Rent The Runway Inc.
04/15/2025 | Press release | Distributed by Public on 04/15/2025 14:23
Annual Report for Fiscal Year Ending January 31, 2024 (Form 10-K)
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 audited consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K. The following discussion focuses on fiscal years 2024and 2023 financial condition and results of operations and year-to-year comparisons between fiscal years 2024and 2023. Discussion of fiscal year 2022 financial condition and results of operations and year-to-year comparisons between fiscal years 2023 and 2022 are included in Part II, Item 7, "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, 2024.
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 Annual Report on Form 10-K, particularly in Part I, 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 164,004 ending total subscribers2(active and paused) as of January 31, 2025. We had 119,778 active subscribers as of January 31, 2025. The majority of our revenue is highly recurring and is generated by our subscribers. For the years ended January 31, 2025 and 2024, respectively, 88% 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.
Recent Business Highlights:
•Returned to our customer-obsessed roots. Refocused our team on the customer. We launched our "We Heard You" customer campaign to showcase that we have listened to our customer and are laser-focused on what matters to her most, including by investing more in the rental product she desires.
•Announced the largest rental product acquisition in company history. Expecting to approximately double the new rental product coming onto the platform in fiscal year 2025. This is anticipated to include a 3-4 times increase in units on average from key brands most desired by customers.
•Expanded our cost-efficient models to acquire rental product,including the Share by RTR revenue share program and Exclusive Designs collections. Total units from the Share by RTR program are expected to increase to approximately 62% of total units in fiscal year 2025, a 2.5 times increase versus fiscal year 2024. We believe that this expansion highlights RTR's ability to serve as a marketing channel for brands.
2Ending 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.
•Rapidly improving the customer experience through a steady drumbeat of product innovations.In response to direct customer feedback and designed to improve retention, we have launched and are expecting to launch:
◦60-day customer promise, giving new members risk-free renting for their first two months, meaning we will replace any item that does not fit or feel right for free.
◦Back-in-stock notifications for customer-hearted items, which sends customers a notification when a favorite item becomes available. We plan to further expand in-stock notifications for specific styles and sizes in the near future, which is our #1 most requested new feature.
◦Enhancements to our personalized new customer onboarding experience, where members of our customer service team call new members personally to review the details of how RTR works, and answer any questions.
◦Stylist in product, which connects customers to a stylist over text or Zoom to help guide her selection of styles.
Key Operating and Financial Results. We have achieved the following operating and financial results for the years ended January 31, 2025 and 2024, respectively:
•Revenue was $306.2 million and $298.2 million, respectively, representing 2.7% growth year-over-year;
•119,778 and 125,954 ending Active Subscribers3(excluding paused subscribers), respectively, representing a change of (5)% year-over-year;
•132,574 and 135,211 Average Active Subscribers4, respectively, representing a change of (2)% year-over-year;
•164,004 and 173,247 ending Total Subscribers (including paused subscribers), respectively, representing a change of (5)% year-over-year;
•Gross Profit was $115.9 million and $119.7 million, respectively, representing a gross margin of 37.9% and 40.1%, respectively;
•Net Loss was $(69.9) million and $(113.2) million, respectively. Net Loss as a percentage of revenue was (22.8)%, and (38.0)%, respectively, and included $0.2 million and $3.1 million of restructuring and related charges, respectively;
•Adjusted EBITDA was $46.9 million and $26.9 million, respectively, representing an Adjusted EBITDA margin of 15.3% and 9.0%, respectively;
•Net cash (used in) provided by operating activities was $12.9 million and $(15.7) million, and net cash used in investing activities was $(20.1) million and $(54.6) million, respectively;
•Net cash used in operating activities as a percentage of revenue was 4.2% and (5.3)% and net cash used in investing activities as a percentage of revenue was (6.6)% and (18.3)%, respectively; and
•Cash and Cash Equivalents was $77.4 million and $84.0 million, respectively.
Our Product Acquisition Strategy
We acquire and monetize products in three ways: Wholesale, Share by RTR and Exclusive Designs. These 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.
3Active Subscribers is defined as ending total subscribers as of period end, excluding paused subscribers.
4Average 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.
The chart below summarizes the percentage of new items acquired via each method. In total, approximately 70% of new items were acquired through the more capital-efficient channels in fiscal year 2024, approximately 61% in fiscal year 2023 and approximately 58% in fiscal year 2022. 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 Consolidated Statement of Cash Flows) as a percentage of revenue over time. 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, Exclusive Designs and Share by RTR over time. We expect to incur higher purchases of rental product in fiscal year 2025 relative to fiscal year 2024 in connection with our strategy to approximately double the new rental product added to our site and made available to our customers in fiscal year 2025.
| Description | Consolidated Statement of Operations | Consolidated Balance Sheets | Consolidated Statement of Cash Flows |
Percent of Items Acquired in FY 2024 / 2023 / 2022
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| 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 |
30% / 39% / 42%
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| 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 |
48% / 33% / 27%
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| EXCLUSIVE DESIGNS ⁽²⁾⁽³⁾ |
Items are designed in collaboration with our brand partners and available exclusively on our site for a period of time.
