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What changed in Rent the Runway, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Rent the Runway, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+621 added−565 removedSource: 10-K (2023-04-13) vs 10-K (2022-04-14)

Top changes in Rent the Runway, Inc.'s 2023 10-K

621 paragraphs added · 565 removed · 429 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changePriority 1: Ensure our workforce remains diverse and for leadership to reflect the population of individual contributors • Maintain on average 40% representation of racial and ethnic minorities 3 for the US corporate workforce through fiscal year end 2026. • Maintain on average 50% representation of individuals identifying as women and non-binary in the US workforce through fiscal year end 2026. • Double representation of LatinX leadership in the new hire classes at our Secaucus warehouse by fiscal year end 2026. • Double representation of Black and LatinX leadership in new hire classes at our Dallas warehouse by fiscal year end 2026.
Biggest changeEnsure our workforce remains diverse and for leadership to reflect the population of individual contributors. Maintain on average 40% representation of racial and ethnic minorities for the U.S. corporate workforce through fiscal year end 2026. 10 Our representation of U.S. corporate employees identifying as a racial and ethnic minority was 44% as of January 31, 2023.
Rental Reverse Logistics We designed our patented technology to support the processes in our fulfillment centers and ensure that we can process orders efficiently and extend the useful life of our products. • Garment Science: ◦ Cleaning Intelligence: We have over a decade of data and expertise in optimizing the life of a garment by leveraging different cleaning and care methods. ◦ Cleaning Automation: Automation supports dynamic sorting of items into as many as 26 different cleaning programs. ◦ Garment Care and Restoration: All units undergo one or more quality audits before being available to rent for the next customer. • Intelligent Fulfillment Network : Our unified booking engine, the “brain” of our distribution capabilities, dynamically manages decisions such as which fulfillment center to ship a unit from or which transportation type to select to reduce cost.
Rental Reverse Logistics We designed our patented technology to support the processes in our fulfillment centers and ensure that we can process orders efficiently and extend the useful life of our products. • Garment Science: ◦ Cleaning Intelligence: We have over a decade of data and expertise in optimizing the life of a garment by leveraging different cleaning and care methods. ◦ Cleaning Automation: Automation supports dynamic sorting of items into as many as 23 different cleaning programs. ◦ Garment Care and Restoration: All units undergo one or more quality audits before being available to rent for the next customer. • Intelligent Fulfillment Network : Our unified booking engine, the “brain” of our distribution capabilities, dynamically manages decisions such as which fulfillment center to ship a unit from or which transportation type to select to reduce cost.
How It Works We offer customers three ways to access our closet: monthly subscription, a-la-carte rentals or “Reserve” and purchasing through our Resale offering. Subscription Pick a Plan. When customers subscribe, they select from a menu of entry plans.
How It Works We offer customers three ways to access our closet: monthly subscription or “Subscription”, a-la-carte rentals or “Reserve” and purchasing through our Resale offering. Subscription Pick a Plan. When customers subscribe, they select from a menu of entry plans.
All of the styles are exclusive to RTR for a period of time, after which brands may monetize these exclusive designs through other channels, typically subject to a royalty fee payment to Rent the Runway, which we have not begun to earn to date.
All of the styles are exclusive to rent on RTR for a period of time, after which brands may monetize these exclusive designs through other channels, typically subject to a royalty fee payment to Rent the Runway, which we have not begun to earn to date.
We have the flexibility to optimize prices for revenue, gross margin and product return on investment based on the business needs. • Lower Cost Product: We leverage our data to create highly desirable Exclusive Designs in collaboration with our brand partners that we manufacture to be more durable at significantly lower cost. • Longer Product Life: Our feedback to brands helps us customize for higher longevity of our products - we understand how to clean and care for garments to maximize multi-year monetization and incremental turns per unit.
We have the flexibility to optimize prices for revenue, gross margin and product return on investment based on the business needs. • Lower Cost Product: We leverage our data to create highly desirable Exclusive Designs in collaboration with our brand partners, influencers and celebrities that we manufacture to be more durable at significantly lower cost. • Longer Product Life: Our feedback to brands helps us customize for higher longevity of our products - we understand how to clean and care for garments to maximize multi-year monetization and incremental turns per unit.
We give customers access to our “unlimited closet” through our Subscription offering or the ability to rent a-la-carte through our reserve offering (“Reserve”). We also give our subscribers and customers the ability to buy our products through our Resale offering.
We give customers access to our “unlimited closet” through our subscription offering (“Subscription”) or the ability to rent a-la-carte through our reserve offering (“Reserve”). We also give our subscribers and customers the ability to buy our products through our Resale offering.
We also identify and tag over 70 detailed attributes per style. By mapping our interactions with our products’ inherent attributes, we create a strong feedback loop which allows us to optimize the supply of products in ways we believe that would be difficult for traditional retailers to achieve or replicate. This is one of our biggest competitive advantages.
We also identify and tag approximately 70 detailed attributes per style. By mapping our interactions with our products’ inherent attributes, we create a strong feedback loop which allows us to optimize the supply of products in ways we believe that would be difficult for traditional retailers to achieve or replicate. This is one of our biggest competitive advantages.
We leverage these personalization scores across the business to: rank products on our subscriber personalized storefront and in search results, recommend a specific size within a style on product pages, compute general product relevance at the subscriber level and inform product acquisition, inform sizing of new apparel designs with our brand partners and more. • Retention Predictive Model: We leverage a retention predictive model to understand the relative importance of more than 200 drivers of loyalty and long-term value, at the single customer level to understand which interventions have the highest probability of improving customer retention.
We leverage these personalization scores across the business to: rank products on our subscriber personalized storefront and in search results, recommend a specific size within a style on product pages, compute general product relevance at the subscriber level and inform product acquisition, inform sizing of new apparel designs with our brand partners and more. • Retention Predictive Model: We leverage a retention predictive model to understand the relative importance of various drivers of loyalty and long-term value, at the single customer level to understand which interventions have the highest probability of improving customer retention.
Product longevity data often help our brands increase the life of their garments, which can support their sustainability goals. • Understanding Customer Demand: As our customers wear (or don’t wear) and review items, we can assess demand due to our robust attribution of products (over 70 attributes) paired with customer interaction data.
Product longevity data often help our brands increase the life of their garments, which can support their sustainability goals. • Understanding Customer Demand: As our customers wear (or don’t wear) and review items, we can assess demand due to our robust attribution of products (approximately 70 attributes) paired with customer interaction data.
For Subscription, 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.
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.
This flywheel helps propel the exponential growth of our post-wear, customer and operations data. We use our data to create what we believe are the most relevant assortments and personalized experiences for our customers, which in turn drives loyalty.
This flywheel helps propel the exponential growth of our post-wear, customer and operations data. We use our data to create what we believe are the most relevant assortments and personalized experiences for our customers, which in turn helps to drive loyalty.
Information on our website does not constitute part of this Annual Report on Form 10-K or any other report we file or furnish with the SEC. 16 Table of Contents
Information on our website does not constitute part of this Annual Report on Form 10-K or any other report we file or furnish with the SEC. 18 Table of Contents
Also available on our website are printable versions of our Code of Conduct, Corporate Governance Guidelines and charters of the standing committees of our board of directors. 15 Table of Contents Our Code of Conduct applies to all of our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer and controller, or persons performing similar functions.
Also available on our website are printable versions of our Code of Conduct, Corporate Governance Guidelines and charters of the standing committees of our board of directors. Our Code of Conduct applies to all of our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer and controller, or persons performing similar functions.
We aim to deliver industry leading fulfillment promises with a goal of delivering orders within two business days in most markets. • Garment Care Hardware: Our facilities are equipped with a curated set of over 430 pieces of digitally integrated garment care hardware including wet cleaning, dry cleaning and spray cleaning machines; dryers, steam tunnels, pressers, spotting boards, auto-baggers and commercial sewing machines. • Processing: Garments flow through the facility on both rail and belt-driven conveyance guided by RFID tags linked to a massive array of cleaning instructions set by our proprietary operating system.
We aim to deliver industry leading fulfillment promises with a goal of delivering orders within two to three business days. • Garment Care Hardware: Our facilities are equipped with a curated set of over 450 pieces of digitally integrated garment care hardware including wet cleaning, dry cleaning and spray cleaning machines; dryers, steam tunnels, pressers, spotting boards, auto-baggers and commercial sewing machines. • Processing: Garments flow through the facility on both rail and belt-driven conveyance guided by RFID tags linked to a massive array of cleaning instructions set by our proprietary operating system.
We regularly leverage this data to experiment with different approaches to retain customers based on this model in a targeted and personalized way. • Computer Vision for Products: For each style in our assortment, we generate over 2,000 visual style embeddings using deep learning that capture color, pattern shape, sleeve length, etc.
We regularly leverage this data to experiment with different approaches to retain customers based on this model in a targeted and personalized way. • Computer Vision for Products: For each style in our assortment, we generate an embedding with over 2,000 visual style dimensions using deep learning that capture color, pattern shape, sleeve length, etc.
Our Closet in the Cloud offers a wide assortment of items for every occasion, from evening wear and accessories to ready-to-wear, workwear, denim, casual, maternity, outerwear, blouses, knitwear, loungewear, jewelry, handbags, activewear, ski wear, home goods and kidswear.
Our Closet in the Cloud offers a wide assortment of items for every occasion, from evening wear and accessories to ready-to-wear, workwear, denim, casual, maternity, outerwear, blouses, knitwear, loungewear, jewelry, handbags, activewear and ski wear.
According to our April 2021 Subscriber Survey, 83% of our subscribers say RTR makes them the most confident version of themselves at work or in social settings. Because there is no commitment to keep an item rented from RTR, we fuel greater self-expression for our customers. • Personalization and Convenienc e .
According to our March 2023 Subscriber Survey, 83% of our subscribers say RTR makes them the most confident version of themselves at work or in social settings. Because there is no commitment to keep an item rented from RTR, we fuel greater self-expression for our customers. • Personalization and Convenienc e .
Share by RTR represented 33% of our product acquisition in fiscal year 2021. Increases (or decreases) in the proportion of total items acquired via Share by RTR as well as the usage of Share by RTR items will increase (or decrease) variable expenses recorded in the rental product depreciation and revenue share line item on our consolidated statement of operations.
Share by RTR represented 27% of our product acquisition in fiscal year 2022. Increases (or decreases) in the proportion of total items acquired via Share by RTR as well as the usage of Share by RTR items will increase (or decrease) variable expenses recorded in the rental product depreciation and revenue share line item on our consolidated statement of operations.
A comparable value price is used for our Exclusive Designs and is based on an evaluation of prices for new comparable merchandise sold elsewhere in the marketplace. 4 Table of Contents • Technology and Logistics Advantage. We have developed a proprietary operating system for the sharing economy of physical goods that pairs proprietary intelligent software with differentiated infrastructure and hardware.
A comparable value price is used for our Exclusive Designs and is based on an evaluation of prices for new comparable merchandise sold elsewhere in the marketplace. 4 Table of Contents • Technology and Logistics Advantage. We have developed a proprietary operating system that pairs proprietary software with differentiated infrastructure and hardware.
If a piece is in greater demand, it will drive higher revenue, which could result in brands earning more on the item than if it had been sold through Wholesale. Share by RTR aligns incentives between brands and RTR and alleviates product risk as it is largely a pay-for-performance model.
If a piece is in greater demand, it will drive higher revenue, which could result in brands earning more on the item than if it had been sold through Wholesale, generally subject to a maximum cap. Share by RTR aligns incentives between brands and RTR and alleviates product risk as it is largely a pay-for-performance model.
Each plan starts with four items, or “spots,” per shipment, and varies based on how often the subscriber wishes to receive new shipments, each a “swap.” Today, the majority of our subscribers onboard into plans that offer one, two or four shipments per month for $94, $144 or $235 per month, respectively. Customize.
Each plan now starts with five items, or “spots,” per shipment, and varies based on how often the subscriber wishes to receive new shipments, each a “swap.” Today, our subscribers onboard into plans that offer one, two, three or four shipments per month for $94, $144, $193 or $235 per month, respectively. Customize.
We believe that the process improvements we have made enable us to expand our capacity to handle over 4x our active subscriber count at the end of fiscal year 2021 in our two current facilities with minimal investment. • Transportation Management: We partner with a wide variety of national, regional and local last mile service providers in order to close the loop between our fulfillment centers and our customers.
We believe that the process improvements we have made have enabled us to expand our capacity to handle approximately 4x our active subscriber count at the end of fiscal year 2022 in our two current facilities with minimal investment. • Transportation Management: We partner with a variety of national, regional and local last mile service providers in order to close the loop between our fulfillment centers and our customers.
The portion of our products sourced through Share by RTR and Exclusive Designs - our more capital-efficient sources - has grown from approximately 26% in fiscal year 2019 to approximately 55% in fiscal year 2021.
The portion of our products sourced through Share by RTR and Exclusive Designs - our more capital-efficient sources - has grown from approximately 26% in fiscal year 2019 to approximately 58% in fiscal year 2022.
Just like our Subscription offering, we clean and care for items on behalf of our customers when they are returned. 5 Table of Contents Resale In addition to renting, customers also shop pre-loved styles from our closet at a discount to retail price, ranging from 10-85% off of designer retail value (which we calculate using original retail and/or comparable value prices).
Just like our Subscription offering, we clean and care for items when they are returned. 5 Table of Contents Resale In addition to renting, customers also shop pre-loved styles from our closet at a discount to retail price, up to 90% off of designer retail value (which we calculate using original retail and/or comparable value prices).
Our business model aims for customers to substitute purchases with rentals and we have been successful in doing so, as 83% of our subscribers have bought less fast fashion since using RTR and 89% buy fewer clothes than they used to prior to joining RTR, as indicated by our April 2021 Subscriber Survey. 2 According to the Life Cycle Assessment Study (the “LCA Study”) we commissioned in 2021 with Green Story and SgT, third-party consultants specializing in apparel life cycle assessments. 6 Table of Contents Our Unique Brand Partner Approach We acquire our products through three channels: Wholesale, Share by RTR and Exclusive Designs.
Our business model aims for customers to substitute purchases with rentals and we have been successful in doing so, as 87% of our subscribers have bought less fast fashion since using RTR 3 and 82% buy fewer clothes than they used to prior to joining RTR 4 . 2 According to the Life Cycle Assessment Study (the “LCA Study”) we commissioned in 2021 with Green Story and SgT, third-party consultants specializing in apparel life cycle assessments. 3 Per our March 2023 Subscriber Survey. 4 Per our November 2022 Subscriber Survey. 6 Table of Contents Our Unique Brand Partner Approach We acquire our products through three channels: Wholesale, Share by RTR and Exclusive Designs.
We have built a custom frontend platform that supports Subscription, Reserve and Resale in one easy experience for the customer. This allows us to optimize the product offering for the customer based on her needs.
We have built a custom frontend platform that supports Subscription, Reserve and Resale in one cohesive experience for the customer, which allows us to optimize our product offering for the customer based on her needs.
By showing customers designs they will love and items that are likely to fit, we continue to drive strong loyalty and monetization. • Customer Experience and Community. Our customers are deeply engaged, as evidenced by the 24.5 million customer reviews submitted through January 2022.
By showing customers designs they will love and items that are likely to fit, we continue to drive strong loyalty and monetization. • Customer Experience and Community. Our customers are deeply engaged, as evidenced by the 33.1 million customer reviews submitted through January 2023.
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 and competition during holidays.
We also experience seasonality in the timing of expenses and capital outlays. Transportation expense, and therefore fulfillment cost, is typically highest in the fourth fiscal quarter, given higher service levels, such as more costly and expedited shipping, and competition during holidays.
As of January 31, 2022, our technology team consisted of 206 employees, across engineering, data analytics, IT, product, software quality assurance, user experience and design, including a team of 55 in Galway, Ireland, primarily in engineering and data analytics.
As of January 31, 2023, our technology team consisted of 182 employees, across engineering, data analytics, IT, product, software quality assurance, user experience and design, including a team of 63 in Galway, Ireland, primarily in engineering and data analytics.
Item 1. Business Overview Our mission is to power women to feel their best every day. Since our f ounding in November 2009, we have built the world’s first and largest shared designer closet with over 19,000 styles by over 780 brand partners.
Item 1. Business Overview Our mission is to power women to feel their best every day. Since our f ounding in November 2009, we have built the world’s first and largest shared designer closet with tens of thousands of styles by hundreds of brand partners.
With over 19,000 styles across over 780 brands in our Closet in the Cloud, Rent the Runway gives customers the ability to always wear something new to them and inspires customers to expand their fashion tastes without risk of buyer’s remorse. • Value.
With tens of thousands of styles across hundreds of brands in our Closet in the Cloud, Rent the Runway gives customers the ability to always wear something new to them and inspires customers to expand their fashion tastes without risk of buyer’s remorse. • Value.
This leads to deep engagement with our platform as customers discover new brands they love. Brand partners are able to tap into our large, engaged community to discover new customers and get unparalleled data insights. All of this helps them grow their businesses and encourages them to partner more closely with us over time.
Brand partners are able to tap into our large, engaged community to discover new customers and get unparalleled data insights. All of this helps them grow their businesses and encourages them to partner more closely with us over time.
