RH 10-Q

ITEM 1. FINANCIAL STATEMENTS RH CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ OCTOBER 28, JANUARY 28, ​ ​ 2023 ​ 2023 ​ ​ (in thousands) ASSETS ​ ​ Cash and cash equivalents ​ $ 380,695 ​ $ 1,508,101 Restricted cash ​ ​ 1,960 ​ ​ 3,662 Accounts receivable—net ​ 56,053 ​ 59,763 Merchandise inventories ​ 718,959 ​ 801,841 Prepaid expense and other current assets ​ 129,213 ​ 139,297 Total current assets ​ 1,286,880 ​ 2,512,664 Property and equipment—net ​ 1,665,483 ​ 1,635,984 Operating lease right-of-use assets ​ ​ 616,571 ​ ​ 527,246 Goodwill ​ 140,997 ​ 141,048 Tradenames, trademarks and other intangible assets ​ 75,746 ​ 74,633 Deferred tax assets ​ 126,094 ​ 167,039 Equity method investments ​ ​ 128,112 ​ ​ 101,468 Other non-current assets ​ 200,736 ​ 149,207 Total assets ​ $ 4,240,619 ​ $ 5,309,289 LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) ​ ​ Accounts payable and accrued expenses ​ $ 399,727 ​ $ 374,949 Deferred revenue and customer deposits ​ ​ 302,976 ​ 325,754 Convertible senior notes due 2023 ​ ​ — ​ ​ 1,696 Convertible senior notes due 2024—net ​ ​ 41,807 ​ ​ — Operating lease liabilities ​ ​ 89,492 ​ ​ 80,384 Other current liabilities ​ 100,972 ​ 103,190 Total current liabilities ​ 934,974 ​ 885,973 Asset based credit facility ​ — ​ — Term loan B—net ​ 1,924,002 ​ 1,936,529 Term loan B-2—net ​ 468,775 ​ 469,245 Real estate loans ​ ​ 17,844 ​ ​ 17,909 Convertible senior notes due 2024—net ​ ​ — ​ ​ 41,724 Non-current operating lease liabilities ​ 570,073 ​ 505,809 Non-current finance lease liabilities ​ ​ 642,726 ​ ​ 653,050 Deferred tax liabilities ​ ​ 6,139 ​ ​ 6,315 Other non-current obligations ​ 9,300 ​ 8,074 Total liabilities ​ ​ 4,573,833 ​ ​ 4,524,628 Commitments and contingencies (Note 16) ​ ​ ​ ​ Stockholders’ equity (deficit): ​ ​ Preferred stock—$ 0.0001 par value per share, 10,000,000 shares authorized, no shares issued or outstanding as of October 28, 2023 and January 28, 2023 ​ — ​ ​ — Common stock— $ 0.0001 par value per share, 180,000,000 shares authorized, 18,218,397 shares issued and outstanding as of October 28, 2023; 22,045,385 shares issued and outstanding as of January 28, 2023 ​ 2 ​ 2 Additional paid-in capital ​ 270,928 ​ 247,076 Accumulated other comprehensive income (loss) ​ ( 8,996 ) ​ ( 2,403 ) Retained earnings (accumulated deficit) ​ ( 595,148 ) ​ 539,986 Total stockholders’ equity (deficit) ​ ​ ( 333,214 ) ​ ​ 784,661 Total liabilities and stockholders’ equity (deficit) ​ $ 4,240,619 ​ $ 5,309,289 The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements. ​ ​ PART I. FINANCIAL INFORMATION 2023 THIRD QUARTER FORM 10-Q | 3 ​ Table of Contents RH CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ THREE MONTHS ENDED ​ NINE MONTHS ENDED ​ ​ OCTOBER 28, ​ OCTOBER 29, ​ OCTOBER 28, ​ OCTOBER 29, ​ 2023 2022 2023 2022 ​ ​ (in thousands, except share and per share amounts) Net revenues ​ $ 751,225 ​ $ 869,066 ​ $ 2,290,866 ​ $ 2,817,978 Cost of goods sold ​ 410,775 ​ ​ 448,288 ​ 1,222,798 ​ ​ 1,375,399 Gross profit ​ 340,450 ​ 420,778 ​ 1,068,068 ​ 1,442,579 Selling, general and administrative expenses ​ 289,214 ​ ​ 250,528 ​ ​ 766,252 ​ ​ 832,627 Income from operations ​ 51,236 ​ 170,250 ​ 301,816 ​ 609,952 Other expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest expense—net ​ ​ 54,640 ​ ​ 31,417 ​ ​ 138,878 ​ ​ 78,536 Loss on extinguishment of debt ​ — ​ ​ — ​ — ​ ​ 169,578 Other expense—net ​ ​ 5,305 ​ ​ 1,989 ​ ​ 4,466 ​ ​ 4,841 Total other expenses ​ 59,945 ​ ​ 33,406 ​ 143,344 ​ ​ 252,955 Income (loss) before income taxes and equity method investments ​ ​ ( 8,709 ) ​ ​ 136,844 ​ 158,472 ​ ​ 356,997 Income tax expense (benefit) ​ ​ ( 9,215 ) ​ ​ 36,162 ​ 34,615 ​ ​ ( 70,867 ) Income before equity method investments ​ ​ 506 ​ ​ 100,682 ​ ​ 123,857 ​ ​ 427,864 Share of equity method investments loss ​ ​ 2,693 ​ ​ 1,922 ​ ​ 7,677 ​ ​ 6,118 Net income (loss) ​ $ ( 2,187 ) ​ $ 98,760 ​ $ 116,180 ​ $ 421,746 Weighted-average shares used in computing basic net income (loss) per share ​ ​ 18,371,545 ​ ​ 23,681,482 ​ 20,459,241 ​ 23,588,464 Basic net income (loss) per share ​ $ ( 0.12 ) ​ $ 4.17 ​ $ 5.68 ​ $ 17.88 Weighted-average shares used in computing diluted net income (loss) per share ​ ​ 18,371,545 ​ ​ 26,098,265 ​ 22,207,813 ​ 26,947,087 Diluted net income (loss) per share ​ $ ( 0.12 ) ​ $ 3.78 ​ $ 5.23 ​ $ 15.65 ​ The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements. ​ ​ ​ 4 | 2023 THIRD QUARTER FORM 10-Q PART I. FINANCIAL INFORMATION ​ Table of Contents RH CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ THREE MONTHS ENDED ​ NINE MONTHS ENDED ​ ​ OCTOBER 28, ​ OCTOBER 29, ​ OCTOBER 28, ​ OCTOBER 29, ​ ​ 2023 2022 2023 2022 ​ ​ (in thousands) Net income (loss) ​ $ ( 2,187 ) ​ $ 98,760 ​ $ 116,180 ​ $ 421,746 Net loss from foreign currency translation ​ ​ ( 12,268 ) ​ ​ ( 4,890 ) ​ ( 6,593 ) ​ ( 11,275 ) Comprehensive income (loss) ​ $ ( 14,455 ) ​ $ 93,870 ​ $ 109,587 ​ $ 410,471 ​ The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements. ​ ​ ​ ​ ​ ​ PART I. FINANCIAL INFORMATION 2023 THIRD QUARTER FORM 10-Q | 5 ​ Table of Contents RH CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ THREE MONTHS ENDED ​ ​ COMMON STOCK ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ TREASURY STOCK ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ACCUMULATED RETAINED ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ADDITIONAL OTHER EARNINGS ​ ​ ​ ​ ​ ​ TOTAL ​ ​ ​ PAID-IN COMPREHENSIVE (ACCUMULATED ​ STOCKHOLDERS' ​ SHARES AMOUNT CAPITAL INCOME (LOSS) DEFICIT) SHARES AMOUNT EQUITY (DEFICIT) ​ ​ (in thousands, except share amounts) Balances—July 29, 2023 ​ 18,397,853 $ 2 $ 261,803 $ 3,272 $ ( 549,659 ) — $ — $ ( 284,582 ) Stock-based compensation ​ — ​ ​ — ​ ​ 9,820 ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ 9,820 Vested and delivered restricted stock units ​ 196 ​ ​ — ​ ​ ( 30 ) ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ ( 30 ) Exercise of stock options ​ 9,426 ​ ​ — ​ ​ 1,088 ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ 1,088 Repurchase of common stock — including excise tax ​ ( 189,078 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ 189,078 ​ ​ ( 45,055 ) ​ ​ ( 45,055 ) Retirement of treasury stock ​ — ​ ​ — ​ ​ ( 1,753 ) ​ ​ — ​ ​ ( 43,302 ) ​ ( 189,078 ) ​ ​ 45,055 ​ ​ — Net loss ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 2,187 ) ​ — ​ ​ — ​ ​ ( 2,187 ) Net loss from foreign currency translation ​ — ​ ​ — ​ ​ — ​ ​ ( 12,268 ) ​ ​ — ​ — ​ ​ — ​ ​ ( 12,268 ) Balances—October 28, 2023 ​ 18,218,397 $ 2 $ 270,928 $ ( 8,996 ) $ ( 595,148 ) — $ — $ ( 333,214 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 Settlement of convertible senior notes ​ 6 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ — Repurchase of common stock ​ ( 127,557 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ 127,557 ​ ​ ( 31,710 ) ​ ​ ( 31,710 ) Retirement of treasury stock ​ — ​ ​ — ​ ​ ( 31,710 ) ​ ​ — ​ ​ — ​ ( 127,557 ) ​ ​ 31,710 ​ ​ — Net income ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 98,760 ​ — ​ ​ — ​ ​ 98,760 Net loss 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 ​ ​ 6 | 2023 THIRD QUARTER FORM 10-Q PART I. FINANCIAL INFORMATION ​ Table of Contents RH CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) (continued) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ NINE MONTHS ENDED ​ ​ COMMON STOCK ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ TREASURY STOCK ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ACCUMULATED RETAINED ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ADDITIONAL OTHER EARNINGS ​ ​ ​ ​ ​ ​ TOTAL ​ ​ ​ PAID-IN COMPREHENSIVE (ACCUMULATED ​ STOCKHOLDERS' ​ SHARES AMOUNT CAPITAL INCOME (LOSS) DEFICIT) SHARES AMOUNT EQUITY (DEFICIT) ​ ​ (in thousands, except share amounts) Balances—January 28, 2023 ​ 22,045,385 $ 2 $ 247,076 $ ( 2,403 ) $ 539,986 — $ — $ 784,661 Stock-based compensation ​ — ​ ​ — ​ ​ 28,538 ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ 28,538 Issuance of restricted stock ​ 2,961 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ — Vested and delivered restricted stock units ​ 1,043 ​ ​ — ​ ​ ( 126 ) ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ ( 126 ) Exercise of stock options ​ 55,042 ​ ​ — ​ ​ 5,816 ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ 5,816 Settlement of convertible senior notes ​ 1,931 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ — Repurchase of common stock—including excise tax ​ ( 3,887,965 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ 3,887,965 ​ ​ ( 1,261,690 ) ​ ​ ( 1,261,690 ) Retirement of treasury stock ​ — ​ ​ — ​ ​ ( 10,376 ) ​ ​ — ​ ​ ( 1,251,314 ) ​ ( 3,887,965 ) ​ ​ 1,261,690 ​ ​ — Net income ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 116,180 ​ — ​ ​ — ​ ​ 116,180 Net loss from foreign currency translation ​ — ​ ​ — ​ ​ — ​ ​ ( 6,593 ) ​ ​ — ​ — ​ ​ — ​ ​ ( 6,593 ) Balances—October 28, 2023 ​ 18,218,397 $ 2 $ 270,928 $ ( 8,996 ) $ ( 595,148 ) — $ — $ ( 333,214 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 Repurchase 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 loss 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 The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements. ​ ​ ​ PART I. FINANCIAL INFORMATION 2023 THIRD QUARTER FORM 10-Q | 7 ​ Table of Contents RH CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ NINE MONTHS ENDED ​ ​ OCTOBER 28, ​ OCTOBER 29, ​ ​ 2023 2022 ​ ​ (in thousands) CASH FLOWS FROM OPERATING ACTIVITIES ​ ​ ​ ​ ​ ​ Net income ​ $ 116,180 ​ $ 421,746 Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ ​ ​ Depreciation and amortization ​ 84,360 ​ ​ 79,760 Non-cash operating lease cost ​ ​ 62,938 ​ ​ 55,912 Asset impairments ​ ​ 7,165 ​ ​ 19,080 Gain on sale of building and land ​ — ​ ​ ( 775 ) Stock-based compensation expense ​ 28,538 ​ ​ 33,725 Non-cash finance lease interest expense ​ ​ 25,920 ​ ​ 23,526 Product recalls ​ ​ ( 1,576 ) ​ ​ 560 Deferred income taxes ​ ​ 40,884 ​ ​ 5,627 Loss on extinguishment of debt ​ ​ — ​ ​ 169,578 Gain on derivative instruments—net ​ ​ — ​ ​ ( 1,724 ) Share of equity method investments loss ​ ​ 7,677 ​ ​ 6,118 Other non-cash items ​ 6,601 ​ ​ 5,542 Change in assets and liabilities: ​ ​ ​ ​ ​ Accounts receivable ​ 3,676 ​ ​ ( 675 ) Merchandise inventories ​ 81,166 ​ ​ ( 96,598 ) Prepaid expense and other assets ​ ( 12,788 ) ​ ​ ( 152,892 ) Landlord assets under construction—net of tenant allowances ​ ( 18,617 ) ​ ​ ( 43,380 ) Accounts payable and accrued expenses ​ ( 2,859 ) ​ ​ ( 44,999 ) Deferred revenue and customer deposits ​ ( 22,735 ) ​ ​ ( 26,604 ) Other current liabilities ​ ( 541 ) ​ ​ ( 36,596 ) Current and non-current operating lease liabilities ​ ( 65,021 ) ​ ​ ( 56,936 ) Other non-current obligations ​ ( 24,796 ) ​ ​ ( 23,974 ) Net cash provided by operating activities ​ 316,172 ​ 336,021 ​ 8 | 2023 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 28, ​ OCTOBER 29, ​ ​ 2023 2022 ​ ​ (in thousands) CASH FLOWS FROM INVESTING ACTIVITIES ​ ​ ​ ​ Capital expenditures ​ ( 131,840 ) ​ ​ ( 109,675 ) Equity method investments ​ ( 34,321 ) ​ ​ ( 2,313 ) Proceeds from sale of asset ​ — ​ ​ 5,287 Net cash used in investing activities ​ ( 166,161 ) ​ ( 106,701 ) CASH FLOWS FROM FINANCING ACTIVITIES ​ ​ Borrowings under term loans ​ ​ — ​ ​ 500,000 Repayments under term loans ​ ​ ( 18,750 ) ​ ​ ( 15,000 ) Borrowings under real estate loans ​ ​ — ​ ​ 16,000 Repayments under real estate loans ​ ​ ( 20 ) ​ ​ ( 4 ) Repayments under promissory and equipment security notes ​ ( 1,160 ) ​ ​ ( 13,157 ) Repayments of convertible senior notes ​ ​ ( 1,696 ) ​ ​ ( 13,053 ) Repayment under convertible senior notes repurchase obligation ​ ​ — ​ ​ ( 395,372 ) Debt extinguishment costs ​ ​ — ​ ​ ( 8,059 ) Debt issuance costs ​ — ​ ​ ( 27,733 ) Principal payments under finance lease agreements—net of tenant allowances ​ ​ ( 9,551 ) ​ ​ ( 6,798 ) Proceeds from termination of convertible senior note hedges ​ ​ — ​ ​ 231,796 Payments for termination of common stock warrants ​ ​ — ​ ​ ( 390,934 ) Repurchases of common stock—inclusive of excise taxes paid ​ ​ ( 1,252,899 ) ​ ​ ( 286,441 ) Proceeds from exercise of stock options ​ 5,816 ​ ​ 153,568 Tax withholdings related to issuance of stock-based awards ​ ​ ( 126 ) ​ ​ ( 494 ) Net cash used in financing activities ​ ( 1,278,386 ) ​ ( 255,681 ) Effects of foreign currency exchange rate translation ​ ( 733 ) ​ ​ ( 1,155 ) Net decrease in cash and cash equivalents, restricted cash and restricted cash equivalents ​ ( 1,129,108 ) ​ ( 27,516 ) ​ PART I. FINANCIAL INFORMATION 2023 THIRD QUARTER FORM 10-Q | 9 ​ Table of Contents RH CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ NINE MONTHS ENDED ​ ​ OCTOBER 28, ​ OCTOBER 29, ​ ​ 2023 2022 ​ ​ (in thousands) Cash and cash equivalents, restricted cash and restricted cash equivalents ​ ​ ​ Beginning of period—cash and cash equivalents ​ 1,508,101 ​ 2,177,889 Beginning of period—restricted cash ​ 3,662 ​ — Beginning of period—restricted cash equivalents (acquisition related escrow deposits) ​ — ​ ​ 3,975 Beginning of period—cash and cash equivalents, restricted cash and restricted cash equivalents ​ $ 1,511,763 ​ $ 2,181,864 End of period—cash and cash equivalents ​ 380,695 ​ 2,150,466 End of period—restricted cash ​ 1,960 ​ 3,882 End of period—cash and cash equivalents and restricted cash ​ $ 382,655 ​ $ 2,154,348 Non-cash transactions: ​ ​ ​ ​ Property and equipment additions in accounts payable and accrued expenses