RH 10-Q

ITEM 1. FINANCIAL STATEMENTS RH CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share amounts) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ MAY 1, JANUARY 30, ​ ​ 2021 ​ 2021 ASSETS ​ ​ Current assets: ​ ​ Cash and cash equivalents ​ $ 229,527 ​ $ 100,446 Accounts receivable—net ​ 60,212 ​ 59,474 Merchandise inventories ​ 593,946 ​ 544,227 Prepaid expense and other current assets ​ 105,723 ​ 97,337 Total current assets ​ 989,408 ​ 801,484 Property and equipment—net ​ 1,103,668 ​ 1,077,198 Operating lease right-of-use assets ​ ​ 541,841 ​ ​ 456,164 Goodwill ​ 141,152 ​ 141,100 Tradenames, trademarks and other intangible assets ​ 72,237 ​ 71,663 Deferred tax assets ​ 49,869 ​ 49,924 Equity method investments ​ ​ 99,131 ​ ​ 100,603 Other non-current assets ​ 240,011 ​ 200,177 Total assets ​ $ 3,237,317 ​ $ 2,898,313 LIABILITIES AND STOCKHOLDERS’ EQUITY ​ ​ Current liabilities: ​ ​ Accounts payable and accrued expenses ​ $ 389,411 ​ $ 424,422 Deferred revenue and customer deposits ​ ​ 363,404 ​ 280,641 Operating lease liabilities ​ ​ 72,442 ​ ​ 71,524 Federal and state tax payable ​ ​ 89,311 ​ ​ 49,539 Other current liabilities ​ 101,604 ​ 95,506 Total current liabilities ​ 1,016,172 ​ 921,632 Asset based credit facility ​ — ​ — Equipment promissory notes—net ​ 3,739 ​ 14,614 Convertible senior notes due 2023—net ​ 288,136 ​ 282,956 Convertible senior notes due 2024—net ​ ​ 285,721 ​ ​ 281,454 Non-current operating lease liabilities ​ 532,142 ​ 448,169 Non-current finance lease liabilities ​ ​ 501,118 ​ ​ 485,481 Other non-current obligations ​ 15,827 ​ 16,981 Total liabilities ​ 2,642,855 ​ 2,451,287 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 May 1, 2021 and January 30, 2021 ​ — ​ — Common stock— $ 0.0001 par value per share, 180,000,000 shares authorized, 21,020,538 shares issued and outstanding as of May 1, 2021; 20,995,387 shares issued and outstanding as of January 30, 2021 ​ 2 ​ 2 Additional paid-in capital ​ 597,329 ​ 581,897 Accumulated other comprehensive income ​ 3,913 ​ 2,565 Accumulated deficit ​ ( 6,782 ) ​ ( 137,438 ) Total stockholders’ equity ​ 594,462 ​ 447,026 Total liabilities and stockholders’ equity ​ $ 3,237,317 ​ $ 2,898,313 ​ The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements. ​ ​ PART I. FINANCIAL INFORMATION 2021 FIRST QUARTER FORM 10-Q | 3 ​ Table of Contents RH CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share and per share amounts) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ THREE MONTHS ENDED ​ ​ MAY 1, ​ MAY 2, ​ 2021 2020 Net revenues ​ $ 860,792 ​ $ 482,895 Cost of goods sold ​ 453,815 ​ 283,241 Gross profit ​ 406,977 ​ 199,654 Selling, general and administrative expenses ​ ​ 219,089 ​ 164,201 Income from operations ​ 187,888 ​ 35,453 Other expenses ​ ​ ​ ​ ​ Interest expense—net ​ ​ 13,308 ​ 19,629 Tradename impairment ​ ​ — ​ ​ 20,459 Loss on extinguishment of debt ​ 105 ​ — Total other expenses ​ 13,413 ​ 40,088 Income (loss) before income taxes ​ 174,475 ​ ( 4,635 ) Income tax expense (benefit) ​ 41,724 ​ ( 1,423 ) Income (loss) before equity method investments ​ ​ 132,751 ​ ​ ( 3,212 ) Share of equity method investments losses ​ ​ ( 2,095 ) ​ ​ — Net income (loss) ​ $ 130,656 ​ $ ( 3,212 ) Weighted-average shares used in computing basic net income (loss) per share ​ 21,003,244 ​ 19,242,641 Basic net income (loss) per share ​ $ 6.22 ​ $ ( 0.17 ) Weighted-average shares used in computing diluted net income (loss) per share ​ 31,210,011 ​ 19,242,641 Diluted net income (loss) per share ​ $ 4.19 ​ $ ( 0.17 ) ​ The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements. ​ ​ ​ PART I. FINANCIAL INFORMATION 2021 FIRST QUARTER FORM 10-Q | 4 ​ Table of Contents RH CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (In thousands) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ THREE MONTHS ENDED ​ ​ MAY 1, ​ MAY 2, ​ ​ 2021 2020 Net income (loss) ​ $ 130,656 ​ $ ( 3,212 ) Net gains (losses) from foreign currency translation ​ 1,348 ​ ( 2,372 ) Total comprehensive income (loss) ​ $ 132,004 ​ $ ( 5,584 ) ​ The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements. ​ ​ ​ PART I. FINANCIAL INFORMATION 2021 FIRST QUARTER FORM 10-Q | 5 ​ Table of Contents 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 ​ ​ ​ PAID-IN COMPREHENSIVE (ACCUMULATED ​ STOCKHOLDERS' ​ ​ 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 — ​ ​ — ​ ​ 15,200 ​ ​ — ​ ​ — ​ — ​ ​ — ​ 15,200 Vested and delivered restricted stock units 2,807 ​ ​ — ​ ​ ( 927 ) ​ ​ — ​ ​ — ​ — ​ ​ — ​ ( 927 ) Exercise of stock options 22,342 ​ ​ — ​ ​ 1,393 ​ ​ — ​ ​ — ​ — ​ ​ — ​ 1,393 Settlement of convertible senior notes ​ 7,307 ​ ​ — ​ ​ ( 3,514 ) ​ ​ — ​ ​ — ​ ( 7,305 ) ​ ​ 3,280 ​ ​ ( 234 ) Exercise of call option under bond hedge upon settlement of convertible senior notes ​ ( 7,305 ) ​ ​ — ​ ​ 3,280 ​ ​ — ​ ​ — ​ 7,305 ​ ​ ( 3,280 ) ​ ​ — Net income — ​ ​ — ​ ​ — ​ ​ — ​ ​ 130,656 ​ — ​ ​ — ​ 130,656 Net gains from foreign currency translation — ​ ​ — ​ ​ — ​ ​ 1,348 ​ ​ — ​ — ​ ​ — ​ 1,348 Balances—May 1, 2021 21,020,538 $ 2 $ 597,329 $ 3,913 $ ( 6,782 ) — $ — $ 594,462 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balances—February 1, 2020 19,236,681 $ 2 $ 430,662 $ ( 2,760 ) $ ( 409,253 ) — $ — $ 18,651 Stock-based compensation — ​ ​ — ​ ​ 5,721 ​ ​ — ​ ​ — ​ — ​ ​ — ​ 5,721 Vested and delivered restricted stock units 10,286 ​ ​ — ​ ​ ( 381 ) ​ ​ — ​ ​ — ​ — ​ ​ — ​ ( 381 ) Exercise of stock options 17,760 ​ ​ — ​ ​ 797 ​ ​ — ​ ​ — ​ — ​ ​ — ​ 797 Repurchases of common stock ( 600 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ 600 ​ ​ ( 72 ) ​ ( 72 ) Net loss — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 3,212 ) ​ — ​ ​ — ​ ( 3,212 ) Net losses from foreign currency translation — ​ ​ — ​ ​ — ​ ​ ( 2,372 ) ​ ​ — ​ — ​ ​ — ​ ( 2,372 ) Balances—May 2, 2020 19,264,127 $ 2 $ 436,799 $ ( 5,132 ) $ ( 412,465 ) 600 $ ( 72 ) $ 19,132 ​ The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements. ​ ​ ​ PART I. FINANCIAL INFORMATION 2021 FIRST QUARTER FORM 10-Q | 6 ​ Table of Contents RH CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ THREE MONTHS ENDED ​ ​ MAY 1, ​ MAY 2, ​ ​ 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES ​ ​ ​ ​ ​ ​ Net income (loss) ​ $ 130,656 ​ $ ( 3,212 ) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: ​ ​ ​ ​ Depreciation and amortization ​ 23,886 ​ 24,870 Non-cash operating lease cost ​ ​ 16,603 ​ ​ 15,907 Tradename impairment ​ ​ — ​ ​ 20,459 Asset impairments ​ ​ — ​ ​ 4,783 Amortization of debt discount ​ 8,670 ​ 12,916 Accretion of debt discount upon settlement of debt ​ ​ ( 319 ) ​ ​ — Stock-based compensation expense ​ 15,307 ​ 5,828 Non-cash finance lease interest expense ​ ​ 6,150 ​ ​ 5,781 Product recalls ​ ​ 500 ​ ​ — Loss on extinguishment of debt ​ ​ 105 ​ ​ — Share of equity method investments losses ​ ​ 2,095 ​ ​ — Other non-cash items ​ ( 1,944 ) ​ 1,145 Change in assets and liabilities: ​ ​ ​ ​ Accounts receivable ​ ( 722 ) ​ 1,554 Merchandise inventories ​ ( 49,540 ) ​ ( 55,837 ) Prepaid expense and other assets ​ ( 12,575 ) ​ ( 8,324 ) Landlord assets under construction—net of tenant allowances ​ ( 13,578 ) ​ ( 7,600 ) Accounts payable and accrued expenses ​ ( 32,250 ) ​ ( 52,989 ) Deferred revenue and customer deposits ​ 82,744 ​ 26,679 Other current liabilities ​ 41,981 ​ 4,696 Current and non-current operating lease liabilities ​ ( 19,379 ) ​ ( 7,065 ) Other non-current obligations ​ ( 7,515 ) ​ ( 6,459 ) Net cash provided by (used in) operating activities ​ 190,875 ​ ( 16,868 ) ​ PART I. FINANCIAL INFORMATION 2020 FIRST QUARTER FORM 10-Q | 7 ​ Table of Contents RH CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (In thousands) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ THREE MONTHS ENDED ​ ​ MAY 1, ​ MAY 2, ​ ​ 2021 2020 CASH FLOWS FROM INVESTING ACTIVITIES ​ ​ ​ Capital expenditures ​ ( 50,251 ) ​ ( 16,632 ) Equity method investments ​ ( 1,172 ) ​ — Net cash used in investing activities ​ ( 51,423 ) ​ ( 16,632 ) CASH FLOWS FROM FINANCING ACTIVITIES ​ ​ Borrowings under asset based credit facility ​ — ​ 71,100 Repayments under asset based credit facility ​ — ​ ( 61,100 ) Repayments under promissory and equipment security notes ​ ( 5,792 ) ​ ( 5,166 ) Repayments of convertible senior notes ​ ​ ( 2,035 ) ​ ​ — Principal payments under finance leases ​ ​ ( 3,671 ) ​ ​ ( 2,068 ) Proceeds from exercise of stock options ​ 1,393 ​ 797 Tax withholdings related to issuance of stock-based awards ​ ​ ( 927 ) ​ ( 381 ) Net cash provided by (used in) financing activities ​ ( 11,032 ) ​ 3,182 Effects of foreign currency exchange rate translation ​ 36 ​ ( 132 ) Net increase (decrease) in cash and cash equivalents and restricted cash equivalents ​ 128,456 ​ ( 30,450 ) Cash and cash equivalents and restricted cash equivalents ​ ​ ​ Beginning of period—cash and cash equivalents ​ 100,446 ​ 47,658 Beginning of period—restricted cash equivalents (acquisition related escrow deposits) ​ 6,625 ​ — Beginning of period—cash and cash equivalents ​ $ 107,071 ​ $ 47,658 End of period—cash and cash equivalents ​ 229,527 ​ 17,208 End of period—restricted cash equivalents (acquisition related escrow deposits) ​ 6,000 ​ — End of period—cash and cash equivalents and restricted cash equivalents ​ $ 235,527 ​ $ 17,208 Non-cash transactions: ​ ​ ​ ​ Property and equipment additions in accounts payable and accrued expenses at period-end ​ $ 14,463 ​ $ 2,935 Landlord asset additions in accounts payable and accrued expenses at period-end ​ ​ 33,568 ​ ​ 23,489 Shares issued on settlement of convertible senior notes ​ ​ ( 3,280 ) ​ ​ — Shares received on exercise of call option under bond hedge upon settlement of convertible senior notes ​ ​ 3,280 ​ ​ — ​ The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements. ​ ​ ​ ​ PART I. FINANCIAL INFORMATION 2021 FIRST QUARTER FORM 10-Q | 8 ​ Table of Contents RH NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1—THE COMPANY Nature of Business RH, a Delaware corporation, together with its subsidiaries (collectively, “we,” “us,” “our” or the “Company”), is a leading luxury retailer in the home furnishings market that offers merchandise assortments across a number of categories, including furniture, lighting, textiles, bathware, décor, outdoor and garden, and child and teen furnishings. These products are sold through our retail locations, websites and Source Books. As of May 1, 2021, we operated a total of 68 RH Galleries and 38 RH outlet stores in 30 states, the District of Columbia and Canada, as well as 14 Waterworks Showrooms throughout the United States and in the U.K., and had sourcing operations in Shanghai and Hong Kong. Basis of Presentation The accompanying unaudited interim condensed consolidated financial statements have been prepared from the Company’s records and, in our senior leadership team’s opinion, include all adjustments, consisting of normal recurring adjustments, necessary to fairly state our financial position as of May 1, 2021, and the results of operations for the three months ended