Arhaus, Inc. Q1 FY2024 Earnings Call

Good afternoon, and welcome to the Arhaus First Quarter 2024 Earnings Conference Call. I will now turn the conference over to Wendy Watson. Wendy Watson, please go ahead.

Good morning, and thank you for joining the Arhaus First Quarter 2024 Earnings Call. On with me are John Reed, Co-Founder, Chairman and Chief Executive Officer; and Dawn Phillipson, Chief Financial Officer. After prepared remarks, they will be joined by Jen Porter, our Chief Marketing and eCommerce Officer for the Q&A session. 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 for the quarter ended March 31, 2024, before market opened today. 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 most recent annual report on Form 10-K and subsequent 10-Qs, 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 revise or update these statements. We will also refer to certain non-GAAP financial measures, and this morning's press release includes the relevant non-GAAP reconciliations. A replay of this call will be available on our website within 24 hours. Now I will turn the call over to John.

Good morning, everyone, and welcome to the Arhaus First Quarter Conference Call. I want to begin the call today by congratulating our team on a solid start to 2024 and for staying focused on executing our key priorities, both large and small, that are driving and supporting our four-pronged strategic growth strategy. The market opportunities we have are substantial, and we have a proven strategy with established initiatives to capitalize on it. We are highly motivated to execute on these initiatives, increasing brand awareness, expanding our showroom base, enhancing our omnichannel capabilities and technology and investing to upgrade our infrastructure, improve our business tools and support our growth. Our ongoing commitment to build on our progress across these initiatives is paying clear dividends to sustained results quarter after quarter. At the same time, our debt-free balance sheet and the flexibility it affords us remain a competitive advantage as we maintain our focus on expense control and prudent capital deployments. In the current environment, I get a lot of questions about how we are continuing to do so well with luxury home sales well below pre-pandemic levels and mortgage interest rates expected to stay higher for longer. The answer, as we see it, is many of our clients are staying in their homes, and they want to enjoy them. So they're remodeling, refreshing, or simply replacing their furniture. Our in-home and trade designers have never been busier with projects ranging from small to large. Our clients' appetite to make their homes a better place to live continues to be strong. And given our clients' demographics, our clients are going on their European holidays this summer or enjoying our cruises, but they are also improving their homes at the same time. Many of our design projects include assisting our clients with their second or third homes as well. So we are very pleased with the state of our consumer. And with the latest data showing both luxury home sales and listings increasing in this quarter, we are optimistic for the balance of this year and into 2025. As you know, I'm very enthusiastic about expanding our showroom footprint and how that continues to drive brand awareness and our long-term growth. Since our last call, we opened a new design studio in a wonderful location in Greenwich, Connecticut. It's already performing exceptionally well. Later this year, we are adding design studios in Peachtree, Georgia and Huntersville, North Carolina, near Lake Norman. We are proving out our design studio concept, and it's working very well. We developed the concept before the pandemic, a smaller footprint showroom, perfect for second-home markets and affluent pockets such as Princeton, New Jersey, within or outside large markets. Locations where lower square footage is preferred, staffed with in-home designers and the latest high-tech design tools to assist clients in imagining their home. In October of 2020, we opened our first design studio in Carmel, California. We expect to have 11 by the end of this year with a long runway ahead of us. We also recently opened an Arhaus outlet in Pittsburgh. We are adding two more locations this quarter, one in Denver and one in Florence, Kentucky, just outside of Cincinnati. In just a few weeks, we'll be opening an amazing new showroom at The Grove in Los Angeles. We expect it to be one of our flagship locations and cannot wait for clients to see and experience it. As we have discussed, we have significant growth opportunities on the West Coast. In addition to the growth, we are opening three more showrooms in California this year: Carlsbad, Palo