at period-end ​ $ 38,031 ​ $ 18,915 Landlord asset additions in accounts payable and accrued expenses at period-end ​ ​ 3,621 ​ ​ 6,924 Property and equipment additions acquired under real estate loans ​ ​ — ​ ​ 2,000 Excise tax from share repurchases in accounts payable and accrued expenses at period-end ​ ​ 12,491 ​ ​ — Reclassification of assets from landlord assets under construction to finance lease right-of-use assets ​ ​ — ​ ​ 221,886 Extinguishment of convertible senior notes related to repurchase obligation ​ ​ — ​ ​ ( 261,988 ) Financing liability and embedded derivative arising from convertible senior notes repurchase ​ ​ — ​ ​ 405,577 Shares issued on settlement of convertible senior notes ​ ​ — ​ ​ ( 14,705 ) Shares received on exercise of call option under bond hedge upon settlement of convertible senior notes ​ ​ — ​ ​ 14,705 Conversion of loan receivables into equity of consolidated variable interest entities ​ ​ — ​ ​ 300 ​ The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements. ​ ​ ​ 10 | 2023 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 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 October 28, 2023, we operated a total of 68 RH Galleries and 42 RH Outlet stores, one RH Guesthouse, as well as 14 Waterworks Showrooms throughout the United States, Canada, and the United Kingdom. We also have 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 October 28, 2023, and the results of operations for the three and nine months ended October 28, 2023 and October 29, 2022. Our current fiscal year, which consists of 53 weeks, ends on February 3, 2024 (“fiscal 2023”). 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. 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, 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 28, 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 and nine months ended October 28, 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. ​ PART I. FINANCIAL INFORMATION 2023 THIRD QUARTER FORM 10-Q | 11 ​ Table of Contents Business Conditions There are a number of macroeconomic factors and uncertainties affecting the overall business climate as well as our business, including substantially higher interest and mortgage rates, increased inflation and volatility in the global financial markets related to the foregoing as well as, among other things, the conflict in the Middle East and 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. These and other macroeconomic factors may have a number of adverse effects on macroeconomic conditions and markets in which we operate, including the housing market, 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 an adverse impact on demand for our products. We believe that these macroeconomic and other factors have contributed to the slowdown in demand that we have experienced in our business over the last several fiscal quarters. 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 macroeconomic factors. For more information, refer to the section entitled “Risk Factors” in our 2022 Form 10-K. NOTE 2—RECENTLY ISSUED ACCOUNTING STANDARDS New Accounting Standards or Updates Adopted Disclosure of Supplier Finance Program Obligations 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. 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 adopted ASU 2022-04 in the first quarter of fiscal 2023. ​ Supplier Finance Program We facilitate a voluntary supply chain financing program (the “Financing Program”) with a third-party financial institution (the “Bank”) to provide participating suppliers with the opportunity to receive early payment on invoices, net of a discount charged to the supplier by the Bank. We are not a party to the supplier agreements with the Bank, and the terms of our payment obligations to suppliers are not impacted by a supplier’s participation in the Financing Program. Our responsibility is limited to making payments to the Bank on the terms originally negotiated with our suppliers, which are typically between 30 days and 60 days. There are no assets pledged as security or other forms of guarantees provided under the Financing Program. ​ 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 October 28, 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 $ 30 million and $ 26 million, respectively. ​ 12 | 2023 THIRD QUARTER FORM 10-Q PART I. FINANCIAL INFORMATION ​ Table of Contents 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 updated standard, we will apply this guidance in future reporting periods after the guidance is effective to any future arrangements we enter into that meet the definition of a joint venture. NOTE 3—PREPAID EXPENSE AND OTHER ASSETS Prepaid expense and other current assets consist of the following: ​ ​ ​ ​ ​ ​ ​ ​ OCTOBER 28, JANUARY 28, ​ ​ 2023 ​ 2023 ​ ​ (in thousands) Federal and state tax receivable ​ $ 25,649 ​ $ 12,322 Vendor deposits ​ ​ 17,537 ​ ​ 21,201 Prepaid expenses ​ ​ 17,442 ​ ​ 24,352 Capitalized catalog costs ​ ​ 13,539 ​ ​ 26,522 Value added tax (VAT) receivable ​ ​ 8,560 ​ ​ 7,465 Tenant allowance receivable ​ ​ 5,898 ​ ​ 8,336 Promissory notes receivable, including interest (1) ​ 5,725 ​ 2,991 Right of return asset for merchandise ​ 5,207 ​ 4,983 Interest income receivable ​ ​ 1,023 ​ ​ 4,878 Other current assets ​ ​ 28,633 ​ ​ 26,247 Total prepaid expense and other current assets ​ $ 129,213 ​ $ 139,297 (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 ). ​ PART I. FINANCIAL INFORMATION 2023 THIRD QUARTER FORM 10-Q | 13 ​ Table of Contents Other non-current assets consist of the following: ​ ​ ​ ​ ​ ​ ​ ​ OCTOBER 28, JANUARY 28, ​ ​ 2023 ​ 2023 ​ ​ (in thousands) Landlord assets under construction—net of tenant allowances ​ $ 93,536 ​ $ 45,511 Initial direct costs prior to lease commencement ​ ​ 54,021 ​ ​ 51,249 Capitalized cloud computing costs—net (1) ​ ​ 22,315 ​ ​ 21,529 Vendor deposits—non-current ​ 9,432 ​ 10,593 Other deposits ​ ​ 7,560 ​ ​ 7,143 Deferred financing fees ​ 2,772 ​ 3,528 Other non-current assets ​ 11,100 ​ 9,654 Total other non-current assets ​ $ 200,736 ​ $ 149,207 (1) Presented net of accumulated amortization of $ 16 million and $ 11 million as of October 28, 2023 and January 28, 2023, respectively. 