)
for the three and six months ended July 31, 2021 and August 1, 2020

6

Condensed Consolidated Statements of Cash Flows (Unaudited)
for the six months ended July 31, 2021 and August 1, 2020

8

Notes to Condensed Consolidated Financial Statements (Unaudited)

10

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

34

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

55

Item 4.

Controls and Procedures

57

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

58

Item 1A.

Risk Factors

58

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

59

Item 3.

Defaults Upon Senior Securities

59

Item 4.

Mine Safety Disclosures

59

Item 5.

Other Information

59

Item 6.

Exhibits

60

Signatures

61

2 | 2021 SECOND QUARTER FORM 10-Q

PART I. FINANCIAL INFORMATION

PART I

ITEM 1.     FINANCIAL STATEMENTS

RH

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts) (Unaudited)

    

JULY 31,

    

JANUARY 30,

2021

2021

ASSETS

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

291,461

$

100,446

Accounts receivable—net

 

59,798

 

59,474

Merchandise inventories

 

645,987

 

544,227

Prepaid expense and other current assets

 

140,570

 

97,337

Total current assets

 

1,137,816

 

801,484

Property and equipment—net

 

1,131,501

 

1,077,198

Operating lease right-of-use assets

553,834

456,164

Goodwill

 

141,132

 

141,100

Tradenames, trademarks and other intangible assets

 

72,584

 

71,663

Deferred tax assets

 

50,047

 

49,924

Equity method investments

97,412

100,603

Other non-current assets

 

282,826

 

200,177

Total assets

$

3,467,152

$

2,898,313

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable and accrued expenses

$

426,785

$

424,422

Deferred revenue and customer deposits

397,161

 

280,641

Convertible senior notes due 2023—net

172,141

2,354

Convertible senior notes due 2024—net

66,503

Operating lease liabilities

74,074

71,524

Other current liabilities

 

92,336

 

142,691

Total current liabilities

 

1,229,000

 

921,632

Asset based credit facility

 

 

Equipment promissory notes—net

 

2,115

 

14,614

Convertible senior notes due 2023—net

 

93,867

 

282,956

Convertible senior notes due 2024—net

223,547

281,454

Non-current operating lease liabilities

 

542,510

 

448,169

Non-current finance lease liabilities

523,797

485,481

Other non-current obligations

 

15,458

 

16,981

Total liabilities

 

2,630,294

 

2,451,287

Commitments and contingencies (Note 16)

 

 

Mezzanine equity—convertible senior notes (Note 9)

 

30,515

 

Stockholders’ equity:

 

  

 

  

Preferred stock—$0.0001 par value per share, 10,000,000 shares authorized, no shares issued or outstanding as of July 31, 2021 and January 30, 2021

 

 

Common stock—$0.0001 par value per share, 180,000,000 shares authorized, 21,407,717 shares issued and outstanding as of July 31, 2021; 20,995,387 shares issued and outstanding as of January 30, 2021

 

2

 

2

Additional paid-in capital

 

583,112

 

581,897

Accumulated other comprehensive income

 

3,265

 

2,565

Retained earnings (accumulated deficit)

 

219,964

 

(137,438)

Total stockholders’ equity

 

806,343

 

447,026

Total liabilities, mezzanine equity and stockholders’ equity

$

3,467,152

$

2,898,313

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

PART I. FINANCIAL INFORMATION

2021 SECOND QUARTER FORM 10-Q | 3

RH

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except share and per share amounts) (Unaudited)

THREE MONTHS ENDED

SIX MONTHS ENDED

JULY 31,

AUGUST 1,

JULY 31,

AUGUST 1,

    

2021

    

2020 

    

2021

    

2020 

Net revenues

$

988,859

$

709,282

$

1,849,651

$

1,192,177

Cost of goods sold

 

501,183

 

376,863

 

954,998

 

660,104

Gross profit

 

487,676

 

332,419

 

894,653

 

532,073

Selling, general and administrative expenses

 

238,688

 

195,851

457,777

 

360,052

Income from operations

 

248,988

 

136,568

 

436,876

 

172,021

Other expenses

 

Interest expense—net

13,581

19,418

26,889

 

39,047

Tradename impairment

20,459

(Gain) loss on extinguishment of debt

 

3,166

 

(152)

 

3,271

 

(152)

Total other expenses

 

16,747

 

19,266

 

30,160

 

59,354

Income before income taxes

 

232,241

 

117,302

 

406,716

 

112,667

Income tax expense

 

3,009

 

18,879

 

44,733

 

17,456

Income before equity method investments

229,232

98,423

361,983

95,211

Share of equity method investments losses

(2,486)

(4,581)

Net income

$

226,746

$

98,423

$

357,402

$

95,211

Weighted-average shares used in computing basic net income per share

 

