RENT THE RUNWAY, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)

0
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".

Insight

We give customers ongoing access to our "unlimited closet" - with approximately
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 173,321 ending total subscribers1 (active and paused) as of July 31,
2022. The majority of our revenue is highly recurring and is generated by our
subscribers. For the six months ended July 31, 2022 and 2021, respectively, 87%
and 80% 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.
                                       29

————————————————– ——————————

Contents

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").

Restructuring plan. On September 12, 2022, we announced a restructuring plan to
reduce costs, streamline our organizational structure and drive operational
efficiencies. The plan primarily includes total workforce reductions of
approximately 24% of corporate employees (primarily a reduction in force, with
some open role closures/reduced backfills), reorganizing certain functions and
reallocating resources to continue to focus on customer experience and growth
initiatives.

We estimate that we will incur total cash charges for employee severance and
related costs of approximately $2.5 million and certain immaterial non-cash
charges associated with stock-based compensation, both of which are expected to
be primarily recognized in the third quarter of fiscal 2022.

We expect this restructuring plan to be substantially completed by the end of
the fourth quarter of 2022. The charges that we expect to incur are subject to a
number of assumptions, and actual expenses may differ from the estimates
disclosed above.

The restructuring plan is expected to generate annual operating expense savings
of $25 to $27 million (relative to the second quarter of fiscal 2022 run rate)
in fiscal 2023.


Main operational and financial results. We achieved the following operational and financial results for the three months ended July 31, 2022 and 2021, respectively:

• Turnover was $76.5 million and $46.7 millionrespectively, representing year-on-year growth of 63.8%;

• 124,131 and 97,614 end active subscribers2 (excluding paused subscribers), respectively, representing a 27% year-on-year growth;

• 173,321 and 126,841 total subscribers at the end (including paused subscribers), respectively, representing a 37% year-over-year growth;

• Gross profit was $32.4 million and $18.2 millionrepresenting respectively a gross margin of 42.4% and 39.0%;

• The net loss was ($33.9) million and ($42.4) million, respectively. The net loss as a percentage of revenue was (44.3)% and (90.8)%, respectively;

• Adjusted EBITDA was $1.8 million and ($1.9) million, representing respectively an adjusted EBITDA margin of 2.4% and (4.1)%, respectively; and

• Cash and cash equivalents was $192.3 million and $104.0 millionrespectively.

                                       30

————————————————– ——————————

Contents

We have achieved the following operational and financial results for the six months ended July 31, 2022 and 2021, respectively:

• Turnover was $143.6 million and $80.2 millionrespectively, representing 79.1% year-over-year growth;

• Gross profit was $54.9 million and $26.3 millionrepresenting respectively a gross margin of 38.2% and 32.8%;

• The net loss was ($76.4) million and ($84.7) million, respectively. The net loss as a percentage of revenue was (53.2)% and (105.6)%, respectively; and

• Adjusted EBITDA was ($7.0) million and ($8.1) millionrespectively, representing an adjusted EBITDA margin of (4.9)% and (10.1)%, respectively.

Second Quarter Highlights

• We continued to drive subscriber engagement, with 30% of subscribers adding one or more additional paid items to their subscription program;

•Drove ongoing expansion of Exclusive Designs and launched four new Exclusive
Designs collections: Saunders Collective, Esteban Cortazar, Pamela Love, and
Busayo;

•Expanded at-home pickup to over 25 markets covering over 50% of our subscriber
base, achieving our year-end target ahead of plan. Launched at-home pickup
scheduling in app, driving a significant lift in adoption and awareness;
•Partnered with Saks Off 5th to offer access to a selection of previously rented
Rent the Runway merchandise at SaksOFF5th.com, and;

•Continued development of automation and productivity initiatives in our distribution centers, including the full roll-out of our new packaging, which is both a more cost effective and more sustainable solution than our previous packaging.

2 Active subscribers are defined as the total number of end subscribers at the end of the period, excluding subscribers on pause.

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.

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.
                                       31

————————————————– ——————————

Contents

For more details on our business model and 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 depends on a variety of factors that present significant opportunities for our business, but also present risks and challenges that could negatively 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 increasing profitability. We expect
certain of our operating costs to increase as we make investments to grow
subscribers and revenue and to enhance the customer experience. In September
2022, we announced a restructuring plan to drive long-term operational
efficiencies, primarily in headcount and related expenses, and in technology and
general and administrative expenses. Though we anticipate quarterly fluctuations
in operating leverage, with these reductions we expect our fixed costs to
decrease as a percentage of total revenue in fiscal year 2023, and over time
would anticipate that our operating costs would not grow at the same pace as our
total revenue on an annual basis.

