Rent the Runway A Stock

Welcome to Rent the Runway's Second Quarter 2026 Earnings Results Conference Call. As a reminder, this call was recorded.

I would now like to turn the call over to Rent the Runway's Chief Legal and Administrative Officer, Cara Schembri. Thank you, Cara. You may begin.

Hello, everyone, and thanks for dialing in today.

We would like to remind you that this call will include forward-looking statements. These statements include guidance and underlying assumptions for the third fiscal quarter of 2026 and the fiscal year 2026, and statements regarding our business strategies and initiatives, inventory plans, execution and progress against our goals, and leadership transition. These statements are subject to various risks, uncertainties and assumptions that could cause our actual results to differ materially. These risks, uncertainties and assumptions are detailed in today's press release and our Form 10-Q. We have no obligation to update any forward-looking statements or information except as required by law.

During this call, we will also reference certain non-GAAP financial information. The presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for financial information presented in accordance with GAAP. Reconciliation of GAAP to non-GAAP measures can be found in our press release and in our SEC filings.

And with that, I'll turn it over to Teri Bariquit, our Interim CEO.

Thank you, Cara, and thank you all for joining today. Before we turn to the quarter, I want to share an important update on our leadership. This morning, we announced that Paige Thomas has been appointed as Rent the Runway's Chief Executive Officer, President and a Member of our Board of Directors effective September 14.

Paige brings 30 years of retail leadership experience with a track record of driving growth at premium and off-price brands alike. She joined Rent the Runway in June of 2026 as our Chief Commercial Officer, after serving as Chief Merchant and Product Innovation Officer at Signet Jewelers and as President and CEO of Saks OFF 5TH Avenue. Earlier, she spent more than a decade at Nordstrom, including 5 years leading Nordstrom Rack.

The bar we set for this role was high and it was specific, someone who understands the premium customer and fashion brands she loves, someone who has operated at scale, and someone who will lead and accelerate the strategy this team is already executing. That is Paige.

With Paige stepping in as our permanent CEO, I will move into the role of Non-Executive Chair of our Board also effective September 14. Paige and I will work closely together as we transition into our new roles, ensuring the strategy and momentum we've built continues.

I also want to thank Dhiren Fonseca for his service as Executive Chairman through this period of transition. He's been a steady partner to me and to the Board, and the company is better for it.

Now to the business. Through all of this change, our foundation holds. It starts with the customer at the center and the core rental business she comes to us for. Over the past few months, we've listened to her feedback, analyzed the data and evaluated how we work. As a result, we've refined how we serve her and we're clearer than ever on our strategy.

Rent the Runway is a premium fashion service platform. We exist to give her access to premium fashion, whether she is renting or buying, guided by styling intelligence that helps her find and wear what fits her life. And we give brands and partners exposure to highly-valued, highly-engaged customers.

Our strategy is supported by 3 operating objectives: total customer growth, profit expansion and operational excellence.

First, total customer growth is built on being a fashion authority and delivering an experience she trusts. In practice, that means the best merchandise offer, from everyday workwear to the aspirational brands she asks for by name, realized through strong brand partnerships. And it means an even more seamless experience, availability, discovery and access to product on her terms. She subscribes to expand her closet for everyday wear; she reserves for the moments that matter most in her life; and increasingly, she wants to buy from us. She experiences all of it as one relationship with one company, and we are building the business to match.

Second, margin expansion is about bringing more discipline to how we drive profitable revenue. That includes how we use pricing and promotions and how we manage inventory to turn faster and bring the greatest return on our largest investment: the product itself.

Third, operational excellence is about disciplined execution, delivering the plan we set and the promise she is paying us for. This is what separates the retailers that last from the ones that do not. It is the garment arriving clean, on time and in the condition she expects every single time across the hundreds of thousands of items moving through our operations. We hold ourselves to that standard on every order.

Now to the quarter. Our customers' feedback has been consistent, and we aim to always deliver on the promise she comes to us for: the right merchandise, easy to find, in stock when she needs it and in a condition she expects. So we are concentrating our resources toward improving our execution on rental and selling. That focus means we have paused select pilots that do not directly serve those priorities today.

First, we paused marketplace, and we believe that it can be meaningful in our future once the experience is fully integrated. We paused on-site advertising and monetization to prioritize the premium experience. And we are not pursuing new B2B dry cleaning partners, though we will continue to serve the ones we have. These are choices about focus and sequencing. And by concentrating our resources, we expect to improve execution and results.

For the second quarter, we delivered $98 million in revenue, ahead of the range we communicated in June. We also delivered meaningful margin improvement as we focused on operational efficiencies and alternative inventory models. Dave will take you through the financials in more detail shortly.

Total customer growth depends on fashion authority, brand trust and a seamless customer experience. To strengthen our fashion authority in the quarter, we introduced new brands and went deeper into the categories she requests most. To deliver a relevant summer offer, for example, we expanded beach cover-ups from 12 brand partners to 25, growing the category 75% over last year. She continues to respond to newness, with recent additions like La Ligne, Jenni Kayne, alongside refreshed prints from Marimekko, all delivering above-average utilization.

Looking to fall, she will experience a diverse assortment, including new brands and new collaborations weighted more heavily than last year toward the brands and categories she requests most, whether she's heading into the office, working from home or getting ready for a fall wedding.

She has told us how much the reserve experience matters. It's where she comes to us for the key moments in her life. It carries the highest satisfaction scores. And we are investing in it, including category expansion. We will share more on those results at the next call. The goal is simple: more of what she wants with even more newness throughout the season.

At the start of 2026, we said we would deliver features to improve her discovery experience, and we have been delivering. In May, we piloted outfits generation. And by the end of June, it was live for every customer. She no longer has to imagine what to wear together; we show her the complete look. Engagement with this feature on our app is running at 35%, ahead of our expectations. And it is changing how she engages with us. During the pilot, customers with the outfit experience added to their bags 12% more often than those without it, and 77% of the time she opened another item within the look.

In August, we rolled out avatars within the outfit experience so that she can see recommended looks on a range of figures. And we began piloting virtual try-ons so that she can see how a specific item will look before she rents or buys. Over the past 5 months, we've launched personalized carousels, updated imagery, outfits generation and virtual try-ons. Together, they represent a real shift in how she discovers product. She can find an item, picture herself in it and see the whole look together.

Looking forward, we are building our 2027 plan now guided by transformation and focus. We have more clarity than ever before about our customer, the services and experiences she wants, and the value that we offer to both her and to our brand partners. We have a deep conviction that there is meaningful opportunity to grow revenue and profit by deepening our relationship with the customer we already have, by growing new customers and through disciplined execution.

As a reminder, last fall, we recapitalized the business in a transaction led by STORY3 Capital Partners, Nexus Capital Management and Aranda Principal Strategies. These investors continue to have confidence in our strategy and growth plans, and we are actively working with them on the funding to support it. Today, we announced our plan to launch a rights offering to holders of our Class A common stock, backstopped by these investors, for $15 million to support the company's operational plans and liquidity.

This is the plan Paige is coming in to lead. The strategy is set, the team is in place and the work is underway. I'm proud of the work to date and excited about the work ahead. We have made real progress securing more of the assortment that she wants, building discovery experiences that help her see herself in the product, and improving the consistency of her experience throughout. We will keep pushing on all 3 of these.

Serving as Interim CEO and President has been truly a privilege, and I could not be more confident in our strategy in this team and in Paige as the leader to carry it forward.

With that, I will turn it over to Dave Loretta. This is Dave's first earnings call with us. And in the 3 months he's been here, he has brought a true rigor into this business that I have valued enormously.

Thank you, Teri. Let me start by saying how pleased I am to be on the call today. I joined Rent the Runway as Interim CFO 3 months ago with a strong belief in the potential of the Rent the Runway brand, the significant opportunities to drive margin improvement, and our commitment to building a stronger financial foundation. In the current dynamic environment, I believe this company is well positioned to reaffirm its authority in the fashion industry while strengthening our operating discipline to deliver improved financial results.

Turning to performance in the second quarter. We delivered $98 million in net revenue, an all-time record for the company. We grew revenue 21% over Q2 of last year and 9% sequentially over the first quarter. Our top line reflects healthy quarter-over-quarter growth in revenue per subscriber and increased add-on revenue that continues to build as we've invested in new ways to provide flexibility and choices in our monthly subscription offering. The subscription price increases that were effective August 1 of last year have contributed to the revenue growth and driven flow-through to better bottom line results.

Our other revenue line, inclusive of resale, grew 19% over Q2 of last year, which we believe represents a significant growth opportunity for our business, drawing on the large and growing demand for resale apparel. Our data demonstrates that both subscribers and new visitors see tremendous value in our merchandise assortment. And when we price our pieces for resale, we aim to make room for more newness in the offering and drive higher gross margins.

From a gross margin expansion standpoint, Q2 improved roughly 600 basis points. We leveraged both product costs and fulfillment costs to support the second quarter margin expansion. Our discipline in controlling G&A costs while maintaining similar investment levels to last year in key technology initiatives and marketing has added approximately 1,000 basis points of leverage in the second quarter, resulting in significant year-over-year improvement in our operating profitability.