May 1, 2021, and May 2, 2020. Our current fiscal year, which consists of 52 weeks, ends on January 29, 2022 (“fiscal 2021”). Certain information and disclosures normally included in the notes to annual consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) have been condensed or omitted for purposes of these interim condensed consolidated financial statements. The preparation of our condensed consolidated financial statements in conformity with GAAP requires our senior leadership team to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and such differences could be material to the condensed consolidated financial statements. We have assessed various accounting estimates and other matters, including those that require consideration of forecasted financial information, in context of the unknown future impacts of the novel coronavirus disease (“COVID-19” or “the pandemic”) using information that is reasonably available to us at this time. The accounting estimates and other matters we have assessed include, but were not limited to, sales return reserve, inventory reserve, allowance for doubtful accounts, goodwill, intangible and other long-lived assets. Our current assessment of these estimates is included in our condensed consolidated financial statements as of and for the three months ended May 1, 2021. As additional information becomes available to us, our future assessment of these estimates, including our expectations at the time regarding the duration, scope and severity of the pandemic, as well as other factors, could materially and adversely impact our condensed consolidated financial statements in future reporting periods. These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended January 30, 2021 (the “2020 Form 10-K”). The results of operations for the three months ended May 1, 2021, presented herein are not necessarily indicative of the results to be expected for the full fiscal year. Our business, like the businesses of retailers generally, is subject to uncertainty surrounding the financial impact of the novel coronavirus disease as discussed in Recent Developments—COVID-19 below. ​ PART I. FINANCIAL INFORMATION 2021 FIRST QUARTER FORM 10-Q | 9 ​ Table of Contents Recent Developments—COVID-19 The COVID-19 outbreak in the first quarter of fiscal 2020 caused disruption to our business operations. In our initial response to the health crisis, we undertook immediate adjustments to our business operations including temporarily closing all of our retail locations and Restaurants, curtailing expenses, and delaying investments including scaling back some inventory orders while we assessed the status of our business. Our approach to the crisis evolved quickly as our business trends substantially improved during the second through fourth fiscal quarters of fiscal 2020 as a result of both the reopening of most of our retail locations and also strong consumer demand for our products. Operational restrictions related to the COVID-19 pandemic affecting our Galleries and hospitality locations continued to fluctuate in the first quarter of 2021 based upon changes in local conditions and regulations. As of June 4, 2021, substantially all of our Galleries, Outlets, and Restaurants were open, although many of our Restaurants and Galleries continue to conduct business with occupancy limitations and other operational restrictions. Our overall customer demand in specific markets has generally correlated favorably with our customers’ ability to access our Galleries and Outlets. Although our business has strengthened during the period from the second quarter of fiscal 2020 and continuing into fiscal 2021, consumer spending patterns may shift away from spending on the home and home-related categories, such as home furnishings, as pandemic restrictions are lifted and consumers return to pre-COVID consumption trends, such as spending on travel and leisure and other activities. In addition, various constraints in our merchandise supply chain have resulted in some delays in our ability to convert business demand into revenues at normal historical rates. We anticipate that the backlog of orders for merchandise from our vendors, coupled with business conditions related to the pandemic, will continue to adversely affect the capacity of our vendors and supply chain to meet our merchandise demand levels during fiscal 2021. It may take several quarters for inventory receipts and manufacturing to catch up to the increase in customer demand and as a result the exact timing cannot be accurately predicted due to ongoing uncertainty of the continuing impact of the pandemic on our global supply chain. In particular, business circumstances and operational conditions in numerous international locations where our vendors operate are subject to ongoing risks, and regions in which our vendors have production facilities, such as India, have experienced various spikes in cases related to the pandemic. As a result, the pandemic may continue to adversely affect business operations in these jurisdictions, which could, in turn, have a negative impact on our vendors and therefore on our business as well, as including our ability to source products. We will continue to closely manage our investments while considering both the overall economic environment as well as the needs of our business operations. In addition, our near-term decisions regarding the sources and uses of capital in our business will continue to reflect and adapt to changes in market conditions and our business including further developments with respect to the pandemic. For more information, refer to the section entitled “Risk Factors” in our 2020 Form 10-K. NOTE 2—RECENTLY ISSUED ACCOUNTING STANDARDS New Accounting Standards or Updates Adopted Income Taxes In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12—Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes . The ASU impacts various topic areas within ASC 740, including accounting for taxes under hybrid tax regimes, accounting for increases in goodwill, allocation of tax amounts to separate company financial statements within a group that files a consolidated tax return, intra period tax allocation, interim period accounting, and accounting for ownership changes in investments, among other minor codification improvements. The guidance in this ASU becomes effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. We adopted this standard in the first quarter of fiscal 2021 and the adoption did not have an impact on our condensed consolidated financial statements. ​ PART I. FINANCIAL INFORMATION 2021 FIRST QUARTER FORM 10-Q | 10 ​ Table of Contents New Accounting Standards or Updates Not Yet Adopted Convertible Instruments and Contracts in an Entity’s Own Equity In August 2020, the FASB issued ASU 2020-06—Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity . The ASU simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. Specifically, the ASU removes the separation models for convertible debt with a cash conversion feature or convertible instruments with a beneficial conversion feature. As a result, after adopting the ASU’s guidance, we will not separately present in equity an embedded conversion feature of such debt. Instead, we will account for a convertible debt instrument wholly as debt unless (i) a convertible instrument contains features that require bifurcation as a derivative or (ii) a convertible debt instrument was issued at a substantial premium. Additionally, the ASU removes certain conditions for equity classification related to contracts in an entity’s own equity (e.g., warrants) and amends certain guidance related to the computation of earnings per share for convertible instruments and contracts on an entity’s own equity. The guidance in this ASU can be adopted using either a full or modified retrospective approach and becomes effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021. We will adopt the ASU in the first quarter of fiscal 2022, and we are evaluating the effects that the adoption of this ASU will have on our condensed consolidated financial statements, including the adoption approach. NOTE 3—PREPAID EXPENSE AND OTHER ASSETS Prepaid expense and other current assets consist of the following ( in thousands ): ​ ​ ​ ​ ​ ​ ​ ​ MAY 1, JANUARY 30, ​ ​ 2021 ​ 2021 Prepaid expense and other current assets ​ $ 52,819 ​ $ 42,079 Capitalized catalog costs ​ 13,826 ​ 19,067 Promissory notes receivable, including interest (1) ​ 13,816 ​ 13,569 Vendor deposits ​ ​ 12,689 ​ ​ 12,519 Right of return asset for merchandise ​ 8,173 ​ 7,453 Acquisition related escrow deposits ​ ​ 4,400 ​ ​ 2,650 Total prepaid expense and other current assets ​ $ 105,723 ​ $ 97,337 ​ (1) Represents promissory notes, including principal and accrued interest, due from a related party. Refer to Note 5— Equity Method Investments . Other non-current assets consist of the following ( in thousands ): ​ ​ ​ ​ ​ ​ ​ ​ MAY 1, JANUARY 30, ​ ​ 2021 ​ 2021 Landlord assets under construction—net of tenant allowances ​ $ 169,312 ​ $ 135,531 Initial direct costs prior to lease commencement ​ ​ 41,843 ​ 36,770 Capitalized cloud computing costs—net (1) ​ ​ 8,547 ​ ​ 7,254 Other deposits ​ 7,344 ​ 5,287 Acquisition related escrow deposits ​ ​ 1,600 ​ ​ 3,975 Deferred financing fees ​ 1,256 ​ 1,525 Other non-current assets ​ 10,109 ​ 9,835 Total other non-current assets ​ $ 240,011 ​ $ 200,177 (1) Presented net of accumulated amortization of $ 1.1 million and $ 0.5 million as of May 1, 2021 and January 30, 2021, respectively. ​ ​ ​ PART I. FINANCIAL INFORMATION 2021 FIRST QUARTER FORM 10-Q | 11 ​ Table of Contents NOTE 4—GOODWILL, TRADENAMES, TRADEMARKS AND OTHER INTANGIBLE ASSETS The following sets forth the goodwill, tradenames, trademarks and other intangible assets activity for the RH Segment and Waterworks (See Note 17— Segment Reporting ), for the three months ended May 1, 2021 (in thousands) : ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ FOREIGN ​ ​ ​ ​ JANUARY 30, ​ ​ ​ CURRENCY ​ MAY 1, ​ ​ 2021 ​ ADDITIONS ​ TRANSLATION ​ 2021 RH Segment ​ ​ ​ ​ Goodwill ​ $ 141,100 ​ $ — ​ $ 52 ​ $ 141,152 Tradenames, trademarks and other intangible assets ​ 54,663 ​ 574 ​ — ​ 55,237 Waterworks (1) ​ ​ ​ ​ ​ ​ Tradename (2) ​ 17,000 ​ — ​ — ​ 17,000 (1) Waterworks reporting unit goodwill of $ 51.1 million recognized upon acquisition in fiscal 2016 was fully impaired as of fiscal 2018, with $ 17.4 million and $ 33.7 million of impairment recorded in fiscal 2018 and fiscal 2017, respectively. (2) Presented net of an impairment charge of $ 35.1 million, with $ 20.5 million and $ 14.6 million recorded in fiscal 2020 and fiscal 2018, respectively. ​ Waterworks Tradename Impairment During the first quarter of fiscal 2020, as a result of the COVID-19 health crisis and related Showroom closures and slowdown in construction activity , management updated the long-term financial projections for the Waterworks reporting unit which resulted in a significant decrease in forecasted revenues and profitability. We performed