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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________
FORM 10-Q
____________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to ________
Commission file number 001-40958
____________________________
RENT THE RUNWAY, INC.
____________________________
(Exact name of registrant as specified in its charter)
Delaware
80-0376379
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
10 Jay Street
Brooklyn, New York 11201
11201
(Address of Principal Executive Offices)
(Zip Code)
(212) 524-6860
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
____________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A common stock, par value $0.001 per shareRENTThe Nasdaq Stock Market LLC
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
1


Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes     No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer  
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes        No 
The registrant had outstanding 61,028,051 shares of Class A common stock and 3,045,917 shares of Class B common stock as of June 6, 2022.
2


Table of Contents
Page
Part I
Part II
Unless the context otherwise requires, we use the terms the “Company,” “RTR,” “Rent the Runway,” “we,” “us” and “our” in this Quarterly Report on Form 10-Q, or Quarterly Report, to refer to Rent the Runway, Inc. and, where appropriate, our consolidated subsidiaries.
1


Risk Factor Summary
Investing in our Class A common stock involves numerous risks, including the risks described in Part II, Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q. You should carefully consider these risks before making an investment. Below are some of these risks, any one of which could materially adversely affect our business, financial condition, results of operations, and prospects.
We have grown rapidly in recent years and have limited experience at our current scale of operations. If we are unable to manage our growth effectively, our brand, company culture, and financial performance may suffer.
The COVID-19 pandemic has had, and may in the future continue to have, a material adverse impact on our business.
The global fashion industry is highly competitive and rapidly changing, and we may not be able to compete effectively.
Our continued growth depends on our ability to attract new, and retain existing, customers, which may require significant investment in paid marketing channels. If we are unable to cost-effectively grow our customer base, our business, financial condition and results of operations would be harmed.
If we fail to retain customers, our business, financial condition, and results of operations would be harmed.
If we are unable to accurately forecast customer demand, manage our products effectively and plan for future expenses, our operating results could be adversely affected.
We rely heavily on the effective operation of our proprietary technology systems and software, as well as those of our third-party vendors and service providers, for our business to effectively operate and to safeguard confidential information.
Shipping and logistics are a critical part of our business and our supply chain and any changes or interruptions in shipping or logistics operations could adversely affect our operating results.
We have identified material weaknesses in our internal control over financial reporting. If we are unable to remediate the material weaknesses in a timely manner, identify additional material weaknesses in the future or otherwise fail to maintain effective internal control over financial reporting, which may result in material misstatements of our condensed consolidated financial statements or cause us to fail to meet our periodic reporting obligations, our ability to comply with applicable laws and regulations and our access to the capital markets to be impaired.
Our business is subject to a large number of U.S. and non-U.S. laws and regulations, many of which are evolving.
We are subject to U.S. and certain foreign export and import controls, sanctions, embargoes, anti-corruption laws, and anti-money laundering laws and regulations. Compliance with these legal standards could impair our ability to compete in domestic and international markets, and we could face criminal liability and other serious consequences for violations, which could harm our business.
Failure to adequately maintain and protect our intellectual property and proprietary rights could harm our brand, devalue our proprietary content, and adversely affect our ability to compete effectively.
We are subject to rapidly changing and increasingly stringent laws and industry standards relating to data privacy, data security, data protection, and consumer protection. The restrictions and costs imposed by these laws, or our actual or perceived failure to comply with them, could subject us to liabilities that adversely affect our business, operations, and financial performance.
We face risks associated with brand partners from whom our products are sourced or co-manufactured.
We rely on third parties for elements of the payment processing infrastructure underlying our business. If these third-party elements become unavailable or unavailable on favorable terms, our business could be adversely affected.
We depend on search engines, social media platforms, mobile application stores, content-based online advertising and other online sources to attract consumers to and promote our website and our mobile application, which may be affected by third-party interference beyond our control and as we grow our customer acquisition costs will continue to rise.
1


Any failure by us, our brand partners, or our third-party manufacturers to comply with our vendor code of conduct, product safety, labor, or other laws, or to provide safe factory conditions for their workers, may damage our reputation and brand, and harm our business.
The dual class structure of our common stock has the effect of concentrating voting control with those stockholders who held our capital stock prior to the listing of our Class A common stock on Nasdaq, including our Co-Founders, and their affiliates, which will limit the ability to influence the outcome of important transactions, including a change of control.
Our share price may be volatile, and investors may be unable to sell their shares at or above the price they purchased them.
If we are unable to adequately address these and other risks we face, our business may be harmed.

2


FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical fact contained in this Quarterly Report may be forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “targets,” “projects,” “contemplates,” “believes,” “estimates,” “forecasts,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. Forward-looking statements contained in this Quarterly Report include, but are not limited to statements regarding our future results of operations and financial position, industry and business trends, share-based compensation, business strategy and initiatives, plans, our Impact Strategy and related goals, product acquisition expectations, market growth and our objectives for future operations.

The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. Forward-looking statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including, but not limited to, the important factors discussed in Part II, Item 1A, “Risk Factors” in this Quarterly Report for the quarter ended April 30, 2022. The forward-looking statements in this Quarterly Report are based upon information available to us as of the date of this Quarterly Report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report and have filed as exhibits to this Quarterly Report with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. These forward-looking statements speak only as of the date of this Quarterly Report. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained in this Quarterly Report, whether as a result of any new information, future events or otherwise.



3


Part I - Financial Information
Item 1. Financial Statements
Page
Notes to Condensed Consolidated Financial Statements








4

Table of Contents
RENT THE RUNWAY, INC.
Condensed Consolidated Balance Sheets
(In millions, except share and per share amounts, unaudited)
April 30,January 31,
20222022
Assets
Current assets:
Cash and cash equivalents
$219.0 $247.6 
Restricted cash, current
5.0 5.4 
Prepaid expenses and other current assets
10.8 11.7 
Total current assets
234.8 264.7 
Restricted cash
5.8 6.6 
Rental product, net
81.7 76.3 
Fixed assets, net
54.0 57.2 
Intangible assets, net
6.2 6.4 
Operating lease right-of-use assets
29.0 31.5 
Other assets
4.5 4.8 
Total assets
$416.0 $447.5 
Liabilities, Redeemable Preferred Stock and Stockholders’ Equity (Deficit)
Current liabilities:
Accounts payable
$23.4 $15.9 
Accrued expenses and other current liabilities
26.1 30.0 
Deferred revenue
13.6 10.4 
Customer credit liabilities
6.7 6.9 
Operating lease liabilities
5.1 5.6 
Total current liabilities
74.9 68.8 
Long-term debt, net
265.2 260.8 
Operating lease liabilities
41.4 46.4 
Other liabilities
0.4 0.4 
Total liabilities
381.9 376.4 
Commitments and Contingencies (Note 14)
Redeemable preferred stock, $0.001 par value; 0 shares authorized as of April 30, 2022 and January 31, 2022; 0 shares issued and outstanding as of April 30, 2022 and January 31, 2022; liquidation preference of $0.0 million as of April 30, 2022 and January 31, 2022
  
Stockholders’ equity (deficit)
Class A common stock, $0.001 par value; 300,000,000 shares authorized as of April 30, 2022 and January 31, 2022; 60,895,080 and 60,104,058 shares issued and outstanding as of April 30, 2022 and January 31, 2022, respectively
0.1 0.1 
Class B common stock, $0.001 par value; 50,000,000 shares authorized as of April 30, 2022 and January 31, 2022; 3,035,822 and 2,932,739 shares issued and outstanding as of April 30, 2022 and January 31, 2022, respectively
  
Preferred stock, $0.001 par value; 10,000,000 shares authorized as of April 30, 2022 and January 31, 2022; 0 shares issued and outstanding as of April 30, 2022 and January 31, 2022
  
Additional paid-in capital
877.7 872.2 
Accumulated deficit
(843.7)(801.2)
Total stockholders’ equity (deficit)
34.1 71.1 
Total liabilities, redeemable preferred stock and stockholders’ equity (deficit)
$416.0 $447.5 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5

Table of Contents
RENT THE RUNWAY, INC.
Condensed Consolidated Statements of Operations
(In millions, except share and per share amounts, unaudited)
Three Months Ended April 30,
20222021
Revenue:
Subscription and Reserve rental revenue
$61.4 $29.8 
Other revenue
5.7 3.7 
Total revenue, net
67.1 33.5 
Costs and expenses:
Fulfillment
22.9 8.8 
Technology
13.6 9.7 
Marketing
8.7 2.6 
General and administrative
29.2 19.0 
Rental product depreciation and revenue share
21.7 16.6 
Other depreciation and amortization
4.2 5.1 
Total costs and expenses
100.3 61.8 
Operating loss
(33.2)(28.3)
Interest income / (expense), net
(9.3)(14.5)
Gain / (loss) on warrant liability revaluation, net
 0.5 
Net loss before income tax benefit / (expense)
(42.5)(42.3)
Income tax benefit / (expense)
  
Net loss
$(42.5)$(42.3)
Net loss per share attributable to common stockholders, basic and diluted
$(0.67)$(3.75)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted
63,431,165 11,287,251 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6

Table of Contents
RENT THE RUNWAY, INC.
Condensed Consolidated Statements of Changes in Redeemable Preferred Stock and Stockholders’ Equity (Deficit)
(In millions, except share amounts, unaudited)
Redeemable
Preferred Stock
Common StockAdditional
Paid-in
Capital
Accumulated
Deficit
Total
Stockholders’
Equity (Deficit)
SharesAmountSharesAmount
Balances as of January 31, 2022 $ 63,036,797 $0.1 $872.2 $(801.2)$71.1 
Stock issued under stock incentive plan— — 894,105 — — —  
Share-based compensation expense — — — — 5.5 — 5.5 
Net loss — — — — — (42.5)(42.5)
Balances as of April 30, 2022 $ 63,930,902 $0.1 $877.7 $(843.7)$34.1 
Balances as of January 31, 202131,137,921 $388.1 10,456,521 $ $62.7 $(589.4)$(526.7)
Issuance of redeemable preferred stock 1,157,398 17.1 — — — — — 
Stock issued under stock incentive plan — — 261,972 — 1.3 — 1.3 
Share-based compensation expense — — — — 1.9 — 1.9 
Net loss — — — — — (42.3)(42.3)
Balances as of April 30, 202132,295,319 $405.2 10,718,493 $ $65.9 $(631.7)$(565.8)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