Consistent with what we noted on the first quarter call, the year-over-year growth in ending active subscriber count decelerated in Q2, primarily due to our stronger promotional activity last year and a higher rate of pause activity this year. As we continue to measure the efficiencies of our growth investments, we are focusing the mix of marketing spend and promotions with the goal to drive customers to our platform that are profitable.

Collectively, we remain confident in our full year outlook for revenue growth and earnings performance as evidenced by affirming the full year guidance on net revenue and adjusted EBITDA. In addition, we continue to expect improved free cash flow in 2026 compared to last year. Our liquidity position has strengthened with a $10 million term loan as detailed in the third amendment to our credit agreement with the same investor group that led our 2025 refinancing. This provides both operating flexibility and investment dry powder.

In addition, with the backstopped rights offering that we announced today, we plan to launch an equity raise in the amount of $15 million to further bolster our liquidity position and support ongoing growth. The vote of confidence by our investor group sends a positive message and underpins our 3-pronged operating approach that focuses on: first, growing our customer base; second, improving our profitability; and third, executing with discipline. As Teri stated, we believe that our key to success lies in refocusing on these fundamentals.

Now I'll review our second quarter results before providing an update on Q3 and the full year guidance. We ended the second quarter with 140,826 active subscribers, down 3.8% year-over-year. Average active subscribers during the quarter were 148,259, an increase of 1% year-over-year. The decrease in ending active subscribers was driven primarily by a year-over-year increase in the rate of pause and the year-over-year decrease in the number of subscribers acquired due to the stronger use of promotions in 2025, which we have reduced this year.

Total revenue for the quarter was $97.7 million, up 20.8% year-over-year and up 8.7% quarter-over-quarter. Our rental revenue was up $14.6 million or 21% year-over-year, primarily due to higher average revenue per subscriber driven by the subscription price increase effective August 1 of last year and an increase in the volume of add-on bookings. This was partially offset by lower reserve revenue versus Q2 of last year. Other revenue increased $2.2 million or 18.8% year-over-year, primarily due to significantly higher resale revenue.

Moving to our cost structure. Fulfillment costs were $23.5 million in the second quarter, versus $22.5 million last year, and as a percentage of revenue was 24.1% compared to 27.8% last year. This decline in a percentage of revenue was primarily due to higher revenue per order, partially offset by higher transportation and warehouse processing costs.

Gross profit margin was 36.1% in Q2, versus 30% last year, representing a 609 basis point improvement. This is primarily due to the rental product depreciation and revenue share costs that decreased 240 basis points as a percentage of revenue from last year and fulfillment expenses that decreased 370 basis points from last year.

Second quarter operating expenses were 2% lower year-over-year due to lower G&A expenses. Total operating expenses, which include technology, marketing and G&A, represented 42% of revenue in the quarter, versus 51.7% of revenue last year. Adjusted EBITDA for the second quarter was $12.6 million or 12.9% of revenue, versus $3.6 million or 4.4% of revenue in Q2 of last year.

Free cash flow for year-to-date 2026 was negative $21.6 million, versus negative $32.9 million in year-to-date 2025. The improvement versus prior year was primarily due to lower inventory related capital expenditures as well as increased operating income, partially offset by less working capital benefits.

Turning to guidance for 2026. We are reiterating our double-digit revenue growth guidance for the full fiscal year 2026 and reiterating our adjusted EBITDA guidance of 4% to 7% of revenue for fiscal year 2026.

We now expect rental product investment to be in the range of $53 million to $55 million in fiscal year '26, which is down from fiscal year '25 of $75 million, but is an increase from our previous guidance of $45 million to $50 million. The change in this investment amount reflects our plans to remain flexible and dynamic with where we acquire rental inventory and also to ensure key fall events and new product launches in the second half are more fully stocked.

For Q3 2026, we expect revenue to be between $87 million and $90 million, representing between flat to 3% growth versus Q3 2025. As noted earlier, our subscription fee price increases were effective at the beginning of Q3 of '25, and we are now lapping the impact of that in net revenue. Note that our guidance reflects our expectation that active subscribers will be roughly flat in the back half of 2026 and resale revenue will continue to grow in the second half. We also expect reserve orders will grow supported by the increased inventory investment.

We expect Q3 adjusted EBITDA to be between negative 3% and negative 6% of revenue, which is expected to be driven primarily by the normal seasonality of higher subscription pause activations in Q3, which impacts revenue, and the product cost impact of receiving more revenue share inventory during Q3 compared to other quarters.

In conclusion, our second quarter results reflect meaningful financial progress. We delivered record revenue, expanded gross margin and improved year-to-date free cash flow versus the prior year. With this progress, I believe we are well positioned for the back half of '26, and I expect our renewed focus on core fundamentals will support long-term value creation for Rent the Runway.

Before I sign off, I do want to thank Teri for her leadership during this transition. It has been a pleasure to work alongside her, and I believe the operating discipline we are building together is reflected in these results. I'm excited and look forward to partnering with Paige as she steps into the CEO role and continuing the progress we have shared today.

With that, thank you for joining the call today.

This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.

Greetings, and welcome to Rent the Runway's First Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.

I'd now like to turn the conference over to your host, Cara Schembri, General Counsel. Please go ahead.

Hello, everyone, and thanks for joining us today. Before we begin, we would like to remind you that this call will include forward-looking statements. These statements include guidance and underlying assumptions for the second fiscal quarter 2026 -- in the fiscal year 2026, and statements regarding the impact of our business strategies and plans, our ability to drive subscriber growth and customer loyalty in a cost-efficient manner and our planned increases in inventory. These statements are subject to various risks, uncertainties and assumptions that could cause our actual results to differ materially. These risks, uncertainties and assumptions are detailed in today's press release and our Form 10-Q. We have no obligation to update any forward-looking statements or information except as required by law.

During this call, we will also reference certain non-GAAP financial information. The presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for financial information presented in accordance with GAAP. Reconciliations of GAAP to non-GAAP measures can be found in our press release and in our SEC filings.

With that, I'll turn it over to Teri Bariquit, our Interim CEO.

Thank you, Cara, and thank you all for joining today. I want to take a moment to acknowledge what a meaningful and full [indiscernible] at Rent the Runway. As many of you know, Jennifer Hyman, our Co-founder and long-term CEO, stepped down from her role in mid-May after 18 years leading the company. I want to thank Jen on behalf of the Board, our team and everyone on this call. Jen took a bold idea and built it into a category-defining platform that has fundamentally changed how women get dressed and experience fashion. She will remain an adviser to the company through January of '27 to support a smooth position.

Stepping into the interim CEO and President's role at this moment in Rent the Runway's story is truly an honor. For those of you I haven't had a chance to meet yet, I'd like to take a few minutes to introduce a little more about myself.

I joined Rent the Runway's Board of Directors in October of last year and I stepped into the Interim CEO and President role following Jen's departure on May 15. Before joining the Board, I spent 37 years at Nordstrom, most recently as Chief Merchandising Officer, where I led more than 1,200 people across buying, planning, product development and inventory management. As part of the executive team at Nordstrom, I collaborated and worked with supply chain, technology, finance, marketing, human resources, legal, along with Nordstrom and Nordstrom Rack stores and online to deliver the best customer experience and offer.

During my career, my work is centered on 3 things: understanding how customer needs are changing, building durable partnerships with brands, and leading the kind of operational transformations that allow a business to evolve and grow. I plan to bring all 3 of those focuses to my work at Rent the Runway.

I've admired Rent the Runway for a long time now. First, as a retail partner at Nordstrom. Then as a customer who fell in love with what the company makes possible for women. And most recently, as a Board member, working closely with the full Board, Jen and the senior leadership team. I know the strategy, I know the team, and I have confidence in where this company is headed.

I want to underscore my conviction in our core business strategy and in the health of this business. After nearly 40 years in retail, I know that the foundation of any good retail business is the same: putting the customer at the center of everything we do, surrounded by the right products and brands, in the right quantities, easily found by the customers. The inventory transformation this team executed in 2025 was a bold, well-placed at on exactly that principle, and the results are now showing up across the business.

I firmly believe that Rent the Runway is operating from a strong foundation. We had a great first quarter fiscal year '26 where we grew revenue and made progress against our goal to diversify revenue streams. The numbers this quarter show that our strategy is working. Total revenue was $90 million, growing nearly 30% year-over-year and beating guidance of $85 million to $87 million. We also continued to see strong growth in our add-on business, with add-on revenue growing 70% year-over-year and 11% versus prior quarter. This is driven primarily by increasing our percentage of subscribers engaging with our add-on products feature. This signals to us that our customer is loving the assortment and that the membership flexibility we are offering is working.

Spending time with the team over the past several weeks has reinforced what I observed from my Board seat. The customer accession and the merchandising [ muscles ] are real. Partnerships with brands our customers love continue to deepen, and our assortment is doing what we wanted to do, drawing customers in and keeping them engaged. The right brands, right quantities is working.

Where I see the most opportunity ahead is on that third leg of the triad: making this inventory even easier for her to find. As you heard last quarter, 2026 is about discovery. In particular, we are focused on deploying AI to develop, deliver the closet of our customer streams with more choice and more flexibility. We've made some meaningful progress on that promise.

