RH 10-Q

ITEM 1. FINANCIAL STATEMENTS RH CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ OCTOBER 29, JANUARY 29, ​ ​ 2022 ​ 2022 ​ ​ (in thousands) ASSETS ​ ​ Cash and cash equivalents ​ $ 2,150,466 ​ $ 2,177,889 Restricted cash (Note 5) ​ ​ 3,882 ​ ​ — Accounts receivable—net ​ 58,563 ​ 57,914 Merchandise inventories ​ 819,299 ​ 734,289 Prepaid expense and other current assets ​ 234,247 ​ 121,350 Total current assets ​ 3,266,457 ​ 3,091,442 Property and equipment—net ​ 1,577,900 ​ 1,227,920 Operating lease right-of-use assets ​ ​ 536,452 ​ ​ 551,045 Goodwill ​ 141,021 ​ 141,100 Tradenames, trademarks and other intangible assets ​ 74,269 ​ 73,161 Deferred tax assets ​ 63,105 ​ 56,843 Equity method investments ​ ​ 97,005 ​ ​ 100,810 Other non-current assets ​ 127,506 ​ 298,149 Total assets ​ $ 5,883,715 ​ $ 5,540,470 LIABILITIES AND STOCKHOLDERS’ EQUITY ​ ​ Accounts payable and accrued expenses ​ $ 389,965 ​ $ 442,379 Deferred revenue and customer deposits ​ ​ 361,113 ​ 387,933 Convertible senior notes due 2023—net ​ ​ 1,702 ​ ​ 9,389 Convertible senior notes due 2024 ​ ​ — ​ ​ 3,600 Operating lease liabilities ​ ​ 77,858 ​ ​ 73,834 Other current liabilities ​ 104,538 ​ 146,623 Total current liabilities ​ 935,176 ​ 1,063,758 Asset based credit facility ​ — ​ — Term loan B—net ​ 1,940,701 ​ 1,953,203 Term loan B-2—net ​ 469,396 ​ — Real estate loans (Note 5) ​ ​ 17,912 ​ ​ — Convertible senior notes due 2023—net ​ — ​ 59,002 Convertible senior notes due 2024—net ​ ​ 41,696 ​ ​ 184,461 Non-current operating lease liabilities ​ 521,093 ​ 540,513 Non-current finance lease liabilities ​ ​ 656,643 ​ ​ 560,550 Other non-current obligations ​ 7,151 ​ 8,706 Total liabilities ​ 4,589,768 ​ 4,370,193 Commitments and contingencies (Note 16) ​ ​ ​ ​ Stockholders’ equity: ​ ​ Preferred stock—$ 0.0001 par value per share, 10,000,000 shares authorized, no shares issued or outstanding as of October 29, 2022 and January 29, 2022 ​ — ​ ​ — Common stock— $ 0.0001 par value per share, 180,000,000 shares authorized, 23,609,536 shares issued and outstanding as of October 29, 2022; 21,506,967 shares issued and outstanding as of January 29, 2022 ​ 2 ​ 2 Additional paid-in capital ​ 313,887 ​ 620,577 Accumulated other comprehensive loss ​ ( 12,685 ) ​ ( 1,410 ) Retained earnings ​ 992,743 ​ 551,108 Total stockholders’ equity ​ ​ 1,293,947 ​ ​ 1,170,277 Total liabilities and stockholders’ equity ​ $ 5,883,715 ​ $ 5,540,470 The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements. ​ ​ PART I. FINANCIAL INFORMATION 2022 THIRD QUARTER FORM 10-Q | 3 ​ Table of Contents RH CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ THREE MONTHS ENDED ​ NINE MONTHS ENDED ​ ​ OCTOBER 29, ​ OCTOBER 30, ​ OCTOBER 29, ​ OCTOBER 30, ​ 2022 2021 2022 2021 ​ ​ (in thousands, except share and per share amounts) Net revenues ​ $ 869,066 ​ $ 1,006,428 ​ $ 2,817,978 ​ $ 2,856,079 Cost of goods sold ​ 448,288 ​ 501,174 ​ 1,375,399 ​ 1,456,172 Gross profit ​ 420,778 ​ 505,254 ​ 1,442,579 ​ 1,399,907 Selling, general and administrative expenses ​ 250,528 ​ 232,715 ​ ​ 832,627 ​ 690,492 Income from operations ​ 170,250 ​ 272,539 ​ 609,952 ​ 709,415 Other expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest expense—net ​ ​ 31,417 ​ ​ 13,223 ​ ​ 78,536 ​ 40,112 Loss on extinguishment of debt ​ — ​ ​ 18,513 ​ 169,578 ​ 21,784 Other expense—net ​ ​ 1,989 ​ ​ — ​ ​ 4,841 ​ ​ — Total other expenses ​ 33,406 ​ 31,736 ​ 252,955 ​ 61,896 Income before income taxes ​ ​ 136,844 ​ ​ 240,803 ​ 356,997 ​ 647,519 Income tax expense (benefit) ​ ​ 36,162 ​ ​ 54,391 ​ ( 70,867 ) ​ 99,124 Income before equity method investments ​ ​ 100,682 ​ ​ 186,412 ​ ​ 427,864 ​ ​ 548,395 Share of equity method investments losses ​ ​ ( 1,922 ) ​ ​ ( 2,313 ) ​ ​ ( 6,118 ) ​ ​ ( 6,894 ) Net income ​ $ 98,760 ​ $ 184,099 ​ $ 421,746 ​ $ 541,501 Weighted-average shares used in computing basic net income per share ​ ​ 23,681,482 ​ ​ 21,430,557 ​ 23,588,464 ​ 21,200,146 Basic net income per share (Note 13) ​ $ 4.17 ​ $ 8.59 ​ $ 25.07 ​ $ 25.54 Weighted-average shares used in computing diluted net income per share ​ ​ 26,098,265 ​ ​ 31,291,079 ​ 27,255,911 ​ 31,493,396 Diluted net income per share (Note 13) ​ $ 3.78 ​ $ 5.88 ​ $ 21.70 ​ $ 17.19 ​ The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements. ​ ​ ​ 4 | 2022 THIRD QUARTER FORM 10-Q PART I. FINANCIAL INFORMATION ​ Table of Contents RH CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ THREE MONTHS ENDED ​ NINE MONTHS ENDED ​ ​ OCTOBER 29, ​ OCTOBER 30, ​ OCTOBER 29, ​ OCTOBER 30, ​ ​ 2022 2021 2022 2021 ​ ​ (in thousands) Net income ​ $ 98,760 ​ $ 184,099 ​ $ 421,746 ​ $ 541,501 Net losses from foreign currency translation ​ ​ ( 4,890 ) ​ ​ ( 2,097 ) ​ ( 11,275 ) ​ ( 1,397 ) Comprehensive income ​ $ 93,870 ​ $ 182,002 ​ $ 410,471 ​ $ 540,104 ​ The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements. ​ ​ ​ ​ ​ ​ PART I. FINANCIAL INFORMATION 2022 THIRD QUARTER FORM 10-Q | 5 ​ Table of Contents RH CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ THREE MONTHS ENDED ​ ​ ​ ​ ​ ​ COMMON STOCK ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ TREASURY STOCK ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ACCUMULATED ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ADDITIONAL OTHER ​ ​ ​ ​ ​ ​ ​ TOTAL ​ ​ MEZZANINE ​ ​ ​ PAID-IN COMPREHENSIVE RETAINED ​ STOCKHOLDERS' ​ EQUITY SHARES AMOUNT CAPITAL INCOME (LOSS) EARNINGS SHARES AMOUNT EQUITY ​ ​ ​ ​ ​ ​ (in thousands, except share amounts) Balances—July 30, 2022 ​ $ — ​ ​ 23,715,191 $ 2 $ 334,054 $ ( 7,795 ) $ 893,983 — $ — $ 1,220,244 Stock-based compensation ​ ​ — ​ ​ — ​ ​ — ​ ​ 10,187 ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ 10,187 Vested and delivered restricted stock units ​ ​ — ​ ​ 1,119 ​ ​ — ​ ​ ( 171 ) ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ ( 171 ) Exercise of stock options ​ ​ — ​ ​ 20,777 ​ ​ — ​ ​ 1,527 ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ 1,527 Repurchases of common stock ​ ​ — ​ ​ ( 127,557 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ 127,557 ​ ​ ( 31,710 ) ​ ​ ( 31,710 ) Retirement of treasury stock ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 31,710 ) ​ ​ — ​ ​ — ​ ( 127,557 ) ​ ​ 31,710 ​ ​ — Settlement of convertible senior notes ​ ​ — ​ ​ 6 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ — Net income ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 98,760 ​ — ​ ​ — ​ ​ 98,760 Net losses from foreign currency translation ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 4,890 ) ​ ​ — ​ — ​ ​ — ​ ​ ( 4,890 ) Balances—October 29, 2022 ​ $ — ​ ​ 23,609,536 $ 2 $ 313,887 $ ( 12,685 ) $ 992,743 — $ — $ 1,293,947 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balances—July 31, 2021 ​ $ 30,515 ​ ​ 21,407,717 $ 2 $ 583,112 $ 3,265 $ 219,964 — $ — $ 806,343 Stock-based compensation ​ ​ — ​ ​ — ​ ​ — ​ ​ 11,995 ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ 11,995 Vested and delivered restricted stock units ​ ​ — ​ ​ 1,981 ​ ​ — ​ ​ ( 706 ) ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ ( 706 ) Exercise of stock options ​ ​ — ​ ​ 55,419 ​ ​ — ​ ​ 4,101 ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ 4,101 Settlement of convertible senior notes ​ ​ — ​ ​ 864,090 ​ ​ — ​ ​ ( 592,414 ) ​ ​ — ​ ​ — ​ ( 864,074 ) ​ ​ 579,539 ​ ​ ( 12,875 ) Exercise of call option under bond hedge upon settlement of convertible senior notes ​ ​ — ​ ​ ( 864,074 ) ​ ​ — ​ ​ 579,539 ​ ​ — ​ ​ — ​ 864,074 ​ ​ ( 579,539 ) ​ ​ — Reclassification of equity component to mezzanine equity related to early converted senior notes outstanding—net ​ ​ ( 16,944 ) ​ ​ — ​ ​ — ​ ​ 16,944 ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ 16,944 Net income ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 184,099 ​ — ​ ​ — ​ ​ 184,099 Net losses from foreign currency translation ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 2,097 ) ​ ​ — ​ — ​ ​ — ​ ​ ( 2,097 ) Balances—October 30, 2021 ​ $ 13,571 ​ ​ 21,465,133 $ 2 $ 602,571 $ 1,168 $ 404,063 — $ — $ 1,007,804 ​ ​ 6 | 2022 THIRD QUARTER FORM 10-Q PART I. FINANCIAL INFORMATION ​ Table of Contents RH CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ NINE MONTHS ENDED ​ ​ ​ ​ ​ ​ COMMON STOCK ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ TREASURY STOCK ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ACCUMULATED ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ADDITIONAL OTHER ​ ​ ​ ​ ​ ​ ​ TOTAL ​ ​ MEZZANINE ​ ​ ​ PAID-IN COMPREHENSIVE RETAINED ​ STOCKHOLDERS' ​ EQUITY SHARES AMOUNT CAPITAL INCOME (LOSS) EARNINGS SHARES AMOUNT EQUITY ​ ​ ​ ​ ​ ​ (in thousands, except share amounts) Balances—January 29, 2022 ​ $ — ​ ​ 21,506,967 $ 2 $ 620,577 $ ( 1,410 ) $ 551,108 — $ — $ 1,170,277 Stock-based compensation ​ ​ — ​ ​ — ​ — ​ 33,725 ​ — ​ — — ​ — ​ 33,725 Issuance of restricted stock ​ ​ — ​ ​ 3,577 ​ — ​ — ​ — ​ — — ​ — ​ — Vested and delivered restricted stock units ​ ​ — ​ ​ 2,985 ​ — ​ ( 494 ) ​ — ​ — — ​ — ​ ( 494 ) Exercise of stock options ​ ​ — ​ ​ 3,223,552 ​ — ​ 153,568 ​ — ​ — — ​ — ​ 153,568 Repurchases of common stock ​ ​ — ​ ​ ( 1,127,557 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ 1,127,557 ​ ​ ( 286,441 ) ​ ​ ( 286,441 ) Retirement of treasury stock ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 286,441 ) ​ ​ — ​ ​ — ​ ( 1,127,557 ) ​ ​ 286,441 ​ ​ — Exercise of call option under bond hedge upon settlement of convertible senior notes ​ ​ — ​ ​ ( 36,968 ) ​ — ​ 14,705 ​ — ​ — 36,968 ​ ( 14,705 ) ​ — Settlement of convertible senior notes ​ ​ — ​ ​ 36,980 ​ — ​ ( 14,705 ) ​ — ​ — ( 36,968 ) ​ 14,705 ​ — Termination of common stock warrants ​ ​ — ​ ​ — ​ — ​ ( 386,708 ) ​ — ​ — — ​ — ​ ( 386,708 ) Termination of convertible note hedge ​ ​ — ​ ​ — ​ — ​ 236,050 ​ — ​ — — ​ — ​ 236,050 Impact of ASU 2020-06 adoption ​ ​ — ​ ​ — ​ — ​ ( 56,390 ) ​ — ​ 19,889 — ​ — ​ ( 36,501 ) Net income ​ ​ — ​ ​ — ​ — ​ — ​ — ​ 421,746 — ​ — ​ 421,746 Net losses from foreign currency translation ​ ​ — ​ ​ — ​ — ​ — ​ ( 11,275 ) ​ — — ​ — ​ ( 11,275 ) Balances—October 29, 2022 ​ $ — ​ ​ 23,609,536 $ 2 $ 313,887 $ ( 12,685 ) $ 992,743 — $ — $ 1,293,947 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balances—January 30, 2021 ​ $ — ​ ​ 20,995,387 ​ $ 2 ​ ​ 581,897 ​ $ 2,565 ​ $ ( 137,438 ) ​ — ​ $ — ​ $ 447,026 Stock-based compensation ​ ​ — ​ ​ — ​ ​ — ​ ​ 37,284 ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ 37,284 Issuance of restricted stock ​ ​ — ​ ​ 1,260 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ — Vested and delivered restricted stock units ​ ​ — ​ ​ 39,679 ​ ​ — ​ ​ ( 19,354 ) ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ ( 19,354 ) Exercise of stock options ​ ​ — ​ ​ 428,788 ​ ​ — ​ ​ 30,080 ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ 30,080 Settlement of convertible senior notes ​ ​ — ​ ​ 983,694 ​ ​ — ​ ​ ( 674,549 ) ​ ​ — ​ ​ — ​ ( 983,675 ) ​ ​ 660,784 ​ ​ ( 13,765 ) Exercise of call option under bond hedge upon settlement of convertible senior notes ​ ​ — ​ ​ ( 983,675 ) ​ ​ — ​ ​ 660,784 ​ ​ — ​ ​ — ​ 983,675 ​ ​ ( 660,784 ) ​ ​ — Reclassification of equity component to mezzanine equity related to early converted senior notes outstanding—net ​ ​ 13,571 ​ ​ — ​ ​ — ​ ​ ( 13,571 ) ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ ( 13,571 ) Net income ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 541,501 ​ — ​ ​ — ​ ​ 541,501 Net gains from foreign currency translation ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 1,397 ) ​ ​ — ​ — ​ ​ — ​ ​ ( 1,397 ) Balances—October 30, 2021 ​ $ 13,571 ​ ​ 21,465,133 $ 2 $ 602,571 $ 1,168 $ 404,063 — $ — $ 1,007,804 The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements. ​ ​ ​ PART I. FINANCIAL INFORMATION 2022 THIRD QUARTER FORM 10-Q | 7 ​ Table of Contents RH CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ NINE MONTHS ENDED ​ ​ OCTOBER 29, ​ OCTOBER 30, ​ ​ 2022 2021 ​ ​ (in thousands) CASH FLOWS FROM OPERATING ACTIVITIES ​ ​ ​ ​ ​ ​ Net income ​ $ 421,746 ​ $ 541,501 Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ ​ ​ Depreciation and amortization ​ 79,760 ​ ​ 71,375 Non-cash operating lease cost ​ ​ 55,912 ​ ​ 54,084 Asset impairments ​ ​ 19,080 ​ ​ 7,354 Gain on sale of building and land ​ ​ ( 775 ) ​ ​ — Amortization of debt discount ​ — ​ ​ 24,236 Stock-based compensation expense ​ 33,725 ​ ​ 37,426 Non-cash finance lease interest expense ​ ​ 23,526 ​ ​ 19,468 Product recalls ​ ​ 560 ​ ​ 840 Deferred income taxes ​ ​ 5,627 ​ ​ ( 122 ) Loss on extinguishment of debt ​ ​ 169,578 ​ ​ 21,784 Gain on derivative instruments—net ​ ​ ( 1,724 ) ​ ​ — Share of equity method investments losses ​ ​ 6,118 ​ ​ 6,894 Other non-cash items ​ 5,542 ​ ​ ( 6,030 ) Cash paid attributable to accretion of debt discount upon settlement of debt ​ ​ — ​ ​ ( 39,078 ) Change in assets and liabilities: ​ ​ ​ ​ ​ Accounts receivable ​ ( 675 ) ​ ​ ( 1,131 ) Merchandise inventories ​ ( 96,598 ) ​ ​ ( 89,225 ) Prepaid expense and other assets ​ ( 152,892 ) ​ ​ ( 39,168 ) Landlord assets under construction—net of tenant allowances ​ ( 43,380 ) ​ ​ ( 50,351 ) Accounts payable and accrued expenses ​ ( 44,999 ) ​ ​ ( 17,980 ) Deferred revenue and customer deposits ​ ( 26,604 ) ​ ​ 104,419 Other current liabilities ​ ( 36,596 ) ​ ​ ( 28,106 ) Current and non-current operating lease liabilities ​ ( 56,936 ) ​ ​ ( 59,194 ) Other non-current obligations ​ ( 23,974 ) ​ ​ ( 25,314 ) Net cash provided by operating activities ​ 336,021 ​ 533,682 CASH FLOWS FROM INVESTING ACTIVITIES ​ ​ ​ Capital expenditures ​ ( 109,675 ) ​ ​ ( 153,774 ) Proceeds from sale of asset ​ 5,287 ​ ​ — Equity method investments ​ ( 2,313 ) ​ ​ ( 4,816 ) Net cash used in investing activities ​ ( 106,701 ) ​ ( 158,590 ) ​ 8 | 2022 THIRD QUARTER FORM 10-Q PART I. FINANCIAL INFORMATION ​ Table of Contents RH CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ NINE MONTHS ENDED ​ ​ OCTOBER 29, ​ OCTOBER 30, ​ ​ 2022 2021 ​ ​ (in thousands) CASH FLOWS FROM FINANCING ACTIVITIES ​ ​ Borrowings under term loans ​ ​ 500,000 ​ ​ 2,000,000 Repayments under term loans ​ ​ ( 15,000 ) ​ ​ — Borrowings under real estate loans ​ ​ 16,000 ​ ​ — Repayments under real estate loans ​ ​ ( 4 ) ​ ​ — Repayments under promissory and equipment security notes ​ ( 13,157 ) ​ ​ ( 17,164 ) Repayments of convertible senior notes ​ ​ ( 13,053 ) ​ ​ ( 235,126 ) Repayment under convertible senior notes repurchase obligation ​ ​ ( 395,372 ) ​ ​ — Debt extinguishment costs ​ ​ ( 8,059 ) ​ ​ — Debt issuance costs ​ ( 27,733 ) ​ ​ ( 26,411 ) Principal payments under finance leases—net ​ ​ ( 6,798 ) ​ ​ ( 10,511 ) Proceeds from termination of convertible senior note hedges ​ ​ 231,796 ​ ​ — Payments for termination of common stock warrants ​ ​ ( 390,934 ) ​ ​ — Repurchases of common stock—including commissions ​ ​ ( 286,441 ) ​ ​ — Proceeds from exercise of stock options ​ 153,568 ​ ​ 30,080 Tax withholdings related to issuance of stock-based awards ​ ​ ( 494 ) ​ ​ ( 19,354 ) Net cash provided by (used in) financing activities ​ ( 255,681 ) ​ 1,721,514 Effects of foreign currency exchange rate translation ​ ( 1,155 ) ​ ​ 34 Net increase (decrease) in cash and cash equivalents, restricted cash and restricted cash equivalents ​ ( 27,516 ) ​ 2,096,640 Cash and cash equivalents, restricted cash and restricted cash equivalents ​ ​ ​ Beginning of period—cash and cash equivalents ​ 2,177,889 ​ 100,446 Beginning of period—restricted cash equivalents (acquisition related escrow deposits) ​ 3,975 ​ ​ 6,625 Beginning of period—cash and cash equivalents, restricted cash and restricted cash equivalents ​ $ 2,181,864 ​ $ 107,071 End of period—cash and cash equivalents ​ 2,150,466 ​ 2,198,961 End of period—restricted cash ​ 3,882 ​ — End of period—restricted cash equivalents (acquisition related escrow deposits) ​ — ​ 4,750 End of period—cash and cash equivalents, restricted cash and restricted cash equivalents ​ $ 2,154,348 ​ $ 2,203,711 ​ PART I. FINANCIAL INFORMATION 2022 THIRD QUARTER FORM 10-Q | 9 ​ Table of Contents RH CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (In thousands) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ NINE MONTHS ENDED ​ ​ OCTOBER 29, ​ OCTOBER 30, ​ ​ 2022 2021 ​ ​ (in thousands) Non-cash transactions: ​ ​ ​ ​ Property and equipment additions in accounts payable and accrued expenses at period-end ​ $ 18,915 ​ $ 12,313 Property and equipment additions acquired under real estate loans ​ ​ ( 2,000 ) ​ ​ — Landlord asset additions in accounts payable and accrued expenses at period-end ​ ​ 6,924 ​ ​ 28,666 Reclassification of assets from landlord assets under construction to finance lease right-of-use assets ​ ​ 221,886 ​ ​ 32,405 Extinguishment of convertible senior notes related to repurchase obligation (Note 9) ​ ​ ( 261,988 ) ​ ​ — Financing liability and embedded derivative arising from convertible senior notes repurchase (Note 9) ​ ​ 405,577 ​ ​ — Shares issued on settlement of convertible senior notes ​ ​ ( 14,705 ) ​ ​ ( 674,549 ) Shares received on exercise of call option under bond hedge upon settlement of convertible senior notes ​ ​ 14,705 ​ ​ 660,784 Conversion of loan receivables into equity of variable interest entities (Note 5) ​ ​ 300 ​ ​ — ​ The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements. ​ ​ ​ ​ ​ 10 | 2022 THIRD QUARTER FORM 10-Q PART I. FINANCIAL INFORMATION ​ 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 retailer and luxury lifestyle brand operating primarily in the home furnishings market. Our curated and fully integrated assortments are presented consistently across our sales channels, including our retail locations, websites and Source Books. We offer merchandise assortments across a number of categories, including furniture, lighting, textiles, bathware, décor, outdoor and garden, and baby, child and teen furnishings. As of October 29, 2022, we operated a total of 67 RH Galleries and 39 RH Outlet stores in 31 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. In September 2022, we opened our first RH Guesthouse in New York. Basis of Presentation The accompanying unaudited interim condensed consolidated financial statements have been prepared from our 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 October 29, 2022, and the results of operations for the three and nine months ended October 29, 2022 and October 30, 2021. Our current fiscal year, which consists of 52 weeks, ends on January 28, 2023 (“fiscal 2022”). The condensed consolidated financial statements include our accounts and those of our wholly owned subsidiaries, as well as the financial information of variable interest entities (“VIEs”) where we represent the primary beneficiary and have the power to direct the activities that most significantly impact the entity’s performance. Accordingly, all intercompany balances and transactions have been eliminated through the consolidation process. Noncontrolling interests represent third-party interests in the net assets under VIEs determined by applying the hypothetical liquidation at book value methodology. Noncontrolling interests in VIEs are immaterial as of October 29, 2022. Refer to Note 5— Variable Interest Entities . 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, and 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 and nine months ended October 29, 2022. 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 29, 2022 (the “2021 Form 10-K”). The results of operations for the three and nine months ended October 29, 2022 and October 30, 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 ​ PART I. FINANCIAL INFORMATION 2022 THIRD QUARTER FORM 10-Q | 11 ​ Table of Contents generally, is subject to uncertainty surrounding the financial impact of the pandemic and other factors as discussed in Macro-Economic Factors and COVID-19 Pandemic below. Macro-Economic Factors and COVID-19 Pandemic There are a number of macro-economic factors and uncertainties affecting the overall business climate as well as our business, including increased inflation and rising interest rates. These factors may have a number of adverse effects on macro-economic conditions and markets in which we operate, with the potential for an economic recession and a sustained downturn in the housing market. Factors such as a slowdown in the housing market or negative trends in stock market prices could have a negative impact on demand for our products. We believe that these macro-economic factors have contributed to the slowdown in demand that we have experienced in our business over the last several fiscal quarters. ​ The COVID-19 pandemic continues to cause challenges in certain aspects of our business operations primarily related to our supply chain, including delays in our receipt of products from vendors, which have affected our ability to convert demand into revenues at normal historic rates. While our performance during the pandemic demonstrates the desirability of our exclusive products, consumer spending have shifted away from spending on the home and home-related categories toward travel and leisure and other areas. Our decisions regarding the sources and uses of capital will continue to reflect and adapt to changes in market conditions and our business including further developments with respect to macro-economic factors and the pandemic. Refer to the section entitled “Risk Factors” in our 2021 Form 10-K. ​ NOTE 2—RECENTLY ISSUED ACCOUNTING STANDARDS New Accounting Standards or Updates Adopted Convertible Instruments and Contracts in an Entity’s Own Equity In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2020-06—Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). ASU 2020-06 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, ASU 2020-06 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 ASU 2020-06’s guidance, we no longer separately present in equity an embedded conversion feature of such debt. Instead, we 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, ASU 2020-06 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. ​ ​ 12 | 2022 THIRD QUARTER FORM 10-Q PART I. FINANCIAL INFORMATION ​ Table of Contents We adopted ASU 2020-06 in the first quarter of fiscal 2022 using a modified retrospective transition method. Accordingly, the cumulative effect of the adoption on our opening fiscal 2022 condensed consolidated balance sheets was as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ASU 2020-06 ​ ​ ​ ​ JANUARY 29, ​ ADOPTION ​ JANUARY 29, ​ ​ ​ 2022 ​ ADJUSTMENTS ​ 2022 ​ ​ ​ (in thousands) ​ Assets ​ ​ ​ ​ Property and equipment—net ​ $ 1,227,920 ​ $ ( 12,385 ) ​ $ 1,215,535 ​ Deferred tax assets ​ ​ 56,843 ​ ​ 11,909 ​ ​ 68,752 ​ Liabilities ​ ​ ​ ​ Convertible senior notes due 2023—net ​ ​ 59,002 ​ ​ 5,684 ​ ​ 64,686 ​ Convertible senior notes due 2024—net ​ ​ 184,461 ​ ​ 30,341 ​ ​ 214,802 ​ Equity ​ ​ ​ ​ ​ Additional paid-in capital ​ ​ 620,577 ​ ​ ( 56,390 ) ​ ​ 564,187 ​ Retained earnings ​ ​ 551,108 ​ ​ 19,889 ​ ​ 570,997 ​ ​ Reference Rate Reform In March 2020, the FASB issued ASU 2020-04 — Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”) . In January 2021, the FASB issued ASU 2021-01—Reference Rate Reform (Topic 848): Scope , (“ASU 2021-01” and, together with ASU 2020-04, the “ASUs”). The ASUs provide optional expedients and exceptions, if certain criteria are met, for applying GAAP to contracts, hedging relationships, and other transactions affected by the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate (“SOFR”). These transactions include contract modifications, hedge accounting, and the sale or transfer of debt securities classified as held-to-maturity. The primary contracts for which we