Solo Brands Inc
For the period ended Jun 30, 2024. Filed Aug 7, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2024 · Filed Aug 7, 2024
SBDS$4.050.0%Stored close · as of Jul 8, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-03-31; filed 2024-05-09.
0001870600-24-000045
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-06-30; filed 2024-08-07.
0001870600-24-000099
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 63 previous paragraphs and 72 current paragraphs.
35 unchanged; 24 reworded; 10 added; 4 removed; 0 previous and 3 current paragraphs rearranged.
Tables are not compared: 8 previous and 14 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (10)
Current report
For the three months ended June 30, 2024, we experienced an increase in our net sales from $130.9 million for the three months ended June 30, 2023 to $131.6 million for the current period. The growth in net sales was primarily driven by the continued growth in our retail channel net sales(1). Similar to prior periods, we continued to see net sales channel mix shift from DTC to retail, with retail channel net sales growing 4.8%. While the DTC channel net sales trailed those of the prior period of the prior year, primarily resulting from the sustained demand for lower priced items within the DTC channel, the decline was nominal within the second quarter.
Current report
(1)Retail channel net sales were previously referred to as wholesale channel net sales. Retail channel net sales have been reflected in this Quarterly Report and will be reflected as such in subsequent filings of the Company with the SEC.
Current report
Three and Six Months Ended June 30, 2024 Compared to the Three and Six Months Ended June 30, 2023
Current report
The increase in net sales for the three months ended June 30, 2024 compared to the three months ended June 30, 2023 was driven by the increase in orders within the retail channel net sales offset by a slight decline in DTC net sales. The increase in order volume within the retail sales channel was driven by the continued growth with our retail strategic partnerships.
Current report
The increase in cost of goods sold for the three months ended June 30, 2024 compared to the three months ended June 30, 2023 and the decreases in gross profit and gross margin for the same period was primarily the result of certain fair value adjustments related to acquired inventory in the 2023 acquisitions.
Current report
Six Months Ended June 30, 2024 Compared to the Six Months Ended June 30, 2023
Current report
The increase in cost of goods sold for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 was primarily the result of sales activity, with no comparable amount in the prior period, and certain fair value adjustments related to acquired inventory, both stemming from the 2023 acquisitions.
Current report
The fixed cost increases for the three months ended June 30, 2024 compared to the three months ended June 30, 2023 were primarily the result of a $1.2 million increase in employee-related costs driven by separation of certain management personnel and addition of senior leadership positions, as well as additional increases in professional services and information technology expenditures, each of which were incurred to support future growth plans.
Current report
Six Months Ended June 30, 2024 Compared to the Six Months Ended June 30, 2023
Current report
The variable cost increases for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 were primarily the result of a $5.6 million increase in marketing spend and a $4.1 million increase in distribution costs resulting from increases in shipping and fulfillment costs and the increase in order volume.
Removed paragraphs (4)
Previous report
Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023
Previous report
Partially offsetting the decrease noted above, the DTC net sales channel included $1.3 million of activity related to the businesses acquired in 2023, for which the comparative periods did not include such activity. The wholesale channel net sales continued to benefit from growth within our retail strategic partnerships.
Previous report
Gross margin decreased for the three months ended March 31, 2024 compared to the three months ended March 31, 2023, the result of the shift in sales channel mix with growth in wholesale channel net sales, which typically have lower gross margins than DTC sales, whereas the DTC channel net sales declined.
Previous report
•partially offset by a $5.4 million increase in cash provided by changes in accounts payable as a result of the timing of payments for the three months ended March 31, 2024 when compared to the prior year; and
Reworded paragraphs (24)
Previous wording
We own and operate premium brands with ingenious products that we market and deliver through our direct-to-consumer (“DTC”) platform and wholesale partnerships. We aim to help our customers enjoy good moments that create lasting memories. We consistently deliver innovative, high-quality products that are loved by our customers and revolutionize the outdoor experience, build community and help everyday people reconnect with what matters most.
Current wording
We own and operate premium brands with ingenious products that we market and deliver through our direct-to-consumer (“DTC”) platform and retail partnerships. We aim to help our customers enjoy good moments that create lasting memories. We consistently deliver innovative, high-quality products that are loved by our customers and revolutionize the outdoor experience, build community and help everyday people reconnect with what matters most.
Previous wording
For the three months ended March 31, 2024, we experienced a decrease in our net sales from $88.2 million for the three months ended March 31, 2023 to $85.3 million for the current period. The decline in net sales was primarily driven by the decline in our DTC net sales channel. Similar to prior periods, we continued to see net sales channel mix shift from direct to consumer to wholesale, with wholesale net sales growing 2.5%. Further, we experienced a decline in direct to consumer net sales which can be attributed to inefficient marketing in the current quarter, resulting from non-productive spend associated with a legacy marketing contract.
