What changed in this filing

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Item 1. Financial Statements

2023-09-07 compared with 2023-05-26 · 295 added, 174 removed, 546 unchanged (46% of the section changed)

14 unchanged sentences

Other non-current assets

LIABILITIES AND STOCKHOLDERS’ EQUITY

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

Accounts payable and accrued expenses

16 unchanged sentences

Stockholders’ equity:

Preferred stock—$ 0.0001 par value per share, 10,000,000 shares authorized, no shares issued or outstanding as of April 29, 2023 and January 28, 2023

Common stock— $ 0.0001 par value per share, 180,000,000 shares authorized, 22,051,251 shares issued and outstanding as of April 29, 2023;

Preferred stock—$ 0.0001 par value per share, 10,000,000 shares authorized, no shares issued or outstanding as of July 29, 2023 and January 28, 2023

Common stock— $ 0.0001 par value per share, 180,000,000 shares authorized, 18,397,853 shares issued and outstanding as of July 29, 2023;

22,045,385 shares issued and outstanding as of January 28, 2023

Additional paid-in capital

Accumulated other comprehensive loss

Retained earnings

Total stockholders’ equity

Total liabilities and stockholders’ equity

Accumulated other comprehensive income (loss)

Retained earnings (accumulated deficit)

Total stockholders’ equity (deficit)

Total liabilities and stockholders’ equity (deficit)

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

FINANCIAL INFORMATION

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2023 SECOND QUARTER FORM 10-Q | 3

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

THREE MONTHS ENDED

SIX MONTHS ENDED

(in thousands, except share and per share amounts)

5 unchanged sentences

Loss on extinguishment of debt

Other income—net

Other (income) expense—net

Total other expenses

8 unchanged sentences

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

4 | 2023 SECOND QUARTER FORM 10-Q

FINANCIAL INFORMATION

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

THREE MONTHS ENDED

SIX MONTHS ENDED

(in thousands)

3 unchanged sentences

FINANCIAL INFORMATION

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CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

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CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

THREE MONTHS ENDED

2 unchanged sentences

STOCKHOLDERS'

INCOME (LOSS)

EQUITY (DEFICIT)

(in thousands, except share amounts)

Balances—January 28, 2023

Balances—April 29, 2023

Stock-based compensation

Issuance of restricted stock

Vested and delivered restricted stock units

1 unchanged sentence

Settlement of convertible senior notes

Repurchases of common stock — including excise tax

( 3,698,887 )

( 1,216,635 )

Retirement of treasury stock

( 1,208,012 )

( 3,698,887 )

Net gains from foreign currency translation

Balances—July 29, 2023

Balances—April 30, 2022

Stock-based compensation

Issuance of restricted stock

Vested and delivered restricted stock units

Exercise of stock options

Settlement of convertible senior notes

Repurchases of common stock

( 1,000,000 )

Retirement of treasury stock

( 1,000,000 )

Net losses from foreign currency translation

Balances—July 30, 2022

6 | 2023 SECOND QUARTER FORM 10-Q

FINANCIAL INFORMATION

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

SIX MONTHS ENDED

TREASURY STOCK

COMPREHENSIVE

STOCKHOLDERS'

INCOME (LOSS)

EQUITY (DEFICIT)

(in thousands, except share amounts)

Balances—January 28, 2023

Stock-based compensation

Issuance of restricted stock

Vested and delivered restricted stock units

Exercise of stock options

Settlement of convertible senior notes

Repurchase of common stock—including excise tax

( 3,698,887 )

( 1,216,635 )

Retirement of treasury stock

( 1,208,012 )

( 3,698,887 )

Net gains from foreign currency translation

Balances—July 29, 2023

Balances—January 29, 2022

Stock-based compensation

Issuance of restricted stock

Vested and delivered restricted stock units

Exercise of stock options

Repurchases of common stock

( 1,000,000 )

Retirement of treasury stock

( 1,000,000 )

Exercise of call option under bond hedge upon settlement of convertible senior notes

4 unchanged sentences

Net losses from foreign currency translation

Balances—April 30, 2022

Balances—July 30, 2022

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

FINANCIAL INFORMATION

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED

SIX MONTHS ENDED

(in thousands)

27 unchanged sentences

Net cash used in investing activities

8 | 2023 SECOND QUARTER FORM 10-Q

FINANCIAL INFORMATION

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

THREE MONTHS ENDED

SIX MONTHS ENDED

(in thousands)

CASH FLOWS FROM FINANCING ACTIVITIES

Borrowings under term loans

Repayments under term loans

2 unchanged sentences

Repayments of convertible senior notes

Repayment under convertible senior notes repurchase obligation

Debt issuance costs

Principal payments under finance lease agreements—net of tenant allowances

1 unchanged sentence

Payments for termination of common stock warrants

Repurchases of common stock—inclusive of excise taxes paid

( 1,208,290 )

Proceeds from exercise of stock options

1 unchanged sentence

Net cash used in financing activities

( 1,224,481 )

Effects of foreign currency exchange rate translation

Net increase in cash and cash equivalents, restricted cash and restricted cash equivalents

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

( 1,091,178 )

Cash and cash equivalents, restricted cash and restricted cash equivalents

7 unchanged sentences

End of period—cash and cash equivalents, restricted cash and restricted cash equivalents

FINANCIAL INFORMATION

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

SIX MONTHS ENDED

(in thousands)

Non-cash transactions:

1 unchanged sentence

Landlord asset additions in accounts payable and accrued expenses at period-end

Excise tax from share repurchases in accounts payable and accrued expenses at period-end

Reclassification of assets from landlord assets under construction to finance lease right-of-use assets

4 unchanged sentences

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

10 | 2023 SECOND QUARTER FORM 10-Q

FINANCIAL INFORMATION

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

2 unchanged sentences

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.