an interim impairment test on the Waterworks tradename and the estimated future cash flows of the Waterworks reporting unit indicated the fair value of the tradename asset was below its carrying amount. We determined fair value utilizing a discounted cash flow methodology under the relief-from-royalty method. Significant assumptions under this method include forecasted net revenues and the estimated royalty rate, expressed as a percentage of revenues, in addition to the discount rate based on the weighted-average cost of capital. Based on the impairment test performed, we concluded that the Waterworks reporting unit tradename was impaired as of May 2, 2020. As a result, we recognized a $ 20.5 million non-cash impairment charge for the Waterworks reporting unit tradename during the three months ended May 2, 2020 . ​ NOTE 5—EQUITY METHOD INVESTMENTS Equity method investments represent our 50 percent membership interests in three privately-held limited liability companies in Aspen (each, an “Aspen LLC” and collectively, the “Aspen LLCs” or the “equity method investments”) which were formed during fiscal 2020, and have the purpose of acquiring, developing, operating and selling certain real estate projects in Aspen, Colorado. As we do not have a controlling financial interest in the Aspen LLCs but have the ability to exercise significant influence over the Aspen LLCs, we account for these investments using the equity method of accounting. During the three months ended May 1, 2021, we recorded our proportionate share of equity method investments losses of $ 2.1 million, which is included in the condensed consolidated statements of operations and a corresponding decrease to the carrying value of equity method investments on the condensed consolidated balance sheets as of May 1, 2021. As of May 1, 2021, $ 13.8 million of promissory notes receivable are outstanding with the managing member, which are included in prepaid expense and other current assets on the condensed consolidated balance sheets. These promissory notes are expected to be settled in cash and not converted into additional equity investment in the Aspen LLCs. An affiliate of the managing member of the Aspen LLCs became the landlord of an additional RH Design Gallery in the first quarter of fiscal 2021. ​ PART I. FINANCIAL INFORMATION 2021 FIRST QUARTER FORM 10-Q | 12 ​ Table of Contents NOTE 6—ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accounts payable and accrued expenses consist of the following ( in thousands ): ​ ​ ​ ​ ​ ​ ​ ​ MAY 1, JANUARY 30, ​ ​ 2021 ​ 2021 Accounts payable ​ $ 231,901 ​ $ 224,906 Accrued compensation ​ 49,503 ​ 84,860 Accrued freight and duty ​ 33,698 ​ 29,754 Accrued sales taxes ​ 25,474 ​ 23,706 Accrued occupancy ​ 21,252 ​ 17,671 Accrued catalog costs ​ 6,460 ​ 4,354 Accrued professional fees ​ 4,532 ​ 5,383 Deferred consideration for asset purchase ​ ​ — ​ ​ 14,387 Other accrued expenses ​ 16,591 ​ 19,401 Total accounts payable and accrued expenses ​ $ 389,411 ​ $ 424,422 ​ Other current liabilities consist of the following ( in thousands ): ​ ​ ​ ​ ​ ​ ​ ​ MAY 1, JANUARY 30, ​ ​ 2021 ​ 2021 Allowance for sales returns ​ $ 28,649 ​ $ 25,559 Current portion of equipment promissory notes ​ ​ 28,067 ​ 22,747 Unredeemed gift card and merchandise credit liability ​ 18,574 ​ 19,173 Finance lease liabilities ​ ​ 15,322 ​ ​ 14,671 Product recall reserve ​ 7,012 ​ 8,181 Other current liabilities ​ 3,980 ​ 5,175 Total other current liabilities ​ $ 101,604 ​ $ 95,506 ​ Contract Liabilities We defer revenue associated with merchandise delivered via the home-delivery channel. We expect that substantially all of the deferred revenue and customer deposits as of May 1, 2021 will be recognized within the next six months as the performance obligations are satisfied. New membership fees are recorded as deferred revenue when collected from customers and recognized as revenue based on expected product revenues over the annual membership period, based on historical trends of sales to members. Membership renewal fees are recorded as deferred revenue when collected from customers and are recognized as revenue on a straight-line basis over the membership period, or one year . In addition, we defer revenue when cash payments are received in advance of performance for unsatisfied obligations related to our gift cards. During the three months ended May 1, 2021 and May 2, 2020, we recognized $ 4.9 million and $ 4.1 million, respectively, of revenue related to previous deferrals related to our gift cards . During the three months ended May 1, 2021 and May 2, 2020, we recognized gift card breakage of $ 0.4 million and $ 0.6 million, respectively. We expect that approximately 75 % of the remaining gift card liabilities as of May 1, 2021 will be recognized when the gift cards are redeemed by customers. ​ PART I. FINANCIAL INFORMATION 2021 FIRST QUARTER FORM 10-Q | 13 ​ Table of Contents NOTE 7—OTHER NON-CURRENT OBLIGATIONS Other non-current obligations consist of the following ( in thousands ): ​ ​ ​ ​ ​ ​ ​ ​ MAY 1, JANUARY 30, ​ ​ 2021 ​ 2021 Deferred payroll taxes ​ $ 4,461 ​ $ 4,461 Rollover units and profit interests (1) ​ 3,597 ​ 3,490 Unrecognized tax benefits ​ 3,324 ​ 3,114 Other non-current obligations ​ 4,445 ​ 5,916 Total other non-current obligations ​ $ 15,827 ​ $ 16,981 (1) Represents rollover units and profit interests associated with the acquisition of Waterworks. Refer to Note 15 — Stock-Based Compensation . . NOTE 8—LEASES Lease costs—net consist of the following ( in thousands ): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ THREE MONTHS ENDED ​ ​ MAY 1, MAY 2, ​ ​ 2021 2020 Operating lease cost (1) $ 23,567 ​ $ 20,726 Finance lease costs ​ ​ ​ ​ ​ ​ Amortization of leased assets (1) ​ ​ 10,918 ​ ​ 9,588 Interest on lease liabilities (2) ​ ​ 6,150 ​ ​ 5,781 Variable lease costs (3) ​ ​ 8,427 ​ ​ 3,560 Sublease income (4) ​ ​ ( 1,182 ) ​ ​ ( 2,575 ) Total lease costs—net ​ $ 47,880 ​ $ 37,080 (1) Operating lease costs and amortization of finance lease right-of-use assets are included in cost of goods sold or selling, general and administrative expenses on the condensed consolidated statements of operations based on our accounting policy. Refer to Note 3— Significant Accounting Policies in the 2020 Form 10-K. (2) Included in interest expense—net on the condensed consolidated statements of operations. (3) Represents variable lease payments under operating and finance lease agreements. The amounts primarily represent contingent rent based on a percentage of retail sales over contractual levels of $ 6.3 million and $ 2.0 million for the three months ended May 1, 2021 and May 2, 2020, respectively, as well as charges associated with common area maintenance of $ 2.1 million and $ 1.6 million for the three months ended May 1, 2021 and May 2, 2020, respectively. Other variable costs include single lease cost related to variable lease payments based on an index or rate that were not included in the measurement of the initial lease liability and right-of-use asset were not material in any period. (4) Included in selling, general and administrative expenses on the condensed consolidated statements of operations. ​ PART I. FINANCIAL INFORMATION 2021 FIRST QUARTER FORM 10-Q | 14 ​ Table of Contents Lease right-of-use assets and lease liabilities consist of the following ( in thousands ): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ MAY 1, ​ JANUARY 30, ​ ​ ​ 2021 2021 ​ ​ Balance Sheet Classification ​ ​ ​ ​ ​ ​ Assets ​ ​ ​ ​ ​ ​ ​ ​ Operating leases ​ Operating lease right-of-use assets ​ $ 541,841 ​ $ 456,164 Finance leases (1)(2) ​ Property and equipment—net ​ ​ 718,001 ​ ​ 711,804 Total lease right-of-use assets ​ ​ ​ $ 1,259,842 ​ $ 1,167,968 Liabilities ​ ​ ​ ​ ​ ​ ​ ​ Current (3) ​ ​ ​ ​ ​ ​ ​ ​ Operating leases ​ Operating lease liabilities ​ $ 72,442 ​ $ 71,524 Finance leases ​ Other current liabilities ​ ​ 15,322 ​ ​ 14,671 Total lease liabilities—current ​ ​ ​ ​ 87,764 ​ ​ 86,195 Non-current ​ ​ ​ ​ ​ ​ ​ ​ Operating leases ​ Non-current operating lease liabilities ​ ​ 532,142 ​ ​ 448,169 Finance leases ​ Non-current finance lease liabilities ​ ​ 501,118 ​ ​ 485,481 Total lease liabilities—non-current ​ ​ ​ ​ 1,033,260 ​ ​ 933,650 Total lease liabilities ​ ​ ​ $ 1,121,024 ​ $ 1,019,845 (1) Finance lease right-of-use assets include capitalized amounts related to our completed construction activities to design and build leased assets, which are reclassified from other non-current assets upon lease commencement. (2) Finance lease right-of-use assets are recorded net of accumulated amortization of $ 144.0 million and $ 133.0 million as of May 1, 2021 and January 30, 2021, respectively. (3) Current portion of lease liabilities represents the reduction of the related lease liability over the next 12 months. ​ PART I. FINANCIAL INFORMATION 2021 FIRST QUARTER FORM 10-Q | 15 ​ Table of Contents The maturities of lease liabilities are as follows as of May 1, 2021 ( in thousands ): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ OPERATING ​ FINANCE ​ ​ FISCAL YEAR ​ ​ LEASES LEASES TOTAL Remainder of fiscal 2021 ​ ​ ​ $ 72,017 ​ $ 29,966 ​ $ 101,983 2022 ​ ​ ​ ​ 88,706 ​ ​ 40,352 ​ ​ 129,058 2023 ​ ​ ​ ​ 80,696 ​ ​ 40,771 ​ ​ 121,467 2024 ​ ​ ​ ​ 74,575 ​ ​ 41,169 ​ ​ 115,744 2025 ​ ​ ​ ​ 74,475 ​ ​ 42,385 ​ ​ 116,860 2026 ​ ​ ​ ​ 71,741 ​ ​ 43,164 ​ ​ 114,905 Thereafter ​ ​ ​ ​ 276,516 ​ ​ 575,649 ​ ​ 852,165 Total lease payments (1)(2) ​ ​ ​ ​ 738,726 ​ ​ 813,456 ​ ​ 1,552,182 Less—imputed interest (3) ​ ​ ​ ​ ( 134,142 ) ​ ​ ( 297,016 ) ​ ​ ( 431,158 ) Present value of lease liabilities ​ ​ ​ $ 604,584 ​ $ 516,440 ​ $ 1,121,024 (1) Total lease payments include future obligations for renewal options that are reasonably certain to be exercised and are included in the measurement of the lease liability. Total lease payments exclude $ 667.4 million of legally binding payments under the non-cancellable term for leases signed but not yet commenced under our accounting policy as of May 1, 2021, of which $ 24.1 million, $ 32.5 million, $ 37.3 million, $ 38.7 million, $ 40.0 million and $ 39.8 million will be paid in fiscal 2021, fiscal 2022, fiscal 2023, fiscal 2024, fiscal 2025 and fiscal 2026, respectively, and $ 455.0 million will be paid subsequent to fiscal 2026. (2) Excludes future commitments under short-term lease agreements of $ 1.8 million as of May 1, 2021. (3) Calculated using the discount rate for each lease at lease commencement. Supplemental information related to leases consists of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ THREE MONTHS ENDED ​ ​ MAY 1, MAY 2, ​ ​ 2021 2020 Weighted-average remaining lease term (years) ​ ​ ​ ​ ​ ​ Operating leases ​ ​ 9.5 ​ ​ 8.7 Finance leases ​ ​ 18.2 ​ ​ 18.4 Weighted-average discount rate ​ ​ ​ ​ ​ ​ Operating leases ​ ​ 4.00 % ​ ​ 3.82 % Finance leases ​ ​ 4.99 % ​ ​ 5.25 % ​ ​ PART I. FINANCIAL INFORMATION 2021 FIRST QUARTER FORM 10-Q | 16 ​ Table of Contents Other information related to leases consists