currently use LIBOR include our asset based credit facility and certain term loan debt arrangements. The guidance was effective upon issuance and allows entities to adopt the amendments on a prospective basis through December 31, 2022. All new arrangements are using alternative reference rates and we are evaluating the impact of adoption on our existing contracts, including with respect to our asset based credit facility and Term Loan B (as defined in Note 10 — Credit Facilities ), which we anticipate amending in the fourth quarter of fiscal 2022 to reference SOFR. New Accounting Standards or Updates Not Yet Adopted ​ Disclosure of Supplier Finance Program Obligations In September 2022, the FASB issued ASU 2022-04 — Disclosure of Supplier Finance Program Obligations (“ASU 2022-04”). ASU 2022-04 requires entities to disclose the program’s nature, activity during the period, changes from period to period and potential magnitude. Under ASU 2022-04, the buyer in a supplier finance program is required to disclose information about the key terms of the program, outstanding confirmed amounts as of the end of the period, a rollforward of such amounts during each annual period, and a description of where in the financial statements outstanding amounts are presented. With the exception of the disclosure of rollforward information, the guidance is effective for fiscal years beginning after December 15, 2022 and is required to be applied retrospectively to all periods for which a balance sheet is presented. The rollforward requirement is effective for fiscal years beginning after December 15, 2023 and is required to be applied prospectively. We are evaluating the impact that ASU 2022-04 will have on our consolidated financial statements and related disclosures, but do not believe the adoption will impact our financial condition, results of operations or cash flows. ​ ​ PART I. FINANCIAL INFORMATION 2022 THIRD QUARTER FORM 10-Q | 13 ​ Table of Contents NOTE 3—PREPAID EXPENSE AND OTHER ASSETS Prepaid expense and other current assets consist of the following: ​ ​ ​ ​ ​ ​ ​ ​ OCTOBER 29, JANUARY 29, ​ ​ 2022 ​ 2022 ​ ​ (in thousands) Federal and state tax receivable (1) ​ $ 82,310 ​ $ — Promissory notes receivable, including interest (2) ​ 35,463 ​ 8,401 Other current assets ​ ​ 28,094 ​ ​ 9,355 Capitalized catalog costs ​ 23,337 ​ 22,194 Vendor deposits ​ ​ 23,227 ​ ​ 19,610 Prepaid expenses ​ ​ 19,309 ​ ​ 31,502 Tenant allowance receivable ​ ​ 8,686 ​ ​ 15,355 Value added tax (VAT) receivable ​ ​ 7,831 ​ ​ 4,529 Right of return asset for merchandise ​ 5,990 ​ 6,429 Acquisition related escrow deposits ​ ​ — ​ ​ 3,975 Total prepaid expense and other current assets ​ $ 234,247 ​ $ 121,350 (1) Refer to Note 12— Income Taxes . (2) Represents promissory notes, including principal and accrued interest, due from a related party. Refer to Note 5— Variable Interest Entities . Other non-current assets consist of the following: ​ ​ ​ ​ ​ ​ ​ ​ OCTOBER 29, JANUARY 29, ​ ​ 2022 ​ 2022 ​ ​ (in thousands) Initial direct costs prior to lease commencement ​ $ 41,849 ​ $ 57,087 Landlord assets under construction—net of tenant allowances ​ ​ 37,892 ​ ​ 204,013 Capitalized cloud computing costs—net (1) ​ ​ 20,927 ​ ​ 14,910 Other deposits ​ 6,889 ​ 6,877 Deferred financing fees ​ 3,436 ​ 4,123 Other non-current assets ​ 16,513 ​ 11,139 Total other non-current assets ​ $ 127,506 ​ $ 298,149 (1) Presented net of accumulated amortization of $ 8.8 million and $ 4.0 million as of October 29, 2022 and January 29, 2022, respectively. ​ ​ 14 | 2022 THIRD QUARTER FORM 10-Q PART I. FINANCIAL INFORMATION ​ 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 (refer to Note 17— Segment Reporting ) for the nine months ended October 29, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ FOREIGN ​ ​ ​ ​ JANUARY 29, ​ ​ ​ CURRENCY ​ OCTOBER 29, ​ ​ 2022 ​ ADDITIONS ​ TRANSLATION ​ 2022 ​ ​ (in thousands) RH Segment ​ ​ ​ ​ Goodwill ​ $ 141,100 ​ $ — ​ $ ( 79 ) ​ $ 141,021 Tradenames, trademarks and other intangible assets ​ 56,161 ​ 1,108 ​ — ​ 57,269 Waterworks (1) ​ ​ ​ ​ ​ ​ ​ Tradename (2) ​ 17,000 ​ — ​ — ​ 17,000 (1) Waterworks reporting unit goodwill of $ 51 million recognized upon acquisition in fiscal 2016 was fully impaired as of fiscal 2018. (2) Presented net of an impairment charge of $ 35 million recognized in prior fiscal years. ​ NOTE 5—VARIABLE INTEREST ENTITIES Equity Method Investments Equity method investments represent our membership interests in three privately-held limited liability companies in Aspen, Colorado (each, an “Aspen LLC” and collectively, the “Aspen LLCs” or the “equity method investments”) that were formed during fiscal 2020 for the purpose of acquiring, developing, operating and selling certain real estate projects in Aspen, Colorado. We hold a 50 percent membership interest in two of the Aspen LLCs and a 70 percent interest in the third Aspen LLC. These investments meet the criteria of VIEs, however, we are not the primary beneficiary of these arrangements. As we have the ability to exercise significant influence over the Aspen LLCs, but do not have a controlling financial interest in the Aspen LLCs, we account for these investments using the equity method of accounting. As of October 29, 2022 and January 29, 2022, $ 8.8 million and $ 8.4 million, respectively, of promissory notes receivable, inclusive of accrued interest, are outstanding with the managing member or entities affiliated with the managing member for the Aspen LLCs, which promissory notes are included in prepaid expense and other current assets on the condensed consolidated balance sheets. Promissory notes related specifically to the Aspen LLCs are expected to be settled in cash and not converted into additional equity investment in the Aspen LLCs. We have made in excess of $ 100 million in capital contributions to the Aspen LLCs as contractually required. Our maximum exposure to loss with respect to these equity method investments is the carrying value of the equity capital contributed as of October 29, 2022. During the three months ended October 29, 2022 and October 30, 2021, we recorded our proportionate share of equity method investments losses of $ 1.9 million and $ 2.3 million, respectively, which is included on the condensed consolidated statements of income and a corresponding decrease to the carrying value of equity method investments on the condensed consolidated balance sheets. During the nine months ended October 29, 2022 and October 30, 2021, we recorded our proportionate share of equity method investments losses of $ 6.1 million and $ 6.9 million, respectively. During the three and nine months ended October 29, 2022 and October 30, 2021, we did no t receive any distributions or have any undistributed earnings of equity method investments. Consolidated Variable Interest Entities and Noncontrolling Interests In the third quarter of fiscal 2022, we formed two real estate development limited liability companies (each, a “Member LLC” and collectively, the “Member LLCs” or the “consolidated variable interest entities”) for the purpose of acquiring, developing, operating and selling certain real estate projects, one of which is intended to be a future RH Design Gallery. We hold a 50 percent membership interest in each Member LLC, and the remaining 50 percent is held by an affiliate of the managing member of the Aspen LLCs. ​ PART I. FINANCIAL INFORMATION 2022 THIRD QUARTER FORM 10-Q | 15 ​ Table of Contents We have determined that each Member LLC is a VIE and that the power to direct the most significant activities of each Member LLC is shared amongst related parties. We have determined that we are most closely associated with each Member LLC, and, accordingly, consolidate the results of operations, financial condition and cash flows of the Member LLCs in our condensed consolidated financial statements. Noncontrolling interests in the consolidated variable interest entities are measured using the hypothetical liquidation at book value methodology. Noncontrolling interests in consolidated variable interest entities are immaterial as of October 29, 2022. As of October 29, 2022, $ 27 million of promissory notes receivable, inclusive of accrued interest, are outstanding with the managing member or entities affiliated with the managing member of the Member LLCs, which promissory notes are included in prepaid expense and other current assets on the condensed consolidated balance sheets. The promissory notes outstanding as of October 29, 2022 are related to other real estate joint ventures with entities affiliated with the managing member and such promissory notes are expected to be converted into equity in future privately-held limited liability companies for real estate development activities related to our Gallery transformation and global expansion strategies. Restricted Cash As of October 29, 2022, $ 3.9 million of restricted cash deposits are held in escrow for one Member LLC, which escrow balances are included in restricted cash on the condensed consolidated balance sheets. The escrow represents a portion of the proceeds from the issuance of the Promissory Note (defined below) that are required to be used for expenditures that qualify as tenant improvements under an allowance specified in a lease agreement between us and the Member LLC. Real Estate Loans On August 3, 2022, a Member LLC as the borrower executed a Secured Promissory Note (the “Secured Promissory Note”) with a third-party in an aggregate principal amount equal to $ 2.0 million with a maturity date of August 1, 2032. The Secured Promissory Note bears interest at a fixed rate per annum equal to 6.00 %. In addition, we entered into an immaterial loan with the Member LLC that is eliminated upon consolidation. On September 9, 2022, a Member LLC as the borrower executed a Promissory Note (the “Promissory Note”) with a third-party bank in an aggregate principal amount equal to $ 16 million with a maturity date of September 9, 2032. The Promissory Note bears interest at a fixed rate per annum equal to 5.37 % until September 15, 2027, on which date the interest rate will reset based on the five-year treasury rate plus 2.00 %, subject to a total interest rate 3.00 % floor. ​ These real estate loans are secured by the assets of each respective Member LLC and the associated creditors do not have recourse against RH’s general assets. ​ ​ 16 | 2022 THIRD QUARTER FORM 10-Q PART I. FINANCIAL INFORMATION ​ Table of Contents NOTE 6—ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accounts payable and accrued expenses consist of the following: ​ ​ ​ ​ ​ ​ ​ ​ OCTOBER 29, JANUARY 29, ​ ​ 2022 ​ 2022 ​ ​ (in thousands) Accounts payable ​ $ 180,484 ​ $ 242,035 Accrued compensation ​ 71,825 ​ 96,859 Accrued occupancy ​ 33,888 ​ 28,088 Accrued freight and duty ​ 22,577 ​ 21,888 Accrued sales taxes ​ 21,746 ​ 24,811 Accrued interest ​ ​ 11,814 ​ ​ 5,185 Accrued professional fees ​ 8,990 ​ 5,892 Accrued catalog costs ​ 4,277 ​ 4,127 Other accrued expenses ​ 34,364 ​ 13,494 Total accounts payable and accrued expenses ​ $ 389,965 ​ $ 442,379 Other current liabilities consist of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ OCTOBER 29, JANUARY 29, ​ ​ 2022 ​ 2022 ​ ​ (in thousands) Unredeemed gift card and merchandise credit liability ​ $ 28,304 ​ $ 22,712 Current portion of term loans ​ ​ 25,000 ​ ​ 20,000 Allowance for sales returns ​ ​ 24,399 ​ ​ 25,256 Finance lease liabilities ​ ​ 16,557 ​ ​ 15,511 Current portion of equipment promissory notes ​ ​ 1,691 ​ ​ 13,625 Federal and state tax payable (1) ​ ​ — ​ ​ 31,364 Other current liabilities ​ 8,587 ​ 18,155 Total other current liabilities ​ $ 104,538 ​ $ 146,623 (1) Refer to Note 12— Income Taxes . 