What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2024-06-13 compared with 2023-12-07 · 195 added, 394 removed, 455 unchanged (56% of the section changed)

3 unchanged sentences

Cash and cash equivalents

Restricted cash

Accounts receivable—net

8 unchanged sentences

Other non-current assets

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

LIABILITIES AND STOCKHOLDERS’ DEFICIT

Accounts payable and accrued expenses

Deferred revenue and customer deposits

Convertible senior notes due 2023

Convertible senior notes due 2024—net

5 unchanged sentences

Term loan B-2—net

Real estate loans

Convertible senior notes due 2024—net

Real estate loans—net

Non-current operating lease liabilities

4 unchanged sentences

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

Stockholders’ deficit:

Preferred stock—$ 0.0001 par value per share, 10,000,000 shares authorized, no shares issued or outstanding as of May 4, 2024 and February 3, 2024

Common stock— $ 0.0001 par value per share, 180,000,000 shares authorized, 18,342,797 shares issued and outstanding as of May 4, 2024;

18,315,613 shares issued and outstanding as of February 3, 2024

Additional paid-in capital

Accumulated other comprehensive income (loss)

Retained earnings (accumulated deficit)

Total stockholders’ equity (deficit)

Total liabilities and stockholders’ equity (deficit)

Accumulated other comprehensive loss

Accumulated deficit

Total stockholders’ deficit

Total liabilities and stockholders’ deficit

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

FINANCIAL INFORMATION

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CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

THREE MONTHS ENDED

NINE MONTHS ENDED

(in thousands, except share and per share amounts)

4 unchanged sentences

Interest expense—net

Loss on extinguishment of debt

Other expense—net

Other (income) expense—net

Total other expenses

1 unchanged sentence

Income tax expense (benefit)

Income before equity method investments

Share of equity method investments loss

Income (loss) before equity method investments

Share of equity method investments loss—net

Net income (loss)

4 unchanged sentences

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

4 | 2023 THIRD QUARTER FORM 10-Q

FINANCIAL INFORMATION

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

THREE MONTHS ENDED

NINE MONTHS ENDED

(in thousands)

Net income (loss)

Net loss from foreign currency translation

Net gain (loss) from foreign currency translation

Comprehensive income (loss)

1 unchanged sentence

FINANCIAL INFORMATION

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CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

THREE MONTHS ENDED

TREASURY STOCK

COMPREHENSIVE

3 unchanged sentences

(in thousands, except share amounts)

Balances—July 29, 2023

Stock-based compensation

Vested and delivered restricted stock units

Exercise of stock options

Repurchase of common stock — including excise tax

Retirement of treasury stock

Net loss from foreign currency translation

Balances—October 28, 2023

Balances—July 30, 2022

Stock-based compensation

Vested and delivered restricted stock units

Exercise of stock options

Settlement of convertible senior notes

Repurchase of common stock

Retirement of treasury stock

Net loss from foreign currency translation

Balances—October 29, 2022

6 | 2023 THIRD QUARTER FORM 10-Q

FINANCIAL INFORMATION

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

NINE MONTHS ENDED

TREASURY STOCK

COMPREHENSIVE

STOCKHOLDERS'

INCOME (LOSS)

EQUITY (DEFICIT)

(in thousands, except share amounts)

Balances—January 28, 2023

Balances—February 3, 2024

Stock-based compensation

2 unchanged sentences

Exercise of stock options

Settlement of convertible senior notes

Repurchase of common stock—including excise tax

( 3,887,965 )

( 1,261,690 )

Retirement of treasury stock

( 1,251,314 )

( 3,887,965 )

Net loss from foreign currency translation

Balances—October 28, 2023

Balances—May 4, 2024

Balances—January 28, 2023

Stock-based compensation

Issuance of restricted stock

Vested and delivered restricted stock units

Exercise of stock options

Repurchase of common stock

( 1,127,557 )

Retirement of treasury stock

( 1,127,557 )

