AKA BRANDS HOLDING CORP

Previous wording

We define average order value as net sales in a given period divided by the total orders placed in that period. Average order value may fluctuate as we expand into new categories or geographies or as our assortment changes.

Current wording

We define average order value as net sales in a given period divided by the total orders placed in that period. Average order value may fluctuate as we expand into new categories, geographies or channels, or as our assortment changes.

Previous wording

*Non-routine items include severance from headcount reductions; sales tax penalties; insured losses, net of recoveries; and non-routine legal matters.

Current wording

*Non-routine items include a $2.0 million accrual in connection with the legal matter described in Part II, Item 1, “Legal Proceedings” of this Quarterly Report on Form 10-Q; severance from headcount reductions; sales tax penalties; insured losses, net of recoveries; and other non-routine legal matters.

Previous wording

For the six months ended June 30, 2024, net cash (used in) provided by operating activities decreased by $11.5 million compared to net cash (used in) provided by operating activities for the six months ended June 30, 2023. This was attributable primarily to more cash used to purchase inventory in the current period, as compared to the prior period, to support growth in the U.S., partially offset by timing of payments.

Current wording

For the nine months ended September 30, 2024, net cash (used in) provided by operating activities decreased by $24.4 million compared to net cash (used in) provided by operating activities for the nine months ended September 30, 2023. This was attributable primarily to more cash used to purchase inventory in the current period, as compared to the prior period, to support growth in the U.S., partially offset by timing of payments.

Previous wording

For the six months ended June 30, 2024, Free Cash Flow decreased by $10.6 million compared to Free Cash Flow for the six months ended June 30, 2023. This was attributable primarily to more cash used to purchase inventory in the current year, as compared to the prior year, to support growth in the U.S., partially offset by the timing of planned capital expenditures and the timing of payments.

Current wording

For the nine months ended September 30, 2024, Free Cash Flow decreased by $26.6 million compared to Free Cash Flow for the nine months ended September 30, 2023. This was attributable primarily to more cash used to purchase inventory in the current year and additional capital expenditures related to new stores, as compared to the prior year, to support growth in the U.S., partially offset by the timing of payments.

Previous wording

To continue to grow our business profitably, we intend to acquire new customers and retain our existing customers at a reasonable cost. Our methods to acquire customers have evolved and will need to continue evolving in response to changes in shopping behaviors, content consumption, costs to advertise and developments in technology. As a result of macroeconomic pressures, we reduced certain of our marketing efforts, which may result in acquiring customers at slower rates. Failure to continue attracting customers efficiently and profitably would adversely impact our profitability and operating results.

Current wording

To continue to grow our business profitably, we intend to acquire new customers and retain our existing customers at a reasonable cost. Our methods to acquire customers have evolved and will need to continue evolving in response to changes in shopping behaviors, content consumption, costs to advertise and developments in technology. Competition for social media and influencer-based marketing channels continues to increase, making it more difficult to differentiate ourselves and cost-effectively acquire customers. Failure to continue attracting customers efficiently and profitably would adversely impact our profitability and operating results.

Previous wording

Our results are driven not only by the ability of our brands to acquire customers, but also by their ability to retain customers and encourage repeat purchases. We monitor retention across our entire customer base. Our brands are at various stages of rolling out and evolving loyalty programs. Failure to retain customers would adversely impact our profitability and operating results.

Current wording

Our results are driven not only by the ability of our brands to acquire customers, but also by their ability to retain customers and encourage repeat purchases. We monitor retention across our entire customer base and use loyalty programs to attempt to retain customers. Failure to retain customers would adversely impact our profitability and operating results.

Previous wording

Net sales increased by $12.9 million, or 9%, for the three months ended June 30, 2024 compared to the same period in 2023. The increase in net sales was primarily driven by a 16% increase in the number of orders we processed in the three months ended June 30, 2024 compared to the same period in 2023, partially offset by a decrease in our average order value of 5%, from $82 in 2023 to $78 in 2024. The increase in the number of orders was primarily driven by growth in the U.S. The decrease in our average order value was primarily due to adverse macroeconomic conditions in Australia and New Zealand and actions taken to improve our inventory position at Culture Kings. On a constant currency basis, net sales and average order value for the three months ended June 30, 2024 would have increased 10% and decreased 5%, respectively, as compared to the same period in 2023.