We use technology and customer data to improve product efficiency, fulfillment spend and operating costs. Our data allowed us to build a differentiated and exclusive rental reverse logistics platform with a vertically integrated cleaning and restoration process. We have invested in technology and automation to generate operating leverage and higher margins as we grow and grow 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. We are focused on
driving additional efficiencies in our operating expenses and growing
profitability to also cover rental product depreciation, in addition to
fulfillment, revenue share and 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.

                                       32
--------------------------------------------------------------------------------
  Table of Contents
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 and the macro
environment. 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 and second quarters
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 the second
quarter of 2022, we experienced seasonally lower subscriber acquisition
consistent with historical trends plus an increase in pause activity and
decrease in retention and resubscription, which led to a lower ending Active
Subscriber count compared with the end of the first quarter of fiscal year 2022.
Active Subscriber levels may have been impacted by heightened seasonal changes
in consumer behavior and/or the macro environment factors described below.

In addition, our seasonality trends are seeing effects from COVID-19 generally,
as Reserve orders and revenue have been 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 more details on the key factors affecting our performance, see our 2021 Annual Report on Form 10-K.

Impact of the macroeconomic and consumer environment on our business

There remains significant uncertainty in the current macro-economic and consumer
environment, driven by the COVID-19 pandemic, the war in Ukraine, inflationary
pressures, potential risk of recession, and ongoing industry-wide supply chain
issues. These factors have impacted, and are expected to continue to impact,
consumer discretionary spending and purchasing behavior, price sensitivity, wage
rates, transportation costs, and other costs associated with our business.

The COVID-19 pandemic materially adversely affected our fiscal year 2020 and
2021 operating and financial results. While COVID-related restrictions have
eased throughout 2021 and 2022, there remains substantial uncertainty about the
pandemic's impact on the global economy, e-commerce, and macroeconomic
conditions that impact consumer spending.

We believe that our customers live, work, socialize and travel differently in
2022 than they did prior to the COVID-19 pandemic and this influences what they
wear. We think that the backlog of special events that have been pushed to 2022
and 2023 will contribute to our continued COVID-19 recovery in those periods. We
are also still learning how these types of changes in customer behavior impact
our business, particularly in a challenging macro environment. The second
quarter of fiscal year 2022 saw a lower ending Active Subscriber count compared
with the end of the first quarter of fiscal year 2022. Active Subscriber levels
may have been impacted by heightened seasonal changes in consumer behavior
and/or potential macro factors, such as higher levels of remote work and less
demand for work wear, inflationary pressures and sensitivity to increased
pricing, or other factors. In addition, during the second quarter of fiscal year
2022, there was higher than expected usage of high formality apparel, which may
have constrained the availability of these items and our ability to meet demand.


                                       33

————————————————– ——————————

Contents

We continue to take actions to adjust to the changing 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 macro
environment, including impacts from the COVID-19 pandemic, we plan to manage our
staffing and are diversifying our transportation network in order to support
fluctuating demand for our offerings.

The full extent to which the macro environment, including impacts from the
COVID-19 pandemic, and 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.

Main commercial and financial parameters

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 July 31,                     Six Months Ended July 31,
                                                2022                   2021                   2022                   2021
                                                     ($ in millions)                                ($ in millions)
Active Subscribers                               124,131                97,614                 124,131                97,614
Gross Profit                             $          32.4          $       18.2          $         54.9          $       26.3
Adjusted EBITDA (1)                      $           1.8          $       (1.9)         $         (7.0)         $       (8.1)


__________
(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 July 31, 2022, we had 124,131 Active Subscribers, up 27%
year-over-year as the equivalent quarter of fiscal year 2021 was more heavily
impacted by the COVID-19 pandemic. The second quarter of fiscal year 2022 saw a
lower ending Active Subscriber count compared with the end of the first quarter
of fiscal year 2022. Active Subscriber levels may have been impacted by
heightened seasonal changes in consumer behavior and/or potential macro
environment factors, as discussed above.

