10-Q 1 rh-20211030x10q.htm 10-Q
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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 30, 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 December 3, 2021, 21,468,715 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 30, 2021 and January 30, 2021

3

Condensed Consolidated Statements of Income (Unaudited)
for the three and nine months ended October 30, 2021 and October 31, 2020

4

Condensed Consolidated Statements of Comprehensive Income (Unaudited)
for the three and nine months ended October 30, 2021 and October 31, 2020

5

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)
for the three and nine months ended October 30, 2021 and October 31, 2020

6

Condensed Consolidated Statements of Cash Flows (Unaudited)
for the nine months ended October 30, 2021 and October 31, 2020

8

Notes to Condensed Consolidated Financial Statements (Unaudited)

10

Item 2.

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

35

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

57

Item 4.

Controls and Procedures

58

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

59

Item 1A.

Risk Factors

59

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

62

Item 3.

Defaults Upon Senior Securities

63

Item 4.

Mine Safety Disclosures

63

Item 5.

Other Information

63

Item 6.

Exhibits

64

Signatures

65

2 | 2021 THIRD 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)

    

OCTOBER 30,

    

JANUARY 30,

2021

2021

ASSETS

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

2,198,961

$

100,446

Accounts receivable—net

 

60,621

 

59,474

Merchandise inventories

 

633,591

 

544,227

Prepaid expense and other current assets

 

120,666

 

97,337

Total current assets

 

3,013,839

 

801,484

Property and equipment—net

 

1,196,335

 

1,077,198

Operating lease right-of-use assets

551,731

456,164

Goodwill

 

141,141

 

141,100

Tradenames, trademarks and other intangible assets

 

72,907

 

71,663

Deferred tax assets

 

49,870

 

49,924

Equity method investments

97,976

100,603

Other non-current assets

 

296,226

 

200,177

Total assets

$

5,420,025

$

2,898,313

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable and accrued expenses

$

395,148

$

424,422

Deferred revenue and customer deposits

385,070

 

280,641

Convertible senior notes due 2023—net

53,242

2,354

Convertible senior notes due 2024—net

56,365

Operating lease liabilities

74,706

71,524

Other current liabilities

 

131,779

 

142,691

Total current liabilities

 

1,096,310

 

921,632

Asset based credit facility

 

 

Term loan—net

 

1,957,366

 

Equipment promissory notes—net

 

1,625

 

14,614

Convertible senior notes due 2023—net

 

62,214

 

282,956

Convertible senior notes due 2024—net

181,805

281,454

Non-current operating lease liabilities

 

538,886

 

448,169

Non-current finance lease liabilities

549,098

485,481

Other non-current obligations

 

11,346

 

16,981

Total liabilities

 

4,398,650

 

2,451,287

Commitments and contingencies (Note 16)

 

 

Mezzanine equity—convertible senior notes (Note 9)

 

13,571

 

Stockholders’ equity:

 

  

 

  

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

 

Common stock—$0.0001 par value per share, 180,000,000 shares authorized, 21,465,133 shares issued and outstanding as of October 30, 2021; 20,995,387 shares issued and outstanding as of January 30, 2021

 

2

 

2

Additional paid-in capital

 

602,571

 

581,897

Accumulated other comprehensive income (loss)

 

1,168

 

2,565

Retained earnings (accumulated deficit)

 

404,063

 

(137,438)

Total stockholders’ equity

 

1,007,804

 

447,026

Total liabilities, mezzanine equity and stockholders’ equity

$

5,420,025

$

2,898,313

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

PART I. FINANCIAL INFORMATION

2021 THIRD QUARTER FORM 10-Q | 3

RH

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

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

THREE MONTHS ENDED

NINE MONTHS ENDED

OCTOBER 30,

OCTOBER 31,

OCTOBER 30,

OCTOBER 31,

    

2021

    

2020 

    

2021

    

2020 

Net revenues

$

1,006,428

$

844,013

$

2,856,079

$

2,036,190

Cost of goods sold

 

501,174

 

435,683

 

1,456,172

 

1,095,787

Gross profit

 

505,254

 

408,330

 

1,399,907

 

940,403

Selling, general and administrative expenses

 

232,715

 

297,109

690,492

 

657,161

Income from operations

 

272,539

 

111,221

 

709,415

 

283,242

Other expenses

 

Interest expense—net

13,223

15,656

40,112

 

54,703

Tradename impairment

20,459

(Gain) loss on extinguishment of debt

 

18,513

 

 

21,784

 

(152)

Total other expenses

 

31,736

 

15,656

 

61,896

 

75,010

Income before income taxes

 

240,803

 

95,565

 

647,519

 

208,232

Income tax expense

 

54,391

 

49,154

 

99,124

 

66,610

Income before equity method investments

186,412

46,411

548,395

141,622

Share of equity method investments losses

(2,313)

(6,894)

Net income

$

184,099

$

46,411

$

541,501

$

141,622

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

 

21,430,557

 

19,552,836

 

21,200,146

 

19,393,931

Basic net income per share

$

8.59

$

2.37

$

25.54

$

7.30

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

 

31,291,079

 

28,286,124

 

31,493,396

 

26,351,194

Diluted net income per share

$

5.88

$

1.64

$

17.19

$

5.37

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

4 | 2021 THIRD QUARTER FORM 10-Q

PART I. FINANCIAL INFORMATION

RH

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands) (Unaudited)