Current wording

Net sales increased by $9.1 million, or 6%, for the three months ended September 30, 2024 compared to the same period in 2023. The increase in net sales was primarily driven by a 6% increase in the number of orders we processed in the three months ended September 30, 2024 compared to the same period in 2023, which was primarily driven by growth in the U.S. across all sales channels. On a constant currency basis, net sales and average order value for the three months ended September 30, 2024 would have increased 5% and decreased 1%, respectively, compared to the same period in 2023.

Previous wording

Selling expenses increased by $5.1 million, or 7%, for the six months ended June 30, 2024 compared to the same period in 2023. This increase was driven by the 4% increase in net sales for the six months ended June 30, 2024, and the impact from growing marketplace initiatives and the opening of additional stores. The increase in selling expenses as a percentage of net sales was primarily due to growing marketplace initiatives and the opening of additional stores.

Current wording

Selling expenses increased by $5.2 million, or 14%, for the three months ended September 30, 2024 compared to the same period in 2023. This increase was driven by the opening of additional stores, as well as the 6% increase in net sales for the three months ended September 30, 2024. The increase in selling expenses as a percentage of net sales was primarily due to the opening of additional stores.

Previous wording

Marketing expenses were flat for the three months ended June 30, 2024 compared to the same period in 2023. The decrease in marketing expenses as a percentage of net sales was primarily due to higher net sales in the second quarter compared to last year, which include the impact of growing wholesale and marketplace initiatives that require reduced marketing investment.

Current wording

Marketing expenses increased by 4% for the three months ended September 30, 2024 compared to the same period in 2023. Marketing expenses as a percentage of net sales were flat in the third quarter compared to last year.

Previous wording

Total other expense, net decreased by $1.2 million, or 32%, for the three months ended June 30, 2024 compared to the same period in 2023, primarily due to the impact of changes in foreign currency exchange rates and lower interest expense from a reduction in our long-term debt balance.

Current wording

Total other expense, net increased by $0.1 million, or 4%, for the three months ended September 30, 2024 compared to the same period in 2023, primarily due to the impact of changes in foreign currency exchange rates and lower interest expense from a reduction in our long-term debt balance.

Previous wording

Provision for income tax changed by $0.1 million, or 42% for the three months ended June 30, 2024 compared to the same period in 2023. This change was due to an increase in the valuation allowance on the deferred tax assets in Australia, as well as an increase in income before income taxes in the United States.

Current wording

Benefit from income taxes changed by $3.2 million, or 97% for the three months ended September 30, 2024 compared to the same period in 2023. This change was due to an increase in the valuation allowance on the deferred tax assets in Australia, as well as an increase in income before income taxes in the United States.

Previous wording

Net sales increased by $9.3 million, or 4%, for the six months ended June 30, 2024 compared to the same period in 2023. The increase in net sales was primarily driven by a 9% increase in the number of orders we processed in 2024 compared to 2023, partially offset by a decrease in our average order value of 5%, from $81 in 2023 to $77 in 2024. The increase in the number of orders was primarily driven by growth in the U.S. The decrease in our average order value was primarily due to adverse macroeconomic conditions in Australia and New Zealand and actions taken to improve our inventory position at Culture Kings. On a constant currency basis, net sales and average order value for the six months ended June 30, 2024 would have increased 5% and decreased 4%, respectively.

Current wording

Net sales increased by $18.3 million, or 5%, for the nine months ended September 30, 2024 compared to the same period in 2023. The increase in net sales was primarily driven by a 8% increase in the number of orders we processed in 2024 compared to 2023, partially offset by a decrease in our average order value of 2%, from $81 in 2023 to $79 in 2024. The increase in the number of orders was primarily driven by growth in the U.S. across all sales channels. The decrease in our average order value was primarily due to adverse macroeconomic conditions in Australia and New Zealand. On a constant currency basis, net sales and average order value for the nine months ended September 30, 2024 would have increased 5% and decreased 3%, respectively, compared to 2023.