of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ THREE MONTHS ENDED ​ ​ MAY 1, MAY 2, ​ ​ 2021 2020 Cash paid for amounts included in the measurement of lease liabilities ​ ​ ​ ​ ​ Operating cash flows from operating leases ​ $ ( 25,456 ) ​ $ ( 10,786 ) Operating cash flows from finance leases ​ ​ ( 6,253 ) ​ ​ ( 2,437 ) Financing cash flows from finance leases ​ ​ ( 3,671 ) ​ ​ ( 2,068 ) Total cash outflows from leases ​ $ ( 35,380 ) ​ $ ( 15,291 ) Lease right-of-use assets obtained in exchange for lease obligations—net of lease terminations (non-cash) ​ ​ ​ ​ ​ ​ Operating leases ​ $ 103,088 ​ $ 1,198 Finance leases ​ ​ 19,611 ​ ​ 58 ​ Long-lived Asset Impairment During the three months ended May 2, 2020, we recognized long-lived asset impairment charges of $ 3.5 million related to one RH Baby & Child and TEEN Gallery and one Waterworks showroom, comprised of lease right-of-use asset impairment of $ 2.0 million and property and equipment impairment of $ 1.5 million. NOTE 9—CONVERTIBLE SENIOR NOTES $ 350 million 0.00 % Convertible Senior Notes due 2024 In September 2019 , we issued in a private offering $ 350 million principal amount of 0.00 % convertible senior notes due 2024 (the “2024 Notes”). The 2024 Notes are governed by the terms of an indenture between the Company and U.S. Bank National Association, as the Trustee. The 2024 Notes will mature on September 15, 2024 , unless earlier purchased by us or converted. The 2024 Notes will not bear interest, except that the 2024 Notes will be subject to “special interest” in certain limited circumstances in the event of our failure to perform certain of our obligations under the indenture governing the 2024 Notes. The 2024 Notes are unsecured obligations and do not contain any financial covenants or restrictions on the payments of dividends, the incurrence of indebtedness or the issuance or repurchase of securities by us or any of our subsidiaries. Certain events are also considered “events of default” under the 2024 Notes, which may result in the acceleration of the maturity of the 2024 Notes, as described in the indenture governing the 2024 Notes. Events of default under the indenture for the 2024 Notes include, among other things, the occurrence of an event of default by us as defined under any mortgage, indenture or instrument under which there may be issued, or by which there may be secured or evidenced, any indebtedness of the Company or any of its significant subsidiaries for money borrowed, if that event of default (i) constitutes the failure to pay when due indebtedness in the aggregate principal amount in excess of $ 20 million and (ii) such event of default continues for a period of 30 days after written notice is delivered to the Company by the Trustee or to the Company and the Trustee by the holders of at least 25 % of the aggregate principal amount of the 2024 Notes then outstanding. The initial conversion rate applicable to the 2024 Notes is 4.7304 shares of common stock per $ 1,000 principal amount of 2024 Notes, or a total of approximately 1.656 million shares for the total $ 350 million principal amount. This initial conversion rate is equivalent to an initial conversion price of approximately $ 211.40 per share, which represents a 25 % premium to the $ 169.12 closing share price on the day the 2024 Notes were priced. The conversion rate will be subject to adjustment upon the occurrence of certain specified events, but will not be adjusted for any accrued and unpaid special interest. In addition, upon the occurrence of a “make-whole fundamental change” as defined in the indenture governing the 2024 Notes, we will, in certain circumstances, increase the conversion rate by a number of additional shares for a holder that elects to convert its 2024 Notes in connection with such make-whole fundamental change. ​ PART I. FINANCIAL INFORMATION 2021 FIRST QUARTER FORM 10-Q | 17 ​ Table of Contents Prior to June 15, 2024 , the 2024 Notes are convertible only under the following circumstances: (1) during any calendar quarter commencing after December 31, 2019, if, for at least 20 trading days (whether or not consecutive) during the 30 consecutive trading day period ending on the last trading day of the immediately preceding calendar quarter, the last reported sale price of our common stock on such trading day is greater than or equal to 130 % of the applicable conversion price on such trading day; (2) during the five consecutive business day period after any ten consecutive trading day period in which, for each day of that period, the trading price per $ 1,000 principal amount of 2024 Notes for such trading day was less than 98 % of the product of the last reported sale price of our common stock and the applicable conversion rate on such trading day; or (3) upon the occurrence of specified corporate transactions. The first condition was satisfied from the calendar quarter ended September 30, 2020 through the calendar quarter ended March 31, 2021 and, accordingly, holders were eligible to convert their 2024 Notes beginning in the calendar quarter ended December 31, 2020 and are currently eligible to convert their 2024 Notes during the calendar quarter ending June 30, 2021. On and after June 15, 2024 , until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or a portion of their 2024 Notes at any time, regardless of the foregoing circumstances. Upon conversion, the 2024 Notes will be settled, at our election, in cash, shares of our common stock, or a combination of cash and shares of our common stock. If the Company has not delivered a notice of its election of settlement method prior to the final conversion period it will be deemed to have elected combination settlement with a dollar amount per note to be received upon conversion of $ 1,000 . We may not redeem the 2024 Notes; however, upon the occurrence of a fundamental change (as defined in the indenture governing the notes), holders may require us to purchase all or a portion of their 2024 Notes for cash at a price equal to 100 % of the principal amount of the 2024 Notes to be purchased plus any accrued and unpaid special interest to, but excluding, the fundamental change purchase date. Under GAAP, certain convertible debt instruments that may be settled in cash on conversion are required to be separately accounted for as liability and equity components of the instrument in a manner that reflects the issuer’s non-convertible debt borrowing rate. Accordingly, in accounting for the issuance of the 2024 Notes, we separated the 2024 Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The carrying amount of the equity component, which is recognized as a debt discount, represents the difference between the proceeds from the issuance of the 2024 Notes and the fair value of the liability component of the 2024 Notes. The excess of the principal amount of the liability component over its carrying amount (“debt discount”) will be amortized to interest expense using an effective interest rate of 5.74 % over the expected life of the 2024 Notes. The equity component is not remeasured as long as it continues to meet the conditions for equity classification. Debt issuance costs related to the 2024 Notes were comprised of discounts upon original issuance of $ 3.5 million and third party offering costs of $ 1.3 million. In accounting for the debt issuance costs related to the issuance of the 2024 Notes, we allocated the total amount incurred to the liability and equity components based on their relative values. Debt issuance costs attributable to the liability component are amortized to interest expense using the effective interest method over the expected life of the 2024 Notes, and debt issuance costs attributable to the equity component are netted with the equity component in stockholders’ equity. Discounts and third party offering costs attributable to the liability component are recorded as a contra-liability and are presented net against the convertible senior notes due 2024 balance on the condensed consolidated balance sheets. During both the three months ended May 1, 2021 and May 2, 2020, we recorded $ 0.2 million related to the amortization of debt issuance costs. ​ PART I. FINANCIAL INFORMATION 2021 FIRST QUARTER FORM 10-Q | 18 ​ Table of Contents The carrying values of the 2024 Notes, excluding the discounts upon original issuance and third party offering costs, are as follows ( in thousands ): ​ ​ ​ ​ ​ ​ ​ ​ MAY 1, JANUARY 30, ​ ​ 2021 ​ 2021 Liability component ​ ​ Principal ​ $ 350,000 ​ $ 350,000 Less: Debt discount ​ ( 61,720 ) ​ ( 65,818 ) Net carrying amount ​ $ 288,280 ​ $ 284,182 Equity component (1) ​ $ 87,252 ​ $ 87,252 (1) Included in additional paid-in capital on the condensed consolidated balance sheets. We recorded interest expense of $ 4.1 million and $ 3.9 million for the amortization of the debt discount related to the 2024 Notes during the three months ended May 1, 2021 and May 2, 2020, respectively. 2024 Notes—Convertible Bond Hedge and Warrant Transactions In connection with the offering of the 2024 Notes and exercise of the overallotment option in September 2019 , we entered into convertible note hedge transactions whereby we have the option to purchase a total of approximately 1.656 million shares of our common stock at a price of approximately $ 211.40 per share. The total cost of the convertible note hedge transactions was approximately $ 91.4 million. In addition, we sold warrants whereby the holders of the warrants have the option to purchase a total of approximately 1.656 million shares of our common stock at a price of $ 338.24 per share, which represents a 100 % premium to the $ 169.12 closing share price on the day the 2024 Notes were priced. The warrants contain certain adjustment mechanisms whereby the total number of shares to be purchased under such warrants may be increased up to a cap of approximately 3.3 million shares of common stock (which cap may also be subject to adjustment). We received approximately $ 50.2 million in cash proceeds from the sale of these warrants. Taken together, the purchase of the convertible note hedges and sale of the warrants are intended to offset any actual earnings dilution from the conversion of the 2024 Notes until our common stock is above approximately $ 338.24 per share. As these transactions meet certain accounting criteria, the convertible note hedges and warrants are recorded in stockholders’ equity, are not accounted for as derivatives and are not remeasured each reporting period. The net costs incurred in connection with the convertible note hedge and warrant transactions were recorded as a reduction to additional paid-in capital on the condensed consolidated balance sheets. We recorded a deferred tax liability of $ 21.7 million in connection with the debt discount associated with the 2024 Notes and recorded a deferred tax asset of $ 22.7 million in connection with the convertible note hedge transactions. The deferred tax liability and deferred tax asset are recorded in deferred tax assets on the condensed consolidated