21,166,638

 

19,386,115

 

21,084,941

 

19,314,479

Basic net income per share

$

10.71

$

5.08

$

16.95

$

4.93

Weighted-average shares used in computing diluted net income per share

 

31,979,098

 

26,564,705

 

31,594,555

 

25,383,730

Diluted net income per share

$

7.09

$

3.71

$

11.31

$

3.75

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

4 | 2021 SECOND QUARTER FORM 10-Q

PART I. FINANCIAL INFORMATION

RH

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands) (Unaudited)

THREE MONTHS ENDED

SIX MONTHS ENDED

JULY 31,

AUGUST 1,

JULY 31,

AUGUST 1,

2021

    

2020 

    

2021

    

2020 

Net income

$

226,746

$

98,423

$

357,402

$

95,211

Net gains (losses) from foreign currency translation

 

(648)

3,290

 

700

 

918

Total comprehensive income

$

226,098

$

101,713

$

358,102

$

96,129

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

PART I. FINANCIAL INFORMATION

2021 SECOND QUARTER FORM 10-Q | 5

RH

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share amounts) (Unaudited)

THREE MONTHS ENDED

COMMON STOCK

TREASURY STOCK

 

ACCUMULATED

 

RETAINED

 

 

ADDITIONAL

 

OTHER

 

EARNINGS

 

TOTAL

MEZZANINE

 

PAID-IN

 

COMPREHENSIVE

 

(ACCUMULATED

 

 

STOCKHOLDERS'

EQUITY

SHARES

  

AMOUNT

  

CAPITAL

  

INCOME (LOSS)

  

DEFICIT)

  

SHARES

  

AMOUNT

  

EQUITY

Balances—May 1, 2021

$

 

21,020,538

 

$

2

 

$

597,329

 

$

3,913

 

$

(6,782)

 

 

$

 

$

594,462

Stock-based compensation

 

10,089

 

10,089

Issuance of restricted stock

 

1,260

 

Vested and delivered restricted stock units

 

34,891

(17,721)

 

(17,721)

Exercise of stock options

 

351,027

24,586

 

24,586

Settlement of convertible senior notes

112,297

(78,621)

(112,296)

77,965

(656)

Exercise of call option under bond hedge upon settlement of convertible senior notes

(112,296)

77,965

112,296

(77,965)

Reclassification of equity component related to early converted senior notes outstanding

30,515

 

(30,515)

 

(30,515)

Net income

 

226,746

 

226,746

Net losses from foreign currency translation

 

(648)

 

(648)

Balances—July 31, 2021

$

30,515

 

21,407,717

 

$

2

 

$

583,112

 

$

3,265

 

$

219,964

 

 

$

 

$

806,343

Balances—May 2, 2020

$

 

19,264,127

 

$

2

 

$

436,799

 

$

(5,132)

 

$

(412,465)

 

600

 

$

(72)

 

$

19,132

Stock-based compensation

 

6,755

 

6,755

Issuance of restricted stock

 

3,192

 

Vested and delivered restricted stock units

 

60,006

(6,437)

 

(6,437)

Exercise of stock options

 

158,518

7,328

 

7,328

Retirement of treasury stock

 

(72)

(600)

72

 

Settlement of convertible senior notes

1,131,645

(315,708)

(1,131,645)

315,708

Exercise of call option under bond hedge upon settlement of convertible senior notes

(1,131,662)

315,713

1,131,662

(315,713)

Net income

 

98,423

 

98,423

Net gains from foreign currency translation

 

3,290

 

3,290

Balances—August 1, 2020

$

 

19,485,826

 

$

2

 

$

444,378

 

$

(1,842)

 

$

(314,042)

 

17

 

$

(5)

 

$

128,491

6 | 2021 SECOND QUARTER FORM 10-Q

PART I. FINANCIAL INFORMATION

Table of Contents

RH

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)

(In thousands) (Unaudited)

SIX MONTHS ENDED

COMMON STOCK

TREASURY STOCK

 

ACCUMULATED

 

RETAINED

 

 

ADDITIONAL

 

OTHER

 

EARNINGS

 

TOTAL

MEZZANINE

 

PAID-IN

 

COMPREHENSIVE

 

(ACCUMULATED

 

 

STOCKHOLDERS'

EQUITY

SHARES

  

AMOUNT

  

CAPITAL

  

INCOME (LOSS)

  

DEFICIT)

  

SHARES

  

AMOUNT

  

EQUITY

Balances—January 30, 2021

$

20,995,387

$

2

581,897

$

2,565

$

(137,438)

$

$

447,026

Stock-based compensation

 

25,289

 

25,289

Issuance of restricted stock

 

1,260

 

Vested and delivered restricted stock units

 

37,698

(18,648)

 