Alto, and Corte Madera. We are also opening our first Oklahoma showroom this year. What is so gratifying and exciting for me and the Arhaus team is how well our showrooms perform in such varying locations across the United States, and we are not quite halfway through our goal of 165-plus traditional showroom locations. Turning to product, product is one of our key competitive advantages and a big differentiator. Our design, merchandising, and sourcing teams continued to delight our clients with incredible new products. Our products reflect our livable luxury aesthetics and, simultaneously, are eclectic, family-friendly, and full of warmth and comfort. Our pieces have a unique handcrafted feel and are designed using the best materials and an unparalleled focus on quality. This confidence in our product comes from both client reactions and consistent performance. Clients are loving our spring new product introductions with new products this year outperforming the credible reception we had to last year's new spring product. We are also very proud of the depth of our styles and selections. I mentioned that our showrooms performed well across regions, but one of the keys to this is the breadth of our product across traditional, transitional, and modern aesthetics. Alongside our new products, our iconic best-sellers continue to be best-sellers. We are able to consistently refresh these designs with beautiful new fabrics, shapes, finishes, and sizes, presenting them in new inspiring ways across all channels. We believe our product offers incredible value, and based on our demand trends, our clients seem to agree. And we cannot wait for you to see and experience the new products we are launching this fall in our catalog and on arhaus.com. On our strategic growth initiative front, there are two areas I want to call out. One, we just launched the new warehouse management system in our Ohio distribution center, representing a tremendous amount of work across several of our operational areas. This is a key piece of the system upgrades that will enable us to improve our operational efficiencies and set the foundation for long-term growth. Congratulations to our team. Second, I also want to call out our final mile team. Over the past year, we have made several improvements to our final delivery processes that are evident in better execution and delivery performance, with some of the highest client survey scores we have ever received. We are extremely busy delivering our consistent results and client service while growing and investing in the business, requiring unrelenting commitment, and I am extremely grateful for the hard work our team puts in each day. In the first quarter, we delivered net revenue of $295 million, net income of $15 million, and adjusted EBITDA of $29 million. As we reported this morning, we are pleased to have exceeded our top and bottom line outlook for the quarter, as teams executed well and first quarter benefited from the shift in our new warehouse management system implementation to April from March. We are on track to deliver on our first half and full-year outlook. Moving to demand. It's truly remarkable what our teams are achieving in the current macro environment. As we continue to meaningfully outpace the industry, our first quarter results are highlighted by February's mid-single-digit and March's high single-digit demand comp growth, more than offsetting January's weather-related high single-digit demand comp decline. Our demand comp in April was up mid-single digits. Before I turn the call over to Dawn to discuss these results and our full-year outlook in more detail, I want to reiterate our confidence in the outlook for our company for the balance of 2024, which we reaffirmed this morning. Our future is bright. We believe our strategic competitive advantage positions us to continue to capitalize on the aspirations of our clients to live in beautiful curated spaces with our unique artisan-crafted furniture. I'd like to extend a warm welcome to John Moran, who joined us as Chief Operating Officer on Monday. Prior to joining us, John was Chief Operating Officer of Canada Goose and brings a wealth of experience in operational execution and supporting transformational growth across the functions. He is an important addition to our leadership team as we scale the business and realize the significant potential for growth. As I said last quarter, I generally feel there are no collections like our collections. There are no people like our people. There is no potential like our potential. Arhaus stands out; Arhaus stands alone. When I founded Arhaus almost 40 years ago, I could not envision the Arhaus we have today with the incredible potential we still have. Now I'll turn it over to Dawn.