                                       34
--------------------------------------------------------------------------------
  Table of Contents
Gross Profit and Gross Margin: We define Gross Profit as total revenue less
costs related to activities to fulfill customer orders and rental product
acquisition costs, presented as fulfillment and rental product depreciation and
revenue share, respectively, on the condensed consolidated statement of
operations. 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 $32.4 million for the three months ended July 31,
2022 compared to $18.2 million in the three months ended July 31, 2021
representing Gross Margins of 42.4% and 39.0%, respectively. Gross Profit was
$54.9 million for the six months ended July 31, 2022 compared to $26.3 million
for the six months ended July 31, 2021 representing Gross Margins of 38.2% and
32.8%, respectively. The significant increase in Gross Profit and Gross Margin
for the three and six months ended July 31, 2022 was driven by higher revenue
per shipment than prior year due to both the price increase and high add-on
activity, seasonally lower shipments per average subscriber in the summer
months, and lower rental product depreciation as a percentage of total revenue
than in the prior period. These benefits more than 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, with quarterly fluctuations, 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
$1.8 million for the three months ended July 31, 2022 compared to $(1.9) million
for the three months ended July 31, 2021, representing margins of 2.4% and
(4.1)%, respectively. Adjusted EBITDA was $(7.0) million for the six months
ended July 31, 2022 compared to $(8.1) million for the six months ended July 31,
2021, representing margins of (4.9)% and (10.1)%, respectively. Adjusted EBITDA
Margin has improved for the three and six months ended July 31, 2022 due to the
improvement in Gross Profit and Gross Margin and improved operating leverage
across technology and general and administrative expenses even with additional
strategic investments, partially 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. In particular, we expect our restructuring plan to
significantly reduce fixed costs and improve operating expense leverage.

Components of operating results

Total income, 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 increased revenue per subscriber
in the second quarter of fiscal 2022. 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.
                                       35

————————————————– ——————————

Contents

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.

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
and second quarters of fiscal year 2022. Fulfillment expense may also 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 may 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 these expenses to decrease in dollars and as a percentage of total
revenue as a result of our cost reduction plan. Over the medium to long term,
these expenses may increase 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. 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 ("G&A") 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
these expenses to decrease significantly in dollars and as a percentage of total
revenue as a result of our restructuring plan. Over the medium to long term, we
expect general and administrative expenses to increase as we grow our
infrastructure to support the overall growth of the business. Rent expense and
other facilities-related costs may 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.
                                       36

————————————————– ——————————

Contents

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.

Other depreciation and amortization. Other depreciation and amortization includes amounts for the amortization of fixed assets, intangible fixed assets, including capitalized software, and right-of-use financing.

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
July 31, 2022, all outstanding warrants are equity classified and therefore do
not require remeasurement going forward.

Other income / (expenses). Other income / (expenses) mainly comprises income from previous claims and income from the monetization of tax credits associated with growth.

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.
                                       37

————————————————– ——————————

Contents

Operating results

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 July 31,               Six Months Ended July 31,
                                                    2022                 2021                 2022                2021
                                                        ($ in millions)                          ($ in millions)
Revenue:
Subscription and Reserve rental revenue       $         70.0          $   42.9          $       131.4          $   72.7
Other revenue                                            6.5               3.8                   12.2               7.5
Total revenue, net                                      76.5              46.7                  143.6              80.2
Costs and expenses:
Fulfillment                                             23.4              13.5                   46.3              22.3
Technology                                              14.9              10.5                   28.5              20.2
Marketing                                                9.0               4.8                   17.7               7.4
General and administrative                              29.6              21.6                   58.8              40.6
Rental product depreciation and revenue share           20.7              15.0                   42.4              31.6
Other depreciation and amortization                      4.5               4.8                    8.7               9.9
Total costs and expenses                               102.1              70.2                  202.4             132.0
Operating loss                                         (25.6)            (23.5)                 (58.8)            (51.8)
Interest income / (expense), net                        (9.6)            (14.9)                 (18.9)            (29.4)
Gain / (loss) on warrant liability
revaluation, net                                           -              (8.0)                     -              (7.5)
Other income / (expense), net                            1.3               3.9                    1.3               3.9
Net loss before income tax benefit /
(expense)                                              (33.9)            (42.5)                 (76.4)            (84.8)
Income tax benefit / (expense)                             -               0.1                      -               0.1
Net loss                                      $        (33.9)         $  (42.4)         $       (76.4)         $  (84.7)

Comparison of the three months ended July 31, 2022 and 2021

Total Revenue, Net.  Total revenue, net was $76.5 million for the three months
ended July 31, 2022, an increase of $29.8 million, or 63.8%, compared to
$46.7 million for the three months ended July 31, 2021. This increase was
primarily driven by the increase in overall demand, including increased revenue
from subscribers, directly attributable to the COVID-19 recovery compared to
last year.