7

Table of Contents

RENT THE RUNWAY, INC.
Condensed Consolidated Statements of Cash Flows
(In millions, unaudited) 
Three Months Ended
April 30,
20222021
OPERATING ACTIVITIES
Net loss
$(42.5)$(42.3)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Rental product depreciation and write-offs
12.3 11.0 
Write-off of rental product sold
1.3 1.7 
Other depreciation and amortization
4.2 5.1 
(Gain) / loss from write-off of fixed assets1.9  
Proceeds from rental product sold
(4.0)(2.8)
(Gain) / loss from liquidation of rental product
 (0.2)
Accrual of paid-in-kind interest
3.4 11.2 
Amortization of debt discount
1.0 2.2 
Share-based compensation expense
5.5 1.9 
Remeasurement of warrant liability
 (0.5)
Changes in operating assets and liabilities:
Prepaid expenses and other current assets
0.9 (0.5)
Operating lease right-of-use assets
2.5 0.8 
Other assets
0.3 (1.2)
Accounts payable, accrued expenses and other current liabilities
(1.8)2.9 
Deferred revenue and customer credit liabilities
3.0 2.7 
Operating lease liabilities
(5.5)(1.1)
Other liabilities
0.1 0.1 
Net cash (used in) provided by operating activities
(17.4)(9.0)
INVESTING ACTIVITIES
Purchases of rental product
(13.4)(4.4)
Proceeds from liquidation of rental product
0.6 1.6 
Proceeds from sale of rental product
4.0 2.8 
Purchases of fixed and intangible assets
(2.0)(1.3)
Net cash (used in) provided by investing activities
(10.8)(1.3)
FINANCING ACTIVITIES
Proceeds from issuance of redeemable preferred stock
 17.1 
Proceeds from exercise of stock options under stock incentive plan
 1.3 
Principal repayments on long-term debt
 (0.4)
Other financing payments(1.6)(0.1)
Net cash (used in) provided by financing activities
(1.6)17.9 
Net increase in cash and cash equivalents and restricted cash
(29.8)7.6 
Cash and cash equivalents and restricted cash at beginning of period
259.6 109.2 
Cash and cash equivalents and restricted cash at end of period
$229.8 $116.8 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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RENT THE RUNWAY, INC.
Condensed Consolidated Statements of Cash Flows
(In millions, unaudited) 
Three Months Ended
April 30,
20222021
Reconciliation of Cash and Cash Equivalents and Restricted Cash to the Condensed Consolidated Balance Sheets:
Cash and cash equivalents
$219.0 $103.8 
Restricted cash, current
5.0 2.9 
Restricted cash, noncurrent
5.8 10.1 
Total cash and cash equivalents and restricted cash
$229.8 $116.8 
Supplemental Cash Flow Information:
Cash payments (receipts) for:
Fixed operating leases payments (reimbursements), net $3.7 $3.6 
Fixed assets and intangibles received in the prior period0.8 0.5 
Rental product received in the prior period6.5 3.6 
Non-cash financing and investing activities:
Financing leases right-of-use asset amortization$0.1 $0.1 
ROU assets obtained in exchange for lease liabilities0.1 0.2 
Purchases of fixed assets and intangibles not yet settled1.5 0.6 
Purchases of rental product not yet settled12.7 3.5 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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RENT THE RUNWAY, INC.
Notes to Condensed Consolidated Financial Statements
(Dollars in millions, except share and per share amounts)
1.Business
Description of Business
Rent the Runway, Inc.’s (the “Company”) mission is to power women to feel their best every day. Launched in November 2009, the Company has built the world’s first and largest shared designer closet with over 20,000 styles by over 800 brand partners. The Company gives customers access to its “unlimited closet” through its subscription offering (“Subscription”) or the ability to rent a-la-carte through its reserve offering (“Reserve”). The Company’s corporate headquarters is located in Brooklyn, New York and the operational facilities are located in Secaucus, New Jersey, and Arlington, Texas. Its wholly-owned subsidiary, Rent the Runway Limited (the “Subsidiary”), is located in Galway, Ireland, and is focused on software development and support activities.
All revenue is currently generated in the United States. Substantially all revenue is derived from rental subscription fees and a-la-carte rental fees, with a portion derived from the sale of apparel and accessories and other fees.
2.Summary of Significant Accounting Policies
Basis of Presentation
The condensed consolidated financial statements include the accounts of the Company and its Subsidiary. All intercompany accounts and transactions have been eliminated in consolidation. The Company’s condensed consolidated financial statements were prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). Certain amounts in the financial statements have been reclassified to conform to the current presentation.
The unaudited interim condensed consolidated financial statements and related disclosures have been prepared by management on a basis consistent with the annual consolidated financial statements and, in the opinion of management, include all adjustments necessary for a fair statement of the results for the interim periods presented.
The results for the three months ended April 30, 2022 are not necessarily indicative of the operating results expected for the year ended January 31, 2023 or any future period. Certain information and notes normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted under the Securities and Exchange Commission’s (the “SEC”) rules and regulations. Accordingly, the unaudited condensed consolidated financial statements and notes included herein should be read in conjunction with the Company’s audited consolidated financial statements and notes for the year ended January 31, 2022, which can be found in the Company’s Annual Report on Form 10-K filed with the SEC on April 14, 2022.
Fiscal Year
The Company operates on a fiscal calendar ending January 31. All references to fiscal year 2020 reflect the results of the 12-month period ending January 31, 2021. All references to fiscal year 2021 reflect the results of the 12-month period ending January 31, 2022. All references to fiscal year 2022 reflect the results of the 12-month period ending January 31, 2023.
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RENT THE RUNWAY, INC.
Notes to Condensed Consolidated Financial Statements
(Dollars in millions, except share and per share amounts)
Segment Information
Operating segments are defined as components of an entity for which discrete financial information is available that is regularly reviewed by the chief operating decision maker (“CODM”) in deciding how to allocate resources and in assessing performance. The Company’s Chief Executive Officer is the Company’s CODM. The Company has one operating and reportable segment as the CODM reviews financial information on a consolidated basis for purposes of making operating decisions, allocating resources, and evaluating financial performance. All revenue is attributed to customers based in the United States and substantially all the Company’s long-lived assets are located in the United States.
Initial Public Offering
On October 27, 2021, the Company completed its initial public offering (“IPO”) and the Company’s Class A common stock began public trading on the Nasdaq Stock Market LLC under the symbol “RENT”. In connection with the IPO, the Company issued and sold 17,000,000 shares of its Class A common stock at a public offering price of $21.00 per share. The Company received proceeds of $327.3 million from the IPO which are net of underwriting discounts of $24.1 million and offering costs paid by the Company of $5.6 million. Offering costs, including legal, accounting, printing and other costs directly related to the IPO have been recorded in Additional paid-in capital against the proceeds from the IPO on the Company’s condensed consolidated balance sheet.

At the closing of the IPO, the Company’s then outstanding redeemable preferred stock converted into 32,575,462 shares of the Company’s Class A common stock.

In connection with the IPO, the Company adopted an amended and restated certificate of incorporation (the “amended charter”) and adopted amended and restated bylaws (the “amended bylaws”). The amended charter authorized capital stock consisting of:
300,000,000 shares of Class A common stock, par value $0.001 per share;
50,000,000 shares of Class B common stock, par value $0.001 per share; and
10,000,000 shares of preferred stock, par value $0.001 per share.

Holders of Class A common stock are entitled to one vote per share, and the holders of Class B common stock are entitled to twenty votes per share. Immediately after the effectiveness of the amended charter, 2,932,739 shares of Class A common stock held by the Company’s co-founders were exchanged for an equivalent number of shares of Class B common stock. In addition, the terms of certain outstanding equity awards held by the Company’s co-founders were modified to provide that such awards are exercisable or settle into shares of Class B common stock.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. The Company bases its estimates on historical experience, market conditions, and on various other assumptions that are believed to be reasonable. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include the useful life and salvage value of rental product, incremental borrowing rate (“IBR”) to determine lease liabilities, and the valuation of share-based compensation and warrants.
As of April 30, 2022, the effects of the ongoing COVID-19 pandemic on the Company’s business, results of operations, and financial condition continue to evolve. As a result, many of the Company’s estimates and assumptions required increased judgment and carry a higher degree of variability and volatility. As additional information becomes available, the Company’s estimates may change materially in future periods.
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RENT THE RUNWAY, INC.
Notes to Condensed Consolidated Financial Statements
(Dollars in millions, except share and per share amounts)
Concentrations of Credit Risks
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents. The Company places its cash investments with high credit quality financial institutions. The Company believes no significant credit risk exists with respect to these financial instruments.
No single customer accounted for more than 5% of the Company’s revenue during the three months ended April 30, 2022 and 2021.
Fair Value Measurements and Financial Instruments
Fair value accounting is applied for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the condensed consolidated financial statements on a recurring basis, at least annually. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. 
Assets and liabilities recorded at fair value in the condensed consolidated financial statements are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels, which are directly related to the amount of subjectivity, associated with the inputs to the valuation of these assets or liabilities, are as follows:
Level 1:    Observable inputs, such as quoted prices in active markets for identical assets and liabilities.
Level 2:    Inputs other than the quoted prices in active markets that are observable either directly or indirectly.
Level 3:    Unobservable inputs, in which there is little or no market data which require the Company to develop its own assumptions.
Observable inputs are based on market data obtained from independent sources. Unobservable inputs reflect the Company’s assessment of the assumptions market participants would use to value certain financial instruments. This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. The categorization of financial instruments within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
Rental Product, Net
The Company considers rental product to be a long-term productive asset and, as such, classifies it as a noncurrent asset on the condensed consolidated balance sheets.
Rental product is stated at cost, less accumulated depreciation. The Company depreciates rental product, less an estimated salvage value, over the estimated useful lives of the assets using the straight-line method. The useful life is determined based on historical trends and an assessment of any future changes. The salvage value considers the historical trends and projected liquidation proceeds for the assets. The estimated useful lives and salvage values are described below: 
 Useful LifeSalvage Value
Apparel
3 years20 %
Accessories
2 years30 %
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RENT THE RUNWAY, INC.
Notes to Condensed Consolidated Financial Statements
(Dollars in millions, except share and per share amounts)
In accordance with its policy, the Company reviews the estimated useful lives and salvage values of rental product on an ongoing basis.
The Company offers its customers an opportunity to purchase items prior to the end of their useful life. In such instances, the Company considers the disposal of rental product to be a sale and, as such, records the proceeds as other revenue and the net book value of the items at the time of sale as rental product depreciation in the condensed consolidated statements of operations within rental product depreciation and revenue share. Write-offs for losses on lost, damaged, and unreturned apparel and accessories are also recorded within rental product depreciation and revenue share.
Once it is no longer considered rentable, rental product in a sellable condition is classified as held for sale and written down to salvage value. The value of rental product held for sale as of April 30, 2022 and January 31, 2022 was $2.8 million and $2.1 million, respectively. The accelerated depreciation related to rental product held for sale was $1.4 million and $0.6 million for the three months ended April 30, 2022 and 2021, respectively. The accelerated depreciation is presented on the condensed consolidated statements of operations within rental product depreciation and revenue share.
The purchases of rental product, as well as the proceeds from the sale and liquidation of rental product, are classified as cash flows from investing activities on the condensed consolidated statements of cash flows because the predominant activity of the rental product purchased is to generate rental revenue and such classification is consistent with the classification of long-term asset activity. Proceeds from the sale of rental product were $4.0 million and $2.8 million for the three months ended April 30, 2022 and 2021, respectively.
Revenue Recognition
Subscription and a-la-carte rental fees (“Subscription and Reserve rental revenue”) are recognized in accordance with Accounting Standard Update (“ASU”) 2016-02, Leases, Topic 842 (“ASC 842”). Other revenue, primarily related to the sale of rental product, is recognized under ASU 2014-09, Revenue from Contracts with Customers, Topic 606 (“ASC 606”) at the date of delivery of the product to the customer. Other revenue represented 8% and 11% of total revenue for the three months ended April 30, 2022 and 2021, respectively.
Revenue is presented net of promotional discounts, customer credits and refunds. Promotional discounts are recognized in accordance with either ASC 842 or ASC 606, based on the guidance applied to the rental fees or product sales to which the promotional discounts are related. Revenue is presented net of taxes that are collected from customers and remitted to governmental authorities.