Our curated and fully integrated assortments are presented consistently across our sales channels, including our retail locations, websites and Sourcebooks.

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 April 29, 2023, 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.

As of July 29, 2023, we operated a total of 68 RH Galleries and 40 RH Outlet stores, one RH Guesthouse, as well as 14 Waterworks Showrooms throughout the United States, Canada and the United Kingdom and had sourcing operations in Shanghai and Hong Kong.

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 April 29, 2023, and the results of operations for the three months ended April 29, 2023 and April 30, 2022.

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 July 29, 2023, and the results of operations for the three and six months ended July 29, 2023 and July 30, 2022.

Our current fiscal year, which consists of 53 weeks, ends on February 3, 2024 (“fiscal 2023”).

6 unchanged sentences

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 months ended April 29, 2023.

Our current assessment of these estimates is included in our condensed consolidated financial statements as of and for the three and six months ended July 29, 2023.

As additional information becomes available to us, our future assessment of these estimates, as well as other factors, could change and the results of any such change could materially and adversely impact our condensed consolidated financial statements in future reporting periods.

These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended January 28, 2023 (the “2022 Form 10-K”).

The results of operations for the three months ended April 29, 2023, presented herein, are not necessarily indicative of the results to be expected for the full fiscal year.

The results of operations for the three and six months ended July 29, 2023, presented herein, are not necessarily indicative of the results to be expected for the full fiscal year.

Our business, like the businesses of retailers generally, is subject to uncertainty surrounding the financial impact of the factors as discussed in Business Conditions below.

FINANCIAL INFORMATION

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Business Conditions

There are a number of macroeconomic factors and uncertainties affecting the overall business climate as well as our business, including increased inflation, rising interest and mortgage rates, and unpredictability in the global financial markets related to the foregoing as well as, among other things, the war in Ukraine and recent failures of several financial institutions.

There are a number of macroeconomic factors and uncertainties affecting the overall business climate as well as our business, including increased inflation, substantially higher interest and mortgage rates, and unpredictability in the global financial markets related to the foregoing as well as, among other things, the recent failures of several financial institutions.

We experienced increased demand for our products during the pandemic, and there have been significant shifts in consumer consumption patterns with the easing of the pandemic including increases in travel and services rather than spending on home furnishings.

7 unchanged sentences

Disclosure of Supplier Finance Program Obligations

In September 2022, the Financial Accounting Standards Board (“FASB”) issued ASU 2022-04 — Disclosure of Supplier Finance Program Obligations (“ASU 2022-04”).

In September 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2022-04 — Disclosure of Supplier Finance Program Obligations (“ASU 2022-04”).

ASU 2022-04 requires entities to disclose a program’s nature, activity during the period, changes from period to period and potential magnitude.

9 unchanged sentences

The Financing Program is not indicative of a borrowing arrangement and the liabilities under the Financing Program are included in accounts payable and accrued expenses on the condensed consolidated balance sheets and associated payments are included within operating activities on the condensed consolidated statements of cash flows.

As of April 29, 2023 and January 28, 2023, supplier invoices that have been confirmed as valid under the Financing Program included in accounts payable and accrued expenses were $ 24 million and $ 26 million, respectively.

As of July 29, 2023 and January 28, 2023, supplier invoices that have been confirmed as valid under the Financing Program included in accounts payable and accrued expenses were $ 20 million and $ 26 million, respectively.

12 | 2023 SECOND QUARTER FORM 10-Q

FINANCIAL INFORMATION

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New Accounting Standards or Updates Not Yet Adopted

Joint Venture Formations:

Recognition and Initial Measurement

In August 2023, the FASB issued ASU 2023-05—Business Combinations—Joint Venture Formations (Subtopic 805-60):

Recognition and Initial Measurement (“ASU 2023-05”).

ASU 2023-05 applies to the formation of a “joint venture” or a “corporate joint venture” and requires a joint venture to initially measure all contributions received upon its formation at fair value.

The guidance does not impact accounting by the venturers.

The new guidance is applicable to joint venture entities with a formation date on or after January 1, 2025 on a prospective basis.

While ASU 2023-05 is not currently applicable to us because our existing arrangements in variable interest entities do not meet the definition of joint ventures as described in the proposed standard, we will apply this guidance in future reporting periods after the guidance is effective to any future arrangements meeting the definition of a joint venture.

NOTE 3—PREPAID EXPENSE AND OTHER ASSETS

1 unchanged sentence

(in thousands)

Prepaid expenses

Capitalized catalog costs

Prepaid expenses

Vendor deposits

8 unchanged sentences

(1) Represents promissory notes, including principal and accrued interest, due from an affiliate of the managing member of the Aspen LLCs (refer to Note 5— Variable Interest Entities ).

FINANCIAL INFORMATION

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Other non-current assets consist of the following:

8 unchanged sentences

Total other non-current assets

(1) Presented net of accumulated amortization of $ 12 million and $ 11 million as of April 29, 2023 and January 28, 2023, respectively.

FINANCIAL INFORMATION

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(1) Presented net of accumulated amortization of $ 14 million and $ 11 million as of July 29, 2023 and January 28, 2023, respectively.

NOTE 4—GOODWILL, TRADENAMES, TRADEMARKS AND OTHER INTANGIBLE ASSETS

7 unchanged sentences

Foreign currency translation

April 29, 2023

July 29, 2023

(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 previous fiscal years.

(2) Presented net of an impairment charge of $ 35 million recognized in prior fiscal years.

There are no goodwill, tradenames, trademarks and other intangible assets for the Real Estate segment.

