Rent The Runway Inc.
12/12/2025 | Press release | Distributed by Public on 12/12/2025 08:17
Quarterly Report for Quarter Ending October 31, 2025 (Form 10-Q)
Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto as of and for the year ended January 31, 2025 and the related Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended January 31, 2025 (the "2024 Annual Report on Form 10-K").
In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results may differ materially from those described in or implied by any forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q, particularly in Part II, Item 1A, "Risk Factors".
Overview
We give customers ongoing access to our "unlimited closet" - with thousands of styles by hundreds of 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, which offers customers pre-loved styles from our closet at a discount to retail price, up to 90% off of designer retail value. 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 185,166 ending Total Subscribers1(active and paused) as of October 31, 2025. We had 148,916 Active Subscribers as of October 31, 2025. The majority of our revenue is highly recurring and is generated by our subscribers. For the nine months ended October 31, 2025 and 2024, respectively, 89% and 88% of our total revenue (including Reserve and Resale revenue) was generated by subscribers while they were active or paused.
The variety, breadth and quantity of products we carry is important to our business, and we strategically manage the capital efficient acquisition of a high volume of items every year. We have successfully disproved the myth that fashion apparel items and accessories only last one season as we are able to rent or "turn" our products multiple times over many years. We price our rental items at a fraction of their retail or comparable value, creating an attractive price and value proposition for our subscribers and customers.
We source virtually all of our products, which includes apparel and accessories, directly from, or in partnership with, designer brands. Prior to 2018, we purchased nearly all of our products from our brand partners typically at a discount to wholesale cost, which we refer to as "Wholesale" items. In late 2018, we began to procure products through Share by RTR and Exclusive Designs. See "-Our Product Acquisition Strategy" below for a description of the three ways in which we procure products.
Key Fiscal Third Quarter and Recent Business Highlights:
•Completed the Recapitalization Transactions. See "Note 4 - Recapitalization Transactions" in the Notes to the Condensed Consolidated Financial Statements for more information.
•Driving Growth by Making the Biggest Inventory Acquisition in RTR History. This year, we're on track to nearly double the new inventory added to our site and post more than 1.5 times the number of new styles relative to last year, which has driven substantial growth in our business. Ending Active Subscribers for the third quarter of fiscal year 2025 increased 12% year-over-year primarily driven by improvement in subscriber retention. Inventory continues to be a significant driver of improvements in customer loyalty, with inventory-related churn down nearly 30% year-over-year in the third quarter of fiscal year 2025.
1 Ending Total Subscribers represents the number of subscribers with an active or paused membership as of the last day of the period and excludes subscribers who had an active or paused subscription during the period, but ended their subscription prior to the last day of the fiscal period.
•Reinvigorating our Brand & Fueling Growth with Community-First Organic Tactics: We've expanded our community-driven organic growth strategy to drive brand awareness and acquisition. Key launches in the third quarter of fiscal year 2025 include the RTR Muse, Affiliate Creator and City Ambassador programs, each of which leverage community-driven content and word-of-mouth tactics designed to reach new customers more efficiently than traditional paid marketing tactics.
•Accelerating Product Innovation and Personalized Experience: Third quarter of fiscal year 2025 launches include a personalized home page redesign that encourages inventory discovery tailored according to a customer's preferences.Since launch to date, our customer is engaging +57% more with the personalized app experience compared to the prior homepage.
•Optimizing Revenue per Subscriber and Driving Add-On Growth: We've enhanced the add-on pricing experience for customers by clearly showing her that the price prorates based on her specific billing cycle. These updates, along with overall inventory improvements, resulted in a +17% year-over-year increase in the subscription add-on rate in the third quarter of fiscal year 2025. We also recently launched instant gratification, a product that uses our in-stock notifications to enable subscribers to make one-off inventory orders when they are out of shipments.
Key Operating and Financial Results. We have achieved the following operating and financial results for the three months endedOctober 31, 2025 and 2024, respectively:
•Revenue was $87.6 million and $75.9 million, respectively, representing 15.4% growth year-over-year;
•148,916 and 132,518 ending Active Subscribers2, respectively, representing an increase of 12.4% year-over-year;
•147,645 and 130,796 Average Active Subscribers3, respectively, representing an increase of 12.9% year-over-year;
•185,166 and 174,511 ending Total Subscribers (including paused subscribers), respectively, representing an increase of 6.1% year-over-year;
•Gross Profit was $25.9 million and $26.3 million, respectively, representing a gross margin of 29.6% and 34.7%, respectively;
•Net Income (Loss) was $76.5 million and $(18.9) million, respectively. Net Income (Loss) as a percentage of revenue was 87.3% and (24.9)%, respectively; and
•Adjusted EBITDA was $4.3 million and $9.3 million, respectively, representing an Adjusted EBITDA Margin of 4.9% and 12.3%, respectively.
We have achieved the following operating and financial results for the nine months endedOctober 31, 2025 and 2024, respectively:
•Revenue was $238.1 million and $229.8 million, respectively, representing 3.6% growth year-over-year;
•Gross Profit was $72.1 million and $87.1 million, respectively, representing a gross margin of 30.3% and 37.9%, respectively;
•Net Income (Loss) was $24.0 million and $(56.5) million, respectively. Net Income (Loss) as a percentage of revenue was 10.1% and (24.6)%, respectively, and included $0.2 million of restructuring and related charges for the nine months ended October 31, 2024;
•Adjusted EBITDA was $6.6 million and $29.5 million, respectively, representing an Adjusted EBITDA margin of 2.8% and 12.8%, respectively;
•Net cash (used in) provided by operating activities was $(3.6) million and $11.5 million, and net cash used in investing activities was $(42.9) million and $(20.8) million, respectively;
•Net cash (used in) provided by financing activities was $19.4 million and $(1.6) million, respectively;
•Net cash (used in) provided by operating activities as a percentage of revenue was (1.5)% and 5.0% and net cash used in investing activities as a percentage of revenue was (18.0)% and (9.1)%, respectively; and
•Cash and Cash Equivalents was $50.7 million and $74.1 million, respectively.
Our Product Acquisition Strategy
We acquire and monetize products in three ways: Wholesale, Share by RTR and Exclusive Designs. Wholesale items are acquired directly from brand partners, typically at a discount to Wholesale price. Share by RTR items are acquired directly from brand partners on consignment, at zero or significantly reduced upfront cost relative to Wholesale with performance-based revenue share payments to our brand partners over time. Exclusive Designs items are designed using our data in collaboration with our brand partners. These units are manufactured through third-party partners with an upfront fee and, in most cases, minimal revenue share payments to our brand partners over time.
2 Active Subscribers is defined as ending Total Subscribers as of period end, excluding paused subscribers.
3Average Active Subscribers represents the mean of the beginning of quarter and end of quarter Active Subscribers for a quarterly period; and for other periods, represents the mean of the Average Active Subscribers of every quarter within that period.
Our three product acquisition methods are strategic levers to manage our capital efficiency, profitability and product risk. Our Exclusive Designs channel partners with brands to acquire RTR-exclusive items at a lower cost, which are designed to generate higher profitability over time. Share by RTR meaningfully reduces our upfront purchases of rental product and de-risks our investment since we pay brands primarily based on item performance. Our Share by RTR arrangements with brands target delivering 75% to 100% of comparable Wholesale cost to the brand in the first year; however there is no minimum commitment other than the upfront payment, if applicable. Nearly all Share by RTR deals consummated after September 2020 include a cap on total potential payments to the brand partner.
In fiscal year 2024, 30% of new items were acquired through Wholesale, 48% through Share by RTR and 22% through Exclusive Designs, compared to 39% Wholesale, 33% Share by RTR and 28% Exclusive Designs in fiscal year 2023. In total, approximately 70% of new items were acquired through Share by RTR and Exclusive Designs, our more capital-efficient channels in fiscal year 2024 and approximately 61% in fiscal year 2023. Both our purchasing power and the diversification into Share by RTR and Exclusive Designs have led to a decrease in rental product capital expenditures (or Purchases of Rental Product as presented in the Condensed Consolidated Statement of Cash Flows) as a percentage of revenue over time. We expect the total percentage of units acquired through our more capital-efficient channels to be largely unchanged in fiscal year 2025 versus fiscal year 2024, with an increase in the percentage of units acquired through our Share by RTR program versus fiscal year 2024. We plan to further decrease the percentage of units acquired through Wholesale and increase the percentage of units acquired through our more capital-efficient channels over the longer term. We expect to incur higher purchases of rental product in fiscal year 2025 relative to fiscal year 2024 in connection with our strategy to nearly double the new rental product added to our site and made available to our customers in fiscal year 2025.
