Form: 10-Q

Quarterly report pursuant to Section 13 or 15(d)

December 7, 2023

10-Q: Quarterly report pursuant to Section 13 or 15(d)

Published on December 7, 2023


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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 28, 2023

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 1, 2023, 18,219,414 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 28, 2023 and January 28, 2023

3

Condensed Consolidated Statements of Income (Loss) (Unaudited)
for the three and nine months ended October 28, 2023 and October 29, 2022

4

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
for the three and nine months ended October 28, 2023 and October 29, 2022

5

Condensed Consolidated Statements of Stockholders’ Equity (Deficit) (Unaudited)
for the three and nine months ended October 28, 2023 and October 29, 2022

6

Condensed Consolidated Statements of Cash Flows (Unaudited)
for the nine months ended October 28, 2023 and October 29, 2022

8

Notes to Condensed Consolidated Financial Statements (Unaudited)

11

Item 2.

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

36

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

56

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 | 2023 THIRD QUARTER FORM 10-Q

TABLE OF CONTENTS

PART I

ITEM 1.     FINANCIAL STATEMENTS

RH

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

    

OCTOBER 28,

    

JANUARY 28,

2023

2023

(in thousands)

ASSETS

 

  

 

  

Cash and cash equivalents

$

380,695

$

1,508,101

Restricted cash

1,960

3,662

Accounts receivable—net

 

56,053

 

59,763

Merchandise inventories

 

718,959

 

801,841

Prepaid expense and other current assets

 

129,213

 

139,297

Total current assets

 

1,286,880

 

2,512,664

Property and equipment—net

 

1,665,483

 

1,635,984

Operating lease right-of-use assets

616,571

527,246

Goodwill

 

140,997

 

141,048

Tradenames, trademarks and other intangible assets

 

75,746

 

74,633

Deferred tax assets

 

126,094

 

167,039

Equity method investments

128,112

101,468

Other non-current assets

 

200,736

 

149,207

Total assets

$

4,240,619

$

5,309,289

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

 

  

 

  

Accounts payable and accrued expenses

$

399,727

$

374,949

Deferred revenue and customer deposits

302,976

 

325,754

Convertible senior notes due 2023

1,696

Convertible senior notes due 2024—net

41,807

Operating lease liabilities

89,492

80,384

Other current liabilities

 

100,972

 

103,190

Total current liabilities

 

934,974

 

885,973

Asset based credit facility

 

 

Term loan B—net

 

1,924,002

 

1,936,529

Term loan B-2—net

 

468,775

 

469,245

Real estate loans

17,844

17,909

Convertible senior notes due 2024—net

41,724

Non-current operating lease liabilities

 

570,073

 

505,809

Non-current finance lease liabilities

642,726

653,050

Deferred tax liabilities

6,139

6,315

Other non-current obligations

 

9,300

 

8,074

Total liabilities

4,573,833

4,524,628

Commitments and contingencies (Note 16)

 

 

Stockholders’ equity (deficit):

 

  

 

  

Preferred stock—$0.0001 par value per share, 10,000,000 shares authorized, no shares issued or outstanding as of October 28, 2023 and January 28, 2023

 

Common stock—$0.0001 par value per share, 180,000,000 shares authorized, 18,218,397 shares issued and outstanding as of October 28, 2023; 22,045,385 shares issued and outstanding as of January 28, 2023

 

2

 

2

Additional paid-in capital

 

270,928

 

247,076

Accumulated other comprehensive income (loss)

 

(8,996)

 

(2,403)

Retained earnings (accumulated deficit)

 

(595,148)

 

539,986

Total stockholders’ equity (deficit)

(333,214)

784,661

Total liabilities and stockholders’ equity (deficit)

$

4,240,619

$

5,309,289

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

PART I. FINANCIAL INFORMATION

2023 THIRD QUARTER FORM 10-Q | 3

RH

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(Unaudited)

THREE MONTHS ENDED

NINE MONTHS ENDED

OCTOBER 28,

OCTOBER 29,

OCTOBER 28,

OCTOBER 29,

    

2023

    

2022 

    

2023

    

2022 

(in thousands, except share and per share amounts)

Net revenues

$

751,225

$

869,066

$

2,290,866

$

2,817,978

Cost of goods sold

 

410,775

448,288

 

1,222,798

1,375,399

Gross profit

 

340,450

 

420,778

 

1,068,068

 

