dtc-20230630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________

Commission File Number 001-40979

Solo Brands, Inc.

(Exact Name of Registrant as Specified in its Charter)


Delaware									87-1360865
State or Other Jurisdiction of Incorporation or Organization									I.R.S. Employer Identification No.

1001 Mustang Dr.
Grapevine, TX									76051
Address of Principal Executive Offices									Zip Code

(817) 900-2664

Registrant’s Telephone Number, Including Area Code

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, $0.001 par value per share	DTC	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Smaller reporting company	☐
Accelerated filer	☒	Emerging growth company	☒
Non-accelerated filer	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August 1, 2023, there were 57,674,643 shares of the registrant’s Class A common stock, $0.001 par value per share, outstanding and 32,789,666 shares of the registrant’s Class B common stock, $0.001 par value per share, outstanding.


TABLE OF CONTENTS
			Page
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS			i
Where You Can Find More Information			i

PART I. FINANCIAL INFORMATION			1
Item 1. Unaudited Financial Statements			1
Consolidated Balance Sheets as of June 3 0 , 2023 and December 31, 2022			1
Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Six Month Periods Ended June 3 0 , 2023 and 2022			2
Consolidated Statements of Cash Flows for the Six Month Periods Ended June 3 0 , 2023 and 2022			3
Consolidated Statement of Equity for the Three and Six Month Period s Ended June 3 0 , 2023			4
Consolidated Statement of Equity for the Three and Six Month Period s Ended June 3 0 , 2022			5
Notes to the Unaudited Consolidated Financial Statements			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			15
Item 3. Quantitative and Qualitative Disclosures About Market Risk			21
Item 4. Controls and Procedures			21
PART II. OTHER INFORMATION			23
Item 1. Legal Proceedings			23
Item 1A. Risk Factors			23
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities			23
Item 3. Defaults Upon Senior Securities			23
Item 4. Mine Safety Disclosures			24
Item 5. Other Information			24
Item 6. Exhibits			25
Signatures			26

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Quarterly Report”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this Quarterly Report may be forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “targets,” “projects,” “contemplates,” “believes,” “estimates,” “forecasts,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. Forward-looking statements contained in this Quarterly Report include, but are not limited to, statements regarding our future results of operations and financial position, macroeconomic conditions, industry and business trends, business strategy, plans, market growth and our objectives for future operations.

The forward-looking statements in this Quarterly Report are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. Forward-looking statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including, but not limited to, our ability to manage our future growth effectively, our ability to expand into additional markets; our ability to maintain and strengthen our brand to generate and maintain ongoing demand for our products, our ability to cost-effectively attract new customers and retain our existing customers; our failure to maintain product quality and product performance at an acceptable cost, the impact of product liability and warranty claims and product recalls; the highly competitive market in which we operate, business interruptions resulting from geopolitical actions, natural disasters, or pandemics, risks associated with our international operations, problems with, or loss of, our suppliers or an inability to obtain raw materials, the ability of our stockholders to influence corporate matters, and the important factors discussed in Part I, Item 1A. “Risk Factors” in the Annual Report on Form 10-K for the year ended December 31, 2022 (“2022 Form 10-K”) filed with Securities and Exchange Commission (the “SEC”) on March 9, 2023, as any such factors may be updated from time to time in its other filings with the SEC. The forward-looking statements in this Quarterly Report are based upon information available to us as of the date of this Quarterly Report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

You should read this Quarterly Report and the documents that we reference in this Quarterly Report and have filed as exhibits to this Quarterly Report with the understanding that our actual future results, performance and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. These forward-looking statements speak only as of the date of this Quarterly Report. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained in this Quarterly Report, whether as a result of any new information, future events or otherwise.

WHERE YOU CAN FIND MORE INFORMATION

We may use our website as a distribution channel of material information about the Company including through press releases, investor presentations, and notices of upcoming events. We intend to utilize the investor relations section of our website at https://investors.solobrands.com as a channel of distribution to reach public investors and as a means of disclosing material non-public information for complying with disclosure obligations under Regulation FD. We also intend to use certain social media channels, including, but not limited to, Twitter, Facebook and LinkedIn, as a means of communicating with the public, our customers and investors about our Company, our products, and other matters. While not all the information that the Company posts to its website and brand related social media channels may be deemed to be of a material nature, some information may be, and we therefore encourage investors, the media, and others interested in our Company to review the information we make public in these locations.