For additional details about our business model and our product acquisition strategy, see our 2024 Annual Report on Form 10-K.
Key Factors Affecting Our Performance
We believe that our performance and future success depend on a variety of factors that present significant opportunities for our business, but also present risks and challenges that could adversely impact our growth and profitability.
Subscribers and Customers
Ability to Attract and Retain Subscribers and Customers. We believe that we have a significant market opportunity to increase our base of subscribers and customers, and that our long-term growth depends in large part on our continued ability to acquire and retain subscribers and customers.
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. Customer acquisition is dependent on organic growth, the effectiveness of our paid marketing strategy and the availability of and satisfaction with our rental product. We are focused on our community-driven organic growth marketing strategy that is intended to drive improved brand awareness and acquisition. Our acquisitions are also reliant on new customer promotions. Our promotional strategy is subject to change depending on business and market conditions. .
We believe customer retention plays an important role in driving business growth. Customer retention is influenced by a number of factors, including rental product in-stock levels and satisfaction, product experience, and customer service levels. Starting in fiscal year 2023, we increased the depth of our rental product purchases to improve rental product in-stock levels. We increased the depth of our rental product further in fiscal year 2024 and experienced better customer retention for fiscal year 2024 versus fiscal year 2023. In fiscal year 2025, we have focused and plan to continue to focus on approximately doubling the quantity of our rental product purchases year-over year and enhancing the desirability of rental product purchases, which we believe will increase customer satisfaction and improve retention further. We are also focused on new product features as well as more a more personalized customer experience.
Brands and Products
Ability to Acquire, Manage and Monetize Products Efficiently. Our ability to deliver an elevated experience for our subscribers and customers that keeps them loyal to RTR depends on us having the right assortment. Due to our deep partnerships with brands, flexibility in our buying timelines and ability to react to advantageous retail purchasing environments, we can acquire products directly from brands in multiple cost effective ways. Our expertise in reverse logistics and garment restoration also provides us with the ability to monetize our products effectively over their useful life. Diversifying our product acquisition away from 100% Wholesale has driven higher overall product return on investment and reduced the capital needs of the business. See "-Our Product Acquisition Strategy" above for a description of the three ways in which we procure products. We continuously evaluate our product acquisition mix to maximize our strategic priorities.
Purchases of rental product includes the cost of Wholesale products acquired in the period and other ancillary costs such as freight, where applicable. Many factors impact the purchases of rental product including our depth and acquisition mix strategy, the proportion of subscribers to total customers, timing of when those subscribers are acquired, the formality of styles, brand assortment, opportunities in the market and timing of when the rental product is received and paid for. Purchases of rental product as a percentage of revenue in fiscal year 2024 was 16% as a result of a greater proportion of rental product acquired through our Share by RTR channel combined with fewer units of rental product purchased compared to fiscal year 2023. Purchases of rental product as a percentage of revenue was 26% and 21% in fiscal year 2023 and 2022, respectively. We anticipate this percentage to increase in fiscal year 2025 compared with fiscal year 2024, despite a greater proportion of Share by RTR units, due to a significant increase in units of rental product purchased. Due to seasonality factors, we track our progress on purchases of rental product as a percentage of revenue on a full year basis, as quarterly expenditures are not necessarily reflective of full year trends. As of October 31, 2025, the quarterly and annual spend levels for rental product capital expenditures for fiscal year 2025 under our 2025 Amended Facility were eliminated under the Fourteenth Amendment to the debt facility.
Ability to Achieve Leverage in our Cost Structure. Improving operational efficiency of our platform is imperative to increasing profitability. We expect certain of our operating costs to increase as order volume increases and as we make investments to grow subscribers and revenue and to enhance the customer experience. In January 2024, we announced a restructuring plan that generated total annual operating expense savings of approximately $12 million, which primarily included the reduction in force, with some open role closures/reduced backfills, and excludes potential hiring of new employees or other additions to the Company's costs and expenses. Though we anticipate quarterly fluctuations in operating leverage over time we anticipate that our operating costs will grow more slowly than our total revenue on an annual basis. As of October 31, 2025, the quarterly and annual spend levels for fixed operating and marketing expenditures for fiscal year 2025 under our 2025 Amended Facility were eliminated under the Fourteenth Amendment to the debt facility.
We use technology and customer data to drive efficiency across products, fulfillment expenses and operating costs. Our data has allowed us to build a differentiated and proprietary rental reverse logistics platform with a vertically integrated cleaning and restoration process. We have invested in technology and automation in order to drive operating leverage and higher margins as we focus on growing and scaling our business.
Over time, we have improved our margins, profitability and cash flow, and we believe we will continue to benefit from economies of scale. We are focused on driving additional efficiencies in our operating expenses and growing profitability to also cover rental product depreciation, in addition to fulfillment, revenue share and operating expenses.
We use Adjusted EBITDA to assess our operating performance and the operating leverage of our business prior to capital expenditures. We also measure the cash consumption of the business including capital expenditures by assessing net cash used in operating activities and net cash used in investing activities on a combined basis. See also Note 3 - "Liquidity" and Note 4 - "Recapitalization Transactions" in the Notes to the Condensed Consolidated Financial Statements for more details regarding our 2025 Amended Facility and Recapitalization Transactions, which we expect to improve our overall liquidity.
Seasonality
We experience seasonality in our business, which has been impacted due to the effects of COVID-19, the macro environment, and business decisions and may in the future continue to evolve. 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. In prior periods, business decisions including, but not limited to, changes in prices for our Subscription programs, changes in timing and amounts of promotional spending, changes in timing and amounts of paid marketing spending, and changes in timing and quantity of rental product availability, have impacted typical seasonal trends. Given continued business changes, our future seasonality may not resemble historical trends.
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 typical timing of carrier rate increases, higher service levels, such as more costly and expedited shipping, and competition during holidays. Our most significant receipt of rental product typically occurs in the first fiscal quarter and the third fiscal quarter, when we acquire product for the upcoming fall and spring seasons.
Impact of Macro and Consumer Environment on Our Business
There remains significant uncertainty in the current macroeconomic and consumer environment, driven by several factors, including inflationary pressures, global trade policies and tariffs, higher interest rates, potential risk of recession, ongoing industry-wide supply chain issues, instability in the financial system, and the wars in Ukraine and the Middle East. These factors have impacted, and are expected to continue to impact, consumer discretionary spending and purchasing behavior, price sensitivity, wage rates, transportation costs, rental product costs, and other costs associated with our business.
We continue to review and learn how changes in customer behavior post the COVID-19 pandemic may impact our business and demand, particularly in a challenging macro environment. We believe that Active Subscriber levels have been impacted by seasonal changes in consumer behavior and macro factors, such as higher levels of remote work and evolving demand for work wear, inflationary pressures and sensitivity to increased pricing, or other factors, and may continue to be impacted by these factors in the future.
We continue to take actions to adjust to the changing business environment and related inflationary pressure. For example, we implemented a price increase for our subscription plans in August 2025 and we remain focused on investing in our customer and delivering even more value to her, and emphasizing the value proposition of our offering in our marketing materials. In addition, we increased wage rates during the first quarter of fiscal year 2025 to attract and retain talent at our fulfillment centers. We expect to continue to be impacted by rising labor costs in the future. Transportation costs decreased as a percentage of revenue in fiscal year 2024 due to higher revenue per order and the benefits of our September 2023 transportation contract with a major national carrier. While we expect to be able to reduce transportation costs as a percentage of revenue for fiscal year 2025, we plan to continue to mitigate longer-term rising costs by seeking to optimize shipping methods and improve contractual and pricing terms; however, unpredictable changes in global trade policies and tariffs or other significant macroeconomic or geopolitical developments may negatively impact our ability to meet our current expectations and objectives. Although we continue to face a challenging and unpredictable environment, we plan to invest in our customers, manage our staffing and further leverage our transportation partners to help to drive growth and efficiencies in our business.