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 ): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ RH SEGMENT WATERWORKS ​ ​ ​ ​ TRADENAMES, ​ ​ ​ TRADENAMES, ​ ​ ​ ​ ​ TRADEMARKS AND ​ ​ ​ ​ TRADEMARKS AND ​ ​ ​ ​ ​ OTHER INTANGIBLE ​ ​ ​ ​ OTHER INTANGIBLE ​ ​ GOODWILL ​ ASSETS ​ GOODWILL (1) ​ ASSETS (2) ​ ​ (in thousands) January 28, 2023 ​ $ 141,048 ​ $ 57,633 ​ $ — ​ $ 17,000 Additions ​ — ​ 1,113 ​ — ​ — Foreign currency translation ​ ​ ( 51 ) ​ ​ — ​ ​ — ​ ​ — October 28, 2023 ​ $ 140,997 ​ $ 58,746 ​ $ — ​ $ 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. There are no goodwill, tradenames, trademarks and other intangible assets for the Real Estate segment. ​ ​ 14 | 2023 THIRD QUARTER FORM 10-Q PART I. FINANCIAL INFORMATION ​ Table of Contents NOTE 5—VARIABLE INTEREST ENTITIES 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. We hold a 50 percent membership interest in seven of the Member LLCs, and the remaining noncontrolling interest of 50 percent in each Member LLC is held by a third-party real estate development partner affiliated with the managing member of the Aspen LLCs (as defined in “Equity Method Investments” below). In one Member LLC we hold approximately 75 percent membership interest with the remaining noncontrolling interest of approximately 25 percent held in the same way by a real estate development partner affiliated with the managing member of the Aspen LLCs. The Member LLCs are qualitatively determined to be VIEs due to their having insufficient equity investment at risk to finance their activities without additional subordinated financial support. Upon the formation of each Member LLC we determined that the power to direct the most significant activities of each Member LLC is either controlled by us or shared between the members of the Member LLCs. In the instances where there is shared power among related parties as defined in the consolidation accounting guidance, we evaluated the related-party tiebreaker guidance and determined that we are most closely associated with each Member LLC. Accordingly, we are the primary beneficiary of the Member LLCs and we consolidate the results of operations, financial condition and cash flows of the Member LLCs in our consolidated financial statements. 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 October 28, 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 October 28, 2023 and January 28, 2023. ​ ​ PART I. FINANCIAL INFORMATION 2023 THIRD QUARTER FORM 10-Q | 15 ​ Table of Contents The carrying amounts and classification of the VIEs’ assets and liabilities included in the condensed consolidated balance sheets were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ OCTOBER 28, JANUARY 28, ​ ​ 2023 ​ 2023 ​ ​ (in thousands) ASSETS ​ ​ Cash and cash equivalents ​ $ 9,029 ​ $ 6,653 Restricted cash (1) ​ ​ 1,960 ​ ​ 3,662 Prepaid expense and other current assets ​ 1,714 ​ 3,670 Total current assets ​ 12,703 ​ 13,985 Property and equipment—net (2) ​ 238,034 ​ 187,093 Other non-current assets ​ ​ 12 ​ 122 Total assets ​ $ 250,749 ​ $ 201,200 LIABILITIES ​ ​ Accounts payable and accrued expenses ​ $ 8,365 ​ $ 6,685 Other current liabilities ​ ​ 930 ​ ​ — Total current liabilities ​ ​ 9,295 ​ ​ 6,685 Real estate loans (3) ​ ​ 17,844 ​ ​ 17,909 Other non-current obligations ​ ​ 909 ​ 929 Total liabilities ​ $ 28,048 ​ $ 25,523 (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 $ 63 million and $ 125 million of construction in progress as of October 28, 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. 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 % . 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 floor of 3.00 % . 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 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 membership interest in the third Aspen LLC. The Aspen LLCs are VIEs, however, we are not the primary beneficiary of these VIEs because we do not have the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance. Accordingly, we account for these investments using the equity method of accounting. ​ 16 | 2023 THIRD QUARTER FORM 10-Q PART I. FINANCIAL INFORMATION ​ Table of Contents We have previously made contractually required contributions to the Aspen LLCs in an aggregate amount of $ 105 million in prior periods. In February 2023, we elected to make equity contributions to two of the Aspen LLCs totaling $ 31 million whereby such funding was used to repay a portion of third-party debt secured by certain real estate assets held by the Aspen LLCs. 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 nine months ended October 28, 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 October 28, 2023. During the nine months ended October 28, 2023 and October 29, 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 Accounts payable and accrued expenses consist of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ OCTOBER 28, JANUARY 28, ​ ​ 2023 ​ 2023 ​ ​ (in thousands) Accounts payable ​ $ 179,539 ​ $ 166,082 Accrued compensation ​ 43,403 ​ 76,650 Accrued occupancy ​ 31,346 ​ 28,830 Accrued sales and use tax (1) ​ 25,426 ​ 21,950 Accrued legal settlements (1)(2) ​ ​ 17,804 ​ ​ 47 Accrued interest ​ ​ 15,640 ​ ​ 14,456 Accrued freight and duty ​ 13,285 ​ 17,497 Excise tax payable on share repurchases (1) ​ ​ 12,491 ​ ​ 3,700 Accrued catalog costs (1) ​ 11,107 ​ 1,546 Accrued professional fees ​ 5,793 ​ 7,447 Accrued legal contingencies (1)(2) ​ ​ 4,583 ​ ​ 8,874 Other accrued expenses (1) ​ 39,310 ​ 27,870 Total accounts payable and accrued expenses ​ $ 399,727 ​ $ 374,949 (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 our 2022 Form 10-K, we implemented a restructuring on March 24, 2023 that included 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 nine months ended October 28, 2023, we incurred total charges relating to the reorganization of $ 7.6 million consisting primarily of severance costs and related taxes. As of October 28, 2023, we had accruals of $ 1.3 million included in accounts payable and accrued expenses related to the reorganization. ​ PART I. FINANCIAL INFORMATION 2023 THIRD QUARTER FORM 10-Q | 17 ​ Table of Contents Other current liabilities consist of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ OCTOBER 28, JANUARY 28, ​ ​ 2023 ​ 2023 ​ ​ (in thousands) Unredeemed gift card and merchandise credit liability ​ $ 27,328 ​ $ 26,733 Current portion of term loans ​ ​ 25,000 ​ ​ 25,000 Allowance for sales returns ​ ​ 19,729 ​ ​ 20,747 Finance lease liabilities ​ ​ 18,151 ​ ​ 17,007 Foreign tax payable ​ ​ 4,232 ​ ​ 4,365 Other current liabilities ​ 6,532 ​ 9,338 Total other current liabilities ​ $ 100,972 ​ $ 103,190 ​ 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 28, 2023 will be recognized within 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 October 28, 2023 and October 29, 2022, we recognized $ 7.5 million and $ 5.0 million, respectively, of revenue related to previous deferrals related to our gift cards . During the nine months ended October 28, 2023 and October 29, 2022, we recognized $ 19 million and $ 16 million, respectively, 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 Other non-current obligations consist of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ OCTOBER 28, JANUARY 28, ​ ​ 2023 ​ 2023 ​ ​ (in thousands) Unrecognized tax benefits ​ $ 3,016 ​ $ 2,962 Other non-current obligations ​ ​ 6,284 ​ ​ 5,112 Total other non-current obligations ​ $ 9,300 ​ $ 8,074 ​ ​ ​ ​ ​ 18 | 2023 THIRD QUARTER FORM 10-Q PART I. FINANCIAL INFORMATION ​ Table of Contents NOTE 8—LEASES Lease costs—net consist of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ THREE MONTHS ENDED ​ NINE MONTHS ENDED ​ ​ ​ OCTOBER 28, OCTOBER 29, ​ OCTOBER 28, OCTOBER 29, ​ 2023 2022 ​ 2023 2022 ​ ​ ​ (in thousands) Operating lease cost (1) ​ ​ $ 31,159 ​ $ 25,153 $ 84,913 ​ $ 75,190 Finance lease costs ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amortization of leased assets (1) ​ ​ ​ 13,724 ​ ​ 13,964 ​ ​ 41,069 ​ ​ 38,334 Interest on lease liabilities (2) ​ ​ ​ 8,640 ​ ​ 8,564 ​ ​ 25,920 ​ ​ 23,526 Variable lease costs (3) ​ ​ ​ 5,463 ​ ​ 5,681 ​ ​ 17,628 ​ ​ 22,015 Sublease income (4) ​ ​ ​ ( 1,400 ) ​ ​ ( 1,085 ) ​ ​ ( 4,366 ) ​ ​ ( 3,298 ) Total lease costs—net ​ ​ $ 57,586 ​ $ 52,277 ​ $ 165,164 ​ $ 155,767 (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 (loss) based on our accounting policy. 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 (loss). (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 $ 3.2 million and $ 3.4 million for the three months ended October 28, 2023 and October 29, 2022, respectively, and $ 11 million and $ 15 million for the nine months ended October 28, 2023 and October 29, 2022, respectively, as well as charges associated with common area maintenance of $ 2.2 million and $ 2.3 million for the three months ended October 28, 2023 and October 29, 2022, respectively, and $ 6.8 million and $ 6.9 million for the nine months ended October 28, 2023 and October 29, 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 any period presented. (4) Included in selling, general and administrative expenses on the condensed consolidated statements of income (loss). ​ PART I. FINANCIAL INFORMATION 2023 THIRD QUARTER FORM 10-Q | 19 ​ Table of Contents Lease right-of-use assets and lease liabilities consist of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ OCTOBER 28, ​ JANUARY 28, ​ ​ ​ 2023 2023 ​ ​ ​ ​ (in thousands) ​ ​ Balance Sheet Classification ​ ​ ​ ​ ​ ​ Assets ​ ​ ​ ​ ​ ​ ​ ​ Operating leases ​ Operating lease right-of-use assets ​ $ 616,571 ​ $ 527,246 Finance leases (1)(2)(3) ​ Property and equipment—net ​ ​ 1,037,441 ​ ​ 1,078,979 Total lease right-of-use assets ​ ​ ​ $ 1,654,012 ​ $ 1,606,225 Liabilities ​ ​ ​ ​ ​ ​ ​ ​ Current (4) ​ ​ ​ ​ ​ ​ ​ ​ Operating leases ​ Operating lease liabilities ​ $ 89,492 ​ $ 80,384 Finance leases ​ Other current liabilities ​ ​ 18,151 ​ ​ 17,007 Total lease liabilities—current ​ ​ ​ ​ 107,643 ​ ​ 97,391 Non-current ​ ​ ​ ​ ​ ​ ​ ​ Operating leases ​ Non-current operating lease liabilities ​ ​ 570,073 ​ ​ 505,809 Finance leases ​ Non-current finance lease liabilities ​ ​ 642,726 ​ ​ 653,050 Total lease liabilities—non-current ​ ​ ​ ​ 1,212,799 ​ ​ 1,158,859 Total lease liabilities ​ ​ ​ $ 1,320,442 ​ $ 1,256,250 (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 $ 263 million and $ 224 million as of October 28, 2023 and January 28, 2023, respectively. (3) Includes $ 38 million and $ 39 million as of October 28, 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. ​ ​ 20 | 2023 THIRD QUARTER FORM 10-Q PART I. FINANCIAL INFORMATION ​ Table of Contents The maturities of lease liabilities are as follows as of October 28, 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ OPERATING ​ FINANCE ​ ​ FISCAL YEAR ​ ​ LEASES LEASES TOTAL ​ ​ ​ ​ (in thousands) Remainder of fiscal 2023 ​ ​ ​ $ 28,849 ​ $ 12,559 ​ $ 41,408 2024 ​ ​ ​ ​ 118,065 ​ ​ 50,342 ​ ​ 168,407 2025 ​ ​ ​ ​ 112,241 ​ ​ 51,757 ​ ​ 163,998 2026 ​ ​ ​ ​ 105,853 ​ ​ 52,524 ​ ​ 158,377 2027 ​ ​ ​ ​ 98,820 ​ ​ 53,665 ​ ​ 152,485 2028 ​ ​ ​ ​ 65,310 ​ ​ 52,727 ​ ​ 118,037 Thereafter ​ ​ ​ ​ 310,293 ​ ​ 914,073 ​ ​ 1,224,366 Total lease payments (1)(2) ​ ​ ​ ​ 839,431 ​ ​ 1,187,647 ​ ​ 2,027,078 Less—imputed interest (3) ​ ​ ​ ​ ( 179,866 ) ​ ​ ( 526,770 ) ​ ​ ( 706,636 ) Present value of lease liabilities ​ ​ ​ $ 659,565 ​ $ 660,877 ​ $ 1,320,442 (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 $ 694 million of legally binding payments under the non-cancellable term for leases signed but not yet commenced under our accounting policy as of October 28, 2023, of which $ 8.0 million, $ 27 million, $ 42 million, $ 39 million, $ 41 million and $ 41 million will be paid in the remainder of fiscal 2023, fiscal 2024, fiscal 2025, fiscal 2026, fiscal 2027 and fiscal 2028, respectively, and $ 496 million will be paid subsequent to fiscal 2028. (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 28, ​ OCTOBER 29, ​ ​ ​ ​ 2023 ​ 2022 ​ Weighted-average remaining lease term (years) ​ ​ ​ ​ ​ ​ ​ ​ Operating leases ​ ​ ​ 8.7 ​ ​ 8.5 ​ Finance leases ​ ​ ​ 21.3 ​ ​ 22.1 ​ Weighted-average discount rate ​ ​ ​ ​ ​ ​ ​ ​ Operating leases ​ ​ ​ 5.02 % ​ ​ 4.04 % ​ Finance leases ​ ​ ​ 5.33 % ​ ​ 5.32 % ​ ​ ​ PART I. FINANCIAL INFORMATION 2023 THIRD QUARTER FORM 10-Q | 21 ​ Table of Contents Other information related to leases consists of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ NINE MONTHS ENDED ​ ​ ​ OCTOBER 28, ​ OCTOBER 29, ​ ​ ​ 2023 ​ 2022 ​ ​ ​ (in thousands) Cash paid for amounts included in the measurement of lease liabilities ​ ​ ​ ​ ​ ​ ​ Operating cash flows from operating leases ​ ​ $ ( 82,975 ) ​ $ ( 75,570 ) Operating cash flows from finance leases ​ ​ ​ ( 26,049 ) ​ ​ ( 23,526 ) Financing cash flows from finance leases—net (1) ​ ​ ​ ( 9,551 ) ​ ​ ( 6,798 ) Total cash outflows from leases ​ ​ $ ( 118,575 ) ​ $ ( 105,894 ) Lease right-of-use assets obtained in exchange for lease obligations—net of lease terminations (non-cash) ​ ​ ​ ​ ​ ​ ​ Operating leases ​ ​ $ 138,180 ​ $ 42,883 Finance leases ​ ​ ​ 1,301 ​ ​ 108,547 (1) Represents the principal portion of lease payments, partially offset by tenant allowances received under finance leases subsequent to lease commencement of $ 2.4 million and $ 4.2 million for the nine months ended October 28, 2023 and October 29, 2022, respectively. ​ 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”). The outstanding balances under the 2023 Notes and 2024 Notes were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ OCTOBER 28, ​ ​ JANUARY 28, ​ ​ 2023 ​ ​ 2023 ​ ​ ​ ​ UNAMORTIZED ​ ​ ​ ​ ​ ​ ​ UNAMORTIZED ​ ​ ​ ​ ​ ​ DEBT ​ NET ​ ​ ​ ​ DEBT ​ NET ​ ​ PRINCIPAL ​ ISSUANCE ​ CARRYING ​ ​ PRINCIPAL ​ ISSUANCE ​ CARRYING ​ ​ AMOUNT COST AMOUNT ​ AMOUNT COST ​ AMOUNT ​ ​ (in thousands) Convertible senior notes due 2023 (1) ​ $ — ​ $ — ​ $ — ​ $ 1,696 ​ $ — ​ $ 1,696 ​ Convertible senior notes due 2024 (2) ​ ​ 41,904 ​ ​ ( 97 ) ​ ​ 41,807 ​ ​ 41,904 ​ ​ ( 180 ) ​ ​ 41,724 ​ Total convertible senior notes ​ $ 41,904 ​ $ ( 97 ) ​ $ 41,807 ​ $ 43,600 ​ $ ( 180 ) ​ $ 43,420 ​ (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 October 28, 2023, the 2023 Notes are no longer outstanding. (2) As of October 28, 2023, the 2024 Notes outstanding were classified as convertible seniors notes due 2024—net within current liabilities. As of January 28, 2023, the 2024 Notes outstanding were classified as convertible senior notes due 2024—net within non-current liabilities . ​ 22 | 2023 THIRD QUARTER FORM 10-Q PART I. FINANCIAL INFORMATION ​ Table of Contents 2023 Notes and 2024 Notes—Bond Hedge and Warrant Terminations and Notes Repurchase Bond Hedge and Warrant Terminations 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 (loss). 