We (or our brands) manufacture through third-party partners . We pay the brand partner an upfront fee and, in most cases, minimal revenue share payments
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Upfront and, when applicable, 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⁾
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Manufacturing cost is capitalized as "Rental Products" in long-term assets
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Upfront and, when applicable, 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
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22% / 28% / 31%
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| For additional details, refer to the section titled "Business - Our Unique Brand Partner Approach." | |||||||||||||||||
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⁽¹⁾ The cost of accessory items, which made up less than 10% of the gross book value of rental product as of January 31, 2025, is recognized through straight-line depreciation with two-year useful life and 30% salvage value.
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⁽²⁾ For Share by RTR and applicable Exclusive Designs, the Company shares a percentage of revenue less a logistics fee with the brand. This revenue includes (i) revenue attributable to each item in connection with one-time reserve rentals; (ii) revenue attributable to each item from Subscription (this is based on the number of days at home during a subscription period); and (iii) revenue attributable to each item in connection with Resale of such items, less any liquidation costs. Both the percentage of revenue, and the logistics fees, can vary depending on the brand partner. 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.
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| ⁽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. | |||||||||||||||||
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.
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 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. Our acquisitions are also reliant on new customer promotions. Our promotional strategy is subject to change depending on business and market conditions. In fiscal year 2024, we have focused, and plan to continue to focus in fiscal year 2025, on improving both the availability of and satisfaction with our rental product for our Reserve and Subscription customers.
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 plan to focus on significantly increasing the quantity and quality 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 personal customer service and styling.
We partly assess the health of our business by analyzing the performance of our historical customer cohorts over time. We place customers in cohorts based on the fiscal year in which they first transacted with RTR. A significant portion of our total revenue in each fiscal year is generated from customers acquired in previous years. For example, approximately one-third of our revenue in fiscal year 2024 was generated by customers who placed their first order with us in fiscal year 2018 or prior.
We also assess the productivity of our historical customer cohorts by measuring the revenue and profit we generate from all new customers over their lifetime ("LTV") against customer acquisition costs ("CAC"). We define LTV as cumulative total revenue generated across all of our product offerings (which includes Subscription and Reserve Rental Revenue and Other Revenue) by current or previous subscribers or customers, minus fulfillment expenses, rental product depreciation and revenue share expenses, credit card fees and customer service personnel and related expenses incurred to generate such revenue divided by the number of new customers acquired during that period. Any LTV generated by a customer is assigned to the original cohort year that the customer first joined. We define CAC as total marketing expense, excluding marketing personnel and related costs incurred in a fiscal year divided by the number of new customers acquired in that period. We acquire customers efficiently as evidenced by over a majority of our lifetime customers having joined organically.
As seen in the table below, our LTV to CAC ratio has remained relatively consistent for our fiscal year 2018 through fiscal year 2024 customer cohorts, with the exception of our fiscal year 2020 cohort which was impacted by the COVID-19 pandemic. The fiscal year 2021 cohort, which benefited from strong loyalty post-recovery from the pandemic, exhibited an LTV to CAC ratio of 0.7x in its first six months and 1.3x in its first twelve months, implying that we recovered our customer acquisition cost between six months and twelve months for this cohort. Our fiscal year 2024 cohort thus far is exhibiting an LTV to CAC ratio of 0.5x in its first six months. We anticipate that the improvement in customer retention due to the greater satisfaction with our rental product along with product experience improvements will benefit the lifetime value of our customer cohorts. The performance of our historical cohorts has been consistent as our more loyal customers continue to spend with us.
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. For example, beginning in fiscal year 2023, we focused on enhancing the availability of rental product on our site by increasing the depths of our buys (i.e. acquiring more units of particular styles) and continued to pursue this strategy in fiscal year 2024. 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. In fiscal year 2024, approximately 70% of new items were acquired through our more capital efficient non-Wholesale channels, compared to 61% in fiscal year 2023 and 58% in fiscal year 2022. We plan to further increase the percentage of units acquired through Exclusive Designs and Share by RTR on a combined basis in fiscal year 2025. 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 January 31, 2025, the quarterly and annual spend levels for rental product capital expenditures for fiscal year 2025 under our 2025 Amended Facility have not yet been finalized. Pursuant to the 2025 Amended Facility, the deadline to agree on such levels was extended from March 31, 2025 to May 30, 2025.