Our expertise in vertically integrated just-in-time reverse logistics and garment science allows us to achieve multi-year monetization on our garments. We have also built a custom front-end platform that supports all of our offerings in one easy experience for the customer.
Our expertise in vertically integrated just-in-time reverse logistics and garment science allows us to achieve multi-year monetization on our garments. We have also built a custom front-end platform that supports all of our consumer-facing offerings.
We deliver significant financial value to customers, with our average subscriber wearing clothes worth more than 20 times what she pays for a monthly RTR subscription on an annualized basis (more than $40,000 in designer retail value in fiscal year 2021 1 ).
We deliver significant financial value to customers, with our average subscriber wearing clothes worth more than 20 times what she pays for a monthly RTR Subscription on an annualized basis (more than $40,000 in designer retail value in fiscal year 2022 1 ). Our tremendous selection is enabled by our designer brand partnerships.
Exclusive Designs accounted for 22% of our product acquisition in fiscal year 2021. 7 Table of Contents Rent the Runway Virality and Marketing Strategy Our brand and deeply engaged consumer base have allowed us to acquire customers efficiently. Since our founding, we have spent les s than 10% of total revenue on marketing, and our growth has been mostly organic.
Exclusive Designs accounted for 31% of our product acquisition in fiscal year 2022. 7 Table of Contents Our Marketing Strategy Our brand and deeply engaged consumer base have allowed us to acquire customers efficiently. Since our founding, we have spent les s tha n 10% of total revenue on marketing, and our growth has been mostly organic.
Many of our customers share a love of the Rent the Runway experience and value proposition, which starts conversations both online and offline and leads to word of mouth adoption. Because of how customers use Rent the Runway, renting bold dynamic pieces, our clothing becomes a visual billboard and advertisement for our platform.
Many of our customers share a love of the Rent the Runway experience and value proposition, which starts conversations both online and offline and leads to word of mouth adoption. Our clothing often becomes a visual billboard and advertisement for our platform.
We have created 40+ data science algorithms that help us continuously achieve better outcomes for the business including in two of our biggest levers: customer lifetime value and product monetization. As our data sets grow, our algorithms become more powerful and gain leverage.
We have created 40+ data science algorithms that help us continuously achieve better outcomes for the business including in two of our biggest levers: customer lifetime value and product monetization.
Data Science Capabilities and Algorithms Data is the fabric of Rent the Runway and powers our technology, logistics and data science efforts across all parts of our business, from recommender systems to pricing algorithms and forecasting. Experimentation and algorithm development are deeply embedded in all parts of our business.
Data Science Capabilities and Algorithms Data is the fabric of Rent the Runway and powers our technology, logistics and data science efforts across all parts of our business, from recommender systems to pricing algorithms and forecasting.
Our proprietary software leverages our vast and unique dataset to optimize key outcomes for RTR. 9 Table of Contents Proprietary Software and Systems Because our product offering is highly innovative, we have purpose-built a technology stack to support three key areas of our business: • 2-Way e-commerce • Rental Reverse Logistics • Merchandising & Products Control 2-Way e-commerce We have a 2-way relationship with our customers — in that nearly every item is returned and the customer provides feedback.
Our proprietary software and key integrations with third-parties leverage our vast and unique dataset to optimize key outcomes for RTR. 9 Table of Contents Proprietary and Third-Party Software and Systems We have purpose-built technology to support three key areas of our business: • Customer Facing e-Commerce (including 2-Way e-Commerce) • Rental Reverse Logistics • Merchandising & Products Control Customer Facing e-Commerce (including 2-Way e-commerce) We have a 2-way relationship with our customers — in that nearly every item is returned and the customer provides feedback.
We leverage this data to create benefits for our customers, our brand partners and our business. We capture more than 5,200 unique data points per subscriber per year and up to 27 unique data points per item each time it is rented across four channels including website data, post-wear data, operations data and customer data.
We leverage this data to create benefits for our customers, our brand partners and our business. We capture thousands of unique data points per subscriber per year and over 20 unique data points per item each time it is rented across four channels including website data, post-wear data, operations data and customer data.
The laws and regulations govern many issues related to our business practices, including those regarding consumer protection, worker classification, wage and hour, sick pay and leaves of absence, anti-discrimination and harassment, whistleblower protections, background checks, privacy, data security, intellectual property, health and safety, environmental, competition, fees and payments, pricing, product liability and disclosures, property damage, communications, employee benefits, taxation, unionization and collective bargaining, contracts, arbitration agreements, class action waivers, terms of service, and accessibility of our mobile app or website.
The laws and regulations govern many issues related to our business practices, including those regarding consumer protection, worker classification, wage and hour, sick pay and leaves of absence, anti-discrimination and harassment, whistleblower protections, background checks, privacy, data security, intellectual property, health and safety, environmental, competition, fees and payments, pricing, product liability and disclosures, property damage, communications, employee benefits, taxation, unionization and collective bargaining, contracts, arbitration agreements, class action waivers, terms of service, and accessibility of our mobile app or website. 16 Table of Contents These laws and regulations are constantly evolving and may be interpreted, applied, created, superseded, or amended in a manner that could harm our business.
As our community has grown, Rent the Runway has also benefited from powerful virality and word-of-mouth marketing. 81% of subscribers have shared RTR with at least five people; 32% have shared with over 20 people and 78% of our customers posted themselves wearing Rent the Runway on social media, as indicated by our April 2021 Subscriber Survey. • Sustainability.
As our community has grown, Rent the Runway has also benefited from powerful virality and word-of-mouth marketing. 80% of subscribers have shared RTR with at least five people; 43% have shared with over 10 people and 75% of our customers posted themselves wearing Rent the Runway on social media, as indicated by our March 2023 Subscriber Survey. • Sustainability.
While we recognize that these racial and ethnic categories do not reflect the complexities of an individual's identity nor do they acknowledge the systemic and historical exclusion of these communities, we use these categories for reporting as required by the U.S.
While we recognize that these racial and ethnic categories do not reflect the complexities of an individual's identity nor do they acknowledge the systemic and historical exclusion of these communities, we use these categories for reporting as required by the U.S. Equal Opportunity Commission. 15 Table of Contents Seasonality We experience seasonality in our business.
Our Customer Value Proposition Through our platform, we have helped over 2.5 million lifetime customers discover the transformative power of utilizing our Closet in the Cloud across all of our offerings. Our customer base is diverse and spans age, household income distribution and U.S. geography.
Our Customer Value Proposition Through our platform, we have helped approximately 3 million lifetime customers discover the transformative power of utilizing our Closet in the Cloud across all of our offerings. Our customer base is diverse and spans age, household income distribution and U.S. geography. Subscribers are customers who access our Closet in the Cloud via our monthly Subscription offering.
Over 80% of our customers over the last 12 years have been acquired organically. As of January 2022, we have had over three trillion earned media impressions since 2018. As we have scaled, we have seen the value of the Rent the Runway brand grow and increasingly become a significant point of differentiation with consumers and brand partners.
Over 80% of our customers over the last 13 years have been acquired organically. As we have scaled, we have seen the value of the Rent the Runway brand grow and increasingly become a significant point of differentiation with consumers and brand partners.
We have an opportunity to continue to increase brand awareness and as of June 2021, our unaided brand awareness was 20% among U.S. women ages 18 - 45 with a household income of $50,000 or more.
We continue to have an opportunity to increase brand awareness and as of January 2023, our unaided brand awareness was 22% among U.S. women ages 18 - 45 with a household income of $50,000 or more, which is an increase of 2% year-over-year compared to fiscal year 2021.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Our Business Model—Our Product Acquisition Strategy.” We also have a small number of products bearing our trademarks, which are non-exclusive designs produced by third party partners at a significantly lower average cost than Wholesale to strategically fill assortment gaps, or our owned brands.
We also have a small number of products bearing our trademarks, which are non-exclusive designs produced by third party partners at a significantly lower average cost than Wholesale to strategically fill assortment gaps, or our owned brands.
Random storage allows for efficient putaway of garments and dynamically created pick paths that save labor cost. • RFID: We tag each unit and all reusable garment bags with RFID tags, which increases throughput, reduces cost, improves inventory control and enables new forms of automation. • Fulfillment Efficiency: We have automated various parts of the fulfillment process including picking, order consolidation and packing.
Random storage allows for efficient putaway of garments and dynamically created pick paths that save labor cost. • RFID: We tag each unit and all reusable garment bags with RFID tags, which increases throughput, reduces cost, improves rental product control and enables new forms of automation.
Additionally, we experience competition for consumer discretionary spending from other product and experiential categories. We believe we are able to compete effectively because there are numerous trends in our favor that support the continued growth and success of online fashion rental.
We believe we are able to compete effectively because there are numerous trends in our favor that support the continued growth and success of online fashion rental.
As of January 31, 2022, we had a total of 26 registered trademarks in the United States and 49 registered trademarks in non-U.S. jurisdictions. As of January 31, 2022, we had also registered a total of 11 copyrights.
As of January 31, 2023, we had a total of 26 registered trademarks in the United States and 60 registered trademarks in non-U.S. jurisdictions, as well as certain pending trademark applications. As of January 31, 2023, we had also registered a total of 12 copyrights.
At the end of the four- or eight-day rental period, customers simply return their items in the reusable garment bag using the prepaid shipping label included with their rental.
We provide a free backup size of the customer’s choosing and the option to rent a backup style at a discount. At the end of the four- or eight-day rental period, customers simply return their items in the reusable garment bag using the prepaid shipping label included with their rental.
We have created a two-sided discovery engine: customers are finding new brands they love and brand partners are finding new customers they need. For customers, we unlock freedom of self-expression through access to our “Unlimited Closet” that has a constantly rotating supply of styles for all occasions, seasons, moods and price points.
For customers, we unlock freedom of self-expression through access to our “Unlimited Closet” that has a constantly rotating supply of styles for all occasions, seasons, moods and price points. This leads to deep engagement with our platform as customers discover new brands they love.
See Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Our Product Acquisition Strategy.” Exclusive Designs We leverage our data to create highly desirable Exclusive Designs in collaboration with select brand partners that we manufacture through third-party partners to be more durable and at approximately 50% lower cost than wholesale.
Exclusive Designs We leverage our data to create highly desirable Exclusive Designs in collaboration with select brand partners, celebrities and influencers that we manufacture through third-party partners to be more durable and at approximately 50% lower cost than Wholesale.
These laws and regulations are constantly evolving and may be interpreted, applied, created, superseded, or amended in a manner that could harm our business. These changes may occur immediately or develop over time through judicial decisions or as new guidance or interpretations are provided by regulatory and governing bodies, such as federal, state and local administrative agencies.
These changes may occur immediately or develop over time through judicial decisions or as new guidance or interpretations are provided by regulatory and governing bodies, such as federal, state and local administrative agencies.
We have invested in an inbound network that allows our customers to return their items via national returns logistics providers and Rent the Runway-specific return methods, such as physical drop-off points, at-home pickup, and RTR drop-off boxes in retail stores or corporate offices. Merchandising and Product Control Our proprietary product catalog system is the backbone of our inventory management.
We have invested in an inbound network that allows our customers to return their items via national returns logistics providers and our at-home pickup program. 10 Table of Contents Merchandising and Product Control Our proprietary product catalog system is the backbone of our rental product management.
Our Technology and Logistics Advantage We have built a cohesive platform that pairs proprietary and third-party intelligent software with differentiated infrastructure and hardware all tailored to the sharing economy of physical goods.
We leverage this data as a feature in our recommender systems, to cluster styles to inform product acquisition and provide product attributes in our product catalog amongst other uses. Our Technology and Logistics Advantage We have built a cohesive platform that pairs proprietary and third-party software with differentiated infrastructure and hardware all tailored to the sharing economy of physical goods.
Wear, Repeat . When subscribers place an order, we aim to deliver their order within two days of shipping from our fulfillment centers in our patented, reusable garment bags, cleaned and ready to wear. Subscribers wear items for as long as they would like and choose to return some or all of their items with each new shipment.
Wear, Repeat . When subscribers place an order, we aim to deliver their order within two to three business days of shipping from our fulfillment centers in our reusable garment bags, cleaned and ready to wear.
We provide a data blueprint to brands and, based on this data, they design new collections for us that carry their brand name. Our Exclusive Designs collections enable our brand partners to innovate their businesses and enter into new product lines at reduced cost to them.
We provide a data blueprint to brands and, based on this data, they design new collections for us that carry their brand name.
This means that when our customers are wearing RTR and someone compliments them or asks about what they are wearing, 96% of our customers share that it’s Rent the Runway as opposed to the designer brand name. The majority of our subscribers have posted themselves wearing RTR on their social media over five times.
Many women share their Rent the Runway experience on social media and in their personal lives, which helps drive our organic growth and brand awareness. When our customers are wearing RTR and someone compliments them or asks about what they are wearing, 97% of our subscribers share that it’s Rent the Runway as opposed to the designer brand name.
When subscribers select the items they want to return on our app, we allow them to immediately start building their next shipment, maximizing their time with items at home. Our subscribers typically visit our app five times per week. Subscribers are asked to give us real-time feedback on the size, fit and quality of the items they rent.
Our subscribers typically visit our app multiple times per week. Subscribers are asked to give us real-time feedback on the size, fit and quality of the items they rent.
As we continue to expand our selection and grow the share of our assortment acquired from a designer, we benefit from greater discounts on product acquisition. Wholesale represented 45% of our product acquisition in fiscal year 2021.
We have observed that the original retail prices set by the brands are often at a 2.5x mark-up to the wholesale price. As we continue to expand our selection and grow the share of our assortment acquired from a designer, we benefit from greater discounts on product acquisition. Wholesale represented 42% of our product acquisition in fiscal year 2022.
Priority 2: Minimize waste from our business • Divert 90% of waste from our warehouse operations from landfill by fiscal year end 2026. • Eliminate unnecessary single use plastic packaging to customers and only utilize reusable, compostable or 100% recycled content for necessary plastic packaging to customers by fiscal year end 2023.
Eliminate unnecessary plastic in shipments to customers and only utilize reusable, compostable or 100% recyclable content for necessary plastic packaging to customers by fiscal year end 2023. (2023 Update) Eliminate unnecessary single use plastic packaging in shipments to customers and only utilize reusable, compostable or 100% recycled content for necessary plastic packaging to customers by fiscal year end 2023.
Priority 2: Use our platform to support and amplify diversity in fashion • $10 million cumulative spend with Black designers between fiscal year 2022 and fiscal year end 2026. • Ensure at least 40% representation of racial and ethnic minorities in our marketing materials and imagery by fiscal year end 2026.
Double representation of Black and LatinX leadership in new hire classes at our Dallas warehouse by fiscal year end 2026. 2. Use our platform to support and amplify diversity in fashion. $6 million cumulative spend with Black designers between fiscal year ended 2022 and fiscal year end 2026.
The structured data we collect through our “happiness survey” allows us to both improve her experience as well as optimize our care and therefore return on investment of the items returned. Once subscribers confirm their new shipment, they return their items to the nearest preferred shipping partner location or any Rent the Runway drop-off point in RTR’s reusable garment bag.
The structured data we collect through our “happiness survey” allows us to both improve her experience as well as optimize our garment care and, therefore, our return on investment of the items returned.
While a majority of our new customers have historically come to Rent the Runway organically, we view paid marketing as a way to supplement our organic growth. Our paid efforts have included both middle-of-the-funnel prospecting and bottom-of-the-funnel direct response campaigns which also benefit from our top-of-the-funnel brand marketing efforts that drive awareness.
In fiscal year 2022, we increased paid marketing spend and we saw an increase in the proportion of new customers attributed to paid channels. Our paid efforts have included both middle-of-the-funnel prospecting and bottom-of-the-funnel direct response campaigns which also benefit from our top-of-the-funnel brand marketing efforts that drive awareness.
The catalog serves as the starting point for products at RTR, and drives many areas of the Rent the Runway website and operation including quality control, search, navigation, and filtering. 10 Table of Contents While we have built the majority of our circular platform, we strategically leverage third-party software for commodity functionality where our problems are not unique.
The catalog serves as the starting point for products at RTR, and drives many areas of the Rent the Runway website and operation including quality control, search, navigation, and filtering.
Subscribers are customers who have ongoing access to our Closet in the Cloud via our monthly Subscription offering. The portion of our customers who are subscribers accounted for 84% of our revenue in fiscal year 2021. As of January 31, 2022, we had 115,240 Active Subscribers on Rent the Runway and 159,544 total subscribers including paused subscribers.
The portion of our customers who are subscribers accounted for 86% of our revenue in fiscal year 2022. As of January 31, 2023, we had 126,712 Active Subscribers on Rent the Runway and 171,998 total subscribers including paused subscribers, and during fiscal year 2022, we had 128,586 Average Active Subscribers.
The transformative nature of our customer value proposition means our customers are typically younger and different from other audiences our brands are exposed to. According to our June 2021 Rent the Runway Brand Survey, approximately 91% of our brand partners work with us because we introduce them to new, desirable customers and deepen awareness of their brands.