Current wording
For the six months ended June 30, 2024, we experienced a decrease in our net sales from $219.1 million for the six months ended June 30, 2023 to $216.9 million for the current period. The decline in net sales was primarily driven by a decline in DTC channel net sales, primarily attributable to the first quarter. The first quarter DTC channel net sales decline was driven by inefficient marketing, resulting from non-productive spend associated with a legacy marketing contract. The decline was offset in part by increases within our retail channel net sales, resulting from the continued growth within our retail strategic partnerships and the net sales channel mix shift from DTC to retail.
Previous wording
Net sales are comprised of DTC and wholesale channel sales to retail partners. Net sales in both channels reflect the impact of partial shipments, product returns, and discounts for certain sales programs or promotions.
Current wording
Net sales are comprised of DTC and retail channel net sales to retail partners. Net sales in both channels reflect the impact of partial shipments, product returns, and discounts for certain sales programs or promotions.
Previous wording
Our net sales have historically included a seasonal component. In the DTC net sales channel, our historical net sales tend to be highest in our second and fourth quarters, while our wholesale net sales channel has generated higher sales in the first and third quarters. Additionally, we expect variances in our net sales throughout the year relative to the timing of new product launches.
Current wording
Our net sales have historically included a seasonal component. In the DTC net sales channel, our historical net sales tend to be highest in our second and fourth quarters, while our retail net sales channel has generated higher sales in the first and third quarters. Additionally, we expect variances in our net sales throughout the year relative to the timing of new product launches.
Previous wording
The decrease in net sales for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 was primarily the result of less effective marketing and thereby lower site traffic within our DTC net sales channel.
Current wording
The decrease in net sales for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 was primarily the result of less effective marketing in the first quarter of 2024 and thereby lower site traffic within our DTC net sales channel. The retail channel net sales continued to benefit from growth within our retail strategic partnerships, evidenced by the increase in order volume throughout the first six months of the year..
Previous wording
The decrease in gross profit for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 was primarily the result of the decrease in net sales, coupled with a shift in channel mix to more wholesale channel net sales when compared to the prior year.
Current wording
The decrease in gross profit and gross margin for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 was primarily the result of the decrease in net sales, coupled with product mix shift and inventory fair value write-ups, stemming from the 2023 acquisitions.
Previous wording
The increase in SG&A for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 was driven by $5.5 million of variable cost increases and $1.7 million of fixed cost decreases.
Current wording
The increase in SG&A for the three months ended June 30, 2024 compared to the three months ended June 30, 2023 was driven by $4.5 million of variable cost increases and $2.8 million of fixed cost increases.
Previous wording
The variable cost increases for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 were primarily the result of a $3.0 million increase in marketing spend and a $2.3 million increase in distribution costs.
Current wording
The variable cost increases for the three months ended June 30, 2024 compared to the three months ended June 30, 2023 were primarily the result of a $2.6 million increase in marketing spend and a $1.7 million increase in distribution costs resulting from increases in shipping and fulfillment costs due to the increase in order volume.
Previous wording
The fixed cost decreases for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 were primarily the result of a $2.8 million decline in employee-related costs primarily as a result of decreased equity-based compensation and bonus expense, offset in part by an increase in wages as a result of the additional hires made by the Company to support future growth plans. Partially offsetting the decline in fixed costs, certain fixed cost increases were incurred, including $0.5 million in professional services costs and $0.4 million in software expenses.
Current wording
The fixed cost increases for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 were primarily the result of increases of $1.3 million in professional services costs and $1.0 million in software expenses, offset in part by a $1.6 million decline in employee-related costs stemming from decreased equity-based compensation and bonus expense.
Previous wording
Other operating expenses include certain costs incurred as a result of being a public company, acquisition-related expenses, business optimization and expansion expenses and management transition costs.
Current wording
Other operating expenses include certain costs incurred as a public company, acquisition-related expenses, business optimization and expansion expenses and management transition costs.
Previous wording
Other operating expenses increased for the three months ended March 31, 2024 compared to the three months ended March 31, 2023, primarily as a result of increases to management transition costs resulting from expenses related to the addition of several senior leaders and strategic consulting arrangements.
Current wording
Other operating expenses increased for the three and six months ended June 30, 2024 compared to the three and six months ended June 30, 2023, primarily as a result of increases to management transition costs resulting from expenses related to additional senior leadership positions and strategic consulting engagements.