Subscription and Reserve Rental Revenue.  Subscription and Reserve rental
revenue was $70.0 million for the three months ended July 31, 2022, an increase
of $27.1 million, or 63.2%, compared to $42.9 million for the three months ended
July 31, 2021. This increase was primarily driven by the 27% year-over-year
increase in Active Subscriber count. 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, contributing to an increase in
revenue per subscriber.

Other Revenue.  Other revenue was $6.5 million for the three months ended
July 31, 2022, an increase of $2.7 million, or 71.1%, compared to $3.8 million
for the three months ended July 31, 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, up from 8.1% in
the same period of fiscal year 2021 as we saw higher resale purchases from our
subscribers.

Costs and Expenses.  Total costs and expenses were $102.1 million for the three
months ended July 31, 2022, an increase of $31.9 million, or 45.4%, compared to
$70.2 million for the three months ended July 31, 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.
                                       38

————————————————– ——————————

Contents

Fulfillment.  Fulfillment expenses were $23.4 million for the three months ended
July 31, 2022, an increase of $9.9 million, or 73.3%, representing 30.6% of
revenue, compared to $13.5 million for the three months ended July 31, 2021,
representing 28.9% of revenue. The increase in fulfillment dollars was primarily
driven by an increase in shipments associated with higher revenue 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 $14.9 million for the three months ended
July 31, 2022, an increase of $4.4 million, or 41.9%, compared to $10.5 million
for the three months ended July 31, 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 19.5% of revenue for the three months ended July 31, 2022 compared
to 22.5% last year as we saw increased operating leverage with higher revenue
compared to prior year. Technology related share-based compensation expense was
$1.6 million for the three months ended July 31, 2022 and was $0.5 million for
the same period last year.

Marketing.  Marketing expenses were $9.0 million for the three months ended
July 31, 2022, an increase of $4.2 million, or 87.5%, compared to $4.8 million
for the three months ended July 31, 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 $7.8 million in the three
months ended July 31, 2022 and 10.2% of revenue, compared to $3.7 million last
year and 7.9% of total revenue. We expect marketing expenses to increase in
absolute dollars in fiscal year 2022 compared with fiscal year 2021, in order to
drive total revenue growth.

General and Administrative.  G&A expenses were $29.6 million for the three
months ended July 31, 2022, an increase of $8.0 million, or 37.0%, compared to
$21.6 million for the three months ended July 31, 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 38.7% compared to 46.3% last year as we saw increased operating leverage
with higher revenue compared to prior year. G&A related share-based compensation
expense was $5.2 million for the three months ended July 31, 2022 and was $1.8
million for the same period last year.

Rental Product Depreciation and Revenue Share.  Rental product depreciation and
revenue share was $20.7 million for the three months ended July 31, 2022, an
increase of $5.7 million, or 38.0%, compared to $15.0 million for the three
months ended July 31, 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 27.1% of revenue in the three
months ended July 31, 2022, down from 32.1% 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
$4.5 million for the three months ended July 31, 2022, a decrease of
$0.3 million, or (6.3)%, compared to $4.8 million for the three months ended
July 31, 2021.

Interest Income / (Expense), Net.  Interest expense, net was $(9.6) million for
the three months ended July 31, 2022, a decrease of $5.3 million, or (35.6)%,
compared to $(14.9) million for the three months ended July 31, 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
July 31, 2021 and then was paid down in full in October 2021 which impacted the
balance as of July 31, 2022. Of the $(9.6) million total interest expense in the
three months ended July 31, 2022, $3.6 million was the accrual of PIK interest,
$5.0 million was cash, financing lease interest and other interest and
$1.0 million was debt discount amortization, compared to $12.0 million of PIK
interest, $1.2 million of cash, financing lease interest and other interest and
$1.7 million of debt discount amortization in the three months ended July 31,
2021.

                                       39
--------------------------------------------------------------------------------
  Table of Contents
Gain / (Loss) on Warrant Liability Revaluation, Net. Gain / (loss) on warrant
liability revaluation, net was $(8.0) million for the three months ended
July 31, 2021. As of July 31, 2022, all the Company's outstanding warrants are
equity-classified and, as such, did not require fair value remeasurement during
the period.

Comparison of the six months ended July 31, 2022 and 2021

Total Revenue, Net.  Total revenue, net was $143.6 million for the six months
ended July 31, 2022, an increase of $63.4 million, or 79.1%, compared to
$80.2 million for the six months ended July 31, 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.