According to our June 2021 Rent the Runway Brand Survey, approximately 91% of our brand partners work with us because we introduce them to new, desirable customers and deepen awareness of their brands. Over the last 13 years, we have fostered strong relationships with our brand partners and have experienced extremely limited voluntary attrition.
Priority 1: Reduce carbon emissions from our business so that we operate with net zero emissions by 2040 • Displace the need for new production of 500,000 garments by fiscal year end 2026. • Power our owned and operated facilities (stores, offices, and warehouses) with 100% renewable electricity by fiscal year end 2026. • Quantify our supply chain emissions (i.e.
Reduce carbon emissions from our business so that we operate with net zero emissions by 2040. Displace the need for new production of 500,000 garments by fiscal year end 2026. 5 We estimate that our business model has displaced the need for new production of 151,523 garments in fiscal year 2022.
We further control the use of our proprietary technology and intellectual property through provisions in our terms of service. We intend to pursue additional actions to establish and protect our intellectual property rights to the extent we believe it would be beneficial and cost effective.
We further control the use of our proprietary technology and intellectual property through provisions in our terms of service.
We rely on a combination of trademarks, copyrights, patents, trade secrets, license agreements, confidentiality procedures, non-disclosure agreements, employee non-disclosure and invention assignment agreements, and other legal and contractual rights, and policies and procedures, to establish and protect our proprietary rights. 14 Table of Contents As of January 31, 2022, we had five issued patents in the United States that expire between 2031 and 2038, no allowed patent applications in the United States, and one patent application (including active PCT applications) pending in the United States and globally.
We rely on a combination of trademarks, copyrights, patents, trade secrets, license agreements, confidentiality procedures, non-disclosure agreements, employee non-disclosure and invention assignment agreements, and other legal and contractual rights, and policies and procedures, to establish and protect our proprietary rights.
We believe our platform is powering a new frontier for fashion, one in which women buy less and wear more, disrupting a centuries old industry and contributing to a more sustainable future. We believe that shared access to fashion has the power to curb the negative environmental and social impacts that stem from excess related to the fashion industry.
Our ESG (Environmental, Social, and Governance) Impact Strategy We believe that shared access to fashion has the power to curb the negative environmental and social impacts that stem from excess in the fashion industry. Driving positive impact is core to our business model: allowing our customers to buy less and wear more.
Prices for our resale items are dynamically calculated by our pricing algorithm which takes in data on rental history, customer trends and the impact of removing an item from rental circulation to optimize for lifetime return on investment on each product.
A Subscription is not required for purchase. Our subscribers also have the option to purchase items they already have at home, opening a spot in their next shipment. Prices for our resale items are typically dynamically calculated by our pricing algorithm, which takes in data on rental history, customer trends, and optimizes for lifetime return on investment on each product.
Our competitors include other fashion rental companies and also a range of traditional and online retail and resale fashion companies. Our ability to remain competitive depends on the continued shift from an ownership to an access model.
Our ability to remain competitive depends on the continued shift from an ownership to an access model. While other competitors may change their business models and endeavor to expand into the rental and resale space, online fashion rental and resale presents unique operational and technical challenges.
In addition, as of June 2021, 67% of our brand partners believe that RTR is an important part of their business’s sustainability strategy. As we have grown, our commercial relationships with our brand partners have evolved towards more capital efficient forms of rental product acquisition. • Data Advantage.
As we have grown, our commercial relationships with our brand partners have evolved towards more capital efficient forms of rental product acquisition. • Data Advantage. We capture a vast amount of unique, actionable data on our customers and products.
Our assortment contains thousands of new, current season styles that luxury competitors simultaneously carry - all available for subscription, Reserve, and Resale at much lower prices. We believe our engaged and loyal customer base paired with the data that we provide to our brand partners makes us an essential destination for many of the world’s most important brands.
We believe our engaged and loyal customer base paired with the data that we offer to our brand partners makes us an essential destination for many of the world’s most important brands. In addition, as of June 2021, 67% of our brand partners believe that RTR is an important part of their business’s sustainability strategy.
We plan to report against the following goals annually, starting with our Form 10-K for fiscal year 2022. 11 Table of Contents Ambition 1: Harness the power of our business model to set the standard for sustainable fashion.
Below is an update on our progress toward this strategy in fiscal year 2022. 12 Table of Contents Ambition 1: We will harness the power of our business model to set the standard for sustainable fashion. Priority Goal Notable Progress in Fiscal Year 2022 1.
While other competitors may change their business models and endeavor to expand into the rental and resale space, online fashion rental and resale presents unique operational and technical challenges. We compete primarily on the basis of brand recognition, customer and brand partner experience, product mix and quality, quality of our e-commerce experiences and services and price.
We compete primarily on the basis of brand recognition, customer and brand partner experience, product mix and quality, quality of our e-commerce experiences and services, and price. Additionally, we experience competition for consumer discretionary spending from other product and experiential categories.
Employees and Human Capital Resources As of January 31, 2022, we had a total of 958 full-time employees and 138 part-time employees in the United States and Ireland.
We intend to pursue additional actions to establish and protect our intellectual property rights to the extent we believe it would be beneficial and cost effective. 17 Table of Contents Employees and Human Capital Resources As of January 31, 2023, we had a total of 880 full-time employees and 135 part-time employees in the United States and Ireland.
Over the last 12 years, we have fostered strong relationships with and have retained nearly 100% of our brand partners. Our Closet in the Cloud connects our deeply engaged customers and our differentiated brand partners on a powerful platform built around our brand, data, logistics and technology advantages. • Brand Partner Advantage.
Our Closet in the Cloud connects our deeply engaged customers and our differentiated brand partners on a powerful platform built around our brand, data, logistics and technology advantages. • Brand Partner Advantage. Our assortment contains thousands of new, current season styles that luxury competitors simultaneously carry - all available for Subscription, Reserve, and/or Resale at much lower prices.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeOverall growth of our revenue will depend on a number of factors, including our ability to: • change traditional consumer buying habits and normalize clothing rental and resale; • price our subscription, Reserve and Resale offerings so that we are able to attract new customers, and retain and expand our relationships with existing customers; • accurately forecast our revenue and plan our fulfillment, operating expenses and capital expenditures; 17 Table of Contents • ensure that we maintain an adequate depth and breadth of available products to meet evolving customer demands and respond swiftly and appropriately to new and changing styles, trends or desired consumer preferences; • successfully maintain and grow our relationships with existing and new brand partners, including continuing to grow our Share by RTR and Exclusive Design offerings; • avoid disruptions in acquiring and distributing our products and offerings, including maintaining sufficient rental product levels to support demand; • provide customers with a high-quality experience, including customer service and support that meets their needs; • maintain and enhance our reputation and the value of our brand; • hire, integrate and retain talented personnel across all levels of our organization; • successfully compete with other companies that are currently in, or may in the future enter, the industry or the markets in which we operate, and respond to developments from these competitors such as pricing changes and the introduction of new offerings; • comply with existing and new laws and regulations applicable to our business; • successfully expand into new and penetrate existing geographic markets in the United States; • successfully develop new offerings and innovate and enhance our existing offerings and their features, including in response to new trends, competitive dynamics or the needs of customers and subscribers; • effectively manage growth of our business, personnel, and operations, including expanding our shipping and distribution network and fulfillment center operations, as well as our logistics footprint and the number of facilities we operate in the future; • effectively manage our costs related to our business and operations; • avoid or manage interruptions in our business from information technology downtime, cybersecurity incidents and other factors that could affect our physical and digital infrastructure; and • successfully identify and acquire, partner or invest in products, technologies, or businesses that we believe could complement or expand our business.
Biggest changeOverall growth of our revenue will depend on a number of factors, including our ability to: • change traditional consumer buying habits and normalize clothing subscription, rental and resale; • price our Subscription, Reserve and Resale offerings so that we are able to attract new customers, and retain and expand our relationships with existing customers; • ensure that we maintain an adequate depth and breadth of available products to meet customer demand and respond swiftly and appropriately to new and changing styles, trends or desired consumer preferences; • accurately forecast our revenue and plan our fulfillment, operating expenses and capital expenditures; 19 Table of Contents • provide customers with a high-quality, seamless user experience and order fulfillment, as well as customer service and support that meets their needs; • acquire customers into varying levels of subscription programs at different price points; • improve our website and app performance and successfully identify and acquire, partner or invest in products, technologies, or businesses that we believe could complement or expand our business; • successfully maintain and grow our relationships with existing and new brand partners, including continuing to maintaining and growing our Share by RTR and Exclusive Design offerings; • avoid disruptions in acquiring and distributing our products and offerings; • be efficient in our paid marketing; • maintain and enhance our reputation and the value of our brand; • hire, integrate and retain talented personnel across all levels of our organization; • successfully compete with other companies that are currently in, or may in the future enter, the industry or the markets in which we operate, and respond to developments from these competitors such as pricing changes and the introduction of new offerings; • comply with existing and new laws and regulations applicable to our business; • successfully expand into new and penetrate existing geographic markets in the United States; • successfully develop new offerings and innovate and enhance our existing offerings and their features, including in response to new trends, competitive dynamics or the needs of customers and subscribers; • effectively manage growth of our business, personnel, and operations, including expanding our shipping and distribution network and fulfillment center operations, as well as our logistics footprint and the number of facilities we operate in the future; • effectively manage our costs related to our business and operations; and • avoid or manage interruptions in our business from information technology downtime, cybersecurity incidents and other factors that could affect our physical and digital infrastructure.
The cash flow benefits we currently experience from our brand partners’ willingness to revenue share could be adversely affected if revenue share terms change or if brand partners no longer wish to revenue share due to (1) lack of trust in us, (2) lack of revenue earned in comparison to the projections we provided, (3) their inability to continue to spread their earnings out over the time period that the products are earning revenue on our website, among other reasons.
The cash flow benefits we currently experience from our brand partners’ willingness to revenue share could be adversely affected if revenue share terms change or if brand partners no longer wish to revenue share due to (1) lack of trust in us, (2) lack of revenue earned in comparison to the projections we provided, or (3) their inability to continue to spread their earnings out over the time period that the products are earning revenue on our website, among other reasons.
In addition to damaging our reputation, actual or alleged misconduct could tarnish our culture, result in negative publicity, affect the confidence of our stockholders, regulators and other parties and could have a material adverse effect on our business, financial condition and operating results.
In addition to damaging our reputation, actual or alleged misconduct could tarnish our culture and reputation, result in negative publicity, affect the confidence of our stockholders, regulators and other parties and could have a material adverse effect on our business, financial condition and operating results.
We believe our ability to compete effectively depends on many factors within and beyond our control, including: • our ability to normalize fashion rental and change traditional retail shopping habits and norms; • how effectively differentiated our offerings and value proposition are from those of our competitors; • how effectively we market and communicate how to use our Subscription and Reserve offerings; 20 Table of Contents • our ability to expand and maintain an appealing depth and breadth of our products to meet customer demand; • our ability to attract new brand partners and retain existing brand partners in our Share by RTR and Exclusive Design programs and acquire products on favorable and efficient terms; • the speed and cost at which we can deliver products to our customers and the ease with which they can return our products; • the effectiveness of our customer service; • further developing our data science capabilities for brand partners; • maintaining favorable brand recognition and effectively marketing our services to customers; • the amount, diversity, and quality of brands that we or our competitors offer; • the price at which we are able to offer our Subscription, Reserve and Resale offerings; • the success of our reverse-logistics processes in delivering products in good condition to customers; and • anticipating and successfully responding to changing apparel trends and consumer shopping preferences.
We believe our ability to compete effectively depends on many factors within and beyond our control, including: • our ability to normalize fashion rental and change traditional retail shopping habits and norms; 20 Table of Contents • how effectively differentiated our offerings, customer experience and value proposition are from those of our competitors; • how effectively we market and communicate how to use our Subscription, Reserve and Resale offerings and attract and retain customers; • our ability to expand and maintain an appealing depth and breadth of our products to meet customer demand; • the price at which we are able to offer our Subscription, Reserve and Resale offerings; • the amount, diversity, and quality of brands that we or our competitors offer; • our ability to acquire products on favorable and efficient terms, including our ability to attract new brand partners and retain existing brand partners in our Share by RTR and Exclusive Design programs; • the speed and cost at which we can deliver products to our customers and the ease with which they can return our products; • the effectiveness of our customer service; • further developing our data science capabilities for brand partners; • the strength of our brand, including maintaining favorable brand recognition and effectively marketing our services and value proposition to customers; • the success of our reverse-logistics processes in delivering products in good condition to customers; and • anticipating and successfully responding to changing apparel trends and consumer shopping preferences.
The risks we face in connection with partnerships and acquisitions include: • a partnership or acquisition may disrupt our ongoing business, divert resources, increase our expenses, and distract our management; • an acquisition may negatively affect our financial results because it may require us to incur charges or assume substantial debt or other liabilities, may cause adverse tax consequences or unfavorable accounting treatment, may expose us to claims and disputes by stockholders and third parties, including intellectual property claims and disputes, or may not generate sufficient financial return to offset additional costs and expenses related to the acquisition; 38 Table of Contents • we may encounter difficulties or unforeseen expenditures in integrating the business, offerings, technologies, personnel, or operations of any company that we partner with or acquire; and • if we incur debt or issue a significant amount of equity securities to fund such joint venture or acquisition, such debt may subject us to material restrictions on our ability to conduct our business, as well as financial maintenance covenants and such equity securities may cause dilution for our existing stockholders and earning per share may decrease.
The risks we face in connection with partnerships and acquisitions include: • a partnership or acquisition may disrupt our ongoing business, divert resources, increase our expenses, and distract our management; • an acquisition may negatively affect our financial results because it may require us to incur charges or assume substantial debt or other liabilities, may cause adverse tax consequences or unfavorable accounting treatment, may expose us to claims and disputes by stockholders and third parties, including intellectual property claims and disputes, or may not generate sufficient financial return to offset additional costs and expenses related to the acquisition; 41 Table of Contents • we may encounter difficulties or unforeseen expenditures in integrating the business, offerings, technologies, personnel, or operations of any company that we partner with or acquire; and • if we incur debt or issue a significant amount of equity securities to fund such joint venture or acquisition, such debt may subject us to material restrictions on our ability to conduct our business, as well as financial maintenance covenants and such equity securities may cause dilution for our existing stockholders and earning per share may decrease.
For example, although no sensitive information was affected, our platform has been the subject of credential stuffing attacks (i.e., email addresses and passwords involved in security incidents reported by other companies have been used to attempt to gain unauthorized access to our platform) and brute force attacks (i.e., attempts to try different username and password credentials to gain access to our platform).
For example, although no sensitive information was affected, our platform has been the subject of phishing attempts, credential stuffing attacks (i.e., email addresses and passwords involved in security incidents reported by other companies have been used to attempt to gain unauthorized access to our platform) and brute force attacks (i.e., attempts to try different username and password credentials to gain access to our platform).
A failure by us to comply with the covenants specified in the Amended Temasek Facility could result in an event of default under the agreement, which would give the lender the right to declare all borrowings outstanding, together with accrued and unpaid interest and fees, to be immediately due and payable.
A failure by us to comply with the covenants specified in the 2022 Amended Temasek Facility could result in an event of default under the agreement, which would give the lender the right to declare all borrowings outstanding, together with accrued and unpaid interest and fees, to be immediately due and payable.
The terms of our Amended Temasek Facility include a number of covenants that limit our ability to (subject to negotiated exceptions), among other things, incur additional indebtedness, incur liens on assets, enter into agreements related to mergers and acquisitions, dispose of assets or pay dividends and make distributions.
The terms of our 2022 Amended Temasek Facility include a number of covenants that limit our ability to (subject to negotiated exceptions), among other things, incur additional indebtedness, incur liens on assets, enter into agreements related to mergers and acquisitions, dispose of assets or pay dividends and make distributions.
Alternatively, if we are unable to satisfy such new criteria, investors may conclude that our policies with respect to corporate responsibility are inadequate. We risk damage to our brand and reputation in the event that our corporate responsibility procedures or standards do not meet the standards set by various constituencies.
Alternatively, if we are unable to satisfy such new criteria, investors may conclude that our policies or actions with respect to corporate responsibility are inadequate. We risk damage to our brand and reputation in the event that our corporate responsibility procedures or standards do not meet the standards set by various constituencies.
Our growth strategy is focused on continuing to grow, engage, and retain our subscriber and customer base, expanding our brand partner relationships and product assortment, increasing our brand awareness, advertising and other marketing spending, and continuing to invest in our offerings and technology. The majority of our revenue is generated by our subscribers.
Our growth strategy is focused on continuing to grow, engage, and retain our subscriber and customer base, expanding our brand partner relationships and product assortment, increasing our advertising and other marketing spending, and continuing to invest in our offerings and technology. The majority of our revenue is generated by our subscribers.
Our IT Systems or those of our service providers and business partners may be subject to damage or interruption from power outages or damages, telecommunications problems, data corruption, software errors, network failures, acts of war or terrorist attacks, fire, flood and natural disasters.
Our IT Systems and those of our service providers and business partners may be subject to damage or interruption from cyber attacks, power outages or damages, telecommunications problems, data corruption, software errors, network failures, acts of war or terrorist attacks, fire, flood and natural disasters.