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 September 2022, we announced a restructuring plan that reduced operating expenses by approximately $27 million in the four quarters following the restructuring compared to the annualized run rate for the second quarter of fiscal year 2022. In January 2024, we announced a restructuring plan expected to generate total annual operating expense savings of approximately $12 million, which primarily includes 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, we expect our fixed costs to decrease as a percentage of total revenue in fiscal year 2025, and over time we anticipate that our operating costs will grow more slowly than our total revenue on an annual basis. As of January 31, 2025, the quarterly and annual spend levels for rental product capital expenditures for fiscal year 2025 under our 2025 Amended Facility have not yet been finalized. Pursuant to the 2025 Amended Facility, the deadline to agree on such levels was extended from March 31, 2025 to May 30, 2025.
We use technology and customer data to drive efficiency across products, fulfillment expenses and operating costs. Our data has allowed us to build a differentiated and proprietary rental reverse logistics platform with a vertically integrated cleaning and restoration process. We have invested in technology and automation in order to drive operating leverage and higher margins as we grow and scale our business.
Over time, we have improved our margins, profitability and cash flow, and we believe we will continue to benefit from economies of scale. 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. The 2025 Amended Facility reduced our cash interest payments during fiscal year 2024 and reduces our cash interest payments during fiscal year 2025 relative to the original agreement, 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 the third and fourth fiscal quarters, our Reserve offering historically (prior to COVID-19) benefited from increased wedding and holiday events but this seasonality has varied since the onset of COVID-19. For example, in fiscal year 2022, we believe that a price increase of our Subscription programs in April 2022 affected traditional seasonal patterns. In fiscal year 2023, changes in rental product in-stock levels and changes to promotional prices also disrupted typical seasonality. However, in fiscal year 2024, we observed more typical seasonal patterns. 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.
For additional information, see the section of Part I, Item 1A, "Risk Factors - Risks Relating To Our Business and Industry - Our business is affected by seasonality."
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, 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, in light of potential pricing sensitivity in the current macro-economic environment, we are 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 2024, and expect to raise wages in 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, see Part I, Item 1A, "Risk Factors" of this Annual Report on Form 10-K.
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. 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 loss.
| Years Ended January 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Active Subscribers | 119,778 | 125,954 | 126,712 | ||||||||||||||
| Average Active Subscribers | 132,574 | 135,211 | 128,586 | ||||||||||||||
| Gross Profit | $ | 115.9 | $ | 119.7 | $ | 120.0 | |||||||||||
| Net Loss | $ | (69.9) | $ | (113.2) | $ | (138.7) | |||||||||||
| Adjusted EBITDA (1) | $ | 46.9 | $ | 26.9 | $ | 6.7 | |||||||||||
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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 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 periodand excludes paused subscribers. As of January 31, 2025, we had 119,778 Active Subscribers, a decrease from 125,954 as of January 31, 2024. The decrease in active subscribers was driven primarily by lower acquisitions during the year compared to the prior year due to a change in promotional strategy during the second quarter of fiscal year 2024 versus the same quarter last year and a reduction in marketing spend. The decrease in acquisitions was partially offset by improved subscriber retention.
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 January 31, 2025, we had 132,574Average Active Subscribers, a decrease from 135,211as of January 31, 2024. The decline in average active subscribers was primarily due to lower acquisitions during the year compared to the prior year. The decrease in acquisitions was partially offset by improved subscriber retention.
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 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 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 $115.9 million for the year ended January 31, 2025 compared to $119.7 million for the year ended January 31, 2024 representing Gross Margins of 37.9% and 40.1%, respectively. Gross Profit and Gross Margin for the year ended January 31, 2025 decreased due to the impact of higher revenue share costs and rental product depreciation as a percentage of sales, partially offset by lower fulfillment costs as a percentage of sales.
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, non-recurring adjustments, non-ordinary course legal expenses, restructuring charges, loss on asset impairment related to restructuring, income tax (benefit) expense, other income and expense, and other gains / losses. Adjusted EBITDA margin as Adjusted EBITDA calculated as a percentage of total revenue, net for a period.
Net Loss was $(69.9) million for the year ended January 31, 2025 compared to $(113.2) million for the year ended January 31, 2024, representing margins of (22.8)% and (38.0)%, respectively. Net Loss improved year over year primarily due to our fixed cost reduction efforts, lower stock based compensation, lower net interest expense, and higher revenue partially offset by higher rental product depreciation and revenue share expenses. Adjusted EBITDA was $46.9 million for the year ended January 31, 2025 compared to $26.9 million for the year ended January 31, 2024, representing margins of 15.3% and 9.0%, respectively. Adjusted EBITDA margin improved year over year due to our fixed cost reduction efforts, higher revenue, lower marketing expenses, and lower fulfillment costs partially offset by higher revenue share payments due to a greater proportion of revenue share units.