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 October 29, 2022 will be recognized within the next six months as the performance obligations are satisfied. Deferred revenue also includes the unrecognized portion of the annual RH Members Program fee. 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 October 29, 2022 and October 30, 2021, we recognized $ 5.0 million and $ 4.4 million, respectively, of revenue related to previous deferrals related to our gift cards. During the nine months ended October 29, 2022 and October 30, 2021, we recognized $ 16 million and $ 14 million, respectively, of revenue related to previous deferrals related to our gift cards. ​ PART I. FINANCIAL INFORMATION 2022 THIRD QUARTER FORM 10-Q | 17 ​ Table of Contents We recognize breakage associated with gift cards proportional to actual gift card redemptions. Breakage of $ 0.7 million and $ 0.5 million was recorded in net revenues in the three months ended October 29, 2022 and October 30, 2021, respectively. Breakage of $ 1.8 million and $ 1.4 million was recorded in net revenues in the nine months ended October 29, 2022 and October 30, 2021, respectively. We expect that approximately 70 % of the remaining gift card liabilities will be recognized when the gift cards are redeemed by customers. ​ NOTE 7—OTHER NON-CURRENT OBLIGATIONS Other non-current obligations consist of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ OCTOBER 29, JANUARY 29, ​ ​ 2022 ​ 2022 ​ ​ (in thousands) Unrecognized tax benefits ​ $ 2,893 ​ $ 3,471 Other non-current obligations ​ 4,258 ​ 5,235 Total other non-current obligations ​ $ 7,151 ​ $ 8,706 ​ ​ NOTE 8—LEASES Lease costs—net consist of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ THREE MONTHS ENDED ​ NINE MONTHS ENDED ​ ​ OCTOBER 29, OCTOBER 30, ​ OCTOBER 29, OCTOBER 30, ​ ​ 2022 2021 ​ 2022 2021 ​ ​ (in thousands) Operating lease cost (1) ​ $ 25,153 ​ $ 25,637 $ 75,190 ​ $ 74,794 Finance lease costs ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amortization of leased assets (1) ​ ​ 13,964 ​ ​ 10,860 ​ ​ 38,334 ​ ​ 32,574 Interest on lease liabilities (2) ​ ​ 8,564 ​ ​ 6,711 ​ ​ 23,526 ​ ​ 19,468 Variable lease costs (3) ​ ​ 5,681 ​ ​ 9,096 ​ ​ 22,015 ​ ​ 25,436 Sublease income (4) ​ ​ ( 1,085 ) ​ ​ ( 1,189 ) ​ ​ ( 3,298 ) ​ ​ ( 3,507 ) Total lease costs—net ​ $ 52,277 ​ $ 51,115 ​ $ 155,767 ​ $ 148,765 (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 income based on our accounting policy. Refer to Note 3— Significant Accounting Policies in the 2021 Form 10-K. (2) Included in interest expense—net on the condensed consolidated statements of income. (3) Represents variable lease payments under operating and finance lease agreements, primarily associated with contingent rent based on a percentage of retail sales over contractual levels of $ 3.4 million and $ 6.9 million for the three months ended October 29, 2022 and October 30, 2021, respectively, and $ 15 million and $ 19 million for the nine months ended October 29, 2022 and October 30, 2021, respectively, as well as charges associated with common area maintenance of $ 2.3 million and $ 2.2 million for the three months ended October 29, 2022 and October 30, 2021, respectively, and $ 6.9 million and $ 6.6 million for the nine months ended October 29, 2022 and October 30, 2021, respectively. Other variable costs, which 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 presented. (4) Included as an offset to selling, general and administrative expenses on the condensed consolidated statements of income. ​ 18 | 2022 THIRD QUARTER FORM 10-Q PART I. FINANCIAL INFORMATION ​ Table of Contents Lease right-of-use assets and lease liabilities consist of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ OCTOBER 29, ​ JANUARY 29, ​ ​ ​ 2022 2022 ​ ​ ​ ​ (in thousands) ​ ​ Balance Sheet Classification ​ ​ ​ ​ ​ ​ Assets ​ ​ ​ ​ ​ ​ ​ ​ Operating leases ​ Operating lease right-of-use assets ​ $ 536,452 ​ $ 551,045 Finance leases (1)(2) ​ Property and equipment—net ​ ​ 1,092,787 ​ ​ 784,327 Total lease right-of-use assets ​ ​ ​ $ 1,629,239 ​ $ 1,335,372 Liabilities ​ ​ ​ ​ ​ ​ ​ ​ Current (3) ​ ​ ​ ​ ​ ​ ​ ​ Operating leases ​ Operating lease liabilities ​ $ 77,858 ​ $ 73,834 Finance leases ​ Other current liabilities ​ ​ 16,557 ​ ​ 15,511 Total lease liabilities—current ​ ​ ​ ​ 94,415 ​ ​ 89,345 Non-current ​ ​ ​ ​ ​ ​ ​ ​ Operating leases ​ Non-current operating lease liabilities ​ ​ 521,093 ​ ​ 540,513 Finance leases ​ Non-current finance lease liabilities ​ ​ 656,643 ​ ​ 560,550 Total lease liabilities—non-current ​ ​ ​ ​ 1,177,736 ​ ​ 1,101,063 Total lease liabilities ​ ​ ​ $ 1,272,151 ​ $ 1,190,408 (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 on the condensed consolidated balance sheets upon lease commencement. (2) Finance lease right-of-use assets are recorded net of accumulated amortization of $ 211 million and $ 174 million as of October 29, 2022 and January 29, 2022, respectively. (3) Current portion of lease liabilities represents the reduction of the related lease liability over the next 12 months. ​ ​ PART I. FINANCIAL INFORMATION 2022 THIRD QUARTER FORM 10-Q | 19 ​ Table of Contents The maturities of lease liabilities are as follows as of October 29, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ OPERATING ​ FINANCE ​ ​ FISCAL YEAR ​ ​ LEASES LEASES TOTAL ​ ​ ​ ​ (in thousands) Remainder of fiscal 2022 ​ ​ ​ $ 25,297 ​ $ 12,226 ​ $ 37,523 2023 ​ ​ ​ ​ 98,805 ​ ​ 49,454 ​ ​ 148,259 2024 ​ ​ ​ ​ 92,305 ​ ​ 49,824 ​ ​ 142,129 2025 ​ ​ ​ ​ 89,936 ​ ​ 51,259 ​ ​ 141,195 2026 ​ ​ ​ ​ 86,538 ​ ​ 52,032 ​ ​ 138,570 2027 ​ ​ ​ ​ 81,205 ​ ​ 53,214 ​ ​ 134,419 Thereafter ​ ​ ​ ​ 241,401 ​ ​ 963,165 ​ ​ 1,204,566 Total lease payments (1)(2) ​ ​ ​ ​ 715,487 ​ ​ 1,231,174 ​ ​ 1,946,661 Less—imputed interest (3) ​ ​ ​ ​ ( 116,536 ) ​ ​ ( 557,974 ) ​ ​ ( 674,510 ) Present value of lease liabilities ​ ​ ​ $ 598,951 ​ $ 673,200 ​ $ 1,272,151 (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 $ 640 million of legally binding payments under the non-cancellable term for leases signed but not yet commenced under our accounting policy as of October 29, 2022, of which $ 5.0 million, $ 25 million, $ 36 million, $ 39 million, $ 40 million and $ 38 million will be paid in the remainder of fiscal 2022, fiscal 2023, fiscal 2024, fiscal 2025, fiscal 2026 and fiscal 2027, respectively, and $ 457 million will be paid subsequent to fiscal 2027. (2) Excludes an immaterial amount of future commitments under short-term lease agreements. (3) Calculated using the discount rate for each lease at lease commencement. Supplemental information related to leases consists of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ NINE MONTHS ENDED ​ ​ OCTOBER 29, ​ OCTOBER 30, ​ ​ 2022 ​ 2021 Weighted-average remaining lease term (years) ​ ​ ​ ​ ​ ​ Operating leases ​ ​ 8.5 ​ ​ 9.3 Finance leases ​ ​ 22.1 ​ ​ 20.1 Weighted-average discount rate ​ ​ ​ ​ ​ ​ Operating leases ​ ​ 4.04 % ​ ​ 3.84 % Finance leases ​ ​ 5.32 % ​ ​ 4.97 % ​ ​ 20 | 2022 THIRD QUARTER FORM 10-Q PART I. FINANCIAL INFORMATION ​ Table of Contents Other information related to leases consists of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ NINE MONTHS ENDED ​ ​ ​ OCTOBER 29, ​ OCTOBER 30, ​ ​ ​ 2022 ​ 2021 ​ ​ ​ (in thousands) ​ Cash paid for amounts included in the measurement of lease liabilities ​ ​ ​ ​ ​ ​ ​ Operating cash flows from operating leases ​ $ ( 75,570 ) ​ $ ( 76,957 ) ​ Operating cash flows from finance leases ​ ​ ( 23,526 ) ​ ​ ( 19,774 ) ​ Financing cash flows from finance leases—net (1) ​ ​ ( 6,798 ) ​ ​ ( 10,511 ) ​ Total cash outflows from leases ​ $ ( 105,894 ) ​ $ ( 107,242 ) ​ Lease right-of-use assets obtained in exchange for lease obligations—net of lease terminations (non-cash) ​ ​ ​ ​ ​ ​ ​ Operating leases ​ $ 42,883 ​ $ 151,548 ​ Finance leases ​ ​ 108,547 ​ ​ 73,855 ​ (1) Represents the principal portion of lease payments offset by tenant allowances received subsequent to lease commencement. Build-to-Suit Asset During the second quarter of fiscal 2021, we opened the Dallas Design Gallery. During the construction period of this Design Gallery, we were the “deemed owner” for accounting purposes and classified the construction costs as build-to-suit asset within property & equipment—net on the condensed consolidated balance sheets. Upon construction completion and lease commencement, we performed a sale-leaseback analysis and determined that we could not derecognize the build-to-suit asset. Therefore, the asset remains classified as a build-to-suit asset within property and equipment—net on the condensed consolidated balance sheets and is depreciated over the term of the useful life of the asset. ​ NOTE 9—CONVERTIBLE SENIOR NOTES 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”). In September 2019, we issued in a private offering $ 350 million principal amount of 0.00 % convertible senior notes due 2024 (the “2024 Notes” and, together with the 2023 Notes, the “Convertible Senior Notes” or the “Notes”). Refer to Note 12— Convertible Senior Notes in our consolidated financial statements in our 2021 Form 10-K for further information and terms of the Notes, including the accounting policies related to the Notes that were in effect through fiscal 2021. In connection with our adoption of ASU 2020-06 in the first quarter of fiscal 2022, we recombined the previously outstanding equity component, which resulted in an increase in the balance of convertible debt outstanding. Refer to Note 2— Recently Issued Accounting Standards for further discussion of the impact of our adoption of ASU 2020-06 in our condensed consolidated financial statements. ​ PART I. FINANCIAL INFORMATION 2022 THIRD QUARTER FORM 10-Q | 21 ​ Table of Contents The outstanding balances under the 2023 Notes and 2024 Notes were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ OCTOBER 29, ​ ​ JANUARY 29, ​ ​ 2022 ​ ​ 2022 ​ ​ ​ ​ UNAMORTIZED ​ ​ ​ ​ ​ ​ ​ UNAMORTIZED ​ ​ ​ ​ ​ ​ DEBT ​ NET ​ ​ ​ ​ DEBT ​ NET ​ ​ PRINCIPAL ​ ISSUANCE ​ CARRYING ​ ​ PRINCIPAL ​ ISSUANCE ​ CARRYING ​ ​ AMOUNT COST (1) AMOUNT ​ AMOUNT COST (1) ​ AMOUNT ​ ​ (in thousands) Convertible senior notes due 2023 (2) ​ $ 1,707 ​ $ ( 5 ) ​ $ 1,702 ​ $ 74,390 ​ $ ( 5,999 ) ​ $ 68,391 ​ Convertible senior notes due 2024 (3) ​ ​ 41,904 ​ ​ ( 208 ) ​ ​ 41,696 ​ ​ 219,638 ​ ​ ( 31,577 ) ​ ​ 188,061 ​ Total convertible senior notes ​ $ 43,611 ​ $ ( 213 ) ​ $ 43,398 ​ $ 294,028 ​ $ ( 37,576 ) ​ $ 256,452 ​ (1) As of October 29, 2022, the balance includes debt issuance costs inclusive of original issuers’ discount. As of January 29, 2022, the balance includes debt issuance costs inclusive of original issuers’ discount, as well as the previously outstanding equity component that was recombined upon the adoption of ASU 2020-06 in the first quarter of fiscal 2022, which was $ 5.7 million for the 2023 Notes and $ 30 million for the 2024 Notes. Refer to Note 2 —Recently Issued Accounting Standards . (2) As of October 29, 2022, the 2023 Notes outstanding are current liabilities and are classified as convertible senior notes due 2023—net. The 2023 Notes outstanding as of January 29, 2022 included a current portion of $ 9.4 million and a non-current portion of $ 59 million. (3) As of October 29, 2022, the 2024 Notes outstanding are non-current liabilities and are classified as convertible senior notes due 2024—net. The 2024 Notes outstanding as of January 29, 2022 included a current portion of $ 3.6 million and a non-current portion of $ 184 million. 