balance sheets. ​ PART I. FINANCIAL INFORMATION 2021 FIRST QUARTER FORM 10-Q | 19 ​ Table of Contents $ 335 million 0.00 % Convertible Senior Notes due 2023 In June 2018 , we issued in a private offering $ 300 million principal amount of 0.00 % convertible senior notes due 2023 and issued an additional $ 35 million principal amount in connection with the overallotment option granted to the initial purchasers as part of the offering (collectively, the “2023 Notes”). The 2023 Notes are governed by the terms of an indenture between the Company and U.S. Bank National Association, as the Trustee. The 2023 Notes will mature on June 15, 2023 , unless earlier purchased by us or converted. The 2023 Notes will not bear interest, except that the 2023 Notes will be subject to “special interest” in certain limited circumstances in the event of our failure to perform certain of our obligations under the indenture governing the 2023 Notes. The 2023 Notes are unsecured obligations and do not contain any financial covenants or restrictions on the payments of dividends, the incurrence of indebtedness or the issuance or repurchase of securities by us or any of our subsidiaries. Certain events are also considered “events of default” under the 2023 Notes, which may result in the acceleration of the maturity of the 2023 Notes, as described in the indenture governing the 2023 Notes. Events of default under the indenture for the 2023 Notes include, among other things, the occurrence of an event of default by us as defined under any mortgage, indenture or instrument under which there may be issued, or by which there may be secured or evidenced, any indebtedness of the Company or any of its significant subsidiaries for money borrowed, if that event of default (i) constitutes the failure to pay when due indebtedness in the aggregate principal amount in excess of $ 20 million and (ii) such event of default continues for a period of 30 days after written notice is delivered to the Company by the Trustee or to the Company and the Trustee by the holders of at least 25 % of the aggregate principal amount of the 2023 Notes then outstanding. The initial conversion rate applicable to the 2023 Notes is 5.1640 shares of common stock per $ 1,000 principal amount of 2023 Notes, which is equivalent to an initial conversion price of approximately $ 193.65 per share. The conversion rate will be subject to adjustment upon the occurrence of certain specified events, but will not be adjusted for any accrued and unpaid special interest. In addition, upon the occurrence of a “make-whole fundamental change” as defined in the indenture governing the 2023 Notes, we will, in certain circumstances, increase the conversion rate by a number of additional shares for a holder that elects to convert its 2023 Notes in connection with such make-whole fundamental change. Prior to March 15, 2023, the 2023 Notes are convertible only under the following circumstances: (1) during any calendar quarter commencing after September 30, 2018, if, for at least 20 trading days (whether or not consecutive) during the 30 consecutive trading day period ending on the last trading day of the immediately preceding calendar quarter, the last reported sale price of our common stock on such trading day is greater than or equal to 130 % of the applicable conversion price on such trading day; (2) during the five consecutive business day period after any ten consecutive trading day period in which, for each day of that period, the trading price per $ 1,000 principal amount of 2023 Notes for such trading day was less than 98 % of the product of the last reported sale price of our common stock and the applicable conversion rate on such trading day; or (3) upon the occurrence of specified corporate transactions. The first condition was satisfied from the calendar quarter ended September 30, 2020 through the calendar quarter ended March 31, 2021 and, accordingly, holders were eligible to convert their 2023 Notes beginning in the calendar quarter ended December 31, 2020 and are currently eligible to convert their 2023 Notes during the calendar quarter ending June 30, 2021. On and after March 15, 2023 , until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or a portion of their 2023 Notes at any time, regardless of the foregoing circumstances. Upon conversion, the 2023 Notes will be settled, at our election, in cash, shares of our common stock, or a combination of cash and shares of our common stock. If the Company has not delivered a notice of its election of settlement method prior to the final conversion period it will be deemed to have elected combination settlement with a dollar amount per note to be received upon conversion of $ 1,000 . We may not redeem the 2023 Notes; however, upon the occurrence of a fundamental change (as defined in the indenture governing the notes), holders may require us to purchase all or a portion of their 2023 Notes for cash at a price equal to 100 % of the principal amount of the 2023 Notes to be purchased plus any accrued and unpaid special interest to, but excluding, the fundamental change purchase date. ​ PART I. FINANCIAL INFORMATION 2021 FIRST QUARTER FORM 10-Q | 20 ​ Table of Contents Under GAAP, certain convertible debt instruments that may be settled in cash on conversion are required to be separately accounted for as liability and equity components of the instrument in a manner that reflects the issuer’s non-convertible debt borrowing rate. Accordingly, in accounting for the issuance of the 2023 Notes, we separated the 2023 Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The carrying amount of the equity component, which is recognized as a debt discount, represents the difference between the proceeds from the issuance of the 2023 Notes and the fair value of the liability component of the 2023 Notes. The excess of the principal amount of the liability component over its carrying amount (“debt discount”) will be amortized to interest expense using an effective interest rate of 6.35 % over the expected life of the 2023 Notes. The equity component is not remeasured as long as it continues to meet the conditions for equity classification. Debt issuance costs related to the 2023 Notes were comprised of discounts upon original issuance of $ 1.7 million and third party offering costs of $ 4.6 million. In accounting for the debt issuance costs related to the issuance of the 2023 Notes, we allocated the total amount incurred to the liability and equity components based on their relative values. Debt issuance costs attributable to the liability component are amortized to interest expense using the effective interest method over the expected life of the 2023 Notes, and debt issuance costs attributable to the equity component are netted with the equity component in stockholders’ equity. Discounts and third party offering costs attributable to the liability component are recorded as a contra-liability and are presented net against the convertible senior notes due 2023 balance on the condensed consolidated balance sheets. During the three months ended May 1, 2021 and May 2, 2020, we recorded $ 0.3 million and $ 0.2 million, respectively, related to the amortization of debt issuance costs. In December 2020, holders of $ 2.4 million in aggregate principal amount of the 2023 Notes elected conversion at the option of the noteholders. During the three months ended May 1, 2021, we paid $ 2.4 million in cash and delivered 7,307 shares of common stock to settle the converted 2023 Notes. As a result, we recognized a loss on extinguishment of the liability component of $ 0.1 million in the three months ended May 1, 2021. We also received 7,305 shares of common stock from the exercise of a portion of the convertible bond hedge we purchased concurrently with the issuance of the 2023 Notes as described below, and therefore, on a net basis issued 2 shares of our common stock in respect to such settlement of the converted 2023 Notes. In May 2021, holders of $ 30.8 million in aggregate principal amount of the 2023 Notes elected conversion at the option of the noteholders. During the second quarter of fiscal 2021, we expect to pay $ 30.8 million in cash and to deliver an immaterial number of shares of common stock to settle the converted 2023 Notes, net of the shares of common stock we expect to receive from the exercise of a portion of the convertible bond hedge we purchased concurrently with the issuance of the 2023 Notes as described below. The carrying values of the 2023 Notes, excluding the discounts upon original issuance and third party offering costs, are as follows ( in thousands ): ​ ​ ​ ​ ​ ​ ​ ​ MAY 1, JANUARY 30, ​ ​ 2021 ​ 2021 Liability component ​ ​ Principal ​ $ 332,644 ​ $ 335,000 Less: Debt discount ​ ( 42,171 ) ​ ( 47,064 ) Net carrying amount ​ $ 290,473 ​ $ 287,936 Equity component (1) ​ $ 90,756 ​ $ 90,990 (1) Included in additional paid-in capital on the condensed consolidated balance sheets. We recorded interest expense of $ 4.6 million and $ 4.3 million for the amortization of the debt discount related to the 2023 Notes during the three months ended May 1, 2021 and May 2, 2020, respectively. ​ PART I. FINANCIAL INFORMATION 2021 FIRST QUARTER FORM 10-Q | 21 ​ Table of Contents 2023 Notes—Convertible Bond Hedge and Warrant Transactions In connection with the offering of the 2023 Notes and exercise of the overallotment option in June 2018 , we entered into convertible note hedge transactions whereby we have the option to purchase a total of approximately 1.730 million shares of our common stock at a price of approximately $ 193.65 per share. The total cost of the convertible note hedge transactions was approximately $ 91.9 million. In addition, we sold warrants whereby the holders of the warrants have the option to purchase a total of approximately 1.730 million shares of our common stock at a price of $ 309.84 per share. The warrants contain certain adjustment mechanisms whereby the total number of shares to be purchased under such warrants may be increased up to a cap of approximately 3.5 million shares of common stock (which cap may also be subject to adjustment). We received approximately $ 51.0 million in cash proceeds from the sale of these warrants. Taken together, the purchase of the convertible note hedges and sale of the warrants are intended to offset any actual earnings dilution from the conversion of the 2023 Notes until our common stock is above approximately $ 309.84 per share. As these transactions meet certain accounting criteria, the convertible note hedges and warrants are recorded in stockholders’ equity, are not accounted for as derivatives and are not remeasured each reporting period. The net costs incurred in connection with the convertible note hedge and warrant transactions were recorded as a reduction to additional paid-in capital on the condensed consolidated balance sheets. We recorded a deferred tax liability of $ 22.3 million in connection with the debt discount associated with the 2023 Notes and