Any provision in our Amended Charter, Amended Bylaws, or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our Class A common stock, and could also affect the price that some investors are willing to pay for our Class A common stock. 57 Table of Contents Our Amended Charter designates the Court of Chancery of the State of Delaware and the federal district courts of the United States of America as the exclusive forums for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees .
Any provision in our Amended Charter, Amended Bylaws, or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our Class A common stock, and could also affect the price that some investors are willing to pay for our Class A common stock. 59 Table of Contents Our Amended Charter designates the Court of Chancery of the State of Delaware and the federal district courts of the United States of America as the exclusive forums for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees .
The COVID-19 pandemic materially adversely affected our operating and financial results during fiscal year 2020 due to the occurrence of the following events or circumstances, among others: • the global shelter-in-place restrictions significantly reduced our number of Active Subscribers and engagement with all of our offerings because of the decrease in special events, social gatherings and interactions outside the home; • a significant number of subscribers paused or canceled their subscriptions or downgraded to lower-priced plans, and we experienced significant decreased demand for our Reserve offering and customers canceled their existing orders for special events; • subscribers engaged less, which impacted the success of our organic marketing and reduced the volume of our data and business insights; • disruptions of the operations of our brand partners and delays in shipment and delivery of our products; • pausing all of our paid marketing spend and eliminating or significantly reducing investments in growth initiatives; • carrying more products relative to customer demand, negatively impacting gross margins; • performance-based revenue share payments to brands were decreased due to lower total revenue, impacting our brand partner relationships and value proposition; • implementing temporary salary cuts, employee layoffs and furloughs, and pausing recruiting efforts, which negatively impacted employee morale and resulted in an increase in regrettable employee attrition; and • the closure of our brick-and-mortar retail stores, which was perceived negatively by some customers. 19 Table of Contents In fiscal year 2021, our operating and financial results continued to be impacted by the COVID-19 pandemic.
The COVID-19 pandemic materially adversely affected our operating and financial results during fiscal year 2020 due to the occurrence of the following events or circumstances, among others: • the global shelter-in-place restrictions significantly reduced our number of Active Subscribers and engagement with all of our offerings because of the decrease in special events, social gatherings and interactions outside the home; • a significant number of subscribers paused or canceled their subscriptions or downgraded to lower-priced plans, and we experienced significant decreased demand for our Reserve offering and customers canceled their existing orders for special events; • subscribers engaged less, which impacted the success of our organic marketing and reduced the volume of our data and business insights; • disruptions of the operations of our brand partners and delays in shipment and delivery of our products; • pausing all of our paid marketing spend and eliminating or significantly reducing investments in growth initiatives; • carrying more products relative to customer demand, negatively impacting gross margins; • performance-based revenue share payments to brands were decreased due to lower total revenue, impacting our brand partner relationships and value proposition; 40 Table of Contents • implementing temporary salary cuts, employee layoffs and furloughs, and pausing recruiting efforts, which negatively impacted employee morale and resulted in an increase in regrettable employee attrition; and • the closure of our brick-and-mortar retail stores, which was perceived negatively by some customers.
Fluctuations in our operating results and key metrics may cause those results to fall below our financial guidance or other projections, or the expectations of analysts or investors, which could cause the price of our Class A common stock to decline. Fluctuations in our results could also cause a number of other problems.
Fluctuations in our operating results and key metrics may cause our results to fall below our financial guidance or other projections, or the expectations of analysts or investors, which could cause the price of our Class A common stock to decline. Fluctuations in our results could also cause a number of other problems.
Market opportunity estimates and growth forecasts are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate, including as a result of any of the risks described in this Annual Report . 39 Table of Contents The variables that go into the calculation of our market opportunity are subject to change over time, and there is no guarantee that any particular number or percentage of addressable customers and subscribers covered by our market opportunity estimates will become a customer or subscriber or generate any particular level of revenues for us.
Market opportunity estimates and growth forecasts are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate, including as a result of any of the risks described in this Annual Report. 42 Table of Contents The variables that go into the calculation of our market opportunity are subject to change over time, and there is no guarantee that any particular number or percentage of addressable customers and subscribers covered by our market opportunity estimates will become a customer or subscriber or generate any particular level of revenues for us.
Our existing safety systems, data backup, access protection, user management and information technology emergency planning may not be sufficient to identify, detect, prevent, or recover from data loss or long-term network or operational outages.
Our existing safety systems, data backup, access protection, user management and information technology emergency planning may not be sufficient to identify, detect, prevent, or recover from data corruption or loss or long-term network or operational outages.
We will remain an emerging growth company until the earliest of: • the last day of the fiscal year following the fifth anniversary of our IPO; • the last day of the first fiscal year in which our annual gross revenue is $1.07 billion or more; • the date on which we have, during the previous rolling three-year period, issued more than $1 billion in non-convertible debt securities; and • the date we qualify as a “large accelerated filer,” with at least $700 million of equity securities held by non-affiliates.
We will remain an emerging growth company until the earliest of: • the last day of the fiscal year following the fifth anniversary of our IPO; • the last day of the first fiscal year in which our annual gross revenue is $1.235 billion or more; • the date on which we have, during the previous rolling three-year period, issued more than $1 billion in non-convertible debt securities; and • the date we qualify as a “large accelerated filer,” with at least $700 million of equity securities held by non-affiliates.
Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets. 37 Table of Contents We are an “emerging growth company,” and we cannot be certain if the reduced reporting and disclosure requirements applicable to emerging growth companies will make our Class A common stock less attractive to investors.
Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets. 39 Table of Contents We are an “emerging growth company,” and we cannot be certain if the reduced reporting and disclosure requirements applicable to emerging growth companies will make our Class A common stock less attractive to investors.
As the recovery period continues, particularly in the United States, the effects of the COVID-19 pandemic, including the identification and spread of new variants of the virus, may continue to have a negative impact on our business operations and long-term financial results of operations due to the occurrence of the following events or circumstances, among others: • the difficulty in accurately predicting the timing of potential new variants and/or the pace of our business recovery, particularly changes in demand, subscriber levels and pause activity, and Reserve and Resale orders, leading to potentially over-spending and lower profitability if demand and engagement are not as expected; • our inability to meet increased demand and provide an optimal customer experience as a result of difficulty in hiring additional employees, particularly in our fulfillment, operations and customer experience functions; • continuing supply chain disruptions and/or disruptions in the operations of our brand partners, which could impact our ability to acquire an adequate depth and breadth of products at favorable prices in a timely manner to match demand; and • possible resurgences of the COVID-19 pandemic that lead to new or additional shelter-in-place orders, travel advisories, and/or reduced social activities and events, which may dampen future demand for our products and offering.
The effects of the COVID-19 pandemic, including the identification and spread of new variants of the virus, may continue to have a negative impact on our business operations and long-term financial results of operations due to the occurrence of the following events or circumstances, among others: • the difficulty in accurately predicting the timing of potential new variants and/or the pace of our business recovery, particularly changes in demand, subscriber levels and pause activity, and Reserve and Resale orders, leading to potentially over-spending and lower profitability if demand and engagement are not as expected; • our inability to meet increased demand and provide an optimal customer experience as a result of difficulty in hiring additional employees, particularly in our fulfillment, operations and customer experience functions; • continuing supply chain disruptions and/or disruptions in the operations of our brand partners, which could impact our ability to acquire an adequate depth and breadth of products at favorable prices in a timely manner to match demand; and • possible resurgences of the COVID-19 pandemic that lead to new or additional shelter-in-place orders, travel advisories, and/or reduced social activities and events, which may dampen future demand for our products and offering.
If our customers do not receive their orders in good condition on time, they could become dissatisfied and cease using our services, which would adversely affect our business and operating results.
If our customers do not receive their orders in good condition or on time, they could become dissatisfied and cease using our services, which would adversely affect our business and operating results.
Moreover, we or our third-party service providers may be more vulnerable to such attacks in remote work environments, which have increased in response to the COVID-19 pandemic.
Moreover, we or our third-party service providers may be more vulnerable to such attacks in remote or hybrid work environments, which have increased in response to the COVID-19 pandemic.
In addition to other risk factors discussed in this section, factors that may contribute to the variability of our quarterly and annual results include: • our success in attracting and retaining customers and subscribers; • maintaining successful relationships with brand partners and our ability to acquire products at acceptable prices and offer a compelling mix of products that are available for subscription, a-la-carte rental or purchase at any given time; • the amount and timing of our fulfillment costs, operating expenses and capital expenditures; • the timing and success of product launches, including new services and features we may introduce; • the success of our marketing and promotional efforts; • adverse economic and market conditions, such as those related to the COVID-19 pandemic, and other adverse global events that negatively impact commerce and consumer behavior and that could lead to inflationary pressures and supply chain disruptions; • disruptions or defects in our software or operations, such as privacy or data security incidents, outages, or other incidents that impact the availability, reliability, or performance of our business; • the impact of competitive developments and our response to those developments; • our ability to manage our business and future growth; • our ability to recruit and retain employees including fulfillment center labor to process, itemize, list, pack and ship our products; and • changes to financial accounting standards and the interpretation of those standards, which may affect the way we recognize and report our financial results.
In addition to other risk factors discussed in this section, factors that may contribute to the variability of our quarterly and annual results include: • our success in attracting and retaining customers and subscribers; • maintaining successful relationships with brand partners and our ability to acquire products at acceptable prices and offer a compelling mix of products that are available for subscription, a-la-carte rental or purchase at any given time; • the amount and timing of our fulfillment costs, operating expenses and capital expenditures; • the timing and success of product launches, including pricing changes, new services and features we may introduce; • the success of our marketing and promotional efforts; • adverse economic and market conditions and other adverse global events that negatively impact commerce and consumer behavior and that could lead to inflationary pressures and supply chain disruptions; • disruptions or defects in our software or operations, such as privacy or data security incidents, outages, or other incidents that impact the availability, reliability, or performance of our business; • the impact of competitive developments and our response to those developments; • our ability to manage our business and future growth; • our ability to recruit and retain employees including fulfillment center labor to process, itemize, list, pack and ship our products; and • changes to financial accounting standards and the interpretation of those standards, which may affect the way we recognize and report our financial results.
In light of investors’ and other stakeholders’ increased focus on ESG matters, there can be no certainty that we will manage such issues successfully, or that we will successfully meet society’s ESG expectations or achieve our ESG goals and financial goals. 31 Table of Contents We rely on the experience and expertise of our Co-Founder and Chief Executive Officer, senior management team, key technical and strategic employees and hourly personnel.
In light of investors’ and other stakeholders’ increased focus on ESG matters, there can be no certainty that we will manage such issues successfully, or that we will successfully meet our stakeholders’ or society’s ESG expectations or achieve our ESG goals and financial goals. 33 Table of Contents We rely on the experience and expertise of our Co-Founder and Chief Executive Officer, senior management team, key technical and strategic employees and hourly personnel.
Our Amended Temasek Facility contains financial covenants and other restrictions on our actions that may limit our operational flexibility or otherwise adversely affect our business, financial condition and results of operations.
Our 2022 Amended Temasek Facility contains financial covenants and other restrictions on our actions that may limit our operational flexibility or otherwise adversely affect our business, financial condition and results of operations.
If we are unable to remediate the material weakness in a timely manner, or if additional material weaknesses exist or are discovered in the future, and we are unable to remediate any such material weakness, our reputation, results of operations and financial condition could suffer. 36 Table of Contents The requirements of being a public company may strain our resources, divert management’s attention, and affect our ability to attract and retain executive management and qualified board members .
If we are unable to remediate the material weakness in a timely manner, or if additional material weaknesses exist or are discovered in the future, and we are unable to remediate any such material weakness, our reputation, results of operations and financial condition could suffer. 38 Table of Contents The requirements of being a public company may strain our resources, divert management’s attention, and affect our ability to attract and retain executive management and qualified board members .
Some of the factors that may negatively influence consumer spending include high levels of unemployment; higher consumer debt levels; reductions in net worth, declines in asset values, and related market uncertainty; home foreclosures and reductions in home values; fluctuating interest rates and credit availability; fluctuating fuel and other energy costs; fluctuating commodity prices; and general uncertainty regarding the overall future political and economic environment.
Some of the factors that may negatively influence consumer spending include high levels of unemployment; recession; higher consumer debt levels; inflation; reductions in net worth, declines in asset values, and related market uncertainty; home foreclosures and reductions in home values; fluctuating interest rates and credit availability; fluctuating fuel and other energy costs; fluctuating commodity prices; and general uncertainty regarding the overall future political and economic environment.
In such cases, our ability to pursue our growth strategy will depend in part upon our ability to expand capacity with existing brand partners or develop new brand partners relationships.
In such cases, our ability to pursue our growth strategy will depend in part upon our ability to expand capacity with existing brand partners or develop new brand partner relationships.
Brand promotion activities may not yield increased revenue, and even if they do, the increased revenue may not offset the expenses we incur in promoting and maintaining our brand and reputation.
In addition, brand promotion activities may not yield increased revenue, and even if they do, the increased revenue may not offset the expenses we incur in promoting and maintaining our brand and reputation.
As such, we continue to closely monitor this global health crisis and will continue to reassess our strategy and operational structure on a regular, ongoing basis as the situation evolves. See Part II, Item 7, “Management’s Discussion and Analysis of Financial Position and Results of Operations” for more details on the impact of the COVID-19 pandemic.
As such, we continue to closely monitor this global health crisis and will continue to reassess our strategy and operational structure on a regular, ongoing basis as the situation evolves. See Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for more details on the impact of the COVID-19 pandemic.
Notwithstanding the foregoing, pursuant to our Amended Charter, we do not renounce our present or expectancy interest in any business opportunity that is expressly offered to a director, executive officer or employee of us or our subsidiaries, solely in his/her capacity as a director, executive officer or employee. 58 Table of Contents Item 1B. Unresolved Staff Comments None.
Notwithstanding the foregoing, pursuant to our Amended Charter, we do not renounce our present or expectancy interest in any business opportunity that is expressly offered to a director, executive officer or employee of us or our subsidiaries, solely in his/her capacity as a director, executive officer or employee. 60 Table of Contents Item 1B. Unresolved Staff Comments None.
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. W e generally see a higher rate of subscribers pause in the summer, and in mid-December through the end of January.
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.
These financing risks, in addition to potential rising interest rates and changes in market conditions, if realized, could negatively impact our business, financial condition and results of operations. See “Note 7 —Long-Term Debt” in the Notes to Consolidated Financial Statements for more information on our indebtedness.
These financing risks, in addition to potential rising interest rates and changes in market conditions, if realized, could negatively impact our business, financial condition and results of operations. See “Note 8 —Long-Term Debt” in the Notes to Consolidated Financial Statements for more information on our indebtedness.
We may require additional capital to support the growth of our business, and this capital might not be available on acceptable terms, if at all . We have funded our operations since inception primarily through equity and debt financings and revenue generated from our offerings.
We may require additional capital to support the growth of our business and satisfy our debt obligations, and this capital might not be available on acceptable terms, if at all . We have funded our operations since inception primarily through equity and debt financings and revenue generated from our offerings.
This material weakness contributed to the following additional material weaknesses: 35 Table of Contents We did not design and maintain effective controls to ensure (i) the appropriate segregation of duties in the operation of manual controls and (ii) journal entries were reviewed at the appropriate level of precision.
This material weakness contributed to the following additional material weaknesses: 37 Table of Contents We did not design and maintain effective controls to ensure (i) the appropriate segregation of duties in the operation of manual controls and (ii) journal entries were reviewed at the appropriate level of precision.
Notably, the GDPR imposes large penalties for noncompliance, including the potential for fines of up to € 20 million or 4% of the annual global revenues of the noncompliant entity, whichever is greater. 45 Table of Contents In addition, privacy advocates and industry groups have regularly proposed, and may propose in the future, self-regulatory standards by which we are legally or contractually bound.
Notably, the GDPR imposes large penalties for noncompliance, including the potential for fines of up to € 20 million or 4% of the annual global revenues of the noncompliant entity, whichever is greater. In addition, privacy advocates and industry groups have regularly proposed, and may propose in the future, self-regulatory standards by which we are legally or contractually bound.
To alleviate the financial, operational and reputational impact of a ransomware attack it may be necessary to make extortion payments, but we may be unable to do so if applicable laws or governmental pressure prohibit or prevents such payments.
To alleviate the financial, operational and reputational impact of a ransomware attack it may be necessary to make extortion payments, but we may be unable to do so if applicable laws or governmental pressure prohibit or prevent such payments.
In addition, we must keep up to date with competitive technology trends, including the use of new or improved technology, creative user interfaces, virtual and augmented reality and other e-commerce marketing tools such as paid search and mobile applications, among others, which may increase our costs and which may not increase sales or attract customers.
In addition, we must keep up to date with competitive technology trends, including the use of new or improved technology, checkout and payment options, creative user interfaces, virtual and augmented reality and other e-commerce marketing tools such as paid search and mobile applications, among others, which may increase our costs and which may not increase sales or attract customers.
All of the aforementioned risks may be exacerbated if our business continuity and disaster recovery plans prove to be inadequate. 50 Table of Contents Additionally, data stored with our third-party cloud providers may experience threats or attacks from computer malware, ransomware, viruses, social engineering (including phishing attacks), denial of service or other attacks, employee theft or misuse and general hacking.