2023 Notes and 2024 Notes—Bond Hedge and Warrant Terminations and Notes Repurchase During the first quarter of fiscal 2022, we entered into agreements with certain financial institutions (collectively, the “Counterparties”) to repurchase all of the warrants issued in connection with the 2023 Notes and 2024 Notes at an aggregate purchase price of $ 184 million and $ 203 million, respectively, subject to adjustment for a settlement feature based on pricing formulations linked to the trading price of our common stock over a volume weighted-average price measurement period of two or three days . Upon entering into these agreements, the warrants were reclassified from stockholders’ equity to current liabilities on the condensed consolidated balance sheets, and accordingly, we recognized a corresponding net loss on the fair value adjustment of the warrants of $ 4.2 million, which is classified within other expense—net on the condensed consolidated statements of income. Upon settlement of these agreements in April 2022, we paid an aggregate of $ 391 million in cash to terminate the warrants. During the first quarter of fiscal 2022, we entered into agreements with the Counterparties to terminate all of the convertible note bond hedges issued in connection with the 2023 Notes and 2024 Notes to receive an aggregate closing price of $ 56 million and $ 180 million, respectively, subject to adjustment for a settlement feature based on pricing formulations linked to the trading price of our common stock over a three day volume weighted-average price measurement period. Upon entering into these agreements, the bond hedges were reclassified from stockholders’ equity to current assets on the condensed consolidated balance sheets, and accordingly, we recognized a corresponding loss on the fair value adjustment of the settlement feature of $ 4.3 million, which is classified within other expense—net on the condensed consolidated statements of income. Upon settlement of these agreements in April 2022, we received an aggregate of $ 232 million in cash for the termination of the bond hedges. ​ 22 | 2022 THIRD QUARTER FORM 10-Q PART I. FINANCIAL INFORMATION ​ Table of Contents During the first quarter of fiscal 2022, we entered into individual privately negotiated transactions with a limited number of sophisticated investors that were holders of the 2023 Notes and/or the 2024 Notes to repurchase in cash $ 45 million and $ 135 million in aggregate principal amount of the 2023 Notes and 2024 Notes, respectively (the “Notes Repurchase”). The Notes Repurchase provided for an estimated settlement cost of $ 325 million, subject to adjustment to the final settlement cost for an embedded feature based on pricing formulations linked to the trading price of our common stock over a five day volatility weighted-average price measurement period that ended on April 29, 2022. Upon execution of these agreements, we determined that we had modified the debt substantially and applied an extinguishment accounting model. Accordingly, we derecognized the aggregate principal amount of $ 180 million of the Convertible Senior Notes related to the extinguishment of such notes, and subsequently recognized a new financing liability with a fair value of $ 325 million. An embedded derivative related to the conversion feature was bifurcated from the new financing liability and separately recognized with an initial fair value of $ 278 million, with the remaining $ 47 million classified as debt and recognized at its amortized cost basis. Accordingly, we recognized a loss on extinguishment of debt of $ 146 million upon the execution of these agreements, inclusive of acceleration of amortization of debt issuance costs of $ 1.0 million. Upon the completion of the price measurement period in April 2022, a total of $ 314 million was due to the holders, representing the combined carrying value of the debt liability of $ 47 million, as well as the fair value of the bifurcated embedded equity derivative of $ 267 million. Accordingly, we recognized a gain on the fair value adjustment of the bifurcated embedded equity derivative of $ 11 million, which is classified within other expense—net on the condensed consolidated statements of income. The resulting debt liability and bifurcated embedded equity derivative were settled in full for $ 314 million in cash upon closing of the Notes Repurchase on May 3, 2022. ​ During the second quarter of fiscal 2022, we entered into additional individual privately negotiated transactions with a limited number of sophisticated investors that were holders of the 2023 Notes and/or the 2024 Notes to repurchase in cash $ 18 million and $ 39 million in aggregate principal amount of the 2023 Notes and 2024 Notes, respectively (the “Additional Notes Repurchase”) . The Additional Notes Repurchase provided for an estimated settlement cost of $ 80 million, subject to adjustment to the final settlement cost for an embedded feature based on pricing formulations linked to the trading price of our common stock over a one day volatility weighted-average price measurement period occurring in July 2022. Upon execution of these agreements, we determined that we had modified the debt substantially and applied an extinguishment accounting model. Accordingly, we derecognized the aggregate principal amount of $ 57 million of the Convertible Senior Notes related to the extinguishment of such notes, and subsequently recognized a new financing liability with a fair value of $ 25 million. An embedded derivative related to the conversion feature was bifurcated from the new financing liability and separately recognized with an initial fair value of $ 55 million. We recognized a loss on extinguishment of debt of $ 23 million upon the execution of these agreements, inclusive of acceleration of amortization of debt issuance costs of $ 0.3 million. Upon the remeasurement of the amount owed to the holders in terms of the embedded feature, a total of $ 82 million was paid in cash to the holders, representing the combined carrying value of the financing liability of $ 25 million, as well as the fair value of the bifurcated embedded equity derivative upon settlement of $ 57 million. Accordingly, we recognized a loss on the fair value adjustment of the bifurcated embedded equity derivative of $ 1.5 million, which is classified within other expense—net on the condensed consolidated statements of income. $ 350 million 0.00 % Convertible Senior Notes due 2024 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, 2022. However, this condition was not met for the calendar quarter ended June 30, 2022 or September 30, 2022 and, as a result, the 2024 Notes were not convertible as of September 30, 2022. 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 . ​ PART I. FINANCIAL INFORMATION 2022 THIRD QUARTER FORM 10-Q | 23 ​ Table of Contents During the nine months ended October 29, 2022, holders of $ 3.6 million in aggregate principal amount of the 2024 Notes elected to exercise the early conversion option and we elected to settle such conversions using combination settlement comprised of cash equal to the principal amount of the 2024 Notes converted and shares of our common stock for the remaining conversion value. During the nine months ended October 29, 2022, we paid $ 3.6 million in cash and delivered 9,760 shares of common stock to settle the early conversion of these 2024 Notes. We also received 9,760 shares of common stock from the exercise of a portion of the convertible bond hedge we purchased concurrently with the issuance of the 2024 Notes. The remaining liability for the 2024 Notes is classified as a non-current obligation on the condensed consolidated balance sheets since the settlement of the outstanding 2024 Notes will be made, at our election, in cash, shares of our common stock, or a combination of cash and shares of our common stock. $ 335 million 0.00 % Convertible Senior Notes due 2023 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 September 30, 2022 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 December 31, 2022. 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 . During the nine months ended October 29, 2022, holders of $ 9.4 million in aggregate principal amount of the 2023 Notes elected to exercise the early conversion option and we elected to settle such conversions using combination settlement comprised of cash equal to the principal amount of the 2023 Notes converted and shares of our common stock for the remaining conversion value. During the nine months ended October 29, 2022, we paid $ 9.4 million in cash and delivered 27,220 shares of common stock to settle the early conversion of these 2023 Notes. We also received 27,208 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, and therefore, on a net basis issued 12 shares of our common stock in respect to such settlement of the converted 2023 Notes. The remaining liability for the 2023 Notes is classified as a current obligation on the condensed consolidated balance sheets since the settlement of the outstanding 2023 Notes is due on June 15, 2023. The settlement of additional early conversions received, if any, will be made, at our election, in cash, shares of our common stock, or a combination of cash and shares of our common stock. ​ ​ 24 | 2022 THIRD QUARTER FORM 10-Q PART I. FINANCIAL INFORMATION ​ Table of Contents NOTE 10—CREDIT FACILITIES The outstanding balances under our credit facilities were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ OCTOBER 29, ​ JANUARY 29, ​ ​ 2022 ​ 2022 ​ ​ ​ ​ ​ ​ UNAMORTIZED ​ ​ ​ ​ ​ UNAMORTIZED ​ ​ ​ ​ ​ ​ ​ ​ ​ DEBT ​ NET ​ ​ ​ ​ DEBT ​ NET ​ ​ INTEREST ​ OUTSTANDING ​ ISSUANCE ​ CARRYING ​ OUTSTANDING ​ ISSUANCE ​ CARRYING ​ ​ RATE (1) AMOUNT COSTS AMOUNT AMOUNT COSTS AMOUNT ​ ​ (dollars in thousands) Asset based credit facility (2) ​ 4.88 % ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — Term loan B (3) ​ 5.62 % ​ ​ 1,980,000 ​ ​ ( 19,299 ) ​ ​ 1,960,701 ​ ​ 1,995,000 ​ ​ ( 21,797 ) ​ ​ 1,973,203 Term loan B-2 (4) ​ 6.38 % ​ ​ 500,000 ​ ​ ( 25,604 ) ​ ​ 474,396 ​ ​ — ​ ​ — ​ ​ — Equipment promissory notes (5) 4.56 % ​ ​ 1,691 ​ ​ — ​ ​ 1,691 ​ 14,785 ​ ( 31 ) ​ 14,754 Total credit facilities ​ ​ ​ $ 2,481,691 ​ $ ( 44,903 ) ​ $ 2,436,788 ​ $ 2,009,785 ​ $ ( 21,828 ) ​ $ 1,987,957 (1) The interest rates for the asset based credit facility, term loans and equipment promissory note represent the weighted-average interest rates as of October 29, 2022. (2) Deferred financing fees associated with the asset based credit facility as of October 29, 2022 and January 29, 2022 were $ 3.4 million and $ 4.1 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 July 29, 2026. (3) Represents the outstanding balance of the Term Loan B (defined below) under the Term Loan Credit Agreement, of which outstanding amounts of $ 1,961 million and $ 20 million were included in term loan B—net and other current liabilities , respectively, on the condensed consolidated balance sheets, respectively, in both periods presented. The maturity date of the Term Loan Credit Agreement is October 20, 2028. (4) Represents the outstanding balance of the Term Loan B-2 (defined below) under the Term Loan Credit Agreement, of which outstanding amounts of $ 474 million and $ 5.0 million were included in term loan B-2—net and other current liabilities , respectively, on the condensed consolidated balance sheets as of October 29, 2022. The maturity date of the Term Loan Credit Agreement is October 20, 2028. (5) Represents total equipment security notes secured by certain of our property and equipment, all of which was included in other current liabilities on the condensed consolidated balance sheets as of October 29, 2022. Asset Based Credit Facility & Term Loan Facilities On August 3, 2011, Restoration Hardware, Inc. (“RHI”), a wholly-owned subsidiary of RH, along with its Canadian subsidiary, Restoration Hardware Canada, Inc., entered into the Ninth Amended and Restated Credit Agreement (as amended prior to June 28, 2017, the “Original Credit Agreement”) by and among RHI, Restoration Hardware Canada, Inc., certain other 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 (the “ABL