Previous wording

Cost of sales increased by $4.3 million, or 7%, for the three months ended June 30, 2024 compared to the same period in 2023. This increase was primarily driven by the 9% increase in net sales for the three months ended June 30, 2024 and the effect of growing wholesale and marketplace initiatives, partially offset by lower inbound air freight costs and duties. The decrease in cost of sales as a percentage of net sales was primarily due to lower inbound air freight costs and duties, partially offset by the effect of growing wholesale initiatives, as well as growing marketplace initiatives, which have a higher return rate than direct-to-consumer sales.

Current wording

Cost of sales increased by $3.6 million, or 2%, for the nine months ended September 30, 2024 compared to the same period in 2023. This increase was primarily driven by the 5% increase in net sales in 2024, as compared to 2023, and the effect of growing wholesale and marketplace initiatives, partially offset by the impact from more full price selling and improved inventory position. The decrease in cost of sales as a percentage of net sales was primarily due to the impact from more full price selling and improved inventory position, partially offset by the effect of growing wholesale initiatives, as well as growing marketplace initiatives, which have a higher return rate than direct-to-consumer sales.

Previous wording

Gross profit increased by $8.6 million, or 11%, for the three months ended June 30, 2024 compared to the same period in 2023. This increase was primarily due to the 9% increase in net sales for the three months ended June 30, 2024 and lower inbound air freight costs and duties, partially offset by the effect of growing wholesale and marketplace initiatives. Gross margin increased due to lower inbound air freight costs and duties, partially offset by the effect of growing wholesale initiatives, as well as growing marketplace initiatives, which have a higher return rate than direct-to-consumer sales.

Current wording

Gross profit increased by $14.7 million, or 7%, for the nine months ended September 30, 2024 compared to the same period in 2023. This increase was primarily driven by the 5% increase in net sales in 2024, as compared to 2023, and the impact from more full price selling and improved inventory position, partially offset by the effect of growing wholesale and marketplace initiatives. Gross margin increased primarily due to the impact from more full price selling and improved inventory position, partially offset by the effect of growing wholesale initiatives, as well as growing marketplace initiatives, which have a higher return rate than direct-to-consumer sales.

Previous wording

Selling expenses increased by $5.3 million, or 15%, for the three months ended June 30, 2024 compared to the same period in 2023. This increase was driven by the 9% increase in net sales for the three months ended June 30, 2024, and the impact from growing marketplace initiatives and the opening of additional stores. The increase in selling expenses as a percentage of net sales was primarily due to growing marketplace initiatives and the opening of additional stores.

Current wording

Selling expenses increased by $10.3 million, or 10%, for the nine months ended September 30, 2024 compared to the same period in 2023. This increase was driven by the opening of additional stores and the impact from growing marketplace initiatives, as well as the 5% increase in net sales for the nine months ended September 30, 2024. The increase in selling expenses as a percentage of net sales was primarily due to growing marketplace initiatives and the opening of additional stores.

Previous wording

General and administrative expenses decreased by $1.5 million, or 3%, for the six months ended June 30, 2024 compared to the same period in 2023. The decrease, as well as the decrease in general and administrative expenses as a percentage of net sales, was primarily driven by a $1.6 million decrease in professional and administrative fees, a $1.5 million decrease in sales tax penalties and interest, a $1.1 million decrease in intangible amortization and a $0.6 million decrease in insurance costs. Partially offsetting these decreases was a $2.1 million increase in incentive compensation and a $1.1 million increase in non-routine legal matters.

Current wording

General and administrative expenses increased by $1.7 million, or 2%, for the nine months ended September 30, 2024 compared to the same period in 2023. The increase was primarily driven by a $4.2 million increase in incentive and stock-based compensation expense, a $2.0 million accrual for a legal matter, and a $1.5 million increase in other non-routine legal matters. Partially offsetting these increases was a $2.4 million decrease in professional and administrative fees, a $1.4 million decrease in sales tax penalties and interest, a $1.4 million decrease in intangible amortization and a $0.9 million decrease in insurance costs. The decrease in general and administrative expenses as a percentage of net sales was primarily due to higher sales compared to the prior year.

Previous wording

Other expense, net decreased by $2.2 million, or 30%, for the six months ended June 30, 2024 compared to the same period in 2023, primarily due to lower interest expense from a reduction in our long-term debt balance, the impact of changes in foreign currency exchange rates and the loss recognized on the sale of the Rebdolls reporting unit last year.