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. Given this uncertainty, we cannot estimate the financial impact of the macro environment on our future results of operations, cash flows, or financial condition.
For additional details about key factors affecting our performance, see our 2024 Annual Report on Form 10-K and Part II, Item 1A, "Risk Factors" of this Quarterly Report on Form 10-Q.
Key Business and Financial Metrics
In addition to the measures presented in our condensed consolidated financial statements, we use the following key business and financial metrics to help us evaluate our business, identify trends affecting our business, formulate business plans, and make strategic decisions. The calculation of the key business and financial metrics discussed below may differ from similarly titled metrics used by other companies, securities analysts or investors, limiting the usefulness of those measures for comparative purposes. These key business and financial metrics are not meant to be considered as indicators of our financial performance in isolation from or as a substitute for our financial information prepared in accordance with generally accepted accounting principles in the United States ("U.S. GAAP") and should be considered in conjunction with other metrics and components of our results of operations, such as each of the other key business and financial metrics, and our revenue and net income (loss).
| Three Months Ended October 31, | Nine Months Ended October 31, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| ($ in millions) | ($ in millions) | ||||||||||||||||||||||
| Active Subscribers | 148,916 | 132,518 | 148,916 | 132,518 | |||||||||||||||||||
| Average Active Subscribers | 147,645 | 130,796 | 142,626 | 134,715 | |||||||||||||||||||
| Gross Profit | $ | 25.9 | $ | 26.3 | $ | 72.1 | $ | 87.1 | |||||||||||||||
| Net Income (Loss) | $ | 76.5 | $ | (18.9) | $ | 24.0 | $ | (56.5) | |||||||||||||||
| Adjusted EBITDA (1) | $ | 4.3 | $ | 9.3 | $ | 6.6 | $ | 29.5 | |||||||||||||||
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(1)Adjusted EBITDA is a non-GAAP financial measure; for a reconciliation to the most directly comparable U.S. GAAP financial measure, net income (loss), and why we consider Adjusted EBITDA to be a useful metric, see "-Non-GAAP Financial Metrics" below.
Active Subscribers: Active Subscribers represents the number of subscribers with an active membership as of the last day of any given period and excludes paused subscribers. As of October 31, 2025, we had 148,916 Active Subscribers, an increase from 132,518 as of October 31, 2024. The increase in Active Subscribers was driven primarily by a higher base of active subscribers at the end of the second quarter of fiscal year 2025 compared to the second quarter of fiscal year 2025, in addition to higher subscriber acquisitions, driven in part by higher promotional activity, and improved subscriber retention versus the third quarter of fiscal year 2024.
Average Active Subscribers: Average Active Subscribers represents the mean of the beginning of quarter and end of quarter Active Subscribers for a quarterly period; and for other periods, represents the mean of the Average Active Subscribers of every quarter within that period. As of October 31, 2025, we had 147,645 Average Active Subscribers, an increase from 130,796 as of October 31, 2024. The year-over-year increase in Average Active Subscribers was primarily due to the higher base of Ending Active Subscribers at the end of the second quarter of fiscal year 2025 compared to the second quarter of fiscal year 2024, in addition to higher subscriber acquisitions, driven in part by higher promotional activity, and improved subscriber retention versus the third quarter of fiscal year 2024.
Gross Profit and Gross Margin: We define Gross Profit as total revenue less costs related to activities to fulfill customer orders and rental product acquisition costs, presented as fulfillment and rental product depreciation and revenue share, respectively, on the condensed consolidated statement of operations. We depreciate owned apparel assets over three years and owned accessory assets over two years net of 20% and 30% salvage values, respectively, and recognize the depreciation on a straight-line basis and remaining cost of items when sold or retired on our condensed consolidated statement of operations. Rental product depreciation expense is time-based and reflects all rental product items we own. We use Gross Profit and Gross Profit as a percentage of revenue, or Gross Margin, to measure the continued efficiency of our business after the cost of our products and fulfillment costs are included.
Gross Profit was $25.9 million for the three months ended October 31, 2025 compared to $26.3 million for the three months ended October 31, 2024, representing Gross Margins of 29.6% and 34.7%, respectively. Gross Profit was $72.1 million for the nine months ended October 31, 2025 compared to $87.1 million for the nine months ended October 31, 2024, representing Gross Margins of 30.3% and 37.9%, respectively. Gross Profit and Gross Margin for the three months ended October 31, 2025 decreased primarily due to the impact of higher revenue share costs as a percentage of Revenue, partially offset by lower rental product depreciation and write-off costs as a percentage of Revenue, as well as lower fulfillment costs as a percentage of Revenue. Gross Profit and Gross Margin for the nine months ended October 31, 2025 decreased primarily due to the impact of higher revenue share costs and fulfillment costs as a percentage of Revenue, partially offset by lower rental product depreciation and write-off costs as a percentage of Revenue.
Adjusted EBITDA and Adjusted EBITDA Margin: We define Adjusted EBITDA as net income (loss), adjusted to exclude interest expense, rental product depreciation, other depreciation and amortization, share-based compensation expense, write-off of liquidated assets, non-recurring adjustments, non-ordinary course legal expenses, restructuring charges, Gain on Debt Restructuring, income tax (benefit) expense, other income and expense, and other gains / losses. Adjusted EBITDA margin is defined as Adjusted EBITDA calculated as a percentage of total revenue, net for a period.
Net Income (Loss) was $76.5 million for the three months ended October 31, 2025 compared to $(18.9) million for the three months ended October 31, 2024, representing margins of 87.3% and (24.9)%, respectively. Net Loss, excluding the Gain on Debt Restructuring as a result of the recapitalization transactions, increased year-over-year primarily due to lower Gross Profit combined with higher technology and G&A expenses. Net Income (Loss) was $24.0 million for the nine months ended October 31, 2025 compared to $(56.5) million for the nine months ended October 31, 2024, representing margins of 10.1% and (24.6)%, respectively. Net Loss, excluding the Gain on Debt Restructuring as a result of the recapitalization transactions, increased year-over-year primarily due to lower Gross Profit, higher Technology costs, higher Interest Expense and higher G&A expenses, partially offset by lower Other Depreciation and Amortization expenses and lower Marketing costs.
Adjusted EBITDA was $4.3 million for the three months ended October 31, 2025 compared to $9.3 million for the three months ended October 31, 2024, representing margins of 4.9% and 12.3%, respectively. Adjusted EBITDA margin decreased year-over-year primarily due to higher revenue share and fulfillment costs as a percentage of revenue. Adjusted EBITDA was $6.6 million for the nine months ended October 31, 2025 compared to $29.5 million for the nine months ended October 31, 2024, representing margins of 2.8% and 12.8%, respectively. Adjusted EBITDA margin decreased year-over-year primarily due to higher revenue share and fulfillment costs as a percentage of revenue.
We believe we have the opportunity to improve Adjusted EBITDA and offset cost increases as we increase revenue and drive operating expense leverage.
Components of Results of Operations
Total Revenue, Net. Our total revenue, net consists of Subscription and Reserve rental revenue and Other revenue. Total revenue is presented net of promotional discounts, credits and refunds and taxes.
Subscription and Reserve Rental Revenue.We generate Subscription and Reserve rental revenue from Subscription and Reserve rental fees. The majority of our revenue is generated by our Subscription offering, which we are prioritizing. We recognize subscription fees ratably over the subscription period, commencing on the date the subscriber enrolls in a subscription program. These fees are collected upon enrollment and any revenue from an unrecognized portion of the subscription period is deferred to the following fiscal period. We implemented a price increase for our subscription plans in August 2025, which increased revenue per subscriber in the third quarter of fiscal year 2025 and which we expect will continue to do so over the coming quarters. 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 (increased from two months prior to the rental start date beginning in June 2024) and the customer's payment form is charged upon order confirmation. We defer recognizing the rental fees and any related promotions for Reserve rentals until the date of delivery, and then recognize those fees evenly over the four- or eight-day rental period.