All of the aforementioned risks may be exacerbated if our business continuity and disaster recovery plans prove to be inadequate. Additionally, data stored with our third-party cloud providers may experience threats or attacks from computer malware, ransomware, viruses, social engineering (including phishing attacks), denial of service or other attacks, employee theft or misuse and general hacking.
In addition, this may prevent or discourage unsolicited acquisition proposals or offers for our capital stock that investors may believe are in their best interests. 53 Table of Contents Future transfers by holders of Class B common stock will generally result in those shares converting to Class A common stock, subject to limited exceptions, such as certain transfers effected for estate planning purposes.
In addition, this may prevent or discourage unsolicited acquisition proposals or offers for our capital stock that investors may believe are in their best interests. Future transfers by holders of Class B common stock will generally result in those shares converting to Class A common stock, subject to limited exceptions, such as certain transfers effected for estate planning purposes.
In addition, compliance and remediation efforts can be costly. 40 Table of Contents 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.
In addition, compliance and remediation efforts can be costly. 43 Table of Contents 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.
In connection with the preparation of our consolidated financial statements, we identified material weaknesses in our internal control over financial reporting as of January 31, 2021, as described below. As of January 31, 2022, these material weaknesses were still in the process of being remediated.
In connection with the preparation of our consolidated financial statements as of January 31, 2021, we identified material weaknesses in our internal control over financial reporting, as described below. As of January 31, 2023, these material weaknesses were still in the process of being remediated.
Our competitors, some of whom have greater resources than we do, may also be able to benefit from changes in e-commerce technologies or adapt better than us, which could harm our competitive position. Our quarterly and annual results of operations may fluctuate, which may make it difficult to predict our future performance .
Our competitors, some of whom have greater resources than we do, may also be able to benefit from changes in e-commerce technologies or adapt better than us, which could harm our competitive position. 31 Table of Contents Our quarterly and annual results of operations may fluctuate, which may make it difficult to predict our future performance .
In particular, we are implementing comprehensive access control protocols for our enterprise resource planning environment in order to implement restrictions on user and privileged access to certain applications, establishing additional controls over the preparation and review of journal entries, implementing controls to review the activities for those users who have privileged access and program change management controls to ensure that IT program and data changes affecting financial IT applications and underlying accounting records are identified, tested, authorized and implemented appropriately.
We are continuing to implement comprehensive access control protocols for our enterprise resource planning environment in order to implement restrictions on user and privileged access to certain applications, establishing additional controls over segregation of duties and the preparation and review of journal entries, implementing controls to review the activities for those users who have privileged access and program change management controls to ensure that IT program and data changes affecting financial IT applications and underlying accounting records are identified, tested, authorized and implemented appropriately.
Any of the foregoing could be harmful to our business, financial condition, or results of operations and could help our competitors develop offerings that are similar to or better than ours. We are subject to rapidly changing and increasingly stringent laws and industry standards relating to data privacy, data security, data protection, and consumer protection .
Any of the foregoing could be harmful to our business, financial condition, or results of operations and could help our competitors develop offerings that are similar to or better than ours. 47 Table of Contents We are subject to rapidly changing and increasingly stringent laws and industry standards relating to data privacy, data security, data protection, and consumer protection .
Similarly, the occurrence of a contagious disease or illness could cause delays or increase costs in the manufacture of certain products. For example, the COVID-19 pandemic caused delays in some shipments from our brand partners. 49 Table of Contents We rely on third parties for elements of the payment processing infrastructure underlying our business.
Similarly, the occurrence of a contagious disease or illness could cause delays or increase costs in the manufacture of certain products. For example, the COVID-19 pandemic caused delays in some shipments from our brand partners. We rely on third parties for elements of the payment processing infrastructure underlying our business.
Furthermore, our rapid growth in recent years may obscure the extent to which seasonality trends have affected our business and may continue to affect our business, and the effects of the COVID-19 pandemic may alter our historical seasonality trends.
Furthermore, our rapid growth in recent years may obscure the extent to which seasonality trends have affected our business and may continue to affect our business, and the effects of the COVID-19 pandemic may have altered our historical seasonality trends.
This provision would not apply to suits brought to enforce a duty or liability created by the Securities Exchange Act of 1934, as amended, or Exchange Act. Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all Securities Act actions. Accordingly, both state and federal courts have jurisdiction to entertain such claims.
This provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act. Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all Securities Act actions. Accordingly, both state and federal courts have jurisdiction to entertain such claims.
Our success and future growth depend largely upon the continued services of our senior management team, including our Co-Founder, Chief Executive Officer and Chair, Jennifer Y. Hyman. From time to time, there may be changes in our executive management team resulting from the hiring or departure of these executives.
We believe that our success and future growth depend largely upon the continued services of our senior management team, including our Co-Founder, Chief Executive Officer and Chair, Jennifer Y. Hyman. From time to time, there may be changes in our executive management team resulting from the hiring or departure of these executives.
There can be no assurance that our expectations will prove correct, and even if these matters are resolved in our favor or without significant cash settlements, these matters, and the time and resources necessary to litigate or resolve them, could harm our business, financial condition, and results of operations. 46 Table of Contents In addition, as a public company, our business and financial condition will become more visible, which may result in an increased risk of threatened or actual litigation, including by competitors and other third parties.
There can be no assurance that our expectations will prove correct, and even if these matters are resolved in our favor or without significant cash settlements, these matters, and the time and resources necessary to litigate or resolve them, could harm our business, financial condition, and results of operations. 44 Table of Contents In addition, as a public company, our business and financial condition are more visible than as a private company, which may result in an increased risk of threatened or actual litigation, including by competitors and other third parties.
In the future, our seasonal revenue patterns may become more pronounced or may change, may strain our personnel and operational activities, and may cause a shortfall in net sales as compared with expenses in a given period, which could substantially harm our business, financial condition and results of operations.
In the future, our seasonal subscriber or revenue patterns may become more pronounced or may change, may strain our personnel and operational activities, and may cause a shortfall in revenue as compared with expenses in a given period, which could substantially harm our business, financial condition and results of operations.
For example, in the future, we may need additional funding to obtain rental products, for marketing, and for headcount or other operating expenses and capital expenditures, to develop new features or enhance our offerings, to improve our operating infrastructure, and/or to acquire complementary businesses and technologies.
For example, in the future, we may need additional funding to satisfy our debt obligations, to obtain rental products, for marketing, and for headcount or other operating expenses and capital expenditures, to develop new features or enhance our offerings, to improve our operating infrastructure, and/or to acquire complementary businesses and technologies.
We have recorded a full valuation allowance against our U.S. deferred tax assets, which includes net operating loss carryforwards. Changes in our effective tax rate or tax liability may have an adverse effect on our results of operations .
We have recorded a full valuation allowance against our U.S. deferred tax assets, which includes net operating loss carryforwards. 50 Table of Contents Changes in our effective tax rate or tax liability may have an adverse effect on our results of operations .
Relatedly, an inability to attract and retain customers could harm our ability to attract and retain brand partners, who may decide to partner with alternative platforms. If we fail to retain customers, our business, financial condition, and results of operations would be harmed . A high proportion of our revenue comes from highly engaged subscribers.
Relatedly, an inability to attract and retain customers could harm our ability to attract and retain brand partners, who may decide to partner with alternative platforms. If we fail to retain customers, our business, financial condition, and results of operations would be harmed . A high proportion of our revenue comes from longer-tenured subscribers.
Topics taken into account in such assessments include, among others, the company’s efforts and impacts on climate change and human rights, ethics and compliance with law and the role of the Company’s board of directors in supervising various sustainability issues.
Topics taken into account in such assessments include, among others, the company’s efforts and impacts on climate change and human rights, ethics and compliance with law and the role of the Company’s board of directors in supervising ESG issues.
These environmental, health and safety laws and regulations include those relating to, among other things, the generation, storage, handling, use and transportation of hazardous and non-hazardous materials; the emission and discharge of hazardous and non-hazardous materials into the environment; and the health and safety of our employees.
These environmental, health and safety laws and regulations include those relating to, among other things, the generation, storage, handling, use and transportation of hazardous and non-hazardous materials; the emission and discharge of hazardous and non-hazardous materials into the environment; the health and safety of our employees; and the maintenance of our facilities and operations.
Under such announced policies, the dual class structure of our common stock would make us ineligible for inclusion in certain indices and, as a result, mutual funds, exchange-traded funds, and other investment vehicles that attempt to passively track those indices would not invest in our Class A common stock.
Under such announced policies, the dual class structure of our common stock makes us ineligible for inclusion in certain indices and, as a result, mutual funds, exchange-traded funds, and other investment vehicles that attempt to passively track those indices may not invest in our Class A common stock.
The successful promotion of our brand and awareness of our offerings and products will depend on a number of factors, including our marketing efforts, ability to continue to develop our offerings and products, the quality and appeal of our products, and ability to successfully differentiate our offerings from competitive offerings.
The successful promotion of our brand and awareness of our offerings and products depends on a number of factors, including our marketing efforts, ability to continue to develop our offerings and products, the quality and appeal of our products, and ability to successfully differentiate our offerings from competitive offerings.
These impacts could be difficult and costly to overcome, even if such concerns were based on inaccurate or misleading information. In addition, achieving our ESG initiatives may result in increased costs in our supply chain, fulfillment, and/or corporate business operations, and could deviate from our initial estimates and have a material adverse effect on our business and financial condition.
These impacts could be difficult and costly to overcome, even if such concerns were based on inaccurate or misleading information. In addition, achieving our Impact Strategy goals may result in increased costs in our supply chain, fulfillment, and/or corporate business operations, and could deviate from our initial estimates and have a material adverse effect on our business and financial condition.
The benefits we currently experience from these relationships could be adversely affected if they: • discontinue selling products to us or manufacturing our Exclusive Designs; • enter into arrangements with competitors that could impair our ability to source their products, including by giving our competitors exclusivity arrangements or limiting our access to certain products; • raise the prices they charge us; • are not satisfied with the value proposition we offer them; • do not view our brand favorably; • change pricing terms to require us to pay a significant portion of the cost of items on delivery or upfront; • experience negative publicity or reputational issues; • do not follow our vendor code of conduct and/or violate legal and regulatory requirements; • experience supply chain disruptions that cause lead times to be lengthened; or • fail to execute on the design we have provided for co-manufactured products.
The benefits we currently experience from these relationships could be adversely affected if they: • discontinue selling products to us or manufacturing our Exclusive Designs; • enter into arrangements with competitors that could impair our ability to source their products, including by giving our competitors exclusivity arrangements or limiting our access to certain products; • raise the prices they charge us; • are not satisfied with the value proposition we offer them; • do not view our brand favorably; • change pricing terms to require us to pay a significant portion of the cost of items on delivery or upfront; • experience negative publicity or reputational issues; • do not follow our vendor code of conduct and/or violate legal and regulatory requirements; • experience supply chain disruptions that cause lead times to be lengthened or missed entirely; or • fail to execute on the design we have provided for co-manufactured products. 51 Table of Contents Events that adversely impact our brand and manufacturing partners could impair our ability to obtain adequate and timely products.
Failure to adequately protect our intellectual property could harm our brand, devalue our proprietary technology and content, and adversely affect our ability to compete effectively. 41 Table of Contents If we fail to protect our intellectual property rights adequately, our competitors may gain access to our intellectual property and proprietary technology and develop and commercialize substantially identical offerings or technologies.
Failure to adequately protect our intellectual property could harm our brand, devalue our proprietary technology and content, and adversely affect our ability to compete effectively. If we fail to protect our intellectual property rights adequately, our competitors may gain access to our intellectual property and proprietary technology and develop and commercialize substantially identical offerings or technologies.
In addition, the Telephone Consumer Protection Act (the “TCPA”), imposes significant restrictions on the ability to make telephone calls or send text messages to mobile telephone numbers without the prior consent of the person being contacted. We use text messages frequently to communicate service-related issues to our customers.
In addition, the Telephone Consumer Protection Act (the “TCPA”), imposes significant restrictions on the ability to make telephone calls or send text messages to mobile telephone numbers without the prior consent of the person being contacted. We use text messages frequently to communicate with our customers.
The market price of our Class A common stock is likely to be volatile and could be subject to wide fluctuations in response to the risk factors described in this Annual Report , and others beyond our control, including: • actual or anticipated fluctuations in our revenue or other operating metrics; • our actual or anticipated operating performance and the operating performance of our competitors; • changes in the financial projections we provide to the public or our failure to meet these projections; • the perceived adequacy of our ESG efforts; • positive or negative publicity; • failure of securities analysts to initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our company, or our failure to meet the estimates or the expectations of investors; • any major change in our board of directors, management, or key personnel; • the economy as a whole and market conditions in our industry; • rumors and market speculation involving us or other companies in our industry; • announcements by us or our competitors of significant innovations, new products, services, features, integrations, or capabilities, acquisitions, strategic investments, partnerships, joint ventures, or capital commitments; • the legal and regulatory landscape and changes in the application of existing laws or adoption of new laws that impact our business, including changes in e-commerce and tax laws; • legal and regulatory claims, litigation, or pre-litigation disputes and other proceedings; • the pace of the COVID-19 pandemic recovery and its impact on our business or the fashion industry and sharing economy generally; • sales or expected sales of our Class A common stock by us, our officers, directors, principal stockholders, and employees; and • other events or factors, including those resulting from war, incidents of terrorism, or responses to these events.
The market price of our Class A common stock has declined significantly since our IPO, has been volatile and is likely to continue to be volatile and could be subject to wide fluctuations in response to the risk factors described in this Annual Report , and others within or beyond our control, including: • actual or anticipated fluctuations in our revenue or other operating metrics; • our actual or anticipated operating performance and the operating performance of our competitors; • changes in the financial projections we provide to the public or our failure to meet these projections; • the perceived adequacy of our ESG efforts; • positive or negative publicity; 56 Table of Contents • failure of securities analysts to initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our company, or our failure to meet the estimates or the expectations of investors; • any major change in our board of directors, management, or key personnel; • the economy as a whole and market conditions in our industry; • rumors and market speculation involving us or other companies in our industry; • announcements by us or our competitors of significant innovations, new products, services, features, integrations, or capabilities, acquisitions, strategic investments, partnerships, joint ventures, or capital commitments; • the legal and regulatory landscape and changes in the application of existing laws or adoption of new laws that impact our business, including changes in e-commerce and tax laws; • legal and regulatory claims, litigation, or pre-litigation disputes and other proceedings; • the pace of the COVID-19 pandemic recovery and its impact on our business or the fashion industry and sharing economy generally; • sales or expected sales of our Class A common stock by us, our officers, directors, principal stockholders, and employees; • if securities or industry analysts publish research about our business, or if they publish unfavorable research; and • other events or factors, including those resulting from war, incidents of terrorism, or responses to these events.
If we are not able to keep pace with technological changes and enhance our current offerings and develop new offerings to respond to the changing needs of partners and customers, our business, financial performance, and growth may be harmed .
If we are not able to improve our website and mobile app performance, keep pace with technological changes, enhance our current offerings, and develop new offerings to respond to the changing needs of partners and customers, our business, financial performance, and growth may be harmed .
In addition, our partners may not have sufficient resources or insurance to satisfy their indemnity and defense obligations to us in connection with product liability claims or regulatory actions. 52 Table of Contents We may incur significant losses from fraud .
In addition, our partners may not have sufficient resources or insurance to satisfy their indemnity and defense obligations to us in connection with product liability claims or regulatory actions. We may incur significant losses from fraud .
Our number of customers and the amounts they spend on our offerings may decline materially or fluctuate as a result of many factors, including, among other things: • the quality, consumer appeal, price, and reliability of our offerings; • dissatisfaction with changes we make to our offerings and products; • the perceived value of our offerings, especially in response to price increases; • our ability to quality control the products delivered to our customers and their fit; • ensuring on-time delivery of orders; • the ease with which customers can find items they are looking for; • a negative customer service experience; • intense competition in the fashion industry; • negative publicity that impacts our brand and reputation; • changes in consumer preferences regarding the use of pre-loved apparel; • lack of market acceptance of our business model; • the unpredictable nature of the impact of the COVID-19 pandemic or a future outbreak of disease or similar public health concern; • the failure (or perceived failure) to meet customer expectations regarding our environmental, social and governance (“ESG”), initiatives; and • changes in efficiency of our historic or current customer acquisition methods. 22 Table of Contents If existing customers no longer find our offerings and products appealing or appropriately priced or if we are unable to provide high-quality support to customers to help them resolve issues in a timely and acceptable manner, they may stop using our offerings, negative publicity may be generated and word-of-mouth and other referrals may be hampered.