All periodic and current reports, registration statements and other filings that we have filed or furnished to the SEC, including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) of the Exchange Act, are available free of charge from the SEC’s website (www.sec.gov) and on our website at https://investors.solobrands.com. Such documents are available as soon as reasonably practicable after electronic filing of the material with the SEC.

Any reference to our website or social media channels does not constitute incorporation by reference of the information contained on or available through our website, and you should not consider such information to be a part of the periodic and current reports, registration statements or other filings that we file or furnish with the SEC from time to time.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

SOLO BRANDS, INC.

Consolidated Balance Sheets

(Unaudited)


(In thousands)	June 30, 2023		December 31, 2022
ASSETS
Current assets
Cash and cash equivalents	$	60,603	$	23,293
Accounts receivable, net of allowance for credit losses of $1.7 million and $1.5 million	24,072		26,176
Inventory	113,657		132,990
Prepaid expenses and other current assets	13,365		12,639
Total current assets	211,697		195,098
Non-current assets
Property and equipment, net	20,704		15,166
Intangible assets, net	229,979		234,632
Goodwill	384,896		382,658
Other non-current assets	33,890		34,793
Total non-current assets	669,469		667,249
Total assets	$	881,166	$	862,347

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	13,870	$	11,783
Accrued expenses and other current liabilities	45,643		43,377

Deferred revenue	3,725		6,848
Current portion of long-term debt	5,000		5,000
Total current liabilities	68,238		67,008
Non-current liabilities
Long-term debt, net	136,313		108,383
Deferred tax liability	60,549		82,621
Other non-current liabilities	32,921		29,338
Total non-current liabilities	229,783		220,342

Commitments and contingencies (Note 1)

Shareholders’ equity
Class A common stock, par value $0.001 per share; 469,394,491 shares authorized, 58,301,929 shares issued and outstanding; 475,000,000 shares authorized, 63,651,051 issued and outstanding	58		64
Class B common stock, par value $0.001 per share; 50,000,000 shares authorized, 32,609,758 shares issued and outstanding; 50,000,000 shares authorized, 32,157,983 issued and outstanding	33		32
Additional paid-in capital	353,380		358,118
Retained earnings (accumulated deficit)	5,960		5,746
Accumulated other comprehensive income (loss)	(312)		(499)
Treasury stock	(486)		(35)
Equity attributable to the controlling interest	358,633		363,426
Equity attributable to non-controlling interests	224,512		211,571
Total equity	583,145		574,997
Total liabilities and equity	$	881,166	$	862,347

See Notes to Unaudited Consolidated Financial Statements

SOLO BRANDS, INC.

Consolidated Statements of Operations and Comprehensive Income (Loss)

(Unaudited)


	Three Months Ended				Six Months Ended
(In thousands, except per unit data)	June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022
Net sales	$	130,927	$	136,019	$	219,134	$	218,222
Cost of goods sold	47,856		49,343		81,660		82,693
Gross Profit	83,071		86,676		137,474		135,529
Operating expenses
Selling, general & administrative expenses	63,524		69,166		108,146		114,810
Depreciation and amortization expenses	6,349		6,043		12,527		11,978
Impairment charges	—		30,589		—		30,589
Other operating expenses	2,132		820		2,537		1,320
Total operating expenses	72,005		106,618		123,210		158,697
Income (loss) from operations	11,066		(19,942)		14,264		(23,168)
Non-operating (income) expense
Interest expense, net	2,490		1,237		4,776		2,033
Other non-operating (income) expense	(5,546)		513		(5,878)		604
Total non-operating (income) expense	(3,056)		1,750		(1,102)		2,637
Income (loss) before income taxes	14,122		(21,692)		15,366		(25,805)
Income tax expense (benefit)	2,608		(1,819)		2,919		(2,697)
Net income (loss)	11,514		(19,873)		12,447		(23,108)
Less: net income (loss) attributable to noncontrolling interests	4,090		(7,834)		4,099		(9,034)
Net income (loss) attributable to Solo Brands, Inc.	$	7,424	$	(12,039)	$	8,348	$	(14,074)