Current wording

Other expense, net decreased by $2.1 million, or 19%, for the nine months ended September 30, 2024 compared to the same period in 2023, primarily due to lower interest expense from a reduction in our long-term debt balance, the impact of changes in foreign currency exchange rates and the loss recognized on the sale of the Rebdolls reporting unit in 2023.

Previous wording

Provision for income taxes increased by $1.0 million, or 187% for the six months ended June 30, 2024 compared to the same period in 2023. This change was due to an increase in the valuation allowance on the deferred tax assets in Australia, as well as an increase in the income before income taxes in the United States.

Current wording

(Provision for) benefit from income taxes changed by $4.2 million, or 110% for the nine months ended September 30, 2024 compared to the same period in 2023. This change was due to an increase in the valuation allowance on the deferred tax assets in Australia, as well as an increase in the income before income taxes in the United States.

Previous wording

As of June 30, 2024, our principal sources of liquidity were cash and cash equivalents totaling $25.5 million, our revolving line of credit and our term loan accordion provision.

Current wording

As of September 30, 2024, our principal sources of liquidity were cash and cash equivalents totaling $23.1 million, our revolving line of credit and our term loan accordion provision.

Previous wording

In connection with our initial public offering (the “IPO”), we entered into a senior secured credit facility comprised of a $100.0 million term loan and a $50.0 million revolving line of credit, with an option of up to $50.0 million in an additional term loan through an accordion provision. We used borrowings under this credit facility, together with a portion of the proceeds from the IPO, to repay our previous debt in full. As of June 30, 2024, we owed a combined $93.3 million in term loan and accordion borrowings, as well as $14.5 million borrowed under the revolving line of credit. The term loan requires us to make amortized annual payments of 5.0% during the first and second years, 7.5% during the third and fourth years and 10.0% during the fifth year with the balance of the loan due at maturity. Borrowings under the term loan accrue interest at Term SOFR (as defined in the credit agreement for the senior secured credit facility (the “Credit Agreement”)) plus an applicable margin dependent upon our net leverage ratio, as defined in the Credit Agreement. The revolving line of credit, when used, also accrues interest at Term SOFR plus an applicable margin dependent upon our net leverage ratio. The highest interest rates under the Credit Agreement for both the term loan and the revolving line of credit occur at a net leverage ratio of greater than 2.75x, yielding an interest rate of a benchmark rate plus 3.25%. The accordion provision allows us to borrow additional amounts of term loan at terms to be agreed upon at the time of issuance, but on substantially the same basis as the original term loan. As of June 30, 2024, principal payments of our term loan and accordion for the next twelve months are anticipated to total $6.3 million, which reflects the impact of the early prepayments made in 2023 and 2024.

Current wording

In connection with our initial public offering (the “IPO”), we entered into a senior secured credit facility comprised of a $100.0 million term loan and a $50.0 million revolving line of credit, with an option of up to $50.0 million in an additional term loan through an accordion provision. We used borrowings under this credit facility, together with a portion of the proceeds from the IPO, to repay our previous debt in full. As of September 30, 2024, we owed a combined $91.2 million in term loan and accordion borrowings, as well as $21.5 million borrowed under the revolving line of credit. The term loan requires us to make amortized annual payments of 5.0% during the first and second years, 7.5% during the third and fourth years and 10.0% during the fifth year with the balance of the loan due at maturity. Borrowings under the term loan accrue interest at Term SOFR (as defined in the credit agreement for the senior secured credit facility (the “Credit Agreement”)) plus an applicable margin dependent upon our net leverage ratio, as defined in the Credit Agreement. The revolving line of credit, when used, also accrues interest at Term SOFR plus an applicable margin dependent upon our net leverage ratio. The highest interest rates under the Credit Agreement for both the term loan and the revolving line of credit occur at a net leverage ratio of greater than 2.75x, yielding an interest rate of a benchmark rate plus 3.25%. The accordion provision allows us to borrow additional amounts of term loan at terms to be agreed upon at the time of issuance, but on substantially the same basis as the original term loan. As of September 30, 2024, principal payments of our term loan and accordion for the next twelve months are anticipated to total $6.3 million, which reflects the impact of the prepayments made in 2024.

Previous wording

During the six months ended June 30, 2024, net cash (used in) provided by operating activities decreased by $11.5 million as compared to the same period in 2023. This was attributable primarily to more cash used to purchase inventory in the current period, as compared to the prior period, to support growth in the U.S., partially offset by timing of payments.