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

Settlement of convertible senior notes

Termination of common stock warrants

Termination of convertible note hedge

Impact of ASU 2020-06 adoption

Net loss from foreign currency translation

Balances—October 29, 2022

Net gain from foreign currency translation

Balances—April 29, 2023

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

FINANCIAL INFORMATION

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED

THREE MONTHS ENDED

(in thousands)

CASH FLOWS FROM OPERATING ACTIVITIES

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

Net income (loss)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization

Non-cash operating lease cost

Asset impairments

Gain on sale of building and land

Stock-based compensation expense

Asset impairments

Non-cash finance lease interest expense

Product recalls

Deferred income taxes

Loss on extinguishment of debt

Gain on derivative instruments—net

Share of equity method investments loss

Share of equity method investments loss—net

Other non-cash items

10 unchanged sentences

Net cash provided by operating activities

8 | 2023 THIRD QUARTER FORM 10-Q

FINANCIAL INFORMATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

NINE MONTHS ENDED

(in thousands)

CASH FLOWS FROM INVESTING ACTIVITIES

1 unchanged sentence

Equity method investments

Proceeds from sale of asset

Net cash used in investing activities

FINANCIAL INFORMATION

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

THREE MONTHS ENDED

(in thousands)

CASH FLOWS FROM FINANCING ACTIVITIES

Borrowings under term loans

Repayments under term loans

Borrowings under real estate loans

Repayments under real estate loans

1 unchanged sentence

Repayments of convertible senior notes

Repayment under convertible senior notes repurchase obligation

Debt extinguishment costs

Debt issuance costs

Principal payments under finance lease agreements—net of tenant allowances

Proceeds from termination of convertible senior note hedges

Payments for termination of common stock warrants

Repurchases of common stock—inclusive of excise taxes paid

( 1,252,899 )

Principal payments under finance lease agreements

Proceeds from exercise of stock options

1 unchanged sentence

Net cash used in financing activities

( 1,278,386 )

Effects of foreign currency exchange rate translation

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

( 1,129,108 )

FINANCIAL INFORMATION

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

NINE MONTHS ENDED

(in thousands)

Cash and cash equivalents, restricted cash and restricted cash equivalents

Effects of foreign currency exchange rate translation on cash

Net increase (decrease) in cash and cash equivalents and restricted cash

Cash and cash equivalents and restricted cash

Beginning of period—cash and cash equivalents

Beginning of period—restricted cash

Beginning of period—restricted cash equivalents (acquisition related escrow deposits)

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

Beginning of period—cash and cash equivalents and restricted cash

End of period—cash and cash equivalents

4 unchanged sentences

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

Property and equipment additions acquired under real estate loans

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

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

Extinguishment of convertible senior notes related to repurchase obligation

Financing liability and embedded derivative arising from convertible senior notes repurchase

Shares issued on settlement of convertible senior notes

Shares received on exercise of call option under bond hedge upon settlement of convertible senior notes

Conversion of loan receivables into equity of consolidated variable interest entities

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

10 | 2023 THIRD QUARTER FORM 10-Q

FINANCIAL INFORMATION

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

4 unchanged sentences

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.

As of May 4, 2024, we operated a total of 71 RH Galleries and 41 RH Outlet stores, one RH Guesthouse and 14 Waterworks Showrooms throughout the United States and Canada as well as in the United Kingdom, Germany and Belgium.

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.

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 May 4, 2024, and the results of operations for the three months ended May 4, 2024 and April 29, 2023.

Our current fiscal year, which consists of 52 weeks, ends on February 1, 2025 (“fiscal 2024”).

6 unchanged sentences

The accounting estimates and other matters we have assessed include, but were not limited to, sales return reserve, inventory reserve, allowance for doubtful accounts, goodwill, and intangible and other long-lived assets.

Our current assessment of these estimates is included in our condensed consolidated financial statements as of and for the three and nine months ended October 28, 2023.

Our current assessment of these estimates is included in our condensed consolidated financial statements as of and for the three months ended May 4, 2024.

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.

The results of operations for the three months ended May 4, 2024, presented herein, are not necessarily indicative of the results to be expected for the full fiscal year.

FINANCIAL INFORMATION

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Business Conditions

There are a number of macroeconomic factors and uncertainties affecting the overall business climate as well as our business, including 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.