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. 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 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, 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. We expect to incur lower fixed cost G&A as a percentage of revenue in the short term due to higher expected revenue driving operating leverage. 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 and September 2022 restructuring plans.
Loss on Asset Impairment Related to Restructuring. Loss on asset impairment related to restructuring consists of asset impairment charges related to the discontinuation of a software implementation project and two warehouse operations projects in connection with the January 2024 and September 2022 restructuring plans.
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 consolidated financial statements and notes included elsewhere in this Annual Report on Form 10-K. The following tables set forth our results of operations for the periods presented:
| Years Ended January 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (in millions) | |||||||||||||||||
| Revenue: | |||||||||||||||||
| Subscription and Reserve rental revenue | $ | 265.5 | $ | 264.9 | $ | 268.6 | |||||||||||
| Other revenue | 40.7 | 33.3 | 27.8 | ||||||||||||||
| Total revenue, net | 306.2 | 298.2 | 296.4 | ||||||||||||||
| Costs and expenses: | |||||||||||||||||
| Fulfillment | 82.8 | 86.0 | 92.2 | ||||||||||||||
| Technology | 35.7 | 49.1 | 55.4 | ||||||||||||||
| Marketing | 28.2 | 31.2 | 35.1 | ||||||||||||||
| General and administrative | 86.8 | 101.6 | 109.0 | ||||||||||||||
| Rental product depreciation and revenue share | 107.5 | 92.5 | 84.2 | ||||||||||||||
| Other depreciation and amortization | 12.5 | 14.7 | 16.4 | ||||||||||||||
| Restructuring charges | 0.2 | 2.0 | 2.4 | ||||||||||||||
| Loss on asset impairment related to restructuring | - | 1.1 | 5.3 | ||||||||||||||
| Total costs and expenses | 353.7 | 378.2 | 400.0 | ||||||||||||||
| Operating loss | (47.5) | (80.0) | (103.6) | ||||||||||||||
| Interest income / (expense), net | (24.2) | (33.7) | (36.8) | ||||||||||||||
| Other income / (expense), net | 2.1 | 0.7 | 1.5 | ||||||||||||||
| Net loss before income tax benefit / (expense) | (69.6) | (113.0) | (138.9) | ||||||||||||||
| Income tax benefit / (expense) | (0.3) | (0.2) | 0.2 | ||||||||||||||
| Net loss | $ | (69.9) | $ | (113.2) | $ | (138.7) | |||||||||||
Comparison of the years ended January 31,2025and 2024
Total Revenue, Net.Total revenue, net was $306.2million for the year ended January 31, 2025, an increase of $8.0 million, or 2.7%, compared to $298.2 million for the year ended January 31, 2024. This increase was primarily driven by the increase in units purchased per subscriber combined with an increase in Reserve revenue.
In fiscal year 2025, we expect revenue to increase as we work towards growing our customer base, improving the customer experience and continuing to focus on our resale revenue.
Subscription and Reserve Rental Revenue.Subscription and Reserve rental revenue was $265.5 million for the year ended January 31, 2025, an increase of $0.6 million, or 0.2%, compared to $264.9 million for the year ended January 31, 2024. This increase was primarily driven by an increase in Reserve revenue compared to the same period last year.
Other Revenue.Other revenue was $40.7 million for the year ended January 31, 2025, an increase of $7.4 million, or 22.2%, compared to $33.3 million for the year ended January 31, 2024. This increase was primarily driven by an increase in the items purchased per subscriber and an increase in the average selling price per unit. Other revenue represented 13.3% of total revenue, up from 11.2% in the same period last year.
Costs and Expenses.Total costs and expenses were $353.7 million for the year ended January 31, 2025, a decrease of $(24.5) million, or (6.4)%, compared to $378.2 million for the year ended January 31, 2024. This decrease was primarily drivenby cost savings from the January 2024 restructuring plan, lower share-based compensation expense, lower marketing expense, improvement in warehouse labor productivity, and lower hosting costs which reduced costs compared to the same period last year, offset by higher rental product depreciation and revenue share.
Fulfillment.Fulfillment expenses were $82.8 million for the year ended January 31, 2025, a decrease of $(3.2) million, or (3.7)%, representing27.0%of revenue, compared to $86.0 million for the year ended January 31, 2024, representing28.8% of revenue. The decrease in fulfillment dollars and as a percentage of revenue was primarily driven by warehouse processing cost efficiencies and higher revenue per shipment that offset an increase in wage rates during the first quarter of fiscal year 2024.
In fiscal year 2025, we expect fulfillment expenses as a percentage of total revenue to decrease compared to fiscal year 2024 as a result of anticipated higher revenue per order and continued processing efficiencies.
