10-Q 1 rh-20220730x10q.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 July 30, 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 September 2, 2022, 23,725,732 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 July 30, 2022 and January 29, 2022

3

Condensed Consolidated Statements of Income (Unaudited)
for the three and six months ended July 30, 2022 and July 31, 2021

4

Condensed Consolidated Statements of Comprehensive Income (Unaudited)
for the three and six months ended July 30, 2022 and July 31, 2021

5

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)
for the three and six months ended July 30, 2022 and July 31, 2021

6

Condensed Consolidated Statements of Cash Flows (Unaudited)
for the six months ended July 30, 2022 and July 31, 2021

8

Notes to Condensed Consolidated Financial Statements (Unaudited)

10

Item 2.

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

32

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

53

Item 4.

Controls and Procedures

55

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

56

Item 1A.

Risk Factors

56

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

57

Item 3.

Defaults Upon Senior Securities

57

Item 4.

Mine Safety Disclosures

57

Item 5.

Other Information

57

Item 6.

Exhibits

58

Signatures

59

2 | 2022 SECOND QUARTER FORM 10-Q

PART I. FINANCIAL INFORMATION

PART I

ITEM 1.     FINANCIAL STATEMENTS

RH

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

    

JULY 30,

    

JANUARY 29,

2022

2022

(in thousands)

ASSETS

 

  

 

  

Cash and cash equivalents

$

2,085,081

$

2,177,889

Accounts receivable—net

 

55,538

 

57,914

Merchandise inventories

 

859,078

 

734,289

Prepaid expense and other current assets

 

251,621

 

121,350

Total current assets

 

3,251,318

 

3,091,442

Property and equipment—net

 

1,554,880

 

1,227,920

Operating lease right-of-use assets

540,396

551,045

Goodwill

 

141,098

 

141,100

Tradenames, trademarks and other intangible assets

 

73,810

 

73,161

Deferred tax assets

 

63,257

 

56,843

Equity method investments

98,135

100,810

Other non-current assets

 

108,553

 

298,149

Total assets

$

5,831,447

$

5,540,470

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

  

 

  

Accounts payable and accrued expenses

$

376,132

$

442,379

Deferred revenue and customer deposits

390,710

 

387,933

Convertible senior notes due 2023—net

1,704

9,389

Convertible senior notes due 2024

3,600

Operating lease liabilities

75,289

73,834

Other current liabilities

 

115,068

 

146,623

Total current liabilities

 

958,903

 

1,063,758

Asset based credit facility

 

 

Term loan B—net

 

1,944,870

 

1,953,203

Term loan B-2—net

 

469,546

 

Convertible senior notes due 2023—net

 

 

59,002

Convertible senior notes due 2024—net

41,668

184,461

Non-current operating lease liabilities

 

527,445

 

540,513

Non-current finance lease liabilities

661,001

560,550

Other non-current obligations

 

7,770

 

8,706

Total liabilities

 

4,611,203

 

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 July 30, 2022 and January 29, 2022

 

Common stock—$0.0001 par value per share, 180,000,000 shares authorized, 23,715,191 shares issued and outstanding as of July 30, 2022; 21,506,967 shares issued and outstanding as of January 29, 2022

 

2

 

2

Additional paid-in capital

 

334,054

 

620,577

Accumulated other comprehensive loss

 

(7,795)

 

(1,410)

Retained earnings

 

893,983

 

551,108

Total stockholders’ equity

 

1,220,244

 

1,170,277

Total liabilities and stockholders’ equity

$

5,831,447

$

5,540,470

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

PART I. FINANCIAL INFORMATION

2022 SECOND QUARTER FORM 10-Q | 3

RH

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

THREE MONTHS ENDED

SIX MONTHS ENDED

JULY 30,

JULY 31,

JULY 30,

JULY 31,

    

2022

    

2021 

    

2022

    

2021 

(in thousands, except share and per share amounts)

Net revenues

$

991,620

$

988,859

$

1,948,912

$

1,849,651

Cost of goods sold

 

468,402

 

501,183

 

927,111

 

954,998

Gross profit

 

523,218

 

487,676

 

1,021,801

 

894,653

Selling, general and administrative expenses

 

288,804

 

238,688

582,099

 

457,777

Income from operations

 

234,414

 

248,988

 

439,702

 

436,876

Other expenses

 

Interest expense—net

26,264

13,581

47,119

 

26,889

Loss on extinguishment of debt

 

23,462

3,166

 

169,578

 

3,271

Other expense—net

3,195

2,852

Total other expenses

 

52,921

 

16,747

 

219,549

 

30,160

Income before income taxes

181,493

232,241

 

220,153

 

406,716

Income tax expense (benefit)

56,397

3,009

 

(107,029)

 

44,733

Income before equity method investments

125,096

229,232

327,182

361,983

Share of equity method investments losses

(2,821)

(2,486)

(4,196)

(4,581)

Net income

$

122,275

$

226,746

$

322,986

$

357,402

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

24,475,373

21,166,638

 