THREE MONTHS ENDED

NINE MONTHS ENDED

OCTOBER 30,

OCTOBER 31,

OCTOBER 30,

OCTOBER 31,

2021

    

2020 

    

2021

    

2020 

Net income

$

184,099

$

46,411

$

541,501

$

141,622

Net gains (losses) from foreign currency translation

 

(2,097)

(96)

 

(1,397)

 

822

Total comprehensive income

$

182,002

$

46,315

$

540,104

$

142,444

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

PART I. FINANCIAL INFORMATION

2021 THIRD 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—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

Balances—August 1, 2020

$

 

19,485,826

 

$

2

 

$

444,378

 

$

(1,842)

 

$

(314,042)

 

17

 

$

(5)

 

$

128,491

Stock-based compensation

 

118,677

 

118,677

Vested and delivered restricted stock units

 

2,814

(610)

 

(610)

Exercise of stock options

 

64,848

3,996

 

3,996

Shares issued in connection with warrant agreements

 

290,967

 

 

 

 

 

 

 

Retirement of treasury stock

 

(5)

(17)

5

 

Net income

 

46,411

 

46,411

Net losses from foreign currency translation

 

(96)

 

(96)

Balances—October 31, 2020

$

 

19,844,455

 

$

2

 

$

566,436

 

$

(1,938)

 

$

(267,631)

 

 

$

 

$

296,869

6 | 2021 THIRD QUARTER FORM 10-Q

PART I. FINANCIAL INFORMATION

Table of Contents

RH

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)

(In thousands) (Unaudited)

NINE 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

 

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 losses 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

Balances—February 1, 2020

$

 

19,236,681

 

$

2

 

$

430,662

 

$

(2,760)

 

$

(409,253)

 

 

$

18,651

Stock-based compensation

 

131,153

 

131,153

Issuance of restricted stock

 

3,192

 

Vested and delivered restricted stock units

 

73,106

(7,428)

 

(7,428)

Exercise of stock options

 

241,126

12,121

 

12,121

Repurchases of common stock

 

(600)

600

(72)

 

(72)

Retirement of treasury stock

 

(77)

(617)

77

 

Shares issued in connection with warrant agreements

 

290,967

 

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

 

141,622

 

141,622

Net gains from foreign currency translation

 

822

 

822

Balances—October 31, 2020

$

 

19,844,455

 

$

2

 

$

566,436

 

$

(1,938)

 

$

(267,631)

 

 

$

 

$

296,869

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

PART I. FINANCIAL INFORMATION

2021 THIRD QUARTER FORM 10-Q | 7

RH

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) (Unaudited)

NINE MONTHS ENDED

OCTOBER 30,

OCTOBER 31,

2021

    

2020

CASH FLOWS FROM OPERATING ACTIVITIES

Net income

$

541,501

$

141,622

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

 

 

Depreciation and amortization

 

71,375

 

76,688

Non-cash operating lease cost

54,084

47,069

Tradename impairment

20,459

Asset impairments

7,354

4,783

Loss on sale leaseback transaction

9,352

Amortization of debt discount

 

24,236

 

33,810

Stock-based compensation expense

 

37,426

 

131,472

Non-cash finance lease interest expense

19,468

17,887

Product recalls

840

5,561

Deferred income taxes

 

(122)

 

117

(Gain) loss on extinguishment of debt

21,784

(152)

Share of equity method investments losses

6,894

Other non-cash items

 

(6,030)

 

3,274

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

(39,078)

(84,003)

Change in assets and liabilities:

 

 

Accounts receivable

 

(1,131)

 

(6,070)

Merchandise inventories

 

(89,225)

 

(57,781)

Prepaid expense and other assets

 

(39,168)

 

(47,288)

Landlord assets under construction—net of tenant allowances

 

(50,351)

 

(44,921)

Accounts payable and accrued expenses

 

(17,980)

 

10,844

Deferred revenue and customer deposits

 

104,419

 

111,436

Other current liabilities

 

(28,106)

 

29,153

Current and non-current operating lease liabilities

 

(59,194)

 

(36,810)

Other non-current obligations

 

(25,314)

 

(19,239)

Net cash provided by operating activities

 

533,682

 

347,263

8 | 2021 THIRD QUARTER FORM 10-Q

PART I. FINANCIAL INFORMATION

Table of Contents

RH

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(In thousands) (Unaudited)

NINE MONTHS ENDED

OCTOBER 30,

OCTOBER 31,

2021

    

2020

CASH FLOWS FROM INVESTING ACTIVITIES

 

  

 

Capital expenditures

 

(153,774)

 

(71,755)

Equity method investments

 

(4,816)

 

(7,500)

Acquisition of business and assets

 

 

(13,052)

Proceeds from sale of assets

 

 

25,006

Net cash used in investing activities

 

(158,590)

 

(67,301)

CASH FLOWS FROM FINANCING ACTIVITIES

 

  

 

  

Borrowings under asset based credit facility

 

 

359,400

Repayments under asset based credit facility

 

 

(359,400)

Borrowings under term loan

 

2,000,000

 

Repayments under promissory and equipment security notes

 

(17,164)

 

(10,872)

Debt issuance costs

 

(26,411)

 

Repayments of convertible senior notes

(235,126)

(215,846