Technology.Technology expenses were $35.7 million for the year ended January 31, 2025, a decrease of $(13.4) million, or (27.3)%, compared to $49.1 million for the year ended January 31, 2024. This decrease was driven primarily by cost savings from the January 2024 restructuring plan, other cost saving initiatives and lower share-based compensation expense. We were able to realize these benefits while supporting growth initiatives including enhanced checkout completion and search, fit and discovery experience for the consumer. Technology expenses were 11.7% of revenue for the year ended January 31, 2025 compared to 16.5% for the same period last year as we saw increased operating leverage with higher revenue and a lower cost base post-restructuring. Technology related share-based compensation expense was $1.9 million for the year ended January 31, 2025 and was $5.5 million for the same period last year.
In fiscal year 2025, we expect technology expenses to decrease as a percentage of total revenue compared to fiscal year 2024 as a result of improved operating leverage due to higher expected revenue.
Marketing.Marketing expenses were $28.2 million for the year ended January 31, 2025, a decrease of $(3.0) million, or (9.6)%, compared to $31.2 million for the year ended January 31, 2024. This decrease was driven primarily by lower paid marketing expenditures. Marketing expenses unrelated to personnel costs were $25.4million in the year ended January 31, 2025 and 8.3% of revenue, compared to $28.5 million and 9.5% of total revenue for the same period last year.
In fiscal year 2025, we expect marketing expenses to decrease in dollars 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 $86.8 million for the year ended January 31, 2025, a decrease of $(14.8) million, or (14.6)%, compared to $101.6 million for the year ended January 31, 2024. This decrease was driven primarily by lower share-based compensation expense and cost savings from the January 2024 restructuring plan. G&A expenses as a percentage of revenue were 28.3%, compared to 34.1% last year, as we saw increased operating leverage with higher revenue and a lower cost base post-restructuring. G&A related share-based compensation expense was $7.7 million for the year ended January 31, 2025 and was $20.5 million for the year ended January 31, 2024.
In fiscal year 2025, we expect G&A expenses to decrease as a percentage of revenue compared to fiscal year 2024 due to operating leverage driven by higher revenue growth.
Rental Product Depreciation and Revenue Share. Rental product depreciation and revenue share was $107.5 million for the year ended January 31, 2025, an increase of $15.0 million, or 16.2%, compared to $92.5 million for the year ended January 31, 2024. The increase was primarily driven by higher Share by RTR units acquired, higher base of rental product and an increase in other revenue. Rental product depreciation and revenue share was 35.1% of revenue in the year ended January 31, 2025, up from 31.0% in the same period last year primarily due to the factors discussed above.
Other Depreciation and Amortization.Other depreciation and amortization was $12.5 million for the year ended January 31, 2025, a decrease of $(2.2) million, or (15.0)%, compared to $14.7 million for the year ended January 31, 2024. This decrease was primarily driven by lower depreciation and amortization associated with machinery and equipment and leasehold improvements.
Restructuring Charges. Restructuring charges were $0.2 million for the year ended January 31, 2025, a decrease of $(1.8) million, or (90.0)%, compared to $2.0 million for the year ended January 31, 2024. The restructuring charges during the years ended January 31, 2025 and January 31, 2024were 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.
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). No restructuring charges were recognized during the three months ended January 31, 2025.
The January 2024 restructuring plan is expected to generate total annual operating expense savings of approximately $12 million, which primarily includes 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 substantially completed by the end of the second quarter of fiscal year 2024 and is expected to be fully completed by the end of the first quarter of fiscal year 2025.
See Note 4, "Restructuring and Related Charges" in the Notes to the Consolidated Financial Statements for more details on these charges.
Loss on Asset Impairment Related to Restructuring. Loss on asset impairment related to restructuring was $0.0 million for the year ended January 31, 2025, a decrease of $(1.1) million, or (100.0)%, compared to $1.1 million for the quarter and year ended January 31, 2024. The loss on asset impairment during the year ended January 31, 2024related to the discontinuation of a software implementation project in connection with the January 2024 restructuring plan. The charge is reflected in Loss on asset impairment related to restructuring on our Consolidated Statements of Operations.
Interest Income / (Expense), Net. Interest expense, net was $(24.2) million for the year ended January 31, 2025, a decrease in expense of $9.5million, or(28.2)%, compared to $(33.7) million for the year ended January 31, 2024. This decrease was driven by lowered paid-in-kind ("PIK") and cash interest from the 2025 Amended Facility, partially offset by higher debt discount amortization. Of the $(24.2) million total interest expense in the year ended January 31, 2025, $(27.0) million was debt discount amortization and $2.8 million was the net of interest earned, financing lease and other interest, compared to $(22.5) million of PIK interest, $0.5 million net of cash interest paid, cash interest earned, financing lease and other interest and $(11.7) million of debt discount amortization in the year ended January 31, 2024.