Thank you, John, and good morning, everyone. Net revenue in the first quarter was $295 million with a 9.5% comp decline against a comp growth comparison of 21% in the first quarter last year. Our prior year included significant abnormal backlog deliveries that did not repeat this year as we caught up on deliveries in 2023 and have returned to a normal backlog. We were pleased with our demand comp growth of 1.3% in the quarter as we continue to see strength in average order value and in orders over $5,000 and $10,000. We're also pleased that the demand penetration of our in-home designer program continues to increase. Our first quarter gross margin decreased to $115 million, driven primarily by lower net revenue and higher showroom costs as we continue to expand our footprint. Gross margin as a percent of net revenue decreased to 39%, driven primarily by the higher showroom costs, deleverage-related to the lower revenue, and increased transportation costs. First quarter SG&A expenses increased by $14 million to $97 million, primarily driven by increased selling expenses related to new showrooms and demand strength, increased corporate expenses as we invest in our strategic initiatives to support and drive the growth of the business, and increased warehouse expenses as our Dallas location continues to increase productivity. First quarter 2024 net income was $15 million. Adjusted EBITDA in the quarter was $29 million versus $55 million in the first quarter of 2023. First quarter net revenue of $295 million and adjusted EBITDA of $29 million resulted in a 9.9% adjusted EBITDA margin in the quarter. Next, as we reported this morning, we are pleased to reaffirm our outlook for full year 2024. Our expectations for how the year will progress have not changed since we initially provided our outlook in March, apart from the warehouse management system going live in April rather than in March. As a reminder, we expect full-year adjusted EBITDA margins to be lower than 2023. We expect about 85% of the deleverage to come from SG&A, with a lesser amount of deleverage in gross margin. Deleverage is driven by comping prior year backlog delivery and strategic investments we are making this year. Strategic investments include corporate strategic investments of $10 million to $15 million to enhance our operational capabilities and drive our success long-term, as well as investments in other growth initiatives such as e-commerce and our in-home designer and trade program. The $10 million to $15 million in corporate strategic investments includes our new warehouse management system, planning and allocation software, a new manufacturing ERP at our upholstery facility, and our in-home delivery experience. To add further color, we also wanted to note that we expect to have higher expense at our distribution centers this year as productivity improves in Dallas. In the second quarter of 2024, we anticipate net revenue in the range of $310 million to $320 million. We expect approximately 900 basis points of adjusted EBITDA deleverage in the second quarter. Approximately one-third is from gross margin pressure, primarily due to higher showroom costs related to growing our showroom footprint, investments in the in-home delivery program, and to a lesser extent, the impact of price action on product in our P&L. The balance of the deleverage is in SG&A, primarily due to new showrooms, strategic growth investments, and supply chain costs from the continued ramp of our Dallas distribution center. Given the new warehouse management system implementation shift from March to April, we expect the earnings upside relative to original expectations in Q1 to be offset in Q2 with our anticipated first half financial performance in line with full-year expectations we shared in March. As I noted last quarter, we continue to expect net revenue growth in the balance of this year. We expect the deleverage in both gross margin and SG&A in the first half of the year to inflect in the second half, as the P&L impact from the June 2023 price action product is complete. Revenue and earnings from new showrooms positively impact our P&L, and we continue to expand our brand awareness and drive market share expansion. We will update you on our third-quarter expectations when we report second-quarter financial performance in August. For all other details related to our 2024 outlook, please refer to our press release. In closing, I want to thank our team for their focus and execution of our strategic growth priorities and investments. I am so proud of what we are accomplishing while delivering solid financial performance and retaining our balance sheet strength. We believe our four-part strategic growth strategy and our strong debt-free balance sheet are compelling competitive advantages, enabling us to make the necessary investments to build on our share gains in the highly fragmented $100 billion premium home furniture market. We are navigating the current environment from a position of strength, and we believe we are well positioned to serve our clients while maintaining our unwavering commitment to driving value for all stakeholders. This concludes our prepared remarks. With that, I'd like to thank you for joining us this morning, and we are happy to take your questions.