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FINANCIAL INFORMATION

NOTE 5—VARIABLE INTEREST ENTITIES

Consolidated Variable Interest Entities and Noncontrolling Interests

Consolidated Variable Interest Entities (“VIE”) and Noncontrolling Interests

In fiscal 2022, we formed eight privately-held limited liability companies (each, a “Member LLC” and collectively, the “Member LLCs” or the “consolidated variable interest entities”) for real estate development activities related to our Gallery transformation and global expansion strategies.

6 unchanged sentences

We measure the noncontrolling interests in the consolidated variable interest entities using the distribution provisions set out in the operating agreements of each Member LLC.

As of April 29, 2023 and January 28, 2023, the noncontrolling interest holders had no claim to the net assets of each Member LLC based upon such distribution provisions .

Accordingly, we did not recognize any noncontrolling interests as of April 29, 2023 and January 28, 2023.

As of July 29, 2023 and January 28, 2023, the noncontrolling interest holders had no claim to the net assets of each Member LLC based upon such distribution provisions .

Accordingly, we did not recognize any noncontrolling interests as of July 29, 2023 and January 28, 2023.

FINANCIAL INFORMATION

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The carrying amounts and classification of the VIEs’ assets and liabilities included in the condensed consolidated balance sheets were as follows:

7 unchanged sentences

Accounts payable and accrued expenses

Other current liabilities

Total current liabilities

Real estate loans (3)

2 unchanged sentences

(1) Restricted cash deposits are held in escrow for one Member LLC and represent a portion of the proceeds from the issuance of the Promissory Note (defined below) that are required to be used for tenant allowances specified in a lease agreement between us and the Member LLC.

(2) Includes $ 140 million and $ 125 million of construction in progress as of April 29, 2023 and January 28, 2023, respectively.

(2) Includes $ 46 million and $ 125 million of construction in progress as of July 29, 2023 and January 28, 2023, respectively.

(3) 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.

2 unchanged sentences

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.

Equity Method Investments

3 unchanged sentences

Accordingly, we account for these investments using the equity method of accounting.

16 | 2023 SECOND QUARTER FORM 10-Q

FINANCIAL INFORMATION

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We have previously made contractually required contributions to the Aspen LLCs in an aggregate amount of $ 105 million in prior periods.

1 unchanged sentence

In April 2023, we made an additional equity contribution to one Aspen LLC of $ 1.8 million whereby such funding was used in connection with the acquisition of additional real estate assets.

Inclusive of the equity contributions made during the three months ended April 29, 2023, we have made in excess of $ 135 million in capital contributions to the Aspen LLCs.

Our maximum exposure to loss with respect to these equity method investments is the carrying value of the equity method investments as of April 29, 2023.

During the three months ended April 29, 2023 and April 30, 2022, we did no t receive any distributions or have any undistributed earnings of equity method investments.

Inclusive of the equity contributions made during the six months ended July 29, 2023, we have made in excess of $ 135 million in capital contributions to the Aspen LLCs.

Our maximum exposure to loss with respect to these equity method investments is the carrying value of the equity method investments as of July 29, 2023.

During the six months ended July 29, 2023 and July 30, 2022, we did no t receive any distributions or have any undistributed earnings of equity method investments.

NOTE 6—ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

3 unchanged sentences

Accrued compensation

Accrued sales and use tax (1)

Accrued occupancy

Accrued sales and use tax (1)

Accrued legal settlements (1)(2)

Accrued interest

Accrued freight and duty

Accrued legal reserves

Excise tax payable on share repurchases (1)

Accrued professional fees

Accrued legal contingencies (1)(2)

Accrued catalog costs (1)

Accrued interest

Other accrued expenses (1)

1 unchanged sentence

(1) Prior year amounts have been adjusted to conform to the current period presentation.

(2) Refer to Note 16 ¾ Commitments and Contingencies .

Reorganization

As reported in the 2022 Form 10-K, we implemented a restructuring on March 24, 2023 that includes workforce and expense reductions in order to improve and simplify our organizational structure, streamline certain aspects of our business operations and better position us for further growth.

As reported in our 2022 Form 10-K, we implemented a restructuring on March 24, 2023 that includes workforce and expense reductions in order to improve and simplify our organizational structure, streamline certain aspects of our business operations and better position us for further growth.

The workforce reduction associated with the initiative included the elimination of numerous leadership and other positions throughout the organization, which affected approximately 440 roles.

The reorganization was completed during the first quarter of fiscal 2023.

During the three months ended April 29, 2023, we incurred total charges relating to the reorganization of $ 7.6 million consisting primarily of severance costs and related taxes.

As of April 29, 2023, we had accruals of $ 5.8 million included in accounts payable and accrued expenses related to the reorganization.

During the six months ended July 29, 2023, we incurred total charges relating to the reorganization of $ 7.6 million consisting primarily of severance costs and related taxes.

As of July 29, 2023, we had accruals of $ 2.1 million included in accounts payable and accrued expenses related to the reorganization.

FINANCIAL INFORMATION

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Other current liabilities consist of the following:

(in thousands)

Unredeemed gift card and merchandise credit liability

Current portion of term loans

Unredeemed gift card and merchandise credit liability

Allowance for sales returns

5 unchanged sentences

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 April 29, 2023 will be recognized within the next six months as the performance obligations are satisfied.

We expect that substantially all of the deferred revenue and customer deposits as of July 29, 2023 will be recognized within the next six months as the performance obligations are satisfied.

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 April 29, 2023 and April 30, 2022, we recognized $ 6.1 million and $ 4.7 million, respectively, of revenue related to previous deferrals related to our gift cards .

We expect that approximately 70 % of the remaining gift card liabilities will be recognized when the gift cards are redeemed by customers.

During the three months ended July 29, 2023 and July 30, 2022, we recognized $ 5.3 million and $ 6.0 million, respectively, of revenue related to previous deferrals related to our gift cards .