The Company recognizes a liability at the time a customer credit or a gift card is issued, and revenue is recognized upon redemption of the credit or gift card. The Company’s customer credit liability is presented on the condensed consolidated balance sheets. During the three months ended April 30, 2022, $0.9 million of credits included in the customer credit liability as of January 31, 2022 were redeemed. Customer credits and gift cards do not have expiration dates. Over time, a portion of these instruments is not redeemed. The Company recognizes breakage income related to these instruments based on the redemption pattern method. The Company continues to maintain the full liability for the unredeemed portion of the credits and gift cards when the Company has any legal obligation to remit such credits to government authorities in relevant jurisdictions.
Subscription and Reserve Rental Revenue
Subscription fees are recognized ratably over the subscription period, commencing on the date the subscriber enrolls in the rental program. The fees are collected upon enrollment. The subscription automatically renews on a monthly basis until cancelled by the customer. Subscribers can pause or cancel their subscriptions at any time.
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RENT THE RUNWAY, INC.
Notes to Condensed Consolidated Financial Statements
(Dollars in millions, except share and per share amounts)
The Company recognizes fees for a-la-carte rentals ratably over the rental period, which starts with the date of delivery of rental product to the customer. A-la-carte rental orders can be placed up to four months prior to the rental start date and the customer’s payment form is charged upon order confirmation. The Company defers recognizing the fees and any related promotions for a-la-carte rentals until the date of delivery, and then recognizes those fees ratably over the four- or eight-day rental period.
The Company accrues for credits and refunds issued subsequent to the balance sheet date that relate to rentals prior to the balance sheet date. These amounts were not material as of April 30, 2022 and January 31, 2022.

Other Revenue
Other revenue consists primarily of revenue from the sale of rental product. The Company recognizes revenue from the sale of rental product in accordance with ASC 606. Sale of rental product occurs when a customer purchases rental product at a discounted price, calculated as a percentage of retail value. Payment is due upon order confirmation and there is no financing component. The single performance obligation associated with rental product sales is generally satisfied upon delivery of the rental product to the customer. The Company does not have any material contractual receivables, assets, or liabilities with respect to other revenue as of April 30, 2022 and January 31, 2022.
Share-Based Compensation
The Company recognizes all employee share-based compensation as an expense in the condensed consolidated financial statements. Equity classified awards are measured at the grant date fair value of the award. The Company estimates grant date fair value of stock options using the Black-Scholes option pricing model. The fair value of stock options is recognized as compensation expense on a straight-line basis over the requisite service period of the award. Determining the fair value of options at the grant date requires judgment, including the expected term that stock options will be outstanding prior to exercise, the associated volatility, and the expected dividend yield. The fair value of common stock post-IPO is based on the closing price of the common stock on the date of grant as reported on the Nasdaq Stock Market. Upon grant of awards, the Company also estimates an amount of forfeitures that will occur prior to vesting.
The Company has granted two types of restricted stock units (“RSUs”). Prior to the effectiveness of the Company’s IPO, the Company granted RSUs which vest only upon satisfaction of both time-based service and liquidity-based conditions. The Company records share-based compensation expense for such RSUs on an accelerated attribution method over the requisite service period and only once the liquidity-based condition is satisfied. The liquidity-based vesting condition was satisfied upon the effectiveness of the Company’s IPO. Share-based compensation related to any remaining time-based service for these RSUs after the liquidity-based event is recorded over the remaining requisite service period. Post IPO, the Company has granted RSUs which vest upon satisfaction of a single time-based service condition. The Company records share-based compensation expense for these RSUs on a straight-line basis over the requisite service period. See Note 12 - Share-based Compensation Plans for a description of the accounting for share-based awards.
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RENT THE RUNWAY, INC.
Notes to Condensed Consolidated Financial Statements
(Dollars in millions, except share and per share amounts)
Recently Issued and Adopted Accounting Pronouncements
Recently Adopted Accounting Pronouncements

Income Taxes
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The new guidance simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and also improves the consistency in application of other areas by clarifying and amending existing guidance. This standard is effective for annual reporting periods beginning after December 15, 2021, and interim periods within those years, and early adoption is permitted. Certain amendments of this standard may be adopted on a retrospective basis, modified retrospective basis or prospective basis. The Company adopted this standard on February 1, 2022, and the adoption of this standard did not have a material impact on the condensed consolidated financial statements.
Recently Issued Accounting Pronouncements
Debt - Debt with Conversion and Other Options and Derivatives and Hedging
In August 2020, the FASB issued ASU 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The new guidance reduces complexity and improves comparability of financial reporting associated with accounting for convertible instruments and contracts in an entity’s own equity. This standard is effective for annual reporting periods beginning after December 15, 2023, and interim periods within those years, and early adoption is permitted. The Company is currently evaluating the impact this standard will have on its consolidated financial statements.
Financial Instruments – Credit Losses
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires an entity to utilize a new impairment model known as the current expected credit loss (“CECL”) model to estimate its lifetime “expected credit loss” and record an allowance that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. The CECL model is expected to result in more timely recognition of credit losses. This guidance also requires new disclosures for financial assets measured at amortized cost, loans, and available-for-sale debt securities. This standard is effective for annual reporting periods beginning after December 15, 2022, and interim periods within those years, and early adoption is permitted. The Company is currently evaluating the impact this standard will have on its consolidated financial statements.
3.Liquidity and Impact of COVID-19 Pandemic
The Company has incurred a net loss from operations since inception and has historically relied upon debt and equity financing to fund its operations. In addition, the COVID-19 pandemic has had a significant adverse impact on the Company’s business. As a result, in fiscal year 2020 the Company experienced a significant decline in Subscription and Reserve rental revenue. While the Company has experienced revenue growth in fiscal year 2021 and the three months ended April 30, 2022, to the extent that the strength or pace of the Company’s COVID-19 recovery is not sustained, the Company has established plans to preserve existing cash liquidity, which could include reducing labor, operating expenses, and/or capital expenditures.
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RENT THE RUNWAY, INC.
Notes to Condensed Consolidated Financial Statements
(Dollars in millions, except share and per share amounts)
In October 2021, the Company completed its IPO and issued 17,000,000 shares of its Class A common stock at $21.00 per share. The Company received proceeds of $327.3 million which are net of the underwriting discounts of $24.1 million and direct offering costs of $5.6 million.
As of April 30, 2022 and January 31, 2022, the Company held cash and cash equivalents of $219.0 million and $247.6 million, respectively. The Company believes that it will have sufficient liquidity from cash on-hand and future operations to sustain its business operations, to satisfy its debt service obligations and to comply with its amended debt covenants for at least the next twelve months from the date these financial statements are issued.
4.Leases - Lessee Accounting
During the three months ended April 30, 2022, the Company amended the operating lease for its corporate headquarters in Brooklyn, NY, the terms of which terminated one floor of the leased space. The partial lease termination of the corporate headquarters leased space resulted in a reduction of $10.6 million in the Company’s future minimum fixed lease obligations as of the lease modification date. The Company treated the partial lease termination amendment as a lease modification as of the effective date which resulted in an adjustment of $3.7 million and $1.4 million to the related lease liabilities and right-of-use assets, respectively. The Company recorded a gain on the partial termination of $1.8 million and a loss on surrender of the related fixed assets, primarily leasehold improvements, of $1.9 million, both of which are recorded on the condensed consolidated statements of operations within general and administrative expenses.
The following table summarizes the Company’s minimum fixed lease obligations under existing agreements as a lessee, excluding variable payments and short-term lease payments, as of April 30, 2022:

OperatingFinance
Fiscal year:
2022$9.3 $0.3 
202310.6 0.3 
20249.5 0.2 
20258.1  
20268.1  
Thereafter42.7  
Total minimum lease payments88.3 0.8 
Imputed interest(41.8)(0.1)
Lease liabilities as of April 30, 2022$46.5 $0.7 
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RENT THE RUNWAY, INC.
Notes to Condensed Consolidated Financial Statements
(Dollars in millions, except share and per share amounts)
5.Rental Product, Net
Rental product consisted of the following:
April 30,January 31,
20222022
Apparel
$170.7 $164.4 
Accessories
6.9 6.8 
177.6 171.2 
Less: accumulated depreciation
(95.9)(94.9)
Rental product, net
$81.7 $76.3 
Depreciation and write-offs related to rental product, including write-offs of rental products sold, was $13.6 million and $12.7 million for the three months ended April 30, 2022 and 2021, respectively.
6.Long-Term Debt
Summary
The following table summarizes the Company’s line of credit and long-term debt outstanding as of April 30, 2022 and January 31, 2022:
April 30,January 31,
20222022
Temasek Facility principal outstanding
$271.6 $271.6 
Add: payment-in-kind interest
7.0 3.5 
Less: unamortized debt discount
(13.4)(14.3)
Temasek Facility, net
265.2 260.8 
Less: current portion of long-term debt
  
Total noncurrent line of credit and long-term debt$265.2 $260.8 
Temasek Facility
In July 2018, the Company entered into a subordinated, junior lien term loan agreement with Double Helix Pte Ltd. as administrative agent for Temasek Holdings (the “Temasek Facility”). The Company drew $100.0 million under the Temasek Facility at closing with the ability to draw an additional $100.0 million in multiple drawings at any time prior to July 23, 2020 (the “Initial Temasek Commitments”) based on meeting certain performance and financial tests at each draw.
In November 2019, the Company drew an additional $50.0 million of the Initial Temasek Commitments and amended the Temasek Facility to include an additional $30.0 million of committed availability (the “Subsequent Temasek Commitments”). In March 2020, the Company drew the remaining $50.0 million of the Initial Temasek Commitments and the $30.0 million of the Subsequent Temasek Commitments.