In April, we launched personalized carousel across our platform, now live for all subscribers. She can now discover items similar to her recent favorites and explore a curated For You feed designed to [ whet ] her unique taste. The goal is simple: save her time and make every visit all tailored to her. Impact of these improvements are an 11% increase in hearting behavior for active subscribers.

In May, we innovated with AI imagery to update outdated inventory to more relatable true-to-life visuals that help her picture herself in the item. This increases use on [indiscernible] by 129%.

Also in May, we began internal testing of outfit generation. This allows us to suggest complete looks rather than individual items. We expect this to roll out in the coming months and believe it will meaningfully change how she discovers and rent on Rent the Runway.

A healthy core makes new growth possible. From this position of strength, I want to share my excitement around new revenue streams. We have set an early-stage -- a set of early-stage growth initiatives: our online marketplace, our advertising and media platform and our B2B business. These have real room to scale. We made measurable progress this quarter on several of these initiatives.

Last quarter, we launched a pilot of the RTR Marketplace with a small subset of our most loyal subscribers. Based on what we learned, we expanded access in April, and the Rent the Runway Marketplace is now live to our customers directly from our home page. While this initiative remains nascent and small from a revenue perspective, the early signal is encouraging. Our near-term focus is on integrating it with the core rental experience to make it seamless for subscriber to complete her look and [indiscernible] transaction.

In our advertising and media business, we are seeing meaningful momentum and interest from major partners. Looking at it with fresh eyes, what excites me is the dual nature of the opportunity. Media revenue from brands that recognize the purchasing power and life stage relevance of the RTR customer and a uniquely efficient new channel for subscriber acquisition. We see meaningful room to scale both sides of that equation over time.

And in terms of B2B opportunities, we launched a BD dry cleaning service pilot in Q1. We've made the underlying investments needed to support scaling. And over time, we believe our logistics infrastructure can be a meaningful stand-alone revenue stream. Again, these are just a few of the early initiatives we are exploring.

To help with further commercialization and revenue generation, I am pleased to share new senior leadership appointments. First, I'm pleased to welcome Paige Thomas, a 25-plus year retail veteran, who is joining RTR as our Chief Commercial Officer. Paige's first day was June 1. Second, I'd like to introduce Dave Loretta, our Interim CFO.

Paige has one of the strongest track records in the industry and someone I've known admired for years. Most recently, Paige served as Chief Merchant and Product Innovation Officer at Signet Jeweler, where she led the merchandising strategy, global sourcing, new product innovation across the enterprise. Prior to Signet, she served as President and CEO of Saks OFF 5TH, leading the business through a major repositioning across stores, digital and brand partnerships. Earlier in her career, Paige spent over a decade at Nordstrom, including 5 years leading and scaling Nordstrom Rack as EVP and General Merchandise Manager. There are a few leaders in retail with Paige's blend of strategic muscle, commercial instinct, operational depth and digital fluency. The fact she's choosing to spend this next chapter with Rent the Runway says something about the moment that we are in.

Second, Dave Loretta is joining Rent the Runway as our Interim Chief Financial Officer and Treasurer, while we recruit a permanent leader. His first official day will be next Monday, June 8. Dave brings a deep financial leadership to RTR. Most recently, he served CFO of the Honest Company, and before that, he spent 6 years as CFO of Duluth Trading Company where he led not just finance and accounting, but also inventory planning, strategy and investor relations. Before Duluth, he spent more than a decade at Nordstrom, including roles as President and CFO of Nordstrom Bank and as Corporate Vice President and Treasurer. Dave also ran his own business in the food and beverage industry. That entrepreneurial spirit and instinct combined with his enterprise experience filling public companies' finance functions makes him uniquely a strong fit for Rent the Runway. As we enter this next chapter, the addition of Page and Dave further enhances the depth of our leadership bench.

In closing, I see a real inflection point at Rent the Runway. The inventory focus of 2025 worked. We're seeing net new opportunities across the business that give me confidence in what lies ahead. And we are building for the future, working to deepen discovery through AI, expanding into exciting new categories and strengthening the relationships we have with both our customers and our brand partners. The growth opportunities in front of us are significant and I could not be more excited for what's to come.

As you know, this is his last earnings call with Rent the Runway as CFO. Before I hand it over to Sid, I want to thank him for the impact he's made to improve our financial foundation. He's truly left it better than he found it. Thank you, Sid.

With that, I'm handing it to Sid.

Thanks, Teri, and thank you, everyone, for joining us. I'd like to focus on 3 key topics related to Q1 earnings before providing a more detailed review of results for the quarter. First, I'd like to reiterate the strength of our business in Q1. Second, I want to discuss the deceleration in ending active subscriber growth in the quarter versus prior quarters. Finally, I will address free cash flow for Q1 and why, as evidenced by our adjusted EBITDA and rental product acquired guidance, we continue to expect improved free cash flow for the full fiscal year.

Q1 2026 was a strong quarter for Rent the Runway with almost 30% revenue growth versus Q1 2025. We believe subscription revenue growth was excellent and driven by both higher average revenue per subscriber and higher active subscribers. We saw notable strength in customers adding on extra items in their shipments, indicating to us that customers are happier with the inventory investments we have made in fiscal years '25 and '26. We also saw strength in other revenue driven by increases in our retail business. Finally, despite declining year-over-year, our reserve business exhibited improving trends versus the prior quarter.

Consistent with the expectations shared in our Q4 earnings call, we saw a deceleration in year-over-year ending active subscriber growth in Q1 '26. As we outlined last quarter, the deceleration is largely a function of the tough comparisons we faced in the first half of fiscal '26 due to normalized marketing spending versus Q4 2025 and due to strong promotional activity last year to get customers excited about the significant increases in inventory. I believe that our underlying business drivers remain strong as evidenced by the double-digit revenue growth guidance for fiscal year 2026.

Finally, free cash flow for Q1 '26 was lower than Q1 '25, despite roughly similar levels of adjusted EBITDA and lower inventory-related capital expenditures due to receipts arriving earlier in the fiscal year, cash interest expense and working capital timing. Our April 2026 debt amendment allows us to pay interest in kind through April 2027. As evidenced by our adjusted EBITDA and rental product acquired guidance for fiscal year 2026, we continue to expect improvements in free cash flow in fiscal year '26 versus fiscal year '25 as timing-related factors become less relevant over the full fiscal year.

Let me now review results for the first quarter before turning to Q2 and full year 2026 guidance. We ended Q1 '26 with 155,692 ending active subscribers, up 5.8% year-over-year. Average active subscribers during the quarter were 149,744 subscribers versus 133,468 subscribers in the prior year, an increase of 12.2% year-over-year. Subscriber growth was driven primarily by a higher base of active subscribers at the end of Q4 '25 versus Q4 '24 and higher subscriber acquisitions in Q1 '26 versus Q1 '25, partially offset by higher additions to the [ POS ] subscriber base year-over-year.

Ending active subscribers increased 8.3% from 143,796 subscribers in Q4 '25, primarily due to seasonal factors. Total revenue for the quarter was $89.9 million, up $20.3 million or 29.2% year-over-year and down $1.8 million or 2% quarter-over-quarter. Subscription and reserve rental revenue was up $15.7 million or 25.3% year-over-year in Q1 '26, primarily due to higher average subscribers and higher average revenue per subscriber due to the subscription price increase effective August 1, partially offset by lower reserve revenue versus Q2. Other revenue increased $4.6 million or 60.5% year-over-year, primarily due to significantly high retail revenue.

Fulfillment costs were $23.6 million in Q1 '26 versus $20.4 million in Q1 '25 and $21.6 million in Q4 '25. Fulfillment costs as a percentage of revenue were 26.2% of revenue in Q1 '26, compared to 29.4% of revenue in Q1 '25. Fulfillment costs declined as a percentage of revenue, primarily due to high revenue per order driven by an August price increase and higher retail revenue, partially offset by higher transportation costs as a result of carrier rate increases, higher fuel surcharges and higher warehouse processing costs.

Gross margins were 25.9% in Q1 '26 versus 31.5% in Q1 '25. Q1 '26 gross margins reflect higher revenue share costs as a percentage of revenue due to higher share by RTR inventory levels, partially offset by lower rental product depreciation and write-off costs and lower fulfillment cost as a percentage of revenue.

Q1 '26 gross margins decreased quarter-over-quarter from 38.6% in Q4 '25, primarily due to higher fixed revenue share costs as a percentage of revenue on account of seasonally higher receipts of share by RTR inventory and the impact of lower revenue per order on fulfillment expenses as a percentage of revenue. Q1 '26 operating expenses were 4.9% higher year-over-year due primarily to higher G&A expenses. Total operating expenses, which include technology, marketing and G&A were 45.4% of revenue in Q1 '26 versus 55.9% of revenue in Q1 '25.

Adjusted EBITDA for Q1 '26 was negative $0.8 million or negative 0.9% of revenue versus negative $1.3 million or negative 1.9% of revenue in Q1 '25. The increase in adjusted EBITDA as a percentage of revenue versus the prior year is primarily a result of lower operating expenses as a percentage of revenue and lower fulfillment expenses as a percentage of revenue, partially offset by higher revenue share expenses as a percentage of revenue due to greater share by RTR inventory levels.