Subscription and Reserve Rental Revenue.  Subscription and Reserve rental
revenue was $131.4 million for the six months ended July 31, 2022, an increase
of $58.7 million, or 80.7%, compared to $72.7 million for the six months ended
July 31, 2021. This increase was primarily driven by the 27% 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 six months 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 8% from the end of
fiscal year 2021. 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.

Other Revenue.  Other revenue was $12.2 million for the six months ended
July 31, 2022, an increase of $4.7 million, or 62.7%, compared to $7.5 million
for the six months ended July 31, 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 9.4% in the
same period of fiscal year 2021, primarily due to a shift from the prior year
strategy of increasing resale revenue through promotional activities during
COVID-19.

Costs and Expenses.  Total costs and expenses were $202.4 million for the six
months ended July 31, 2022, an increase of $70.4 million, or 53.3%, compared to
$132.0 million for the six months ended July 31, 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 $46.3 million for the six months ended
July 31, 2022, an increase of $24.0 million, or 107.6%, representing 32.2% of
revenue, compared to $22.3 million for the six months ended July 31, 2021,
representing 27.8% of revenue. The increase in fulfillment dollars was primarily
driven by an increase in shipments associated with higher revenue and an
increase in transportation costs and wage rates, partially offset by fulfillment
process improvements.

Technology.  Technology expenses were $28.5 million for the six months ended
July 31, 2022, an increase of $8.3 million, or 41.1%, compared to $20.2 million
for the six months ended July 31, 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 19.8% of revenue for the six months ended July 31, 2022 compared
to 25.2% last year as we saw increased operating leverage with higher revenue.
Technology related share-based compensation expense was $2.8 million for the six
months ended July 31, 2022 and was $0.9 million for the same period last year.

Marketing.  Marketing expenses were $17.7 million for the six months ended
July 31, 2022, an increase of $10.3 million, or 139.2%, compared to $7.4 million
for the six months ended July 31, 2021. This increase was driven by the
increased marketing initiatives as compared to the same period last year when we
reduced paid and brand marketing spend during the COVID-19 pandemic. Marketing
expenses unrelated to personnel costs were $15.2 million in the six months ended
July 31, 2022 and 10.6% of revenue, compared to $5.3 million last year and 6.6%
of total revenue. We expect marketing expenses to increase in absolute dollars
in fiscal year 2022, compared with fiscal year 2021, in order to drive total
revenue growth.
                                       40

————————————————– ——————————

Contents

General and Administrative.  General and administrative ("G&A") expenses were
$58.8 million for the six months ended July 31, 2022, an increase of
$18.2 million, or 44.8%, compared to $40.6 million for the six months ended
July 31, 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 40.9% compared to 50.6% last year
as we saw increased operating leverage with higher revenue. G&A related
share-based compensation expense was $9.3 million for the six months ended
July 31, 2022 and was $3.2 million for the same period last year.

Rental Product Depreciation and Revenue Share.  Rental product depreciation and
revenue share was $42.4 million for the six months ended July 31, 2022, an
increase of $10.8 million, or 34.2%, compared to $31.6 million for the six
months ended July 31, 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 29.5% of revenue in the six
months ended July 31, 2022, down from 39.4% 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
$8.7 million for the six months ended July 31, 2022, a decrease of $1.2 million,
or (12.1)%, compared to $9.9 million for the six months ended July 31, 2021.
This decrease was primarily driven by lower depreciation associated with
leasehold improvements.

Interest Income / (Expense), Net.  Interest expense, net was $(18.9) million for
the six months ended July 31, 2022, a decrease of $10.5 million, or (35.7)%,
compared to $(29.4) million for the six months ended July 31, 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
July 31, 2021 and then was paid down in full in October 2021 which impacted the
balance as of July 31, 2022. Of the $(18.9) million total interest expense in
the six months ended July 31, 2022, $7.0 million was the accrual of paid-in kind
("PIK") interest, $9.9 million was cash, financing lease interest and other
interest and $2.0 million was debt discount amortization, compared to
$23.2 million of PIK interest, $2.3 million of cash, financing lease interest
and other interest and $3.9 million of debt discount amortization in the six
months ended July 31, 2021.

Gain / (Loss) on Warrant Liability Revaluation, Net. Gain / (loss) on warrant
liability revaluation, net was $(7.5) million for the six months ended July 31,
2021. As of July 31, 2022, all the Company's outstanding warrants are
equity-classified and, as such, did not require fair value remeasurement during
the period.