Current wording

During the nine months ended September 30, 2024, net cash (used in) provided by operating activities decreased by $24.4 million as compared to the same period in 2023. This was attributable primarily to more cash used to purchase inventory in the current period, as compared to the prior period, to support growth in the U.S., partially offset by timing of payments.

Previous wording

Our primary investing activities have consisted of acquisitions to support our overall business growth, investments in our fulfillment centers and our internally developed software to support our infrastructure, and investments in stores. Purchases of property and equipment may vary from period to period due to timing of the expansion of our operations.

Current wording

Our primary investing activities have consisted of acquisitions to support our overall business growth and investments in our fulfillment centers, our stores and our internally developed software to support our infrastructure. Purchases of property and equipment may vary from period to period due to timing of the expansion of our operations.

Previous wording

During the six months ended June 30, 2024, net cash used in investing activities decreased by $0.9 million, as compared to the same period in 2023. This was attributable to the timing of planned capital expenditures.

Current wording

During the nine months ended September 30, 2024, net cash used in investing activities increased by $2.2 million, as compared to the same period in 2023. This was attributable to additional capital expenditures related to new stores compared to the prior year.

Previous wording

During the six months ended June 30, 2024, net cash (used in) provided by financing activities increased by $36.2 million, as compared to the same period in 2023. This was primarily attributable to the $13.3 million in net proceeds from our senior secured credit facility in 2024, as well as the net repayment of $23.9 million in 2023 of borrowings issued under our senior secured credit facility.

Current wording

During the nine months ended September 30, 2024, net cash provided by (used in) financing activities increased by $54.5 million, as compared to the same period in 2023. This was primarily attributable to the $18.2 million in net proceeds from our senior secured credit facility in 2024, as well as the net repayment of $37.3 million in 2023 of borrowings under our senior secured credit facility.

Previous wording

On May 25, 2023, the Company's board of directors approved the Share Repurchase Program, authorizing the Company to repurchase up to $2.0 million of shares of the Company’s common stock. Subsequently, in 2023, the Company’s board of directors approved an additional repurchase capacity under the Share Repurchase Program of $3.0 million of shares of the Company’s common stock. The timing of any repurchases by the Company and the actual number of shares repurchased are at the Company’s discretion, and, in deciding when to repurchase shares and the amount of shares to repurchase, the Company will consider available liquidity, general market and economic conditions, alternate uses for the capital and other factors. Share repurchases may be made from time to time through a Rule 10b5-1 trading plan, open market transactions, block trades or in private transactions in accordance with applicable securities laws and regulations and other legal requirements. The Share Repurchase Program may be suspended or discontinued at any time and has no expiration date. All repurchased shares under the Share Repurchase Program will be retired.

Current wording

On May 25, 2023, our board of directors approved the Share Repurchase Program, authorizing us to repurchase up to $2.0 million of shares of our common stock. Subsequently, in 2023, our board of directors approved an additional repurchase capacity under the Share Repurchase Program of $3.0 million of shares of our common stock. The timing of any of our repurchases and the actual number of shares repurchased are at our discretion, and, in deciding when to repurchase shares and the amount of shares to repurchase, we will consider available liquidity, general market and economic conditions, alternate uses for the capital and other factors. Share repurchases may be made from time to time through a Rule 10b5-1 trading plan, open market transactions, block trades or in private transactions in accordance with applicable securities laws and regulations and other legal requirements. The Share Repurchase Program may be suspended or discontinued at any time and has no expiration date. All repurchased shares under the Share Repurchase Program will be retired.

Previous wording

During the three months ended June 30, 2024, we repurchased 11,046 shares of our common stock under the Share Repurchase Program for $0.1 million, at an average price of $11.41 per share. During the six months ended June 30, 2024, we repurchased 117,199 shares of our common stock under the Share Repurchase Program for $1.2 million, at an average price of $10.16 per share.

Current wording

During the three months ended September 30, 2024, we repurchased 3,380 shares of our common stock under the Share Repurchase Program for $0.1 million, at an average price of $24.66 per share. During the nine months ended September 30, 2024, we repurchased 120,579 shares of our common stock under the Share Repurchase Program for $1.3 million, at an average price of $10.57 per share.