During each of the six months ended July 29, 2023 and July 30, 2022, we recognized $ 11 million of revenue related to previous deferrals related to our gift cards .

We expect that approximately 70 percent of the remaining gift card liabilities will be recognized when the gift cards are redeemed by customers.

NOTE 7—OTHER NON-CURRENT OBLIGATIONS

4 unchanged sentences

Total other non-current obligations

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FINANCIAL INFORMATION

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NOTE 8—LEASES

1 unchanged sentence

THREE MONTHS ENDED

SIX MONTHS ENDED

(in thousands)

7 unchanged sentences

(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 2022 Form 10-K.

Refer to Note 3— Significant Accounting Policies in our 2022 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 $ 3.9 million and $ 6.7 million for the three months ended April 29, 2023 and April 30, 2022, respectively, and charges associated with common area maintenance of $ 2.3 million and $ 2.4 million for the three months ended April 29, 2023 and April 30, 2022, 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 either period.

(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 $ 3.7 million and $ 5.0 million for the three months ended July 29, 2023 and July 30, 2022, respectively, and $ 7.6 million and $ 12 million for the six months ended July 29, 2023 and July 30, 2022, respectively, as well as charges associated with common area maintenance of $ 2.3 million and $ 2.2 million for the three months ended July 29, 2023 and July 30, 2022, respectively, and $ 4.6 million for both the six months ended July 29, 2023 and July 30, 2022.

(4) Included in selling, general and administrative expenses on the condensed consolidated statements of income.

FINANCIAL INFORMATION

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Lease right-of-use assets and lease liabilities consist of the following:

18 unchanged sentences

(1) Includes capitalized amounts related to our completed construction activities to design and build leased assets, which are reclassified from other non-current assets upon lease commencement.

(2) Recorded net of accumulated amortization of $ 237 million and $ 224 million as of April 29, 2023 and January 28, 2023, respectively.

(3) Includes $ 39 million as of both April 29, 2023 and January 28, 2023 related to an RH Design Gallery lease with a landlord that is an affiliate of the managing member of the Aspen LLCs (refer to Note 5— Variable Interest Entities ).

(2) Recorded net of accumulated amortization of $ 250 million and $ 224 million as of July 29, 2023 and January 28, 2023, respectively.

(3) Includes $ 38 million and $ 39 million as of July 29, 2023 and January 28, 2023, respectively, related to an RH Design Gallery lease with a landlord that is an affiliate of the managing member of the Aspen LLCs (refer to Note 5— Variable Interest Entities ).

(4) Current portion of lease liabilities represents the reduction of the related lease liability over the next 12 months.

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FINANCIAL INFORMATION

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The maturities of lease liabilities are as follows as of April 29, 2023:

The maturities of lease liabilities are as follows as of July 29, 2023:

(in thousands)

4 unchanged sentences

(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 $ 663 million of legally binding payments under the non-cancellable term for leases signed but not yet commenced under our accounting policy as of April 29, 2023, of which $ 22 million, $ 37 million, $ 43 million, $ 43 million, $ 41 million and $ 38 million will be paid in the remainder of fiscal 2023, fiscal 2024, fiscal 2025, fiscal 2026, fiscal 2027 and fiscal 2028, respectively, and $ 439 million will be paid subsequent to fiscal 2028.

Total lease payments exclude $ 792 million of legally binding payments under the non-cancellable term for leases signed but not yet commenced under our accounting policy as of July 29, 2023, of which $ 16 million, $ 43 million, $ 49 million, $ 50 million, $ 50 million and $ 47 million will be paid in the remainder of fiscal 2023, fiscal 2024, fiscal 2025, fiscal 2026, fiscal 2027 and fiscal 2028, respectively, and $ 537 million will be paid subsequent to fiscal 2028.

(2) Excludes an immaterial amount of future commitments under short-term lease agreements.

1 unchanged sentence

Supplemental information related to leases consists of the following:

THREE MONTHS ENDED

SIX MONTHS ENDED

Weighted-average remaining lease term (years)

5 unchanged sentences

FINANCIAL INFORMATION

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Other information related to leases consists of the following:

THREE MONTHS ENDED

SIX MONTHS ENDED

(in thousands)

2 unchanged sentences

Operating cash flows from finance leases

Financing cash flows from finance leases

Financing cash flows from finance leases—net (1)

Total cash outflows from leases

2 unchanged sentences

Finance leases

(1) Represents the principal portion of lease payments, partially offset by tenant allowances received subsequent to lease commencement of $ 2.4 million and $ 4.2 million for the six months ended July 29, 2023 and July 30, 2022, respectively.

NOTE 9—CONVERTIBLE SENIOR NOTES

6 unchanged sentences

Total convertible senior notes

(1) As of both April 29, 2023 and January 28, 2023, the 2023 Notes outstanding were classified as convertible senior notes due 2023 within current liabilities .

(2) As of both April 29, 2023 and January 28, 2023, the 2024 Notes outstanding were classified as convertible senior notes due 2024—net within non-current liabilities .

(1) As of January 28, 2023, the 2023 Notes outstanding were classified as convertible senior notes due 2023 within current liabilities .

The 2023 Notes matured and were repaid June 2023 and, as of July 29, 2023, the 2023 Notes are no longer outstanding.

(2) As of both July 29, 2023 and January 28, 2023, the 2024 Notes outstanding were classified as convertible senior notes due 2024—net within non-current liabilities .

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FINANCIAL INFORMATION

2023 FIRST QUARTER FORM 10-Q | 19

2023 Notes and 2024 Notes—Bond Hedge and Warrant Terminations and Notes Repurchase

1 unchanged sentence

During the three months ended April 30, 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 income—net on the condensed consolidated statements of income.

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 (income) 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 three months ended April 30, 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 income—net on the condensed consolidated statements of income.

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 (income) 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.