Prior to the termination of the Ares Facility, the Temasek Facility was both lien-subordinated and payment-subordinated to the Ares Facility (described below) pursuant to a Subordination Agreement entered into in October 2020 that functions as both a secured lender intercreditor agreement and a subordination agreement (for payment subordination); the Ares Facility was senior debt, and the Temasek facility was subordinated debt with respect to the Ares Facility. 
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RENT THE RUNWAY, INC.
Notes to Condensed Consolidated Financial Statements
(Dollars in millions, except share and per share amounts)
The Initial Temasek Commitments had an interest rate of 15% per annum that accrued as noncash interest. The Subsequent Temasek Commitments had a cash interest rate of 13% per annum, payable quarterly. The Temasek Facility required mandatory prepayment upon certain defined triggering events as well as optional prepayments, but such mandatory prepayments were not required to be made while the Ares Facility was outstanding.

In October 2021, the Company used proceeds from the IPO to pay down the Subsequent Temasek Commitments of $30.0 million outstanding principal and interest in full. Concurrently, the Company entered into an amendment to the Temasek Facility (the “Temasek Facility Amendment”). The Temasek Facility as amended by the Temasek Facility Amendment is referred to as the “Amended Temasek Facility”. This transaction was accounted for as a debt modification. The terms of the Temasek Facility Amendment provides for, among other things, (i) an extension of the maturity to October 2024, (ii) an outstanding principal under the Amended Temasek Facility of $271.6 million (with no additional debt proceeds having been funded and after giving effect to the repayment described below), and (iii) an amended interest rate of 12% with up to 5% payable in kind. On the effective date of the Temasek Facility Amendment, the Company paid down an additional $30.0 million of the outstanding principal of the Amended Temasek Facility, for a total of $60.0 million principal paydown on the Temasek Facility and Amended Temasek Facility.
The Amended Temasek Facility requires the Company to comply with specified nonfinancial covenants including, but not limited to, restrictions on the incurrence of debt, payment of dividends, making of investments, sale of assets, mergers and acquisitions, modifications of certain agreements and its fiscal year, and granting of liens. Additionally, the Amended Temasek Facility includes a minimum liquidity maintenance covenant of $50.0 million and amends the call protection applicable to the loans outstanding thereunder including the ability to refinance at a lower penalty within 12 months from the date of the amendment. The Amended Temasek Facility contains various events of default, the occurrence of which could result in the acceleration of obligations under each respective facility.
The effective interest rate for the Temasek Facility for the period from the date of issuance through the date of the Temasek Facility Amendment was 15.95%. The debt discount associated with the Initial Temasek Commitments was fully accreted when the Company entered into the Temasek Facility Amendment.

In October 2021, in connection with the Amended Temasek Facility, the Company recorded a debt discount of $15.3 million, of which $0.2 million related to lender fees, $5.3 million related to the allocation of proceeds to warrants issued in relation to the Amended Temasek Facility, $1.0 million related to the extension of the term of warrants issued in relation to the Temasek Facility, and $8.8 million related to fees incurred to amend the Amended Temasek Facility. These amounts are being accreted to the principal amount of the Amended Temasek Facility through the recognition of noncash interest expense. The effective interest rate for the Amended Temasek Facility for the period from the date of issuance through April 30, 2022 was 14.29%.
The Company determined that all of the embedded features of the Temasek Facility and Amended Temasek Facility were clearly and closely related to the debt host and did not require bifurcation as a derivative liability, or the fair value of the feature was immaterial to the Company’s condensed consolidated financial statements.
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RENT THE RUNWAY, INC.
Notes to Condensed Consolidated Financial Statements
(Dollars in millions, except share and per share amounts)
Ares Facility
In October 2020, the Company entered into the Ares Facility with Alter Domus (US) LLC as administrative agent for Ares Corporate Opportunities Fund V, L.P. (“Ares”). The Company received gross proceeds equal to $75.0 million (the “Ares Original Principal”). In conjunction with the incurrence of the Ares Facility, the Company received proceeds from Ares of $25.0 million for the issuance of 1,695,955 shares of Series G redeemable preferred stock. The total transaction resulted in the receipt of $100.0 million in exchange for the Ares Facility, Series G redeemable preferred stock and issuance of common stock warrants (the “Ares Financing Transaction”).
The Ares Facility had an interest rate of 8% per annum accrued as noncash interest. The Ares Facility required quarterly principal payments of 0.25% of the original principal amount. The remaining principal balance would have become due in 2023. The Ares Facility required an exit payment of $1.5 million which was to be paid once the Ares Facility matured or the Ares Original Principal was paid in full.
The Ares Facility was secured by a first priority lien over substantially all assets of the Company. The Ares Facility required the Company to comply with substantially the same specified nonfinancial covenants as the Temasek Facility, including but not limited to, restrictions on the incurrence of debt, making of investments, the payment of dividends, sale of assets, mergers and acquisitions, modifications of certain agreements and its fiscal year, and granting of liens. The Ares Facility also required the Company to meet specified financial covenants that were measured based on predefined consolidated EBITDA thresholds. The Ares Facility required mandatory prepayment upon defined triggering events and permitted optional prepayments, and certain of the mandatory prepayment triggering items were subject to a prepayment premium. The Ares Facility contained various events of default, the occurrence of which could result in the acceleration of obligations under the Ares Facility.
The effective interest rate for the period from the date of issuance through the date of repayment was 13.35%.
The Company determined that all of the embedded features of the Ares Facility were either clearly and closely related to the debt host and did not require bifurcation as a derivative liability, or the fair value of the feature was immaterial to the Company’s condensed consolidated financial statements.

In October 2021, the Company paid down the Ares Facility outstanding principal and accrued interest in full and terminated the Ares Facility. The Company recognized a $12.2 million loss on debt extinguishment related to this transaction.
Covenants
The Company was in compliance with all applicable financial and nonfinancial covenants as of April 30, 2022.
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RENT THE RUNWAY, INC.
Notes to Condensed Consolidated Financial Statements
(Dollars in millions, except share and per share amounts)
7.Income Taxes

The Company’s provision or benefit from income taxes in interim periods is determined using an estimate of the annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter the Company updates its estimate of the annual effective tax rate, and if its estimated tax rate changes, the Company makes a cumulative adjustment. The estimate of the annual effective income tax rate for the full year is applied to the respective interim period, taking into account year-to-date amounts and projected results for the full year.

The Company continues to maintain a full valuation allowance on all United States net deferred tax assets for all periods presented.

The amount of unrecognized tax benefits as of April 30, 2022 and January 31, 2022 was $0.7 million and $0.7 million, respectively. The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. The total amount of unrecognized benefits relating to the Company’s tax position is subject to change based on future events including, but not limited to, the settlements of ongoing audits and/or the expiration of applicable statutes of limitations. The outcomes and timing of such events are highly uncertain and a reasonable estimate of the range of gross unrecognized tax benefits, excluding interest and penalties, that could potentially be reduced during the next 12 months cannot be made at this time.

8.Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following:
April 30,January 31,
20222022
Accrued operating and general expenses$11.9 $13.6 
Revenue share payable7.1 6.7 
Accrued payroll related expenses2.4 4.0 
Sales and other taxes2.1 1.6 
Short-term financing2.0 3.5 
Gift card liability0.6 0.6 
Accrued expenses and other current liabilities$26.1 $30.0 
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RENT THE RUNWAY, INC.
Notes to Condensed Consolidated Financial Statements
(Dollars in millions, except share and per share amounts)
9.Fair Value Measurements
As of April 30, 2022 and January 31, 2022, the carrying amounts of the Company’s cash and cash equivalents, current and noncurrent restricted cash, prepaid expenses and other current assets, accounts payable and accrued expenses and other current liabilities approximated their estimated fair value due to their relatively short maturities.

The Company’s long-term debt is reported at carrying value on the Company’s condensed consolidated balance sheet. Refer to Note 6 — Long-Term Debt. The Company estimates the fair value of its long-term debt based on recently reported market transactions for similar financial instruments by companies with similar credit ratings and, as such, are classified as Level 2 within the fair value hierarchy. As of April 30, 2022, the estimated fair value of the Company’s long-term debt was $256.2 million.

The Company’s warrant liabilities were reported at fair value on the Company’s condensed consolidated balance sheet. The warrant liabilities were valued using a Black-Scholes option pricing model. The assumptions used in preparing the model include estimates such as volatility, contractual terms, dividend yield, expiration dates and risk-free interest rates. Prior to the Company’s IPO, this valuation model used unobservable market share price input on a recurring basis, and therefore was considered a Level 3 liability.
The following table presents a roll forward of the fair value of the level 3 liabilities for the three months ended April 30, 2021:
 Warrant
Liability
Balance as of January 31, 2021
$11.8 
Changes in estimated fair value(0.5)
Balance as of April 30, 2021
$11.3 
There were no outstanding liability-classified warrants as of April 30, 2022 and January 31, 2022.
10.Redeemable Preferred Stock
During the three months ended April 30, 2021, the Company sold 1,157,398 shares of Series G redeemable preferred stock in exchange for $17.1 million. Upon consummation of the IPO, the Company’s outstanding redeemable preferred stock converted into an equivalent amount of shares of Class A common stock. There was no redeemable preferred stock as of April 30, 2022 and January 31, 2022.
11.Stockholders’ Equity
Common Stock
Holders of Class A common stock are entitled to one vote per share and holders of Class B common stock are entitled to twenty votes per share, as well as dividends if and when declared by the Board of Directors and, upon liquidation, dissolution, winding up or other liquidation event of the Company, all assets available for distribution to common stockholders. There are no redemption provisions with respect to common stock.

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RENT THE RUNWAY, INC.
Notes to Condensed Consolidated Financial Statements
(Dollars in millions, except share and per share amounts)
Preferred Stock
Upon the IPO, the Company authorized 10,000,000 shares of preferred stock, with a par value of $0.001 per share. No shares were issued or outstanding as of April 30, 2022.

