Solo Brands Inc

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 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.

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 historically generated higher sales in the first and third quarters. For 2024, the Company has identified a shift in the trend of the retail net sales channel, and expects higher sales to be generated in the first and fourth quarters. This trend may continue in the future. Additionally, we expect variances in our net sales throughout the year relative to the timing of new product launches.

Previous 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.

Current wording

The increase in SG&A for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 was driven by a $6.8 million increase in the fair market value changes in contingent consideration related to certain of our 2023 acquisitions and $1.1 million of variable cost increases, partially offset by $3.8 million of fixed cost decreases.

Previous wording

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 wording

The fixed cost decreases for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 were primarily the result of a decrease in employee-related costs primarily driven by a significant reduction in equity based compensation expense and bonus expense, offset in part by costs associated with the separation of certain management personnel and addition of senior leadership positions. Partially offsetting the net decrease in employee-related costs were increases in professional services and information technology expenditures, each of which were incurred to support future growth plans.

Previous wording

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.

Current wording

The increase in SG&A for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 was driven by a $7.0 million increase in fair market value changes in contingent consideration related to certain of our 2023 acquisitions and $11.0 million of variable cost increases, partially offset by $2.7 million of fixed cost decreases.

Previous 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.

Current wording

The fixed cost decreases for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 were primarily the result of a $7.5 million decrease in employee-related costs primarily driven by a significant reduction in equity based compensation expense and bonus expense, offset in part by separation of certain management personnel and addition of senior leadership positions. Partially offsetting this decrease were increases of $1.7 million in professional services costs, $1.8 million in software expenses and $1.2 million in rent expense.

Previous 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.

Current wording

Other operating expenses increased for the three and nine months ended September 30, 2024 compared to the three and nine months ended September 30, 2023, primarily as a result of increases to management transition costs, including additional cost associated with onboarding senior leadership positions and strategic consulting engagements. These strategic consulting arrangements consisted primarily of engagements for brand strategy, product roadmap development, information technology, accounting and finance transformation and brand marketing strategy.

Previous 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.

Current wording

Interest expense, net increased for the three and nine months ended September 30, 2024 compared to the three and nine months ended September 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

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.

Current wording

The Company is subject to U.S. federal, state, and local income taxes on the Company's allocable share of taxable income of Solo Stove Holdings, LLC (“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

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.

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 September 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 nine months ended September 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 Revolving Credit Facility and Term Loan are subject to certain financial covenants as described in our 2023 Form 10-K in Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations.” As of June 30, 2024, we were in compliance with all required financial covenants.

Current wording

The Revolving Credit Facility and Term Loan are subject to certain financial and non-financial covenants as described in our 2023 Form 10-K in Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations.” As of September 30, 2024, we were in compliance with all required covenants.

Previous 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:

Current wording

The $41.6 million increase in cash used in operating activities period over period, as shown in the table above, was due to a $2.6 million increase in cash usage from changes in operating assets and liabilities (“working capital”) and a $39.1 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 nine month period of 2024. The decrease in cash provided by working capital was primarily due to:

Previous 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;

Current wording

•a $37.0 million decrease in cash provided by changes in inventory due to increased inventory replenishment for the nine months ended September 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 $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;

Current wording

•a $11.6 million increase in cash used in changes in accrued expenses and other current liabilities primarily due to reductions in accrued bonus and larger cash outflows in the nine months ended September 30, 2024 when compared to the same period in the prior year for accrued inventory purchases; partially offset by

Previous 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

Current wording

•a $9.5 million decrease in cash used in 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 third quarter of 2024 compared to the same period in the prior year; with

Previous wording

•the remaining changes to working capital deemed immaterial to disclose separately.

Current wording

•the remaining changes to working capital were deemed immaterial to disclose separately.

Previous 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.

Current wording

The $39.4 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.

Previous 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.

Current wording

The $1.4 million increase in cash provided by 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 $37.0 million, which were offset by net draws on the Revolving Credit Facility and payments on the Term Loan.

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 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.

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 nine months ended September 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.