Rent the Runway(US:RENT)2024-06-06 21:23Part I - Financial Information Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements, including Balance Sheets, Statements of Operations, and Cash Flows, reflecting a total revenue of $75.0 million and a net loss of $(22.0) million Condensed Consolidated Statements of Operations (in millions) | Metric | Three Months Ended April 30, 2024 | Three Months Ended April 30, 2023 | | :--- | :--- | :--- | | Total revenue, net | $75.0 | $74.2 | | Total costs and expenses | $91.5 | $95.5 | | Operating loss | $(16.5) | $(21.3) | | Net loss | $(22.0) | $(30.1) | | Net loss per share, basic and diluted | $(6.03) | $(9.14) | Condensed Consolidated Balance Sheet Highlights (in millions) | Metric | April 30, 2024 | January 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $82.0 | $84.0 | | Total assets | $278.4 | $278.5 | | Long-term debt, net | $313.1 | $306.7 | | Total liabilities | $419.7 | $400.8 | | Total stockholders' equity (deficit) | $(141.3) | $(122.3) | Condensed Consolidated Statements of Cash Flows (in millions) | Metric | Three Months Ended April 30, 2024 | Three Months Ended April 30, 2023 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $4.6 | $(3.3) | | Net cash used in investing activities | $(6.0) | $(8.8) | | Net cash used in financing activities | $(0.6) | $(0.1) | | Net decrease in cash | $(2.0) | $(12.2) | - A 1-for-20 reverse stock split of Class A and Class B common stock became effective on April 2, 2024, with all share and per-share amounts retroactively adjusted to reflect this split3896 Notes to Condensed Consolidated Financial Statements These notes detail accounting policies, business operations, liquidity, restructuring, and legal proceedings, including the impact of a 1-for-20 reverse stock split - The company generates revenue in the United States primarily from rental subscription fees and a-la-carte rentals, with a portion from selling apparel and accessories32 - The company has a history of net losses and relies on debt and equity financing, with management believing existing cash and operational cash flow will be sufficient for at least the next twelve months, aided by restructuring savings and debt amendments7174 - In January 2024, the company initiated a restructuring plan, including a 10% reduction in corporate workforce, expected to generate approximately $12 million in annual operating expense savings, recognizing $0.2 million in restructuring charges in Q1 20247576 - A putative class action lawsuit was filed against the company, its officers, directors, and IPO underwriters, alleging violations of the Securities Act, which the company is vigorously defending and believes liability is not probable119 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2024 financial results, highlighting a slight revenue increase to $75.0 million, improved net loss to $(22.0) million, and increased Adjusted EBITDA to $6.5 million, alongside strategic initiatives and liquidity Key Operating and Financial Results (in millions, except subscribers) | Metric | Three Months Ended April 30, 2024 | Three Months Ended April 30, 2023 | | :--- | :--- | :--- | | Revenue | $75.0 | $74.2 | | Ending Active Subscribers | 145,837 | 145,220 | | Gross Profit | $28.4 | $31.4 | | Net Loss | $(22.0) | $(30.1) | | Adjusted EBITDA | $6.5 | $4.5 | - The January 2024 restructuring plan is expected to generate approximately $12 million in annual operating expense savings, primarily from a 10% reduction in corporate employees124127 - The company's product acquisition strategy is shifting towards more capital-efficient channels, with 61% of new items acquired through Share by RTR (consignment) and Exclusive Designs in fiscal 2023, up from 58% in fiscal 2022135143 - The company expects to achieve break-even cash flow from operations plus investing activities in fiscal year 2024, supported by restructuring actions and reduced rental product spending203 Results of Operations Total revenue increased by 1.1% to $75.0 million, driven by product sales, while total costs decreased by 4.2% to $91.5 million, leading to an improved net loss of $(22.0) million Comparison of Costs and Expenses (in millions) | Expense Category | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | Fulfillment | $20.6 | $21.9 | (5.9)% | | Technology | $9.6 | $13.1 | (26.7)% | | Marketing | $9.0 | $9.3 | (3.2)% | | General and administrative | $22.8 | $26.5 | (14.0)% | | Rental product depreciation and revenue share | $26.0 | $20.9 | 24.4% | - The decrease in Technology and G&A expenses was primarily driven by cost savings from the January 2024 restructuring plan and lower share-based compensation expense184188 - The increase in Rental product depreciation and revenue share was driven by a higher base of rental product, more units acquired through the Share by RTR model, and an increase in Other revenue (product sales)190 Non-GAAP Financial Metrics Adjusted EBITDA increased to $6.5 million from $4.5 million, with the Adjusted EBITDA Margin improving to 8.7%, reflecting lower fulfillment costs and fixed cost reductions Reconciliation of Net Loss to Adjusted EBITDA (in millions) | Reconciliation Item | Three Months Ended April 30, 2024 | Three Months Ended April 30, 2023 | | :--- | :--- | :--- | | Net loss | $(22.0) | $(30.1) | | Interest (income) / expense, net | $5.6 | $8.8 | | Rental product depreciation | $14.9 | $12.1 | | Other depreciation and amortization | $3.3 | $3.8 | | Share-based compensation | $3.0 | $8.8 | | Write-off of liquidated assets | $1.6 | $1.0 | | Restructuring charges | $0.2 | $— | | Other (income) / expense, net | $(0.1) | $— | | Other (gains) / losses | $— | $0.1 | | Adjusted EBITDA | $6.5 | $4.5 | Liquidity and Capital Resources The company held $82.0 million in cash, supported by the 2023 Amended Temasek Facility, and filed a $40 million shelf registration for future financing flexibility - The company had $82.0 million in cash and cash equivalents and $10.0 million in restricted cash as of April 30, 2024199 - The 2023 Amended Temasek Facility eliminated all interest payments for six fiscal quarters starting Q4 2023, reduced the minimum liquidity covenant from $50 million to $30 million, and set spending caps for fiscal 2024202 - On May 28, 2024, the company filed a shelf registration statement on Form S-3, allowing it to offer up to $40 million in securities to provide future capital flexibility205 - Combined cash used in operating and investing activities was $(1.4) million for Q1 2024, a significant improvement from $(12.1) million in Q1 2023, primarily due to better working capital, higher Adjusted EBITDA, and lower rental product purchases208 Quantitative and Qualitative Disclosures About Market Risk No material changes to quantitative and qualitative market risk disclosures were reported for the three months ended April 30, 2024, compared to the prior fiscal year Controls and Procedures Management concluded that disclosure controls and procedures were ineffective as of April 30, 2024, due to ongoing material weaknesses in internal control over financial reporting, with remediation efforts underway - Management concluded that disclosure controls and procedures were not effective as of April 30, 2024, due to previously identified material weaknesses221 - The material weaknesses include: insufficient evidence of the operation of controls for financial reporting; ineffective controls over segregation of duties and journal entry reviews; and ineffective IT general controls related to program change management, user access, computer operations, and program development224225 - Remediation efforts are in progress, including formalizing control policies, improving segregation of duties, and implementing stronger IT general controls, though the timing for full remediation is uncertain228229230 Part II - Other Information Legal Proceedings This section details an ongoing putative class action lawsuit alleging Securities Act violations related to the company's IPO, which the company is vigorously defending - A putative class action lawsuit, Rajat Sharma v. Rent the Runway, Inc., et al., alleges violations of the Securities Act of 1933 related to the company's IPO119 - The company filed a motion to dismiss the amended complaint, which was fully submitted on February 23, 2024, and remains pending, with the company intending to defend itself vigorously119 Risk Factors This section outlines various risks, including business, operational, financial, and ownership-related factors, that could materially impact the company's performance and financial condition - Business Risks: The company faces challenges in managing growth, competing in the fashion industry, attracting and retaining customers, and achieving profitability due to a history of net losses236241255 - Operational Risks: Heavy reliance on proprietary technology, third-party shipping, and fulfillment centers exposes the company to risks of system outages, logistics disruptions, and supply chain issues263280 - Financial Risks: The company has significant indebtedness with restrictive covenants, including a minimum liquidity requirement and spending caps, and has identified material weaknesses in its internal control over financial reporting that are yet to be remediated318320 - Ownership Risks: A dual-class stock structure concentrates voting power with pre-IPO stockholders, including the CEO, and the stock price has been volatile, with the company having faced and regained compliance with Nasdaq's minimum bid price and market value rules406409413 Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the reporting period Other Information Several executive officers, including the CEO and CFO, adopted Rule 10b5-1 trading plans in April 2024 for Class A common stock sales, primarily for tax obligations or personal financial management - CEO Jennifer Hyman adopted a Rule 10b5-1 trading plan on April 24, 2024, for the sale of up to 33,986 shares of Class A common stock434 - CFO Siddharth Thacker adopted a Rule 10b5-1 trading plan on April 30, 2024, for the sale of shares to cover tax withholding on vesting RSUs and for other sales435 - Other executives, including the Chief Marketing Officer, Chief Legal & Administrative Officer, and SVP of Product, also adopted Rule 10b5-1 trading plans in April 2024433436 Exhibits This section lists exhibits filed with the Quarterly Report on Form 10-Q, including corporate documents, CEO and CFO certifications, and XBRL data files