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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

FINANCIAL INFORMATION

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.

Segment Reporting:

Improvements to Reportable Segment Disclosures

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ ASU”) 2023-07—Improvements to Reportable Segment Disclosures .

This new guidance is designed to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses.

ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 on a retrospective basis.

Early adoption is permitted.

We are currently assessing the impact that adopting this new accounting standard will have on our condensed consolidated financial statements.

Income Taxes:

Improvements to Income Tax Disclosures

In December 2023, the FASB issued ASU 2023-09 — Improvements to Income Tax Disclosures .

This new guidance is designed to enhance the transparency and decision usefulness of income tax disclosures.

The amendments of this update are related to the rate reconciliation and income taxes paid, requiring consistent categories and greater disaggregation of information in the rate reconciliation as well as income taxes paid disaggregated by jurisdiction.

ASU 2023-09 is effective for fiscal years beginning after December 15, 2024.

Early adoption is permitted.

We are currently assessing the impact that adopting this new accounting standard will have on our condensed consolidated financial statements .

NOTE 3—PREPAID EXPENSE AND OTHER ASSETS

1 unchanged sentence

(in thousands)

Federal and state tax receivable

Vendor deposits

Prepaid expenses

Capitalized catalog costs

Value added tax (VAT) receivable

Vendor deposits

Tenant allowance receivable

Promissory notes receivable, including interest (1)

Federal and state tax receivable (1)

Value added tax (VAT) receivable

Right of return asset for merchandise

Interest income receivable

Promissory notes receivable, including interest (2)

Other current assets

Total prepaid expense and other current assets

(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 ).

(1) Refer to Note 12— Income Taxes.

(2) Represents promissory notes, including principal and accrued interest, due from an affiliate of the managing member of the Aspen LLCs (as defined below).

Refer to Note 5— Variable Interest Entities .

FINANCIAL INFORMATION

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Other non-current assets consist of the following:

8 unchanged sentences

Total other non-current assets

(1) Presented net of accumulated amortization of $ 16 million and $ 11 million as of October 28, 2023 and January 28, 2023, respectively.

(1) Presented net of accumulated amortization of $ 21 million and $ 19 million as of May 4, 2024 and February 3, 2024, 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 ):

Goodwill, tradenames, trademarks and other intangible assets activity for the RH Segment and Waterworks consists of the following:

TRADEMARKS AND

3 unchanged sentences

(in thousands)

January 28, 2023

February 3, 2024

Foreign currency translation

October 28, 2023

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

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

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

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

14 | 2023 THIRD QUARTER FORM 10-Q

FINANCIAL INFORMATION

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NOTE 5—VARIABLE INTEREST ENTITIES

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

Consolidated Variable Interest Entities 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.

FINANCIAL INFORMATION

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

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

(in thousands)

Cash and cash equivalents

Restricted cash (1)

Prepaid expense and other current assets

5 unchanged sentences

Total current liabilities

Real estate loans (3)

Real estate loans—net (2)

Other non-current obligations

Total liabilities

(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.

(1) Includes $ 49 million and $ 77 million of construction in progress as of May 4, 2024 and February 3, 2024, respectively.

(2) 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.

Excludes $ 0.2 million and $ 0.1 million of current obligations related to such loans that are included in other current liabilities on the condensed consolidated balance sheets as of May 4, 2024 and February 3, 2024, respectively.

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.

3 unchanged sentences

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

Equity method investments primarily represent our membership interests in three privately-held limited liability companies in Aspen, Colorado (each, an “Aspen LLC” and collectively, the “Aspen LLCs”) that were formed for the purpose of acquiring, developing, operating and selling certain real estate projects in Aspen, Colorado.

As of May 4, 2024, we have made capital contributions of approximately $ 140 million to the Aspen LLCs.

Additionally, Waterworks has membership interests in two European entities that are equity method investments.

FINANCIAL INFORMATION

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.

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Our maximum exposure to loss is the carrying value of each of the equity method investments as of May 4, 2024.