Other Income / (Expense), Net. Other income / (expense), net was $1.3 million
for the six months ended July 31, 2022, a decrease of $(2.6) million, compared
to $3.9 million for the six months ended July 31, 2021. This decrease was
primarily driven by $4.0 million of insurance claim proceeds, which were settled
during the six months ended July 31, 2021.

Non-GAAP Financial Measures

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.
                                       41

————————————————– ——————————

Contents

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 (4.1)% in the three
months ended July 31, 2021 to 2.4% in the three months ended July 31, 2022.
Adjusted EBITDA margins have also improved from (10.1)% in the six months ended
July 31, 2021 to (4.9)% in the six months ended July 31, 2022.

The following table provides a reconciliation of net loss, the most comparable GAAP financial measure, to adjusted EBITDA for the periods presented:

                                                Three Months Ended July 31,                Six Months Ended July 31,
                                                  2022                  2021                 2022                2021
                                                       (in millions)                             (in millions)
Net loss                                    $       (33.9)          $   (42.4)         $      (76.4)          $  (84.7)
Interest (income) / expense, net (1)                  9.6                14.9                  18.9               29.4
Rental product depreciation                          13.5                11.2                  27.1               23.9
Other depreciation and amortization (2)               4.5                 4.8                   8.7                9.9
Share-based compensation (3)                          6.9                 2.4                  12.4                4.3
Write-off of liquidated assets (4)                    1.8                 1.4                   2.4                2.8
Non-recurring adjustments (5)                         0.7                 1.8                   1.0                2.8
Income tax (benefit) / expense                          -                (0.1)                    -               (0.1)
(Gain) / loss on warrant liability
revaluation, net (6)                                    -                 8.0                     -                7.5
Other (income) / expense, net (7)                    (1.3)               (3.9)                 (1.3)              (3.9)
Other (gains) / losses (8)                              -                   -                   0.2                  -
Adjusted EBITDA                             $         1.8           $    (1.9)         $       (7.0)          $   (8.1)
Adjusted EBITDA Margin (9)                            2.4   %            (4.1) %               (4.9)  %          (10.1) %


__________
(1)Includes debt discount amortization of $1.0 million in the three months ended
July 31, 2022, $1.7 million in the three months ended July 31, 2021, $2.0
million in the six months ended July 31, 2022 and $3.9 million in the six months
ended July 31, 2021.

(2) Reflects the amortization of non-rental income and the amortization of capitalized software.

(3)Reflects non-cash charge related to stock-based compensation.

(4)Reflects the write-off of the remaining book value of liquidated rental income that was previously held for sale.

(5)Non-recurring adjustments for the three months ended July 31, 2022 includes
$0.7 million of costs related to public company SOX readiness and the three
months ended July 31, 2021 includes $1.8 million of costs primarily associated
with public readiness preparation. Non-recurring adjustments for the six months
ended July 31, 2022 includes $1.0 million of public company SOX readiness and
for the six months ended July 31, 2021 includes $2.7 million of costs primarily
associated with public readiness preparation.

(6)Reflects the expense associated with revaluing prior liability classified
lender warrants to the respective fair value at period end. As of July 31, 2022,
all outstanding warrants are equity classified and therefore do not require
remeasurement going forward.

(7)Primarily includes $1.3 million of monetized tax credits for the three and
six months ended July 31, 2022 and $4.0 million of insurance claim proceeds for
the three and six months ended July 31, 2021.

(8)Includes gains / losses recognized in relation to foreign exchange, operating
lease terminations and the related surrender of fixed assets (see "Note 4 -
Leases - Lessee Accounting" in the Notes to the Condensed Consolidated Financial
Statements).

(9) Adjusted EBITDA margin calculated as Adjusted EBITDA as a percentage of sales.

Cash and capital resources

Since our founding, we have financed our operations primarily from net proceeds
from the sale of redeemable preferred stock, common stock and debt financings.
As of July 31, 2022, we had cash and cash equivalents of $192.3 million and
restricted cash of $10.4 million ($4.6 million current and $5.8 million
noncurrent), and an accumulated deficit of $(877.6) million.

                                       42
--------------------------------------------------------------------------------
  Table of Contents
As disclosed above, on October 29, 2021, we closed our IPO, in which we issued
and sold 17,000,000 shares at a 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.