Notes Repurchase

During the three months ended April 30, 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”).

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.

4 unchanged sentences

Upon the remeasurement of the amount owed to the holders in terms of the embedded feature, a total of $ 314 million was paid in cash 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 upon settlement 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 income—net on the condensed consolidated statements of income.

Accordingly, we recognized a gain on the fair value adjustment of the bifurcated embedded equity derivative of $ 11 million, which is classified within other (income) expense—net on the condensed consolidated statements of income.

FINANCIAL INFORMATION

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2023 SECOND QUARTER FORM 10-Q | 23

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 $ 80 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, with the remaining $ 25 million classified as debt and recognized at its amortized cost basis.

Accordingly, 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 debt 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 (income) expense—net on the condensed consolidated statements of income.

$ 350 million 0.00 % Convertible Senior Notes due 2024

4 unchanged sentences

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 through the calendar quarter ended March 31, 2023, as a result, the 2024 Notes were not convertible as of March 31, 2023.

However, this condition was not met for the calendar quarter ended June 30, 2022 through the calendar quarter ended June 30, 2023, and as a result, the 2024 Notes were not convertible as of June 30, 2023.

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.

1 unchanged sentence

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 three months ended April 30, 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 three months ended April 30, 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.

During the six months ended July 30, 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 six months ended July 30, 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 our 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.

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FINANCIAL INFORMATION

$ 335 million 0.00 % Convertible Senior Notes due 2023

5 unchanged sentences

On and after March 15, 2023 , until the close of business on the second scheduled trading day immediately preceding the maturity date, holders were able to 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.

During the three months ended April 30, 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 three months ended April 30, 2022, we paid $ 9.4 million in cash and delivered 27,213 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 5 shares of our common stock in respect to such settlement of the converted 2023 Notes.

FINANCIAL INFORMATION

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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.

During the six months ended July 30, 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 six months ended July 30, 2022, we paid $ 9.4 million in cash and delivered 27,214 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 six shares of our common stock in respect to such settlement of the converted 2023 Notes.

In June 2023, upon the maturity of the 2023 Notes, the remaining $ 1.7 million in aggregate principal amount of the 2023 Notes settled for $ 1.7 million in cash.

During the six months ended July 29, 2023, we issued in aggregate 1,931 shares of common stock upon settlement of the 2023 Notes.

NOTE 10—CREDIT FACILITIES

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Total credit facilities

(1) Interest rates for the asset based credit facility and term loans represent the weighted-average interest rates as of April 29, 2023.

(2) Deferred financing fees associated with the asset based credit facility as of April 29, 2023 and January 28, 2023 were $ 3.3 million and $ 3.5 million, respectively, and are included in other non-current assets on the condensed consolidated balance sheets.

(1) Interest rates for the asset based credit facility and term loans represent the weighted-average interest rates as of July 29, 2023.

(2) Deferred financing fees associated with the asset based credit facility as of July 29, 2023 and January 28, 2023 were $ 3.0 million and $ 3.5 million, respectively, and are included in other non-current assets on the condensed consolidated balance sheets.

The deferred financing fees are amortized on a straight-line basis over the life of the revolving line of credit.

(3) Represents the Term Loan Credit Agreement (defined below), of which outstanding amounts of $ 1,950 million and $ 20 million were included in term loan—net and other current liabilities on the condensed consolidated balance sheets, respectively, as of April 29, 2023.

Outstanding amounts of $ 1,955 million and $ 20 million were included in term loan—net and other current liabilities , respectively, on the condensed consolidated balance sheets as of January 28, 2023.

(4) Represents the outstanding balance of the Term Loan B-2 (defined below) under the Term Loan Credit Agreement, of which outstanding amounts of $ 493 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 April 29, 2023.

Outstanding amounts of $ 494 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 January 28, 2023.

(5) Represents total equipment security notes secured by certain of our property and equipment, which was included in other current liabilities on the condensed consolidated balance sheets as of January 28, 2023.

The equipment security note was repaid in full as of April 29, 2023.

(3) Represents the Term Loan Credit Agreement (defined below), of which outstanding amounts of $ 1,945 million and $ 1,955 million were included in term loan—net on the condensed consolidated balance sheets as of July 29, 2023 and January 28, 2023, respectively, and $ 20 million was included in other current liabilities on the condensed consolidated balance sheets as of both July 29, 2023 and January 28, 2023.

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(4) Represents the outstanding balance of the Term Loan B-2 (defined below) under the Term Loan Credit Agreement, of which outstanding amounts of $ 491 million and $ 494 million were included in term loan B-2—net on the condensed consolidated balance sheets as of July 29, 2023 and January 28, 2023, respectively, and $ 5.0 million was included in other current liabilities on the condensed consolidated balance sheets as of both July 29, 2023 and January 28, 2023.

(5) Represents total equipment security notes secured by certain of our property and equipment, which were included in other current liabilities on the condensed consolidated balance sheets as of January 28, 2023.

The equipment security note was repaid in full in April 2023.

Asset Based Credit Facility

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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.

FINANCIAL INFORMATION

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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.

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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.

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FINANCIAL INFORMATION

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”).

1 unchanged sentence

The FCCR Covenant ratio is set at 1.0 and measured on a trailing twelve-month basis.

As of April 29, 2023, RHI was in compliance with the FCCR Covenant.

As of July 29, 2023, 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 ABL Credit Agreement contains customary representations and warranties, events of default 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 April 29, 2023, the amount available for borrowing under the revolving line of credit under the ABL Credit Agreement was $ 478 million, net of $ 27 million in outstanding letters of credit.

FINANCIAL INFORMATION

2023 FIRST QUARTER FORM 10-Q | 23

As of July 29, 2023, the amount available for borrowing under the revolving line of credit under the ABL Credit Agreement was $ 454 million, net of $ 27 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.