During the three months ended May 4, 2024 and April 29, 2023, we did no t receive any distributions or have any undistributed earnings of equity method investments.

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

3 unchanged sentences

Accrued compensation

Accrued occupancy

Accrued sales and use tax

Accrued legal settlements (1)(2)

Accrued interest

Accrued occupancy

Accrued freight and duty

Accrued legal settlements (1)

Excise tax payable on share repurchases

Accrued catalog costs (1)

Accrued professional fees

Accrued legal contingencies (1)

Accrued interest

Other accrued expenses

Total accounts payable and accrued expenses

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

(1) Refer to Note 16— 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.

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.

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

As of February 3, 2024, we had an immaterial amount accrued within accounts payable and accrued expenses on the condensed consolidated balance sheets related to the reorganization, all of which was paid during the first quarter of fiscal 2024.

FINANCIAL INFORMATION

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Other current liabilities consist of the following:

(in thousands)

Unredeemed gift card and merchandise credit liability

Current portion of term loans

Allowance for sales returns

Unredeemed gift card and merchandise credit liability

Finance lease liabilities

Foreign tax payable

Federal tax payable

Other current liabilities

2 unchanged sentences

We defer revenue associated with merchandise delivered via the home-delivery channel.

We expect that substantially all of the deferred revenue and customer deposits as of October 28, 2023 will be recognized within six months as the performance obligations are satisfied.

We expect that substantially all of the deferred revenue and customer deposits as of May 4, 2024 will be recognized within the next six months as the performance obligations are satisfied.

In addition, we defer revenue when cash payments are received in advance of performance for unsatisfied obligations related to our gift cards.

During the three months ended 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 .

During both the three months ended May 4, 2024 and April 29, 2023, we recognized $ 6.1 million of revenue related to previous deferrals related to our gift cards .

We expect that approximately 75 percent of the remaining gift card liabilities will be recognized when the gift cards are redeemed by customers.

Supplier Finance Program

As of May 4, 2024 and February 3, 2024, supplier invoices that have been confirmed as valid under the Financing Program included in accounts payable and accrued expenses on the condensed consolidated balance sheets were $ 41 million and $ 28 million, respectively.

NOTE 7—OTHER NON-CURRENT OBLIGATIONS

4 unchanged sentences

Total other non-current obligations

18 | 2023 THIRD QUARTER FORM 10-Q

FINANCIAL INFORMATION

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NOTE 8—LEASES

1 unchanged sentence

THREE MONTHS ENDED

NINE MONTHS ENDED

(in thousands)

7 unchanged sentences

(1) Operating lease costs and amortization of finance lease right-of-use assets are included in cost of goods sold or selling, general and administrative expenses on the condensed consolidated statements of income (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.

(3) Represents variable lease payments under operating and finance lease agreements, primarily associated with contingent rent based on a percentage of retail sales over contractual levels of $ 3.9 million for both the three months ended May 4, 2024 and April 29, 2023, as well as charges associated with common area maintenance of $ 2.7 million and $ 2.3 million for the three months ended May 4, 2024 and April 29, 2023, respectively.

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

FINANCIAL INFORMATION

2023 THIRD QUARTER FORM 10-Q | 19

2024 FIRST QUARTER FORM 10-Q | 15

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

18 unchanged sentences

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

(2) Recorded net of accumulated amortization of $ 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 ).

(2) Recorded net of accumulated amortization of $ 281 million and $ 268 million as of May 4, 2024 and February 3, 2024, respectively.

(3) Includes $ 37 million as of both May 4, 2024 and February 3, 2024 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

FINANCIAL INFORMATION

The maturities of lease liabilities are as follows as of October 28, 2023:

2024 FIRST QUARTER FORM 10-Q | 16

The maturities of lease liabilities are as follows as of May 4, 2024:

(in thousands)

4 unchanged sentences

(1) Total lease payments include future obligations for renewal options that are reasonably certain to be exercised and are included in the measurement of the lease liability.

Total lease payments exclude $ 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.

