Arhaus, Inc.

Greetings, ladies and gentlemen, and welcome to Our House, Inc. fourth quarter and full year of 2022 earnings call. At this time, all participants are in listen-only mode. The question and answer session will follow the prepared remarks. As a reminder, this conference is being recorded. I would now return the conference over to your host, Wendy Watson, Senior Vice President, of investor relations.

Good morning, and thank you for joining the Our House fourth quarter and full year 2022 earnings call. On with me today are John Reed, co-founder, chairman, and chief executive officer, Jen Porter, chief marketing and e-commerce officer, and Don Phillipson, chief financial officer. John will start with a summary of the main points we made in this morning's press release, along with operational details. Jen will discuss the status of our marketing initiatives, and Dawn will cover our financial performance and our outlook for 2023. We will then open the call to questions. During Q&A, please limit to one question and one follow-up. If you have additional questions, please return to the queue. We issued our earnings press release and our 10-K for the year ended December 31, 2022, before market opened today. These documents are available on our investor relations website at ir.rhouse.com. A replay of the call will be available on our website within 24 hours. As a reminder, remarks today concerning future expectations, events, objectives, strategies, trends, or results constitute forward-looking statements. Actual results or events may differ materially due to a number of risks and uncertainties. For a summary of these risk factors and additional information, please refer to this morning's press release and the cautionary statements and risk factors described in our annual report on Form 10-K, as such factors may be updated from time to time in our filings with the SEC. The forward-looking statements are made as of today's date, and except as may be required by law, the company undertakes no obligation to update or revise these statements. We will also refer to certain non-GAAP financial measures, and this morning's press release includes the relevant non-GAAP reconciliations. I will now turn the call over to John.