Through the second quarter of fiscal 2023, the Term Loan B bore 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 was a floating interest rate that reset 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.

As of June 30, 2023, LIBOR is no longer a referenced rate and Term Loan Credit Agreement has transitioned from LIBOR to SOFR.

Beginning in August 2023, the Term Loan B bears interest at an annual rate based on SOFR subject to a 0.50 % SOFR floor plus an interest rate margin of 2.50 % plus a credit spread adjustment.

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”).

3 unchanged sentences

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.

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All obligations under the Term Loan B are guaranteed by certain domestic subsidiaries of RHI.

6 unchanged sentences

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.

FINANCIAL INFORMATION

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The Term Loan Credit Agreement contains customary representations and warranties, events of default and other customary terms and conditions for a term loan credit agreement.

NOTE 11—FAIR VALUE MEASUREMENTS

1 unchanged sentence

Amounts reported as cash and equivalents, restricted cash, 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, the 2024 Notes and the Term Loan Credit Agreement were as follows:

The estimated fair value and carrying value of the 2023 Notes, the 2024 Notes, the Term Loan Credit Agreement and the real estate loans were as follows:

(in thousands)

2 unchanged sentences

Term loan B-2

Real estate loans

(1) The principal carrying value of the 2023 Notes and 2024 Notes excludes the discounts upon original issuance, discounts and commissions payable to the initial purchasers and third-party offering costs, as applicable.

The principal carrying values of the Term Loan B and Term Loan B-2 represent the outstanding amount under each class and exclude discounts upon original issuance and third-party offering costs.

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FINANCIAL INFORMATION

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 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

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 represents 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).

The fair values of the Term Loan B, Term Loan B-2 and real estate loans were derived from discounted cash flows using risk-adjusted rates (Level 2).

NOTE 12—INCOME TAXES

We recorded income tax expense of $ 17 million and an income tax benefit of $ 163 million in the three months ended April 29, 2023 and April 30, 2022, respectively.

The effective tax rate was 28.4 % and ( 438.3 )% for the three months ended April 29, 2023 and April 30, 2022, respectively.

The increase in the effective tax rate for the three months ended April 29, 2023 as compared to the three months ended April 30, 2022 is primarily attributable to significantly lower net excess tax benefits from stock-based compensation in fiscal 2023.

As of April 29, 2023, 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.

Our income tax expense (benefit) and effective tax rates were as follows:

THREE MONTHS ENDED

SIX MONTHS ENDED

(dollars in thousands)

Income tax expense (benefit)

Effective tax rate

The decrease in our effective tax rate for the three months ended July 29, 2023 compared to the three months ended July 30, 2022 is primarily attributable to net excess tax benefits from stock-based compensation and amounts related to the extinguishment of debt in the three months ended July 30, 2022.

The increase in our effective tax rate for the six months ended July 29, 2023 compared to the six months ended July 30, 2022, is primarily attributable to significantly lower net excess tax benefits from stock-based compensation in fiscal 2023 as compared to fiscal 2022.

As of July 29, 2023, we had $ 8.4 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 April 29, 2023, we had $ 5.5 million of exposures related to unrecognized tax benefits that are expected to decrease in the next 12 months .

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As of July 29, 2023, we had $ 5.5 million of exposures related to unrecognized tax benefits that are expected to decrease in the next 12 months.

NOTE 13—NET INCOME PER SHARE

The weighted-average shares used for net income per share are as follows:

The weighted-average shares used for net income per share were as follows:

THREE MONTHS ENDED

SIX MONTHS ENDED

Weighted-average shares—basic

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(1) The dilutive effect of the 2023 Notes and 2024 Notes is calculated under the if-converted method, which assumes share settlement of the entire convertible debt instrument.

The 2023 Notes terminated in June 2023 and did not have an impact on our diluted share count post-termination.

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.

2 unchanged sentences

Refer to Note 9— Convertible Senior Notes .

FINANCIAL INFORMATION

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The following number of options and restricted stock units, as well as shares issuable under convertible senior notes prior to extinguishment in fiscal 2022, were excluded from the calculation of diluted net income per share because their inclusion would have been anti-dilutive:

THREE MONTHS ENDED

SIX MONTHS ENDED

Restricted stock units

Convertible senior notes

NOTE 14—SHARE REPURCHASE PROGRAM

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”).

As of April 29, 2023, $ 1,450 million remains available for future share repurchases under this program.

On June 2, 2022, the Board of Directors authorized an additional $ 2,000 million 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”).

In the three months ended July 30, 2022, we repurchased 1,000,000 shares of our common stock under the Share Repurchase Program at an average price of $ 254.72 per share, for an aggregate repurchase amount of approximately $ 255 million.

In the three months ended July 29, 2023, we repurchased 3,698,887 shares of our common stock under the Share Repurchase Program at an average price of $ 325.65 per share, for an aggregate repurchase amount of approximately $ 1,205 million.

In addition, we recorded $ 12 million of excise taxes related to the share repurchases during the three months ended July 29, 2023, which are recorded in accounts payable and accrued expenses on the condensed consolidated balance sheets as of July 29, 2023.

As of July 29, 2023, $ 245 million remains available for future share repurchases under this program.

Share Retirement

In the three months ended July 30, 2022, we retired 1,000,000 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 $ 255 million from treasury stock to additional paid-in capital on the condensed consolidated balance sheets and condensed consolidated statements of shareholders’ equity (deficit) as of and for the three and six months ended July 30, 2022.

In the three months ended July 29, 2023, we retired 3,698,887 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 $ 8.6 million and $ 1,208 million from treasury stock to additional paid-in capital and retained earnings (accumulated deficit) , respectively, on the condensed consolidated balance sheets and condensed consolidated statements of stockholders’ equity (deficit) as of and for the three and six months ended July 29, 2023.