Previous wording
Interest expense, net increased for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 due to an increase in the weighted average interest rate on our total debt balance, as well as a higher average debt balance in the current year when compared to the prior year.
Current wording
Interest expense, net increased for the three and six months ended June 30, 2024 compared to the three and six months ended June 30, 2023 due to an increase in the weighted average interest rate on our total debt balance, as well as a higher average debt balance in the current year when compared to the prior year.
Previous wording
Income taxes represents federal, state, and local income taxes on the Company's allocable share of taxable income of Holdings, as well as Oru's and Chubbies' federal, state and foreign tax expense related to international subsidiaries. We are the sole managing member of Holdings, and as a result, consolidate the financial results of Holdings. Holdings is treated as a partnership for U.S. federal and most applicable state and local income tax purposes. As a partnership, Holdings is not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by Holdings is passed through to and included in the taxable income or loss of its members, including us, on a pro rata basis. We are subject to U.S. federal income taxes, in addition to state and local income taxes with respect to our allocable share of any taxable income or loss of Holdings, as well as any stand-alone income or loss generated by Solo Brands, Inc.
Current wording
The Company is subject to U.S. federal, federal, state, and local income taxes on the Company's allocable share of taxable income of Holdings. The subsidiaries of Holdings are also subject to income taxes in the foreign jurisdictions in which they operate. We are the sole managing member of Holdings, and as a result, consolidate the financial results of Holdings. Holdings is treated as a partnership for U.S. federal and most applicable state and local income tax purposes. As a partnership, Holdings is generally not subject to U.S. federal and certain state and local income taxes. Instead, taxable income or loss is allocated to its members on a pro rata basis. We are subject to U.S. federal income taxes, in addition to state and local income taxes with respect to our allocable share of any taxable income or loss of Holdings, as well as any stand-alone income or loss generated by Solo Brands, Inc.
Previous wording
Income tax expense decreased for the three months ended March 31, 2024 when compared to the three months ended March 31, 2023, primarily due to the reduction of and shift of forecasted income between our partnership and corporate entities in the current period.
Current wording
Income tax expense decreased for the three and six months ended June 30, 2024 when compared to the three and six months ended June 30, 2023, driven by a decrease to the forecasted AETR and the shift of income to certain corporate subsidiaries within our partnership, a reduction of income attributable to noncontrolling interests, nondeductible compensation and the impacts of other discrete items recorded in the current period.
Previous wording
In addition to the above, the amendment on September 1, 2021 included a provision to borrow up to $100.0 million under a term loan (the “Term Loan”). The proceeds from the Term Loan were used to fund the Chubbies acquisition. The Term Loan matures on September 1, 2026 and bears interest at a rate equal to the base rate as defined in the agreement plus an applicable margin, which as of March 31, 2024, was based on SOFR. We were required to make quarterly principal payments on the Term Loan beginning on December 31, 2021. All outstanding principal and interest due on the Term Loan are due at maturity. All required principal payments were made on time and with available cash through the three months ended March 31, 2024. Interest payments are due on a quarterly basis under the Term Loan, with the same due dates as noted for the Revolving Credit Facility above.
Current wording
In addition to the above, the amendment on September 1, 2021 included a provision to borrow up to $100.0 million under a term loan (the “Term Loan”). The proceeds from the Term Loan were used to fund the Chubbies acquisition. The Term Loan matures on May 12, 2026 and bears interest at a rate equal to the base rate as defined in the agreement plus an applicable margin, which as of June 30, 2024, was based on SOFR. We were required to make quarterly principal payments on the Term Loan beginning on December 31, 2021. All outstanding principal and interest due on the Term Loan are due at maturity. All required principal payments were made on time and with available cash through the six months ended June 30, 2024. Interest payments are due on a quarterly basis under the Term Loan, with the same due dates as noted for the Revolving Credit Facility above.