recorded a deferred tax asset of $ 22.5 million in connection with the convertible note hedge transactions. The deferred tax liability and deferred tax asset are recorded in deferred tax assets on the condensed consolidated balance sheets. NOTE 10—CREDIT FACILITIES The outstanding balances under our credit facilities were as follows ( in thousands ): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ MAY 1, ​ JANUARY 30, ​ ​ 2021 ​ 2021 ​ ​ ​ ​ UNAMORTIZED ​ ​ ​ ​ ​ UNAMORTIZED ​ ​ ​ ​ ​ ​ ​ DEBT ​ NET ​ ​ ​ ​ DEBT ​ NET ​ ​ OUTSTANDING ​ ISSUANCE ​ CARRYING ​ OUTSTANDING ​ ISSUANCE ​ CARRYING ​ ​ AMOUNT COSTS AMOUNT AMOUNT COSTS AMOUNT Asset based credit facility (1) ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — Equipment promissory notes (2) ​ 31,942 ​ ( 136 ) ​ 31,806 ​ 37,532 ​ ( 171 ) ​ 37,361 Total credit facilities ​ $ 31,942 ​ $ ( 136 ) ​ $ 31,806 ​ $ 37,532 ​ $ ( 171 ) ​ $ 37,361 (1) Deferred financing fees associated with the asset based credit facility as of May 1, 2021 and January 30, 2021 were $ 1.3 million and $ 1.5 million, respectively, and are included in other non-current assets on the condensed consolidated balance sheets. The deferred financing fees are amortized on a straight-line basis over the life of the revolving line of credit, which has a maturity date of June 28, 2022. (2) Represents total equipment security notes secured by certain of our property and equipment, of which $ 28.1 million outstanding was included in other current liabilities on the condensed consolidated balance sheets as of May 1, 2021. The remaining $ 3.8 million outstanding, included in equipment promissory notes — net on the condensed consolidated balance sheets, has principal payments due of $ 2.6 million and $ 1.2 million in fiscal 2022 and fiscal 2023, respectively. Asset Based Credit Facility In August 2011, Restoration Hardware, Inc., along with its Canadian subsidiary, Restoration Hardware Canada, Inc., entered into a credit agreement with Bank of America, N.A., as administrative agent, and certain other lenders (the “Original Credit Agreement”). ​ PART I. FINANCIAL INFORMATION 2021 FIRST QUARTER FORM 10-Q | 22 ​ Table of Contents On June 28, 2017 , Restoration Hardware, Inc. entered into an eleventh amended and restated credit agreement (as amended, the “Credit Agreement”) among Restoration Hardware, Inc., Restoration Hardware Canada, Inc., various subsidiaries of RH named therein as borrowers or guarantors, the lenders party thereto and Bank of America, N.A. as administrative agent and collateral agent (“First Lien Administrative Agent”), which amended and restated the Original Credit Agreement. The Credit Agreement has a revolving line of credit with initial availability of up to $ 600.0 million, of which $ 10.0 million is available to Restoration Hardware Canada, Inc., and includes a $ 200.0 million accordion feature under which the revolving line of credit may be expanded by agreement of the parties from $ 600.0 million to up to $ 800.0 million if and to the extent the lenders, whether existing lenders or new lenders, agree to increase their credit commitments. In addition, the Credit Agreement established an $ 80.0 million last in, last out (“LILO”) term loan facility. The maturity date of the Credit Agreement is June 28, 2022. On April 4, 2019, Restoration Hardware, Inc., entered into a third amendment to the Credit Agreement (the “Third Amendment”). The Third Amendment, among other things, (a) established a $ 120.0 million first in, last out (“FILO”) term loan facility, which amount was fully borrowed as of April 4, 2019 and which incurs interest at a rate that is 1.25 % greater than the interest rate applicable to the revolving loans provided for under the Credit Agreement at any time, (b) provided for additional permitted indebtedness, as defined in the Credit Agreement, that the loan parties can incur, and (c) modified the borrowing availability under the Credit Agreement in certain circumstances. We repaid the full amount of the FILO term loan as of February 1, 2020. On May 31, 2019, Restoration Hardware, Inc. entered into a fourth amendment to the Credit Agreement (the “Fourth Amendment”). The Fourth Amendment, among other things, amends the Credit Agreement to (a) extend the time to deliver monthly financial statements to the lenders for the fiscal months ending February 2019 and March 2019 until June 19, 2019, (b) remove the requirement to deliver monthly financial statements to the lenders for the last fiscal month of any fiscal quarter, and (c) waive any default or event of default under the Credit Agreement relating to the delivery of monthly financial statements or other information to lenders for the fiscal months ending February 2019 and March 2019. The availability of credit at any given time under the Credit Agreement is limited by reference to a borrowing base formula based upon numerous factors, including the value of eligible inventory and eligible accounts receivable. As a result of the borrowing base formula, actual borrowing availability under the revolving line of credit could be less than the stated amount of the revolving line of credit (as reduced by the actual borrowings and outstanding letters of credit under the revolving line of credit). All obligations under the Credit Agreement are secured by substantially all of the assets, including accounts receivable, inventory, intangible assets, property, equipment, goods and fixtures of Restoration Hardware, Inc., Restoration Hardware Canada, Inc., RH US, LLC, Waterworks Operating Co., LLC and Waterworks IP Co., LLC. Borrowings under the revolving line of credit are subject to interest, at the borrowers’ option, at either the bank’s reference rate or London Inter-bank Offered Rate (“LIBOR”) (or, in the case of the revolving line of credit, the Bank of America “BA” Rate or the Canadian Prime Rate, as such terms are defined in the Credit Agreement, for Canadian borrowings denominated in Canadian dollars or the United States Index Rate or LIBOR for Canadian borrowings denominated in United States dollars) plus an applicable margin rate, in each case. The Credit Agreement contains various restrictive covenants, including, among others, limitations on the ability to incur liens, make loans or other investments, incur additional debt, issue additional equity, merge or consolidate with or into another person, sell assets, pay dividends or make other distributions, or enter into transactions with affiliates, along with other restrictions and limitations typical to credit agreements of this type and size. The Credit Agreement also contains various affirmative covenants, including the obligation to deliver notice to the First Lien Administrative Agent following the Company’s obtaining knowledge of any matter that has resulted or could reasonably be expected to result in a “Material Adverse Effect” (as defined in the Credit Agreement). In addition, under the Credit Agreement, we are required to meet specified financial ratios in order to undertake certain actions, and we may be required to maintain certain levels of excess availability or meet a specified consolidated fixed-charge coverage ratio (“FCCR”). Subject to certain exceptions, the trigger for the FCCR occurs if the domestic availability under the revolving line of credit is less than the greater of (i) $ 40.0 million and (ii) 10 % of the lesser of (x) the domestic revolving commitments under the Credit Agreement and (y) the domestic revolving borrowing base. If the availability under the Credit Agreement is less than the foregoing amount, then Restoration Hardware, Inc. is required subject to certain exceptions to maintain an FCCR of at least one to one. As of May 1, 2021, Restoration Hardware, Inc. was in compliance with all applicable financial covenants of the Credit Agreement. ​ PART I. FINANCIAL INFORMATION 2021 FIRST QUARTER FORM 10-Q | 23 ​ Table of Contents The Credit Agreement requires a daily sweep of all cash receipts and collections to prepay the loans under the agreement while (i) an event of default exists or (ii) the availability under the revolving line of credit for extensions of credit is less than the greater of (A) $ 40.0 million and (B) 10 % of the sum of (a) the lesser of (x) the aggregate revolving commitments under the Credit Agreement and (y) the aggregate revolving borrowing base, plus (b) the lesser of (x) the then outstanding amount of the LILO term loan or (y) the LILO term loan borrowing base. The Credit Agreement includes customary events of default, in certain cases subject to customary periods to cure. The occurrence of an event of default, following the applicable cure period, would permit the lenders to, among other things, terminate any existing commitments under the Credit Agreement and declare the unpaid principal, accrued and unpaid interest and all other amounts payable under the Credit Agreement to be immediately due and payable. As of May 1, 2021, we had no outstanding borrowings under the revolving credit facility portion of the Credit Agreement. The availability of credit at any given time under the Credit Agreement is limited by reference to a borrowing base formula based upon numerous factors, including the value of eligible inventory and eligible accounts receivable. As a result of the borrowing base formula, actual borrowing availability under the revolving line of credit could be less than the stated amount of the revolving line of credit (as reduced by the actual borrowings and outstanding letters of credit under the revolving line of credit). Under the terms of such provisions, the amount under the revolving line of credit borrowing base that could be available pursuant to the Credit Agreement as of May 1, 2021 was $ 285.6 million, net of $ 20.1 million in outstanding letters of credit. Equipment Loan Facility On September 5, 2017, Restoration Hardware, Inc. entered into a Master Loan and Security Agreement with Banc of America Leasing & Capital, LLC (“BAL”) pursuant to which BAL and we agreed that BAL would finance certain equipment of ours from time to time, with each such equipment financing to be evidenced by an equipment security note setting forth the terms for each particular equipment loan. Each equipment loan is secured by a purchase money security interest in the financed equipment. As of May 1, 2021, the equipment security notes bore interest at a weighted-average rate of 4.56 %. The maturity dates of the equipment security notes vary, but generally have a maturity of three or four years . We are required to make monthly installment payments under the equipment security notes. NOTE 11—FAIR VALUE MEASUREMENTS Certain financial assets and liabilities are required to be carried at fair value. Fair value is the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. In determining the fair value, we utilize market data or assumptions that we believe market participants would use in pricing the asset or liability, which would maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, including