Warrants
As of April 30, 2022 and January 31, 2022, the Company had the following outstanding warrants:
April 30, 2022
Outstanding WarrantsDate
Issued
Number of
Shares
Class of
Shares
Exercise
Price
Fair Value
at Issuance
Equity classified:
TriplePointNov-1682,891 Common$7.54 $0.3 
TriplePointJun-1718,236 Common7.54 0.1 
TriplePointSep-1714,920 Common7.54 0.1 
TriplePointJan-1816,578 Common7.54 0.1 
TriplePointApr-1816,578 Common7.54 0.1 
TriplePointNov-1535,215 Common17.04 0.2 
TriplePointJun-1628,172 Common17.04 0.2 
TriplePointSep-1624,650 Common17.04 0.1 
Double Helix (Temasek)Oct-21394,343 Common21.00 5.3 
631,583 $6.5 
The warrant for 730,000 shares of common stock issued to Double Helix (Temasek) in July 2018 with an exercise price of $27.40 per share expired unexercised during the three months ended April 30, 2022.
 January 31, 2022
Outstanding WarrantsDate
Issued
Number of
Shares
Class of
Shares
Exercise
Price
Fair Value
at Issuance
Equity classified:
TriplePoint
Nov-1682,891 Common$7.54 $0.3 
TriplePoint
Jun-1718,236 Common7.54 0.1 
TriplePoint
Sep-1714,920 Common7.54 0.1 
TriplePoint
Jan-1816,578 Common7.54 0.1 
TriplePoint
Apr-1816,578 Common7.54 0.1 
TriplePoint
Nov-1535,215 Common17.04 0.2 
TriplePoint
Jun-1628,172 Common17.04 0.2 
TriplePoint
Sep-1624,650 Common17.04 0.1 
Double Helix (Temasek)
Jul-18730,000 Common27.40 1.3 
Double Helix (Temasek)
Oct-21394,343 Common21.00 5.3 
1,361,583 $7.8 
There were no outstanding liability-classified warrants as of April 30, 2022 and January 31, 2022.
The fair value was estimated using the Black-Scholes option pricing model. The fair value is subjective and is affected by changes in inputs to the valuation model including the fair value per share of the underlying stock, the expected term of each warrant, volatility of the Company’s stock and peer company stock, and risk-free rates based on U.S. Treasury yield curves.
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RENT THE RUNWAY, INC.
Notes to Condensed Consolidated Financial Statements
(Dollars in millions, except share and per share amounts)
The Company issued preferred and common stock warrants in conjunction with the issuance of long-term debt. The preferred stock warrants were accounted for as liabilities primarily because the shares underlying the warrants contained contingent redemption features outside the control of the Company. The liability classified warrants were subject to remeasurement at each balance sheet date. With each such re-measurement, the liability classified warrants were adjusted to current fair value recognized as a gain or loss in the condensed consolidated statements of operations. The Company reassessed the classification of the warrants at each balance sheet date. If the classification changed as a result of events during the period, the warrants were reclassified as of the date of the event that caused the reclassification.
As of April 30, 2022 and January 31, 2022, all outstanding warrants were equity-classified and recorded as additional paid-in capital. Equity-classified contracts are not subsequently remeasured unless reclassification is required from equity to liability classification.
12.Share-based Compensation Plans

2009 Stock Incentive Plan and 2019 Stock Incentive Plan

In 2009, the Company adopted its stock incentive plan (the “2009 Plan”) to grant equity to employees and service providers. In 2019, the Company adopted a new stock incentive plan (the “2019 Plan”) which replaced the 2009 Plan. The Company has granted RSUs and stock options, each of which is settleable in shares. Options are generally granted for a 10-year term, and generally vest and become fully exercisable over four years of service. RSU awards have both service-based and liquidity-based vesting conditions. The liquidity-based vesting condition was satisfied in connection with the effectiveness of the Company’s IPO. The service-based requirement of RSUs was typically satisfied over four years. While no shares are available for future issuance under the 2009 Plan or the 2019 Plan, they continue to govern outstanding equity awards granted thereunder. Outstanding awards granted under the 2009 Plan and 2019 Plan are exercisable for or settled in shares of Class A common stock, or, if approved by the board of directors, shares of Class B common stock.

Amended and Restated 2021 Incentive Award Plan

The Company's Amended and Restated 2021 Incentive Award Plan (the "2021 Plan") was adopted by its board of directors and approved by stockholders in October 2021 and became effective upon the effective date of the IPO. The 2021 Plan replaced the 2019 Plan, and no further grants will be made under the 2019 Plan. The terms of equity awards granted under the 2021 Plan in the year ended January 31, 2022 were generally consistent with those granted under the 2019 Plan, as described above. RSUs granted under the 2021 Plan in the year ended January 31, 2022 generally vest over four years and do not have liquidity-based vesting conditions. RSUs granted under the 2021 Plan during the three months ended April 30, 2022 have a shorter vesting period of one to two years. As of April 30, 2022, there were 4,237,886 shares of Class A common stock available for issuance under the 2021 Plan. There will not be any further equity grants of Class B common stock.

The grant date fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model. The option pricing model considers several variables and assumptions in estimating the fair value of share-based awards. Because the Company’s shares are only recently publicly traded and there is a lack of historical company-specific data available, expected term is estimated under the simplified method using the vesting and contractual terms, and expected volatility is estimated based on the average historical volatility of similar entities with publicly traded shares. The risk-free rate for the expected term of the option is based on the U.S. Treasury yield curve at the date of grant.
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RENT THE RUNWAY, INC.
Notes to Condensed Consolidated Financial Statements
(Dollars in millions, except share and per share amounts)
Stock Options
Stock option activity during the period indicated is as follows:
Number of
Shares
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contract
Term
(in years)
Aggregate
Intrinsic
Value
Balances as of January 31, 2022
9,470,170$7.33 7.17$2.1 
Granted
 
Exercised
(1,600)2.86 
Forfeited
(287,586)10.41 
Balances as of April 30, 2022
9,180,984$7.24 6.87$2.7 
Exercisable as of April 30, 2022
5,250,102$6.72 5.58$2.7 
The total intrinsic value of stock options exercised for the three months ended April 30, 2022 was nominal.
As of April 30, 2022, there was $14.3 million of unrecognized compensation cost related to stock options granted that is expected to be recognized over a weighted average period of 2.9 years.
The Company currently uses authorized and unissued shares to satisfy the exercise of stock option awards.

RSUs
RSUs activity during the period indicated is as follows:
 Number of
Shares
Weighted
Average
Grant-Date
Fair Value
per Share
Unvested and outstanding as of January 31, 2022
2,428,574 $11.32 
Granted
4,451,572 5.32 
Exercised(892,505)11.50 
Forfeited
(150,733)7.98 
Unvested and outstanding as of April 30, 2022
5,836,908 $6.80 
As of April 30, 2022, there was $20.5 million of unrecognized compensation cost related to RSUs granted that is expected to be recognized over a weighted average period of 1.9 years.
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RENT THE RUNWAY, INC.
Notes to Condensed Consolidated Financial Statements
(Dollars in millions, except share and per share amounts)
Share-Based Compensation Summary
The classification of share-based compensation for the three months ended April 30, 2022 presented within each line item of the condensed consolidated statements of operations is as follows:
 Three Months Ended April 30,
20222021
Technology$1.2 $0.4 
Marketing0.2 0.1 
General and administrative4.1 1.4 
Total share-based compensation$5.5 $1.9 
13.Net Loss per Share Attributable to Common Stockholders
The Company computes net loss per share attributable to common stockholders under the two-class method required for multiple classes of common stock and participating securities. The rights of the Class A common stock and Class B common stock are substantially identical, other than voting rights. Accordingly, the net loss per share attributable to common stockholders will be the same for Class A and Class B common stock on an individual or combined basis.
The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders:
Three Months Ended April 30,
2022
2021
Numerator:
Net loss attributable to common stockholders
$(42.5)$(42.3)
Denominator:
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted
63,431,165 11,287,251 
Net loss per share attributable to common stockholders, basic and diluted
$(0.67)$(3.75)
The following potentially dilutive outstanding securities based on amounts outstanding at each period end were excluded from the computation of diluted loss per share attributable to common stockholders because including them would have been anti-dilutive:
Three Months Ended April 30,
20222021
Redeemable preferred stock
 32,295,319 
Stock options
9,180,984 9,102,160 
Common stock warrants
631,583 2,530,904 
Preferred stock warrants
 164,664 
RSUs5,836,908  
Total
15,649,475 44,093,047 
As of April 30, 2021, RSUs to be settled in 2,019,881 shares of common stock were excluded from the table above because they were subject to liquidity-based vesting conditions that were not satisfied.
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RENT THE RUNWAY, INC.
Notes to Condensed Consolidated Financial Statements
(Dollars in millions, except share and per share amounts)
14.Commitments and Contingencies
The Company had restricted cash balances for cash collateralized standby letters of credit as of April 30, 2022 and January 31, 2022 of $10.8 million and $12.0 million, primarily to satisfy security deposit requirements on its leases.

Legal Proceedings
From time to time in the normal course of business, various claims and litigation have been asserted or commenced against the Company. Due to uncertainties inherent in litigation and other claims, the Company can give no assurance that it will prevail in any such matters, which could subject the Company to significant liability for damages. Any claims or litigation could have an adverse effect on the Company’s results of operations, cash flows, or business and financial condition in the period the claims or litigation are resolved. Accruals for loss contingencies are recorded when a loss is probable, and the amount of such loss can be reasonably estimated. Although the results of litigation and claims cannot be predicted with certainty, the Company currently believes that the final outcome of these ordinary course matters will not have a material adverse effect on its business.
As of April 30, 2022, there was no litigation or contingency with at least a reasonable possibility of a material loss.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto as of and for the year ended January 31, 2022 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended January 31, 2022 (the “2021 Annual Report on Form 10-K”).

In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results may differ materially from those described in or implied by any forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q, particularly in Part II, Item 1A, “Risk Factors”.