Your first question comes from Phillip Blee with William Blair.

This is Sabrina on for Phillip. Can you talk about some of the progress your team has made on those internal system investments like in e-commerce capabilities in the in-home design and trade programs? And then any early signs of improvement and how that will flow through for the rest of the year?

Sabrina, this is Dawn. We're really excited for how we're progressing on these systems. We talked about a warehouse management system which we deployed and are starting to see some nice efficiencies in there. So pleased with that. It's still a little early days for the other systems that we've talked about, regarding our planning and allocation program. Our manufacturing ERP is well underway in the design and launch portion. The investments we're making in the in-home delivery space have also improved significantly. We've seen some great changes in our client survey responses, which is very encouraging. So really pleased with the investments we're making in these areas to help the organization improve efficiency. From a financial perspective, we need to get all of these systems deployed and launched. Then, of course, there will be a learning curve as the teams all adopt the new software platforms. We mentioned last quarter that we are evaluating our entire systems infrastructure. We will continue to do that. These systems that we're launching are all in the process of being worked through. We're certainly excited and confident that the business needs them. But we're also continuing to look at different things like inventory management platforms, vendor management platforms, and financial system packages. So more to come on those in the future quarters as management continues to refine our expectations.

Yes. To echo what John said, we're really excited about what we're doing on e-commerce as well. We're into year three now with our new platform, and we continue to learn, deploy, and optimize the site almost every single day. So really pleased with the results that we're seeing on e-commerce, both in terms of sales and improvements in getting traffic to the site and engagement when users are on the site. I think what's great about these enhancements to e-commerce is that we know the majority of our clients are engaging with us on arhaus.com regardless of where they end up transacting. We are monitoring results to get a more complete picture of our clients, their behavior, and what they're responding to. It's an excellent tool for driving conversions and sales, and we’re experiencing some significant improvements there, particularly in terms of overall sales. We’re seeing clients engage in exploring the Arhaus brand differentiation and our product assortment, which we are so excited about.

Great. That's really helpful. And then a quick question on the new product assortment. Could you provide some color on average order value trends throughout the quarter, if there’s any specific product assortments or items that have particularly resonated with consumers recently?

Gosh. Yes, there’s a lot. Yes. The great thing about our business is it's a fashion business; things are always trending. We're not trendy where we get in and out of things in one season; things can last years. But we're seeing people are wanting more color in their homes—shapes are softer, more curved, and wood is becoming a little fresher or lighter. So it's constantly evolving. But yes, we really have hit on some great new products that we've launched, some last year, some this spring, and as we said on the call, we're very excited about what’s coming this fall. We have lots of new products, and our photo team is busy shooting everything as we speak to prepare for the fall launch probably in September. So yes, it's a moving target. But coming out of COVID, people are changing. The products were straight, dark, and sterile in my opinion. Now, they're brighter, lighter, and more comfortable, curvy products—that's what we're going after.

Your next question comes from the line of Steven Forbes with Guggenheim Partners.

This is Julio Marquez on for Steve Forbes. Just a follow-up on product. Can you expand on product assortment expansion plans for 2024? And is there any way to help better understand how you're thinking about new product contribution growth over the next few years? And then a quick follow-up after that.

Yes, you bet. One of our focuses is to offer a broader arrangement of styles, textures, colors, and so forth. It's a big country out there. There are different tastes in Alabama, Cleveland, and L.A. Although core pieces are always the best sellers everywhere, there are different tastes. Some markets have gone fairly modern and contemporary over the years, but we're seeing a big swing of customers returning to transitional and some traditional pieces. Our focus is to take each category we carry and offer a broader assortment. We've been testing some different products in two or three stores across the country, and the response has been phenomenal. So it's something we'll probably continue to grow. Also, upholstery is a big part of our business—everything from living rooms to bedrooms. And people often have various bedrooms, so they want to furnish their entire house. We’re working hard to expand our look, feel, and taste while ensuring that everything fits under the Arhaus brand.

Your next question comes from the line of Jeremy Hamblin from Craig-Hallum Capital Group.

And congrats on the strong momentum in the business. I wanted to just come to the warehouse management system update, the shift here and thinking about the impact on Q2. So I think kind of best guess on the total delivered revenue in the quarter, if that's in the range of $25 million or something along those lines? And then whether or not has it gone smoothly in terms of expectations? Are you having any lingering impacts that are resulting in delays on deliveries? I wanted to see if you could put a little more color around that.

Sure. So as it pertains to the second quarter, launching the warehouse management system at the start of the quarter provides us with more flexibility to make up any timing shifts related to the revenue impact from the warehouse closure. So we feel good about what we've guided in the $310 million to $320 million net revenue range for the second quarter. As for the actual implementation, it’s gone as expected. We prudently pushed it from March to April to ensure we were as prepared as possible from a back office perspective. We never expect software platform implementations to go smoothly. So we prepare as best we can. Fortunately, we have a dynamic and flexible leadership team that is constantly evaluating different options when things arise. Overall, it’s been navigated very well from my perspective. From the client perspective, it has really been a nonissue. Clients are getting their products when they expect, which is exactly what we want. These back-office system implementations should not negatively affect the client experience.

Got it. And then just a quick follow-up here. The pricing actions that were taken last summer, how long do you expect that to linger in terms of flow-through to your gross margin? When would you expect the gross margin to no longer be impacted in any material way from the pricing actions?

Sure. We did see some impact in the first quarter from the price actions we took in June of 2023. We expect a lesser amount in the second quarter, and then we expect to fully clear through any meaningful impact by the end of the second quarter. As of now, we are positioned well as we head into the last three quarters of the year.

Your next question comes from the line of Simeon Gutman with Morgan Stanley.