(18,648)

Exercise of stock options

 

373,369

25,979

 

25,979

Settlement of convertible senior notes

119,604

(82,135)

(119,601)

81,245

(890)

Exercise of call option under bond hedge upon settlement of convertible senior notes

(119,601)

81,245

119,601

(81,245)

Reclassification of equity component related to early converted senior notes outstanding

30,515

 

(30,515)

 

(30,515)

Net income

 

357,402

 

357,402

Net gains from foreign currency translation

 

700

 

700

Balances—July 31, 2021

$

30,515

 

21,407,717

 

$

2

 

$

583,112

 

$

3,265

 

$

219,964

 

 

$

 

$

806,343

Balances—February 1, 2020

$

 

19,236,681

 

$

2

 

$

430,662

 

$

(2,760)

 

$

(409,253)

 

 

$

18,651

Stock-based compensation

 

12,476

 

12,476

Issuance of restricted stock

 

3,192

 

Vested and delivered restricted stock units

 

70,292

(6,818)

 

(6,818)

Exercise of stock options

 

176,278

8,125

 

8,125

Repurchases of common stock

 

(600)

600

(72)

 

(72)

Retirement of treasury stock

 

(72)

(600)

72

 

Settlement of convertible senior notes

1,131,645

(315,708)

(1,131,645)

315,708

 

Exercise of call option under bond hedge upon settlement of convertible senior notes

(1,131,662)

315,713

1,131,662

(315,713)

 

Net income

 

95,211

 

95,211

Net gains from foreign currency translation

 

918

 

918

Balances—August 1, 2020

$

 

19,485,826

 

$

2

 

$

444,378

 

$

(1,842)

 

$

(314,042)

 

17

 

$

(5)

 

$

128,491

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

PART I. FINANCIAL INFORMATION

2021 SECOND QUARTER FORM 10-Q | 7

RH

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) (Unaudited)

SIX MONTHS ENDED

JULY 31,

AUGUST 1,

2021

    

2020

CASH FLOWS FROM OPERATING ACTIVITIES

Net income

$

357,402

$

95,211

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

 

 

Depreciation and amortization

 

46,556

 

50,212

Non-cash operating lease cost

35,541

31,355

Tradename impairment

20,459

Asset impairments

7,354

4,783

Loss on sale leaseback transaction

9,352

Amortization of debt discount

 

17,461

 

25,378

Accretion of debt discount upon settlement of debt

(5,070)

(84,003)

Stock-based compensation expense

 

25,431

 

12,689

Non-cash finance lease interest expense

12,757

11,729

Product recalls

500

4,780

Deferred income taxes

 

(239)

 

Loss on extinguishment of debt

3,271

Share of equity method investments losses

4,581

Other non-cash items

 

(4,069)

 

2,404

Change in assets and liabilities:

 

 

Accounts receivable

 

(306)

 

(6,431)

Merchandise inventories

 

(101,641)

 

(48,984)

Prepaid expense and other assets

 

(57,919)

 

(10,307)

Landlord assets under construction—net of tenant allowances

 

(43,352)

 

(22,934)

Accounts payable and accrued expenses

 

6,930

 

(13,127)

Deferred revenue and customer deposits

 

116,492

 

67,647

Other current liabilities

 

(51,661)

 

8,777

Current and non-current operating lease liabilities

 

(38,933)

 

(18,388)

Other non-current obligations

 

(14,368)

 

(12,327)

Net cash provided by operating activities

 

316,718

 

128,275

8 | 2021 SECOND QUARTER FORM 10-Q

PART I. FINANCIAL INFORMATION

Table of Contents

RH

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(In thousands) (Unaudited)

SIX MONTHS ENDED

JULY 31,

AUGUST 1,

2021

    

2020

CASH FLOWS FROM INVESTING ACTIVITIES

 

  

 

Capital expenditures

 

(82,138)

 

(47,531)

Equity method investments

 

(1,939)

 

(3,050)

Proceeds from sale of assets

 

 

25,006

Net cash used in investing activities

 

(84,077)

 

(25,575)

CASH FLOWS FROM FINANCING ACTIVITIES

 

  

 

  

Borrowings under asset based credit facility

 

 

283,200

Repayments under asset based credit facility

 

 

(191,600)

Repayments under promissory and equipment security notes

 

(11,446)

 

(5,408)

Debt issuance costs

 

(3,634)

 

Repayments of convertible senior notes

(28,111)

(215,846)

Principal payments under finance leases

(7,108)

(4,641)

Proceeds from exercise of stock options

 

25,979

 

8,125

Tax withholdings related to issuance of stock-based awards

(18,648)

 

(6,818)

Net cash used in financing activities

 

(42,968)

 

(132,988)

Effects of foreign currency exchange rate translation

 

92