Total lease payments exclude $ 681 million of legally binding payments under the non-cancellable term for leases signed but not yet commenced under our accounting policy as of May 4, 2024, of which $ 21 million, $ 41 million, $ 38 million, $ 40 million, $ 41 million and $ 41 million will be paid in the remainder of fiscal 2024, fiscal 2025, fiscal 2026, fiscal 2027, fiscal 2028 and fiscal 2029, respectively, and $ 459 million will be paid subsequent to fiscal 2029.

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

1 unchanged sentence

Supplemental information related to leases consists of the following:

NINE MONTHS ENDED

THREE MONTHS ENDED

Weighted-average remaining lease term (years)

5 unchanged sentences

FINANCIAL INFORMATION

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Other information related to leases consists of the following:

NINE MONTHS ENDED

THREE MONTHS ENDED

(in thousands)

2 unchanged sentences

Operating cash flows from finance leases

Financing cash flows from finance leases—net (1)

Financing cash flows from finance leases

Total cash outflows from leases

Lease right-of-use assets obtained in exchange for lease obligations—net of lease terminations (non-cash)

Non-cash transactions:

Lease right-of-use assets obtained in exchange for lease obligations—net of lease terminations

Operating leases

Finance leases

(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:

In September 2019, we issued in a private offering $ 350 million principal amount of 0.00 % convertible senior notes due 2024 (the “2024 Notes”, the “Convertible Senior Notes” or the “Notes”).

The outstanding balances under the 2024 Notes were as follows:

(in thousands)

Convertible senior notes due 2024

Convertible senior notes due 2024 (2)

Total convertible senior notes

(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 .

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FINANCIAL INFORMATION

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).

FINANCIAL INFORMATION

2023 THIRD QUARTER FORM 10-Q | 23

During the second quarter of fiscal 2022, we entered into additional individual privately negotiated transactions with a limited number of sophisticated investors that were holders of the 2023 Notes and/or the 2024 Notes to repurchase in cash $ 18 million and $ 39 million in aggregate principal amount of the 2023 Notes and 2024 Notes, respectively (the “Additional Notes Repurchase”).

The Additional Notes Repurchase provided for an estimated settlement cost of $ 80 million, subject to adjustment to the final settlement cost for an embedded feature based on pricing formulations linked to the trading price of our common stock over a one day volatility weighted-average price measurement period occurring in July 2022.

Upon execution of these agreements, we determined that we had modified the debt substantially and applied an extinguishment accounting model.

Accordingly, we derecognized the aggregate principal amount of $ 57 million of the Convertible Senior Notes related to the extinguishment of such notes, and subsequently recognized a new financing liability with a fair value of $ 80 million.

An embedded derivative related to the conversion feature was bifurcated from the new financing liability and separately recognized with an initial fair value of $ 55 million, with the remaining $ 25 million classified as debt and recognized at its amortized cost basis.

Accordingly, we recognized a loss on extinguishment of debt of $ 23 million upon the execution of these agreements, inclusive of acceleration of amortization of debt issuance costs of $ 0.3 million.

Upon the remeasurement of the amount owed to the holders in terms of the embedded feature, a total of $ 82 million was paid in cash to the holders, representing the combined carrying value of the debt liability of $ 25 million, as well as the fair value of the bifurcated embedded equity derivative upon settlement of $ 57 million.

Accordingly, we recognized a loss on the fair value adjustment of the bifurcated embedded equity derivative of $ 1.5 million, which is classified within other (income) expense—net on the condensed consolidated statements of income (loss).

$ 350 million 0.00 % Convertible Senior Notes due 2024

4 unchanged sentences

The first condition was satisfied from the calendar quarter ended September 30, 2020 through the calendar quarter ended March 31, 2022.

However, this condition was not met for the calendar quarter ended June 30, 2022 through the calendar quarter ended 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.

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.

This condition was not met for the calendar quarters ended December 31, 2023 or March 31, 2024 and, as a result, the 2024 Notes were not convertible as of March 31, 2024.

On and after June 15, 2024 , until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or a portion of their 2024 Notes at any time, regardless of the foregoing circumstances.