Concurrent with our IPO, we paid down our senior secured term loan of $80.7
million (including accrued interest) with Ares Corporate Opportunities Fund V,
L.P. (the "Ares Facility") in full and $60.0 million of our Temasek Facility and
refinanced the remaining Temasek Facility, resulting in a total debt repayment
of $140.7 million. Our total indebtedness as of July 31, 2022 was $269.8
million. For a description of the terms of our current and prior credit
agreements, see "Note 6 - Long-Term Debt" in the Notes to the Condensed
Consolidated Financial Statements.

We expect that operating losses and negative cash flows from operations could
continue in the foreseeable future as we continue to acquire products and
increase other investments in our business. We believe our existing cash and
cash equivalents, and cash generated from our operations, will be sufficient to
sustain our business operations, to satisfy our debt service obligations and to
comply with our amended debt covenants for at least the next twelve months from
the date of this Quarterly Report. Additionally, in September 2022, the Company
announced a restructuring plan to reduce costs, streamline its organizational
structure and drive operational efficiencies, which is expected to generate
annual operating expense savings of $25 to $27 million (relative to the second
quarter of fiscal 2022 run rate) in fiscal 2023.

Our future capital requirements will depend on many factors, including, but not
limited to, growth in the number of customers and Active Subscribers and the
timing of investments in technology and personnel to support the overall growth
of our business. To the extent that current and anticipated future sources of
liquidity are insufficient to fund our future business activities and
requirements, we may be required to seek additional equity or debt financing.
The sale of additional equity would result in additional dilution to our
stockholders. The incurrence of debt financing would result in debt service
obligations and the instruments governing such debt could provide for operating
and financing covenants that would restrict our operations. There can be no
assurances that we will be able to raise additional capital which could
negatively affect our liquidity in the future. In the event that additional
financing is required from outside sources, we may not be able to negotiate
terms acceptable to us or at all. If we are unable to raise additional capital
when required, or if we cannot expand our operations or otherwise capitalize on
our business opportunities because we lack sufficient capital, our business,
results of operations, financial condition, and cash flows would be adversely
affected.

Cash Flows

The following table summarizes our cash flows for the periods presented:

                                                                          Six Months Ended
                                                                              July 31,
                                                                      2022                2021

Net cash (used in) provided by operating activities              $     (33.0)         $    (12.7)
Net cash (used in) provided by investing activities                    (20.8)               (3.4)
Net cash (used in) provided by financing activities                     (3.1)               22.4

Net increase in cash and cash equivalents and restricted cash (56.9)

                6.3

Cash and cash equivalents and restricted cash at the beginning of the year

                                                                   259.6               109.2

Cash and cash equivalents and restricted cash at the end of the year $202.7 $115.5


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, which was $(16.1) million for
the six months ended July 31, 2021 and $(53.8) million for the six months ended
July 31, 2022. The cash consumption of the business was higher in the first six
months of fiscal year 2022 compared with the same period of last year primarily
due to higher investments in growth initiatives and capital expenditures
associated with the COVID-19 pandemic recovery compared to last year.

The sum of net cash used in operating activities and net cash used in investing
activities, as a percentage of revenue, was (20.1)% for the six months ended
July 31, 2021 and (37.5)% for six months ended July 31, 2022.
                                       43

————————————————– ——————————

Contents

Net cash (used in) provided by operating activities.  For the six months ended
July 31, 2022, net cash used in operating activities was $(33.0) million, which
consisted of a net loss of $(76.4) million, partially offset by non-cash charges
of $58.9 million, reclassification of the proceeds from the sale of rental
product of $8.8 million and a net change of $(6.7) million in our operating
assets and liabilities. The non-cash charges were primarily comprised of $26.9
million of rental product depreciation and write-off expenses, $7.0 million of
payment-in-kind interest, $12.4 million of share-based compensation, $2.0
million of debt discount amortization and $10.6 million of other fixed and
intangible asset depreciation and the loss on the surrender of fixed asset
write-offs related to the partial termination of the lease of the corporate
headquarters (see "Note 4 - Leases - Lessee Accounting" in the Notes to the
Condensed Consolidated Financial Statements).

For the six months ended July 31, 2021, net cash used in operating activities
was $(12.7) million, which consisted of a net loss of $(84.7) million, partially
offset by non-cash charges of $72.0 million, reclassification of the proceeds
from the sale of rental product of $5.6 million and a net change of $5.6 million
in our operating assets and liabilities. The non-cash charges were primarily
comprised of $23.2 million of rental product depreciation and write-off
expenses, $23.2 million of payment-in-kind interest, $4.3 million of share-based
compensation, $7.5 million loss on remeasurement of warrant liability,
$3.9 million of debt discount amortization and $9.9 million of other fixed and
intangible asset depreciation and amortization.

