Arhaus Inc

Arhaus, Inc. and SubsidiariesNotes to Condensed Consolidated Financial Statements(Unaudited)

1. Nature of Business and Basis of Presentation

Nature of Business

Arhaus, Inc. (the “Company,” “we” or “Arhaus”) is a Delaware corporation and is a premium retailer in the home furnishings market, specializing in livable luxury supported by heirloom quality merchandise. We offer merchandise in a number of categories, including furniture, outdoor, lighting, textiles and décor. Our curated assortments are presented across our sales channels in sophisticated, family friendly and unique lifestyle settings. We position our retail locations as Showrooms for our brand, while our website acts as a virtual extension of our Showrooms. The Company operated 97 Showrooms as of June 30, 2024.

Basis of Presentation

The condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The accompanying condensed consolidated financial statements include our accounts and those of our wholly owned subsidiaries. Accordingly, all intercompany balances and transactions have been eliminated through the consolidation process.

The accompanying condensed consolidated balance sheets at June 30, 2024 and December 31, 2023, the condensed consolidated statements of comprehensive income and changes in stockholders’ equity for thesix and three months ended June 30, 2024 and June 30, 2023, the condensed consolidated statements of cash flows for thesix months ended June 30, 2024 and June 30, 2023 and the related interim condensed consolidated disclosures are unaudited and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements.

In management’s opinion, the accompanying condensed consolidated financial statements contain all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the Company’s financial position at June 30, 2024, the results of operations and changes in stockholders’ equity for thesix and three months ended June 30, 2024 and cash flows for thesix months ended June 30, 2024. The condensed consolidated balance sheet as of December 31, 2023 included herein was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP.

The results for the six and three months ended June 30, 2024 and June 30, 2023 are not necessarily indicative of the operating results to be expected for the full fiscal year or any future period. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. Therefore, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2023.

Use of Estimates

The preparation of our condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The accounting estimates and other matters included within our condensed consolidated financial statements and notes to the condensed consolidated financial statements we have assessed include, but were not limited to, revenue recognition, including a reserve for merchandise returns, inventory reserves, impairment of long-lived assets and fair value of financial instruments which include, but are not limited to, accounts receivable, payables and lease obligations.

Client Deposits

Client deposits represent payments made by clients on orders. At the time of order, the Company collects deposits for all orders equivalent to at least 50 percent of the clients’ purchase price. Orders are recognized as revenue when the merchandise is delivered to the client and at the time of delivery the client deposit is no longer recorded as a liability. The

Arhaus, Inc. and SubsidiariesNotes to Condensed Consolidated Financial Statements(Unaudited)

Company expects substantially all client deposits as of June 30, 2024 will be recognized as net revenue within the next 12 months as the performance obligations are satisfied.

Gift Cards

The Company sells gift cards to clients in our Showrooms and through our website. Such gift cards do not have expiration dates. We defer revenue when payments are received in advance of performance for unsatisfied obligations related to our gift cards. The liability related to unredeemed gift cards at June 30, 2024 and December 31, 2023 of$0.4 million and $0.5 million, respectively, is recorded in the accrued other expenses line item of the condensed consolidated balance sheets. The Company recognizes income associated with breakage proportional to actual gift card redemptions. For the six and three months ended June 30, 2024, breakage income was minimal. For the six and three months ended June 30, 2023, breakage income was $0.7 million.

Fair Values of Financial Instruments

The Company’s primary financial instruments are cash and cash equivalent investments, accounts receivable, payables, lease obligations and equity based compensation instruments. Due to the short-term maturities of cash and cash equivalent investments, accounts receivable and payables, the Company believes the fair values of these instruments approximate their respective carrying values at June 30, 2024 and December 31, 2023. See Note 5— Leases for discussion of our lease obligations and Note 6— Equity Based Compensation for discussion of our equity based compensation instruments.

The Company has established a hierarchy to measure our financial instruments at fair value, which requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs represent market data obtained from independent sources, whereas unobservable inputs reflect the Company’s own market assumptions, which are used if observable inputs are not reasonably available without undue cost and effort. The hierarchy defines three levels of inputs that may be used to measure fair value:

Level 1 Unadjusted quoted prices in active markets for identical, unrestricted assets and liabilities that the reporting entity has the ability to access at the measurement date.