NOTE 15—STOCK-BASED COMPENSATION

We recorded stock-based compensation expense of $ 10 million and $ 13 million during the three months ended April 29, 2023 and April 30, 2022, respectively, which is included in selling, general and administrative expenses on the condensed consolidated statements of income.

We recorded stock-based compensation expense of $ 8.5 million and $ 11 million during the three months ended July 29, 2023 and July 30, 2022, respectively, which is included in selling, general and administrative expenses on the condensed consolidated statements of income.

We recorded stock-based compensation expense of $ 19 million and $ 24 million during the six months ended July 29, 2023 and July 30, 2022, respectively.

No stock-based compensation cost has been capitalized in the accompanying condensed consolidated financial statements.

2023 Stock Incentive Plan

The RH 2023 Stock Incentive Plan (the “2023 Stock Incentive Plan”) was approved by stockholders on April 4, 2023.

The 2023 Stock Incentive Plan provides for the grant of incentive stock options to our employees and the grant of non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalent rights and any combination thereof to our employees, directors and consultants and our parent and subsidiary corporations’ employees, directors and consultants.

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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.

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.

On November 1, 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 were no longer available for the grant of awards under the plan.

The RH 2023 Stock Incentive Plan (the “2023 Stock Incentive Plan”, together with the Stock Incentive Plan and Option Plan, “the Plans”) was approved by stockholders on April 4, 2023.

The maximum number of shares that may be issued pursuant to all awards under the 2023 Stock Incentive Plan is (i) 3,000,000 , plus (ii) any shares of our common stock covered by any outstanding award (or portion of any such award) that has been granted under the 2012 Stock Incentive Plan (as defined below) if such award (or a portion of such award) is forfeited, is canceled or expires (whether voluntarily or involuntarily) without the issuance of shares of our common stock or if the shares underlying such award (or a portion of such award) that are surrendered or withheld in payment of the award’s exercise or purchase price or in satisfaction of tax withholding obligations with respect to an award would be deemed not to have been issued for purposes of determining the maximum number of shares of our common stock that may be issued under the 2023 Stock Incentive Plan had such award been an award granted under the 2023 Stock Incentive Plan.

3 unchanged sentences

Shares issued as a result of award exercises under the 2023 Stock Incentive Plan will be funded with the issuance of new shares.

We did no t make any grants under the 2023 Stock Incentive Plan during the three months ended April 29, 2023.

2012 Stock Incentive Plan and 2012 Stock Option Plan

As of April 29, 2023, 3,393,460 options granted under the Restoration Hardware 2012 Stock Incentive Plan (the “2012 Stock Incentive Plan”) and the Restoration Hardware 2012 Stock Option Plan were outstanding with a weighted-average exercise price of $ 179.73 per share and 3,216,721 options were vested with a weighted-average exercise price of $ 175.73 per share.

The aggregate intrinsic value of options outstanding, options vested or expected to vest, and options exercisable as of April 29, 2023 was $ 401 million, $ 390 million and $ 343 million, respectively.

Stock options exercisable as of April 29, 2023 had a weighted-average remaining contractual life of 4.95 years.

As of April 29, 2023, the total unrecognized compensation expense related to unvested options was $ 78 million, which is expected to be recognized on a straight-line basis over a weighted-average period of 3.97 years.

In addition, as of April 29, 2023, the total unrecognized compensation expense related to the fully vested option grant made to Mr.

As of July 29, 2023, 3,639,976 options granted under the Plans were outstanding with a weighted-average exercise price of $ 188.11 per share and 3,339,622 options were vested or expected to vest with a weighted-average exercise price of $ 181.50 per share.

The aggregate intrinsic value of options outstanding, options vested or expected to vest, and options exercisable as of July 29, 2023 was $ 750 million, $ 706 million and $ 580 million, respectively.

Stock options exercisable as of July 29, 2023 had a weighted-average remaining contractual life of 4.72 years.

As of July 29, 2023, the total unrecognized compensation expense related to unvested options was $ 102 million, which is expected to be recognized on a straight-line basis over a weighted-average period of 4.74 years.

In addition, as of July 29, 2023, the total unrecognized compensation expense related to the fully vested option grant made to Mr.

Friedman in October 2020 was $ 9.5 million, which will be recognized on an accelerated basis through May 2025 (refer to Chairman and Chief Executive Officer Option Grant below).

As of April 29, 2023, we had 19,670 restricted stock units outstanding with a weighted-average grant date fair value of $ 444.30 per share.

During the three months ended April 29, 2023, 1,250 restricted stock units vested with a weighted-average grant date fair value of $ 437.82 per share.

As of April 29, 2023, there was $ 6.6 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 4.30 years.

As of July 29, 2023, 18,910 restricted stock units under the Plans were outstanding with a weighted-average grant date fair value of $ 439.49 per share.

During the three months ended July 29, 2023, no restricted stock units vested.

During the six months ended July 29, 2023, 1,250 restricted stock units vested with a weighted-average grant date fair value of $ 437.82 per share.

As of July 29, 2023, there was $ 6.6 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 3.67 years.

FINANCIAL INFORMATION

2023 SECOND QUARTER FORM 10-Q | 31

Chairman and Chief Executive Officer Option Grant

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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.

The option will result in aggregate non-cash stock compensation expense of $ 174 million, of which $ 3.5 million and $ 5.9 million was recognized during the three months ended April 29, 2023 and April 30, 2022 (which is included in the stock-based compensation expense recorded during the three months ended April 29, 2023 and April 30, 2022 noted above).