Our number of customers and the amounts they spend on our offerings may decline materially or fluctuate as a result of many factors, including, among other things: • the quality, consumer appeal, price, and reliability of our offerings; • dissatisfaction with changes we make to our offerings and products; • the perceived value of our offerings, especially in response to price increases and changes in the macroeconomic environment; • our ability to quality control the products delivered to our customers and their fit; • ensuring on-time delivery of orders; • the ease with which customers can find items they are looking for, including the effectiveness of our search and discovery tools and rental product availability; • the performance of our website and mobile app, including site speed and reliability; • a negative customer service experience; • intense competition in the fashion industry; • negative publicity that impacts our brand and reputation; • changes in consumer preferences regarding the use of pre-loved apparel; • lack of market acceptance of our business model; • the unpredictable nature of the continued impact of the COVID-19 pandemic or a future outbreak of disease or similar public health concern; • the failure (or perceived failure) to meet customer expectations regarding our environmental, social and governance (“ESG”), initiatives; and • changes in efficiency of our historic or current customer acquisition methods. 23 Table of Contents If existing customers no longer find our offerings and products appealing, appropriately priced or easy to use, or if we are unable to provide high-quality support to customers to help them resolve issues in a timely and acceptable manner, they may stop using our offerings, negative publicity may be generated and word-of-mouth and other referrals may be hampered.
Our management has broad discretion in the use of our cash resources and may not use them effectively . Our management has broad discretion in the application of our cash resources, including the proceeds from our IPO, which may include working capital, to fund growth and for other general corporate purposes.
Our management has broad discretion in the use of our cash resources and may not use them effectively . Our management has broad discretion in the application of our cash resources, which may include working capital, to fund growth and for other general corporate purposes.
To effectively manage and capitalize on our growth, we must continue to expand our brand awareness and marketing, enhance customer experience, iterate our subscription products, invest in digital consumer innovation, and upgrade our management information and reverse logistics systems and other processes.
To effectively manage and capitalize on our growth, we must continue to enhance customer experience and attract and retain customers (particularly subscribers), iterate our subscription products, invest in digital consumer innovation, expand our brand awareness and marketing, and upgrade our management information and reverse logistics systems and other processes.
We have and plan to continue undertaking ESG initiatives. Any failure by us to meet our Impact Strategy goals or loss of confidence on the part of customers, investors, employees, brand partners, and other stakeholders as it relates to our ESG initiatives could negatively impact our brand, the demand for our offerings, our financial condition, results of operations and prospects.
Any failure by us to meet our Impact Strategy goals or a loss of confidence on the part of customers, investors, employees, brand partners, and other stakeholders as it relates to our ESG initiatives could negatively impact our brand, the demand for our offerings, our financial condition, results of operations and prospects.
However, all of those NOLs were available by the year ended January 31, 2017. We may experience additional ownership changes as a result of subsequent shifts in our stock ownership, some of which may be outside of our control.
However, all of those NOLs were available by the year ended January 31, 2017. We may have experienced and may experience in the future additional ownership changes as a result of shifts in our stock ownership, some of which may be outside of our control.
Our continued growth has in the past, and could in the future, strain our existing resources, and we could experience ongoing operating difficulties in managing our business across numerous jurisdictions, including difficulties in hiring, training, and managing a diverse and growing employee base.
Our growth and growth strategies have in the past strained, and could in the future, strain our existing resources, and we could experience ongoing operating difficulties in managing our business across numerous jurisdictions, including difficulties in hiring, training, and managing a diverse and growing employee base.
Moreover, in the event of a significant disruption in the supply of the fabrics or raw materials used in the manufacture of the products we offer, we and/or our partners might not be able to locate alternative suppliers of materials of comparable quality at an acceptable price.
Moreover, in the event of a significant disruption in the supply of the fabrics or raw materials used in the manufacture of the products we offer, such as due to restrictions on Xinjiang cotton, we and/or our partners might not be able to locate alternative suppliers of materials of comparable quality at an acceptable price.
Furthermore, we rely on third-party suppliers to provide chemicals, cleaning supplies, and handling instructions that comply with applicable health, safety and environmental regulations. A failure of such suppliers to abide by applicable regulations or the terms of our contractual relationships may subject us to material liabilities.
Furthermore, we rely on third-party suppliers to provide chemicals, cleaning supplies, and handling instructions that comply with applicable health, safety and environmental regulations, and to support other compliance initiatives from time to time. A failure of such suppliers to provide adequate advice, abide by applicable regulations, or the terms of our contractual relationships may subject us to material liabilities.
We have very recently migrated a substantial portion of our primary production environment, core architecture, and data centers to a new third-party cloud provider, which provides a distributed computing infrastructure as a service platform for business operations. We also use another third-party cloud provider for portions of our business.
In 2022, we migrated a substantial portion of our primary production environment, core architecture, and data centers to a new third-party cloud provider, which provides a distributed computing infrastructure as a service platform for business operations. We use another third-party cloud provider for other portions of our business.
Future sales of our common stock in the public market could cause our share price to fall . The sale of substantial amounts of shares of our common stock in the public market, or the perception that such sales could occur, could harm the prevailing market price of shares of our Class A common stock.
The sale of substantial amounts of shares of our common stock in the public market, or the perception that such sales could occur, could harm the prevailing market price of shares of our Class A common stock.
Under the legislation enacted in 2017, commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”), as modified by the Coronavirus Aid, Relief, and Economic Security (the “CARES Act”), U.S. federal net operating losses incurred in taxable years beginning after December 31, 2017, may be carried forward indefinitely, but the deductibility of such federal net operating losses in taxable years beginning after December 31, 2020, is limited.
Under the legislation enacted in 2017, commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”), U.S. federal net operating losses incurred in taxable years beginning after December 31, 2017, may be carried forward indefinitely, but the deductibility of such federal net operating losses is limited.
The CPRA will restrict use of certain categories of sensitive personal information that we handle; further restrict the use of cross-context behavioral advertising techniques on which our products and offerings may rely on in the future; expand requirements on businesses that “sell” personal information under the CCPA to businesses like ours that “share” it; require all businesses with any California employees to limit uses of employee data; establish restrictions on the retention of personal information; expand the types of data security incidents subject to the private right of action; and establish the California Privacy Protection Agency to implement and enforce the new law, as well as impose administrative fines.
The CPRA restricts the use of cross-context behavioral advertising techniques on which our products and offerings may rely on in the future; expands requirements on businesses that “sell” personal information under the CCPA to businesses like ours that “share” it; requires all businesses with any California employees to limit uses of employee data; establish restrictions on the retention of personal information; expands the types of data security incidents subject to the private right of action; and establishes the California Privacy Protection Agency to implement and enforce the new law, as well as impose administrative fines.
Furthermore, we had state net operating loss carryforwards of $32.0 million, which will expire at various times through 2041. Portions of these net operating loss carryforwards could expire unused and be unavailable to offset future income tax liabilitie s.
Furthermore, we had stated net operating loss carryforwards of $33.0 million, which will expire at various times through 2041. Portions of these net operating loss carryforwards could expire unused and be unavail able to offset future income tax liabilitie s.
Such efforts will require significant time, expense, and attention as there is intense competition for such individuals, particularly in New York City, Galway, New Jersey and Texas, and new hires require significant training and time before they achieve full productivity.
Such efforts have required, and are expected to continue to require significant time, expense, and attention as there is intense competition for such individuals, particularly in New York City, Galway, New Jersey and Texas, and new hires require significant training and time before they achieve full productivity.
Our ability to utilize our net operating loss carryforwards and certain other tax attributes to offset taxable income or taxes may be limited . As of January 31, 2022, we had federal net opera ting loss carryforwards of $560.5 million, $152.1 million of which will expire at various times through 2038.
Our ability to utilize our net operating loss carryforwards and certain other tax attributes to offset taxable income or taxes may be limited . As of January 31, 2023, we had federal net operating loss carryforwards of $596.0 million, $152.0 million of which will expire at various times through 2038.
If we are not able to negotiate acceptable pricing and other terms with these vendors or they experience performance problems or other difficulties, our operating results and customers’ experience could be negatively impacted.
If we are not able to maintain appropriate staffing levels or negotiate acceptable pricing and other terms with third-party vendors or they experience performance problems or other difficulties, our operating results and customers’ experience could be negatively impacted.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe believe our facilities are suitable for our current needs. We intend to expand our facilities or add new facilities as we grow and believe that suitable additional or alternative space will be available as needed to accommodate such growth.
Biggest changeWe believe our facilities are suitable for our current needs. We intend to expand our facilities or add new facilities as we grow and believe that suitable additional or alternative space will be available as needed to accommodate such growth. Item 3.
Added
Legal Proceedings The information contained in “Note 16 — Commitments and Contingencies” in the Notes to the Consolidated Financial Statements is incorporated by reference into this Item. Item 4. Mine Safety Disclosures Not applicable. 61 Table of Contents Part II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeItem 5. Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities Market Information Our Class A common stock has been listed on the Nasdaq Global Select Market under the symbol “RENT” and began trading on October 27, 2021. Prior to that date, there was no public trading market for our common stock.
Biggest changeMarket for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities Market Information Our Class A common stock is listed on the Nasdaq Global Select Market under the symbol “RENT.” Holders of Record As of April 7, 2023, there were approximately 177 stockholders of record of our Class A common stock and seven stockholders of record of our Class B common stock.
Performance Graph The following performance graph and related information shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing, or otherwise subject to the liabilities under the Securities Act or Exchange Act, except to the extent that we specifically incorporate it by reference into such filing. 60 Table of Contents The following graph shows a comparison from October 27, 2021 (the date our common stock commenced trading on Nasdaq), through January 31, 2022, of the cumulative total returns for our common stock, the Nasdaq Composite Index and the S&P Retail Select Index.
Performance Graph The following performance graph and related information shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing, or otherwise subject to the liabilities under the Securities Act or Exchange Act, except to the extent that we specifically incorporate it by reference into such filing. 62 Table of Contents The following graph shows a comparison from October 27, 2021 (the date our common stock commenced trading on Nasdaq), through January 31, 2023, of the cumulative total returns for our common stock, the Nasdaq Composite Index and the S&P Retail Select Index.
Recent Sales of Unregistered Securities None. Use of Proceeds from our IPO The offer and sale of the shares in the IPO was registered under the Securities Act pursuant to a registration statement on Form S-1 (File No. 333-260027), which was declared effective by the SEC on October 26, 2021.
Use of Proceeds from our IPO The offer and sale of the shares in the IPO was registered under the Securities Act pursuant to a registration statement on Form S-1 (File No. 333-260027), which was declared effective by the SEC on October 26, 2021.
The performance shown in the graph below is not intended to forecast or be indicative of future stock price performance. Item 6. [Reserved] 61 Table of Contents
The performance shown in the graph below is not intended to forecast or be indicative of future stock price performance.
Removed
Holders of Record As of April 11, 2022, there were approximately 291 stockholders of record of our Class A common stock and seven stockholders of record of our Class B common stock.
Added
Recent Sales of Unregistered Securities Other than sales previously reported in the Company’s Current Report on Form 8-K filed with the SEC on January 31, 2023, the Company did not sell any unregistered securities during the period covered by this report.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe following table presents a reconciliation of net loss, the most comparable GAAP financial measure, to Adjusted EBITDA for the periods presented: Years Ended January 31, 2022 2021 2020 (in millions) Net loss $ (211.8) $ (171.1) $ (153.9) Interest (income) / expense, net (1) 53.0 46.6 24.0 Rental product depreciation 50.3 69.9 75.7 Other depreciation and amortization (2) 19.4 23.0 21.6 Share-based compensation (3) 26.6 8.2 6.8 Write-off of liquidated assets (4) 4.8 3.3 4.1 Non-recurring adjustments (5) 5.3 4.2 3.8 Income tax (benefit) / expense (0.3) — (0.2) (Gain) / loss on warrant liability revaluation, net (6) 24.9 (0.4) — (Gain) / loss on debt extinguishment, net (7) 12.2 0.6 — Other (income) / expense, net (8) (3.9) (6.2) 0.1 Other (gains) / losses (9) 0.3 1.6 — Adjusted EBITDA $ (19.2) $ (20.3) $ (18.0) Adjusted EBITDA Margin (10) (9.4) % (12.9) % (7.0) % __________ (1) Includes debt discount amortization of $5.9 million in the year ended January 31, 2022, $5.0 million in the year ended January 31, 2021, and $4.0 in the year ended January 31, 2020.
Biggest changeThe pilot to sell brand new Exclusive Design products wholesale to a third party retailer and launch of a new liquidation partnership together contributed $5.1 million to Adjusted EBITDA in the year ended January 31, 2023 . 78 Table of Contents The following table presents a reconciliation of net loss, the most comparable GAAP financial measure, to Adjusted EBITDA for the periods presented: Years Ended January 31, 2023 2022 2021 (in millions) Net loss $ (138.7) $ (211.8) $ (171.1) Interest (income) / expense, net (1) 36.8 53.0 46.6 Rental product depreciation 52.9 50.3 69.9 Other depreciation and amortization (2) 16.4 19.4 23.0 Share-based compensation (3) 25.4 26.6 8.2 Write-off of liquidated assets (4) 5.8 4.8 3.3 Non-recurring adjustments (5) 1.3 5.3 4.2 Non-ordinary course legal fees (6) 0.1 — — Restructuring charges (7) 2.4 — — Loss on asset impairment related to restructuring (8) 5.3 — — Income tax (benefit) / expense (0.2) (0.3) — (Gain) / loss on warrant liability revaluation, net (9) — 24.9 (0.4) (Gain) / loss on debt extinguishment, net (10) — 12.2 0.6 Other (income) / expense, net (11) (1.5) (3.9) (6.2) Other (gains) / losses (12) 0.7 0.3 1.6 Adjusted EBITDA $ 6.7 $ (19.2) $ (20.3) Adjusted EBITDA Margin (13) 2.3 % (9.4) % (12.9) % __________ (1) Includes debt discount amortization of $4.3 million in the year ended January 31, 2023, $5.9 million in the year ended January 31, 2022, and $5.0 million in the year ended January 31, 2021.
During the year ended January 31, 2022, net cash provided by financing activities was $215.2 million, consisting primarily of $327.3 million from the sale of Class A common stock in our IPO which is net of the underwriting discounts of $(24.1) million and deferred equity issuance costs of $(5.6) million , $21.2 million from the issuance of redeemable preferred stock, $3.3 million from the exercise of options and $3.1 million of net proceeds from short term financing agreements and other financing payments.
During the year ended January 31, 2022, net cash provided by financing activities was $215.2 million, consisting primarily of $327.3 million from the sale of Class A common stock in our IPO which is net of underwriting discounts of $(24.1) million and deferred equity issuance costs of $(5.6) million, $21.2 million from the issuance of redeemable preferred stock, $3.3 million from the exercise of options and $3.1 million of net proceeds from short term financing agreements and other financing payments.
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.
Concurrent with our IPO, we paid down our senior secured term loan with Ares Corporate Opportunities Fund V, L.P. 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.
For the year ended January 31, 2022, net cash used in operating activities was $(42.3) million, which consisted of a net loss of $(211.8) million, partially offset by non-cash charges of $171.3 million, proceeds from sale of rental product of $12.9 million and a net change of $11.1 million in our operating assets and liabilities.
For the year ended January 31, 2022, net cash used in operating activities was $(42.3) million, which consisted of a net loss of $(211.8) million, partially offset by non-cash charges of $171.3 million, reclassification of the proceeds from the sale of rental product of $12.9 million and a net change of $11.1 million in our operating assets and liabilities.
The assumptions used in preparing the model include estimates such as fair value of the underlying shares, expected volatility, expected term, risk-free interest rate and expected dividend yield. This valuation model used unobservable market share price input on a recurring basis, and therefore the liability was classified as Level 3.
The assumptions used in preparing the model include estimates such as fair value of the underlying shares, expected volatility, expected term, risk-free interest rate and expected dividend yield. The valuation model used unobservable market share price input on a recurring basis, and therefore the liability was classified as Level 3.
As a result of the lack of historical and implied volatility data of our common stock, the expected stock price volatility has been estimated based on the historical volatilities of a specified group of companies in its industry for a period equal to the expected life of the option.
As a result of the lack of historical and implied volatility data of our common stock, the expected stock price volatility has been estimated based on the historical volatilities of a specified group of companies in our industry for a period equal to the expected life of the option.
Warrants Warrants held prior to the IPO did not meet the criteria for equity treatment were recorded as liabilities. Accordingly, we classified the warrants as liabilities at their fair value and adjusted the warrants to fair value at each previous reporting period.
Warrants Warrants held prior to the IPO which did not meet the criteria for equity treatment were recorded as liabilities. Accordingly, we classified the warrants as liabilities at their fair value and adjusted the warrants to fair value at each previous reporting period.
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. 72 Table of Contents Results of Operations The results of operations presented below should be reviewed in conjunction with the consolidated financial statements and notes included elsewhere in this Annual Report on Form 10-K.
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. 75 Table of Contents Results of Operations The results of operations presented below should be reviewed in conjunction with the consolidated financial statements and notes included elsewhere in this Annual Report on Form 10-K.
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 includes salaries and bonuses, and employee benefit costs.
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.
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 January 31, 2022, all outstanding warrants are equity classified and therefore do not require remeasurement going forward. Gain / (Loss) on Debt Extinguishment, Net.
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 January 31, 2023, all outstanding warrants are equity classified and therefore do not require remeasurement going forward. Gain / (Loss) on Debt Extinguishment, Net.
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 12 months from the date of this Annual Report.
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 Annual Report.