I wanted to ask, I guess, a two-part question. First, I know the COO hire started recently and wasn't in the news about one and a half months ago. What is the need for that role? Can you give us a lay of the land in the next few years regarding warehouse capacity, systems upgrades, etc.?

Yes, sure. As we've been speaking, we are launching many new systems. We brought in the new COO to help orchestrate all of that—combining the IT side, planning, implementation, warehouse logistics, etc. So I can focus on what I love: finding great products and driving the business. So far, he’s been doing a phenomenal job during his brief time here. The team is looking for that leadership. He has a wealth of experience in this field, and we’re excited to have him orchestrate everything.

I guess further, is there more capacity needed, and are there other enhancements to the distribution center you have?

Right now, we're in good shape. Now that we implemented the system, we have enough capacity. We have a great team out there in all three of our large distribution centers. We're just working out some small kinks in this system and will get those resolved over the next few weeks, and then we’re good to start growing.

Can I ask as a follow-up on the backdrop for furnishings? You've had some weather volatility. Can you talk about the biggest ticket items in your product assortment, diagnosing the consumer? There's been chatter about weakening on the lower-income side lately. Curious if there’s any of that, and does it feel like the industry has bottomed in terms of demand?

I'm not an expert on what other people do. All I know is our business is very strong. We have not seen any changes in the last 4 to 6 weeks. That's the first I'm hearing of any issues. So yes, I can't answer that. I stick to what we're doing, executing our plan, and coming out with incredible products, delivering them efficiently, and getting positive feedback from customers. So I don't know about the competition; I'm focused on our execution.

To add on that, looking specifically at our consumer base, we haven't seen notable changes in our customer behavior since pre-pandemic. We're continuing to see steady engagement in both new and existing clients. We're very pleased with responses, particularly from our new customer acquisition activities. Our product, messaging, and showrooms are performing well; we are focused on execution and continuing to see good results.

Next question comes from the line of Cristina Fernandez with Telsey.

I wanted to ask about the competitive environment and promotions. Are you seeing any changes? Some competitors are introducing new products and promotions. Should we expect anything leading up to the important Memorial Day weekend?

Cristina, yes. We continue to see the elevated promotional market. We are monitoring these promotions carefully. Our product is resonating well with customers, and they are willing to spend. So from a marketing perspective, we're focusing on messaging around brand differentiation and introducing new clients. Our promotional strategy remains consistent, and we see results even when running promotions around shopping weekends.

And then my second question is around the new stores. You have many exciting locations coming up. Can you discuss the staffing process for those stores and how you will ensure you have the right store managers and designers? Are you moving people from other stores or hiring new employees?

Sure. We are looking forward to the new stores opening and have opened several in the last six to eight months. What we do is always promote an existing store manager to the new location. An experienced store manager has proven to be a great leader and understands our culture well. We also have a handful of team members who want to move to new locations. Alongside this, we hire a whole new staff. Our training team provides rigorous training for about six weeks before they open the doors. They are well-prepared and trained to serve our clients by day one.

Your next question comes from the line of Jeffrey Walker with Jefferies.

This is Jeffrey Walker on for Jonathan Matuszewski. It sounds like trade design momentum has continued to build. Can you update us on the plan for deepening the trade channel presence with interior designers? Discuss any near-term opportunities within the contract business.

Yes, you bet. We are focused on growing the trade business. These designers have their own clientele, and we are encouraging them to bring their clients into our showrooms. We've added team members dedicated to assisting these designers to make the process seamless. These designers are time-crunched, so if we can help them with ease and efficiency, it’s a win-win. Our product offerings allow us to be a one-stop-shop, providing everything they need. The trade business is outpacing the average growth of our total business, and there's plenty of runway ahead.

Your next question comes from the line of Robby Ohmes with Bank of America.

This is Matti Check on for Robby Ohmes. Just first, you highlighted that demand comps grew mid-single digits in February and high single digits in March. Can you give any color on how April trended, given that strong exit rate?

Yes, April was up mid-single digits. We’re pleased with the response to some of our new collections, particularly in outdoor furnishings, which is performing very well. We continue to resonate across various markets. We expect to see continued positive results as we drive brand awareness.

Great. And then maybe just to dive deeper into your plans with e-commerce this year. Are you adding SKUs online, such as a larger assortment of table tops, soft goods, and lower AOV products? Have you seen a relationship between growth in the e-commerce business and the opening of new stores since awareness grows as clients visit showrooms?