Other Income / (Expense), Net.Other income / (expense), net was $2.1 million for the year ended January 31, 2025, an increase of $1.4 million, compared to $0.7 million for the year ended January 31, 2024. This increase was primarily driven by an increase in the monetization of tax credits and government grants.
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 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.
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 Loss was $(69.9) million for the year ended January 31, 2025compared to $(113.2) million for the year ended January 31, 2024, Net Loss as a percentage of revenue was (22.8)%, and (38.0)%, respectively, and included $0.2 million and $3.1 million of restructuring and related charges, respectively. Our Adjusted EBITDA was $46.9 million for the year ended January 31, 2025compared to $26.9 million for the year ended January 31, 2024, representing margins of 15.3% and 9.0%, respectively. Adjusted EBITDA Margin significantly improved for theyear ended January 31, 2025due to our fixed cost reduction efforts, higher revenue and lower fulfillment costs partially offset by higher revenue share payments due to a greater proportion of revenue share units.
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, | ||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||
| (in millions) | ||||||||||||||||||||
| Net loss | $ | (69.9) | $ | (113.2) | $ | (138.7) | ||||||||||||||
| Interest (income) / expense, net (1) | 24.2 | 33.7 | 36.8 | |||||||||||||||||
| Rental product depreciation | 64.6 | 57.1 | 52.9 | |||||||||||||||||
| Other depreciation and amortization (2) | 12.5 | 14.7 | 16.4 | |||||||||||||||||
| Share-based compensation (3) | 9.7 | 26.2 | 25.4 | |||||||||||||||||
| Write-off of liquidated assets (4) | 6.6 | 3.4 | 5.8 | |||||||||||||||||
| Non-recurring adjustments (5) | 0.1 | 1.7 | 1.3 | |||||||||||||||||
| Non-ordinary course legal fees (6) | 0.3 | 0.3 | 0.1 | |||||||||||||||||
| Restructuring charges (7) | 0.2 | 2.0 | 2.4 | |||||||||||||||||
| Loss on asset impairment related to restructuring (8) | - | 1.1 | 5.3 | |||||||||||||||||
| Income tax (benefit) / expense | 0.3 | 0.2 | (0.2) | |||||||||||||||||
| Other (income) / expense, net (9) | (2.1) | (0.7) | (1.5) | |||||||||||||||||
| Other (gains) / losses (10) | 0.4 | 0.4 | 0.7 | |||||||||||||||||
| Adjusted EBITDA | $ | 46.9 | $ | 26.9 | $ | 6.7 | ||||||||||||||
| Net Loss as a percentage of revenue | (22.8) | % | (38.0) | % | (46.8) | % | ||||||||||||||
| Adjusted EBITDA Margin (11) | 15.3 | % | 9.0 | % | 2.3 | % | ||||||||||||||
__________
(1)Includes debt discount amortization of $27.0 million in the year ended January 31, 2025, $11.7 million in the year ended January 31, 2024, and $4.3 million in the year ended January 31, 2023.
(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 year ended January 31, 2025 includes $0.1 million of costs related to one-time professional fees, for the year ended January 31, 2024 includes $1.7 million of costs primarily related to debt refinancing and related fees and the option exchange, and for the year ended January 31, 2023 includes $1.3 million of costs related to public company SOX readiness.
(6)Non-ordinary course legal fees for the years ended January 31, 2025, 2024, and 2023 includes $0.3 million, $0.3 million, and $0.1 million, respectively, of costs related to a class action lawsuit.
(7)Reflects restructuring charge primarily related to severance and related costs in connection with the January 2024 and September 2022 restructuring plans.
(8)Reflects the asset impairment charges related to the discontinuation of a software implementation project in connection with the January 2024 restructuring plan in the year ended January 31, 2024 and the discontinuation of warehouse operations projects in connection with the September 2022 restructuring plan in the year ended January 31, 2023.
(9)Primarily includes the monetization of tax credits and government grants for the years ended January 31, 2025 and January 31, 2023.
(10)Includes gains / losses recognized in relation to foreign exchange, operating lease terminations and the related surrender of fixed assets (see "Note 5 - Leases - Lessee Accounting" in the Notes to the Consolidated Financial Statements).
(11)Adjusted EBITDA Margin calculated as Adjusted EBITDA as a percentage of revenue.