Good morning, everyone, and thank you for joining us today. 2022 was another record year for our House, as we achieved the milestone of over $1 billion in net revenue, over 50% comp growth for the second consecutive year, and adjusted EBITDA of well over $200 million. We have exceeded our net revenue and profitability expectations in every quarter since our IPO in November of 2021. What our team accomplished this year was truly amazing. I need to thank my entire team for not only their hard work, but their passion to succeed and to get better every single day. Home Furnishings Retail is made up of many different disciplines, and I was thrilled to see every department stepped up, performed incredibly well, and focused on delighting our clients. Congratulations, team. The tenure and strength of our relationship with our vendors has also been a key to our success. Our product development, sourcing, and merchandising teams have worked tirelessly to build newness and depth in our product categories that have so clearly resonated with their clients, resulting in 14% demand comps for 2022 on top of 2021's over 45% demand comps. Turning to some highlights from the 2022 full year results, net revenue of $1.2 billion was a $432 million increase over 2021, with our showroom channel up 57% and our e-com channel up 43%, comp growth of 52% and demand comp growth of 14%. Net and comprehensive income was up $100 million and adjusted EBITDA increased by $100 million to $223 million. Don will cover our fourth quarter and full year 2022 in more detail, but we delivered an exceptional quarter of net revenue and earnings with net revenue up 50% comp growth, 47% and strong 10% demand comp growth, notably lapping an 18% prior year demand comp increase. Net income was up 606% and adjusted EBITDA up 126% to $74 million. Our outstanding finish to 2022 was driven by both strong demand in the fourth quarter and accelerated delivery of our backlog. As our new Dallas Distribution Center outperformed expectations, enabling us to deliver product in our backlog we had expected to deliver in 2023, but moved it into 2022. I'm so proud of our team's sense of urgency in the fourth quarter that drove them to deliver much more of our product into our clients' homes for the holidays than either we or the clients had expected. Our clients are thrilled, a testament to our client-first strategy. We are excited about the success of our new distribution footprint and the critical support it will provide as we execute our growth strategies and expand our showroom footprint. Turning to our operational accomplishments in the year, what differentiates our house are the same attributes that are driving our growth and where we prioritize our energies. First, highest quality, exclusive design product. Quality in our products has always been our number one focus. And with our recent growth, many of our vendors' partners more than doubled their production without compromising quality. Our quality remains as high as ever. We are also differentiated by our inspirational showrooms and our omni-channel approach to our clients' experience and our emphasis on clients' first service. As I mentioned earlier, Our product development sourcing and merchandising teams continue to knock it out of the park, delivering heirloom quality, artisan crafted furniture that is resonating with our clients. We never stopped designing and developing products hand in hand with our vendors during the pandemic. This strategy of continuing to develop and introduce new products has set us apart in our industry and drove the strong demand we saw throughout 2022. and we could not be happier with our 2023 product lineup. We think it's the best ever. In early January 2023, the most recent introduction of new products hit our showrooms and the website and was highlighted in our spring catalog. Later in the call, Jen will discuss the success of that catalog with you. And we are already seeing remarkable client excitement around our new collections and product extensions. We are also very excited about this year's outdoor launch that hit stores just this week. We think it's the best lineup of outdoor product we've ever had and built on the success we saw with outdoor in 2022. Moving to showrooms, we continue to invest in showroom growth in 2022. We opened two traditional showrooms in White Plains, New York and Colorado Springs. our new design studio in Park City, Utah, along with one relocation and two showroom renovations. We are proud. We are very proud of everything we put in place over the last two years for adding two new distribution centers, aggressively developing new product collections and categories. And now in 2023, we are happy to announce the largest number of showroom real estate projects in our history. We expect to complete 17 separate projects, including plans to open 12 new showrooms and to renovate and or expand five additional existing showrooms. I also have more exciting news regarding our showrooms. As previously discussed, we have been testing a smaller format design called the design studio. We opened our first design studio in Carmel, California, 29 months ago. Today we have six design studios. Tomorrow we are opening our seventh in Asheville, North Carolina. The test has proven to us that the concept works, and as the performance of our design studios format has exceeded our expectations, I am thrilled to officially say the design studios will be part of our showroom expansion plans going forward. Over the long term, we expect to have 100 or more design studios. in addition to our plans to have over 165 traditional formats showrooms. If you look at a map of our existing showrooms that we include in our investor presentation on our investor website, you can see the incredible white space opportunity we have in front of us. With many, many years of growth, the wind is at our backs. And rest assured, we have a very disciplined real estate strategy, refusing to compromise either location or the financial return criteria in our decisions to open showrooms. Our new showrooms continue to perform incredibly well, and Dawn will share some of the targeted unit economics later in the call. As a reminder, we target adding an average of five to seven new showrooms annually. We will balance our annual opportunities between traditional showrooms and design studios based on resources and our focus on consistency of excellent client service across our omnichannel footprint. Regarding supply chain, on the inbound side, our average lead times continue to improve and for most of the products are back to pre-pandemic levels. Container costs are lower year over year while U.S. inland transportation rates remain elevated but are stabilized. On the outbound side, I mentioned the investment we made in 2022, growing our distribution footprint by adding an 800,000 square foot distribution center in Dallas and expanding our Ohio distribution center by 200,000 square feet. We believe our distribution capacities will support our growth for the next seven to 10 years. During 2022, we also invested in our e-comm and omni-channel capabilities and in information technology systems as we transition to scale. These investments and enhancements will continue in 2023. 2023 is off to a strong start. With new product, exciting showroom expansion plans through the first two months of the quarter, demand comparable growth are up high single digits. We feel well positioned to deliver on our financial and operational goals. indicated in our outlook for 2023 that Don will discuss in detail. I also want to take the moment to welcome Alexis Dupree to our board of directors. Alexis was appointed a new director at our board meeting last week and will stand for election to a full term at our annual meeting of shareholders in May. Alexis is the chief supply chain officer of Nordstrom. She has decades of experience in global supply chain operations at several leading retail organizations. It's an honor to have Alexis join us and enhance the collective skill set of our board. Finally, our long-term prospects remain very strong. We will continue to execute our strategy and runway for future growth looks very promising. I want to reiterate that our vision could not be realized without the hard work and successful execution of our team. I want to personally congratulate every one of our team members on a job well done and thank them for their dedication to our house. Now over to Jen.