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.
To the extent that current and anticipated future sources of liquidity are insufficient to fund our future business activities and requirements and service our debt obligations, 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 investment in rental product does not include an additional $6.5 million of cost for units received in the current period but not yet paid for, but does include $(3.6) 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 II, Item 8.
The investment in rental product does not include an additional $5.4 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 II, Item 8.
The investment in rental product did not include the additional $3.6 million of cost for units received in the current period but not yet paid for, but did include $(3.7) million of cost for units paid for in the current period but received in the prior period (see Supplemental Cash Flow Information in Part II, Item 8.
The investment in rental product did not include the additional $6.5 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 II, Item 8.
The fair value of our common stock was determined by considering a number of objective and subjective factors, including: the valuation of comparable companies, sales of preferred stock to unrelated third parties, our operating and financial performance, the lack of liquidity of common stock and general and industry specific economic outlook, among other factors. • Expected volatility.
The fair value of our common stock was determined by considering a number of objective and subjective factors, including: the valuation of comparable companies, sales of preferred stock to unrelated third parties, our operating and financial performance, the lack of liquidity of common stock and general and industry specific economic outlook, among other factors. 83 Table of Contents • Expected volatility.
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.
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 busin ess.
As of January 31, 2022, the Company had no outstanding warrants classified as liabilities. 80 Table of Contents Recent Accounting Pronouncements See “Note 2 — Summary of Significant Accounting Policies ” in the Notes to Consolidated Financial Statements for a description of recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted.
As of January 31, 2023 and January 31, 2022, the Company had no outstanding warrants classified as liabilities. Recent Accounting Pronouncements See “Note 2 — Summary of Significant Accounting Policies ” in the Notes to Consolidated Financial Statements for a description of recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted.
We provide a flexible offering that allows our subscribers to customize their subscription as their everyday life changes, choosing to pause and reactivate their membership as needed. We have historically seen that many subscribers who cancel their subscription will often return to the platform and resubscribe when membership again makes sense for their everyday life.
We provide a flexible offering that allows our subscribers to customize their subscription as their everyday life changes, choosing to pause and reactivate their membership as needed. We have also historically seen that many subscribers who cancel their subscription will return and resubscribe when membership again makes sense for their everyday life.
The following discussion focuses on fiscal years 2021 and 2020 financial condition and results of operations and year-to-year comparisons between fiscal years 2021 and 2020.
The following discussion focuses on fiscal years 2022 and 2021 financial condition and results of operations and year-to-year comparisons between fiscal years 2022 and 2021.
(10) Adjusted EBITDA Margin calculated as Adjusted EBITDA as a percentage of revenue. 76 Table of Contents Liquidity 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.
(13) Adjusted EBITDA Margin calculated as Adjusted EBITDA as a percentage of revenue. 79 Table of Contents Liquidity 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.
This liability was subject to re-measurement at each balance sheet date until exercised, and any change in fair value was recognized in our consolidated statements of operations. The warrants were valued using a Black-Scholes option pricing model.
The liabilities were subject to re-measurement at each balance sheet date until exercised, and any change in fair value was recognized in our consolidated statements of operations. The warrants were valued using the Black-Scholes option pricing model.
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 and remaining cost of items when sold or retired on our statement of operations. Rental product depreciation expense is time-based and reflects all items we own.
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 consolidated statement of operations. Rental product depreciation expense is time-based and reflects all rental product items we own.
Financial Statements and Supplementary Data). The investment in rental product was to support our growth in customer demand as a result of the COVID-19 recovery. 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, reusable bags and capitalized technology labor.
“Financial Statements and Supplementary Data”). The investment in rental product was to support growth in customer demand as a result of the COVID-19 recovery. The majority of the investment in fixed and intangible assets was related to investments in automation assets, additional processing machinery and equipment for the Secaucus and Arlington warehouses, reusable bags and capitalized technology labor.
We expect to 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. 64 Table of Contents Description Consolidated Statement of Operations Consolidated Balance Sheets Consolidated Statement of Cash Flows Percent of Items Acquired in FY 2021 / 2020 / 2019 WHOLESALE Items are acquired directly from brands partners, typically at a discount to wholesale price Cost is recognized through straight-line depreciation, with a three-year useful life and 20% salvage value, in the "Rental Product Depreciation and Revenue Share" line ⁽¹⁾ Total cost is capitalized as "Rental Products" in long-term assets Total cost is recognized as a capital expenditure ("Purchases of Rental Product") at time of acquisition 45% / 46% / 74% SHARE BY RTR ⁽²⁾ 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 Upfront and performance-based revenue share payments are expensed as incurred in the "Rental Product Depreciation and Revenue Share" line Items are not capitalized on the balance sheet as we do not own them Upfront revenue share payments flow through Net Income as incurred 33% / 36% / 15% EXCLUSIVE DESIGNS ⁽²⁾⁽³⁾ Items are designed using our data in collaboration with our brand partners We manufacture through third-party partners and pay the brand partner an upfront fee and minimal revenue share payments Upfront and performance-based revenue share payments are expensed as incurred in the "Rental Product Depreciation and Revenue Share" line Manufacturing cost is recognized through straight-line depreciation, with a three-year useful life and 20% salvage value, in the "Rental Product Depreciation and Revenue Share" line ⁽¹⁾ Manufacturing cost is capitalized as "Rental Products" in long-term assets Upfront and revenue share payments flow through Net Income as incurred Manufacturing cost is recognized as a capital expenditure ("Purchases of Rental Product") at time of acquisition 22% / 18% / 11% For additional details, refer to the section titled "Business - Our Unique Brand Partner Approach." ⁽¹⁾ The cost of accessory items, which made up less than 10% of the gross book value of rental product as of January 31, 2022, is recognized through straight-line depreciation with two-year useful life and 30% salvage value. ⁽²⁾ For both Share by RTR and Exclusive Designs, the Company shares a percentage of revenue less a logistics fee with the brand.
Description Consolidated Statement of Operations Consolidated Balance Sheets Consolidated Statement of Cash Flows Percent of Items Acquired in FY 2022 / 2021 / 2020 WHOLESALE Items are acquired directly from brands partners, typically at a discount to wholesale price Cost is recognized through straight-line depreciation, with a three-year useful life and 20% salvage value, in the "Rental Product Depreciation and Revenue Share" line ⁽¹⁾ Total cost is capitalized as "Rental Products" in long-term assets Total cost is recognized as a capital expenditure ("Purchases of Rental Product") at time of acquisition 42% / 45% / 46% SHARE BY RTR ⁽²⁾ 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 Upfront and performance-based revenue share payments are expensed as incurred in the "Rental Product Depreciation and Revenue Share" line Items are not capitalized on the balance sheet as we do not own them Upfront revenue share payments flow through Net Income as incurred 27% / 33% / 36% 67 Table of Contents EXCLUSIVE DESIGNS ⁽²⁾⁽³⁾ Items are designed using our data in collaboration with our brand partners We manufacture through third-party partners and pay the brand partner an upfront fee and minimal revenue share payments Upfront and performance-based revenue share payments are expensed as incurred in the "Rental Product Depreciation and Revenue Share" line Manufacturing cost is recognized through straight-line depreciation, with a three-year useful life and 20% salvage value, in the "Rental Product Depreciation and Revenue Share" line ⁽¹⁾ Manufacturing cost is capitalized as "Rental Products" in long-term assets Upfront and revenue share payments flow through Net Income as incurred Manufacturing cost is recognized as a capital expenditure ("Purchases of Rental Product") at time of acquisition 31% / 22% / 18% For additional details, refer to the section titled "Business - Our Unique Brand Partner Approach." ⁽¹⁾ The cost of accessory items, which made up less than 10% of the gross book value of rental product as of January 31, 2023, is recognized through straight-line depreciation with two-year useful life and 30% salvage value. ⁽²⁾ For both Share by RTR and Exclusive Designs, the Company shares a percentage of revenue less a logistics fee with the brand.
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 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.
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), restructuring charges, loss on asset impairment related to restructuring, income taxes, warrant liability revaluation gains / losses, debt extinguishment gains / losses, other income and expense, and other gains / losses.
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. 71 Table of Contents Other Depreciation and Amortization.
The amount and proportion of rental product depreciation and revenue share will vary from period to period based on how and when we acquire items as well as the mix of our rental product base. Other Depreciation and Amortization.
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.
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.
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 (12.9)% in the year ended January 31, 2021 to (9.4)% in the year ended January 31, 2022 .
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 (9.4)% in the year ended January 31, 2022 to 2.3% in the year ended January 31, 2023.
(6) Includes the expense associated with revaluing prior liability classified lender warrants to the respective fair value at period end, or prior to conversion. As of January 31, 2022, all outstanding warrants are equity classified and therefore do not require remeasurement going forward. (7) Includes debt extinguishment costs related to debt paydown in the periods presented.
(9) Reflects the expense associated with revaluing prior liability classified lender warrants to the respective fair value at period end, or prior to conversion. As of January 31, 2023, all outstanding warrants are equity classified and therefore do not require remeasurement going forward. (10) Includes debt extinguishment costs related to debt paydown in the periods presented.
For the year ended January 31, 2022, net cash used in investing activi ties was $(22.5) million, primarily consisting of $(30.8) million of purchases of rental product incurred in the period and $(10.3) million of purchases of fixed and intangible assets.
For the year ended January 31, 2022, net cash used in investing activities was $(22.5) million, primarily consisting of $(30.8) million of purchases of rental product and $(10.3) million of purchases of fixed and intangible assets .
We define Adjusted EBITDA Margin as Adjusted EBITDA as a percentage of total revenue, net for a period. Adjusted EBITDA was $(19.2) million for the year ended January 31, 2022 compared to $(20.3) million for the year ended January 31, 2021, representing margins of (9.4)% and (12.9)%, respectively.
We define Adjusted EBITDA Margin as Adjusted EBITDA as a percentage of total revenue, net for a period. Adjusted EBITDA was $6.7 million for the year ended January 31, 2023 compared to $(19.2) million for the year ended January 31, 2022, representing margins of 2.3% and (9.4)%, respectively.
The non-cash charges were primarily comprised of $49.7 million of rental product depreciation and write-off expenses, $38.8 million of payment-in-kind interest, $24.9 million loss on remeasurement of warrant liability, $26.6 million of share-based compensation, $5.9 million of debt discount amortization, $12.2 million loss on debt extinguishment (primarily non-cash), $19.5 million of other fixed and intangible asset depreciation and amortization, and $(6.3) million of previously accrued PIK interest which was settled in the period in connection with the extinguishment of our Ares Facility.
The non-cash charges were primarily comprised of $49.7 million of rental product depreciation and write-off expenses, $38.8 million of payment-in-kind interest, $24.9 million loss on remeasurement of warrant liability, $26.6 million of share-based compensation, $5.9 million of debt discount amortization, $12.2 million loss on debt extinguishment (primarily non-cash), $19.5 million of other fixed and intangible asset depreciation and amortization, and $(6.3) million of previously accrued PIK interest was settled in the period in connection with the Ares debt extinguishment. 81 Table of Contents Net cash (used in) provided by investing activities .
Most Share by RTR items earn revenue until a cap has been reached, at which point, title generally passes from the brand to the Company. ⁽³⁾ Includes a small number of products bearing our trademarks, which are non-Exclusive Designs produced by third-party partners, or our owned brands.
Most Share by RTR items earn revenue until a cap has been reached, at which point, title generally passes from the brand to the Company. ⁽³⁾ Also includes a small number of products bearing our trademarks, which are non-Exclusive Designs produced by third-party partners, or our owned brands. These products are purchased at a significantly lower average cost than Wholesale.
A change in the assumption used for useful life or salvage value would either increase or decrease accumulated depreciation and depreciation expense reflected on our consolidated balance sheets within rental product, net and on our consolidated statements of operations within rental product depreciation and revenue share, respectively.
A change in the assumption used for useful life or salvage value would either increase or decrease accumulated depreciation and depreciation expense reflected on our consolidated balance sheets within rental product, net and on our consolidated statements of operations within rental product depreciation and revenue share, respectively. Our historical results continue to support the use of these assumptions.
The trend and timing of our brand 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, including customer service, finance, tax, legal, human resources, fashion and photography and fixed operations costs.
The trend and timing of our marketing expenses will depend in part on the timing of marketing campaigns. 74 Table of Contents 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.
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. 70 Table of Contents Costs and Expenses Fulfillment.
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 or when purchased, if the item is already at home with the customer.
We expect our operating costs to increase as we make investments to grow subscribers and revenue and to enhance the customer experience.
We expect certain of our operating costs to increase as order volume increases and as we make investments to grow subscribers and revenue and to enhance the customer experience.
Of the $ 53.0 million total interest expense in the year ended January 31, 2022 , $38.8 million was the accrual of paid-in kind (“PIK”) interest, $8.3 million was cash, financing lease interest and other interest and $5.9 million was debt discount amortization, compared with $36.9 million of PIK interest, $4.7 million of cash, financing lease interest and other interest and $5.0 million of debt discount amortization in the year ended January 31, 2021 .
Of the $(36.8) million total interest expense in the year ended January 31, 2023, $14.3 million was the accrual of paid-in kind (“PIK”) interest, $18.2 million was cash, financing lease interest and other interest and $4.3 million was debt discount amortization, compared to $38.8 million of PIK interest, $8.3 million of cash, financing lease interest and other interest and $5.9 million of debt discount amortization in the year ended January 31, 2022.
The majority of our revenue is highly recurring and is generated by our subscribers. For the years ended January 31, 2022 and 2021, respectively, 84% and 89% of our total revenue (including Reserve and Resale revenue) was generated by subscribers while they were active or paused.
For the years ended January 31, 2023 and 2022, respectively, 86% and 84% of our total revenue (including Reserve and Resale revenue) was generated by subscribers while they were active or paused.
Years Ended January 31, 2022 2021 2020 Active Subscribers 115,240 54,797 133,572 Gross Profit $ 69.7 $ 15.5 $ 53.6 Adjusted EBITDA (1) $ (19.2) $ (20.3) $ (18.0) __________ (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.
Years Ended January 31, 2023 2022 2021 Active Subscribers 126,712 115,240 54,797 Average Active Subscribers 128,586 93,371 66,711 Gross Profit $ 120.0 $ 69.7 $ 15.5 Adjusted EBITDA (1) $ 6.7 $ (19.2) $ (20.3) __________ (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.
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.
The full extent to which the macro environment 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.
Gross Profit was $69.7 million for the year ended January 31, 2022 compared to $15.5 million for the year ended January 31, 2021 representing Gross Margins of 34.3% and 9.8%, respect ively.
Gross Profit was $120.0 million for the year ended January 31, 2023 compared to $69.7 million for the year ended January 31, 2022 representing Gross Margins of 40.5% and 34.3%, respect ively.
The following tables set forth our results of operations for the periods presented: Years Ended January 31, 2022 2021 2020 (in millions) Revenue: Subscription and Reserve rental revenue $ 185.8 $ 135.9 $ 235.4 Other revenue 17.5 21.6 21.5 Total revenue, net 203.3 157.5 256.9 Costs and expenses: Fulfillment 61.9 53.0 118.1 Technology 45.3 37.7 40.2 Marketing 26.5 8.1 22.9 General and administrative 104.4 77.2 98.9 Rental product depreciation and revenue share 71.7 89.0 85.2 Other depreciation and amortization 19.4 23.0 21.6 Total costs and expenses 329.2 288.0 386.9 Operating loss (125.9) (130.5) (130.0) Interest income / (expense), net (53.0) (46.6) (24.0) Gain / (loss) on warrant liability revaluation, net (24.9) 0.4 — Gain / (loss) on debt extinguishment, net (12.2) (0.6) — Other income / (expense), net 3.9 6.2 (0.1) Net loss before income tax benefit / (expense) (212.1) (171.1) (154.1) Income tax benefit / (expense) 0.3 — 0.2 Net loss $ (211.8) $ (171.1) $ (153.9) Comparison of the years ended January 31, 2022 and 2021 Total Revenue, Net.
The following tables set forth our results of operations for the periods presented: Years Ended January 31, 2023 2022 2021 (in millions) Revenue: Subscription and Reserve rental revenue $ 268.6 $ 185.8 $ 135.9 Other revenue 27.8 17.5 21.6 Total revenue, net 296.4 203.3 157.5 Costs and expenses: Fulfillment 92.2 61.9 53.0 Technology 55.4 45.3 37.7 Marketing 35.1 26.5 8.1 General and administrative 109.0 104.4 77.2 Rental product depreciation and revenue share 84.2 71.7 89.0 Other depreciation and amortization 16.4 19.4 23.0 Restructuring charges 2.4 — — Loss on asset impairment related to restructuring 5.3 — — Total costs and expenses 400.0 329.2 288.0 Operating loss (103.6) (125.9) (130.5) Interest income / (expense), net (36.8) (53.0) (46.6) Gain / (loss) on warrant liability revaluation, net — (24.9) 0.4 Gain / (loss) on debt extinguishment, net — (12.2) (0.6) Other income / (expense), net 1.5 3.9 6.2 Net loss before income tax benefit / (expense) (138.9) (212.1) (171.1) Income tax benefit / (expense) 0.2 0.3 — Net loss $ (138.7) $ (211.8) $ (171.1) Comparison of the years ended January 31, 2023 and 2022 Total Revenue, Net.