Other comprehensive (loss) income
Foreign currency translation, net of tax	$	108	$	46	$	121	$	70
Comprehensive (loss) income	11,622		(19,827)		12,568		(23,038)
Less: comprehensive income attributable to noncontrolling interests	39		15		43		23
Less: net (loss) income attributable to noncontrolling interests	4,090		(7,834)		4,099		(9,034)
Comprehensive (loss) income attributable to Solo Brands, Inc.	$	7,493	$	(12,008)	$	8,426	$	(14,027)

Income (loss) per Class A common stock
Basic	$	0.12	$	(0.19)	$	0.13	$	(0.22)
Diluted	$	0.12	$	(0.19)	$	0.13	$	(0.22)

Weighted-average Class A common stock outstanding
Basic	63,620		63,416		63,143		63,408
Diluted	64,081		63,416		63,291		63,408

See Notes to Unaudited Consolidated Financial Statements

SOLO BRANDS, INC.

Consolidated Statements of Cash Flows

(Unaudited)


	Six Months Ended
(In thousands)	June 30, 2023		June 30, 2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	12,447	$	(23,108)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities
Amortization of intangible assets	10,518		10,478
Equity-based compensation	9,750		8,887
Operating lease right-of-use assets expense	3,982		3,030
Depreciation	2,369		1,500
Changes in accounts receivable reserves	650		433
Deferred income taxes	(661)		(5,497)
Other adjustments	476		421
Impairment charges	—		30,589


Changes in assets and liabilities
Accounts receivable	1,901		(1,879)
Inventory	20,692		(26,244)
Prepaid expenses and other current assets	(682)		(4,487)
Other non-current assets and liabilities	(4,118)		(3,213)
Accounts payable	1,174		2,059
Deferred revenue	(3,125)		477
Accrued expenses and other current liabilities	(3,578)		(5,358)


Net cash (used in) provided by operating activities	51,795		(11,912)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures	(3,466)		(4,582)

Acquisitions, net of cash acquired	(5,421)		(774)
Net cash (used in) provided by investing activities	(8,887)		(5,356)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt	35,000		25,000
Repayments of long-term debt	(7,500)		(1,250)




Common stock repurchase	(28,479)		—
Distributions to non-controlling interests	(4,964)		(4,984)
Stock issued under employee stock purchase plan	106		246
Taxes paid related to net share settlement of equity awards	52		—
Net cash (used in) provided by financing activities	(5,785)		19,012
Effect of exchange rate changes on cash	187		(117)
Net change in cash and cash equivalents	37,310		1,627
Cash and cash equivalents balance, beginning of period	23,293		25,101
Cash and cash equivalents balance, end of period	$	60,603	$	26,728

See Notes to Unaudited Consolidated Financial Statements

SOLO BRANDS, INC.

Consolidated Statement of Equity

(Unaudited)

For the Six Months Ended June 30, 2023


	Class A Common Stock			Class B Common Stock
(In thousands)	Shares	Amount		Shares	Amount		Additional Paid-in Capital		Retained Earnings (Accumulated Deficit)		Accumulated Other Comprehensive Income		Treasury Stock		Non-controlling Interest		Total Shareholders’ Equity
Balance at December 31, 2022	63,651	$	64	32,158	$	32	$	358,118	$	5,746	$	(499)	$	(35)	$	211,571	$	574,997
Net income (loss)	—	—		—	—		—		924		—		—		9		933
Equity-based compensation	—	—		—	—		3,703		—		—		—		1,061		4,764
Other comprehensive income (loss)	—	—		—	—		—		—		70		—		34		104
Tax distributions to non-controlling interests	—	—		—	—		—		—		—		—		(6,178)		(6,178)


Vested equity-based compensation and re-allocation of ownership percentage	38	—		227	—		(829)		—		—		—		829		—
Balance at March 31, 2023	63,689	$	64	32,385	$	32	$	360,992	$	6,670	$	(429)	$	(35)	$	207,326	$	574,620


Net income (loss)	—	—		—	—		—		7,424		—		—		4,090		11,514
Equity-based compensation	—	—		—	—		5,345		—		—		—		1,155		6,500
Other comprehensive income (loss)	—	—		—	—		—		—		117		—		50		167
Tax distributions to non-controlling interests	—	—		—	—		—		—		—		—		(1,225)		(1,225)
Employee stock purchase plan	36

SEC Form 10-Q filed by Solo Brands Inc.