Net cash (used in) provided by investing activities.  For the six months ended
July 31, 2022, net cash used in investing activities was $(20.8) million,
primarily consisting of $(27.6) million of purchases of rental product incurred
in the period and $(4.6) million of purchases of fixed and intangible assets.
The investment in rental product does not include an additional $8.9 million of
cost for units received in the current period but not yet paid for, but does
include $(6.5) million of cost for units paid for in the current period but
received in the prior period (see the Supplemental Cash Flow Information in Part
I, Item 1. Financial Statements). The investment in rental product was to
support our growth in customer demand. The majority of the investment in fixed
and intangible assets was related to investments in automation assets,
additional processing machinery and equipment for our Secaucus and Arlington
warehouses and capitalized technology labor. The cash used in investing
activities was partially offset by $8.8 million of proceeds from the sale of
owned rental product and $2.6 million of proceeds from the liquidation of rental
product.

For the six months ended July 31, 2021, net cash used in investing activities
was $(3.4) million, primarily consisting of $(8.5) million of purchases of
rental product and $(3.9) million of purchases of fixed and intangible assets.
The investment in rental product did not include the additional $1.7 million of
cost for units received in the current period but not yet paid for but did
include $(3.6) million of cost for units paid for in the current period but
received in the prior period (see Supplemental Cash Flow Information in Part I,
Item 1. Financial Statements). The investment in rental product was to support
growth in planned customer demand prior to the onset of COVID-19. The majority
of the investment in fixed and intangible assets was related to the build-out of
our new headquarters in Brooklyn, NY, the investment in automation assets and
additional processing machinery and equipment for our warehouses in addition to
capitalized technology labor. The cash used in investing activities was
partially offset by $5.6 million of proceeds from sale of owned rental product
and $3.4 million of proceeds from the liquidation of rental product.

Net cash provided by (used in) financing activities. In the six months ended July 31, 2022the net cash allocated to financing activities was ($3.1) millionconsisting of other financing payments.

In the six months ended July 31, 2021net cash provided by financing activities was $22.4 millionconsisting primarily of proceeds from the issuance of redeemable preferred shares of $21.2 million.

Contractual obligations and commitments

In October 2021, we paid down outstanding principal and accrued interest of our
Ares Facility in full and a portion of our Temasek Facility. Additionally, we
entered into the Amended Temasek Facility. As of July 31, 2022, we had
approximately $269.8 million of total debt outstanding, none of which is payable
within the next 12 months. See "Note 6 - Long-Term Debt" in the Notes to the
Condensed Consolidated Financial Statements for more information.

See “Note 4 – Leases – Accounting for tenants” in the Notes to the condensed consolidated financial statements for our minimum fixed lease obligations under existing leases as at July 31, 2022.

                                       44

————————————————– ——————————

Contents

Critical accounting estimates

Our critical accounting estimates are described under the heading "Management's
Discussion and Analysis of Financial Condition and Results of
Operations-Critical Accounting Estimates" in our 2021 Annual Report on Form
10-K. In the six months ended July 31, 2022, there were no material changes to
our critical accounting estimates from those discussed in our 2021 Annual Report
on Form 10-K.

Recent accounting pronouncements

See “Note 2 – Summary of Significant Accounting Policies” in the Notes to the Condensed Consolidated Financial Statements for a description of recently adopted accounting pronouncements and recently issued accounting pronouncements that have not yet been adopted.

JOBS Act

We currently qualify as an "emerging growth company" under the Jumpstart Our
Business Startups Act of 2012, or the JOBS Act. Accordingly, we are provided the
option to adopt new or revised accounting guidance either (i) within the same
periods as those otherwise applicable to non-emerging growth companies or
(ii) within the same time periods as private companies. We have elected to adopt
new or revised accounting guidance within the same time period as private
companies until the earlier of the date we (i) are no longer an emerging growth
company or (ii) affirmatively and irrevocably opt out of the extended transition
period. Accordingly, our utilization of these transition periods may make it
difficult to compare our financial statements to those of non-emerging growth
companies and other emerging growth companies that have opted out of the
transition periods afforded under the JOBS Act.

© Edgar Online, source Previews

Share.

About Author

Comments are closed.