Free cash flow for Q1 '26 was negative $13.6 million versus negative $6.4 million in Q1 '25. Free cash flow decreased versus the prior year primarily due to increased cash used in working capital, driven by timing of payments and higher cash interest expense in Q1 '26 versus Q1 '25, partially offset by lower inventory-related capital expenditures.

I will now discuss guidance for Q2 2026 and fiscal year 2026. We are reiterating our double-digit revenue growth guidance for fiscal year '26 versus fiscal year '25. We believe the business is off to a strong start in Q1 '26, building confidence in revenue guidance for the year. We are also reiterating our adjusted EBITDA guidance of 4% to 7% of revenue for fiscal year '26. We also continue to expect rental product acquired to be between $45 million and $50 million in fiscal year 2026.

For Q2, we expect revenue to be between $91 million and $95 million, representing growth of between 12% and 17% versus Q2 '25. Note that our guidance range reflects our decision to preserve inventory for our rental business and the significant increase in our retail business that we saw in Q2 '25. It also assumes a continued decline in the reserve business, our expectations around the timing of subscriber growth and uncertainty around customer reaction to passing along fuel surcharges this fiscal year. We expect Q2 adjusted EBITDA to be between 5% and 8% of revenue.

Finally, I would emphasize that the macroeconomic and geopolitical environment remains highly uncertain, with potential impacts on transportation costs, fuel surcharges and consumer confidence. Our guidance is based on current conditions and assumptions and does not contemplate material deterioration, including from our decision to pass on fuel surcharges to customers or volatility in factors. Accordingly, actual results may differ materially if such conditions change.

Before concluding, I'd like to take a personal moment. As you know, this will be my last earnings call as CFO of Rent the Runway. I believe that Rent the Runway's business is the strongest it's been since I joined the company in mid-2022. I believe that our customers are happier, our growth is solid, expected free cash flow trends continue to improve, and we have a markedly better balance sheet. I want to thank our shareholders for the trust you've extended to me over the years. I also want to thank Jen, Teri and our past and current Board of Directors for their support. It has been a privilege to represent this country -- company. I'm excited about Rent the Runway's return to growth and wish the team the very best going forward. Thank you.

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

Greetings, and welcome to Rent the Runway's Q4 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Cara Schembri, Chief Legal and Administrative Officer. Thank you. You may begin.

Hello, everyone, and thanks for joining us today. During this call, we will make references to our Q4 fiscal year 2025 earnings presentation, which can be found in the Events and Presentations section of our Investor Relations website. Before we begin, we would like to remind you that this call will include forward-looking statements. These statements include guidance and underlying assumptions for the first quarter and fiscal year 2026 and statements regarding our 2026 business plans and initiatives and financial position.

These statements are subject to various risks, uncertainties and assumptions that could cause our actual results to differ materially. These risks, uncertainties and assumptions are detailed in today's press release as well as our filings with the SEC, including our Form 10-K that we plan to file shortly. We have no obligation to update any forward-looking statements or information, except as required by law.

During this call, we will also refer to certain non-GAAP financial information. This presentation of non-GAAP financial information is not intended to be considered in isolation or as a substitute for financial information presented in accordance with GAAP. Reconciliations of GAAP to non-GAAP measures can be found in our press release, slide presentation on our investor website and in our SEC filings. And with that, I'll turn it over to Jen.

Thanks, Cara, and thank you, everyone, for joining today. One year ago, we announced that we were making our biggest inventory investment in Rent the Runway history to drive growth. We made a calculated bet based on over 15 years of data and experience that increasing our inventory investment was the strongest lever to unlock customer growth.

Today, I am proud to report that this strategy has been successful. In fiscal year 2025, we grew our active subscriber base by 20%, ending the year with 144,000 subscribers. Our goal -- our growth was primarily a result of our inventory strategy and a return to customer obsession throughout the company, marked by a year of continuous transformation of our customer experiences and marketing to make Rent the Runway easier to use, more personalized and more centered around our community.

Our customers have responded with record levels of enthusiasm. Our subscription Net Promoter Score grew 39% versus last year and has more than tripled since 2022. We also improved the health of the Rent the Runway model by completing a strategic recapitalization that reduced our total debt from approximately $319 million to $120 million, strengthening our balance sheet and adding investors around the table who are focused on equity value creation.

We believe that the data is clear. More choice leads to higher customer loyalty. Inventory-related cancellations dropped 7.6% year-over-year in Q4, and our engagement metrics from app visits to hearts per subscriber have accelerated throughout the year. Today, our average subscriber visits our app 15 times per month, an almost 50% increase over 2024 levels.

As we enter fiscal year 2026, we remain committed to our inventory focused strategy and are continuing to make large investments in inventory, but are taking it to the next level. If 2025 was about inventory acquisition, 2026 is about discovery. We are working to move beyond the traditional e-commerce grid and leveraging AI technology to deliver the closet of her dreams with more choice and flexibility than ever before.

We are also embarking on a new set of revenue-generating strategies to expand the services we bring to our customers and brand partners, including piloting an online marketplace, launching B2B dry cleaning services, expanding our advertising revenue program and more.

First, I want to take you through our 2026 inventory plan, which is built on three pillars. One, opportunistic procurement. In a tumultuous retail environment, premium brands are seeking immediate liquidation of inventory. We see a rare opportunity for Rent the Runway to access high-cost categories and elevated brands at attractive economics. Two, exclusive design momentum.

Building on the success of 2025, we are expanding our exclusive design partnerships. These collections are designed to provide our customers with brands they demand at roughly 40% lower cost on average; three, revenue share growth. We also expect a significant increase in the number of brands and the overall percentage of inventory in our Share by RTR program, which allows us to scale inventory with lower upfront costs.

To maximize the value of this inventory, we aim to revolutionize the way our customers explore it, reimagining the front-end experience through AI-driven enhancement. Over the next few quarters, we are planning a series of innovative launches designed to improve the customer experience. One, via outfit groupings. Traditional e-commerce often makes you search for one unit at a time in a sea of endless grid pages, which can exhaust the user and drive online conversion to be lower than off-line conversion in retail.

We're working to transform our experience to help our customers discover complete looks and curated aesthetics. Our customer will no longer have to do the work of imagining what combination of items they should rent together or how one would wear a specific item to make it more dressy, more casual, appropriate for the office or vacation ready. Think of this as having a stylist in your pocket at all time.

Two, via a robust PDP. We are also transforming the product detail pages from a traditional landing page into a living experience. This includes adding more visual versatility, seeing items on different models and sizes, images and motions and AI-driven styling and fit advice so customers feel like renting the item is less of a risk for them.

And, three, via conversational search, improving use case search functionality. Ultimately, our vision is a state-of-the-art conversational agent that allows her to search for what to wear to a destination wedding in Italy rather than just moral dress. While our customer-facing AI investments prioritize discovery, we are also focused on leveraging machine learning to improve our back-end operations, which we expect to drive team productivity and margin efficiencies. Via one, quality control. We are integrating AI technology into our quality control processes, which is intended to optimize quality and cost in our operations. By utilizing computer vision to identify wear and tear, we believe we can better salvage inventory, ensuring more units remain in peak rotation for longer while reducing manual labor costs.

Two, via dynamic pricing. We also plan to leverage machine learning to move toward even more efficient dynamic pricing, which we expect to better maximize the yield of the units in our ecosystem. And three, via team productivity. We are also infusing AI into how we work. For example, we are utilizing AI-assisted coding to increase the velocity of our technical team. We expect that this will enable us to ship more product updates and new features like our recent back in-stock notifications faster and more efficiently.

Alongside our technical evolution, our goal is to drive growth in fiscal year 2026 through bold authenticity. The paradigm for brand expansion has shifted. While acquisition via paid ads was once the primary lever, we believe that today's consumers demand more genuine connection. In 2025, we successfully piloted an expansion of our organic community-led channels. Our Muse Program, a community-generated content engine, surpassed 13 million impressions in Q4 alone, while our City Ambassador Program that we launched in October 2025 has scaled rapidly to over 1,000 on the ground evangelists. In full year -- fiscal year 2026, we are reallocating a significant portion of our paid marketing budget to further scale this word-of-mouth engine.

Furthermore, we're leaning into answer engine optimization and SEO strategies designed to ensure Rent the Runway is the top destination for discovery online. By optimizing for how the next generation discovers fashion on TikTok, Instagram and AI search interfaces, we want Rent the Runway to be the premier destination for fashion.

Membership flexibility and revenue optimization. We will also aim to drive higher revenue per customer in 2026 by expanding membership flexibility. In fiscal year 2025, we saw significant success with our subscription add-on business, which accelerated throughout the year, driven by the launch of back-in-stock notifications in Q1, followed by add-on pricing transparency and instant gratification one-off shipments in Q3.

In Q4 2025, our add-on revenue was up 67% versus the prior year. In 2026, we plan to build on this traction by scaling our resale and reserve businesses for our customers through smarter pricing and discounting. Our customer wants more from Rent the Runway, and our goal is to give her the freedom to get exactly what she wants precisely when she wants it.