Liquidity and Capital Resources
We have incurred net losses from operations of $(69.9) million for the year ended January 31, 2025, have incurred significant recurring net losses since inception, has an accumulated deficit of $(1,123.0) million as of January 31, 2025, and have historically relied upon debt and equity financing to fund our operations. Our cash flows from operations for the year ended January 31, 2025were $12.9 million. Cash out flows from investing activities were $(20.1) million for the year ended January 31, 2025. As of January 31, 2025, we had cash and cash equivalents of $77.4 million, restricted cash of $9.1 million, current liabilities of $47.4 million as of January 31, 2025and $333.7 million of long-term debt that matures in October 2026. 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 its 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 remains 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. In fiscal year 2025, we expect to incur cash and paid-in-kind interest related to the 2025 Amended Facility beginning May 1, 2025. In March 2025, we entered into an amendment ("Eleventh Amendment") that extends the deadline to establish the 2025 quarterly and annual spend levels for rental product capital, fixed operating, and marketing expenditures to May 30, 2025. Our total indebtedness as of January 31, 2025 was $333.7 million. For a description of the terms of our current and prior credit agreements, see "Note 8 - Long-Term Debt" in the Notes to the Consolidated Financial Statements. We intend to work constructively with our lender regarding the terms of the 2025 Amended Facility.
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, including interest payments that are scheduled to resume effective May 1, 2025, and satisfy the $30 million minimum liquidity maintenance covenant for at least the next twelve months.
Cash Flows
The following table summarizes our cash flows for the periods presented:
|
Years Ended January 31,
|
|||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (in millions) | |||||||||||||||||
| Net cash (used in) provided by operating activities | $ | 12.9 | $ | (15.7) | $ | (47.7) | |||||||||||
| Net cash (used in) provided by investing activities | (20.1) | (54.6) | (44.3) | ||||||||||||||
| Net cash provided by (used in) financing activities | (0.3) | 0.7 | (4.0) | ||||||||||||||
| Net (decrease) increase in cash and cash equivalents and restricted cash | (7.5) | (69.6) | (96.0) | ||||||||||||||
| Cash and cash equivalents and restricted cash at beginning of period | 94.0 | 163.6 | 259.6 | ||||||||||||||
| Cash and cash equivalents and restricted cash at end of period | $ | 86.5 | $ | 94.0 | $ | 163.6 | |||||||||||
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 $(7.2) million for the year ended January 31, 2025 and$(70.3) million for the year ended January 31, 2024. The cash consumption of the business was lower in fiscal year 2024 compared with fiscal year 2023 primarily due to lower purchases of rental product and improvements in net loss and Adjusted EBITDA 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 (2.4)% for the year ended January 31, 2025 and(23.6)% for the year ended January 31, 2024.
Net cash (used in) provided by operating activities.For the year ended January 31, 2025, net cash provided by operating activities was $12.9 million, which consisted of a net loss of $(69.9) million, partially offset by non-cash charges of $115.4million, reclassification of the proceeds from the sale of rental product of $28.1 million and a net change of $(4.5) million in our operating assets and liabilities. The non-cash charges were primarily comprised of $65.9 million of rental product depreciation and write-off expenses, $27.0 million of debt discount amortization, $12.8 million of other fixed and intangible asset depreciation and $9.7 million of share-based compensation.
For the year ended January 31, 2024, net cash used in operating activities was $(15.7) million, which consisted of a net loss of $(113.2) million, partially offset by non-cash charges of $132.5 million, reclassification of the proceeds from the sale of rental product of $23.3 million and a net change of $(11.7) million in our operating assets and liabilities. The non-cash charges were primarily comprised of $56.1 million of rental product depreciation and write-off expenses, $26.2 million of share-based compensation, $22.5 million of payment-in-kind interest, $15.0 million of other fixed and intangible asset depreciation, $11.7 million of debt discount amortization, and $1.1 million consisting of asset impairment charges related to the discontinuation of a software implementation project in connection with the January 2024 restructuring plan, of which $0.1 million is included in accrued expenses related to the asset impairment (see the Supplemental Cash Flow Information in Part II, Item 8. "Financial Statements and Supplementary Data").
Net cash (used in) provided by investing activities.For the year ended January 31, 2025, net cash used in investing activities was $(20.1) million, primarily consisting of $(49.2) million of purchases of rental product incurred in the period and $(4.4) million of purchases of fixed and intangible assets. The investment in rental product does not include an additional $2.7 million of cost for units received in the current period but not yet paid for, but does include $(1.4) 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. "Financial Statements and Supplementary Data"). 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 $28.1 million of proceeds from the sale of owned rental product and $5.4 million of proceeds from the liquidation of rental product.
For the year ended January 31, 2024, net cash used in investing activities was $(54.6) million, primarily consisting of $(77.9) million of purchases of rental product incurred in the period and $(4.6) million of purchases of fixed and intangible assets. The investment in rental product did not include an additional $3.3 million of cost for units received in the current period but not yet paid for, but did include $(5.4) million of cost for units paid for in the current period but received in the prior period (see Supplemental Cash Flow Information in Part II, Item 8. "Financial Statements and Supplementary Data"). 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 capitalized software and leasehold improvements. The cash used in investing activities was partially offset by $23.3 million of proceeds from sales of owned rental products and $4.6 million of proceeds from the liquidation of rental product.
