Form: 10-Q

Quarterly report pursuant to Section 13 or 15(d)

December 8, 2022

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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 October 29, 2022

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 December 2, 2022, 23,612,501 shares of the registrant’s common stock were outstanding.

RH

INDEX TO FORM 10-Q

    

    

Page

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

3

Condensed Consolidated Balance Sheets (Unaudited)
as of October 29, 2022 and January 29, 2022

3

Condensed Consolidated Statements of Income (Unaudited)
for the three and nine months ended October 29, 2022 and October 30, 2021

4

Condensed Consolidated Statements of Comprehensive Income (Unaudited)
for the three and nine months ended October 29, 2022 and October 30, 2021

5

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)
for the three and nine months ended October 29, 2022 and October 30, 2021

6

Condensed Consolidated Statements of Cash Flows (Unaudited)
for the nine months ended October 29, 2022 and October 30, 2021

8

Notes to Condensed Consolidated Financial Statements (Unaudited)

11

Item 2.

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

37

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

58

Item 4.

Controls and Procedures

60

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

61

Item 1A.

Risk Factors

61

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

62

Item 3.

Defaults Upon Senior Securities

62

Item 4.

Mine Safety Disclosures

62

Item 5.

Other Information

62

Item 6.

Exhibits

63

Signatures

64

2 | 2022 THIRD QUARTER FORM 10-Q

PART I. FINANCIAL INFORMATION

PART I

ITEM 1.     FINANCIAL STATEMENTS

RH

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

    

OCTOBER 29,

    

JANUARY 29,

2022

2022

(in thousands)

ASSETS

 

  

 

  

Cash and cash equivalents

$

2,150,466

$

2,177,889

Restricted cash (Note 5)

3,882

Accounts receivable—net

 

58,563

 

57,914

Merchandise inventories

 

819,299

 

734,289

Prepaid expense and other current assets

 

234,247

 

121,350

Total current assets

 

3,266,457

 

3,091,442

Property and equipment—net

 

1,577,900

 

1,227,920

Operating lease right-of-use assets

536,452

551,045

Goodwill

 

141,021

 

141,100

Tradenames, trademarks and other intangible assets

 

74,269

 

73,161

Deferred tax assets

 

63,105

 

56,843

Equity method investments

97,005

100,810

Other non-current assets

 

127,506

 

298,149

Total assets

$

5,883,715

$

5,540,470

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

  

 

  

Accounts payable and accrued expenses

$

389,965

$

442,379

Deferred revenue and customer deposits

361,113

 

387,933

Convertible senior notes due 2023—net

1,702

9,389

Convertible senior notes due 2024

3,600

Operating lease liabilities

77,858

73,834

Other current liabilities

 

104,538

 

146,623

Total current liabilities

 

935,176

 

1,063,758

Asset based credit facility

 

 

Term loan B—net

 

1,940,701

 

1,953,203

Term loan B-2—net

 

469,396

 

Real estate loans (Note 5)

17,912

Convertible senior notes due 2023—net

 

 

59,002

Convertible senior notes due 2024—net

41,696

184,461

Non-current operating lease liabilities

 

521,093

 

540,513

Non-current finance lease liabilities

656,643

560,550

Other non-current obligations

 

7,151

 

8,706

Total liabilities

 

4,589,768

 

4,370,193

Commitments and contingencies (Note 16)

 

 

Stockholders’ equity:

 

  

 

  

Preferred stock—$0.0001 par value per share, 10,000,000 shares authorized, no shares issued or outstanding as of October 29, 2022 and January 29, 2022

 

Common stock—$0.0001 par value per share, 180,000,000 shares authorized, 23,609,536 shares issued and outstanding as of October 29, 2022; 21,506,967 shares issued and outstanding as of January 29, 2022

 

2

 

2

Additional paid-in capital

 

313,887

 

620,577

Accumulated other comprehensive loss

 

(12,685)

 

(1,410)

Retained earnings

 

992,743

 

551,108

Total stockholders’ equity

1,293,947

1,170,277

Total liabilities and stockholders’ equity

$

5,883,715

$

5,540,470

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

PART I. FINANCIAL INFORMATION

2022 THIRD QUARTER FORM 10-Q | 3

RH

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

THREE MONTHS ENDED

NINE MONTHS ENDED

OCTOBER 29,

OCTOBER 30,

OCTOBER 29,

OCTOBER 30,

    

2022

    

2021 

    

2022

    

2021 

(in thousands, except share and per share amounts)