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 (loss). 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 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 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 expense—net on the condensed consolidated statements of income (loss). ​ ​ PART I. FINANCIAL INFORMATION 2023 THIRD QUARTER FORM 10-Q | 23 ​ Table of Contents 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 (loss). $ 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 through the calendar quarter ended June 30, 2023, but was met for the calendar quarter ended September 30, 2023, and as a result, the 2024 Notes are convertible as of September 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. 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 . 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 current obligation on our condensed consolidated balance sheets since the maturity date of the outstanding 2024 Notes is on September 15, 2024. The settlement 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 | 2023 THIRD QUARTER FORM 10-Q PART I. FINANCIAL INFORMATION ​ Table of Contents $ 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 June 30, 2022 and, accordingly, holders were eligible to convert their 2023 Notes beginning in the calendar quarter ended December 31, 2020 and were eligible to convert their 2023 Notes through March 15, 2023. 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. 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. 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 fiscal 2023 through the maturity of the 2023 Notes, we issued in aggregate 1,931 shares of common stock upon settlement of the 2023 Notes. ​ NOTE 10—CREDIT FACILITIES The outstanding balances under our credit facilities were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ OCTOBER 28, ​ JANUARY 28, ​ ​ 2023 ​ 2023 ​ ​ ​ ​ ​ ​ 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) ​ 6.68 % ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — Term loan B (3) ​ 7.93 % ​ ​ 1,960,000 ​ ​ ( 15,998 ) ​ ​ 1,944,002 ​ ​ 1,975,000 ​ ​ ( 18,471 ) ​ ​ 1,956,529 Term loan B-2 (4) ​ 8.67 % ​ ​ 495,000 ​ ​ ( 21,225 ) ​ ​ 473,775 ​ ​ 498,750 ​ ​ ( 24,505 ) ​ ​ 474,245 Equipment promissory notes (5) — ​ ​ — ​ ​ — ​ ​ — ​ 1,160 ​ — ​ 1,160 Total credit facilities ​ ​ ​ $ 2,455,000 ​ $ ( 37,223 ) ​ $ 2,417,777 ​ $ 2,474,910 ​ $ ( 42,976 ) ​ $ 2,431,934 (1) Interest rates for the asset based credit facility and term loans represent the weighted-average interest rates as of October 28, 2023. (2) Deferred financing fees associated with the asset based credit facility as of October 28, 2023 and January 28, 2023 were $ 2.8 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 $ 1,940 million and $ 1,955 million were included in term loan—net on the condensed consolidated balance sheets as of October 28, 2023 and January 28, 2023, respectively, and $ 20 million was included in other current liabilities on the condensed consolidated balance sheets as of both October 28, 2023 and January 28, 2023. ​ PART I. FINANCIAL INFORMATION 2023 THIRD QUARTER FORM 10-Q | 25 ​ Table of Contents (4) Represents the outstanding balance of the Term Loan B-2 (defined below) under the Term Loan Credit Agreement, of which outstanding amounts of $ 490 million and $ 494 million were included in term loan B-2—net on the condensed consolidated balance sheets as of October 28, 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 October 28, 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 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. 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 was amended in December 2022 to transition from LIBOR to the Secured Overnight Financing Rate (“SOFR”). 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. ​ 26 | 2023 THIRD QUARTER FORM 10-Q PART I. FINANCIAL INFORMATION ​ Table of Contents 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 28, 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 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 October 28, 2023, the amount available for borrowing under the revolving line of credit under the ABL Credit Agreement was $ 430 million, net of $ 44 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 million with a maturity date of October 20, 2028. Through July 31, 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. Effective August 1, 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”). 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. ​ PART I. FINANCIAL INFORMATION 2023 THIRD QUARTER FORM 10-Q | 27 ​ Table of Contents 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 default and other customary terms and conditions for a term loan credit agreement. NOTE 11—FAIR VALUE MEASUREMENTS Fair Value Measurements—Recurring 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 and carrying value of the 2023 Notes, the 2024 Notes, the Term Loan Credit Agreement and the real estate loans were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ OCTOBER 28, ​ JANUARY 28, ​ ​ 2023 ​ 2023 ​ ​ PRINCIPAL ​ PRINCIPAL ​ ​ FAIR ​ CARRYING ​ FAIR ​ CARRYING ​ ​ VALUE ​ VALUE (1) ​ VALUE ​ VALUE (1) ​ ​ (in thousands) Convertible senior notes due 2023 ​ $ — ​ $ — ​ $ 1,622 ​ $ 1,696 Convertible senior notes due 2024 ​ 38,520 ​ ​ 41,904 ​ 37,351 ​ 41,904 Term loan B ​ ​ 1,853,127 ​ ​ 1,960,000 ​ ​ 1,961,056 ​ ​ 1,975,000 Term loan B-2 ​ 482,805 ​ ​ 495,000 ​ 500,215 ​ 498,750 Real estate loans ​ ​ 16,583 ​ ​ 17,844 ​ ​ 17,909 ​ ​ 17,909 (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. ​ 28 | 2023 THIRD QUARTER FORM 10-Q PART I. FINANCIAL INFORMATION ​ Table of Contents 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, Term Loan B-2 and real estate loans were derived from discounted cash flows using risk-adjusted rates (Level 2). NOTE 12—INCOME TAXES Our income tax expense (benefit) and effective tax rates were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ THREE MONTHS ENDED ​ NINE MONTHS ENDED ​ ​ OCTOBER 28, OCTOBER 29, ​ OCTOBER 28, OCTOBER 29, ​ 2023 2022 ​ 2023 2022 ​ ​ (dollars in thousands) Income tax expense (benefit) ​ $ ( 9,215 ) ​ $ 36,162 $ 34,615 ​ $ ( 70,867 ) Effective tax rate ​ ​ 80.8 % ​ ​ 26.8 % ​ ​ 23.0 % ​ ​ ( 20.2 )% ​ The increase in our effective tax rate for the three months ended October 28, 2023 compared to the three months ended October 29, 2022 is primarily attributable to the net loss in the current period and tax benefits from the Federal Rehabilitation Tax Credit related to the San Francisco Design Gallery. The increase in our effective tax rate for the nine months ended October 28, 2023 compared to the nine months ended October 29, 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 October 28, 2023, we had $ 8.3 million of unrecognized tax benefits, of which $ 7.5 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 28, 2023, we had $ 5.7 million of exposures related to unrecognized tax benefits that are expected to decrease in the next 12 months. ​ NOTE 13—NET INCOME (LOSS) PER SHARE The weighted-average shares used for net income (loss) per share are presented in the table below. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ THREE MONTHS ENDED ​ NINE MONTHS ENDED ​ ​ OCTOBER 28, ​ ​ OCTOBER 29, ​ OCTOBER 28, ​ OCTOBER 29, ​ 2023 (1) ​ 2022 2023 2022 Weighted-average shares—basic ​ ​ 18,371,545 ​ ​ 23,681,482 ​ ​ 20,459,241 ​ ​ 23,588,464 Effect of dilutive stock-based awards ​ — ​ 2,209,736 ​ 1,545,988 ​ 2,943,274 Effect of dilutive convertible senior notes (2) ​ — ​ 207,047 ​ 202,584 ​ 415,349 Weighted-average shares—diluted ​ 18,371,545 ​ 26,098,265 ​ 22,207,813 ​ 26,947,087 (1) As we reported a net loss for the three months ended October 28, 2023, the weighted-average shares outstanding for basic and diluted are the same for the corresponding period. (2) 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. The warrants associated with the 2023 Notes and 2024 Notes were repurchased in April 2022 and, as a result, no warrant instruments were outstanding as of and after April 30, 2022. Accordingly, the warrants have no impact on our dilutive shares post-repurchase. Refer to Note 9— Convertible Senior Notes . ​ PART I. FINANCIAL INFORMATION 2023 THIRD QUARTER FORM 10-Q | 29 ​ Table of Contents The following number of options and restricted stock units, as well as shares issuable under convertible senior notes, were excluded from the calculation of diluted net income (loss) per share because their inclusion would have been anti-dilutive: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ THREE MONTHS ENDED ​ NINE MONTHS ENDED ​ ​ OCTOBER 28, ​ OCTOBER 29, ​ OCTOBER 28, ​ OCTOBER 29, ​ 2023 2022 2023 2022 Options ​ 2,999,409 ​ 1,084,920 ​ 1,275,183 ​ 1,083,745 Restricted stock units 16,547 ​ 19,310 15,705 19,443 Convertible senior notes ​ 198,223 ​ — ​ — ​ 308,824 ​ ​ 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 $ 2,000 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 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. In the nine months ended October 28, 2023, we repurchased 3,887,965 shares of our common stock under the Share Repurchase Program at an average price of $ 321.28 per share, for an aggregate repurchase amount of approximately $ 1,261 million, inclusive of $ 12 million of excise taxes. The excise tax liability is recorded in accounts payable and accrued expenses on the condensed consolidated balance sheets as of October 28, 2023. As of October 28, 2023, $ 201 million remains available for future share repurchases under this program. Share Retirement In 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 (deficit) as of and for the nine months ended October 29, 2022. In the nine months ended October 28, 2023, we retired 3,887,965 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 $ 10 million and $ 1,251 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 nine months ended October 28, 2023. Refer to the condensed consolidated statements of stockholders’ equity (deficit) for shares repurchased and subsequently retired in the three months ended October 28, 2023. ​ NOTE 15—STOCK-BASED COMPENSATION 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 | 2023 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. 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 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. 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. The 2023 Stock Incentive Plan has a ten-year term. Awards under the 2023 Stock Incentive Plan reduce the number of shares available for future issuance. Cancellations and forfeitures of awards previously granted under the 2023 Stock Incentive Plan increase the number of shares available for future issuance. Shares issued as a result of award exercises under the 2023 Stock Incentive Plan will be funded with the issuance of new shares. A summary of options outstanding, vested or expected to vest, and exercisable as of October 28, 2023 was as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ WEIGHTED ​ WEIGHTED ​ AGGREGATE ​ ​ ​ ​ AVERAGE ​ AVERAGE ​ INTRINSIC ​ ​ ​ ​ EXERCISE ​ REMAINING TERM ​ VALUE ​ ​ SHARES PRICE (in years) (in thousands) Options outstanding ​ 3,637,625 ​ $ 189.03 ​ ​ 5.4 ​ $ 296,799 Options vested or expected to vest ​ 3,362,736 ​ ​ 182.91 ​ ​ 5.2 ​ ​ 291,519 Options exercisable ​ 2,560,660 ​ ​ 162.67 ​ ​ 4.5 ​ ​ 265,227 ​ Stock-based compensation expense, which is included in selling, general and administrative expenses on the condensed consolidated statements of income (loss), was as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ THREE MONTHS ENDED ​ NINE MONTHS ENDED ​ ​ OCTOBER 28, ​ OCTOBER 29, ​ OCTOBER 28, ​ OCTOBER 29, ​ 2023 2022 2023 2022 ​ ​ (in thousands) Stock-based compensation expense (1) ​ $ 9,820 ​ $ 10,187 ​ $ 28,538 ​ $ 33,725 (1) 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. The option will result in aggregate non-cash stock compensation expense of $ 174 million, of which $ 2.0 million and $ 4.1 million was recognized during the three months ended October 28, 2023 and October 29, 2022, respectively, and $ 7.5 million and $ 14 million was recognized during the nine months ended October 28, 2023 and October 29, 2022, respectively. No stock-based compensation cost has been capitalized in the accompanying condensed consolidated financial statements. ​ PART I. FINANCIAL INFORMATION 2023 THIRD QUARTER FORM 10-Q | 31 ​ Table of Contents As of October 28, 2023, the total unrecognized compensation expense and weighted average remaining term was as follows: ​ ​ ​ ​ ​ ​ ​ UNRECOGNIZED ​ WEIGHTED ​ STOCK BASED ​ AVERAGE ​ COMPENSATION ​ REMAINING TERM ​ (in thousands) ​ (in years) Unvested options (1) $ 100,628 ​ ​ 4.5 Unvested restricted stock and restricted stock units ​ 6,032 ​ ​ 3.4 Total $ 106,660 ​ ​ ​ (1) Includes unrecognized compensation expense related to the fully vested option grant made to Mr. Friedman in October 2020 of $ 7.5 million, which will be recognized on an accelerated basis through May 2025 . ​ NOTE 16—COMMITMENTS AND CONTINGENCIES Commitments We had no material off balance sheet commitments as of October 28, 2023. 