Overview
We give customers ongoing access to our “unlimited closet” — with over 20,000 styles by over 800 designer brands — through our Subscription offering or the ability to rent a-la-carte through our Reserve offering. We also give our subscribers and customers the ability to buy our products through our Resale offering. These offerings allow us to engage and serve our subscribers and customers across diverse use cases from everyday life to special occasions. We have served over 2.5 million lifetime customers across all of our offerings and we had 177,213 ending total subscribers1 (active and paused) as of April 30, 2022. The majority of our revenue is highly recurring and is generated by our subscribers. For the three months ended April 30, 2022 and 2021, respectively, 86% and 87% of our total revenue (including Reserve and Resale revenue) was generated by subscribers while they were active or paused.
The variety, breadth and quantity of products we carry is important to our business, and we strategically manage the capital efficient acquisition of a high volume of items every year. We have successfully disproved the myth that fashion apparel items and accessories only last one season as we are able to rent or “turn” our products multiple times over many years. We price our items at a fraction of their retail or comparable value, creating an attractive price and value proposition for our subscribers and customers.
We source virtually all of our products, which includes apparel, accessories and home goods, directly from designer brands. Prior to 2018, we purchased nearly all of our products from our brand partners typically at a discount to wholesale cost, which we refer to as “Wholesale” items. In late 2018, we began to procure products through Share by RTR and Exclusive Designs. See “—Our Product Acquisition Strategy” below for a description of the three ways in which we procure products.
1 Ending total subscribers represents the number of subscribers with an active or paused membership as of the last day of the period and excludes subscribers who had an active or paused subscription during the period, but ended their subscription prior to the last day of the fiscal period.
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Recent Business Developments

Initial Public Offering.     On October 29, 2021, we closed our initial public offering (the “IPO”), in which we issued and sold 17,000,000 shares at the public offering price of $21.00 per share. We received net proceeds of $327.3 million after deducting underwriting discounts and commissions and offering expenses.

Debt Paydown and Amendment. Concurrent with our IPO, we paid down our senior secured term loan with Ares Corporate Opportunities Fund V, L.P. (the “Ares Facility”) of $80.7 million in full and $60.0 million of our subordinated, junior lien term loan with Double Helix Pte Ltd. as administrative agent for Temasek Holdings (the “Temasek Facility”), resulting in a total debt repayment of $140.7 million. We also refinanced the remaining Temasek Facility (the “Amended Temasek Facility”).

Key Operating and Financial Results. We have achieved the following operating and financial results for the three months ended April 30, 2022 and 2021, respectively:

Revenue was $67.1 million and $33.5 million, respectively, representing 100.3% growth year-over-year;
134,998 and 74,018 ending Active Subscribers2 (excluding paused subscribers), respectively, representing 82% growth year-over-year and our highest end-of-quarter Active Subscriber count since launch of subscription;
177,213 and 104,138 ending Total Subscribers (including paused subscribers), respectively, representing 70% growth year-over-year;
Gross Profit was $22.5 million and $8.1 million, respectively, representing a gross margin of 33.5% and 24.2%, respectively;
Net Loss was $(42.5) million and $(42.3) million, respectively. Net Loss as a percentage of revenue was (63.3)% and (126.3)%, respectively;
Adjusted EBITDA was $(8.8) million and $(6.2) million, respectively, representing an Adjusted EBITDA margin of (13.1)% and (18.5)%, respectively; and
Cash and Cash Equivalents was $219.0 million and $103.8 million, respectively.

First Quarter Business Highlights
Continued to drive strong subscriber engagement, with 28% of subscribers adding one or more paid additional items into their subscription program;
Continued to drive growth in Exclusive Designs and launched six new Exclusive Designs collections;
Expanded at-home pickup to over 20 markets; and
Continued to expand upon automation and productivity initiatives in our fulfillment centers, leveraging RFID technology to drive greater efficiency in our quality control process and generate data to enhance garment longevity.

2 Active Subscribers is defined as ending total subscribers as of period end, excluding paused subscribers.
Our Product Acquisition Strategy
We acquire and monetize products in three ways: Wholesale, Share by RTR and Exclusive Designs. Wholesale items are acquired directly from brand partners, typically at a discount to Wholesale price. Share by RTR items are acquired directly from brand partners on consignment, at zero to low upfront cost with performance-based revenue share payments to our brand partners over time. Exclusive Designs items are designed using our data in collaboration with our brand partners. These units are manufactured through third-party partners with a low upfront fee and minimal revenue share payments to our brand partners over time.
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Our three product acquisition methods are strategic levers to manage our capital efficiency, profitability and product risk. Our Exclusive Designs channel uses data insights to acquire items at a lower cost, which are designed to generate higher profitability over time. Share by RTR meaningfully reduces our upfront spend and de-risks our investment since we pay brands primarily based on item performance. Our Share by RTR arrangements with brands target delivering 85% to 100% of comparable Wholesale cost to the brand in the first year; however there is no minimum commitment other than the upfront payment if applicable. Nearly all Share by RTR deals consummated after September 2020 include a cap on total potential payments to the brand partner.
In fiscal year 2021, 45% of new items were acquired through Wholesale, 33% through Share by RTR and 22% through Exclusive Designs, compared to 46% Wholesale, 36% Share by RTR and 18% Exclusive Designs in fiscal year 2020. In total, approximately 55% of new items were acquired through the more capital-efficient channels in fiscal year 2021, approximately 54% in fiscal year 2020 and approximately 26% in fiscal year 2019. Both our purchasing power and the diversification into Share by RTR and Exclusive Designs have led to a decrease in average upfront cost per item over time. We are executing on our strategy to further decrease the percentage of units acquired through Wholesale and increase the percentage of units acquired through our more capital-efficient channels, Exclusive Designs and Share by RTR, in fiscal year 2022.

For additional details about our business model and our product acquisition strategy, see our 2021 Annual Report on Form 10-K.
Key Factors Affecting Our Performance
We believe that our performance and future success depend on a variety of factors that present significant opportunities for our business, but also present risks and challenges that could adversely impact our growth and profitability.
Brands and Products
Ability to Acquire and Monetize Products Efficiently. Our ability to deliver an elevated experience for our subscribers and customers that keeps them loyal to RTR depends on us having the right assortment. Due to our deep partnerships with brands, we can acquire products directly from them in multiple ways, and due to our expertise in reverse logistics and garment restoration we can monetize our products effectively over their useful life. Diversifying our product acquisition away from 100% Wholesale has driven higher overall product return on investment and reduced the capital needs of the business. In fiscal year 2021, approximately 55% of new items were acquired through our more capital efficient non-Wholesale channels, compared to 54% in fiscal year 2020 and 26% in fiscal year 2019. We are executing on our strategy to further increase the percentage of units acquired through Exclusive Designs and Share by RTR in fiscal year 2022. We continuously evaluate our product acquisition mix to maximize our strategic priorities.

Upfront cost per item is defined as total upfront spend for items acquired in a period divided by the number of items acquired. We define total upfront spend as the total costs of products acquired in a period excluding performance based revenue share payments which are paid out over time. Total upfront spend includes the total acquisition cost for Wholesale items, upfront payments to brand partners for Share by RTR and Exclusive Designs items, third party manufacturing or other similar acquisition costs for Exclusive Designs items, and other ancillary upfront costs such as freight, where applicable. For fiscal year 2021 our average upfront cost per item was $95, representing a 14% decrease from an average upfront cost of $111 in fiscal year 2019. Due to seasonality factors, we track our progress on average upfront cost on a full year basis, as quarterly costs are not necessarily reflective of full year trends. Our diversification into non-Wholesale channels has meaningfully reduced our upfront spend.

Ability to Achieve Leverage in our Cost Structure. Improving operational efficiency of our platform is imperative to maintaining or increasing profitability. We expect our operating costs to increase as we make investments to grow subscribers and revenue and to enhance the customer experience. Though we anticipate quarterly fluctuations in operating leverage, we do not expect these costs to generally grow at the same pace as our total revenue on an annual basis.

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We use technology and customer data to drive efficiency across products, fulfillment expenses and operating costs. Our data has allowed us to build a differentiated and proprietary rental reverse logistics platform with a vertically integrated cleaning and restoration process. We have invested in technology and automation in order to drive operating leverage and higher margins as we grow and scale our business.

Over time, we have improved our margins, profitability and cash flow, and we believe we will continue to benefit from economies of scale and are focused on driving additional efficiencies in our operating expenses.

We use Adjusted EBITDA to assess our operating performance and the operating leverage of our business prior to capital expenditures. We also measure the cash consumption of the business including capital expenditures by assessing net cash used in operating activities and net cash used in investing activities on a combined basis.

Seasonality
We experience seasonality in our business, which has been impacted and may in the future change due to the effects of the COVID-19 pandemic. For our subscription rentals, we typically acquire the highest number of subscribers in March through May and September through November, as these are the times customers naturally think about changing over their wardrobes. We generally see a higher rate of subscribers pause in the summer, and in mid-December through the end of January. We historically had typically realized a higher portion of revenue from Reserve rentals during our third and fourth fiscal quarters as a result of increased wedding and holiday events.

The third and fourth fiscal quarters of 2021 and the first quarter of 2022 demonstrated subscriber seasonality patterns that are generally consistent with our historical trends, although our fourth quarter of 2021 saw a higher rate of pause activity due to the Omicron variant impact. In addition, our seasonality trends are seeing effects from COVID-19 generally, as Reserve orders and revenue are impacted by fewer large-scale holiday and special events compared to pre-COVID-19, especially those typically occurring in the third and fourth quarters. Subscriber acquisition was also impacted by COVID-19 in the fourth quarter of 2021 due to fewer large-scale holiday and special events.

We also experience seasonality in the timing of expenses and capital outlays. Transportation expense, and therefore fulfillment cost, is typically highest in the fiscal fourth quarter, given higher service levels, such as more costly expedited shipping, and competition during holidays. Our most significant product capital expenditures typically occur in the first fiscal quarter and the third fiscal quarter, when we acquire product for the upcoming fall and spring seasons, though impact on cash is dependent on timing of receipt of product.

For additional details about key factors affecting our performance, see our 2021 Annual Report on Form 10-K.
Impact of COVID-19 on Our Business

The COVID-19 pandemic materially adversely affected our fiscal year 2020 operating and financial results. In March 2020, we instituted numerous health and safety measures and took immediate financial actions to withstand COVID-19 including pausing of paid advertising and marketing activities and other cost-saving measures to reduce operating and capital expenditures in the short term, including salary reductions, closing of brick and mortar stores and right sizing of labor in our fulfillment centers. These actions significantly reduced these costs as a percentage of revenue throughout fiscal year 2020. Rental product depreciation and revenue share as a percentage of revenue increased throughout fiscal year 2020 due to the levels of rental product on hand relative to the reduced subscriber levels.

In fiscal year 2021, our financial results continued to be impacted by the COVID-19 pandemic. In particular, in the first quarter of fiscal year 2021 subscriber acquisition and engagement increased as shelter-at-home restrictions were lifted. In the fourth quarter of fiscal year 2021 the Omicron variant negatively impacted us in three key ways: 1) significantly decreased revenue from our Reserve business as most holiday events were canceled; 2) reduced subscriber acquisition in the second half of quarter; and 3) drove a higher rate of subscriber pause. In fiscal year 2021, financial results also continued to be impacted by consumers working primarily from home and by special events and occasions not being back to pre-pandemic levels.

