arhs-20230930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

(Amendment No. 2)

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-41009

Arhaus, Inc.

(Exact name of registrant as specified in its charter)


Delaware						87-1729256
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

51 E. Hines Hill Road, Boston Heights, Ohio

(Address of Principal Executive Offices)

44236

(Zip Code)

(440) 439-7700

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A common stock, $0.001 par value per share	ARHS	The Nasdaq Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☒
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

As of October 27, 2023 the registrant had 53,167,306 shares of Class A common stock and 87,115,600 shares of Class B common stock outstanding.

EXPLANATORY NOTE

Amendment No. 1

On March 11, 2024, Arhaus, Inc. (the “Company”) filed Amendment No. 1 on Form 10-Q/A (“Amendment No. 1”) to its Quarterly Report on Form 10-Q for the period ended September 30, 2023 (the “Q3 Form 10-Q” and such period, the “Affected Period”), filed with the U.S. Securities and Exchange Commission (the “SEC”) on November 2, 2023 to amend and restate its previously issued unaudited condensed consolidated financial statements for the Affected Period due to an identified error within the unaudited condensed consolidated balance sheet as of September 30, 2023 related to certain leasehold and landlord improvements prior to showroom completion being incorrectly included in prepaid and other current assets rather than property, furniture and equipment, net. The error resulted in inaccurate cash flows ascribed to operating and investing activities in the unaudited condensed consolidated statement of cash flows for the nine months ended September 30, 2023.

Amendment No. 2

The Company is filing this Amendment No. 2 on Form 10-Q/A (“Amendment No. 2”) to its Q3 Form 10-Q for the Affected Period as further described below:

As disclosed in the Company’s Current Report on Form 8-K filed on April 29, 2024, the Company is amending and restating its previously issued unaudited condensed consolidated financial statements for the Affected Period. In preparation of the March 31, 2024 unaudited condensed consolidated financial statements, the Company identified an additional error within the unaudited condensed consolidated balance sheet as of September 30, 2023, related to certain cash receipts from landlord reimbursements prior to showroom completion being incorrectly included in property, furniture and equipment, net. The errors also resulted in inaccurate cash flows ascribed to operating and investing activities in the unaudited condensed consolidated statement of cash flows for the nine months ended September 30, 2023. The unaudited condensed consolidated financial statements are being amended and restated to correct these errors in this Amendment No. 2.

In connection with the restatements of the Company’s unaudited condensed consolidated financial statements for the Affected Period, the Company determined it is appropriate to correct for certain other immaterial errors.

The Company has also revised the unaudited condensed consolidated balance sheet as of December 31, 2022 and the unaudited condensed consolidated statement of cash flows for the nine months ended September 30, 2022 to correct for the errors described above as well as for certain other errors, which were considered immaterial both individually and in the aggregate to such unaudited condensed consolidated financial statements.

For more detailed financial information related to the restatements and revisions included in this Amendment No. 2, refer to Note 1 in the Notes to Condensed Consolidated Financial Statements (Unaudited) – Nature of Business and Basis of Presentation. The following sections have been amended to reflect these restatements:

•Part I – Item 1. Financial Statements of Arhaus Inc, and Subsidiaries

•Part I – Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

•Part II – Item 4. Controls and Procedures

•Part II – Item 6. Exhibits

The Company’s management has previously concluded and disclosed that the Company's disclosure controls and procedures were not effective due to the existence of material weaknesses in the Company’s internal control over financial reporting ("ICFR"). The Company has evaluated the impact of the errors described above on its ICFR and concluded the existing material weaknesses resulted in these errors.

Further, in accordance with Rule 12b-15 under the Securities Exchange Act of 1934, as amended, the Company is including currently dated certifications from its chief executive officer and chief financial officer with this Amendment No. 2. These certifications are filed or furnished, as applicable, as Exhibits 31.1, 31.2, 32.1 and 32.2.

This Amendment No. 2 sets forth the original Q3 Form 10-Q in its entirety, as amended to reflect the restatements and revisions of both Amendment No. 1 and Amendment No. 2. Except as specifically noted above, this Amendment No. 2 does not modify, amend or update disclosures in the original Q3 Form 10-Q and this Amendment No. 2 does not reflect events occurring after the filing of the original Q3 Form 10-Q or modify or update any other disclosures.

This Amendment No. 2 should be read in conjunction with the Company’s filings with the SEC subsequent to the date on which the original Q3 Form 10-Q was filed.