Lastly, this year, we are aggressively pursuing revenue diversification by leveraging our existing infrastructure and high-value customer base to build a more robust ecosystem. In March, we launched a pilot of our Rent the Runway marketplace with a small subset of our most loyal subscribers. The marketplace is designed to fill the gap that exists in our customers wardrobe between her rental assortment and the total look she desires by providing a highly curated assortment of shoes, shapewear, basics, beauty products and more available for purchase.

The goal is to increase the attach rate of orders by providing the wardrobe essentials that complete her rental book. Our research shows the demand. 86% of members surveyed are interested in purchasing these complementary items from us.

Beyond the closet, we are also focused on scaling our advertising and media business, which we expect to grow significantly this year. While we've tested various iterations of what our media business could look like in prior years, we've seen success with 360-degree brand partnerships, connecting our customers with significant brand partners like Air France, who recognize the value of our highly engaged, high net worth customer who's often at a pivotal life moment where she is making meaningful financial and lifestyle decisions.

Finally, we are taking steps to monetize our best-in-class logistics infrastructure through initiatives like B2B dry cleaning services, which we launched with one partner in March. While these initiatives are all still in early stages, we aim to lay the groundwork to realize meaningful revenue and margin expansion over the coming months and years with this diversification.

In short, we are not sitting still, we are actively working to build a durable multifaceted platform that defines the future of fashion consumption. To conclude, I firmly believe that Rent the Runway is in the strongest position in years, operating from a foundation of financial stability and renewed growth. As we look forward to fiscal year 2026, we are committed to staying at the forefront of the modern consumer experience with a laser focus on defining the next era of fashion discovery by leveraging AI technology, doubling down on authenticity through our community and providing unrivaled flexibility for our customers. With that, I'll hand it over to Sid.

Thanks, Jen, and thank you, everyone, for joining us. I believe that fiscal year 2025 marked an important turning point for Rent the Runway. As Jen mentioned earlier, we accomplished a return to strong ending active subscriber and revenue growth by Q4 and significantly improved our balance sheet. Further, we believe we've set a solid foundation for future growth by adding almost double the new receipts in fiscal year 2025 compared to fiscal year 2024.

Units with inventory per subscriber grew over the course of the year, and we expect that our subscribers will continue to feel the benefits of this inventory investment in the years to come. Fiscal year 2025 also provides a playbook for future growth that we intend to execute on in fiscal year 2026 and beyond through a combination of product and inventory-driven initiatives.

I'd like to take a moment to discuss free cash flow for fiscal year 2025 and why we believe we will see improving trends in fiscal year 2026. The accomplishments described above were accompanied by higher cash consumption with free cash flow declining to negative $46 million in fiscal year 2025 from negative $7.2 million in fiscal year 2024.

The primary reason for this decline is our decision to front-load inventory investments in fiscal year 2025 to more rapidly improve the customer experience and ignite growth. We typically monetize our inventory over several years, and I'm pleased with the results of the additional investments we have seen so far.

As a reminder, subscriber growth is highly free cash flow accretive in the years after a subscriber is acquired, given we only need to replace inventory that is lost, damaged or sold to a subscriber in subsequent years. The replacement cost of that inventory is typically a fraction of the initial investment in inventory we need to make for growth.

We expect to make good underlying progress on both growth and free cash flow in fiscal year 2026. Given the step change in inventory purchases in fiscal year 2025, we don't anticipate significant increases in new inventory receipts in fiscal year 2026. Despite this, we believe that the combination of a large inventory buy in fiscal year '25 and our fiscal year '26 purchases will result in continued improvement in the inventory experience of subscribers in fiscal year 2026.

While we do expect higher revenue share payments in fiscal year 2026 as the base of revenue share inventory increases, we expect significantly lower capital expenditures for rental products. This, combined with a higher subscriber base and the remaining impact of our August 2025 price increase is expected to result in improved free cash flow in fiscal year 2026 as outlined by our adjusted EBITDA and rental product acquired guidance.

In summary, we feel good about our accomplishments in fiscal year 2025 and look forward to continued progress this fiscal year. Let me now review results for the fourth quarter before turning to Q1 and full year 2026 guidance. We ended Q4 '25 with 143,796 ending active subscribers, up 20.1% year-over-year.

Average active subscribers during the quarter were 146,356 subscribers versus 126,148 subscribers in the prior year, an increase of 16% year-over-year. Subscriber growth was driven primarily by a higher base of active subscribers at the end of Q3 '25 versus the same period in fiscal 2024, higher subscriber acquisitions due to higher marketing and promotional activity and improved subscriber retention versus Q4 '24.

Ending active subscribers decreased 3.4% from 148,916 subscribers in Q3 '25, primarily due to seasonal factors. Total revenue for the quarter was $91.7 million, up $15.3 million or 20% year-over-year and up $4.1 million or 4.7% quarter-over-quarter. Subscription and reserve rental revenue was up $13.2 million or 20.4% year-over-year in Q4 '25, primarily due to higher average subscribers and higher average revenue per subscriber due to the subscription price increase effective August 1, partially offset by lower reserve revenue versus Q4 '24. Other revenue increased $2.1 million or 17.8% year-over-year.

Fulfillment costs were $21.6 million in Q4 '25 versus $20.2 million in Q4 '24 and $24 million in Q3 '25. Fulfillment costs as a percentage of revenue was 23.6% of revenue in Q4 '25 compared to 26.4% of revenue in Q4 '24. Fulfillment costs declined as a percentage of revenue primarily due to higher revenue per order driven by our August price increase, partially offset by higher transportation costs as a result of carrier rate increases and higher warehouse processing costs.

Gross margins were 38.6% in Q4 '25 versus 37.7% in Q4 '24. Q4 '25 gross margins reflect lower fulfillment and rental product depreciation and write-off costs as a percentage of revenue, partially offset by higher revenue share costs as a percentage of revenue due to greater Share by RTR inventory levels. Q4 '25 gross margins increased quarter-over-quarter from 29.6% in Q3 '25, primarily due to lower fixed revenue share costs as a percentage of revenue due to seasonally lower receipt of Share by RTR inventory, the impact of higher revenue per order and fulfillment expenses as a percentage of revenue and the impact of a full quarter of the price increase implemented last quarter.

Q4 '25 operating expenses were 3.6% higher year-over-year due primarily to higher technology expenses. Total operating expenses, which include technology, marketing and G&A were 37.9% of revenue in Q4 '25 versus 44% of revenue in Q4 '24 and 45.1% of revenue in Q3 '25. Adjusted EBITDA for Q4 '25 was $18.3 million or 20% of revenue versus $17.4 million or 22.8% of revenue in Q4 '24. Note that adjusted EBITDA margins for Q4 '25 were positively impacted by 2.1% due to the reversal of incentive compensation accruals during the quarter.

The decrease in adjusted EBITDA as a percentage of revenue versus the prior year is primarily a result of higher revenue share expenses as a percentage of revenue due to greater Share by RTR inventory levels, partially offset by lower operating expenses as a percentage of revenue and lower fulfillment costs as a percentage of revenue.

Free cash flow for Q4 '25 was $0.5 million versus $2.1 million in Q4 '24. Free cash flow decreased versus the prior year, primarily due to higher purchases of rental products on account of our inventory strategy for fiscal year 2025. Free cash flow for fiscal year 2025 was negative $46 million compared to negative $7.2 million in fiscal year 2024 on account of the significant investment in inventory to improve customer experience and drive revenue growth.

I will now discuss guidance for Q1 2026 and fiscal year 2026. For Q1, we expect revenue to be between $85 million and $87 million, representing growth of between 22% and 25% versus Q1 '25. The sequential decline in revenue from $91.7 million in Q4 '25 is primarily expected to be driven by lower resale revenue in Q1 '26 versus Q4 '25. Note that this sequential decline in retail revenue is consistent with prior years and reflects higher sales of inventory during the holiday season.

We expect Q1 '26 adjusted EBITDA margins to be between negative 5% and negative 7% of revenue compared to negative 1.9% of revenue in Q1 '25. The decline in adjusted EBITDA margins year-over-year despite higher revenue and the impact of our August '25 -- August price increase primarily reflects significantly higher revenue share expenses. Fixed revenue share payments are expected to be higher in Q1 '26 due to a much larger proportion of inventory receipts from our revenue share channel versus Q1 '25.

We also expect higher variable revenue share expenses due to the higher base of revenue share inventory acquired throughout fiscal year 2025. For fiscal year 2026, we expect double-digit growth in revenue versus fiscal year 2025. I wanted to point out a few factors to keep in mind when thinking about revenue growth this year. First, revenue growth beginning in Q3 '25 was positively impacted by the price increase enacted in August of 2025.

As a result, we expect stronger year-over-year revenue growth in the first half of fiscal 2026 compared to the second half when we begin to face comparisons against prior periods that already have the impact of the price increase. Second, ending active subscriber growth in Q4 '25 of 20.1% versus Q4 '24 was influenced in part by the significant decline in active subscribers towards the end of fiscal year 2024 on account of reductions in marketing spending.