Net cash provided by (used in) financing activities.During the year ended January 31, 2025, net cash provided by financing activities was $(0.3) million, consisting of other financing payments.
During the year ended January 31, 2024, net cash used in financing activities was $0.7 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. In March 2025, we entered into the 2025 Amended Facility, which extended the deadline to agree upon the fiscal year 2025 covenant levels from March 31, 2025 to May 30, 2025. See Note 8 - Long-Term Debt in the Notes to the Consolidated Financial Statements for more information. As of January 31, 2025, we had approximately $333.7 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 Consolidated Financial Statements for more information. See "Note 5 - Leases - Lessee Accounting" in the Notes to the Consolidated Financial Statements for our minimum fixed lease obligations under existing lease agreements as of January 31, 2025. See "Note 15 - Commitments and Contingencies" in the Notes to the Consolidated Financial Statements for our minimum purchase commitments for technology services as of January 31, 2025.
Critical Accounting Estimates
Management's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of our financial statements requires us to make estimates using assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods, as well as related disclosures. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities and the amount of revenue and expenses that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, and any such differences may be material. We believe that the accounting estimates discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management's judgments and estimates.
Rental Product
We consider rental product to be a long-term productive asset and, as such, classify it as a noncurrent asset on the Consolidated Balance Sheets. Rental product is stated at cost, less accumulated depreciation. We depreciate rental product, less salvage value, over the useful lives of the assets using the straight-line method. Depreciation on rental products is an estimate based on the following assumptions:
•Useful life: our projection of the period over which we can monetize our rental products through our Subscription or Reserve rental offerings
•Salvage value: our projection of the proceeds that can be expected to be generated from rental product once it is no longer considered rentable, expressed as a percentage of the acquisition cost
The useful life is determined based on historical trends and an assessment of any future changes. The salvage value considers the historical trends and projected liquidation proceeds for the assets. 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 and assessment of any future changes continue to support the use of these assumptions.
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. Because the majority of our leases do not include an implicit discount rate, we use an estimated incremental borrowing rate ("IBR"), to determine the present value of future minimum lease payments. The sensitivity of the estimate is due to the judgement used in the determination of the synthetic credit rating and the development of the related benchmark yield curves.
Share-Based Compensation
We measure share-based compensation expense for all equity classified awards based on the estimated fair value of the awards on the date of grant. The fair value of stock options is recognized as compensation expense on a straight-line basis over the requisite service period of the award. We estimate grant date fair value of stock options using the Black-Scholes option pricing model, which requires the input of subjective assumptions, including the following:
•Fair value of common stock.Following the closing of our IPO, the fair market value of our common stock is based on the closing price as reported on the date of grant on the Nasdaq Stock Market, on which the Company's stock is traded. Prior to the close of our IPO, because our common stock was not yet publicly traded, we were required to estimate the fair value of its common stock. The fair value of the shares of common stock underlying the stock options was historically determined by a third-party valuation firm and approved by our board of directors. 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.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. We selected companies with comparable characteristics, including enterprise value, risk profiles, and position within the industry, and with historical share price information sufficient to meet the expected term of the stock options. The historical volatility data has been computed using the daily closing prices for the selected companies.
•Expected term.The expected term of stock options represents the weighted-average period the stock options are expected to remain outstanding and is estimated under the simplified method using the vesting and contractual terms.
•Risk-free interest rate.The expected risk-free rate assumption is based on the U.S. Treasury instruments whose term is consistent with the expected term of the stock options.
•Expected dividend yield.The expected dividend assumption is based on our history and expectation of dividend. We have not paid dividends and do not expect to do so in the foreseeable future.
Upon grant of awards, we also estimate an amount of forfeitures that will occur prior to vesting. We estimate forfeitures based on the dynamic forfeiture model based on our historical forfeitures of stock options adjusted to reflect future changes in facts and circumstances, if any. There were no stock options granted during the years January 31, 2025 and 2024.
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 third quarter of fiscal year 2023 and the 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, 2023 and January 31, 2025. The Company performed a quantitative assessment using the undiscounted future cash flows expected to be generated by the use and eventual disposition of the Company's long-lived assets group. The assessment included consideration of key factors including projected enterprise cash flows, market capitalization and the fair value of the Company's debt facility. Based on the quantitative assessment 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 years ended January 31, 2024 and January 31, 2025.
Recent Accounting Pronouncements
See "Note 2 - Summary of Significant Accounting Policies" in the Notes to 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.