Other Revenue.We generate Other revenue primarily from the sale of products while they are in rental condition. We offer the ability for subscribers and customers to purchase products at a discount to retail price. Payment for the sale of products occurs upon order confirmation while the associated revenue is recognized either at the time the sold product is delivered or when purchased, if the item is already at home with the customer. From time to time, Other revenue may include revenue generated from pilots and other growth initiatives which may cause quarterly fluctuations in the Other revenue line.
Costs and Expenses
Fulfillment. Fulfillment expenses consist of all costs to receive, process and fulfill customer orders. This primarily includes shipping costs to/from customers and personnel and related costs, which include salaries and bonuses, and employee benefit costs. Personnel and related costs are related to processing inbound and outbound customer orders, cleaning, restoring and repairing items received from customers, tracking and managing items within our fulfillment center network and ingesting new items received from brands. Fulfillment expenses also include costs of packing materials, cleaning supplies, and other fulfillment-related expenses. Fulfillment expense may fluctuate due to various factors including commercial terms and market trends. Fulfillment expense may also increase due to competitive pressures in the labor market which could lead to continued higher wage rates. We expect to continue to invest in automation and other process improvements to support and drive efficiencies in our operations. To the extent we are successful in becoming more efficient in fulfilling orders, and at a magnitude that is able to offset long-term increases in shipping costs, wage rates and cleaning/packing supply price increases, we would expect these expenses to decrease as a percentage of total revenue over the longer term.
Technology.Technology expenses consist of personnel and related costs for employees engaged in software development and engineering, quality assurance, product, customer experience, data science, analytics and information technology-related efforts, net of personnel costs associated with capitalized software. Technology expenses also include professional services, third-party hosting expenses, website monitoring costs, and software and license fees. Over the long term, these expenses may increase (in total dollars) as we continue to improve the customer and subscriber experience and invest in our technology stack and infrastructure to support overall growth in our business. While these expenses may vary from period to period as a percentage of total revenue, we expect them to decrease as a percentage of total revenue over the longer term.
Marketing.Marketing expenses include online and mobile marketing, search engine optimization and email costs, marketing personnel and related costs, agency fees, brand marketing, influencer marketing, printed collateral, consumer research, and other related costs. Marketing expenses unrelated to personnel costs may increase if we increase marketing spend to drive the growth of our business and increase our brand awareness.
General and Administrative.General and administrative ("G&A") expenses consist of all other personnel and related costs for customer service, finance, tax, legal, human resources, fashion and photography and fixed operations costs. General and administrative expenses also includes occupancy costs (including warehouse-related), professional services, credit card fees, general corporate and warehouse expenses, other administrative costs, and gains and losses associated with asset disposals and operating lease terminations. Over the longer term, these expenses may increase as we grow our infrastructure to support the overall growth of the business. Rent expense and other facilities-related costs may increase in the future due to inflation or to support overall business growth and fulfillment efficiencies. While these expenses may vary from period to period as a percentage of total revenue, we expect them to decrease as a percentage of total revenue over the longer term.
Rental Product Depreciation and Revenue Share.Rental product depreciation and revenue share expenses consist of depreciation and write-offs of rental products, and payments under revenue share arrangements with brand partners. We depreciate the cost, less an estimated salvage value, of our owned products (Wholesale and Exclusive Designs items), over the estimated useful lives of these items and, if applicable, accelerate depreciation of the items when they are no longer in rental condition. We recognize the cost of items acquired under Share by RTR, as incurred, through upfront payments and performance-based revenue share payments. We expect rental product depreciation and revenue share expenses to increase in absolute dollars as we continue to support subscriber and customer growth. The amount and proportion of rental product depreciation and revenue share will vary from period to period based on how and when we acquire items as well as the mix of our rental product base.
Other Depreciation and Amortization.Other depreciation and amortization expenses consist of depreciation and amortization amounts for fixed assets, intangible assets including capitalized software, and financing right-of-use assets.
Restructuring Charges. Restructuring charges consist of severance and related costs associated with the January 2024 restructuring plan.
Gain on Debt Restructuring. Gain on Debt Restructuring consists of the gain recognized on the troubled debt restructuring from the Recapitalization Transactions completed in October 2025.
Interest Income / (Expense). Interest income / (expense) consists primarily of accrued paid-in-kind interest, cash interest and debt issuance cost amortization associated with our 2025 Amended Facility going forward. The 2023 Amended Temasek Facility eliminated all interest (both payment-in-kind and cash interest) for a period of six full fiscal quarters beginning with the fourth quarter of fiscal year 2023.
Other Income / (Expense).Other income / (expense) consists primarily of proceeds from monetizing tax credits associated with growth and Irish refundable tax credits.
Income Tax Benefit / (Expense). Income taxes consist primarily of state minimum and foreign taxes. We have established a valuation allowance for our U.S. federal and state deferred tax assets, including net operating losses. We expect to maintain this valuation allowance until it becomes more likely than not that the benefit of our federal and state deferred tax assets will be realized by way of expected future taxable income in the United States.
Results of Operations
The results of operations presented below should be reviewed in conjunction with the condensed consolidated financial statements and notes included elsewhere in this Quarterly Report on Form 10-Q. The following tables set forth our results of operations for the periods presented:
| Three Months Ended October 31, | Nine Months Ended October 31, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| (in millions) | (in millions) | ||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||
| Subscription and Reserve rental revenue | $ | 77.0 | $ | 66.3 | $ | 208.2 | $ | 200.9 | |||||||||||||||
| Other revenue | 10.6 | 9.6 | 29.9 | 28.9 | |||||||||||||||||||
| Total revenue, net | 87.6 | 75.9 | 238.1 | 229.8 | |||||||||||||||||||
| Costs and expenses: | |||||||||||||||||||||||
| Fulfillment | 24.0 | 21.4 | 66.9 | 62.6 | |||||||||||||||||||
| Technology | 10.5 | 8.7 | 29.9 | 27.0 | |||||||||||||||||||
| Marketing | 6.4 | 7.1 | 22.4 | 23.9 | |||||||||||||||||||
| General and administrative | 22.7 | 21.2 | 68.0 | 66.2 | |||||||||||||||||||
| Rental product depreciation and revenue share | 37.7 | 28.2 | 99.1 | 80.1 | |||||||||||||||||||
| Other depreciation and amortization | 2.5 | 3.0 | 7.8 | 9.6 | |||||||||||||||||||
| Restructuring charges | - | - | - | 0.2 | |||||||||||||||||||
| Total costs and expenses | 103.8 | 89.6 | 294.1 | 269.6 | |||||||||||||||||||
| Operating loss | (16.2) | (13.7) | (56.0) | (39.8) | |||||||||||||||||||
| Gain on Debt Restructuring | 96.3 | - | 96.3 | - | |||||||||||||||||||
| Interest income / (expense), net | (7.0) | (6.1) | (20.2) | (17.7) | |||||||||||||||||||
| Other income / (expense), net | 3.4 | 0.9 | 4.1 | 1.1 | |||||||||||||||||||
| Net income (loss) before income tax benefit / (expense) | 76.5 | (18.9) | 24.2 | (56.4) | |||||||||||||||||||
| Income tax benefit / (expense) | - | - | (0.2) | (0.1) | |||||||||||||||||||
| Net income (loss) | $ | 76.5 | $ | (18.9) | $ | 24.0 | $ | (56.5) | |||||||||||||||
Comparison of the three months ended October 31, 2025and 2024
Total Revenue, Net.Total revenue, net was $87.6million for the three months ended October 31, 2025, an increase of $11.7 million, or 15.4%, compared to $75.9 million for the three months endedOctober 31, 2024. This increase was primarily driven by higher Subscription and Reserve rental revenue which was driven in part by a subscription price increase implemented in August 2025. In fiscal year 2025, we expect revenue to continue to increase due to higher subscription prices and as we work towards growing our customer base, with a particular focus on growing our Subscription offering.