For the year ended January 31, 2021, net cash used in operating activities was $(42.8) million, which consisted of a net loss of $(171.1) million, partially offset by non-cash charges of $145.2 million, proceeds of sale of rental product of $17.9 million and a net change of $1.0 million in our operating assets and liabilities.
For the year ended January 31, 2023, net cash used in operating activities was $(47.7) million, which consisted of a net loss of $(138.7) million, partially offset by non-cash charges of $116.1 million, reclassification of the proceeds from the sale of rental product of $17.9 million and a net change of $(7.2) million in our operating assets and liabilities.
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 the year ended January 31, 2022 and believe we will continue to be impacted by rising wage rates.
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 years 2021 and 2022 and expect to continue to be impacted by rising wage rates in the future.
Other income / (expense) consists primarily of proceeds from previous insurance claims and proceeds from monetizing 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.
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 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.
We source virtually all of our products, which includes apparel and accessories, 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.
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 159,544 ending total subscribers 6 (active and paused) as of January 31, 2022.
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 approximately 3 million lifetime customers across all of our offerings and we had 171,998 ending total subscribers 11 (active and paused) as of January 31, 2023.
The cash used in investing activities was partially offset by $12.9 million of proceeds from the sale of owned rental products and $5.7 million of proceeds from sales of liquidated rental products.
Th e cash used in investing activities was partially offset by $12.9 million of proceeds from sales of owned rental products and $5.7 million of proceeds from the liquidation of rental product. Net cash provided by (used in) financing activities .
Our historical results continue to support the use of these assumptions. 79 Table of Contents Right-of-Use Assets and Lease Liabilities Right-of-use (“ROU”) assets and lease liabilities are measured and recognized at the lease commencement date or lease modification date based on the present value of fixed lease payments over the expected lease term.
Right-of-Use Assets and Lease Liabilities Right-of-use (“ROU”) assets and lease liabilities are measured and recognized at the lease commencement date or lease modification date based on the present value of fixed lease payments over the expected lease term.
Marketing expenses were $26.5 million for the year ended January 31, 2022, an increase of $18.4 million, or 227.2%, compared to $8.1 million for the year ended January 31, 2021.
Marketing expenses were $35.1 million for the year ended January 31, 2023, an increase of $8.6 million, or 32.5%, compared to $26.5 million for the year ended January 31, 2022.
There are limitations to the use of the non-GAAP financial metrics presented in this Annual Report. For example, our non-GAAP financial metrics may not be comparable to similarly titled measures of other companies.
There are limitations to the use of the non-GAAP financial metrics presented in this Annual 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.
General and administrative (“G&A”) expenses were $104.4 million for the year ended January 31, 2022, an increase of $27.2 million, or 35.2%, compared to $77.2 million in the year ended January 31, 2021.
General and administrative (“G&A”) expenses were $109.0 million for the year ended January 31, 2023, an increase of $4.6 million, or 4.4%, compared to $104.4 million for the year ended January 31, 2022.
The sum of net cash used in operating activities and net cash used in investing activities, as a percentage of revenue, improved from (64.3)% in the year ended January 31, 2021 to (31.9)% in the year ended January 31, 2022 . Net cash (used in) provided by operating activities .
The sum of net cash used in operating activities and net cash used in investing activities, as a percentage of revenue, was (31.0)% for the year ended January 31, 2023 and (31.9)% for the year ended January 31, 2022 . Net cash (used in) provided by operating activities .
Subscription and Reserve rental revenue was $185.8 million for the year ended January 31, 2022, an increase of $49.9 million, or 36.7%, compared to $135.9 million for the year ended January 31, 2021.
Subscription and Reserve rental revenue was $268.6 million for the year ended January 31, 2023, an increase of $82.8 million, or 44.6%, compared to $185.8 million for the year ended January 31, 2022.
Total costs and expenses were $329.2 million for the year ended January 31, 2022, an increase of $41.2 million, or 14.3%, compared to $288.0 million for the year ended January 31, 2021.
Total costs and expenses were $400.0 million for the year ended January 31, 2023, an increase of $70.8 million, or 21.5%, compared to $329.2 million for the year ended January 31, 2022.
Overview We give customers ongoing access to our “unlimited closet” — with over 19,000 styles by over 780 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.
Overview We give customers ongoing access to our “unlimited closet” — with tens of thousands of styles by hundreds of designer brands — through our Subscription offering or the ability to rent a-la-carte through our Reserve offering.
Fulfillment expenses were $61.9 million for the year ended January 31, 2022, an increase of $8.9 million, or 16.8%, representing 30.4% of revenue, compared to $53.0 million for the year ended January 31, 2021, representing 33.7% of revenue.
Fulfillment expenses were $92.2 million for the year ended January 31, 2023, an increase of $30.3 million, or 48.9%, representing 31.1% of revenue, compared to $61.9 million for the year ended January 31, 2022, representing 30.4% of revenue.
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. Subscribers and Customers Our Attractive Cohort Trends.
For additional details about our business model and our product acquisition strategy, see Part I, Item 1, “Business”. 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.
For the year ended January 31, 2021, net cash used in investing activities was $(58.4) million, primarily consisting of $(54.9) million of purchases of rental product and $(23.8) million of purchases of fixed and intangible assets .
For the year ended January 31, 2023, net cash used in investing activi ties was $(44.3) million, primarily consisting of $(62.1) million of purchases of rental product incurred in the period and $(8.9) million of purchases of fixed and intangible assets.
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.
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.
Cash Flows The following table summarizes our cash flows for the periods presented: Years Ended January 31, 2022 2021 2020 (in millions) Net cash (used in) provided by operating activities $ (42.3) $ (42.8) $ (37.6) Net cash (used in) provided by investing activities (22.5) (58.4) (138.6) Net cash (used in) provided by financing activities 215.2 168.5 177.9 Net increase in cash and cash equivalents and restricted cash 150.4 67.3 1.7 Cash and cash equivalents and restricted cash at beginning of period 109.2 41.9 40.2 Cash and cash equivalents and restricted cash at end of period $ 259.6 $ 109.2 $ 41.9 77 Table of Contents 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 improved from $(101.2) million in the year ended January 31, 2021 to $(64.8) million in the year ended January 31, 2022 .
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. 80 Table of Contents Cash Flows The following table summarizes our cash flows for the periods presented: Years Ended January 31, 2023 2022 2021 (in millions) Net cash (used in) provided by operating activities $ (47.7) $ (42.3) $ (42.8) Net cash (used in) provided by investing activities (44.3) (22.5) (58.4) Net cash (used in) provided by financing activities (4.0) 215.2 168.5 Net (decrease) increase in cash and cash equivalents and restricted cash (96.0) 150.4 67.3 Cash and cash equivalents and restricted cash at beginning of period 259.6 109.2 41.9 Cash and cash equivalents and restricted cash at end of period $ 163.6 $ 259.6 $ 109.2 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 $(92.0) million for the year ended January 31, 2023 and $(64.8) million for the year ended January 31, 2022 .
General and administrative expenses also include occupancy costs (including warehouse-related), photography costs, professional services, credit card fees, general corporate and warehouse expenses, other administrative costs, gains and losses due to foreign exchange rate fluctuations associated with consolidating our foreign subsidiary at each period end, and gains and losses associated with asset disposals and operating lease terminations.
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.
Technology. Technology expenses were $45.3 million for the year ended January 31, 2022, an increase of $7.6 million, or 20.2%, compared to $37.7 million for the year ended January 31, 2021.
Technology expenses were $55.4 million for the year ended January 31, 2023, an increase of $10.1 million, or 22.3%, compared to $45.3 million for the year ended January 31, 2022.
We have achieved the following operating and financial results for the years ended January 31, 2022 and 2021 , respectively: • Revenue was $203.3 million and $157.5 million, respectively, representing 29.1% growth year-over-year • 115,240 and 54,797 ending Active Subscribers 7 (excluding paused subscribers), respectively, representing 110% growth year-over-year. • 159,544 and 95,245 ending Total Subscribers (including paused subscribers), respectively, representing 68% growth year-over-year • Gross Profit was $69.7 million and $15.5 million, respectively, representing a gross margin of 34.3% and 9.8%, respectively • Net Loss was $(211.8) million and $(171.1) million, respectively.
We have achieved the following operating and financial results for the years ended January 31, 2023 and 2022 , respectively: • Revenue was $296.4 million and $203.3 million, respectively, representing 45.8% growth year-over-year; • 126,712 and 115,240 ending Active Subscribers 12 (excluding paused subscribers), respectively, representing 10% growth year-over-year; • 128,586 and 93,371 Average Active Subscribers 13 , respectively, representing 38% growth year-over-year; • 171,998 and 159,544 ending Total Subscribers (including paused subscribers), respectively, representing 8% growth year-over-year; • Gross Profit was $120.0 million and $69.7 million, respectively, representing a gross margin of 40.5% and 34.3%, respectively; • Net Loss was $(138.7) million and $(211.8) million, respectively.
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.
In addition, we increased wage rates throughout fiscal year 2022 to attract and retain talent at our fulfillment centers and we expect to continue to be impacted by rising labor costs in fiscal year 2023.
Marketing expenses unrelated to personnel costs were $20.6 million in the year ended January 31, 2022 and 10.1% of revenue, of which 1.2% was related to a small brand campaign. Marketing expenses unrelated to personnel costs were $4.2 million last year and 2.7% of total revenue.
Marketing expenses unrelated to personnel costs were $30.7 million in the year ended January 31, 2023 and 10.3% of revenue, compared to $20.6 million last year and 10.1% of total revenue. General and Administrative.
Other depreciation and amortization was $19.4 million for the year ended January 31, 2022, a decrease of $3.6 million, or 15.7%, compared to $23.0 million in the year ended January 31, 2021. This decrease was primarily driven by the decrease in capitalized software amortization and lower depreciation associated with our reusable garment bags.
Other depreciation and amortization was $16.4 million for the year ended January 31, 2023, a decrease of $(3.0) million, or (15.5)%, compared to $19.4 million for the year ended January 31, 2022. This decrease was primarily driven by lower depreciation associated with leasehold improvements. 77 Table of Contents Restructuring Charges .
We believe that we have a significant market opportunity ahead of us to increase our base of subscribers and customers, and our long-term growth depends in large part on our continued ability to acquire and retain customers and subscribers. We partly assess the health of our business by analyzing the performance of our historical customer cohorts over time.
Subscribers and Customers Ability to Attract and Retain Subscribers and Customers and Our Attractive Cohort Trends. We believe that we have a significant market opportunity to increase our base of subscribers and customers, and our long-term growth depends in large part on our continued ability to acquire and retain subscribers and customers.
Gain / (loss) on debt extinguishment is associated with debt extinguishment including the write off of the unamortized debt issuance costs which most recently occurred at the time of our IPO. These are primarily non-cash and are associated with debt paydown transactions which are non-recurring. Other Income / (Expense).
Gain / (loss) on debt extinguishment is associated with debt extinguishment including the write off of the unamortized debt issuance costs. These are primarily non-cash and are associated with debt payment transactions which are non-recurring. Other Income / (Expense). Other income / (expense) consists primarily of proceeds from previous insurance claims and proceeds from monetizing tax credits associated with growth.
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.
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.
The costs in the current period were associated with the fees and unamortized debt issuance costs related to the Ares debt paydown upon the IPO in October 2021, compared to the prior lender debt extinguishment in the prior period. These charges were primarily non-cash and are associated with debt paydown transactions which are non-recurring. Other Income / (Expense), Net.
Gain / (loss) on debt extinguishment, net was $(12.2) million for the year ended January 31, 2022. The costs were associated with the fees and unamortized debt issuance costs related to the Ares debt paydown upon the IPO. These charges were primarily non-cash and are associated with debt paydown transactions which are non-recurring. Other Income / (Expense), Net.
Contractual Obligations and Commitments In October 2021, we paid down outstanding principal and accrued interest of our Ares Facility i n full and a portion of our Temasek Facility. Additionally, we entered into the Amended Temasek Facility.
The cash from financing activities was partially offset by $(139.7) million in debt payments including deferred financing costs and extinguishment costs. Contractual Obligations and Commitments In October 2021, we paid down outstanding principal and accrued interest of our Ares Facility i n full and a portion of our then-current Temasek facility and entered into the Amended Temasek Facility.
Key Business and Financial Metrics In addition to the measures presented in our 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.
For additional details, see Part I, Item 1A, “Risk Factors” of this Annual Report on Form 10-K. 71 Table of Contents Key Business and Financial Metrics In addition to the measures presented in our 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.
Adjusted EBITDA and Adjusted EBITDA Margin have increased for the year ended January 31, 2022 due to the improvement in Gross Profit and Gross Margin, and improved operating leverage across technology and general and administrative expenses excluding one-time costs and share-based compensation.
Adjusted EBITDA Margin significantly improved for the year ended January 31, 2023 due to the improvement in Gross Profit and Gross Margin and improved operating leverage across technology, marketing and general and administrative expenses even with additional strategic investments.
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.
Transportation expense, and therefore fulfillment cost, is typically highest in the fourth fiscal quarter, given higher service levels, such as more costly and 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.
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, in addition to marketing personnel cost reductions.
This increase was driven by increased marketing initiatives as compared to last year when we reduced paid and brand marketing spend during the first and second quarters of fiscal year 2021 related to the COVID-19 pandemic.
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.
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 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.
For a description of the terms o f our current and prior credit agreements, see “Note 8 – Long-Term Debt” in the Notes to the 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 offer the ability for subscribers and customers to purchase products at a discount to retail price.
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.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

8 edited+1 added−1 removed1 unchanged
Biggest changeWe do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure. As of January 31, 2022, a hypothetical 10% change in interest rates would not have resulted in a material impact on our consolidated financial statements.
Biggest changeWe have minimal exposure to market risk relating to changes in interest rates as they can affect the amount of interest income we earn on our cash. We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure .
“Management’s Discussion and Analysis of Financial Condition and Results of Operations.” If our costs become subject to significant inflationary pressures, we may not be able to fully offset such higher costs with increased revenue. Our inability or failure to do so could harm our business, financial condition, and results of operations. 81 Table of Contents
“Management’s Discussion and Analysis of Financial Condition and Results of Operations.” If our costs become subject to significant inflationary pressures, we may not be able to fully offset such higher costs with increased revenue. Our inability or failure to do so could harm our business, financial condition, and results of operations . 85 Table of Contents
For a discussion of recent wage increases and transportation costs related, in part, to inflationary pressures, see “Impact of COVID-19 on Our Business” in Part II, Item 7.
F or a discussion of recent wage increases and transportation costs related, in part, to inflationary pressures, see “Impact of Macro and Consumer Environment on Our Business” in Part II, Item 7.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk Market risk represents the risk of loss that may impact our financial position because of adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of exposure resulting from potential changes in inflation.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk Market risk represents the risk of loss that may impact our financial position because of adverse changes in financial market prices and rates.
Additionally, fluctuations in foreign currency exchange rates may cause us to recognize transaction gains and losses in our consolidated statements of operations.
Accordingly, our results of operations are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the euro. Additionally, fluctuations in foreign currency exchange rates may cause us to recognize transaction gains and losses in our consolidated statements of operations.
As of January 31, 2022, a hypothetical 10% change in the relative value of the U.S. dollar to other currencies would not have had a material effect on our results of operations. Inflation Risk We do not believe that inflation has had a material effect on our business, financial condition or results of operations.
As of January 31, 2023, a hypothetical 10% change in the relative value of the U.S. dollar to other currencies would not have had a material effect on our results of operations . Inflation Risk In recent months, inflation has continued to increase significantly in the United States and overseas resulting in rising transportation, wages, rental product and other costs.
Interest Rate Risk As of January 31, 2022, we had cash and cash equivalents of $247.6 million and $260.8 million of debt outstanding under the Temasek Facility. Cash and cash equivalents consists primarily of cash held in financial institutions within the United States and Ireland and cash in transit from third-party credit card providers.
Cash and cash equivalents consist primarily of cash held in financial institutions within the United States and Ireland and cash in transit from third-party credit card providers. Borrowings under the Temasek Facility bear interest at fixed rates.
Foreign Currency Risk Our net revenue is denominated in U.S. dollars and a portion of our operating expenses are incurred outside the United States, denominated in foreign currencies. Accordingly, our results of operations are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the euro.
As of January 31, 2023, a hypothetical 10% change in interest rates would not have resulted in a material impact on our consolidated financial statements. Foreign Currency Risk Our net revenue is denominated in U.S. dollars and a portion of our operating expenses are incurred outside the United States, denominated in foreign currencies.
Removed
Borrowings under the Temasek Facility bear interest at fixed rates. We have minimal exposure to market risk relating to changes in interest rates as they can affect the amount of interest income we earn on our cash.
Added
Our market risk exposure is primarily a result of exposure resulting from potential changes in inflation . 84 Table of Contents Interest Rate Risk As of January 31, 2023, we had cash and cash equivalents of $154.5 million and $272.5 million of debt outstanding under the Temasek Facility.

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