assumptions about risk and the risks inherent in the inputs of the valuation technique. The degree of judgment used in measuring the fair value of financial instruments generally correlates to the level of pricing observability. Pricing observability is impacted by a number of factors, including the type of financial instrument, whether the financial instrument is new to the market and not yet established and the characteristics specific to the transaction. Financial instruments with readily available active quoted prices for which fair value can be measured generally will have a higher degree of pricing observability and a lesser degree of judgment used in measuring fair value. Conversely, financial instruments rarely traded or not quoted will generally have less, or no, pricing observability and a higher degree of judgment used in measuring fair value. Our financial assets and liabilities measured and reported at fair value are classified and disclosed in one of the following categories: Level 1—Quoted prices are available in active markets for identical investments as of the reporting date. Level 2—Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of models or other valuation methodologies. Level 3—Pricing inputs are unobservable for the investment and include situations where there is little, if any, market activity for the investment. The inputs used in the determination of fair value require significant management judgment or estimation. ​ PART I. FINANCIAL INFORMATION 2021 FIRST QUARTER FORM 10-Q | 24 ​ Table of Contents A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Fair Value Measurements—Recurring Amounts reported as cash and equivalents, receivables, and accounts payable and accrued expenses approximate fair value due to the short-term nature of activity within these accounts. The estimated fair value of the asset based credit facility approximates cost as the interest rate associated with the facility is variable and resets frequently. The estimated fair value and carrying value of the 2023 Notes and 2024 Notes are as follows ( in thousands ): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ MAY 1, ​ JANUARY 30, ​ ​ 2021 ​ 2021 ​ FAIR CARRYING FAIR CARRYING ​ ​ VALUE ​ VALUE (1) ​ VALUE ​ VALUE (1) Convertible senior notes due 2023 ​ $ 325,556 ​ $ 290,473 ​ $ 301,794 ​ $ 287,936 Convertible senior notes due 2024 ​ 307,193 ​ ​ 288,280 ​ 286,161 ​ 284,182 (1) Carrying value represents the principal amount less the equity component of the 2023 Notes and 2024 Notes classified in stockholders’ equity, and does not exclude the discounts upon original issuance, discounts and commissions payable to the initial purchasers and third party offering costs, as applicable. The fair value of each of the 2023 Notes and 2024 Notes was determined based on inputs that are observable in the market or that could be derived from, or corroborated with, observable market data, including the trading price of our convertible notes, when available, our common stock price and interest rates based on similar debt issued by parties with credit ratings similar to ours (Level 2). Fair Value Measurements—Non-Recurring The fair value of the Waterworks reporting unit tradename was determined based on unobservable (Level 3) inputs and valuation techniques, as discussed in Note 4— Goodwill, Tradenames, Trademarks and Other Intangible Assets . ​ The fair value of the acquired goodwill and tradename associated with acquisitions by the RH Segment in fiscal 2020 were determined based on unobservable (Level 3) inputs and valuation techniques. The fair value of the real estate assets associated with our investment in the Aspen LLCs in fiscal 2020, as discussed in Note 5— Equity Method Investments , were determined based on unobservable (Level 3) inputs and valuation techniques. NOTE 12—INCOME TAXES We recorded income tax expense of $ 41.7 million and an income tax benefit of $ 1.4 million in the three months ended May 1, 2021 and May 2, 2020, respectively. The effective tax rate was 24.2 % and 30.7 % for the three months ended May 1, 2021 and May 2, 2020, respectively. The decrease in the effective tax rate for the three months ended May 1, 2021 as compared to the three months ended May 2, 2020 is attributable to higher net excess tax benefits from stock-based compensation and income reported in the current period compared to a reported loss in the prior year. As of May 1, 2021, we had $ 8.6 million of unrecognized tax benefits, of which $ 7.8 million would reduce income tax expense and the effective tax rate, if recognized. The remaining unrecognized tax benefits would offset other deferred tax assets, if recognized. As of May 1, 2021, we had $ 6.2 million of exposures related to unrecognized tax benefits that are expected to decrease in the next 12 months . ​ PART I. FINANCIAL INFORMATION 2021 FIRST QUARTER FORM 10-Q | 25 ​ Table of Contents NOTE 13—NET INCOME (LOSS) PER SHARE The weighted-average shares used for net income (loss) per share are presented in the table below. As we reported a net loss for the three months ended May 2, 2020, the weighted-average shares outstanding for basic and diluted are the same. ​ ​ ​ ​ ​ ​ ​ ​ THREE MONTHS ENDED ​ ​ MAY 1, ​ MAY 2, ​ 2021 2020 Weighted-average shares—basic ​ 21,003,244 ​ 19,242,641 Effect of dilutive stock-based awards 6,716,485 — Effect of dilutive convertible senior notes (1) 3,490,282 — Weighted-average shares—diluted 31,210,011 19,242,641 (1) The $ 300 million aggregate principal amount of convertible senior notes that were issued in June and July 2015 (the “2020 Notes”), the 2023 Notes and the 2024 Notes would have an impact on our dilutive share count beginning at stock prices at or above $ 118.13 per share, $ 193.65 per share and $ 211.40 per share, respectively . The 2020 Notes matured on July 15, 2020 and did not have an impact on our dilutive share count post-termination. The warrants associated with our 2020 Notes, 2023 Notes and 2024 Notes have an impact on our dilutive share count beginning at stock prices at or above $ 189.00 per share, $ 309.84 per share and $ 338.24 per share, respectively. The warrants associated with our 2020 Notes expired on January 7, 2021. While the share price for our common stock trades above the applicable conversion price of each series of notes or the applicable exercise price of each series of warrants for the notes, these instruments will have a dilutive effect with respect to our common stock to the extent that the price per share of our common stock continues to exceed the applicable conversion or exercise price of the notes and warrants. Refer to Note 9— Convertible Senior Notes . The following number of dilutive options, restricted stock units and convertible senior notes were excluded from the calculation of diluted net income (loss) per share because their inclusion would have been anti-dilutive: ​ ​ ​ ​ ​ ​ ​ ​ THREE MONTHS ENDED ​ ​ MAY 1, ​ MAY 2, ​ 2021 2020 Options ​ 55,273 ​ 4,436,083 Restricted stock units — 177,312 Convertible senior notes ​ — ​ 589,095 Total anti-dilutive stock-based awards 55,273 5,202,490 ​ NOTE 14—SHARE REPURCHASE PROGRAM In 2018, our Board of Directors authorized a share repurchase program. In fiscal 2018, we repurchased approximately 2.0 million shares of our common stock under this share repurchase program at an average price of $ 122.10 per share, for an aggregate repurchase amount of approximately $ 250.0 million. In fiscal 2019, we repurchased approximately 2.2 million shares of our common stock under this program at an average price of $ 115.36 per share, for an aggregate repurchase amount of approximately $ 250.0 million. We did not make any repurchases under this program during either the three months ended May 1, 2021 or May 2, 2020. The total current authorized size of the share purchase program is up to $ 950 million (the “950 Million Repurchase Program”), of which $ 450.0 million remained available as of May 1, 2021 for future share investments under this share repurchase program. NOTE 15—STOCK-BASED COMPENSATION We recorded stock-based compensation expense of $ 15.3 million and $ 5.8 million during the three months ended May 1, 2021 and May 2, 2020, respectively, which is included in selling, general and administrative expenses on the ​ PART I. FINANCIAL INFORMATION 2021 FIRST QUARTER FORM 10-Q | 26 ​ Table of Contents condensed consolidated statements of operations. No stock-based compensation cost has been capitalized in the accompanying condensed consolidated financial statements. Chairman and Chief Executive Officer Option Grant On October 18, 2020, our Board of Directors granted Mr. Friedman an option to purchase 700,000 shares of our common stock with an exercise price equal to $ 385.30 per share under the 2012 Stock Incentive Plan. See Note 18— Stock-Based Compensation in the 2020 Form 10-K. The option contains selling restrictions on the underlying shares that lapse upon the achievement of both time-based service requirements and stock price performance-based metrics as described further below. The option is fully vested on the date of grant but the shares underlying the option remain subject to transfer restrictions to the extent the performance-based and time-based requirements have not been met. The option will result in aggregate non-cash stock compensation expense of $ 173.6 million, of which $ 5.9 million was recognized during the three months ended May 1, 2021 (which is included in the stock-based compensation expense recorded during the three months ended May 1, 2021 noted above). As of May 1, 2021, the total unrecognized compensation expense was $ 50.7 million, which will be recognized on an accelerated basis through May 2025. 