Net revenues

$

869,066

$

1,006,428

$

2,817,978

$

2,856,079

Cost of goods sold

 

448,288

 

501,174

 

1,375,399

 

1,456,172

Gross profit

 

420,778

 

505,254

 

1,442,579

 

1,399,907

Selling, general and administrative expenses

 

250,528

 

232,715

832,627

 

690,492

Income from operations

 

170,250

 

272,539

 

609,952

 

709,415

Other expenses

 

Interest expense—net

31,417

13,223

78,536

 

40,112

Loss on extinguishment of debt

 

18,513

 

169,578

 

21,784

Other expense—net

1,989

4,841

Total other expenses

 

33,406

 

31,736

 

252,955

 

61,896

Income before income taxes

136,844

240,803

 

356,997

 

647,519

Income tax expense (benefit)

36,162

54,391

 

(70,867)

 

99,124

Income before equity method investments

100,682

186,412

427,864

548,395

Share of equity method investments losses

(1,922)

(2,313)

(6,118)

(6,894)

Net income

$

98,760

$

184,099

$

421,746

$

541,501

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

23,681,482

21,430,557

 

23,588,464

 

21,200,146

Basic net income per share (Note 13)

$

4.17

$

8.59

$

25.07

$

25.54

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

26,098,265

31,291,079

 

27,255,911

 

31,493,396

Diluted net income per share (Note 13)

$

3.78

$

5.88

$

21.70

$

17.19

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

4 | 2022 THIRD QUARTER FORM 10-Q

PART I. FINANCIAL INFORMATION

RH

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

THREE MONTHS ENDED

NINE MONTHS ENDED

OCTOBER 29,

OCTOBER 30,

OCTOBER 29,

OCTOBER 30,

2022

    

2021 

    

2022

    

2021 

(in thousands)

Net income

$

98,760

$

184,099

$

421,746

$

541,501

Net losses from foreign currency translation

(4,890)

(2,097)

 

(11,275)

 

(1,397)

Comprehensive income

$

93,870

$

182,002

$

410,471

$

540,104

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

PART I. FINANCIAL INFORMATION

2022 THIRD QUARTER FORM 10-Q | 5

RH

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

THREE MONTHS ENDED

COMMON STOCK

TREASURY STOCK

 

ACCUMULATED

 

 

ADDITIONAL

 

OTHER

 

TOTAL

MEZZANINE

 

PAID-IN

 

COMPREHENSIVE

 

RETAINED

 

 

STOCKHOLDERS'

  

EQUITY

  

  

SHARES

  

AMOUNT

  

CAPITAL

  

INCOME (LOSS)

  

EARNINGS

  

SHARES

  

AMOUNT

  

EQUITY

(in thousands, except share amounts)

Balances—July 30, 2022

$

23,715,191

 

$

2

 

$

334,054

 

$

(7,795)

 

$

893,983

 

 

$

 

$

1,220,244

Stock-based compensation

10,187

10,187

Vested and delivered restricted stock units

1,119

(171)

(171)

Exercise of stock options

20,777

1,527

1,527

Repurchases of common stock

(127,557)

127,557

(31,710)

(31,710)

Retirement of treasury stock

(31,710)

(127,557)

31,710

Settlement of convertible senior notes

6

Net income

98,760

98,760

Net losses from foreign currency translation

(4,890)

(4,890)

Balances—October 29, 2022

$

23,609,536

 

$

2

 

$

313,887

 

$

(12,685)

 

$

992,743

 

 

$

 

$

1,293,947

Balances—July 31, 2021

$

30,515

21,407,717

 

$

2

 

$

583,112

 

$

3,265

 

$

219,964

 

 

$

 

$

806,343

Stock-based compensation

11,995

11,995

Vested and delivered restricted stock units

1,981

(706)

(706)

Exercise of stock options

55,419

4,101

4,101

Settlement of convertible senior notes

864,090

(592,414)

(864,074)

579,539

(12,875)

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

(864,074)

579,539

864,074

(579,539)

Reclassification of equity component to mezzanine equity related to early converted senior notes outstanding—net

(16,944)

16,944

16,944

Net income

184,099

184,099

Net losses from foreign currency translation

(2,097)

(2,097)

Balances—October 30, 2021

$

13,571

21,465,133

 

$

2

 

$

602,571

 

$

1,168

 

$

404,063

 

 

$

 

$

1,007,804

6 | 2022 THIRD QUARTER FORM 10-Q

PART I. FINANCIAL INFORMATION

Table of Contents

RH

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)

(Unaudited)

NINE MONTHS ENDED

COMMON STOCK

TREASURY STOCK

 