Subscription and Reserve Rental Revenue.Subscription and Reserve rental revenue was $77.0 million for the three months ended October 31, 2025, an increase of $10.7 million, or 16.1%, compared to $66.3 million for the three months endedOctober 31, 2024. This increase was primarily driven by higher Average Active Subscribers and higher average revenue per subscriber. Higher average revenue per subscriber was primarily the result of the subscription price increase effective August 1, 2025 as well as newly implemented enforcement of our late fee policy. These increases were partially offset by lower Reserve rental revenue in the third quarter of fiscal year 2025 as compared to the third quarter of fiscal year 2024.
Other Revenue.Other revenue was $10.6 million for the three months ended October 31, 2025, an increase of $1.0 million, or 10.4%, compared to $9.6 million for the three months endedOctober 31, 2024. This increase was primarily driven by higher Average Active Subscribers and higher average items purchased per subscriber, partially offset by a decrease in average selling price per item. Other revenue represented 12.1% of total revenue, down from 12.6% in the same period last year.
Costs and Expenses.Total costs and expenses were $103.8 million for the three months ended October 31, 2025, an increaseof $14.2 million, or 15.8%, compared to $89.6 million for the three months endedOctober 31, 2024. This increase was primarily driven by higher Revenue Share costs, higher Fulfillment costs, higher Technology costs, and higher G&A expenses, partially offset by a reduction in rental product depreciation and write-offs.
Fulfillment.Fulfillment expenses were $24.0 million for the three months ended October 31, 2025, an increase of $2.6 million, or 12.1%, representing 27.4% of revenue, compared to $21.4 million for the three months endedOctober 31, 2024, representing 28.2% of revenue. The decrease in fulfillment expenses as a percentage of revenue was primarily driven by higher revenue per order driven by the subscription price increase implemented in August 2025, partially offset by higher transportation costs due to carrier rate increases and higher warehouse processing costs.
In fiscal year 2025, we expect fulfillment expenses as a percentage of total revenue to remain flat to fulfillment expenses as a percentage of total revenue in fiscal year 2024.
Technology.Technology expenses were $10.5 million for the three months ended October 31, 2025, an increase of $1.8 million, or 20.7%, compared to $8.7 million for the three months endedOctober 31, 2024. Technology expenses were 12.0% of revenue for the three months ended October 31, 2025 compared to 11.5% for the same period last year due primarily to higher technology related employee costs. Technology related share-based compensation expense was $0.0 million for the three months ended October 31, 2025 and was $0.4 million for the same period last year.
In fiscal year 2025, we expect technology expenses to increase slightly as a percentage of total revenue compared to fiscal year 2024 due to higher employee expenses.
Marketing.Marketing expenses were $6.4 million for the three months ended October 31, 2025, a decrease of $(0.7) million, or (9.9)%, compared to $7.1 million for the three months endedOctober 31, 2024. This decrease was driven primarily by lower brand marketing expenses. Marketing expenses unrelated to personnel costs were $5.6 million in the three months ended October 31, 2025 and 6.4% of revenue, compared to $6.4 million and 8.4% of total revenue for the same period last year.
In fiscal year 2025, we expect marketing expenses to decrease in dollars and as a percentage of total revenue compared to fiscal year 2024. The timing of our marketing expenses during the year will depend in part on the timing of marketing campaigns.
General and Administrative.General and administrative ("G&A") expenses were $22.7 million for the three months ended October 31, 2025, an increase of $1.5 million, or 7.1%, compared to $21.2 million for the three months endedOctober 31, 2024. This increase was driven primarily due to an increase in legal costs and credit card fees, partially offset by lower share-based compensation expense. G&A expenses as a percentage of revenue were 25.9%, compared to 27.9% last year. G&A related share-based compensation expense was $0.9 million for the three months ended October 31, 2025 and was $1.8 million for the three months endedOctober 31, 2024.
In fiscal year 2025, we expect general and administrative expenses to decrease as a percentage of total revenue compared to fiscal year 2024.
Rental Product Depreciation and Revenue Share.Rental product depreciation and revenue share was $37.7 million for the three months ended October 31, 2025, an increase of $9.5 million, or 33.7%, compared to $28.2 million for the three months endedOctober 31, 2024. The increase was primarily driven by higher Share by RTR units acquired. Rental product depreciation and revenue share was 43.0% of revenue in the three months ended October 31, 2025, up from 37.2%in the same period last year primarily due to the factors discussed above.
Other Depreciation and Amortization.Other depreciation and amortization was $2.5 million for the three months ended October 31, 2025, a decrease of $(0.5) million, or (16.7)%, compared to $3.0 million for the three months endedOctober 31, 2024. This decrease was primarily driven by lower depreciation and amortization associated with machinery and equipment.
Restructuring Charges. There were no restructuring charges for the three months ended October 31, 2025 and October 31, 2024 for severance and related costs in connection with the January 2024 restructuring plan.
Corporate Restructuring Plan
On January 9, 2024, we announced a restructuring plan to focus our workforce and cost structure on key growth opportunities and support our profitability goals. The plan primarily included total workforce reductions of approximately 10% of corporate employees (primarily a reduction in force, with some open role closures/reduced backfills).
The January 2024 restructuring plan generated total annual operating expense savings of approximately $12 million, which primarily included the reduction in force, with some open role closures/reduced backfills, and excludes potential hiring of new employees or other additions to the Company's costs and expenses. The restructuring plan was completed during the first quarter of fiscal year 2025.
See "Note 5 - Restructuring and Related Charges" in the Notes to the Condensed Consolidated Financial Statements for more details on these charges.
Gain on Debt Restructuring. Gain on Debt Restructuring was $96.3 million for the three months ended October 31, 2025. The gain was recognized from the troubled debt restructuring from the Recapitalization Transactions completed in October 2025.
Interest Income / (Expense), Net.Interest expense, net was $(7.0) million for the three months ended October 31, 2025, an increase in expense of $0.9 million, or 14.8%, compared to $(6.1) million for the three months endedOctober 31, 2024. This increase was driven by higher interest from the 2025 Amended Facility, and lower interest earned partially offset by lower debt discount amortization. Of the $(7.0) million total interest expense in the three months ended October 31, 2025, $(11.0) million was from paid-in-kind interest, $0.2 million was the net of cash interest earned, financing lease and other interest and $3.8 million was debt discount amortization, compared to $0.8 million net of cash interest earned, financing lease and other interest and $(6.9) million of debt discount amortization in the three months endedOctober 31, 2024.
Other Income / (Expense), Net. Other income / (expense), net was $3.4 million for the three months ended October 31, 2025 compared to $0.9 million for the three months ended October 31, 2024.
Comparison of the nine months ended October 31, 2025and 2024
Total Revenue, Net.Total revenue, net was $238.1million for the nine months ended October 31, 2025, an increaseof $8.3million, or 3.6%, compared to $229.8million for the nine months endedOctober 31, 2024. This increasewas primarily driven by higher Subscription and Reserve rental revenue. In fiscal year 2025, we expect revenue to increase due to higher subscription prices and as we work towards growing our customer base, with a particular focus on growing our subscription business.
Subscription and Reserve Rental Revenue.Subscription and Reserve rental revenue was $208.2million for the nine months ended October 31, 2025, an increaseof $7.3million, or 3.6%, compared to $200.9million for the nine months endedOctober 31, 2024. This increasewas primarily driven by higher average active subscribers, partially offset by lower Reserve rental revenue.
Other Revenue.Other revenue was $29.9million for the nine months ended October 31, 2025, an increaseof $1.0 million, or 3.5%, compared to $28.9million for the nine months endedOctober 31, 2024. Other revenue represented 12.6%of total revenue, up from 12.6%in the same period last year.
Costs and Expenses.Total costs and expenses were $294.1million for the nine months ended October 31, 2025, an increase of $24.5 million, or 9.1%, compared to $269.6million for the nine months endedOctober 31, 2024. This increasewas primarily driven by higher Revenue Share costs, higher Fulfillment costs, higher Technology costs and higher G&A costs. The increase was partially offset by lower Rental Product Depreciation and Write-Off expense, lower Other Depreciation and Amortization expense and lower Marketing costs.