2012 Stock Incentive Plan and 2012 Stock Option Plan As of May 1, 2021, 8,508,074 options were outstanding with a weighted-average exercise price of $ 106.07 per share and 6,780,119 options were vested with a weighted-average exercise price of $ 89.33 per share. The aggregate intrinsic value of options outstanding, options vested or expected to vest, and options exercisable as of May 1, 2021 was $ 4,951.3 million, $ 4,755.8 million, and $ 4,059.2 million, respectively. Stock options exercisable as of May 1, 2021 had a weighted-average remaining contractual life of 3.66 years. As of May 1, 2021, the total unrecognized compensation expense related to unvested options was $ 114.7 million, which is expected to be recognized on a straight-line basis over a weighted-average period of 4.68 years. In addition, as of May 1, 2021, the total unrecognized compensation expense related to the fully vested option grant made to Mr. Friedman in October 2020 was $ 50.7 million, which will be recognized on an accelerated basis through May 2025 (refer to Chairman and Chief Executive Officer Option Grant above). As of May 1, 2021, we had 89,830 restricted stock units outstanding with a weighted-average grant date fair value of $ 73.51 per share. During the three months ended May 1, 2021, 4,420 restricted stock units vested with a weighted-average grant date fair value of $ 51.23 per share. As of May 1, 2021, there was $ 2.8 million of total unrecognized compensation expense related to unvested restricted stock and restricted stock units which is expected to be recognized over a weighted-average period of 0.68 years. Rollover Units In connection with the acquisition of Waterworks in May 2016, $ 1.5 million rollover units in the Waterworks subsidiary (the “Rollover Units”) were recorded as part of the transaction. The Rollover Units are subject to the terms of the Waterworks LLC agreement, including redemption rights at an amount equal to the greater of (i) the $ 1.5 million remitted as consideration in the business combination or (ii) an amount based on the percentage interest represented in the overall valuation of the Waterworks subsidiary (the “Appreciation Rights”). The Appreciation Rights are measured at fair value and are subject to fair value measurements during the expected life of the Rollover Units, with changes to fair value recorded in the condensed consolidated statements of operations. The fair value of the Appreciation Rights is determined based on an option-pricing model (“OPM”). We did not record any expense related to the Appreciation Rights during either the three months ended May 1, 2021 or May 2, 2020. As of both May 1, 2021 and January 30, 2021, the liability associated with the Rollover Units and related Appreciation Rights was $ 1.5 million, which is included in other non-current obligations on the condensed consolidated balance sheets. Profit Interests In connection with the acquisition of Waterworks in May 2016, profit interests units in the Waterworks subsidiary (the “Profit Interests”) were issued to certain Waterworks associates. The Profit Interests are measured at their grant date fair value and expensed on a straight-line basis over their expected life, or five years . The Profit Interests are subject to fair value measurements during their expected life, with changes to fair value recorded in the condensed consolidated statements of operations. The fair value of the Profit Interests is determined based on an OPM. For both the three months ended May 1, 2021 and May 2, 2020, we recorded $ 0.1 million related to the Profit Interests, which is included in selling, general and administrative expenses on the condensed consolidated statements of operations. As of May 1, 2021 and ​ PART I. FINANCIAL INFORMATION 2021 FIRST QUARTER FORM 10-Q | 27 ​ Table of Contents January 30, 2021, the liability associated with the Profit Interests was $ 2.1 million and $ 2.0 million, respectively, which is included in other non-current obligations on the condensed consolidated balance sheets. NOTE 16—COMMITMENTS AND CONTINGENCIES Commitments We had no material off balance sheet commitments as of May 1, 2021. Contingencies We are involved in lawsuits, claims, investigations and other legal proceedings incident to the ordinary course of our business. These disputes are increasing in number as the business expands and we grow larger. Litigation is inherently unpredictable. As a result, the outcome of matters in which we are involved could result in unexpected expenses and liability that could adversely affect our operations. In addition, any claims against us, whether meritorious or not, could be time consuming, result in costly litigation, require significant amounts of our senior leadership team’s time and result in the diversion of significant operational resources. We review the need for any loss contingency reserves and establish reserves when, in the opinion of our senior leadership team, it is probable that a matter would result in liability, and the amount of loss, if any, can be reasonably estimated. Generally, in view of the inherent difficulty of predicting the outcome of those matters, particularly in cases in which claimants seek substantial or indeterminate damages, it is not possible to determine whether a liability has been incurred or to reasonably estimate the ultimate or minimum amount of that liability until the case is close to resolution, in which case no reserve is established until that time. When and to the extent that we do establish a reserve, there can be no assurance that any such recorded liability for estimated losses will be for the appropriate amount, and actual losses could be higher or lower than what we accrue from time to time. Although we believe that the ultimate resolution of our current legal proceedings will not have a material adverse effect on our condensed consolidated financial statements, the outcome of legal matters is subject to inherent uncertainty. NOTE 17—SEGMENT REPORTING We define reportable and operating segments on the same basis that we use to evaluate our performance internally by the Chief Operating Decision Maker (the “CODM”), which we have determined is our Chief Executive Officer. We have three operating segments: RH Segment, Waterworks and Real Estate Development. The RH Segment and Waterworks operating segments (the “retail operating segments”) include all sales channels accessed by our customers, including sales through retail locations and outlets, websites, Source Books, and the commercial channel. The Real Estate Development segment represents operations associated with our equity method investments entered into in fiscal 2020, as described in Note 5— Equity Method Investments . The retail operating segments are strategic business units that offer products for the home furnishings customer. While RH Segment and Waterworks have a shared senior leadership team and customer base, we have determined that their results cannot be aggregated as they do not share similar economic characteristics, as well as due to other quantitative factors. We use operating income to evaluate segment profitability for the retail operating segments. Operating income is defined as net income (loss) before interest expense—net, tradename impairment, loss on extinguishment of debt, income tax expense (benefit) and our share of equity method investments losses. ​ PART I. FINANCIAL INFORMATION 2021 FIRST QUARTER FORM 10-Q | 28 ​ Table of Contents Segment Information The following table presents the statements of operations metrics reviewed by the CODM to evaluate performance internally or as required under ASC 280— Segment Reporting ( in thousands ): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ THREE MONTHS ENDED ​ ​ MAY 1, ​ MAY 2, ​ ​ 2021 ​ 2020 ​ RH SEGMENT WATERWORKS TOTAL RH SEGMENT WATERWORKS TOTAL Net revenues ​ $ 819,823 ​ $ 40,969 ​ $ 860,792 ​ $ 454,957 ​ $ 27,938 ​ $ 482,895 Gross profit ​ 386,553 ​ 20,424 ​ 406,977 ​ 187,762 ​ 11,892 ​ 199,654 Depreciation and amortization ​ 22,680 ​ ​ 1,206 ​ 23,886 ​ 23,717 ​ 1,153 ​ 24,870 ​ In the three months ended May 1, 2021, the Real Estate Development segment share of equity method investments losses was $ 2.1 million. The following table presents the balance sheet metrics as required under ASC 280— Segment Reporting ( in thousands ): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ MAY 1, ​ JANUARY 30, ​ ​ 2021 ​ 2021 ​ ​ ​ ​ ​ ​ ​ ​ REAL ESTATE ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ REAL ESTATE ​ ​ ​ ​ ​ RH SEGMENT WATERWORKS DEVELOPMENT ​ TOTAL RH SEGMENT WATERWORKS DEVELOPMENT TOTAL Goodwill (1) ​ $ 141,152 ​ $ — ​ $ — ​ $ 141,152 ​ $ 141,100 ​ $ — ​ $ — ​ $ 141,100 Tradenames, trademarks and other intangible assets (2) ​ 55,237 ​ 17,000 ​ — ​ 72,237 ​ 54,663 ​ 17,000 ​ — ​ 71,663 Equity method investments ​ ​ — ​ ​ — ​ ​ 99,131 ​ ​ 99,131 ​ ​ — ​ ​ — ​ ​ 100,603 ​ ​ 100,603 Total assets ​ 2,992,647 ​ 145,539 ​ 99,131 ​ 3,237,317 ​ 2,659,944 ​ 137,766 ​ 100,603 ​ 2,898,313 (1) The Waterworks reporting unit goodwill of $ 51.1 million recognized upon acquisition in fiscal 2016 was fully impaired as of February 2, 2019, with $ 17.4 million and $ 33.7 million impairment recorded in fiscal 2018 and fiscal 2017, respectively. (2) The Waterworks reporting unit tradename is presented net of an impairment charge of $ 35.1 million, with $ 20.5 million and $ 14.6 million recorded in fiscal 2020 and fiscal 2018, respectively. We use segment operating income to evaluate segment performance and allocate resources. Segment operating income excludes (i) non-cash compensation amortization related to the fully vested option grant made to Mr. Friedman in October 2020, (ii) product recall accruals and adjustments, (iii) asset impairments and changes in useful lives and (iv) severance costs associated with reorganizations. These items are excluded from segment operating income in order to provide better transparency of segment operating results. Accordingly, these items are not presented by segment because they are excluded from the segment profitability measure that the CODM and our senior leadership team reviews. ​ PART I. FINANCIAL INFORMATION 2021 FIRST QUARTER FORM 10-Q | 29 ​ Table of Contents The following table presents segment operating income (loss) and income (loss) before income taxes ( in thousands ): ​ ​ ​ ​ ​ ​ ​ ​ THREE MONTHS ENDED ​ MAY 1, ​ MAY 2, ​ 2021 2020 Operating income (loss): ​ ​ ​ ​ ​ RH Segment $ 188,010 ​ $ 49,517 Waterworks 6,242 ​ ( 1,450 ) Non-cash compensation ​ ( 5,864 ) ​ ​ — Recall accrual ( 500 ) ​ — Asset impairments and change in useful lives — ​ ( 8,471 ) Reorganization related costs — ​ ( 4,143 ) Income from operations 187,888 ​ 35,453 Interest expense—net 13,308 ​ 19,629 Loss on extinguishment of debt 105 ​ — Tradename impairment ​ — ​ ​ 20,459 Income (loss) before income taxes $ 174,475 ​ $ ( 4,635 ) ​ We classify our sales into furniture and non-furniture product lines. Furniture includes both indoor and outdoor furniture. Non-furniture includes lighting, textiles, fittings, fixtures, surfaces, accessories and home décor. Net revenues in each category were as follows ( in thousands ): ​ ​ ​ ​ ​ ​ ​ ​ THREE MONTHS ENDED ​ MAY 1, ​ MAY 2, ​ 2021 2020 Furniture $ 580,011 ​ $ 312,523 Non-furniture 280,781 ​ 170,372 Total net revenues $ 860,792 ​ $ 482,895 ​ During the third quarter of fiscal 2020, we reviewed our segments and product lines and updated certain products and categories in our reporting of furniture and non-furniture product lines. While this reporting change did not impact our consolidated results, prior period segment data has been recast for consistency in reporting. We are domiciled in the United States and primarily operate our retail locations and outlets in the United States. As of May 1, 2021, we operated 4 retail locations and 2 outlets in Canada, and 1 retail location in the U.K. Geographic revenues in Canada and the U.K. are based upon revenues recognized at the retail locations in the respective country and were not material in any fiscal period presented. Long-lived assets held internationally were not material in any fiscal period presented. No single customer accounted for more than 10 % of our revenues in the three months ended May 1, 2021 or May 2, 2020. ​ PART I. FINANCIAL INFORMATION 2021 FIRST QUARTER FORM 10-Q | 30 ​ Table of Contents