ACCUMULATED

 

 

ADDITIONAL

 

OTHER

 

TOTAL

MEZZANINE

 

PAID-IN

 

COMPREHENSIVE

 

RETAINED

 

 

STOCKHOLDERS'

  

EQUITY

  

  

SHARES

  

AMOUNT

  

CAPITAL

  

INCOME (LOSS)

  

EARNINGS

  

SHARES

  

AMOUNT

  

EQUITY

(in thousands, except share amounts)

Balances—January 29, 2022

$

21,506,967

 

$

2

 

$

620,577

 

$

(1,410)

 

$

551,108

 

 

$

 

$

1,170,277

Stock-based compensation

 

 

33,725

 

 

 

 

 

33,725

Issuance of restricted stock

3,577

 

 

 

 

 

 

 

Vested and delivered restricted stock units

2,985

 

 

(494)

 

 

 

 

 

(494)

Exercise of stock options

3,223,552

 

 

153,568

 

 

 

 

 

153,568

Repurchases of common stock

(1,127,557)

1,127,557

(286,441)

(286,441)

Retirement of treasury stock

(286,441)

(1,127,557)

286,441

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

(36,968)

 

 

14,705

 

 

 

36,968

 

(14,705)

 

Settlement of convertible senior notes

36,980

 

 

(14,705)

 

 

 

(36,968)

 

14,705

 

Termination of common stock warrants

 

 

(386,708)

 

 

 

 

 

(386,708)

Termination of convertible note hedge

 

 

236,050

 

 

 

 

 

236,050

Impact of ASU 2020-06 adoption

 

 

(56,390)

 

 

19,889

 

 

 

(36,501)

Net income

 

 

 

 

421,746

 

 

 

421,746

Net losses from foreign currency translation

 

 

 

(11,275)

 

 

 

 

(11,275)

Balances—October 29, 2022

$

23,609,536

 

$

2

 

$

313,887

 

$

(12,685)

 

$

992,743

 

 

$

 

$

1,293,947

Balances—January 30, 2021

$

20,995,387

$

2

581,897

$

2,565

$

(137,438)

$

$

447,026

Stock-based compensation

37,284

37,284

Issuance of restricted stock

1,260

Vested and delivered restricted stock units

39,679

(19,354)

(19,354)

Exercise of stock options

428,788

30,080

30,080

Settlement of convertible senior notes

983,694

(674,549)

(983,675)

660,784

(13,765)

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

(983,675)

660,784

983,675

(660,784)

Reclassification of equity component to mezzanine equity related to early converted senior notes outstanding—net

13,571

(13,571)

(13,571)

Net income

541,501

541,501

Net gains from foreign currency translation

(1,397)

(1,397)

Balances—October 30, 2021

$

13,571

21,465,133

 

$

2

 

$

602,571

 

$

1,168

 

$

404,063

 

 

$

 

$

1,007,804

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

PART I. FINANCIAL INFORMATION

2022 THIRD QUARTER FORM 10-Q | 7

RH

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

NINE MONTHS ENDED

OCTOBER 29,

OCTOBER 30,

2022

    

2021

(in thousands)

CASH FLOWS FROM OPERATING ACTIVITIES

Net income

$

421,746

$

541,501

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

Depreciation and amortization

 

79,760

71,375

Non-cash operating lease cost

55,912

54,084

Asset impairments

19,080

7,354

Gain on sale of building and land

(775)

Amortization of debt discount

 

24,236

Stock-based compensation expense

 

33,725

37,426

Non-cash finance lease interest expense

23,526

19,468

Product recalls

560

840

Deferred income taxes

5,627

(122)

Loss on extinguishment of debt

169,578

21,784

Gain on derivative instruments—net

(1,724)

Share of equity method investments losses

6,118

6,894

Other non-cash items

 

5,542

(6,030)

Cash paid attributable to accretion of debt discount upon settlement of debt

(39,078)

Change in assets and liabilities:

 

Accounts receivable

 

(675)

(1,131)

Merchandise inventories

 

(96,598)

(89,225)

Prepaid expense and other assets

 

(152,892)

(39,168)

Landlord assets under construction—net of tenant allowances

 

(43,380)

(50,351)

Accounts payable and accrued expenses

 

(44,999)

(17,980)

Deferred revenue and customer deposits

 

(26,604)

104,419

Other current liabilities

 

(36,596)

(28,106)

Current and non-current operating lease liabilities

 

(56,936)

(59,194)

Other non-current obligations

 

(23,974)

(