Agent”). On June 28, 2017, RHI entered into the Eleventh Amended and Restated Credit Agreement (as amended prior to July 29, 2021, the “11 th A&R Credit Agreement”) by and among RHI, Restoration Hardware Canada, Inc., certain other subsidiaries of RH named therein as borrowers or guarantors, the lenders party thereto and the ABL Agent, which amended and restated the Original Credit Agreement. On July 29, 2021, RHI entered into the Twelfth Amended and Restated Credit Agreement (as amended, the “ABL Credit Agreement”) by and among RHI, Restoration Hardware Canada, Inc., certain other subsidiaries of RH named therein as borrowers or guarantors, the lenders party thereto and the ABL Agent, which amended and restated the 11 th A&R Credit Agreement. The ABL Credit Agreement has a revolving line of credit with initial availability of up to $ 600 million, of which $ 10 million is available to Restoration Hardware Canada, Inc., and includes a $ 300 million accordion feature under which the revolving line of credit may be expanded by agreement of the parties from $ 600 million to up to $ 900 million if and to the extent the lenders revise their credit commitments to encompass a larger facility. The ABL Credit Agreement provides that the $ 300 million accordion, or a portion thereof, may be added as a first-in, last-out term loan facility if and to the extent the lenders revise their credit commitments for such facility. The ABL Credit Agreement further provides that the borrowers may request a European sub-credit facility under the revolving line of credit or under the accordion feature for borrowing by certain European subsidiaries of RH if certain conditions set out in the ABL Credit Agreement are met. The maturity date of the ABL Credit Agreement is July 29, 2026. ​ PART I. FINANCIAL INFORMATION 2022 THIRD QUARTER FORM 10-Q | 25 ​ Table of Contents The availability of credit at any given time under the ABL Credit Agreement will be constrained by the terms and conditions of the ABL Credit Agreement, including the amount of collateral available, a borrowing base formula based upon numerous factors, including the value of eligible inventory and eligible accounts receivable, and other restrictions contained in the ABL Credit Agreement. All obligations under the ABL Credit Agreement are secured by substantial assets of the loan parties, including inventory, receivables and certain types of intellectual property. Borrowings under the revolving line of credit (other than swing line loans, which are subject to interest at the base rate) bear interest, at the borrower’s option, at either the base rate or LIBOR subject to a 0.00 % LIBOR floor (or, in the case of the Canadian borrowings, the “BA Rate” or the “Canadian Prime Rate”, as such terms are defined in the ABL Credit Agreement, for the Canadian borrowings denominated in Canadian dollars, or the “U.S. Index Rate”, as such term is defined in the ABL Credit Agreement, or LIBOR for Canadian borrowings denominated in United States dollars) plus an applicable interest rate margin, in each case. The ABL Credit Agreement contains customary provisions addressing the transition from LIBOR. The ABL Credit Agreement contains various restrictive and affirmative covenants, including required financial reporting, limitations on granting certain liens, limitations on making certain loans or investments, limitations on incurring additional debt, restricted payment limitations limiting the payment of dividends and certain other transactions and distributions, limitations on transactions with affiliates, along with other restrictions and limitations similar to those frequently found in credit agreements of a similar type and size. The ABL Credit Agreement does not contain any significant financial ratio covenants or coverage ratio covenants other than a consolidated fixed charge coverage ratio (“FCCR”) covenant based on the ratio of (i) consolidated EBITDA to the amount of (ii) debt service costs plus certain other amounts, including dividends and distributions and prepayments of debt as defined in the ABL Credit Agreement (the “FCCR Covenant”). The FCCR Covenant only applies in certain limited circumstances, including when the unused availability under the ABL Credit Agreement drops below the greater of (A) $ 40 million and (B) an amount based on 10 % of the total borrowing availability at the time. The FCCR Covenant ratio is set at 1.0 and measured on a trailing twelve-month basis. As of October 29, 2022, RHI was in compliance with the FCCR Covenant. The ABL 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) when the unused availability under the ABL Credit Agreement drops below the greater of (A) $ 40 million and (B) an amount based on 10 % of the total borrowing availability at the time. The ABL Credit Agreement contains customary representations and warranties, events of defaults and other customary terms and conditions for an asset based credit facility. The availability of the revolving line of credit at any given time under the ABL Credit Agreement is limited by the terms and conditions of the ABL Credit Agreement, including the amount of collateral available, a borrowing base formula based upon numerous factors, including the value of eligible inventory and eligible accounts receivable, and other restrictions contained in the ABL Credit Agreement. As a result, 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). As of October 29, 2022, the amount available for borrowing under the revolving line of credit under the ABL Credit Agreement was $ 578 million, net of $ 25 million in outstanding letters of credit. Term Loan Credit Agreement On October 20, 2021, RHI entered into a Term Loan Credit Agreement (the “Term Loan Credit Agreement”) by and among RHI as the borrower, the lenders party thereto and Bank of America, N.A. as administrative agent and collateral agent (in such capacities, the “Term Agent”) with respect to an initial term loan (the “Term Loan B”) in an aggregate principal amount equal to $ 2,000,000,000 with a maturity date of October 20, 2028. The Term Loan B bears interest at an annual rate based on LIBOR subject to a 0.50 % LIBOR floor plus an interest rate margin of 2.50 % (with a stepdown of the interest rate margin if RHI achieves a specified public corporate family rating). LIBOR is a floating interest rate that resets periodically during the life of the Term Loan B. At the date of borrowing, the interest rate was set at the LIBOR floor of 0.50 % plus 2.50 % and the Term Loan B was issued at a discount of 0.50 % to face value. The Term Loan Credit Agreement contains customary provisions addressing future transition from LIBOR. ​ 26 | 2022 THIRD QUARTER FORM 10-Q PART I. FINANCIAL INFORMATION ​ Table of Contents On May 13, 2022, RHI entered into a 2022 Incremental Amendment (the “2022 Incremental Amendment”) with Bank of America, N.A., as administrative agent, amending the Term Loan Credit Agreement (the Term Loan Credit Agreement as amended by the 2022 Incremental Amendment, the “Amended Term Loan Credit Agreement”). Pursuant to the terms of the 2022 Incremental Amendment, RHI incurred incremental term loans (the “Term Loan B-2”) in an aggregate principal amount equal to $ 500 million with a maturity date of October 20, 2028. The Term Loan B-2 constitutes a separate class from the Term Loan B under the Term Loan Credit Agreement. The Term Loan B-2 bears interest at an annual rate based on the SOFR subject to a 0.50 % SOFR floor plus an interest rate margin of 3.25 % plus a credit spread adjustment of 0.10 %. Other than the terms relating to the Term Loan B-2, the terms of the Amended Term Loan Credit Agreement remain substantially the same as the terms of the existing Term Loan Credit Agreement, including representations and warranties, covenants and events of default. All obligations under the Term Loan B are guaranteed by certain domestic subsidiaries of RHI. Further, RHI and such subsidiaries have granted a security interest in substantially all of their assets (subject to customary and other exceptions) to secure the Term Loan B. Substantially all of the collateral securing the Term Loan B also secures the loans and other credit extensions under the ABL Credit Agreement. On October 20, 2021, in connection with the Term Loan Credit Agreement, RHI and certain other subsidiaries of RH party to the Term Loan Credit Agreement and the ABL Credit Agreement, as the case may be, entered into an Intercreditor Agreement (the “Intercreditor Agreement”) with the Term Agent and the ABL Agent. The Intercreditor Agreement establishes various customary inter-lender terms, including, without limitation, with respect to priority of liens, permitted actions by each party, application of proceeds, exercise of remedies in case of default, releases of liens and certain limitations on the amendment of the ABL Credit Agreement and the Term Loan Credit Agreement without the consent of the other parties. The borrowings under the Term Loan Credit Agreement may be prepaid in whole or in part at any time, subject to a prepayment premium of 1.0 % in connection with any repricing transaction within the six months following the closing date of the Term Loan Credit Agreement. The Term Loan Credit Agreement contains various restrictive and affirmative covenants, including required financial reporting, limitations on granting certain liens, limitations on making certain loans or investments, limitations on incurring additional debt, restricted payment limitations limiting the payment of dividends and certain other transactions and distributions, limitations on transactions with affiliates, along with other restrictions and limitations similar to those frequently found in credit agreements of a similar type and size, but provides for unlimited exceptions in the case of incurring indebtedness, granting of liens and making investments, dividend payments, and payments of material junior indebtedness, subject to satisfying specified leverage ratio tests. The Term Loan Credit Agreement does not contain a financial maintenance covenant. The Term Loan Credit Agreement contains customary representations and warranties, events of defaults and other customary terms and conditions for a term loan credit agreement. Equipment Loan Facility On September 5, 2017, RHI entered into a Master Loan and Security Agreement with Banc of America Leasing & Capital, LLC (“BAL”) pursuant to which BAL and RHI 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. The maturity dates of the equipment security notes varied, but generally had a maturity of three or four years and required us to make monthly installment payments. As of October 29, 2022, one equipment security note remains outstanding with a maturity date in April 2023. ​ ​ PART I. FINANCIAL INFORMATION 2022 THIRD QUARTER FORM 10-Q | 27 ​ Table of Contents NOTE 11—FAIR VALUE MEASUREMENTS 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 (Level 2). The estimated fair value of the real estate loans approximate their carrying values as they were recently issued. The estimated fair value and carrying value of the 2023 Notes and 2024 Notes and the Term Loan Credit Agreement were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ OCTOBER 29, ​ JANUARY 29, ​ ​ 2022 ​ 2022 ​ ​ PRINCIPAL ​ PRINCIPAL ​ ​ FAIR ​ CARRYING ​ FAIR ​ CARRYING ​ ​ VALUE ​ VALUE (1) ​ VALUE ​ VALUE (1) ​ ​ (in thousands) Convertible senior notes due 2023 ​ $ 1,632 ​ $ 1,707 ​ $ 70,857 ​ $ 68,706 Convertible senior notes due 2024 ​ 36,499 ​ ​ 41,904 ​ 198,087 ​ 189,297 Term loan B ​ ​ 1,961,700 ​ ​ 1,980,000 ​ ​ 1,995,000 ​ ​ 1,995,000 Term loan B-2 ​ 499,044 ​ ​ 500,000 ​ — ​ — (1) The carrying value of the convertible senior notes as of October 29, 2022 represents the principal amount of the 2023 Notes and 2024 Notes following our adoption of ASU 2020-06 in the first quarter of fiscal 2022 (refer to Note 2— Recently Issued Accounting Standards ). The carrying value as of January 29, 2022 represents the principal amount less the equity component of the 2023 Notes and 2024 Notes classified in stockholders’ equity , which was required prior to the adoption of ASU 2020-06. The carrying value in both periods excludes the discounts upon original issuance, discounts and commissions payable to the initial purchasers and third party offering costs, as applicable. The carrying values of the Term Loan B and Term Loan B-2 represent the outstanding amount under each class excluding discounts upon original issuance and third party offering costs. 