Great question. We're excited about e-commerce this year. Just like the rest of our business, there is so much opportunity. We’re working on introducing new products and growing assortments—details that you will see online. Additionally, as John mentioned earlier, our customers are showing an increasing interest in more color and variety. There’s an ongoing effort to improve how we serve our product assortment to clients digitally. Our digital channels are not just sales channels; they’re also vital for brand awareness and client engagement, allowing us to focus on improving conversion in both showrooms and e-commerce.

Next question comes from the line of Justin Kleber with Baird.

First for me, Dawn, you mentioned the increase in the in-home designer penetration. Can you provide any updated benchmarks on that? Where do you sit today, and how has that evolved relative to the time of the IPO? What inning do you think that initiative is in?

We don't disclose the actual demand penetration, but we're very pleased with its continuing growth. We’re testing different staffing levels at various high-volume locations to see how high our penetration can go. I would say we're probably in inning four or five now, but we're excited about the performance.

That's great to hear. My follow-up is on demand. If you could remind us or provide a sense of what your guidance assumes from a demand comp perspective? If demand exceeds your internal plan, would the upside flow through, or would you choose to pull forward future investments?

We have not guided to demand specifically. As we move into next year, we anticipate that our comps will converge to give you better clarity. We’re excited for demand. Management will be discussing potential investments—corporate strategic investments in systems and processes versus growth-driving initiatives like e-commerce and in-home design. We feel good about our guidance for this year and are optimistic about the industry and consumer trends.

Your next question comes from the line of Maksim Rakhlenko with TD Cowen.

Sorry if I missed this earlier. How are you thinking about your value proposition and maintaining price gaps for the brand's success? What could your response be if some of your peers permanently cut their prices?

We feel great about our value proposition and are constantly evaluating our positioning within the competitive set. John, would you like to add?

Yes. If you understand our business model: we go direct to manufacturers that make products for us. They come straight to our distribution centers and then right out to the consumer. We don't purchase through middlemen or use expensive designers who want royalties for everything. We have the best model in the high-end business. If competitors cut prices, our product still maintains exceptional value due to its quality and exclusivity. So we're continuing to focus on our strengths and maintaining our product's integrity.

That's great color. I appreciate it. Also, it seems luxury home sales have increased for six consecutive months. Should we expect this to show up in your demand comps potentially in the coming months?

Max, this is Wendy. You like to look at those market stats, and obviously, that's a positive sign. Notably, listings are up even more than home sales in that market, which is encouraging. However, I want to remind you that most of our sales are driven by light refreshes—like repainting a room and other enhancements. Home sales are a driver, but significantly smaller than those other factors.

Our last question comes from the line of Peter Keith with Piper Sandler.

Nice results. Tariffs are becoming a bigger topic. Can you address how you're thinking about that? I know you don't have a ton of China exposure, but maybe quantify it? How did you adjust to the tariffs that went into effect for furniture in 2018?

Sure. Back in 2018, we were upset because we didn't like the 25% tariffs. We had to take price increases, which our clients accepted, and we adapted. Most important was that we started moving products out of China. Very little of our product was even in China to start with, far less than our competitors. Most of the big players have quickly moved to other countries, and we are in a great position. Even if tariffs were to reach 150%, we won't miss a beat and will continue adjusting as needed. We have also successfully relocated a fair amount back to North America, and we are sourcing from countries like Indonesia, Vietnam, and Cambodia. Our loyal vendors have been quick to adapt and maintain their partnership with us.

So with the comp guidance, I'm having trouble understanding the heavy pressure in the first half, some of which I know is from the new warehouse management system. But that pressure in the first half implies flat to positive comps in the back half. Additionally, backlog comparisons seem heavier in the back half. Could you walk us through what's helping this acceleration or improvement as the year progresses?

We ended last year with a normalized backlog, and January was a strong month for demand. This impacted Q1 and slightly affected Q2 but set us up for the second half. We expect to deliver more in the back half of the year based on that normalized demand. Overall, our demand continues to flow well, and we feel confident about maintaining momentum.

That concludes our Q&A session. I will now turn the conference back to the speakers for closing remarks.

Thank you, everybody, for participating today, and we look forward to talking to you again next quarter.

Thanks, everyone. Have a good day.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.