Previous wording
The $33.2 million increase in cash used in operating activities period over period, as shown in the table above, was due to a $25.4 million increase in cash usage from changes in operating assets and liabilities (“working capital”) and a $7.9 million increase in cash usage from changes in net income (loss) after non-cash adjustments, primarily due to the decline in revenue coupled with the increase in marketing spend and distribution costs in the current period. The decrease in cash provided by working capital was primarily due to:
Current wording
The $54.6 million increase in cash used in operating activities period over period, as shown in the table above, was due to a $26.8 million increase in cash usage from changes in operating assets and liabilities (“working capital”) and a $27.8 million increase in cash usage from changes in net income (loss) after non-cash adjustments, primarily due to the decline in gross profit coupled with the increase in selling, general and administrative expenses driven by increases in marketing spend and distribution costs in the current period. The decrease in cash provided by working capital was primarily due to:
Previous wording
•a $13.4 million increase in cash used in changes in accrued expenses and other current liabilities primarily due to larger cash outflows in three months ended March 31, 2024 when compared to the same period in the prior year for employee-related expenses, tax payables and advertising expenses;
Current wording
•a $13.9 million increase in cash used in changes in accrued expenses and other current liabilities primarily due to larger cash outflows in the six months ended June 30, 2024 when compared to the same period in the prior year for accrued inventory purchases;
Previous wording
•a $9.0 million decrease in cash used in changes in inventory due to increased inventory replenishment for the three months ended March 31, 2024 upon exiting the fourth quarter peak selling season as a result of a lower ending inventory balance as of the year ended 2023 when compared to the same period in the prior year;
Current wording
•a $10.1 million decrease in cash provided by changes in inventory due to increased inventory replenishment for the six months ended June 30, 2024, as a result of a lower ending inventory balance upon exiting the fourth quarter of the year ended 2023 when compared to the prior year period, whereas the prior year period benefited from a higher ending inventory balance upon exiting the fourth quarter of the year ended 2022;
Previous wording
•a $4.6 million decrease in cash used in changes in prepaid expenses and other current assets primarily due to increases in tax receivables in the three months ended March 31, 2024 compared to the same period in the prior year;
Current wording
•a $7.4 million increase in cash used in changes in prepaid expenses and other current assets primarily due to increases in tax receivables and prepaid marketing in the six months ended June 30, 2024 compared to the same period in the prior year; partially offset by
Previous wording
•a $5.1 million decrease in cash provided by changes in accounts receivable as a result of a larger volume of wholesale sales through our key strategic retailers and our wholesale network towards the end of the first quarter of 2024 compared to the same period in the prior year;
Current wording
•a $3.8 million increase in cash provided by changes in accounts receivable as a result of a larger volume of retail sales through our key strategic retailers and our retail network at period end in the second quarter of 2024 compared to the same period in the prior year; with
Previous wording
•the remaining changes to working capital were deemed immaterial to disclose separately.
Current wording
•the remaining changes to working capital deemed immaterial to disclose separately.
Previous wording
The $0.6 million increase in cash used in investing activities in the current period when compared to the prior period resulted from continued investments to support our growth.
Current wording
The $3.7 million decrease in cash used in investing activities in the current period when compared to the prior period was due to non-recurring acquisition activity in the prior period, partially offset by an increase in capital expenditures from continued investments to support our future growth.
Previous wording
The $26.9 million decrease in cash used in financing activities in the current period when compared to the prior period was due to net draws on the Revolving Credit Facility.
Current wording
The $14.0 million decrease in cash used in financing activities in the current period when compared to the prior period was primarily the result of non-recurring common stock repurchases in the prior period of $28.5 million, partially offset by a reduction in net draws on the Revolving Credit Facility.
Previous wording
See Note 2 - Significant Accounting Policies, to the audited consolidated financial statements included in our 2023 Form 10-K for more information about our significant accounting policies, including our critical accounting policies. The critical accounting estimates that reflect our more significant judgments and estimates used in the preparation of our consolidated financial statements are described in Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations,” included in our 2023 Form 10-K. During the three months ended March 31, 2024, there were no material changes to our critical accounting policies and estimates from those discussed in our 2023 Form 10-K. Within the context of these critical accounting estimates, we are not currently aware of any reasonably likely events or circumstances that would result in materially different amounts being reported.
Current wording
See Note 2 - Significant Accounting Policies, to the audited consolidated financial statements included in our 2023 Form 10-K for more information about our significant accounting policies, including our critical accounting policies. The critical accounting estimates that reflect our more significant judgments and estimates used in the preparation of our consolidated financial statements are described in Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations,” included in our 2023 Form 10-K. During the six months ended June 30, 2024, there were no material changes to our critical accounting policies and estimates from those discussed in our 2023 Form 10-K. Within the context of these critical accounting estimates, we are not currently aware of any reasonably likely events or circumstances that would result in materially different amounts being reported.
Rearranged current paragraphs (3)
Current report — wording carried from elsewhere
Three Months Ended June 30, 2024 Compared to the Three Months Ended June 30, 2023
Current report — wording carried from elsewhere
Three Months Ended June 30, 2024 Compared to the Three Months Ended June 30, 2023
Current report — wording carried from elsewhere
The increase in SG&A for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 was driven by $9.9 million of variable cost increases and $1.1 million of fixed cost increases.