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. 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. Loss contingencies determined to be probable and estimable are recorded in accounts payable and accrued expenses on the condensed consolidated balance sheets (refer to Note 6— Accounts Payable, Accrued Expenses and Other Current Liabilities ). These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, estimated settlements, legal rulings, advice of legal counsel and other information and events pertaining to each matter. In view of the inherent difficulty of predicting the outcome of certain matters, particularly in cases in which claimants seek substantial or indeterminate damages, it may not be 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. ​ 32 | 2023 THIRD QUARTER FORM 10-Q PART I. FINANCIAL INFORMATION ​ Table of Contents 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. Legal costs related to such claims are expensed as incurred. ​ 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 (“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, Sourcebooks, 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 ). 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 (loss) before interest expense—net, loss on extinguishment of debt, other 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) asset impairments, (v) product recalls, (vi) employer payroll tax expense related to an option exercise by Mr. Friedman, (vii) professional fees related to the 2023 Notes and 2024 Notes transactions (refer to Note 9— Convertible Senior Notes ), (viii) compensation settlements related to the Rollover Units and Profit Interest Units in the Waterworks subsidiary and (ix) gain on sale of building and land. 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. ​ PART I. FINANCIAL INFORMATION 2023 THIRD QUARTER FORM 10-Q | 33 ​ Table of Contents The following table presents segment operating income and income (loss) before income taxes and equity method investments: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ THREE MONTHS ENDED ​ NINE MONTHS ENDED ​ ​ OCTOBER 28, ​ OCTOBER 29, ​ OCTOBER 28, ​ OCTOBER 29, ​ 2023 2022 2023 2022 ​ ​ (in thousands) Operating income: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ RH Segment ​ $ 50,200 ​ $ 173,162 ​ $ 307,590 ​ $ 639,219 Waterworks ​ 4,963 ​ 7,187 ​ 19,329 ​ 22,394 Total segment operating income ​ ​ 55,163 ​ ​ 180,349 ​ ​ 326,919 ​ ​ 661,613 Legal settlements ​ ​ — ​ 4,188 ​ ​ ( 8,000 ) ​ 4,188 Reorganization related costs ​ ​ — ​ — ​ ​ ( 7,621 ) ​ — Non-cash compensation ​ ​ ( 1,972 ) ​ ( 4,136 ) ​ ​ ( 7,527 ) ​ ( 14,315 ) Asset impairments ​ ( 3,531 ) ​ ( 10,926 ) ​ ( 3,531 ) ​ ( 19,080 ) Recall accrual ​ 1,576 ​ — ​ 1,576 ​ ( 560 ) Employer payroll taxes on option exercise ​ ​ — ​ — ​ ​ — ​ ( 11,717 ) Professional fees ​ — ​ — ​ — ​ ( 7,469 ) Compensation settlements ​ — ​ — ​ — ​ ( 3,483 ) Gain on sale of building and land ​ ​ — ​ 775 ​ ​ — ​ 775 Income from operations ​ 51,236 ​ 170,250 ​ 301,816 ​ 609,952 Interest expense—net ​ 54,640 ​ 31,417 ​ 138,878 ​ 78,536 Loss on extinguishment of debt ​ — ​ — ​ — ​ 169,578 Other expense—net ​ ​ 5,305 ​ 1,989 ​ ​ 4,466 ​ 4,841 Income (loss) before income taxes and equity method investments ​ $ ( 8,709 ) ​ $ 136,844 ​ $ 158,472 ​ $ 356,997 ​ The following tables present the results of operations metrics reviewed by the CODM to evaluate performance internally or as required under ASC 280— Segment Reporting : ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ THREE MONTHS ENDED ​ ​ OCTOBER 28, ​ OCTOBER 29, ​ ​ 2023 ​ 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ RH SEGMENT WATERWORKS TOTAL RH SEGMENT WATERWORKS TOTAL ​ ​ (in thousands) Net revenues ​ $ 705,061 ​ $ 46,164 ​ $ 751,225 ​ $ 821,260 ​ $ 47,806 ​ $ 869,066 Gross profit ​ 315,980 ​ 24,470 ​ 340,450 ​ 394,947 ​ 25,831 ​ 420,778 Depreciation and amortization ​ 27,533 ​ ​ 921 ​ 28,454 ​ 26,785 ​ ​ 1,247 ​ 28,032 ​ ​ 34 | 2023 THIRD QUARTER FORM 10-Q PART I. FINANCIAL INFORMATION ​ Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ NINE MONTHS ENDED ​ ​ OCTOBER 28, ​ OCTOBER 29, ​ ​ 2023 ​ 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ RH SEGMENT WATERWORKS TOTAL RH SEGMENT WATERWORKS TOTAL ​ ​ (in thousands) Net revenues ​ $ 2,146,192 ​ $ 144,674 ​ $ 2,290,866 ​ $ 2,670,390 ​ $ 147,588 ​ $ 2,817,978 Gross profit ​ 990,490 ​ 77,578 ​ 1,068,068 ​ 1,362,843 ​ 79,736 ​ 1,442,579 Depreciation and amortization ​ 80,786 ​ ​ 3,574 ​ 84,360 ​ 75,980 ​ ​ 3,780 ​ 79,760 ​ The Real Estate segment share of equity method investments loss was $ 2.7 million and $ 1.9 million in the three months ended October 28, 2023 and October 29, 2022, respectively, and $ 7.7 million and $ 6.1 million in the nine months ended October 28, 2023 and October 29, 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 financial position metrics as required under ASC 280— Segment Reporting : ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ OCTOBER 28, ​ JANUARY 28, ​ ​ 2023 ​ 2023 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ RH SEGMENT WATERWORKS REAL ESTATE TOTAL RH SEGMENT WATERWORKS REAL ESTATE TOTAL ​ ​ (in thousands) Goodwill (1) ​ $ 140,997 ​ $ — ​ $ — ​ $ 140,997 ​ $ 141,048 ​ $ — ​ $ — ​ $ 141,048 Tradenames, trademarks and other intangible assets (2) ​ 58,746 ​ 17,000 ​ — ​ 75,746 ​ 57,633 ​ 17,000 ​ — ​ 74,633 Equity method investments ​ ​ — ​ ​ 858 ​ ​ 127,254 ​ ​ 128,112 ​ ​ — ​ ​ 623 ​ ​ 100,845 ​ ​ 101,468 Total assets ​ 3,833,341 ​ 243,351 ​ 163,927 ​ 4,240,619 ​ 4,953,610 ​ 217,228 ​ 138,451 ​ 5,309,289 (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 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 28, ​ OCTOBER 29, ​ OCTOBER 28, ​ OCTOBER 29, ​ 2023 2022 2023 2022 ​ ​ (in thousands) Furniture ​ $ 518,923 ​ $ 597,520 ​ $ 1,575,916 ​ $ 1,959,760 Non-furniture ​ 232,302 ​ 271,546 ​ 714,950 ​ 858,218 Total net revenues ​ $ 751,225 ​ $ 869,066 ​ $ 2,290,866 ​ $ 2,817,978 ​ We are domiciled in the United States and primarily operate our retail locations and outlets in the United States. As of October 28, 2023, we operated four retail locations and two outlets in Canada and two retail locations and one outlet 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 any fiscal period presented. ​ ​ ​ ​ PART I. FINANCIAL INFORMATION 2023 THIRD QUARTER FORM 10-Q | 35 ​ Table of Contents