We expect to see a deceleration in year-over-year ending active subscriber growth versus the 20.1% growth seen in Q4 '25 in subsequent quarters as we compare against periods with more robust subscriber additions in fiscal year 2025. Regardless, we feel good about the underlying progress of the business and expect, as mentioned earlier, double-digit revenue growth for the full year.

For fiscal year 2026, we expect adjusted EBITDA to be between 4% and 7% of revenue compared to 7.5% of revenue in fiscal year 2025. We expect full year 2026 adjusted EBITDA as a percentage of revenue to be negatively impacted by a significantly higher mix of revenue share units as a percentage of the new buy versus fiscal year 2025.

This, combined with higher revenue share units received throughout fiscal year 2025 will result in higher revenue share expenses as a percentage of revenue in fiscal year 2026 versus fiscal year 2025. As outlined in our press release, we expect rental products acquired in fiscal year 2026 to be between $45 million and $50 million compared to $74.9 million in fiscal year 2025, a decline of approximately $25 million to $30 million year-over-year.

It is important to think about adjusted EBITDA margins in conjunction with our guidance for rental products acquired through our non-revenue share channels when thinking about the cash impact of our adjusted EBITDA margin guidance for the fiscal year. As you know, revenue share payments are expensed and affect adjusted EBITDA, whereas payments for non-revenue share inventory are reflected as capital expenditures and don't affect adjusted EBITDA.

As our inventory mix continues to shift towards revenue share, our guidance for adjusted EBITDA margins and rental products acquired should be considered together to understand the impact on cash. We feel good about the underlying progress on cash consumption in fiscal year 2026 versus fiscal year 2025.

Finally, I would emphasize that the macroeconomic and geopolitical environment remains highly uncertain with potential impacts on transportation costs, fuel surcharges and consumer confidence. Our guidance is based on current conditions and assumptions, and does not contemplate material deterioration or volatility in these factors. Accordingly, actual results may differ materially if such conditions change.

In conclusion, we're pleased with the improved growth momentum we have seen. I echo Jen's conviction that Rent the Runway is in the strongest position it has been in several years. We look forward to continuing to delight our customers and to driving sustainable growth along with improving free cash flow in the years ahead. Thank you, everyone, for joining us. We look forward to speaking to you next quarter.

Ladies and gentlemen, this concludes today's event. You may disconnect your lines or log off the webcast at this time, and enjoy the rest of your day.

Greetings. Welcome to Rent the Runway Third Quarter 2025 Earnings Call. [Operator Instructions]. Please note that this conference is being recorded. I'll now turn the conference over to Cara Schembri, Chief Administrative Officer and General Counsel. Thank you, Cara. You may now begin.

Hello, everyone, and thanks for joining us today. During this call, we will make references to our Q3 2025 earnings presentation, which can be found in the Events and Presentations section of our Investor Relations website.

Before we begin, we would like to remind you that this call will include forward-looking statements. These statements include guidance and underlying assumptions for the fourth quarter and fiscal year 2025 and statements regarding the recapitalization transactions and our business initiatives. These statements are subject to various risks, uncertainties and assumptions that could cause our actual results to differ materially.

These risks, uncertainties and assumptions are detailed in today's press release as well as our filings with the SEC, including our Form 10-Q that we plan to file shortly. We have no obligation to update any forward-looking statements or information, except as required by law. During this call, we will also reference certain non-GAAP financial information.

The presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for financial information presented in accordance with GAAP. Reconciliations of GAAP to non-GAAP measures can be found in our press release, slide presentation posted on our Investor Relations website and our SEC filings. And with that, I'll turn it over to Jen.

Thanks, Cara, and thank you, everyone, for joining. We've been laser-focused on 2 clear priorities: first, completing the strategic recapitalization of the business to significantly strengthen our balance sheet; second, bringing the business back to growth through a new inventory strategy, increased product innovation and improved connection to our core customer.

Now that we are here in Q3, I'm pleased to say we've delivered on both of these goals. We've strengthened our financial foundation by reducing our total debt from approximately $319 million to approximately $120 million and extending the maturity to 2029, giving us years of additional runway. With the recapitalization to highly respected private equity firms with deep experience in the consumer retail space, Nexus and STORY3, alongside our long-term existing lender, contributed new capital to further support the business and its growth initiatives. In addition, they will join us in the boardroom to provide their expertise and support.

And importantly, the Rent the Runway business is growing again. We are on track for 11% to 14% year-over-year revenue growth in Q4, up from 1% revenue growth year-over-year in Q4 2024. Q3 fiscal year '25 ending active subscribers grew 12% year-over-year as our base of inventory has grown, and we have enhanced the customer experience. Importantly, despite raising prices in August, we continue to see improvement in both acquisition and retention versus the prior year. We believe that customers are responding positively because the end-to-end experience on our app discovering inventory, personalization and getting the inventory you want is better, and that shows up first in retention as existing customers are the first to notice.

Inventory-related cancellations, which are related to availability, selection and quality year-to-date is down over 20% year-over-year and in Q3, it was down nearly 30% versus last year. We track 3 important input metrics that are indicators of customer engagement, Net Promoter Score, visits and heart, all of which are up. Our Q3 subscription Net Promoter Score was up 43% year-over-year, 67% versus Q3 2023 and 100% versus Q3 2022. We believe that this demonstrates a multiyear rebuild of customer trust.

Customer engagement is at its highest level in recent years. The average active subscriber visited our app over 20x per month in Q3, which is 34% higher year-over-year. Hearts per subscriber, one of the most important inputs to loyalty as we see them as proof of the customer finding and loving the inventory are up 15% year-over-year in Q3. And because she's more engaged, she is willing to spend more money with us.

Revenue per subscriber is also up driven primarily by our August 2025 price increase, changes to our late fee policy and the accelerated performance of our add-on business. To give our subscription programs even more flexibility, we optimize the add-on experience by clearly displaying to our subscribers that our pricing is prorated based on her billing cycle.

This strategic clarity, along with the improved inventory experience, drove a 17% year-over-year increase in the subscription add-on rate in Q3 2025. We also recently launched an instant gratification feature, which transforms in-stock notifications into immediate revenue by allowing one-off orders of inventory when she's out of shipments. We believe that our subscriber base is willing to pay more for immediate access to the inventory she wants when she wants it.

In Q3, we rolled out some meaningful changes designed to improve the customer experience, driving growth and customer satisfaction. Key highlights include: one, a personalized homepage redesign on our app aimed at shifting discovery to her preferences, since launch engagement with our new homepage is up 57% versus the prior version. A reminder that a major focus this year has been not only on increasing inventory supply at our site, but also making it easier for customers to discover relevant inventory and add to that.

Two, a better onboarding experience for early term subscribers with the aim to increase loyalty. We launched several features for new users to help educate her about RTR and to give us information about her style. RTR 101 is a step-by-step side for new subscribers to progressively guide and handhold them in for early days. We also added a heart and quit for her to give us quick feedback on style she likes or doesn't like, which we use to personalize her experience. Early results show this future increasing average hearts by 70%.

Three, add on pricing transparency and one-off shipments to drive incremental revenue per subscriber, creating more visibility around pricing and the value she's getting by adding on items to her order has significantly boosted add-on revenue. One-off shipments is the first time you've ever been able to add one-off items, ASAP when you're out of swaps for the month. The goal is to give her more flexibility to rent what she wants when she wants.

Number four, better search and discovery experiences. We launched a detailed taxonomy, which provided an incremental 70 pathways for her to explore the inventory and we leaned into machine learning capabilities to drastically improve similar style recommendations, resulting in a 70% increase in click-through rates. We continue to see that mainstream adoption of secondhand closing is growing and women from all geographies and backgrounds are now embracing and considering rental more than ever. The TAM has continued to grow and I have conviction that Rent the Runway is the brand with a clear long-term advantage.

To sustain this growth, our focus now turns to improving customer acquisitions. First, we are focused on making key marketing even more efficient through channel diversification and better creative. Our early results show meaningful improvements in CPA and conversion. Second and more importantly, we are shifting more acquisitions towards organic community-driven channels. Historically, over 80% of Rent the Runway's acquisition came from word-of-mouth. As pay channels have grown more expensive and less efficient, this shift is not only strategic, it is a return to our roots.

RTR pioneers the belief that the most powerful marketing channel is an obsessed customer. We bring our model and our brand around that principle. Exceptional customer experience fuel advocacy, our depth and breadth of inventory on moments worth sharing community behaviors like reviews, photos, events and referrals, scale organically, and our brand identity reflects her aspirations so she sees herself enough.

Today, we have conviction that we have the building blocks in place to reignite organic growth at scale. We've defined 4 pillars: one, activate our communities so they feel seen and crowd to share; two, make sharing fun and easy; three, tell authentic personality-driven stories; and four, create and own the cultural conversation around rental.

Our Muse program, the community-driven content engine launched this year has already generated 10 million impressions in Q3. Thousands of posts showcase the product in real life. And when we use this content in paid channels, it delivers a 20% lower CPA and 40% higher conversion than other creative. Our City Ambassador program launched in October and scaled rapidly to 875 ambassadors. In just over 2 months, they produced over 2,700 reviews and several hundred referrals. Their referral rate is significantly higher than what we see with regular subscribers.