Table of Contents


		Page
Part I - Financial Information		2
Item 1.	Financial Statements of Arhaus, Inc. and Subsidiaries	2
	Condensed Consolidated Balance Sheets (As Restated) (unaudited)	2
	Condensed Consolidated Statements of Comprehensive Income (unaudited)	3
	Condensed Consolidated Statements of Changes in Stockholders’ Equity (unaudited)	4
	Condensed Consolidated Statements of Cash Flows (As Restated) (unaudited)	6
	Notes to Condensed Consolidated Financial Statements (unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4.	Controls and Procedures	30
Part II. Other Information		33
Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 3.	Defaults Upon Senior Securities	33
Item 4.	Mine Safety Disclosures	33
Item 5.	Other Information	33
Item 6.	Exhibits	34
Signatures		35

Part I - Financial Information

Item 1. Financial Statements of Arhaus, Inc. and Subsidiaries


Arhaus, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (Unaudited, amounts in thousands, except share and per share data)


	September 30, 2023		December 31, 2022
	As Restated
Assets
Current assets
Cash and cash equivalents	$	236,930	$	145,181
Restricted cash equivalents	3,465		7,346
Accounts receivable, net	1,962		1,734
Merchandise inventory, net	268,960		286,419
Prepaid and other current assets	23,271		20,524
Total current assets	534,588		461,204
Operating right-of-use assets	309,572		257,347
Financing right-of-use assets	39,480		38,522
Property, furniture and equipment, net	199,589		152,268
Deferred tax asset	16,585		16,841
Goodwill	10,961		10,961
Other noncurrent assets	3,081		2,252
Total assets	$	1,113,856	$	939,395

Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	58,138	$	62,636
Accrued taxes	13,134		12,256
Accrued wages	12,015		20,860
Accrued other expenses	51,479		36,760
Client deposits	212,406		202,587
Current portion of operating lease liabilities	41,248		39,970
Current portion of financing lease liabilities	925		531
Total current liabilities	389,345		375,600
Operating lease liabilities, long-term	355,808		295,657
Financing lease liabilities, long-term	54,010		51,835
Deferred rent and lease incentives	2,032		2,272
Other long-term liabilities	4,173		4,336
Total liabilities	$	805,368	$	729,700
Commitments and contingencies (Note 9)
Stockholders' equity
Class A shares, par value $0.001 per share (600,000,000 shares authorized, 52,749,450 issued and 52,666,334 outstanding and 51,437,348 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively)	52		51
Class B shares, par value $0.001 per share (100,000,000 shares authorized, 87,115,600 shares issued and outstanding as of September 30, 2023 and December 31, 2022)	87		87
Retained earnings	114,076		20,053
Additional paid-in capital	194,273		189,504
Total Arhaus, Inc. stockholders' equity	308,488		209,695
Total liabilities and stockholders' equity	$	1,113,856	$	939,395

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Arhaus, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

(Unaudited, amounts in thousands, except share and per share data)


	Nine months ended September 30,				Three months ended September 30,
	2023		2022		2023		2022
Net revenue	$	943,696	$	872,595	$	326,229	$	320,030
Cost of goods sold	544,481		505,561		195,372		183,739
Gross margin	399,215		367,034		130,857		136,291
Selling, general and administrative expenses	275,890		246,767		106,977		89,145

Income from operations	$	123,325	$	120,267	$	23,880	$	47,146
Interest expense (income), net	(1,731)		3,367		(1,080)		751

Other income	(738)		(584)		(78)		(109)
Income before taxes	125,794		117,484		25,038		46,504
Income tax expense	31,771		27,851		5,297		9,568
Net and comprehensive income	$	94,023	$	89,633	$	19,741	$	36,936


Net and comprehensive income per share, basic
Weighted-average number of common shares outstanding, basic	139,365,870		137,939,577		139,628,776		138,484,495
Net and comprehensive income per share, basic	$	0.67	$	0.65	$	0.14	$	0.27
Net and comprehensive income per share, diluted
Weighted-average number of common shares outstanding, diluted	140,021,670		139,545,802		140,140,899		139,845,333
Net and comprehensive income per share, diluted	$	0.67	$	0.64	$	0.14	$	0.26

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


Arhaus, Inc. and Subsidiaries Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited, amounts in thousands)

SEC Form 10-Q/A filed by Arhaus Inc. (Amendment)