Fulfillment.Fulfillment expenses were $66.9million for the nine months ended October 31, 2025, an increaseof $4.3million, or 6.9%, representing 28.1%of revenue, compared to $62.6million for the nine months endedOctober 31, 2024, representing 27.2% of revenue. The increase in fulfillment expenses as a percentage of revenue was primarily driven by higher transportation costs due to carrier rate increases and increases in warehouse processing costs.
In fiscal year 2025, we expect fulfillment expenses as a percentage of total revenue to remain flat to fulfillment expenses as a percentage of total revenue in fiscal year 2024.
Technology.Technology expenses were $29.9million for the nine months ended October 31, 2025, an increaseof $2.9 million, or 10.7%, compared to $27.0million for the nine months endedOctober 31, 2024. Technology expenses were 12.6% of revenue for the nine months ended October 31, 2025 compared to 11.7% for the same period last year due to higher technology related employee costs. Technology related share-based compensation expense was $0.5 million for the nine months ended October 31, 2025 and was $1.5 million for the same period last year.
In fiscal year 2025, we expect technology expenses to slightly increase as a percentage of total revenue compared to fiscal year 2024.
Marketing.Marketing expenses were $22.4 million for the nine months ended October 31, 2025, a decrease of $(1.5) million, or (6.3)%, compared to $23.9 million for the nine months endedOctober 31, 2024. This decrease was driven primarily by lower paid marketing expenses and lower personnel costs. Marketing expenses unrelated to personnel costs were $20.0 million in the nine months ended October 31, 2025 and 8.4% of revenue, compared to $21.7 million and 9.4% of total revenue for the same period last year.
In fiscal year 2025, we expect marketing expenses to decrease in dollars and as a percentage of total revenue compared to fiscal year 2024. The timing of our marketing expenses during the year will depend in part on the timing of marketing campaigns.
General and Administrative.General and administrative ("G&A") expenses were $68.0 million for the nine months ended October 31, 2025, an increase of $1.8 million, or 2.7%, compared to $66.2 million for the nine months endedOctober 31, 2024. This increase was driven primarily by transaction related expenses partially offset by lower share-based compensation expense, gain on the liquidation of rental product and exchange rate. G&A expenses as a percentage of revenue were 28.6%, compared to 28.8% last year, as we saw increased operating leverage with a lower cost base post-restructuring. G&A related share-based compensation expense was $3.3 million for the nine months ended October 31, 2025 and was $6.1 million for the nine months endedOctober 31, 2024.
In fiscal year 2025, we expect general and administrative expenses to decrease as a percentage of total revenue compared to fiscal year 2024.
Rental Product Depreciation and Revenue Share.Rental product depreciation and revenue share was $99.1million for the nine months ended October 31, 2025, an increaseof $19.0million, or 23.7%, compared to $80.1million for the nine months endedOctober 31, 2024. The increase was primarily driven by higher Share by RTR units acquired. Rental product depreciation and revenue share was 41.6% of revenue in the nine months ended October 31, 2025, up from 34.9%in the same period last year primarily due to the factors discussed above.
Other Depreciation and Amortization.Other depreciation and amortization was $7.8million for the nine months ended October 31, 2025, a decreaseof $(1.8)million, or (18.8)%, compared to $9.6 million for the nine months endedOctober 31, 2024. This decrease was primarily driven by lower depreciation and amortization associated with machinery and equipment.
Restructuring Charges. Restructuring charges were $0.2 million for the nine months ended October 31, 2024 for severance and related costs in connection with the January 2024 restructuring plan. These charges are reflected in Restructuring charges on our Consolidated Statement of Operations.
Gain on Debt Restructuring. Gain on Debt Restructuring was $96.3 million for the nine months ended October 31, 2025. The gain was recognized from the troubled debt restructuring from the Recapitalization Transactions completed in October 2025.
Interest Income / (Expense), Net.Interest expense, net was $(20.2)million for the nine months ended October 31, 2025, an increasein expense of $2.5million, or 14.1%, compared to $(17.7)million for the nine months endedOctober 31, 2024. This increase was driven by higher interest from the 2025 Amended Facility and lower interest earned partially offset by lower debt discount amortization. Of the $(20.2) million total interest expense in the nine months ended October 31, 2025, $(22.2) million was from paid-in-kind interest, $1.2 million was the net of interest earned, financing lease and other interest and $0.8 million was debt discount amortization, compared to $2.3 million net of interest earned, financing lease and other interest and ($20.0) million of debt discount amortization in the nine months endedOctober 31, 2024.
Other Income / (Expense), Net. Other income / (expense), net was $4.1 million for the nine months ended October 31, 2025, an increase of $3.0 million, compared to $1.1 million for the nine months ended October 31, 2024.
Non-GAAP Financial Metrics
In addition to our results determined in accordance with GAAP, we believe the following non-GAAP financial metrics are useful in evaluating our performance. These non-GAAP financial metrics are not meant to be considered as indicators of our financial performance in isolation from, or as a substitute for, our financial information prepared in accordance with GAAP and should be read only in conjunction with financial information presented on a GAAP basis. There are limitations to the use of the non-GAAP financial metrics presented in this Quarterly Report. For example, our non-GAAP financial metrics may not be comparable to similarly titled measures of other companies. Other companies, including companies in our industry, may calculate non-GAAP financial metrics differently than we do, limiting the usefulness of those measures for comparative purposes.
The reconciliation of the below non-GAAP financial metrics to the most directly comparable GAAP financial measure is presented below. We encourage reviewing the reconciliation in conjunction with the presentation of the non-GAAP financial metrics for each of the periods presented. In future periods, we may exclude similar items, may incur income and expenses similar to these excluded items, and may include other expenses, costs and non-recurring items.
Adjusted EBITDA and Adjusted EBITDA Margin.Adjusted EBITDA and Adjusted EBITDA Margin are key performance measures used by management to assess our operating performance and the operating leverage of our business prior to capital expenditures.
Net Income (Loss) was $76.5 million for the three months endedOctober 31, 2025compared to $(18.9) million for the three months ended October 31, 2024.Net Income (Loss) as a percentage of revenue was 87.3%, and (24.9)% for the three months ended October 31, 2025and 2024, respectively. Net Income (Loss) was $24.0 million for the nine months endedOctober 31, 2025compared to $(56.5) million for the nine months ended October 31, 2024.Net Income (Loss) as a percentage of revenue was 10.1%, and (24.6)% for the nine months ended October 31, 2025and 2024, respectively, and included $0.2 million of restructuring and related charges during the nine months ended October 31, 2024.
Net Income for the three and nine months endedOctober 31, 2025increased year-over-year primarily due to the impact of the Gain on Debt Restructuring as a result of the recapitalization. Net Loss for the three and nine months endedOctober 31, 2025, excluding the Gain on Debt Restructuringas a result of the recapitalization transactions,increased year-over-year primarily due to lower Gross Profits, higher Technology costs and higher G&A expenses, partially offset by lower Marketing costs.
Our Adjusted EBITDA was $4.3 million for the three months ended October 31, 2025 compared to $9.3 million for the three months ended October 31, 2024, representing margins of 4.9% and 12.3%, respectively. Our Adjusted EBITDA was $6.6 million for the nine months ended October 31, 2025 compared to $29.5 million for the nine months ended October 31, 2024, representing margins of 2.8% and 12.8%, respectively. Adjusted EBITDA Margin decreased for the three and nine months ended October 31, 2025 primarily due to higher revenue share and fulfillment costs as a percentage of revenue.