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 stock price and interest rates based on similar debt issued by parties with credit ratings similar to ours (Level 2). The estimated fair values of the Term Loan B and Term Loan B-2 were derived from discounted cash flows using risk-adjusted rates (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. 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. Prior to the adoption of ASU 2020-06 and through fiscal 2021, upon settlement of our convertible senior notes, including the settlements in which holders of the 2023 Notes and 2024 Notes elected to exercise the early conversion option, we recognized a gain or loss on extinguishment of debt in the condensed consolidated statements of income, which represented the difference between the carrying value and fair value of the convertible senior notes immediately prior to the settlement date. The fair value of each of the 2023 Notes and 2024 Notes related to the settlement of the early conversions 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). ​ ​ ​ 28 | 2022 THIRD QUARTER FORM 10-Q PART I. FINANCIAL INFORMATION ​ Table of Contents NOTE 12—INCOME TAXES We recorded income tax expense of $ 36 million and $ 54 million in the three months ended October 29, 2022 and October 30, 2021, respectively. We recorded an income tax benefit of $ 71 million and income tax expense of $ 99 million in the nine months ended October 29, 2022 and October 30, 2021, respectively. The effective tax rate was 26.8 % and 22.8 % in the three months ended October 29, 2022 and October 30, 2021, respectively. The effective tax rate was ( 20.2 )% and 15.5 % in the nine months ended October 29, 2022 and October 30, 2021, respectively. The increase in our effective tax rate for the three months ended October 29, 2022 as compared to the three months ended October 30, 2021 is primarily attributable to significantly lower net excess tax benefits from stock-based compensation in the three months ended October 29, 2022. The decrease in our effective tax rate for the nine months ended October 29, 2022 as compared to the nine months ended October 30, 2021 is primarily attributable to significantly higher net excess tax benefits from stock-based compensation in the nine months ended October 29, 2022. As of October 29, 2022, we had $ 8.2 million of unrecognized tax benefits, of which $ 7.6 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 October 29, 2022, we had $ 5.5 million of exposures related to unrecognized tax benefits that are expected to decrease in the next 12 months. Inflation Reduction Act On August 16, 2022, the U.S. government enacted the Inflation Reduction Act of 2022 that includes, among other provisions, changes to the U.S. corporate income tax system, including a fifteen percent minimum tax based on "adjusted financial statement income” and a one percent excise tax on net repurchases of stock after December 31, 2022. We are continuing to evaluate the Inflation Reduction Act and its requirements, including the application to our business. ​ NOTE 13—NET INCOME PER SHARE The calculation of our net income per share is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ THREE MONTHS ENDED ​ NINE MONTHS ENDED ​ ​ OCTOBER 29, ​ ​ OCTOBER 30, ​ OCTOBER 29, ​ OCTOBER 30, ​ 2022 ​ 2021 2022 2021 ​ ​ ​ (in thousands, except share and per share amounts) Net income ​ $ 98,760 ​ $ 184,099 ​ $ 421,746 ​ $ 541,501 Loss on extinguishment of debt ​ — ​ ​ ​ 169,578 Net income available to common stockholders (1) $ 98,760 ​ $ 591,324 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-average shares—basic ​ ​ 23,681,482 ​ ​ 21,430,557 ​ ​ 23,588,464 ​ ​ 21,200,146 Effect of dilutive stock-based awards ​ 2,209,736 ​ 6,462,775 ​ 2,943,274 ​ 6,645,663 Effect of dilutive convertible senior notes (2) ​ 207,047 ​ 3,397,747 ​ 724,173 ​ 3,647,587 Weighted-average shares—diluted ​ 26,098,265 ​ 31,291,079 ​ 27,255,911 ​ 31,493,396 Basic net income per share ​ $ 4.17 ​ $ 8.59 ​ $ 25.07 ​ $ 25.54 Diluted net income per share $ 3.78 $ 5.88 $ 21.70 $ 17.19 (1) Effective the first quarter of fiscal 2022 upon adoption of ASU 2020-06, the loss on extinguishment of debt related to convertible securities is added back to net income to calculate net income per share. ​ PART I. FINANCIAL INFORMATION 2022 THIRD QUARTER FORM 10-Q | 29 ​ Table of Contents (2) We adopted ASU 2020-06 in the first quarter of fiscal 2022, and the adoption requires the dilutive impact of the 2023 Notes and 2024 Notes for diluted net income per share purposes to be determined under the if-converted method which assumes share settlement of the entire convertible debt instrument. Prior to adoption of ASU 2020-06, we applied the treasury stock method to determine the dilutive impact of the 2023 Notes and 2024 Notes for diluted net income per share purposes. The 2023 Notes and the 2024 Notes have an impact on our dilutive share count beginning at stock prices of $ 193.65 per share and $ 211.40 per share, respectively. The warrants associated with the 2023 Notes and 2024 Notes had an impact on our dilutive share count beginning at stock prices of $ 309.84 per share and $ 338.24 per share, respectively. The warrants associated with the 2023 Notes and 2024 Notes were repurchased in April 2022 and, as a result, no warrant instruments are outstanding as of October 29, 2022. Accordingly, the warrants have no impact on our dilutive shares post-repurchase. Refer to Note 9— Convertible Senior Notes . The following number of options and restricted stock units were excluded from the calculation of diluted net income per share because their inclusion would have been anti-dilutive: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ THREE MONTHS ENDED ​ NINE MONTHS ENDED ​ ​ OCTOBER 29, ​ OCTOBER 30, ​ OCTOBER 29, ​ OCTOBER 30, ​ 2022 2021 2022 2021 Options ​ 1,084,920 ​ 121,587 ​ 1,083,745 ​ 86,474 Restricted stock units 19,310 ​ — 19,443 — Total anti-dilutive stock-based awards 1,104,230 121,587 1,103,188 86,474 ​ ​ NOTE 14—SHARE REPURCHASE PROGRAM AND SHARE RETIREMENT Share Repurchase Program In 2018, our Board of Directors authorized a share repurchase program. On June 2, 2022, the Board of Directors authorized an additional $ 2.0 billion for the purchase of shares of our outstanding common stock, increasing the total authorized size of the share repurchase program to $ 2,450 million (the “Share Repurchase Program”). During the nine months ended October 29, 2022, we repurchased 1,127,557 shares of our common stock under the Share Repurchase Program at an average price of $ 254.02 per share, for an aggregate repurchase amount of approximately $ 286 million. As of October 29, 2022, $ 2,164 million remains available for future share repurchases under this program. Share Retirement During the nine months ended October 29, 2022, we retired 1,127,557 shares of common stock related to shares we repurchased under the Share Repurchase Program. As a result of this retirement, we reclassified a total of $ 286 million from treasury stock to additional paid-in capital on the condensed consolidated balance sheets and condensed consolidated statements of stockholders’ equity as of October 29, 2022. ​ NOTE 15—STOCK-BASED COMPENSATION We recorded stock-based compensation expense of $ 10 million and $ 12 million during the three months ended October 29, 2022 and October 30, 2021, respectively, which is included in selling, general and administrative expenses on the condensed consolidated statements of income. We recorded stock-based compensation expense of $ 34 million and $ 37 million during the nine months ended October 29, 2022 and October 30, 2021, respectively. No stock-based compensation cost has been capitalized in the accompanying condensed consolidated financial statements. 2012 Stock Incentive Plan and 2012 Stock Option Plan The Restoration Hardware 2012 Stock Incentive Plan (the “Stock Incentive Plan”) was adopted on November 1, 2012. The Stock Incentive Plan provides for the grant of incentive stock options to our employees, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalent rights, cash-based awards and any combination thereof to our employees, directors and consultants and our parent and subsidiary corporations’ employees, directors and consultants. ​ 30 | 2022 THIRD QUARTER FORM 10-Q PART I. FINANCIAL INFORMATION ​ Table of Contents The Restoration Hardware 2012 Stock Option Plan (the “Option Plan”) was adopted on November 1, 2012 and on such date 6,829,041 fully vested options were granted under this plan to certain of our employees and advisors. Aside from these options granted on November 1, 2012, no other awards were granted under the Option Plan. As of January 29, 2022, there were a total of 1,185,322 shares issuable under the Stock Incentive Plan. On January 31, 2022, an additional 430,139 shares became issuable under the Stock Incentive Plan in accordance with the Stock Incentive Plan evergreen provision, increasing the total number of shares issuable under the Stock Incentive Plan to 1,615,461 . Awards under the plans reduce the number of shares available for future issuance. Cancellations and forfeitures of awards previously granted under the Stock Incentive Plan increase the number of shares available for future issuance. Cancellations and forfeitures of awards previously granted under the Option Plan are immediately retired and are no longer available for future issuance. On October 31, 2022, both the Stock Incentive Plan and Option Plan expired. Upon expiration of the Stock Incentive Plan, a total of 1,607,508 shares that were available for future issuance under the plan were cancelled and are no longer available for the grant of awards under the plan. Information about stock options outstanding, vested or expected to vest, and exercisable as of October 29, 2022 is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ OPTIONS OUTSTANDING ​ OPTIONS EXERCISABLE ​ ​ WEIGHTED- ​ ​ ​ ​ ​ ​ ​ ​ ​ AVERAGE ​ WEIGHTED- ​ ​ ​ WEIGHTED- ​ ​ ​ ​ REMAINING ​ AVERAGE ​ ​ ​ AVERAGE ​ ​ NUMBER OF ​ CONTRACTUAL ​ EXERCISE ​ NUMBER OF ​ EXERCISE RANGE OF EXERCISE PRICES ​ OPTIONS ​ LIFE (IN YEARS) ​ PRICE ​ OPTIONS ​ PRICE $ 25.39 — $ 45.82 276,530 ​ 3.53 ​ $ 35.63 ​ 276,530 ​ $ 35.63 $ 50.00 — $ 50.00 1,000,000 ​ 4.51 ​ ​ 50.00 ​ 1,000,000 ​ ​ 50.00 $ 53.47 — $ 61.30 ​ 197,830 ​ 1.56 ​ ​ 61.19 ​ 197,830 ​ ​ 61.19 $ 75.43 — $ 75.43 1,000,000 ​ 0.67 ​ ​ 75.43 ​ 1,000,000 ​ ​ 75.43 $ 87.31 — $ 154.82 ​ 798,216 ​ 6.80 ​ ​ 132.81 ​ 226,266 ​ ​ 123.03 $ 156.40 — $ 380.53 ​ 373,480 ​ 8.19 ​ ​ 280.31 ​ 66,885 ​ ​ 270.24 $ 385.30 — $ 716.75 ​ 827,250 ​ 8.05 ​ ​ 419.05 ​ 713,330 ​ ​ 389.36 Total 4,473,306 ​ ​ $ 157.54 3,480,841 ​ $ 135.32 Vested or expected to vest 4,247,547 ​ ​ $ 152.62 ​ ​ The aggregate intrinsic value of options outstanding, options vested or expected to vest, and options exercisable as of October 29, 2022 was $ 588 million, $ 574 million, and $ 517 million, respectively. Stock options exercisable as of October 29, 2022 had a weighted-average remaining contractual life of 4.03 years. As of October 29, 