1 unchanged sentence

If the Company has not delivered a notice of its election of settlement method prior to the final conversion period, it will be deemed to have elected combination settlement with a dollar amount per note to be received upon conversion of $ 1,000 .

During the 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

FINANCIAL INFORMATION

$ 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.

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The remaining liability for the 2024 Notes is classified as a current obligation on our condensed consolidated balance sheets as of May 4, 2024 since the settlement date of the outstanding 2024 Notes is in September 2024.

The settlement of the outstanding 2024 Notes will be made, at our election, in cash, shares of our common stock, or a combination of cash and shares of our common stock upon settlement.

NOTE 10—CREDIT FACILITIES

4 unchanged sentences

Term loan B-2 (4)

Equipment promissory notes (5)

Total credit facilities

(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.

(1) Represents the weighted-average interest rates as of May 4, 2024.

(2) Deferred financing fees associated with the asset based credit facility as of May 4, 2024 and February 3, 2024 were $ 2.3 million and $ 2.5 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.

FINANCIAL INFORMATION

2023 THIRD QUARTER FORM 10-Q | 25

(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

(3) Represents the Term Loan Credit Agreement (defined below), of which outstanding amounts of $ 1,930 million and $ 1,935 million were included in term loan—net on the condensed consolidated balance sheets as of May 4, 2024 and February 3, 2024, respectively, and $ 20 million was included in other current liabilities on the condensed consolidated balance sheets as of both May 4, 2024 and February 3, 2024.

(4) Represents the outstanding balance of the Term Loan B-2 (defined below) under the Term Loan Credit Agreement, of which outstanding amounts of $ 488 million and $ 489 million were included in term loan B-2—net on the condensed consolidated balance sheets as of May 4, 2024 and February 3, 2024, respectively, and $ 5.0 million was included in other current liabilities on the condensed consolidated balance sheets as of both May 4, 2024 and February 3, 2024.

Asset Based Credit Facility & Term Loan Facilities

On August 3, 2011, Restoration Hardware, Inc.

1 unchanged sentence

On June 28, 2017, RHI entered into the Eleventh Amended and Restated Credit Agreement (as amended prior to July 29, 2021, the “11 th A&R Credit Agreement”) by and among RHI, Restoration Hardware Canada, Inc., certain other subsidiaries of RH named therein as borrowers or guarantors, the lenders party thereto and the ABL Agent, which amended and restated the Original Credit Agreement.

FINANCIAL INFORMATION

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On July 29, 2021, RHI entered into the Twelfth Amended and Restated Credit Agreement (as amended, the “ABL Credit Agreement”) by and among RHI, Restoration Hardware Canada, Inc., certain other subsidiaries of RH named therein as borrowers or guarantors, the lenders party thereto and the ABL Agent, which amended and restated the 11 th A&R Credit Agreement.

5 unchanged sentences

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.

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).

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.

2 unchanged sentences

The ABL Credit Agreement contains various restrictive and affirmative covenants, including required financial reporting, limitations on granting certain liens, limitations on making certain loans or investments, limitations on incurring additional debt, restricted payment limitations limiting the payment of dividends and certain other transactions and distributions, limitations on transactions with affiliates, along with other restrictions and limitations similar to those frequently found in credit agreements of a similar type and size.

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FINANCIAL INFORMATION

The ABL Credit Agreement does not contain any significant financial ratio covenants or coverage ratio covenants other than a consolidated fixed charge coverage ratio (“FCCR”) covenant based on the ratio of (i) consolidated EBITDA to the amount of (ii) debt service costs plus certain other amounts, including dividends and distributions and prepayments of debt as defined in the ABL Credit Agreement (the “FCCR Covenant”).

1 unchanged sentence

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

As of October 28, 2023, RHI was in compliance with the FCCR Covenant.

As of May 4, 2024, 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 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.

As of May 4, 2024, the amount available for borrowing under the revolving line of credit under the ABL Credit Agreement was $ 454 million, net of $ 46 million in outstanding letters of credit.

FINANCIAL INFORMATION

2024 FIRST QUARTER FORM 10-Q | 20

Term Loan Credit Agreement

2 unchanged sentences

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.

LIBOR is 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.