The following table presents a reconciliation of net income (loss), the most comparable GAAP financial measure, to Adjusted EBITDA for the periods presented:
| Three Months Ended October 31, | Nine Months Ended October 31, | ||||||||||||||||||||||
| 2025 | 2024 |
2025
|
2024
|
||||||||||||||||||||
| (in millions) | (in millions) | ||||||||||||||||||||||
| Net income (loss) | $ | 76.5 | $ | (18.9) | $ | 24.0 | $ | (56.5) | |||||||||||||||
| Interest (income) / expense, net (1) | 7.0 | 6.1 | 20.2 | 17.7 | |||||||||||||||||||
| Rental product depreciation | 15.5 | 16.5 | 44.6 | 47.6 | |||||||||||||||||||
| Other depreciation and amortization (2) | 2.5 | 3.0 | 7.8 | 9.6 | |||||||||||||||||||
| Share-based compensation (3) | 0.9 | 2.2 | 3.8 | 7.6 | |||||||||||||||||||
| Write-off of liquidated assets (4) | 0.6 | 1.1 | 1.8 | 3.9 | |||||||||||||||||||
| Non-recurring adjustments (5) | (1.8) | 0.1 | 0.2 | 0.1 | |||||||||||||||||||
|
Non-ordinary course legal fees (6)
|
2.8 | 0.1 | 4.8 | 0.1 | |||||||||||||||||||
| Restructuring charges (7) | - | - | - | 0.2 | |||||||||||||||||||
|
Gain on Debt Restructuring (8)
|
(96.3) | - | (96.3) | - | |||||||||||||||||||
| Income tax (benefit) / expense | - | - | 0.2 | 0.1 | |||||||||||||||||||
| Other (income) / expense, net (9) | (3.4) | (0.9) | (4.1) | (1.1) | |||||||||||||||||||
| Other (gains) / losses (10) | - | - | (0.4) | 0.2 | |||||||||||||||||||
| Adjusted EBITDA | $ | 4.3 | $ | 9.3 | $ | 6.6 | $ | 29.5 | |||||||||||||||
| Net Income (Loss) as a percentage of revenue | 87.3 | % | (24.9) | % | 10.1 | % | (24.6) | % | |||||||||||||||
| Adjusted EBITDA Margin (11) | 4.9 | % | 12.3 | % | 2.8 | % | 12.8 | % | |||||||||||||||
__________
(1)Includes debt discount amortization of $(7.7) million in the three months ended October 31, 2025, $6.9 million in the three months ended October 31, 2024, $(0.8) million in the nine months ended October 31, 2025 and $20.0 million in the nine months ended October 31, 2024.
(2)Reflects non-rental product depreciation and capitalized software amortization.
(3)Reflects the non-cash expense for share-based compensation.
(4)Reflects the write-off of the remaining book value of liquidated rental product that had previously been held for sale.
(5)Non-recurring adjustments for the three and nine months ended October 31, 2025 primarily includes $(1.8) million and $0.2 million of transaction related costs. Non-recurring adjustments for the three and nine months ended October 31, 2024 includes $0.1 million of costs related to one-time professional fees.
(6)Non-ordinary course legal fees for the three and nine months ended October 31, 2025 includes $2.8 million and $4.8 million of costs related to securities lawsuits and non-recurring legal fees including transaction related costs. Non-ordinary course legal fees for the three and nine months ended October 31, 2024 includes $0.1 million of costs related to a class action lawsuit.
(7)Reflects restructuring charges primarily related to severance and related costs in connection with the January 2024 restructuring plan.
(8)Reflects the gain recognized from the troubled debt restructuring from the Recapitalization Transactions completed in October 2025.
(9)Includes other (income) / expense recognized in the period.
(10)Includes gains / losses recognized in relation to foreign exchange, operating lease terminations and the related surrender of fixed assets (see "Note 6 - Leases - Lessee Accounting" in the Notes to the Condensed Consolidated Financial Statements).
(11)Adjusted EBITDA Margin calculated as Adjusted EBITDA as a percentage of revenue.
Liquidity and Capital Resources
We have reported net income from operations of $76.5 million and $24.0 million for the three and nine months ended October 31, 2025, respectively, due to the recognition of a Gain on Debt Restructuring of $96.3 million during the three months ended October 31, 2025. Prior to the third quarter of fiscal year 2025, the Company incurred significant recurring net losses since inception and has an accumulated deficit of $(1,099.0)million as of October 31, 2025. The Company has historically relied upon debt and equity financing to fund our operations. Our cash flows from operations for the nine months ended October 31, 2025 were $(3.6) million. Cash outflows from investing activities were $(42.9) million for the nine months ended October 31, 2025. As of October 31, 2025, we had cash and cash equivalents of $50.7 million, restricted cash of $8.7 million, current liabilities of $68.6million as of October 31, 2025and long-term debt of $159.1million with a maturity date in October 2029. We currently expect that our cash and cash equivalents balance will decline in fiscal year 2025 as a result of our business plans and strategy to significantly increase the quantity and desirability of rental product available to our customers.
We are a borrower under a loan agreement with CHS (US) Management LLC (as successor in interest to Double Helix Pte Ltd.) as administrative agent for Temasek Holdings, and CHS US Investments LLC, as lender (following a debt assignment from Double Helix Pte Ltd. in March 2025). In January 2023, we entered into an amendment and restatement of such facility (the "2022 Amended Temasek Facility"). The 2022 Amended Temasek Facility extended the maturity date from October 2024 to October 2026, reduced cash interest payments by over $20 million for the two succeeding fiscal years while the total interest rate remained unchanged during this period, with subsequent increases thereafter. In connection with the 2022 Amended Temasek Facility, we also granted warrants to purchase 100,000 shares of Class A Common Stock at an exercise price of $100.00 per share, along with other clarifications and updates. In December 2023, we entered into the 2023 Amended Temasek Facility. The 2023 Amended Temasek Facility eliminated all interest (payment-in-kind and cash interest) for six full fiscal quarters beginning with the fourth quarter of fiscal year 2023, reduced the minimum liquidity maintenance covenant from $50 million to $30 million, and provided that the Company may not exceed mutually agreed upon quarterly and annual spend levels for rental product capital, fixed operating, and marketing expenditures during fiscal year 2024 of $51 million, $100 million (excluding $10 million of specified permitted expenditures), and $30 million, respectively, on an annual basis, and to-be-agreed levels for fiscal years 2025 and 2026, subject to the debt holders' consent and certain exceptions. The quarterly and annual spend levels for rental product capital, fixed operating, and marketing expenditures for fiscal year 2025 were eliminated under the Fourteenth Amendment to the debt facility. In fiscal year 2025, we have incurred cash and paid-in-kind interest beginning May 1, 2025. For a description of the terms of our current and prior credit agreements, see "Note 8- Long-Term Debt" in the Notes to the Condensed Consolidated Financial Statements.
On October 28, 2025, the Company completed the previously announced recapitalization transactions to enhance the Company's financial position and financial flexibility by significantly reducing its existing indebtedness, improving its borrowing rate and extending the maturity of its remaining indebtedness. The Company's lender exchanged $100 million of existing outstanding indebtedness on a dollar-for-dollar cashless basis for new term loans under the New Credit Agreement and exchanged the remaining indebtedness for 26,175,193 newly issued shares of the Company's Class A Common Stock. The Investor Group also provided an additional $20 million of new term loans under the New Credit Agreement, resulting in a total aggregate principal amount of $120 million. The Company's minimum liquidity maintenance covenant was also reduced from $30 million to $15 million until February 20, 2027.
On May 28, 2024, we filed a "shelf" registration statement on Form S-3 (Reg. No. 333-279757) with the SEC, which was declared effective on June 6, 2024. This shelf registration statement, which includes a base prospectus, allows us at any time to offer any combination of securities described in the prospectus in one or more offerings for our own account in an aggregate amount up to $40 million. The Form S-3 is intended to provide us flexibility to conduct registered sales of our securities, subject to market conditions and our future capital needs. The terms of any future offering under the shelf registration statement will be established at the time of such offering and will be described in a prospectus supplement filed with the SEC prior to the completion of any such offering.
The issuance of additional equity, including securities convertible into equity, would result in additional dilution to our stockholders and could reduce the market price of our stock. Preferred stock, if issued, could have a preference with respect to liquidating distributions or a preference with respect to dividend payments that could limit our ability to pay dividends to the holders of our common stock. 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. Our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, which may adversely affect the amount, timing, or nature of our future offerings. There can be no assurances that we will be able to raise additional capital which could negatively affect our liquidity in the future. In the event that additional financing is required from outside sources, we may not be able to negotiate terms acceptable to us or at all. If this occurs, our repayment obligations under the 2025 Amended Facility may be accelerated and we may be unable to meet such obligations. 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.