1,442,579

Selling, general and administrative expenses

 

289,214

250,528

766,252

832,627

Income from operations

 

51,236

 

170,250

 

301,816

 

609,952

Other expenses

 

Interest expense—net

54,640

31,417

138,878

78,536

Loss on extinguishment of debt

 

 

169,578

Other expense—net

5,305

1,989

4,466

4,841

Total other expenses

 

59,945

33,406

 

143,344

252,955

Income (loss) before income taxes and equity method investments

(8,709)

136,844

 

158,472

356,997

Income tax expense (benefit)

(9,215)

36,162

 

34,615

(70,867)

Income before equity method investments

506

100,682

123,857

427,864

Share of equity method investments loss

2,693

1,922

7,677

6,118

Net income (loss)

$

(2,187)

$

98,760

$

116,180

$

421,746

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

18,371,545

23,681,482

 

20,459,241

 

23,588,464

Basic net income (loss) per share

$

(0.12)

$

4.17

$

5.68

$

17.88

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

18,371,545

26,098,265

 

22,207,813

 

26,947,087

Diluted net income (loss) per share

$

(0.12)

$

3.78

$

5.23

$

15.65

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

4 | 2023 THIRD QUARTER FORM 10-Q

PART I. FINANCIAL INFORMATION

RH

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

THREE MONTHS ENDED

NINE MONTHS ENDED

OCTOBER 28,

OCTOBER 29,

OCTOBER 28,

OCTOBER 29,

2023

    

2022 

    

2023

    

2022 

(in thousands)

Net income (loss)

$

(2,187)

$

98,760

$

116,180

$

421,746

Net loss from foreign currency translation

(12,268)

(4,890)

 

(6,593)

 

(11,275)

Comprehensive income (loss)

$

(14,455)

$

93,870

$

109,587

$

410,471

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

PART I. FINANCIAL INFORMATION

2023 THIRD QUARTER FORM 10-Q | 5

RH

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(Unaudited)

THREE MONTHS ENDED

COMMON STOCK

TREASURY STOCK

 

ACCUMULATED

 

RETAINED

 

ADDITIONAL

 

OTHER

 

EARNINGS

TOTAL

 

PAID-IN

 

COMPREHENSIVE

 

(ACCUMULATED

 

 

STOCKHOLDERS'

  

SHARES

  

AMOUNT

  

CAPITAL

  

INCOME (LOSS)

  

DEFICIT)

  

SHARES

  

AMOUNT

  

EQUITY (DEFICIT)

(in thousands, except share amounts)

Balances—July 29, 2023

18,397,853

 

$

2

 

$

261,803

 

$

3,272

 

$

(549,659)

 

 

$

 

$

(284,582)

Stock-based compensation

9,820

9,820

Vested and delivered restricted stock units

196

(30)

(30)

Exercise of stock options

9,426

1,088

1,088

Repurchase of common stockincluding excise tax

(189,078)

189,078

(45,055)

(45,055)

Retirement of treasury stock

(1,753)

(43,302)

(189,078)

45,055

Net loss

(2,187)

(2,187)

Net loss from foreign currency translation

(12,268)

(12,268)

Balances—October 28, 2023

18,218,397

 

$

2

 

$

270,928

 

$

(8,996)

 

$

(595,148)

 

 

$

 

$

(333,214)

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

Settlement of convertible senior notes

6

Repurchase of common stock

(127,557)

127,557

(31,710)

(31,710)

Retirement of treasury stock

(31,710)

(127,557)

31,710

Net income

98,760

98,760

Net loss 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

6 | 2023 THIRD QUARTER FORM 10-Q

PART I. FINANCIAL INFORMATION

Table of Contents

RH

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) (continued)

(Unaudited)

NINE MONTHS ENDED

COMMON STOCK

TREASURY STOCK

 

ACCUMULATED

 

RETAINED

 

ADDITIONAL

 

OTHER

 

EARNINGS

TOTAL

 

PAID-IN

 

COMPREHENSIVE

 

(ACCUMULATED

 

 

STOCKHOLDERS'

  

SHARES

  

AMOUNT

  

CAPITAL

  

INCOME (LOSS)

  

DEFICIT)

  

SHARES

  

AMOUNT

  

EQUITY (DEFICIT)

(in thousands, except share amounts)

Balances—January 28, 2023

22,045,385

 

$

2

 

$

247,076

 

$

(2,403)