These are passionate users acting as on the ground evangelists for our brands. We told you we would recapitalize the business and significantly increase our inventory in order to reignite growth. We've done that. And today, our Q3 results are clear. Retention improved, NPS increased, engagement accelerated, community passion is stronger and subscriber growth was robust even with the price increase.

I'm confident that this is what it looks like when the Rent the Runway experience gets better and when the fundamentals of the model begin to reaccelerate. We are focused on building a larger, healthier and more durable business, one that grows through exceptional customer experience and passionate community advocacy. Thank you for joining us today. With that, I'll turn it over to Sid.

Thanks, Jen, and thank you, everyone, for joining us. I'd like to discuss 3 topics before turning to business results. Our continued growth momentum, cash consumption this year and our recently closed recapitalization transactions.

Let's begin with growth. As evidenced by Q3 results, subscriber growth continued to be strong, with 12.4% growth versus Q3 '24, even with the August 1 price increase. Revenue growth improved considerably from negative 7.2% in Q1 '25 and 2.5% in Q2 '25 to 15.4% in Q3 '25.

Subscription growth was the strong driver of total revenue growth in light of weakness in our reserve business. As outlined in our guidance, we expect continued strong revenue growth in Q4. We believe that our investment in inventory this year is driving accelerated growth and improved customer satisfaction. We are growing without spending significantly more year-over-year in paid marketing, which we believe highlights the strength of the retention improvements we have seen.

Second, we've been transparent about our fiscal year '25 goals to invest in inventory to improve customer experience and accelerate growth, which is driving increased cash consumption from near breakeven levels in fiscal year 2024. This rental product investment is directly visible in lower gross margins at approximately 29.6% this quarter versus 34.7% during the same quarter last year.

As we discussed over the last 2 earnings calls, we have nearly doubled our units of inventory purchase this fiscal year. At this time, we do not expect increases in inventory receipts of this magnitude in fiscal year '26. We have continued to make progress in acquiring inventory on better terms, especially through share by RTR program. We believe our incremental margins are solid even at current levels. Over time, we expect the combination of growth and these inventory cost improvements to deliver improved cash flow generation.

Finally, let me discuss the completion of the recapitalization transactions we announced in August. The transactions provide Rent the Runway with additional financial flexibility to execute on our growth plan by reducing our debt burden and by extending our debt maturity. We also believe that we will benefit from the considerable experience and fresh perspective that new members of our Board of Directors will bring.

Let me now review results for the third quarter before turning to Q4 and full year 2025 guidance. We ended Q3 '25 with 148,916 ending asset subscribers, up approximately 12.4% year-over-year. Average active subscribers during the quarter were 147,645 subscribers versus 130,796 subscribers in the prior year, an increase of 12.9% year-over-year.

Subscriber growth was driven primarily by a higher base of active subscribers at the end of Q2 '25 versus the same period in fiscal 2024, higher subscriber acquisitions due to higher promotional activity and improved subscriber retention versus Q3 '24. Ending active subscribers increased 1.7% from 146,373 subscribers in Q2 '25.

Total revenue for the quarter was $87.6 million, up $11.7 million or 15.4% year-over-year and up $6.7 million or 8.3% quarter-over-quarter. Subscription and reserve rental revenue was up $10.7 million or 16.1% year-over-year in Q3 '25, primarily due to higher average subscribers and higher average revenue per subscriber due to the subscription price increase effective August 1, partially offset by lower reserve revenue versus Q3 '24.

Other revenue increased $1 million or 10.4% year-over-year. Fulfillment costs were $24 million in Q3 '25 versus $21.4 million in Q3 '24 and $22.5 million in Q2 '25. Fulfillment costs as a percentage of revenue were 27.4% of revenue in Q3 '25 compared to 28.2% of revenue in Q3 '24. Fulfillment costs declined as a percentage of revenue, primarily due to higher revenue per order driven by our August price increase, partially offset by higher transportation costs as a result of carrier rate increases and higher warehouse processing costs.

Gross margins were 29.6% in Q3 '25 versus 34.7% in Q3 '24. Q3 '25 gross margins reflect higher revenue share costs as a percentage of revenue due to greater share by RTR inventory levels, partially offset by lower fulfillment and rental product depreciation and write-off costs as a percentage of revenue. Q3 '25 gross margins decreased quarter-over-quarter from 30% in Q2 '25, primarily due to higher revenue share costs as a percentage of revenue.

Q3 '25 operating expenses were 7% higher year-over-year due primarily to higher employee expenses. Total operating expenses, which include technology, marketing and G&A were 45.2% of revenue in Q3 '25 versus 48.7% of revenue in Q3 '24 and 51.7% of revenue in Q2 '25. Adjusted EBITDA for Q3 '25 was $4.3 million or 4.9% of revenue versus $9.3 million or 12.3% of revenue in Q3 '24. The decrease in adjusted EBITDA versus the prior year is primarily a result of higher revenue share expenses due to greater share by RTR inventory levels.

Free cash flow for Q3 '25 was negative $13.6 million versus negative $3.4 million in Q3 '24. Free cash flow decreased versus the prior year, primarily due to lower adjusted EBITDA and higher purchases of rental products on account of our inventory strategy for fiscal year 2025.

I will now discuss guidance for Q4 2025 and fiscal year 2025. For Q4, we expect revenue to be between $85 million and $87 million. We expect adjusted EBITDA margins to be between 11% and 13% of revenue. For fiscal year 2025, we continue to expect double-digit growth in ending active subscribers. We expect fiscal year 2025 revenue to be between $323.1 million and $325.1 million. We expect adjusted EBITDA margins to be between 4.9% and 5.5% of revenue.

We continue to expect free cash flow to be lower than negative $40 million primarily due to costs associated with the recapitalization transaction. We believe our business is showing improved momentum as evidenced by growth in the active subscriber base, and we plan to prudently manage investments to continue to drive growth for the rest of fiscal year 2025.

In conclusion, we're pleased with the improved growth momentum we have seen this year. I believe that Rent the Runway is in the strongest position it has been in several years. We look forward to continuing to delight our customers and to driving sustainable growth in the years ahead. Thank you, everyone, for joining us. We look forward to speaking to you next quarter.

Thank you. This concludes today's conference. You may now disconnect your lines at this time. We thank you for your participation, and have a wonderful day.

Greetings, and welcome to Rent the Runway's Quarter 2 2025 Earnings Conference Call. [Operator Instructions]

Please note this conference is being recorded. I would now like to turn the conference over to Cara Schembri. Thank you. You may begin.

Hello, everyone, and thanks for joining us today. During this call, we will make references to our Q2 2025 earnings presentation, which can be found in the Events and Presentations section of our Investor Relations website.

Before we begin, we would like to remind you that this call will include forward-looking statements. These statements include guidance and underlying assumptions for the third quarter and fiscal year 2025 and statements regarding the recapitalization transactions. These statements are subject to various risks, uncertainties and assumptions that could cause our actual results to differ materially. These risks, uncertainties and assumptions are detailed in today's press release as well as our filings with the SEC, including our Form 10-Q that we plan to file in the coming days. We have no obligation to update any forward-looking statements or information, except as required by law.

During this call, we will also reference certain non-GAAP financial information, the presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for financial information presented in accordance with GAAP. Reconciliations of GAAP to non-GAAP measures can be found in our press release, slide presentation posted on our Investor Relations website and in our SEC filings.

And with that, I'll turn it over to Jen.

Good afternoon. Rent the Runway had a busy Q2 and an even busier start to Q3. I'm excited to provide an update today on 3 things: First, our recently announced recapitalization plan; second, the continued growth we're seeing in the business; and finally, the results we're seeing from our focus on customer experience.

Let's start with the recapitalization plan we announced on August 21 that is designed to strengthen our balance sheet and inject fresh capital into the business. Our longtime existing lender, Aranda Principal Strategies or APS is partnering with 2 highly respected private equity firms with deep experience in the consumer retail space. STORY3 Capital Partners and Nexus Capital Management on a plan that will reduce our total debt from over $340 million to approximately $120 million. APS will convert a substantial portion of its original debt investment into common equity ownership. And APS, STORY3 and Nexus will contribute new capital to further support the business and its growth initiatives. The maturity on the debt will also be extended to 2029, giving us years of additional runway. And we will proudly remain a public company and trade under the ticker RENT on NASDAQ. This transaction sets us up to have significantly stronger and healthier balance sheet, which means more financial flexibility to lean into the market we created 15 years ago. Since COVID, I believe that our capital structure has been the thing holding us back from making a full comeback and we're happy to be moving forward into a new chapter. We're ready to be reacquainted with the investor community, and I view this as our IPO 2.0. We currently expect the deal to be consummated by December 31 of this year, and I encourage you to read our SEC filings in detail for more information. Overall, I see this as a very positive step forward for the company. we will no longer be burdened with an unsustainable amount of debt and expect to be in a much stronger position to deliver value to shareholders.