3 unchanged sentences

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 %.

The Term Loan B-2 bears interest at an annual rate based on 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.

FINANCIAL INFORMATION

2023 THIRD QUARTER FORM 10-Q | 27

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

7 unchanged sentences

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.

FINANCIAL INFORMATION

2024 FIRST QUARTER FORM 10-Q | 21

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:

Amounts reported as cash and equivalents, receivables, and accounts payable and accrued expenses approximate fair value due to the short-term nature of activity within these accounts.

The estimated fair value of the asset based credit facility approximates cost as the interest rate associated with the facility is variable and resets frequently (Level 2).

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

(in thousands)

Convertible senior notes due 2024

Term loan B-2

Real estate loans

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

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

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

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FINANCIAL INFORMATION

The fair value of each of the 2023 Notes and 2024 Notes was determined based on inputs that are observable in the market or that could be derived from, or corroborated with, observable market data, including the trading price of our convertible notes, when available, our stock price and interest rates based on similar debt issued by parties with credit ratings similar to ours (Level 2).

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

The real estate loans represent the outstanding principal balance and exclude debt issuance costs.

The fair value of the 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).

As of May 4, 2024, the fair values of the Term Loan B and Term Loan B-2 were derived from observable bid prices (Level 1).

As of February 3, 2024, the fair values of the Term Loan B and Term Loan B-2 were derived from discounted cash flows using risk-adjusted rates (Level 2).

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

NOTE 12—INCOME TAXES

1 unchanged sentence

THREE MONTHS ENDED

NINE MONTHS ENDED

(dollars in thousands)

1 unchanged sentence

Effective tax rate

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 increase in our effective tax rate for the three months ended May 4, 2024 compared to the three months ended April 29, 2023 is primarily attributable to the net loss in the current period, as well as higher net excess tax benefits from stock-based compensation in the three months ended May 4, 2024 as compared to the three months ended April 29, 2023.

As of May 4, 2024, we had $ 3.2 million of unrecognized tax benefits, of which $ 2.5 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.

As of May 4, 2024, we had $ 0.2 million of exposures related to unrecognized tax benefits that are expected to decrease in the next 12 months.

FINANCIAL INFORMATION

2024 FIRST QUARTER FORM 10-Q | 22

In October 2017, we filed an amended federal tax return claiming a $ 5.4 million refund, however, no income tax benefit was recorded at the time due to the technical nature and amount of the refund claim.

As of May 4, 2024, we are no longer appealing this refund claim and have reversed the receivable and related reserve.

The Organization for Economic Cooperation and Development (“OECD”) proposed model rules to ensure a minimal level of taxation (commonly referred to as Pillar II) and the European Union member states have agreed to implement Pillar II’s proposed global corporate minimum tax rate of 15%.

Many countries are actively considering, have proposed or have enacted, changes to their tax laws based upon the Pillar II proposals, which could increase our tax obligations in countries where we do business or cause us to change the way we operate our business.

To mitigate the administrative burden for multinational enterprises in complying with the OECD Global Anti-Base Erosion rules during the initial years of implementation, the OECD developed the temporary “Transitional Country-by-Country Safe Harbor.” We considered the applicable tax law changes from Pillar II implementation in the relevant countries in which we operate, and there is no material impact to our tax provision for the three months ended May 4, 2024.

We will continue to evaluate the impact of these tax law changes in future reporting periods.

NOTE 13—NET INCOME (LOSS) PER SHARE

1 unchanged sentence

THREE MONTHS ENDED

NINE MONTHS ENDED

Weighted-average shares—basic

2 unchanged sentences

Weighted-average shares—diluted

(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 .

FINANCIAL INFORMATION

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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:

(1) As we reported a net loss for the three months ended May 4, 2024, the weighted-average shares outstanding for basic and diluted are the same for the corresponding period.

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

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Restricted stock units

Convertible senior notes

NOTE 14—SHARE REPURCHASE PROGRAM AND SHARE RETIREMENT

Share Repurchase Program

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NOTE 14—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.

We did not repurchase any shares of our common stock under the Share Repurchase Program during the three months ended May 4, 2024.