Level 2 Inputs other than quoted prices included within Level 1 that are observable for the asset and liability or can be corroborated with observable market data for substantially the entire contractual term of the asset or liability.

Level 3 Unobservable inputs that reflect the entity’s own assumptions about the assumptions market participants would use in the pricing of the asset or liability and are consequently not based onmarket activity but rather through particular valuation techniques.

From time to time, the Company invests in Level 1 cash and cash equivalent investments such as money market funds and interest-bearing checking accounts. For thesix and three months ended June 30, 2024, the Company earned$4.8 million and $2.0 million, respectively, in interest income. For thesix andthree months ended June 30, 2023, interest income was$3.3 million and $1.8 million, respectively, which is included within interest income, net on our condensed consolidated statements of comprehensive income.

Accounts Receivable

The Company’s accounts receivables are $1.5 million and $2.4 million, respectively, at June 30, 2024 and December 31, 2023, net of allowance for expected credit losses of $0.4 million and $0.6 million, respectively. The allowance for expected credit losses is determined by considering a number of factors, including the length of time trade accounts receivable are past due, previous loss history, the client’s current ability to pay its obligations, and the current and future condition of the general economy and industry as a whole. Accounts receivable are written off when they become uncollectible and any payments subsequently received on such receivables are credited to the allowance for expected credit losses. Accounts receivable are recorded at the invoiced amount and do not bear interest.

Arhaus, Inc. and SubsidiariesNotes to Condensed Consolidated Financial Statements(Unaudited)

Prepaid and Other Current Assets

Prepaid and other current assets consist of the following (amounts in thousands):

(1) Presented net of accumulated amortization of $5.4 million and $2.7 million as of June 30, 2024 and December 31, 2023, respectively.

Revision to Previously Issued Consolidated Financial Statements and Interim Unaudited Condensed Consolidated Financial Statements

As previously disclosed, in preparation of the December 31, 2023 consolidated financial statements, the Company identified an error within the unaudited condensed consolidated balance sheets 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 and the Company concluded to revise the consolidated financial statements and interim unaudited condensed consolidated financial statements as presented below in Adjustment No.1.

In preparation of the March 31, 2024 unaudited condensed consolidated financial statements, the Company identified an additional error within the unaudited condensed consolidated balance sheets related to certain cash receipts from landlord reimbursements prior to showroom completion being incorrectly included in 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 as presented below in Adjustment No. 2.

The Company has evaluated the errors both quantitatively and qualitatively and concluded they were not material, individually or in the aggregate, to the prior period consolidated financial statements and interim unaudited condensed consolidated financial statements. The Company concluded to further revise: the unaudited condensed consolidated balance sheets and unaudited condensed consolidated statements of cash flowsas of and for the three months ended March 31, 2023 and 2022, and as of and for the six months ended June 30, 2023 and 2022; the unaudited condensed consolidated balance sheet as of September 30, 2022; the consolidated balance sheets as of December 31, 2023 and 2022; and the consolidated statements of cash flows for the years ended December 31, 2023, 2022 and 2021.

In connection with the revisions, the Company determined it is appropriate to correct for certain other immaterial errors. The Company will effect the revisions of the consolidated financial statements for 2023 and 2022 within our Annual Report on Form 10-K for the fiscal year ended December 31, 2024. The Company effected the revision of the unaudited interim condensed consolidated financial statements for the second quarter of 2023 within this Quarterly Report on Form 10-Q for the fiscal period ended June 30, 2024.

The Company has also revised impacted amounts within the accompanying notes to the unaudited condensed consolidated financial statements, as applicable.

Arhaus, Inc. and SubsidiariesNotes to Condensed Consolidated Financial Statements(Unaudited)

The following tables summarize the impact of these corrections for the periods presented (amounts in thousands):

Arhaus, Inc. and SubsidiariesNotes to Condensed Consolidated Financial Statements(Unaudited)

Arhaus, Inc. and SubsidiariesNotes to Condensed Consolidated Financial Statements(Unaudited)

2. Recently Issued Accounting Standards

New Accounting Standards Adopted in Fiscal 2024

The Company adopted Accounting Standards Updates (“ASU”) 2023-01 — Leases (Topic 842): Common Control Arrangements in the six months ended June 30, 2024. The adoption of ASU 2023-01 did not have a material impact on our accounting policies or our condensed consolidated financial statements and related disclosures.

Accounting Standards Not Yet Adopted

The following table summarizes accounting pronouncements which we have not yet adopted but will be adopted in the upcoming fiscal year. ASU 2023-07 is effective for annual periods beginning after December 15, 2023. We believe the adoption will not have a material impact on our accounting policies, financial position or results of operations but could require additional disclosures. ASU 2023-09 is effective for annual periods beginning after December 15, 2024. We believe the adoption will not have a material impact on our accounting policies, financial position or results of operations but could require additional disclosures.

3. Merchandise Warranties

The Company warrants certain merchandise to be free of defects in both construction materials and workmanship from the date the performance obligation was fulfilled to the client forthree toten years depending on the merchandise category. The Company accounts for merchandise warranties by accruing an estimated liability when we recognize revenue on the sale of warrantied merchandise. We estimate future warranty claims based on claim experience which includes materials and labor costs to perform the repairs or replace products. We use judgment in making our estimates. We record differences between our estimated and actual costs when the differences are known.

A reconciliation of the changes in our limited merchandise warranty liability is as follows (amounts in thousands):

(1) $4.0 million and $4.1 million were recorded in accrued other expenses at June 30, 2024 and December 31, 2023, respectively. The remainder is recorded in other long-term liabilities on ourcondensed consolidated balance sheets.

We recorded accruals during the periods presented in the table above, primarily to reflect charges that relate to limited merchandise warranties issued during the respective periods.

4. Debt

On November 8, 2021, the Company entered into a revolving credit facility (the “2021 Credit Facility”). The 2021 Credit Facility provides for, among other things, (1) a revolving credit facility in an aggregate amount not to exceed at any time outstanding the amount of such lender’s commitment, (2) a letter of credit commitment in an amount equal to the lesser of (a) $10.0 million, and (b) the amount of the revolving credit facility as of such date, and (3) a swingline loan in an amount equal to the lesser of (a) $5.0 million, and (b) the amount of the revolving credit facility as of such date. The aggregate amount of all commitments of all lenders under the 2021 Credit Facility was initially $50.0 million. The 2021 Credit Facility contains restrictive covenants and has certain financial covenants, including a minimum rent-adjusted total

Arhaus, Inc. and SubsidiariesNotes to Condensed Consolidated Financial Statements(Unaudited)

leverage ratio and a minimum fixed charge ratio. The 2021 Credit Facility bears variable interest rates at the prevailing Bloomberg Short-Term Bank Yield index rate plus the applicable margin (1.50% at June 30, 2024 and 1.50% at June 30, 2023), whereas the applicable margin is adjusted quarterly based on the Company’s consolidated rent-adjusted total leverage ratio.

On December 9, 2022, the Company amended the 2021 Credit Facility to increase the revolving credit commitment thereunder by $25.0 million. After giving effect to such increase, the aggregate amount of all commitments under the 2021 Credit Facility is $75.0 million. The 2021 Credit Facility expires on November 8, 2026.

At June 30, 2024 and December 31, 2023, we hadno borrowings on the 2021 Credit Facility. Deferred financing costs related to the 2021 Credit Facility of$0.4 million and$0.4 million as of June 30, 2024 and December 31, 2023, respectively, are recorded in other noncurrent assets on thecondensed consolidated balance sheets and will be amortized over the term of the 2021 Credit Facility on a straight-line basis. Accumulated amortization related to deferred financing costs for the 2021 Credit Facility was$0.2 million as of June 30, 2024 and$0.1 million as of December 31, 2023.

The Company was in compliance with all applicable debt covenants at June 30, 2024 and December 31, 2023, and expects to remain in compliance over the next 12 months.

5. Leases

The Company leases real estate and equipment under operating and finance leases, some of which are from related parties as discussed in Note 10 — Related Party Transactions. The most significant obligations under these lease agreements require the payments of periodic rentals, real estate taxes, insurance and maintenance costs. Depending on particular Showroom leases, the Company can also owe a percentage rent payment if particular Showrooms meet certain sales figures.

The following table summarizes the amounts recognized in our condensed consolidated balance sheets related to leases (amounts in thousands):

Arhaus, Inc. and SubsidiariesNotes to Condensed Consolidated Financial Statements(Unaudited)

The components of lease cost recognized within our condensed consolidated statements of comprehensive income for the six and three months ended June 30, 2024 and June 30, 2023 are as follows (amounts in thousands):

(1) For the six and three months ended June 30, 2024, there wereno month-to-month lease costs. For the six months ended June 30, 2023, total lease costs includes $0.4 million of month-to-month lease costs and a minimal amount for the three months ended June 30, 2023.

We often have options to renew lease terms for Showrooms and other assets. The exercise of lease renewal options is generally at our sole discretion. In addition, certain lease agreements may be terminated prior to their original expiration date at our discretion. We evaluate each renewal and termination option at the lease commencement date to determine if we are reasonably certain to exercise the option on the basis of economic factors. The weighted average remaining lease terms are as follows:

When readily determinable, we use the discount rate implicit within the lease as determined at the time of lease commencement. However, the discount rate implicit within many of our leases is generally not determinable at the time of lease commencement and therefore the Company determines the discount rate based on its incremental borrowing rate (“IBR”). For leases in which the discount rate was not explicit, the Company utilized a market-based approach to estimate the IBR, which required significant judgment. The Company estimated the base IBR based on an analysis of (i) yields on the Company’s 2021 Credit Facility, as well as comparable companies and (ii) unsecured yields and discount rates. The Company applied adjustments to the base IBRs to account for full collateralization and lease term. The weighted average discount rates used to measure our lease liabilities are as follows:

Arhaus, Inc. and SubsidiariesNotes to Condensed Consolidated Financial Statements(Unaudited)

Future lease liabilities at June 30, 2024 are as follows (amounts in thousands):

(1) Includes leases with related parties. See Note 10 — Related Party Transactions for amounts leased from related parties.

At June 30, 2024, the Company has entered into leases for Showrooms and equipment which have not yet commenced with expected lease terms ranging from 2 to 13 years. The aggregate minimum rental payments over the term of the leases of approximately $115.1 million are not included in the above table.

Supplemental cash flow information related to leases for the six months ended June 30, 2024 and June 30, 2023 is as follows (amounts in thousands):

6. Equity Based Compensation

Activity of the Company’s Restricted Stock for the six months ended June 30, 2024 and related equity based compensation expense for the six and three months ended June 30, 2024 and June 30, 2023 are summarized in the following tables (amounts in thousands, except share and per share data):

Arhaus, Inc. and SubsidiariesNotes to Condensed Consolidated Financial Statements(Unaudited)

(1)Total unrecognized equity based compensation to be recognized in future periods is $4.8 million at June 30, 2024, and will be recognized over a weighted average period of 1.92 years. Equity based compensation expense is recorded within selling, general and administrative expenses on our condensed consolidated statements of comprehensive income.

The Arhaus, Inc. 2021 Equity Incentive Plan (the “2021 Plan”) was adopted on November 8, 2021. The 2021 Plan authorizes the Company the ability to grant stock options (either incentive or non-qualified), stock appreciation rights (“SARs”), restricted stock, restricted stock units (“RSUs”), performance shares, performance share units (“PSUs”) and other stock-based awards with respect to our Class A common stock to our employees, officers, consultants, advisors and directors. The maximum number of Class A common stock that may be granted under the 2021 Plan is 11,205,100 shares.

Per the 2021 Plan, each RSU and PSU represents a contingent right to receiveone share of the Company’s Class A common stock upon vesting. The RSUs granted to award recipients vest in one-third increments on each of the first, second and third anniversary of the date of grant, provided that the award recipient continues to serve the Company through the applicable vesting date (“Continuous Service”). If the award recipient’s Continuous Service terminates for any reason other than death, disability or in connection with a change in control (as such terms are defined in the 2021 Plan), unless the Compensation Committee of the Board of Directors determines otherwise, all RSUs that are unvested at the time of such termination shall be forfeited and canceled immediately without consideration. RSU and PSU awards contain forfeitable rights to dividend equivalents. Dividend equivalents for outstanding awards are accrued when dividends are declared on the Company’s common stock but are not paid until the awards vest, and dividend equivalents accrued for awards that ultimately do not vest are forfeited. The RSUs issued to certain members of the Board of Directors will generally vest on theone-year anniversary of the grant date.

The number of PSUs earned will be based on the Company’s financial performance as measured against pre-established target goals for cumulative demand revenue and cumulative adjusted EBITDA (the “Performance Goals”) over the applicable performance period. PSUs will vest as of the end of the performance period subject to the award recipient’s Continuous Service, but will not settle and payout until the number of PSUs earned is determined by the Compensation Committee. The award recipient may earn between 0% and 200% of the PSU target award based on the Company’s achievement of the Performance Goals. The Company accounts for forfeitures as they occur.

Activity of the Company’s PSU and RSU awards for the six months ended June 30, 2024 and their related equity based compensation expense for the six and three months ended June 30, 2024 and June 30, 2023 are summarized in the following tables (amounts in thousands, except share and per share data):

Arhaus, Inc. and SubsidiariesNotes to Condensed Consolidated Financial Statements(Unaudited)

(1)Total unrecognized equity based compensation for the PSUs to be recognized in future periods is $3.5 million at June 30, 2024, and will be recognized over a weighted average period of 2.02 years. Equity based compensation expense is recorded within selling, general and administrative expenses on our condensed consolidated statements of comprehensive income.

(2)Total unrecognized equity based compensation for the RSUs to be recognized in future periods is $10.6 million at June 30, 2024, and will be recognized over a weighted average period of 2.25 years. Equity based compensation expense is recorded within selling, general and administrative expenses on our condensed consolidated statements of comprehensive income.

7. Segment Reporting

Our chief operating decision maker is our Chief Executive Officer (“CEO”), who reviews financial information presented on a consolidated basis for purposes of making decisions, assessing financial performance and allocating resources. We operate our business asone operating segment and therefore we haveone reportable segment that offers an assortment of merchandise across a number of categories, including furniture, outdoor, lighting, textiles, and décor. The assortment of merchandise can be purchased through our Retail and eCommerce merchandise sales channels.

The majority of our net revenue is generated through sales to clients in the United States. Sales to clients outside of the United States are not significant. Further, no single client represents ten percent or more of our net revenue.

Net revenue by merchandise sales channel for the six and three months ended June 30, 2024 and June 30, 2023 is as follows (amounts in thousands):

8. Net and Comprehensive Income per Share

Basic and diluted net and comprehensive income per share for the six and three months ended June 30, 2024 and June 30, 2023, was calculated by dividing net and comprehensive income by the number of basic and diluted weighted-average common shares outstan ding. The Company has elected to not adjust net and comprehensive income for forfeitable dividend equivalents, when declared, related to unvested equity awards. The Company will recognize dividends paid on common shares when the dividend equivalents are no longer forfeitable, such as if the contingency is met or the share-based payment awards vest into common shares.

Arhaus, Inc. and SubsidiariesNotes to Condensed Consolidated Financial Statements(Unaudited)

Basic and diluted net and comprehensive income per share are as follows (amounts in thousands, except per share data):

(1) During the six and three months ended June 30, 2024,348,274 and 284,062 shares of unvested restricted stock and RSUs were excluded from the computation of diluted earnings per share because their effect would have been anti-dilutive. During the six and three months ended June 30, 2023,710,490 and 773,662 shares of unvested restricted stock and RSUs were excluded from the computation of diluted earnings per share because their effect would have been anti-dilutive.

(2) During the six and three months ended June 30, 2024,578,665 PSUs were excluded from the calculation of the effect of dilutive restricted stock because they did not meet the required performance criteria. During the six and three months ended June 30, 2023,768,577 PSUs were excluded from the calculation of the effect of dilutive restricted stock because they did not meet the required performance criteria.

9. Commitments and Contingencies

The Company is involved in litigation and claims that are incidental to its business. Although the outcome of these matters cannot be determined at the present time, management of the Company believes that the ultimate resolution of these matters will not have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.

From time to time, the Company has received inquiries from a number of state and local taxing agencies with respect to the remittance of sales, use, telecommunications, excise, and income taxes. Several jurisdictions are currently conducting tax audits of the Company's records. The Company collects, or has accrued for, taxes that it believes are required to be remitted. The amounts that have been remitted have historically been within the accruals established by the Company. The Company adjusts its accrual when facts relating to specific exposures warrant such adjustment. As of June 30, 2024 and December 31, 2023, we recorded liabilities of $0.2 million and $0.2 million, respectively, in accrued other expenses on the condensed consolidated balance sheets for non-income tax matters that were probable and reasonably estimable.

In August 2023, the Company committed to make a $10.0 million donation to The Nature Conservancy. As of June 30, 2024, we have a remaining commitment of $5.0 million in accrued other expense on ourcondensed consolidated balance sheets which we anticipate will be disbursed by the end of the fiscal year.

On February 29, 2024, the Board of Directors of the Company declared a special cash dividend on the Company’s Class A and Class B common stock of $0.50 per share, payable April 4, 2024, to shareholders of record at the close of business on March 21, 2024 (the “Record Date”). During the six months ended June 30, 2024, the Company paid out $70.1 million of the aforementioned special cash dividend on its Class A and Class B common stock. As of June 30, 2024, dividends

Arhaus, Inc. and SubsidiariesNotes to Condensed Consolidated Financial Statements(Unaudited)

payable of $0.6 million is recorded in accrued other expenses and $0.5 million is included in other long-term liabilities on our condensed consolidated balance sheet.

The remaining dividends payable balance recorded on ourcondensed consolidated balance sheet relates to dividend equivalents on outstanding equity awards under the Company’s equity incentive plans that were unvested as of the Record Date.

10. Related Party Transactions

Leasing transactions

In November 2000, the Company entered into a lease agreement with Pagoda Partners, LLC, a company of which John Reed, our CEO, indir ectly owns 50%, for our warehouse in Walton Hills, Ohio. The base lease term was 17 years with a 5-year renewal option. In August 2020, the Company amended the lease agreement to extend the lease term to April 2024. The monthly rental payments are $0.1 million. In July 2023, the Company amended the lease agreement to extend the lease term to April 2034 withone additional 5-year renewal option. The monthly rental payments range from $0.1 million to $0.2 million. Rent expense was $0.9 million and $0.7 million for the six months ended June 30, 2024 and June 30, 2023, respectively. Rent expense was$0.5 million and$0.4 million for thethree months ended June 30, 2024 and June 30, 2023, respectively.

In July 2010, the Company entered into a lease agreement with Brooklyn Arhaus, a company of which our CEO and Mr. Beargie, a Director of the Company, own 85% and 15%, respectively, for our Outlet in Brooklyn, Ohio. The base lease term is 15 years with no lease renewal options. The monthly rental payments are $20 thousand. Rent expense was$0.2 million and $0.2 million for the six months ended June 30, 2024 and June 30, 2023, respectively. Rent expense was$0.1 million and$0.1 million for thethree months ended June 30, 2024 and June 30, 2023, respectively.

In March 2021, the Company entered into a lease agreement with Premier Conover, LLC, a company of which our CEO indirectly owns 40%, for a distribution center and manufacturing building, for which construction was completed in the fourth quarter of 2021. The base lease term is for 12 years, with a 10-year renewal option andtwo additional 5-year renewal options at the higher of the minimum base rent or the fair market rent at the time of renewal execution. The monthly rental payments range from $0.2 million to $0.3 million during the 12-year base lease term and from $0.4 million to $0.5 million during the 10-year renewal period. Rent expense was$2.0 million and $2.0 million for the six months ended June 30, 2024 and June 30, 2023, respectively. Rent expense was$1.0 million and$1.0 million for thethree months ended June 30, 2024 and June 30, 2023, respectively.

Other transactions

The accounts payable due to related parties for state and federal income tax refunds were $0.2 million and $2.3 million at June 30, 2024 and December 31, 2023, respectively, and are included within accounts payable on the condensed consolidated balance sheets.

11. Income Taxes

Income tax expenses were$12.6 million and $26.5 million in the six months ended June 30, 2024 and June 30, 2023, respectively. Income tax expenses were$7.8 million and $14.4 million for the three months ended June 30, 2024 and June 30, 2023, respectively. The effective tax rate was 25.3% and 26.3% for the six months ended June 30, 2024 and June 30, 2023, respectively. The effective tax rate was 26.0% and 26.3% for the three months ended June 30, 2024 and June 30, 2023, respectively.

As of June 30, 2024, no unrecognized tax benefits have been recognized. The Company files income tax returns in the U.S. and various state and local jurisdictions. The tax years after 2019 remain open to examination by the state taxing jurisdictions in which the Company is subject to tax. As of June 30, 2024, the Company was not under examination by the Internal Revenue Service or any state tax jurisdiction.