Now let's shift gears and talk about the continued growth and positive signs we're seeing across the business. Over the last 2 earnings calls, I've outlined our plan to capture subscribers and grow the business through a new inventory strategy, increased product innovation and an improved connection with our core customer. Significant business transformations typically take place over a long time horizon. However, over the last several months, we've made swift progress and delivered results quickly. We believe that our strategy continues to show strong signals that it's working, and we are successfully executing against it. Here are some of the areas where we're seeing major improvements. Subscriber growth continued. We ended Q2 with 146,400 Active Subscribers, a 13.4% year-over-year increase, accelerating from negative 4.9% in Q4 2024 and 0.9% in Q1 2025. Q2 2025 year-over-year acquisition growth accelerated as compared to Q1 2025 and Q4 2024. Retention continued to be higher than the prior year. These results show that we're adding more subscribers in a significant way and subscribers are more likely to stay with the service for longer periods of time, both very promising indicators.

We're also seeing great progress in the overall customer experience with our historic investment in inventory starting to meaningfully make its way to customers in Q2. Put simply, there is a large amount of new inventory hitting the platform for customers to browse and rent. As of August, we posted almost twice the inventory units we did in the prior year. In May, we posted 323% more styles versus the year prior. In June, that number was 235% and in July, 253% year-over-year, meaning each month our customers are seeing and getting to rent more styles from more of the brands they desire. Year-to-date, we've added 2,200 new styles and have added 56 new brands to the platform. Marking a massive improvement in the customer experience when she goes to fill her next order, and subscribers are loving this newness. Engagement with the new inventory in Q2 overperformed last year across every key metric. This includes share of views, up 84% year-over-year, heart per style, up 15% year-over-year and new units at home, up 57% year-over-year. Our average subscription Net Promoter Score in Q2 was also at the highest level in 3 years and up 77% versus the prior year. We are also continuing to partner with amazing brands who are increasingly recognizing the strength of our customer, the reach of our platform and the power of our marketing capabilities.

Revenue share units from existing revenue share partners are up 40% year-over-year, and total revenue share units are up 119% year-over-year.

Overall, we're adding 80-plus new brands in full year 2025, with 56 already launched in the first half, and we're seeing growing interest in deeper marketing collaborations. Year-to-date, we've launched 7 new exclusive brand collaborations at an average of 40% lower cost to the brand's own wholesale collection. And as of August, 27 brands and partners have already started testing affiliate e-mails with Rent the Runway, where we drive our subscribers to purchase from the brands via the links included in RTR e-mails. Brands continue to love working with us and see us as a valuable marketing channel. These signs are all very encouraging that our inventory strategy is paying off, and we'll be continuing to add more inventory throughout the year as the summer ends and the cooler weather sets in throughout much of the U.S.

In addition to inventory, we've also been laser-focused on tangible and continuous improvement to our customer experience as well as shifting our marketing towards organic growth fueled by our own community on our platform, social and in real life. As part of our organic social media strategy, we are trying new strategies to reach our customers with authentic engaging content. As a result, acquisitions from organic channels had the best performing quarter in years. Overall, engagement with our social media channels is up 796% and views are up 175% year-over-year. We launched 11 new social series and continue to lean into our new face of Rent the Runway and influencer engagement strategy. We're meeting our customers where they are on Instagram, TikTok and Reddit. We've also brought our members together for exclusive events. In Q2, we hosted 12 events with 1,200-plus of our subscribers attending in person. Demand for these events was 3x capacity. Huge part of the customer experience is the experience she has when opening our app or visiting our website, and we've continued to focus on product innovation. We have redefined the subscription experience to be more personalized, rewarding and engaging. In Q2, we launched a personalized home screen with contextual education, a rewards program with tiered membership perks, the ability to preview [ in ] heart coming soon styles and a feature that highlights real members with curates curated styles. Looking forward, product improvements will focus on incorporating more personalized recommendations such as my most loved designers and my recent hearts, and using AI for review summaries and fit improvements to build a continuously improved product for our customers.

Before I hand it over to Sid, I wanted to note that for the first time in 3 years, we made a change to the prices of our subscription plans on August 1, to account for inflationary pressures and tariffs in the fashion industry. On average, the cost has increased by $2 per item, and our most popular plan, the 2 Swaps plan went from $144 a month to $164 a month, a 14% increase. This price increase allows us to deliver an exceptional customer experience while remaining the best deal in fashion. We communicated the change clearly to customers and thus far, the impact has been in line with expectations. I want to thank everyone who has believed in Rent the Runway over the past 15 years. We are excited to write the next chapter in our story.

With that, I'll hand it over to Sid.

Thanks, Jen, and thank you, everyone, for joining us. I want to begin by highlighting 3 key points. First, this quarter is beginning to show the tangible results of our strategy to significantly invest in inventory this fiscal year. Year-over-year Ending Active Subscriber growth accelerated from 0.9% in the first quarter to 13.4% in the second quarter compared to the prior year. We continue to be encouraged by improving subscriber acquisitions even after taking into account higher promotional activity versus Q2 2024, indicating to us that new customers are starting to notice our improved assortments.

Year-over-year retention trends also continue to be solid. We believe even more strongly that an improved inventory experience is critical to driving subscriber growth. Second, the recapitalization transactions we announced on August 21, 2025, are important validation of our inventory strategy this year and a key step forward for our ability to continue to invest in improving our customers' experience. As Jen highlighted, assuming all closing conditions are met, there will be a significant cash infusion to the business and our debt balance will be markedly reduced. Interest expense will decline and maturity will be extended into 2029. Also, as existing shareholders will note, conversion of existing debt will occur at a meaningful premium to the stock price in the period preceding the August 21 announcement.

Finally, we think continued investment in inventory represents the best way to drive sustainable revenue growth and free cash flow generation. We believe that growth is what is required to drive fixed cost leverage, a key ingredient to cash generation. We have conviction that the company is on the right track to generate strong medium- and long-term performance.

I will now review results for the second quarter before providing full year 2025 guidance. We ended Q2 25 with 146,373 Ending Active Subscribers, up approximately 13.4% year-over-year. Average Active Subscribers during the quarter were 146,765 subscribers versus 137,455 subscribers in the prior year, an increase of 6.8%. Year-over-year subscriber growth was driven primarily by higher subscription acquisitions versus Q2 '24, higher promotional activity and improved subscriber retention in Q2 '25 versus Q2 '24. Ending Active Subscribers decreased slightly from 147,157 subscribers at the end of Q1 '25 due primarily to seasonally lower subscriber acquisition and retention in Q2 '25 versus Q1 '25.

Total revenue for the quarter was $80.9 million, up $2 million or 2.5% year-over-year and up $11.3 million or 16.2% quarter-over-quarter.

Subscription and reserve rental revenue was up $0.7 million or 1% year-over-year in Q2 '25, primarily due to higher average subscribers offset partially by lower average revenue per subscriber versus Q2 '24.

Other revenue increased $1.3 million or 12.5% year-over-year. Fulfillment costs were $22.5 million in Q2 '25 versus $20.6 million in Q2 '24 and $20.4 million in Q1 '25. Fulfillment costs as a percentage of revenue were 27.8% of revenue in Q2 '25 compared to 26.1% of revenue in Q2 '24. Fulfillment costs primarily reflect higher transportation costs as a result of carrier rate increases and higher warehouse processing costs.

Gross margins were 30% in Q2 '25 versus 41.1% in Q2 '24. Q2 gross margins reflect higher revenue share costs as a percentage of revenue due to greater Share by RTR inventory in addition to higher fulfillment costs as a percentage of revenue. Q2 '25 gross margins decreased quarter-over-quarter from 31.5% in Q1 '25 due primarily to higher revenue share costs as a percentage of revenue partially offset by lower fulfillment costs as a percentage of revenue versus Q1 '25. Sequentially, lower fulfillment costs as a percentage of revenue reflects higher sales of inventory compared to Q1 '25.

Operating expenses were 8% higher year-over-year due primarily to transaction-related expenses. Total operating expenses, which include technology, marketing and G&A, were 51.7% of revenue in Q2 '25 versus 49% of revenue in Q2 '24 and 55.9% of revenue in Q1 '25.

Adjusted EBITDA for Q2 '25 was $3.6 million or 4.4% of revenue versus $13.7 million or 17.4% of revenue in Q2 '24. The decrease in adjusted EBITDA versus the prior year is primarily a result of higher revenue share expenses.

Free cash flow for Q2 '25 was negative $26.5 million versus negative $4.5 million in Q2 '24. Free cash flow decreased versus the prior year primarily due to lower adjusted EBITDA and higher purchases of rental product on account of our inventory strategy for fiscal year 2025.

I will now discuss guidance for Q3 '25 and fiscal year 2025. For Q3, we expect revenue to be between $82 million and $84 million. We expect adjusted EBITDA margin to be between negative 2% and 2% of revenue. For fiscal year 2025, we continue to expect double-digit growth in Ending Active Subscribers. We now expect free cash flow to be lower than negative $40 million primarily due to costs associated with the recapitalization transactions. We believe our business is showing improved momentum as evidenced by growth in the Active Subscriber base, and we plan to prudently manage investments to continue to drive growth for the rest of fiscal year 2025.

In conclusion, we believe that Rent the Runway is in the strongest position it has been in several years. We look forward to embarking on the next chapter of building sustainable growth and to taking even better care of our customers going forward. Operator?

And with that, ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.

Thanks, everyone, for joining us.