Our future capital requirements will depend on many factors, including, but not limited to, demand for our business, rental product spend (including expected increases in rental product spend due to our planned increase in rental product unit purchases in fiscal year 2025) and the timing of investments in technology and personnel to support the overall growth of our business. We believe our existing cash and cash equivalents, and cash generated from our operations, will be sufficient to sustain our business operations, to satisfy our debt service obligations, and to comply with our debt covenants for at least the next twelve months from the date of this Form 10-Q, assuming the Recapitalization Transactions close.
Cash Flows
The following table summarizes our cash flows for the periods presented:
|
Nine Months Ended October 31, |
|||||||||||
| 2025 | 2024 | ||||||||||
| (in millions) | |||||||||||
| Net cash (used in) provided by operating activities | $ | (3.6) | $ | 11.5 | |||||||
| Net cash (used in) provided by investing activities | (42.9) | (20.8) | |||||||||
| Net cash (used in) provided by financing activities | 19.4 | (1.6) | |||||||||
| Net (decrease) increase in cash and cash equivalents and restricted cash | (27.1) | (10.9) | |||||||||
| Cash and cash equivalents and restricted cash at beginning of period | 86.5 | 94.0 | |||||||||
| Cash and cash equivalents and restricted cash at end of period | $ | 59.4 | $ | 83.1 | |||||||
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 $(46.5) million for the nine months ended October 31, 2025 and $(9.3) million for the nine months ended October 31, 2024. The cash consumption of the business was higher in the first three quarters of fiscal year 2025 compared with the same period of fiscal year 2024 primarily due to higher purchases of rental product and higher net loss, excluding the Gain on Debt Restructuring, compared to the prior period. The sum of net cash used in operating activities and net cash used in investing activities, as a percentage of revenue, was (19.5)% for the nine months ended October 31, 2025 and (4.0)% for the nine months ended October 31, 2024.
Net cash (used in) provided by operating activities.For the nine months ended October 31, 2025, net cash provided by operating activities was $(3.6) million, which consisted of a net income of $24.0 million, non-cash items of $(19.1) million, reclassification of the proceeds from the sale of rental product of $19.7 million and a net change of $11.2 million in our operating assets and liabilities. The non-cash items were primarily comprised of a Gain on Debt Restructuring of $96.3 million, $44.2 million of rental product depreciation and write-off expenses, $22.2million of payment-in-kind interest, $3.8 million of share-based compensation, $(0.8) million of debt discount amortization, and $7.8 million of other fixed and intangible asset depreciation.
For the nine months ended October 31, 2024, net cash used in operating activities was $11.5 million, which consisted of a net loss of $(56.5) million, offset by non-cash charges of $85.6 million, reclassification of the proceeds from the sale of rental product of $20.1 million and a net change of $2.5 million in our operating assets and liabilities. The non-cash charges were primarily comprised of $48.2 million of rental product depreciation and write-off expenses, $7.6 million of share-based compensation, $20.0 million of debt discount amortization, and $9.8 million of other fixed and intangible asset depreciation.
Net cash (used in) provided by investing activities.For the nine months ended October 31, 2025, net cash used in investing activities was $(42.9) million, primarily consisting of $(61.9) million of purchases of rental product incurred in the period and $(2.9) million of purchases of fixed and intangible assets. The investment in rental product does not include an additional $(8.8) million of cost for units received in the current period but not yet paid for, but does include $2.7 million of cost for units paid for in the current period but received in the prior period (see the Supplemental Cash Flow Information in Part I, Item 1. "Financial Statements (Unaudited)"). The investment in rental product was to support our rental product strategy. The majority of the investment in fixed and intangible assets was primarily related to machinery and equipment. The cash used in investing activities was partially offset by $19.7 million of proceeds from the sale of owned rental product and $2.2 million of proceeds from the liquidation of rental product.
For the nine months ended October 31, 2024, net cash used in investing activities was $(20.8) million, primarily consisting of $(41.4) million of purchases of rental product incurred in the period and $(2.9) million of purchases of fixed and intangible assets. The investment in rental product did not include an additional $(6.7) million of cost for units received in the current period but not yet paid for, but did include $1.4 million of cost for units paid for in the current period but received in the prior period (see Supplemental Cash Flow Information in Part I, Item 1. "Financial Statements (Unaudited)"). The investment in rental product was to support our rental product strategy. The majority of the investment in fixed and intangible assets was primarily related to machinery and equipment. The cash used in investing activities was partially offset by $20.1 million of proceeds from the sale of owned rental products and $3.4 million of proceeds from the liquidation of rental product.
Net cash provided by (used in) financing activities.During the nine months ended October 31, 2025, net cash provided by financing activities was $19.4 million, primarily due to net cash proceeds from the recapitalization transactions.
During the nine months ended October 31, 2024, net cash used in financing activities was $(1.6) million, consisting of other financing payments.
Contractual Obligations and Commitments
In December 2023, we entered into the 2023 Amended Temasek Facility, which eliminated all interest (both payment-in-kind and cash interest) for a period of six full fiscal quarters beginning with the fourth quarter of fiscal year 2023, reduced the minimum liquidity maintenance covenant from $50 million to $30 million, and provided that we may not exceed mutually agreed upon quarterly and annual spend levels for rental product capital expenditures, fixed operating expenses and marketing expenditures during fiscal year 2024 and to-be-agreed levels for fiscal years 2025 and 2026. The quarterly and annual spend levels for rental product capital, fixed operating, and marketing expenditures for fiscal year 2025 were eliminated under the Fourteenth Amendment to the debt facility. As of October 31, 2025, we had approximately $159.1 million of total debt outstanding, none of which matures within the next 12 months. See "Note 8 - Long-Term Debt" in the Notes to the Condensed Consolidated Financial Statements for more information. In October 2025, the Company completed the previously announced recapitalization transactions to enhance the Company's financial position and financial flexibility by significantly reducing its existing indebtedness, improving its borrowing rate and extending the maturity of its remaining indebtedness. See "Note 4 - Recapitalization Transactions" in the Notes to the Condensed Consolidated Financial Statements for more information.See "Note 6 - Leases - Lessee Accounting" in the Notes to the Condensed Consolidated Financial Statements for our minimum fixed lease obligations under existing lease agreements as of October 31, 2025. See "Note 16 - Commitments and Contingencies" in the Notes to the Condensed Consolidated Financial Statements for our minimum purchase commitments for technology services as of October 31, 2025.
Critical Accounting Estimates
Our critical accounting estimates are described under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Estimates" in our 2024 Annual Report on Form 10-K. In the nine months ended October 31, 2025, there were no material changes to our critical accounting estimates from those discussed in our 2024 Annual Report on Form 10-K except as discussed below.
Interim Impairment Evaluation
Long-lived assets, such as rental product, fixed assets, intangible assets, and right-of-use lease assets, are reviewed for impairment triggers when events or changes in circumstances indicate the carrying value of such assets may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, the Company first compares the undiscounted cash flows expected to be generated by that asset or asset group to its carrying amount. If the carrying amount of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying amount exceeds its fair value. Fair value is determined using various valuation techniques including discounted cash flow models, quoted market values, and third-party independent appraisals, as necessary.
Given the Company's stock price decline during the first three quarters of fiscal year 2025 and fourth quarter of fiscal year 2024, the Company concluded a triggering event had occurred and performed an impairment analysis of its long-lived assets as of October 31, 2025 and January 31, 2025. Based on the quantitative assessments performed, undiscounted cash flows expected to be generated by the use and eventual disposition of the Company's long-lived assets exceeded their carrying values and therefore no impairment was recognized for the nine months ended October 31, 2025 and year ended January 31, 2025.
Recent Accounting Pronouncements
See "Note 2 - Summary of Significant Accounting Policies" in the Notes to Condensed Consolidated Financial Statementsfor a description of recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted.
JOBS Act
We currently qualify as an "emerging growth company" under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Accordingly, we are provided the option to adopt new or revised accounting guidance either (i) within the same periods as those otherwise applicable to non-emerging growth companies or (ii) within the same time periods as private companies. We have elected to adopt new or revised accounting guidance within the same time period as private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period. Accordingly, our utilization of these transition periods may make it difficult to compare our financial statements to those of non-emerging growth companies and other emerging growth companies that have opted out of the transition periods afforded under the JOBS Act.
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