2022, the total unrecognized compensation expense related to unvested options was $ 91 million, which is expected to be recognized on a straight-line basis over a weighted-average period of 4.39 years. In addition, as of October 29, 2022, the total unrecognized compensation expense related to a fully vested option grant made to Mr. Friedman in October 2020 was $ 19 million, which will be recognized on an accelerated basis through May 2025 (refer to Chairman and Chief Executive Officer Option Grant below). As of October 29, 2022, we had 24,390 restricted stock units outstanding with a weighted-average grant date fair value of $ 437.37 per share. During the three months ended October 29, 2022, 1,780 restricted stock units vested with a weighted-average grant date fair value of $ 49.53 per share. During the nine months ended October 29, 2022, 4,700 restricted stock units vested with a weighted-average grant date fair value of $ 117.94 per share. As of October 29, 2022, there was $ 7.7 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 4.49 years. ​ PART I. FINANCIAL INFORMATION 2022 THIRD QUARTER FORM 10-Q | 31 ​ Table of Contents 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. Refer to Note 18— Stock-Based Compensation in the 2021 Form 10-K. The option will result in aggregate non-cash stock compensation expense of $ 174 million, of which $ 4.1 million and $ 5.8 million was recognized during the three months ended October 29, 2022 and October 30, 2021, respectively, and $ 14 million and $ 18 million was recognized during the nine months ended October 29, 2022 and October 30, 2021, respectively (which is included in the stock-based compensation expense recorded during the three and nine months ended October 29, 2022 and October 30, 2021 noted above). ​ NOTE 16—COMMITMENTS AND CONTINGENCIES Commitments We had no material off balance sheet commitments as of October 29, 2022. Contingencies We are subject to contingencies, including in connection with lawsuits, claims, investigations and other legal proceedings incident to the ordinary course of our business. These disputes are increasing in number as we expand our business and provide new product and service offerings, such as restaurants and hospitality, and as we enter new markets and legal jurisdictions and face increased complexity related to compliance and regulatory requirements. In addition, we are subject to governmental and regulatory examinations, information requests, and investigations from time to time at the state and federal levels. With respect to such matters and others, 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. 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 the condensed consolidated financial statements, the outcome of legal matters is subject to inherent uncertainty. Certain legal proceedings that we currently face involve various class-action allegations regarding employment practices, including under state wage-and-hour laws. We have faced similar litigation in the past. Due to the inherent difficulty of predicting the course of legal actions related to these class-action allegations, such as the eventual scope, duration or outcome, we are unable to estimate the amount or range of any potential loss that could result from an unfavorable outcome arising from such matters. Although we are self-insured or maintain deductibles in the United States for workers’ compensation, general liability and product liability up to predetermined amounts, above which third party insurance applies, depending on the facts and circumstances of the underlying claims, coverage under our insurance policies may not be available. Even if we believe coverage does apply under our insurance programs, our insurance carriers may dispute coverage based on the underlying facts and circumstances. As a result, the outcome of any 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, result in the diversion of significant operational resources, and require changes to our business operations, policies and practices. ​ ​ 32 | 2022 THIRD QUARTER FORM 10-Q PART I. FINANCIAL INFORMATION ​ Table of Contents 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. 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, including hospitality, websites, Source Books, and the Trade and Contract channel. The Real Estate segment represents operations associated with our equity method investments and certain of our consolidated variable interest entities that are non-wholly owned subsidiaries and have operations that are not directly related to RH’s operations (refer to Note 5— Variable Interest Entities ). 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. Segment Information We use operating income to evaluate segment profitability for the retail operating segments and to allocate resources. Operating income is defined as net income before interest expense—net, loss on extinguishment of debt, other expense—net, income tax expense (benefit) and our share of equity method investments losses. Segment operating income excludes (i) asset impairments, (ii) the amortization of the non-cash compensation charge related to the fully vested option grant made to Mr. Friedman in October 2020, (iii) employer payroll tax expense related to the option exercise by Mr. Friedman, (iv) professional fees related to the 2023 Notes and 2024 Notes transactions (refer to Note 9— Convertible Senior Notes ), (v) compensation settlements related to the Rollover Units and Profit Interest Units in the Waterworks subsidiary, (vi) product recalls, (vii) favorable legal settlement, (viii) gain on sale of building and land, and (ix) 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 2022 THIRD QUARTER FORM 10-Q | 33 ​ Table of Contents The following table presents segment operating income and income before income taxes: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ THREE MONTHS ENDED ​ NINE MONTHS ENDED ​ ​ OCTOBER 29, ​ OCTOBER 30, ​ OCTOBER 29, ​ OCTOBER 30, ​ 2022 2021 2022 2021 ​ ​ (in thousands) Operating income: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ RH Segment ​ $ 173,162 ​ $ 276,091 ​ $ 639,219 ​ $ 721,343 Waterworks ​ 7,187 ​ 2,619 ​ 22,394 ​ 14,274 Asset impairments ​ ( 10,926 ) ​ — ​ ( 19,080 ) ​ ( 7,354 ) Non-cash compensation ​ ​ ( 4,136 ) ​ ​ ( 5,831 ) ​ ​ ( 14,315 ) ​ ​ ( 17,559 ) Employer payroll taxes on option exercise ​ ​ — ​ ​ — ​ ​ ( 11,717 ) ​ ​ — Professional fees ​ — ​ — ​ ( 7,469 ) ​ — Compensation settlements ​ — ​ — ​ ( 3,483 ) ​ — Recall accrual ​ — ​ ( 340 ) ​ ( 560 ) ​ ( 840 ) Legal settlement ​ ​ 4,188 ​ ​ — ​ ​ 4,188 ​ ​ — Gain on sale of building and land ​ ​ 775 ​ ​ — ​ ​ 775 ​ ​ — Reorganization related costs ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 449 ) Income from operations ​ 170,250 ​ 272,539 ​ 609,952 ​ 709,415 Interest expense—net ​ 31,417 ​ 13,223 ​ 78,536 ​ 40,112 Loss on extinguishment of debt ​ — ​ 18,513 ​ 169,578 ​ 21,784 Other expense—net ​ ​ 1,989 ​ ​ — ​ ​ 4,841 ​ ​ — Income before income taxes ​ $ 136,844 ​ $ 240,803 ​ $ 356,997 ​ $ 647,519 ​ The following tables present the statements of income metrics reviewed by the CODM to evaluate performance internally or as required under ASC 280— Segment Reporting : ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ THREE MONTHS ENDED ​ ​ OCTOBER 29, ​ OCTOBER 30, ​ ​ 2022 ​ 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ RH SEGMENT WATERWORKS TOTAL RH SEGMENT WATERWORKS TOTAL ​ ​ (in thousands) Net revenues ​ $ 821,260 ​ $ 47,806 ​ $ 869,066 ​ $ 964,859 ​ $ 41,569 ​ $ 1,006,428 Gross profit ​ 394,947 ​ 25,831 ​ 420,778 ​ 484,363 ​ 20,891 ​ 505,254 Depreciation and amortization ​ 26,785 ​ ​ 1,247 ​ 28,032 ​ 23,878 ​ 941 ​ 24,819 ​ ​ 34 | 2022 THIRD QUARTER FORM 10-Q PART I. FINANCIAL INFORMATION ​ Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ NINE MONTHS ENDED ​ ​ OCTOBER 29, ​ OCTOBER 30, ​ ​ 2022 ​ 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ RH SEGMENT WATERWORKS TOTAL RH SEGMENT WATERWORKS TOTAL ​ ​ (in thousands) Net revenues ​ $ 2,670,390 ​ $ 147,588 ​ $ 2,817,978 ​ $ 2,732,300 ​ $ 123,779 ​ $ 2,856,079 Gross profit ​ 1,362,843 ​ 79,736 ​ 1,442,579 ​ 1,337,983 ​ 61,924 ​ 1,399,907 Depreciation and amortization ​ 75,980 ​ ​ 3,780 ​ 79,760 ​ 68,042 ​ ​ 3,333 ​ 71,375 ​ The statements of income metrics for the Real Estate segment were immaterial in the three and nine months ended October 29, 2022 and, therefore, such results are presented within the RH Segment for the respective periods. In the three months ended October 29, 2022 and October 30, 2021, the Real Estate segment share of equity method investments losses were $ 1.9 million and $ 2.3 million, respectively, and were $ 6.1 million and $ 6.9 million in the nine months ended October 29, 2022 and October 30, 2021, respectively. For both the three and nine months ended October 29, 2022, our share of equity method investments for the Waterworks segment was immaterial. The following table presents the balance sheet metrics as required under ASC 280— Segment Reporting : ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ OCTOBER 29, ​ JANUARY 29, ​ ​ 2022 ​ 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ RH SEGMENT WATERWORKS REAL ESTATE TOTAL RH SEGMENT WATERWORKS REAL ESTATE TOTAL ​ ​ (in thousands) Goodwill (1) ​ $ 141,021 ​ $ — ​ $ — ​ $ 141,021 ​ $ 141,100 ​ $ — ​ $ — ​ $ 141,100 Tradenames, trademarks and other intangible assets (2) ​ 57,269 ​ 17,000 ​ — ​ 74,269 ​ 56,161 ​ 17,000 ​ — ​ 73,161 Equity method investments ​ ​ — ​ ​ 539 ​ ​ 96,466 ​ ​ 97,005 ​ ​ — ​ ​ — ​ ​ 100,810 ​ ​ 100,810 Total assets ​ 5,573,649 ​ 207,153 ​ 102,913 ​ 5,883,715 ​ 5,259,719 ​ 179,941 ​ 100,810 ​ 5,540,470 (1) The Waterworks reporting unit goodwill of $ 51 million recognized upon acquisition in fiscal 2016 was fully impaired as of fiscal 2018. (2) Presented net of an impairment charge of $ 35 million recognized in prior fiscal years. 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, as well as our hospitality operations. Net revenues in each category were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ THREE MONTHS ENDED ​ NINE MONTHS ENDED ​ ​ OCTOBER 29, ​ OCTOBER 30, ​ OCTOBER 29, ​ OCTOBER 30, ​ 2022 2021 2022 2021 ​ ​ (in thousands) Furniture ​ $ 597,520 ​ $ 706,750 ​ $ 1,959,760 ​ $ 1,986,490 Non-furniture ​ 271,546 ​ 299,678 ​ 858,218 ​ 869,589 Total net revenues ​ $ 869,066 ​ $ 1,006,428 ​ $ 2,817,978 ​ $ 2,856,079 ​ We are domiciled in the United States and primarily operate our retail locations and outlets in the United States. As of October 29, 2022, 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 10% or more of our consolidated net revenues in any fiscal period presented. ​ ​ PART I. FINANCIAL INFORMATION 2022 THIRD QUARTER FORM 10-Q | 35 ​ Table of Contents NOTE 18—SUBSEQUENT EVENTS ​ In December 2022, we entered into investments in VIEs with an affiliate of the managing member of the Aspen LLCs. We converted $ 27 million of promissory notes receivable and accrued interest as of October 29, 2022 into an equity contribution of one of the limited liability companies (“LLC”) to acquire 50 percent of the membership interests in the LLC. Additionally, we entered into four separate LLCs by which we contributed three owned properties in certain domestic locations, each for a 50 percent membership interest in the respective LLC, as well as one owned property in the United Kingdom. Due to the close proximity of the acquisition date to the filing date of our Quarterly Report on Form 10-Q for the quarterly period ended October 29, 2022, the accounting for these recently completed VIEs is incomplete. Such information will be included in our Annual Report on Form 10-K for the year ending January 28, 2023. ​ ​ ​ ​ ​ ​ ​ 36 | 2022 THIRD QUARTER FORM 10-Q PART I. FINANCIAL INFORMATION ​ Table of Contents