As of May 4, 2024, $ 201 million remains available for future share repurchases under this program.

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.

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FINANCIAL INFORMATION

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.

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

The Restoration Hardware 2012 Stock Option Plan (the “Option Plan”) was adopted on November 1, 2012.

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.

As of May 4, 2024, there were a total of 2,200,469 shares issuable under the 2023 Stock Incentive Plan.

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.

Cancellations and forfeitures of awards previously granted under the Plans 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:

Stock Options Under the Plans

A summary of options outstanding, vested or expected to vest, and exercisable as of May 4, 2024 was as follows:

REMAINING TERM

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(in thousands)

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Friedman an option to purchase 700,000 shares of our common stock with an exercise price equal to $ 385.30 per share under the 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.

The option will result in aggregate non-cash stock compensation expense of $ 174 million, of which $ 1.9 million and $ 3.5 million was recognized during the three months ended May 4, 2024 and April 29, 2023, respectively.

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

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As of October 28, 2023, the total unrecognized compensation expense and weighted average remaining term was as follows:

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As of May 4, 2024, the total unrecognized compensation expense and weighted average remaining term was as follows:

REMAINING TERM

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Unvested restricted stock and restricted stock units

(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 .

(1) Excludes the remaining unrecognized compensation expense of $ 3.4 million related to the fully vested option grant made to Mr.

Friedman in October 2020, which will be recognized on an accelerated basis through May 2025.

NOTE 16—COMMITMENTS AND CONTINGENCIES

We had no material off balance sheet commitments as of October 28, 2023.

We had no material off-balance sheet commitments as of May 4, 2024.

Contingencies

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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.

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FINANCIAL INFORMATION

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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.

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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 Real Estate segment represents operations associated with certain of our equity method investments and consolidated variable interest entities that are non-wholly-owned subsidiaries and have operations that are not directly related to RH’s operations.

The retail operating segments are strategic business units that offer products for the home furnishings customer.

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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.

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

Segment operating income excludes (i) favorable legal settlements, (ii) non-cash compensation amortization related to an option grant made to Mr.

Friedman in October 2020 and (iii) severance costs associated with a reorganization.

These items are excluded from segment operating income in order to provide better transparency of segment operating results.

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FINANCIAL INFORMATION

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

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The following table presents segment operating income and a reconciliation to income from operations and income (loss) before income taxes and equity method investments :

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(in thousands)

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Total segment operating income

Legal settlements

Reorganization related costs

Legal settlements—net

Non-cash compensation

Asset impairments

Recall accrual

Employer payroll taxes on option exercise

Professional fees

Compensation settlements

Gain on sale of building and land

Reorganization related costs

Income from operations

Interest expense—net

Loss on extinguishment of debt

Other expense—net

Other (income) expense—net

Income (loss) before income taxes and equity method investments

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 :

The following table presents selected statements of income (loss) metrics for our segments, including disaggregated net revenues:

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Depreciation and amortization

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In the three months ended May 4, 2024 and April 29, 2023, the Real Estate segment share of equity method investments loss were $ 2.8 million and $ 1.6 million, respectively.

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

FINANCIAL INFORMATION

NINE MONTHS ENDED

(in thousands)

Depreciation and amortization

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 :

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The following table presents selected balance sheet metrics for our segments:

(in thousands)

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(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.

(3) The Waterworks segment balance represents membership interests in two European entities, whereby we hold a 50 percent membership interest in one entity and an approximately 25 percent membership interest in the other, and we are not the primary beneficiary of these VIEs.

We sell furniture and non-furniture products.

Furniture includes both indoor and outdoor furniture.

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

As of 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.

As of May 4, 2024, we operated four retail locations and one outlet in Canada, two retail locations and one outlet in the United Kingdom, two retail locations in Germany and one retail location in Belgium.

Geographic revenues in Canada, the United Kingdom, Germany and Belgium are based upon revenues recognized at the retail locations in the respective country and were not material in either fiscal period presented.

FINANCIAL INFORMATION

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

What changed 10-Q

Item 1. Financial Statements