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We expect the effects of the COVID-19 pandemic and related macro-economic trends, including the spread of potential new variants, to have a continued impact on our business, results of operations, growth rates, and financial condition into fiscal year 2022, though we currently expect an environment that is improved from fiscal year 2021. We believe that the backlog of special events and leisure travel that have been pushed to 2022 and 2023 will contribute to additional COVID-19 recovery in those periods.

We continue to take actions to adjust to the changing COVID-19 business environment and related inflationary pressure. For example, we increased wage rates throughout fiscal year 2021 to attract and retain talent at our fulfillment centers and we expect to continue to be impacted by rising labor costs in fiscal year 2022. We also expect transportation costs to continue to increase in fiscal year 2022, and we are focused on diversifying our transportation network to mitigate these rising costs and service delays. Examples of these mitigation efforts include increasing volumes with regional and last-mile carriers and consolidating shipments, such as through the launch of an at-home pickup service in certain markets. Although we continue to face a challenging environment due to the COVID-19 pandemic, rising wages, a decreased level of workforce participation and nationwide shipping carrier delays, we have been able to and plan to continue hiring and are diversifying our transportation network in order to support increasing and/or fluctuating demand for our offerings.

The full extent to which the COVID-19 pandemic, including the spread of any new variants, will directly or indirectly impact our business, results of operations, growth rates, and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted. Given the uncertainty, we cannot estimate the financial impact of the pandemic on our future results of operations, cash flows, or financial condition. For additional details, see Part II, Item 1A, “Risk Factors” of this Quarterly Report on Form 10-Q.
Key Business and Financial Metrics
In addition to the measures presented in our condensed consolidated financial statements, we use the following key business and financial metrics to help us evaluate our business, identify trends affecting our business, formulate business plans, and make strategic decisions. The calculation of the key business and financial metrics discussed below may differ from similarly titled metrics used by other companies, securities analysts or investors, limiting the usefulness of those measures for comparative purposes. These key business and financial metrics are not meant to be considered as indicators of our financial performance in isolation from or as a substitute for our financial information prepared in accordance with GAAP and should be considered in conjunction with other metrics and components of our results of operations, such as each of the other key business and financial metrics, and our revenue and net loss.
Three Months Ended April 30,
20222021
($ in millions)
Active Subscribers134,998 74,018 
Gross Profit$22.5 $8.1 
Adjusted EBITDA (1)$(8.8)$(6.2)
__________
(1)Adjusted EBITDA is a non-GAAP financial measure; for a reconciliation to the most directly comparable GAAP financial measure, net loss, and why we consider Adjusted EBITDA to be a useful metric, see “—Non-GAAP Financial Metrics” below.
Active Subscribers: Active Subscribers represents the number of subscribers with an active membership as of the last day of any given period and excludes paused subscribers. As of April 30, 2022, we had 134,998 Active Subscribers, up 82% year-over-year as the equivalent quarter of fiscal year 2021 was more heavily impacted by the COVID-19 pandemic, and we saw recovery post-Omicron during the first quarter of fiscal year 2022.

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Gross Profit and Gross Margin: We define Gross Profit as total revenue less fulfillment expense, rental product depreciation and revenue share. We depreciate owned apparel assets over three years and owned accessory assets over two years net of 20% and 30% salvage values, respectively, and recognize the depreciation on a straight-line basis and remaining cost of items when sold or retired on our condensed consolidated statement of operations. Rental product depreciation expense is time-based and reflects all rental product items we own. We use Gross Profit and Gross Profit as a percentage of revenue, or Gross Margin, to measure the continued efficiency of our business after the cost of our products and fulfillment costs are included. Gross Profit was $22.5 million for the three months ended April 30, 2022 compared to $8.1 million in the three months ended April 30, 2021 representing Gross Margins of 33.5% and 24.2%, respectively. The significant increase in Gross Profit and Gross Margin for the three months ended April 30, 2022 was driven by lower rental product depreciation and revenue share as a percentage of total revenue than in the prior period which offset higher fulfillment costs driven by increases in fulfillment related transportation costs. Rental product depreciation decreased as a percentage of revenue as costs were absorbed over a larger revenue base, while revenue share increased slightly as a percentage of revenue due to a higher proportion of Share by RTR items relative to prior year. We have improved and expect to have the opportunity to further improve Gross Profit and Gross Margin over time by driving growth in total revenue and revenue per subscriber, fulfillment and operational efficiency gains, and strategically evolving our mix of product acquisition.
Adjusted EBITDA and Adjusted EBITDA Margin: We define Adjusted EBITDA as net loss, adjusted to exclude interest expense, rental product depreciation, other depreciation and amortization, share-based compensation expense, write-off of liquidated rental product assets, certain non-recurring or one-time costs (see below footnotes to the reconciliation table), income taxes, warrant liability revaluation gains / losses, debt extinguishment gains / losses, other income and expense, and other gains / losses. We define Adjusted EBITDA Margin as Adjusted EBITDA as a percentage of total revenue, net for a period. Adjusted EBITDA was $(8.8) million for the three months ended April 30, 2022 compared to $(6.2) million for the three months ended April 30, 2021, representing margins of (13.1)% and (18.5)%, respectively. Adjusted EBITDA Margin has improved for the three months ended April 30, 2022 due to reasons consistent with the improvement in Gross Profit and Gross Margin and improved operating leverage across technology and general and administrative expenses even with additional strategic investments, offset by higher marketing expenditure. We have the opportunity to improve Adjusted EBITDA as we increase revenue and drive higher revenue per subscriber, fulfillment and operational efficiency gains, and operating expense leverage.
Components of Results of Operations
Total Revenue, Net
Our total revenue, net consists of Subscription and Reserve rental revenue and Other revenue. Total revenue is presented net of promotional discounts, credits and refunds, and taxes.
Subscription and Reserve Rental Revenue.    We generate Subscription and Reserve rental revenue from subscription and Reserve rental fees. We recognize subscription fees ratably over the subscription period, commencing on the date the subscriber enrolls in a subscription program. These fees are collected upon enrollment and any revenue from an unrecognized portion of the subscription period is deferred to the following fiscal period. We announced a price increase in April 2022 for our subscription plans, which we expect will generally increase revenue per subscriber by program over time. We recognize Reserve fees over the rental period, which starts on the date of delivery of the product to the customer. Reserve orders can be placed up to four months prior to the rental start date and the customer’s payment form is charged upon order confirmation. We defer recognizing the rental fees and any related promotions for Reserve rentals until the date of delivery, and then recognize those fees evenly over the four- or eight-day rental period.
Other Revenue.    We generate Other revenue primarily from the sale of products while they are in rental condition. We offer the ability for subscribers and customers to purchase products at a discount to retail price. Payment for the sale of products occurs upon order confirmation while the associated revenue is recognized either at the time the sold product is delivered to the customer or when purchased, if the item is already at home with the customer.
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Costs and Expenses
Fulfillment.    Fulfillment expenses consist of all costs to receive, process and fulfill customer orders. This primarily includes shipping costs to/from customers and personnel and related costs, which include salaries and bonuses, and employee benefit costs. Personnel and related costs are related to processing inbound and outbound customer orders, cleaning, restoring and repairing items received from customers, tracking and managing items within our fulfillment center network and ingesting new items received from brands. Fulfillment expenses also include costs of packing materials, cleaning supplies, and other fulfillment-related expenses. We expect fulfillment costs to increase in the future as order volume increases and as costs to ship orders increase due to increasing prices in the transportation market which we started to see in the second half of fiscal year 2021 and continued to see impact results in the first quarter of fiscal year 2022. We also expect fulfillment expense to increase due to competitive pressures in the labor market which could lead to continued higher wage rates. We increased warehouse wage rates during fiscal year 2021 and believe we will continue to be impacted by rising wage rates. We expect to continue to invest in automation and other process improvements to support and drive efficiencies in our operations. To the extent we are successful in becoming more efficient in fulfilling orders, and at a magnitude that is able to offset increasing shipping costs, wage rates and cleaning/packing supply price increases, we would expect these expenses to decrease as a percentage of total revenue over the longer term.
Technology.    Technology expenses consist of personnel and related costs for employees engaged in software development and engineering, quality assurance, product, customer experience, data science, analytics and information technology-related efforts, net of personnel costs associated with capitalized software. Technology expenses also include professional services, third-party hosting expenses, website monitoring costs, and software and license fees. We expect to increase technology expenses as we continue to improve the customer and subscriber experience and invest in our technology stack and infrastructure to support overall growth in our business and distribution network, including prioritizing cloud capabilities. While these expenses may vary from period to period as a percentage of total revenue, we expect them to decrease as a percentage of total revenue over the longer term.
Marketing.    Marketing expenses include online and mobile marketing, search engine optimization and email costs, marketing personnel and related costs, agency fees, brand marketing, printed collateral, consumer research, and other related costs. We expect marketing expenses to increase as we intend to increase marketing spend to drive the growth of our business and increase our brand awareness. The trend and timing of our marketing expenses will depend in part on the timing of marketing campaigns.
General and Administrative.    General and administrative expenses consist of all other personnel and related costs for customer service, finance, tax, legal, human resources, fashion and photography and fixed operations costs. General and administrative expenses also includes occupancy costs (including warehouse-related), professional services, credit card fees, general corporate and warehouse expenses, other administrative costs, and gains and losses associated with asset disposals and operating lease terminations. We expect general and administrative expenses to increase as we grow our infrastructure to support operating as a public company and the overall growth of the business. We also expect rent expense and other facilities-related costs to increase in the future as we expand our distribution network to support overall business growth and fulfillment cost-reduction initiatives. While these expenses may vary from period to period as a percentage of total revenue, we expect them to decrease as a percentage of total revenue over the longer term.
Rental Product Depreciation and Revenue Share.    Rental product depreciation and revenue share expenses consist of depreciation and write-offs of rental products, and payments under revenue share arrangements with brand partners. We depreciate the cost, less an estimated salvage value, of our owned products (Wholesale and Exclusive Designs items), over the estimated useful lives of these items and, if applicable, accelerate depreciation of the items when they are no longer in rental condition. We recognize the cost of items acquired under Share by RTR, as incurred, through upfront payments and performance-based revenue share payments. We expect rental product depreciation and revenue share expenses to increase in absolute dollars as we continue to support subscriber and customer growth. The amount and proportion of rental product depreciation and revenue share will vary from period to period based on how we acquire items as well as the mix of our rental product base.
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Other Depreciation and Amortization.    Other depreciation and amortization expenses consist of depreciation and amortization amounts for fixed assets, intangible assets including capitalized software, and financing right-of-use assets.
Interest Income / (Expense). Interest income / (expense) consists primarily of accrued paid-in-kind interest, cash interest and debt issuance cost amortization associated with our Amended Temasek Facility going forward.