 

$

539,986

 

 

$

 

$

784,661

Stock-based compensation

28,538

28,538

Issuance of restricted stock

2,961

Vested and delivered restricted stock units

1,043

(126)

(126)

Exercise of stock options

55,042

5,816

5,816

Settlement of convertible senior notes

1,931

Repurchase of common stock—including excise tax

(3,887,965)

3,887,965

(1,261,690)

(1,261,690)

Retirement of treasury stock

(10,376)

(1,251,314)

(3,887,965)

1,261,690

Net income

116,180

116,180

Net loss from foreign currency translation

(6,593)

(6,593)

Balances—October 28, 2023

18,218,397

 

$

2

 

$

270,928

 

$

(8,996)

 

$

(595,148)

 

 

$

 

$

(333,214)

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

Repurchase 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 loss 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

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

PART I. FINANCIAL INFORMATION

2023 THIRD QUARTER FORM 10-Q | 7

RH

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

NINE MONTHS ENDED

OCTOBER 28,

OCTOBER 29,

2023

    

2022

(in thousands)

CASH FLOWS FROM OPERATING ACTIVITIES

Net income

$

116,180

$

421,746

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

 

 

Depreciation and amortization

 

84,360

79,760

Non-cash operating lease cost

62,938

55,912

Asset impairments

7,165

19,080

Gain on sale of building and land

 

(775)

Stock-based compensation expense

 

28,538

33,725

Non-cash finance lease interest expense

25,920

23,526

Product recalls

(1,576)

560

Deferred income taxes

40,884

5,627

Loss on extinguishment of debt

169,578

Gain on derivative instruments—net

(1,724)

Share of equity method investments loss

7,677

6,118

Other non-cash items

 

6,601

5,542

Change in assets and liabilities:

 

Accounts receivable

 

3,676

(675)

Merchandise inventories

 

81,166

(96,598)

Prepaid expense and other assets

 

(12,788)

(152,892)

Landlord assets under construction—net of tenant allowances

 

(18,617)

(43,380)

Accounts payable and accrued expenses

 

(2,859)

(44,999)

Deferred revenue and customer deposits

 

(22,735)

(26,604)

Other current liabilities

 

(541)

(36,596)

Current and non-current operating lease liabilities

 

(65,021)

(56,936)

Other non-current obligations

 

(24,796)

(23,974)

Net cash provided by operating activities

 

316,172

 

336,021

8 | 2023 THIRD QUARTER FORM 10-Q

PART I. FINANCIAL INFORMATION

Table of Contents

RH

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(Unaudited)

NINE MONTHS ENDED

OCTOBER 28,

OCTOBER 29,

2023

    

2022

(in thousands)

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

Capital expenditures

 

(131,840)

(109,675)

Equity method investments

 

(34,321)

(2,313)

Proceeds from sale of asset

 

5,287

Net cash used in investing activities

 

(166,161)

 

(106,701)

CASH FLOWS FROM FINANCING ACTIVITIES

 

  

 

  

Borrowings under term loans

500,000

Repayments under term loans

(18,750)

(15,000)

Borrowings under real estate loans

16,000

Repayments under real estate loans

(20)

(4)

Repayments under promissory and equipment security notes

 

(1,160)

(13,157)

Repayments of convertible senior notes

(1,696)

(13,053)

Repayment under convertible senior notes repurchase obligation

(395,372)

Debt extinguishment costs

(8,059)

Debt issuance costs

 

(27,733)

Principal payments under finance lease agreements—net of tenant allowances

(9,551)

(6,798)

Proceeds from termination of convertible senior note hedges

231,796

Payments for termination of common stock warrants

(390,934)

Repurchases of common stock—inclusive of excise taxes paid

(1,252,899)

(286,441)

Proceeds from exercise of stock options

 

5,816

153,568

Tax withholdings related to issuance of stock-based awards

(126)

(494)

Net cash used in financing activities

 

(1,278,386)

 

(255,681)

Effects of foreign currency exchange rate translation

 

(733)

(1,155)

Net decrease in cash and cash equivalents, restricted cash and restricted cash equivalents

 

(1,129,108)

 

(27,516)

PART I. FINANCIAL INFORMATION

2023 THIRD QUARTER FORM 10-Q | 9

Table of Contents

RH

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(Unaudited)

NINE MONTHS ENDED

OCTOBER 28,

OCTOBER 29,

2023