23,541,955

 

21,084,941

Basic net income per share (Note 13)

$

5.95

$

10.71

$

20.92

$

16.95

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

27,142,223

31,979,098

 

27,834,735

 

31,594,555

Diluted net income per share (Note 13)

$

5.37

$

7.09

$

17.70

$

11.31

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

4 | 2022 SECOND QUARTER FORM 10-Q

PART I. FINANCIAL INFORMATION

RH

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

THREE MONTHS ENDED

SIX MONTHS ENDED

JULY 30,

JULY 31,

JULY 30,

JULY 31,

2022

    

2021 

    

2022

    

2021 

(in thousands)

Net income

$

122,275

$

226,746

$

322,986

$

357,402

Net gains (losses) from foreign currency translation

(2,240)

(648)

 

(6,385)

 

700

Total comprehensive income

$

120,035

$

226,098

$

316,601

$

358,102

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

PART I. FINANCIAL INFORMATION

2022 SECOND QUARTER FORM 10-Q | 5

RH

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(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

(in thousands, except share amounts)

Balances—April 30, 2022

$

24,661,781

 

$

2

 

$

575,635

 

$

(5,555)

 

$

771,708

 

 

$

 

$

1,341,790

Stock-based compensation

10,736

 

10,736

Issuance of restricted stock

3,577

 

Vested and delivered restricted stock units

457

(57)

 

(57)

Exercise of stock options

49,375

2,471

 

2,471

Repurchases of common stock

(1,000,000)

1,000,000

(254,731)

 

(254,731)

Retirement of treasury stock

(254,731)

(1,000,000)

254,731

 

Settlement of convertible senior notes

1

Net income

122,275

 

122,275

Net losses from foreign currency translation

(2,240)

 

(2,240)

Balances—July 30, 2022

$

23,715,191

 

$

2

 

$

334,054

 

$

(7,795)

 

$

893,983

 

 

$

 

$

1,220,244

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 to mezzanine equity 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

6 | 2022 SECOND QUARTER FORM 10-Q

PART I. FINANCIAL INFORMATION

Table of Contents

RH

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)

(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

(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

 

 

23,538

 

 

 

 

 

23,538

Issuance of restricted stock

3,577

 

 

 

 

 

 

 

Vested and delivered restricted stock units

1,866

 

 

(323)

 

 

 

 

 

(323)

Exercise of stock options

3,202,775

 

 

152,041

 

 

 

 

 

152,041

Repurchases of common stock

(1,000,000)

1,000,000

(254,731)

(254,731)

Retirement of treasury stock

(254,731)

(1,000,000)

254,731

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

36,974

 

 

(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

 

 

 

 

322,986

 

 

 

322,986

Net losses from foreign currency translation

 

 

 

(6,385)

 

 

 

 

(6,385)

Balances—July 30, 2022

$

23,715,191

 

$

2

 

$

334,054

 

$

(7,795)

 

$

893,983

 

 

$

 

$

1,220,244

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 to mezzanine equity 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

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

PART I. FINANCIAL INFORMATION

2022 SECOND QUARTER FORM 10-Q | 7

RH

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

SIX MONTHS ENDED

JULY 30,

JULY 31,

2022

    

2021

(in thousands)

CASH FLOWS FROM OPERATING ACTIVITIES

Net income

$

322,986

$

357,402

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

 

 

Depreciation and amortization

 

51,728

46,556

Non-cash operating lease cost

37,190

35,541

Asset impairments

8,154

7,354

Amortization of debt discount

 

17,461

Stock-based compensation expense

 

23,538

25,431

Non-cash finance lease interest expense

14,962

12,757

Product recalls

560

500

Deferred income taxes

5,493

(239)

Loss on extinguishment of debt

169,578

3,271

Gain on derivative instruments—net

(1,724)

Share of equity method investments losses

4,196

4,581

Other non-cash items

 

3,348

(4,069)

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

(5,070)

Change in assets and liabilities:

 

Accounts receivable

 

2,332

(306)

Merchandise inventories

 

(124,958)

(101,641)

Prepaid expense and other assets

 

(153,471)

(57,919)

Landlord assets under construction—net of tenant allowances

 

(32,460)

(43,352)

Accounts payable and accrued expenses

 

(63,820)

6,930

Deferred revenue and customer deposits

 

2,911

116,492

Other current liabilities

 

(24,902)

(51,661)

Current and non-current operating lease liabilities

 

(38,329)

(38,933)

Other non-current obligations

 

(14,796)

(14,368)

Net cash provided by operating activities

 

192,516

 

316,718

CASH FLOWS FROM INVESTING ACTIVITIES

 

  

 

Capital expenditures

 

(62,558)

(82,138)

Equity method investments

 

(1,520)

(1,939)

Net cash used in investing activities

 

(64,078)

 

(84,077)

8 | 2022 SECOND QUARTER FORM 10-Q

PART I. FINANCIAL INFORMATION

Table of Contents

RH

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(Unaudited)