Gain / (Loss) on Warrant Liability Revaluation, Net. Gain / (loss) on warrant liability revaluation is associated with revaluing liability classified warrants to the respective fair value at period end or prior to conversion. As of April 30, 2022, all outstanding warrants are equity classified and therefore do not require remeasurement going forward.
Income Tax Benefit / (Expense). Income taxes consist primarily of state minimum taxes and Irish refundable tax credits. We have established a valuation allowance for our U.S. federal and state deferred tax assets, including net operating losses. We expect to maintain this valuation allowance until it becomes more likely than not that the benefit of our federal and state deferred tax assets will be realized by way of expected future taxable income in the United States.
Results of Operations
The results of operations presented below should be reviewed in conjunction with the condensed consolidated financial statements and notes included elsewhere in this Quarterly Report on Form 10-Q. The following tables set forth our results of operations for the periods presented:
Three Months Ended April 30,
20222021
Revenue:
Subscription and Reserve rental revenue$61.4 $29.8 
Other revenue5.7 3.7 
Total revenue, net67.1 33.5 
Costs and expenses:
Fulfillment22.9 8.8 
Technology13.6 9.7 
Marketing8.7 2.6 
General and administrative29.2 19.0 
Rental product depreciation and revenue share21.7 16.6 
Other depreciation and amortization4.2 5.1 
Total costs and expenses100.3 61.8 
Operating loss(33.2)(28.3)
Interest income / (expense), net(9.3)(14.5)
Gain / (loss) on warrant liability revaluation, net— 0.5 
Net loss before income tax benefit / (expense)(42.5)(42.3)
Income tax benefit / (expense)— — 
Net loss$(42.5)$(42.3)
Comparison of the three months ended April 30, 2022 and 2021
Total Revenue, Net.    Total revenue, net was $67.1 million for the three months ended April 30, 2022, an increase of $33.6 million, or 100.3%, compared to $33.5 million for the three months ended April 30, 2021. This increase was primarily driven by the increase in overall demand, including subscriber count, directly attributable to the COVID-19 recovery compared to last year.
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Subscription and Reserve Rental Revenue.    Subscription and Reserve rental revenue was $61.4 million for the three months ended April 30, 2022, an increase of $31.6 million, or 106.0%, compared to $29.8 million for the three months ended April 30, 2021. This increase was primarily driven by the 82% year-over-year increase in Active Subscriber count and the increase in Reserve rental revenue as a result of the COVID-19 pandemic recovery compared to last year. In addition, in the first quarter of fiscal year 2022, we experienced a recovery from the impact of the Omicron variant which impacted the fourth quarter of fiscal year 2021. Our active subscriber count increased 17% from the end of fiscal year 2021 and the rate of subscriber pause decreased from 28% to 24% of total subscribers. In April 2022, we announced a price increase for our subscription plans which went into effect for new subscribers at the end of the quarter, and which went into effect for existing subscribers in the second quarter of fiscal year 2022. We expect the price increase will generally increase revenue per subscriber by program over time.
Other Revenue.    Other revenue was $5.7 million for the three months ended April 30, 2022, an increase of $2.0 million, or 54.1%, compared to $3.7 million for the three months ended April 30, 2021. This increase was primarily driven by an increase in Active Subscribers which resulted in increased purchases of resale items. Other revenue represented 8.5% of total revenue, down from 11.0% in the same period of fiscal year 2021 as we shifted away from the strategy to increase resale revenue through promotional activities during COVID-19.
Costs and Expenses.    Total costs and expenses were $100.3 million for the three months ended April 30, 2022, an increase of $38.5 million, or 62.3%, compared to $61.8 million for the three months ended April 30, 2021. This increase was primarily driven by an increase in fulfillment, paid marketing, technology, and G&A expenses and hiring to support our increased growth and public company costs.
Fulfillment.    Fulfillment expenses were $22.9 million for the three months ended April 30, 2022, an increase of $14.1 million, or 160.2%, representing 34.1% of revenue, compared to $8.8 million for the three months ended April 30, 2021, representing 26.3% of revenue. The increase in fulfillment dollars was primarily driven by an increase in demand-related growth and an increase in transportation costs and wage rates which are expected to continue for the remainder of fiscal year 2022, partially offset by fulfillment process improvements.
Technology.    Technology expenses were $13.6 million for the three months ended April 30, 2022, an increase of $3.9 million, or 40.2%, compared to $9.7 million for the three months ended April 30, 2021. This increase was primarily driven by an increase in strategic investments and personnel costs to support future growth initiatives, including back end infrastructure and cloud investments that provide scaling and efficiency benefits and support our work to provide an enhanced search, fit and discovery experience for the consumer. Technology expenses were 20.3% of revenue for the three months ended April 30, 2022 compared to 29.0% last year as we saw increased operating leverage with higher revenue compared to prior year. Technology related share-based compensation expense was $1.2 million for the three months ended April 30, 2022 and was $0.4 million for the same period last year. We expect technology expenses to increase in fiscal year 2022, driven by continued strategic investments.
Marketing.    Marketing expenses were $8.7 million for the three months ended April 30, 2022, an increase of $6.1 million, or 234.6%, compared to $2.6 million for the three months ended April 30, 2021. This increase was driven by the increased marketing initiatives as compared to the same period last year which had reduced paid and brand marketing spend during the COVID-19 pandemic. Marketing expenses unrelated to personnel costs were $7.4 million in the three months ended April 30, 2022 and 11.0% of revenue, compared to $1.6 million last year and 4.8% of total revenue. We expect marketing expenses to increase in absolute dollars in fiscal year 2022, in particular in the first half relative to fiscal year 2021, in order to drive subscriber growth and higher recurring revenue earlier in the year.
General and Administrative.    General and administrative (“G&A”) expenses were $29.2 million for the three months ended April 30, 2022, an increase of $10.2 million, or 53.7%, compared to $19.0 million for the three months ended April 30, 2021. This increase was primarily driven by the increase in costs required to support our growth and public company operations, including increased personnel, insurance and professional service fees, as well as increased credit card fees and customer service costs driven by revenue growth. G&A expenses as a percentage of revenue were 43.5% compared to 56.7% last year as we saw increased operating leverage with higher revenue compared to prior year. G&A related share-based compensation expense was $4.1 million for the three months ended April 30, 2022 and was $1.4 million for the same period last year.
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Rental Product Depreciation and Revenue Share.    Rental product depreciation and revenue share was $21.7 million for the three months ended April 30, 2022, an increase of $5.1 million, or 30.7%, compared to $16.6 million for the three months ended April 30, 2021. The increase is primarily a result of an increase in revenue share payments due to a higher proportion of Share by RTR items rented. Rental product depreciation and revenue share was 32.3% of revenue in the three months ended April 30, 2022, down from 49.6% in the prior period primarily due to rental product depreciation decreasing as a percentage of revenue as costs were absorbed over a larger revenue base.
Other Depreciation and Amortization.    Other depreciation and amortization was $4.2 million for the three months ended April 30, 2022, a decrease of $0.9 million, or 17.6%, compared to $5.1 million for the three months ended April 30, 2021. This decrease was primarily driven by lower depreciation associated with leasehold improvements.
Interest Income / (Expense), Net.    Interest expense, net was $9.3 million for the three months ended April 30, 2022, a decrease of $5.2 million, or 35.9%, compared to $14.5 million for the three months ended April 30, 2021. This decrease was driven by the accrued payment-in-kind interest related to the additional Ares debt entered in October 2020 which impacted the balance as of April 30, 2021 and then was paid down in full in October 2021 which impacted the balance as of April 30, 2022. Of the $9.3 million total interest expense in the three months ended April 30, 2022, $3.4 million was the accrual of paid-in kind (“PIK”) interest, $4.9 million was cash, financing lease interest and other interest and $1.0 million was debt discount amortization, compared to $11.2 million of PIK interest, $1.1 million of cash, financing lease interest and other interest and $2.2 million of debt discount amortization in the three months ended April 30, 2021.

Gain / (Loss) on Warrant Liability Revaluation, Net. Gain / (loss) on warrant liability revaluation, net was none for the three months ended April 30, 2022, a decrease of $0.5 million compared to $0.5 million for the three months ended April 30, 2021. This decrease was driven by the exercise and reclassification of liability-classified warrants to equity-classified warrants upon the Company’s IPO in the third quarter of fiscal year 2021. As of April 30, 2022, all the Company’s outstanding warrants are equity-classified and, as such, did not require fair value remeasurement.
Non-GAAP Financial Metrics
In addition to our results determined in accordance with GAAP, we believe the following non-GAAP financial metrics are useful in evaluating our performance. These non-GAAP financial metrics are not meant to be considered as indicators of our financial performance in isolation from, or as a substitute, for our financial information prepared in accordance with GAAP and should be read only in conjunction with financial information presented on a GAAP basis. There are limitations to the use of the non-GAAP financial metrics presented in this Quarterly Report. For example, our non-GAAP financial metrics may not be comparable to similarly titled measures of other companies. Other companies, including companies in our industry, may calculate non-GAAP financial metrics differently than we do, limiting the usefulness of those measures for comparative purposes.
The reconciliation of the below non-GAAP financial metrics to the most directly comparable GAAP financial measure is presented below. We encourage reviewing the reconciliation in conjunction with the presentation of the non-GAAP financial metrics for each of the periods presented. In future periods, we may exclude similar items, may incur income and expenses similar to these excluded items, and may include other expenses, costs and non-recurring items.

Adjusted EBITDA and Adjusted EBITDA Margin.    Adjusted EBITDA and Adjusted EBITDA Margin are key performance measures used by management to assess our operating performance and the operating leverage of our business prior to capital expenditures. Our Adjusted EBITDA margins have improved from (18.5)% in the three months ended April 30, 2021 to (13.1)% in the three months ended April 30, 2022.
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The following table presents a reconciliation of net loss, the most comparable GAAP financial measure, to Adjusted EBITDA for the periods presented:
Three Months Ended April 30,
20222021
(in millions)
Net loss$(42.5)$(42.3)
Interest (income) / expense, net (1)9.3 14.5 
Rental product depreciation13.6 12.7