The option will result in aggregate non-cash stock compensation expense of $ 174 million, of which $ 2.0 million and $ 4.3 million was recognized during the three months ended July 29, 2023 and July 30, 2022, respectively, and $ 5.6 million and $ 10 million was recognized during the six months ended July 29, 2023 and July 30, 2022, respectively (which is included in the stock-based compensation expense recorded during the three and six months ended July 29, 2023 and July 30, 2022 noted above).

NOTE 16—COMMITMENTS AND CONTINGENCIES

We had no material off-balance sheet commitments as of April 29, 2023.

We had no material off balance sheet commitments as of July 29, 2023.

Contingencies

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In addition, we are subject to governmental and regulatory examinations, information requests, and investigations from time to time at the state and federal levels.

FINANCIAL INFORMATION

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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 may be unable to estimate the amount or range of any potential loss that could result from an unfavorable outcome arising from such matters.

Our assessment of these legal proceedings, as well as other lawsuits, could change from future determinations or the discovery of facts that are not presently known.

We continue to defend such cases and our estimates may evolve over time.

Accordingly, the ultimate costs to resolve these cases may be substantially higher or lower than our estimates.

Certain legal proceedings that we currently face involve various class-action allegations, including cases related to our employment practices, the application of state wage-and-hour laws and other causes of action.

We have faced similar litigation in the past, including class action cases.

Due to the inherent difficulty of predicting the course of legal actions related to complex legal matters, including class-action allegations, such as the eventual scope, duration or outcome, we may be unable to estimate the amount or range of any potential loss that could result from an unfavorable outcome arising from such matters.

Our assessment of these legal proceedings, as well as other lawsuits, could change based upon the discovery of facts that are not presently known or developments during the course of the litigation.

We have settled certain class action cases but continue to defend a variety of legal actions and our estimates of our exposure in such cases may evolve over time.

Accordingly, the ultimate costs to resolve litigation, including class action cases, may be substantially higher or lower than our estimates.

With respect to such contingencies, 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.

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Even if we believe coverage does apply under our insurance programs, our insurance carriers may dispute coverage based on the underlying facts and circumstances.

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FINANCIAL INFORMATION

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.

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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 channels.

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 ).

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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.

FINANCIAL INFORMATION

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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 income—net, income tax expense (benefit) and our share of equity method investments loss.

Segment operating income excludes (i) severance costs associated with a reorganization, (ii) non-cash compensation amortization related to an option grant made to Mr.

Friedman in October 2020, (iii) employer payroll tax expense related to an option exercise by Mr.

Friedman, (iv) professional fee related to the 2023 Notes and 2024 Notes transactions (refer to Note 9— Convertible Senior Notes ), (v) asset impairments, and (vi) product recalls.

Operating income is defined as net income before interest expense—net, loss on extinguishment of debt, other (income) expense—net, income tax expense (benefit) and our share of equity method investments loss.

Segment operating income excludes (i) legal settlements, (ii) severance costs associated with a reorganization, (iii) non-cash compensation amortization related to an option grant made to Mr.

Friedman in October 2020, (iv) employer payroll tax expense related to an option exercise by Mr.

Friedman, (v) asset impairments, (vi) professional fees related to the 2023 Notes and 2024 Notes transactions (refer to Note 9— Convertible Senior Notes ), (vii) compensation settlements related to the Rollover Units and Profit Interest Units in the Waterworks subsidiary, and (viii) product recalls.

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 review.

FINANCIAL INFORMATION

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The following table presents segment operating income and income before income taxes and equity method investments:

THREE MONTHS ENDED

SIX MONTHS ENDED

(in thousands)

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Total segment operating income

Legal settlements

Reorganization related costs

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Employer payroll taxes on option exercise

Professional fee

Asset impairments

Professional fees

Compensation settlements

Recall accrual

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Loss on extinguishment of debt

Other income—net

Other (income) expense—net

Income before income taxes and equity method investments

FINANCIAL INFORMATION

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The following table presents the statements of income metrics reviewed by the CODM to evaluate performance internally or as required under ASC 280— Segment Reporting :

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

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Depreciation and amortization

In the three months ended April 29, 2023 and April 30, 2022, the Real Estate segment share of equity method investments loss were $ 1.6 million and $ 1.4 million, respectively.

Our share of income from equity method investments for the Waterworks segment were immaterial for both fiscal periods presented.

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FINANCIAL INFORMATION

SIX MONTHS ENDED

(in thousands)

Depreciation and amortization

In the three months ended July 29, 2023, and July 30, 2022, the Real Estate segment share of equity method investments loss were $ 3.4 million and $ 2.8 million, respectively, and were $ 5.0 million and $ 4.2 million in the six months ended July 29, 2023, and July 30, 2022, respectively.

Our share of income from equity method investments for the Waterworks segment were immaterial for all fiscal periods presented.

The following table presents the balance sheet metrics as required under ASC 280— Segment Reporting :

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(1) The Waterworks reporting unit goodwill of $ 51 million recognized upon acquisition in fiscal 2016 was fully impaired as of fiscal 2018.

(2) The Waterworks reporting unit tradename is presented net of an impairment charge of $ 35 million recognized in previous fiscal years.

(2) The Waterworks reporting unit tradename is 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.

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THREE MONTHS ENDED

SIX MONTHS ENDED

(in thousands)

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We are domiciled in the United States and primarily operate our retail locations and outlets in the United States.

As of April 29, 2023, we operated 4 retail locations and 2 outlets in Canada, and 1 retail location in the U.K.

As of July 29, 2023, we operated four retail locations and two outlets in Canada, and two retail locations 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.

No single customer accounted for 10 % or more of our consolidated net revenues in the three months ended April 29, 2023 or April 30, 2022.

No single customer accounted for 10 % or more of our consolidated net revenues in any fiscal period presented.

FINANCIAL INFORMATION

2023 FIRST QUARTER FORM 10-Q | 30

2023 SECOND QUARTER FORM 10-Q | 35

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements