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Solo Brands Announces Second Quarter Fiscal 2022 Results

08/11/2022

Strong Sales Growth Year-Over-Year

Solo Brands, Inc. (NYSE: DTC) (“Solo Brands” or “the Company”), a portfolio of rapidly growing direct-to-consumer lifestyle brands, today announced its financial results for the three and six month periods ended June 30, 2022.

Second Quarter 2022 Highlights Compared to Second Quarter 2021(1)

  • Net sales of $136.0 million, up $47.3 million or 53.3%
  • Net loss of $19.9 million, down $39.6 million
  • Loss per Class A common stock - basic and diluted of $(0.19) for the second quarter of 2022
  • Adjusted net income(2) of $17.3 million, down $10.1 million, or 36.8%
  • Adjusted EBITDA(2) of $23.7 million, down $7.4 million, or 23.8%
  • Adjusted EPS2 of $0.40 for the second quarter of 2022

“We delivered solid top-line results with sales trends strengthening as we moved through the quarter. Importantly, our strong sales growth was achieved with healthy gross margin rates despite worldwide supply chain headwinds. Our direct to consumer (DTC) approach is highly-differentiated, allowing us to continue delivering profit while simultaneously investing in innovation and systems, which we believe will position us to deliver consistent, long-term growth for our shareholders,” said John Merris, CEO of Solo Brands. “We are excited about our opportunity to drive organic growth led by a direct connection to our customers and a strong pipeline of innovative products.”

Operating Results for the Three Months Ended June 30, 2022 (1)

Net sales increased 53.3% to $136.0 million, compared to $88.7 million in the second quarter of 2021. The increase was driven by activity from acquired businesses and improved demand in both the wholesale and direct-to-consumer sales channels.

  • Direct-to-consumer revenues increased 63.2% to $116.1 million compared to $71.1 million in the second quarter of 2021.
  • Wholesale revenues increased 13.1% to $19.9 million compared to $17.6 million in the second quarter of 2021.

Gross profit increased 45.2% to $86.7 million, compared to $59.7 million in the second quarter of 2021. Adjusted gross profit2 increased 46.2% to $88.4 million compared to $60.4 million in the same period of the prior year, reflecting the impact of purchase accounting adjustments related to acquired businesses. Gross margin decreased 3.5% to 63.7%. Adjusted gross margin2 decreased to 65.0% compared to 68.1% in the same period in 2021 due to increased freight rates and higher logistics costs.

Selling, general and administrative (SG&A) expenses increased to $69.2 million, compared to $29.7 million in the second quarter of 2021. $17.3 million of the increase was due to activity from acquired businesses. The remaining increases in SG&A was primarily driven by the following: an $8.2 million increases in employee costs as a result of equity-based compensation and increased headcount, a $6.3 million increases in advertising and marketing spend, a $4.1 million increases in distribution and logistics costs, a $1.4 million increase in professional services, and a $1.1 million increase in rent.

Depreciation and amortization expenses increased to $6.0 million compared to $4.3 million in the second quarter of 2021. The increase in depreciation and amortization expenses was driven by a $1.0 million increase in amortization primarily related to increases in definite-lived intangible assets as a result of acquisition activity and a $0.7 million increase in depreciation primarily related to a new global headquarters facility.

Impairment Charges of $30.6 million were recorded in the second quarter of 2022, of which $27.9 million related to goodwill for the Company’s ISLE reporting unit and $2.7 million related to the ISLE trademark intangible. No impairment charges were recorded during the second quarter of 2021.

Loss per Class A common stock basic and diluted per share was $0.19. A comparison to the same period last year is not meaningful or comparable due to the reorganization transactions which occurred in 2021. Refer to the footnote in the unaudited consolidated statements of operations for more information.

Adjusted EPS2 for the second quarter of 2022 was $0.40. Weighted average basic and diluted shares were 63,416,047.

Operating Results For the Six Months Ended June 30, 2022 (1)

Net sales increased 38.3% to $218.2 million, compared to $157.8 million in the prior year period primarily driven by activity from acquired businesses.

  • Direct-to-consumer revenues increased 32.2% to $176.3 million compared to $133.4 million in the prior year period.
  • Wholesale revenues increased 71.7% to $41.9 million compared to $24.4 million in the prior year period.

Gross profit increased 27.7% to $135.5 million, compared to $106.2 million in the prior year and adjusted gross profit(1), reflecting the impact of purchase accounting adjustments related to the acquisitions, increased 33.3% to $143.3 million compared to $107.6 million in the prior year period. Gross margin decreased 5.2% to 62.1%. Adjusted gross margin(1) decreased to 65.7% compared to 68.2% in the prior year period, in line with expectations due to increased freight rates and higher logistics costs.

Selling, general and administrative (SG&A) expenses increased 137.2% to $114.8 million, compared to $48.4 million in the prior year period. $27.5 million of the increase was due to activity from acquired businesses. The remaining increases in SG&A was primarily driven by the following: a $15.6 million increase in employee costs as a result of equity-based compensation and increased headcount, a $10.2 million increase in advertising and marketing spend, a $4.1 million increase in distribution and logistics costs, a $2.5 million increase in professional services primarily as a result of the audit of the 2021 Form 10-K, a $2.1 million increase in rent as a result of a new global headquarters facility, and a $1.7 million increase in insurance as a result of becoming a public company.

Depreciation and amortization expenses increased to $12.0 million compared to $7.9 million in the prior year period. The increase in depreciation and amortization expenses was driven by a $2.7 million increase in amortization primarily related to increases in definite-lived intangible assets as a result of acquisition activity and a $1.3 million increase in depreciation primarily related to a new global headquarters facility.

Impairment Charges of $30.6 million were recorded in 2022, of which $27.9 million related to goodwill for the Company’s ISLE reporting unit and $2.7 million related to the ISLE trademark intangible. No impairment charges were recorded during the prior year.

Loss per Class A common stock basic and diluted per share was $0.22. A comparison to the same period last year is not meaningful or comparable due to the Reorganization Transactions which occurred in 2021. Refer to the footnote on the unaudited consolidated statements of operations for more information.

Adjusted EPS(1) for the six months ended June 30, 2022 was $0.59. Weighted average diluted shares were 63,408,451.

Balance Sheet

Cash and cash equivalents at the end of the second quarter totaled $26.7 million, compared to $25.1 million at December 31, 2021.

Outstanding borrowings were $57.5 million under the Revolving Credit Facility, and $98.1 million under the Term Loan Agreement as of June 30, 2022. The borrowing capacity on the Revolving Credit Facility was $350 million as of June 30, 2022, leaving $292.5 million of availability.

Inventory at the end of the second quarter was $128.2 million, compared to $102.3 million at December 31, 2021. Increases in inventory were driven by a proactive approach for demand planning in light of ongoing inflation and supply chain concerns and preparation for new product launches.

Full Year 2022 Guidance

We are updating our outlook for the full year 2022 to reflect current visibility into the global macroeconomic environment and consumer trends as follows:

Total revenue is expected to grow in the mid-20% range.

Adjusted gross margin* is planned to be above 60% of total revenue.

Adjusted EBITDA margin* is forecasted to be in the mid-teens as a percentage of total revenue.

The Company’s full year 2022 guidance is based on a number of assumptions that are subject to change and many of which are outside the Company’s control. If actual results vary from these assumptions, the Company’s expectations may change. There can be no assurance that the Company will achieve these results.

* The Company has not provided a quantitative reconciliation of forecasted adjusted gross margin or adjusted EBITDA margin to forecasted GAAP gross margin or net income (loss) as a percent of net sales, respectively, within this press release because the Company is unable, without making unreasonable efforts, to calculate certain reconciling items with confidence. With respect to GAAP gross margin, these items include, but are not limited to, fair market value write-ups of inventory accounted for under ASC 805 related to future potential transactions, which could materially affect the computation of forward-looking GAAP gross margin, and are inherently uncertain and depend on various factors, some of which are outside of the Company’s control. With respect to GAAP net income (loss), these items include, but are not limited to, equity-based compensation with respect to future grants and forfeitures, which could materially affect the computation of forward-looking GAAP net income, and are inherently uncertain and depend on various factors, some of which are outside of the Company’s control.

(1) The operating results in the three and six month periods ended June 30, 2022 include the activity of Oru, ISLE, and Chubbies post-acquisition. The operating results of ISLE and Chubbies were not included in our financial results in the six month period ended June 30, 2021.

(2) This release includes references to non-GAAP financial measures. Refer to “Non-GAAP Financial Measures” later in this release for the definitions of the non-GAAP financial measures presented and a reconciliation of these measures to their closest comparable GAAP measures.

Conference Call Details

A conference call to discuss the Company's second quarter results is scheduled for August 11, 2022, at 8:30 a.m. ET. To participate, please dial 844-200-6205 or +1 929-526-1599 for international callers, conference ID 434344. The conference call will also be webcast live at https://investors.solobrands.com. A recording will be available shortly after the conclusion of the call. To access the replay, please dial 866-813-9403 or +44 204-525-0658 for international callers, conference ID 813602. A replay of the webcast will also be available approximately two hours after the conclusion of the call on the Company's website at https://investors.solobrands.com where it will remain available for one year.

About Solo Brands, Inc.

Solo Brands, headquartered in Grapevine, TX, develops and produces ingenious lifestyle products that help customers create lasting memories. Through a disruptive and scaled direct-to-consumer platform, Solo Brands offers innovative products directly to consumers primarily online through four lifestyle brands – Solo Stove firepits, stoves, and accessories, Chubbies premium casual apparel and activewear, Oru Kayak, origami folding kayaks that can be assembled in minutes, and ISLE paddleboards, maker of inflatable paddle boards. Solo Brands is a direct-to-consumer platform that offers innovative products directly to consumers primarily through its owned websites.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained in this press release that do not relate to matters of historical fact should be considered forward-looking statements, including without limitation statements regarding our anticipated GAAP and non-GAAP guidance for the fiscal year ending December 31, 2022. 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,” “guidance,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. These statements are neither promises nor guarantees, and 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, the following: 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 impacts of the COVID-19 pandemic; risks associated with our international operations; and problems with, or loss of, our suppliers or an inability to obtain raw materials; and the ability of our stockholders to influence corporate matters. These and other important factors discussed under the caption "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2021, and any subsequent Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, or other filings we make with the Securities and Exchange Commission could cause actual results to differ materially from those indicated by the forward-looking statements made in this press release. Forward-looking statements speak only as of the date the statements are made and are based on information available to Solo Brands at the time those statements are made and/or management's good faith belief as of that time with respect to future events. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

Availability of Information on Solo Brands’ Website and Social Media Profiles

Investors and others should note that Solo Brands routinely announces material information to investors and the marketplace using SEC filings, press releases, public conference calls, webcasts and the Solo Brands investors website at https://investors.solobrands.com. We also intend to use the social media profiles listed below as a means of disclosing information about us to our customers, investors and the public. While not all of the information that the Company posts to the Solo Brands investors website or to social media profiles is of a material nature, some information could be deemed to be material. Accordingly, the Company encourages investors, the media, and others interested in Solo Brands to review the information that it shares at the “Investors” link located at the top of the page on https://solobrands.com and to regularly follow our social media profiles. Users may automatically receive email alerts and other information about Solo Brands when enrolling an email address by visiting "Investor Email Alerts" in the "Resources" section of Solo Brands investor website at https://investors.solobrands.com.

Social Media Profiles:
https://linkedin.com/company/solo-brands/
https://instagram.com/solobrands/

 
 

SOLO BRANDS, INC.
Consolidated Statements of Operations and Comprehensive Income
(Unaudited)

 

 

Three Months Ended

 

Six Months Ended

(In thousands, except per unit data)

June 30, 2022

 

June 30, 2021

 

June 30, 2022

 

June 30, 2021

Net sales

$

136,019

 

 

$

88,745

 

 

$

218,222

 

 

$

157,816

Cost of goods sold

 

49,343

 

 

 

29,045

 

 

 

82,693

 

 

 

51,652

Gross profit

 

86,676

 

 

 

59,700

 

 

 

135,529

 

 

 

106,164

Operating expenses

 

 

 

 

 

 

 

Selling, general & administrative expenses

 

69,166

 

 

 

29,662

 

 

 

114,810

 

 

 

48,396

Impairment charges

 

30,589

 

 

 

 

 

 

30,589

 

 

 

Depreciation and amortization expenses

 

6,043

 

 

 

4,312

 

 

 

11,978

 

 

 

7,905

Other operating expenses

 

820

 

 

 

2,488

 

 

 

1,320

 

 

 

2,610

Total operating expenses

 

106,618

 

 

 

36,462

 

 

 

158,697

 

 

 

58,911

(Loss) income from operations

 

(19,942

)

 

 

23,238

 

 

 

(23,168

)

 

 

47,253

Non-operating expenses

 

 

 

 

 

 

 

Interest expense

 

1,237

 

 

 

3,387

 

 

 

2,033

 

 

 

5,117

Other non-operating expenses

 

513

 

 

 

(5

)

 

 

604

 

 

 

2

Total non-operating expenses

 

1,750

 

 

 

3,382

 

 

 

2,637

 

 

 

5,119

(Loss) income before income taxes

 

(21,692

)

 

 

19,856

 

 

 

(25,805

)

 

 

42,134

Income tax (benefit) expense

 

(1,819

)

 

 

128

 

 

 

(2,697

)

 

 

172

Net (loss) income

 

(19,873

)

 

 

19,728

 

 

 

(23,108

)

 

 

41,962

Less: net (loss) income attributable to noncontrolling interest

 

(7,834

)

 

 

229

 

 

 

(9,034

)

 

 

229

Net (loss) income attributable to Solo Brands, Inc.

$

(12,039

)

 

$

19,499

 

 

$

(14,074

)

 

$

41,733

 

 

 

 

 

 

 

 

Other comprehensive (loss) income

 

 

 

 

 

 

 

Foreign currency translation, net of tax

$

46

 

 

$

 

 

$

70

 

 

$

Comprehensive (loss) income

 

(19,827

)

 

 

19,728

 

 

 

(23,038

)

 

 

41,962

Less: comprehensive income attributable to noncontrolling interests

 

15

 

 

 

 

 

 

23

 

 

 

Less: net (loss) income attributable to noncontrolling interests

 

(7,834

)

 

 

229

 

 

 

(9,034

)

 

 

229

Comprehensive (loss) income attributable to Solo Brands, Inc.

$

(12,008

)

 

$

19,499

 

 

$

(14,027

)

 

$

41,733

 

 

 

 

 

 

 

 

Net (loss) income per share

 

 

 

 

 

 

 

Basic

$

(0.19

)

 

*

 

$

(0.22

)

 

*

Diluted

$

(0.19

)

 

*

 

$

(0.22

)

 

*

 

 

 

 

 

 

 

 

Weighted-average shares outstanding

 

 

 

 

 

 

 

Basic

 

63,416

 

 

*

 

 

63,408

 

 

*

Diluted

 

63,416

 

 

*

 

 

63,408

 

 

*

*

The Company analyzed the calculation of earnings per unit for the periods prior to the reorganization transactions and determined that it resulted in values that would not be meaningful to the users of these unaudited consolidated financial statements. Therefore, earnings per unit information has not been presented for the three and six month periods ended June 30, 2021.

 

SOLO BRANDS, INC.
Consolidated Balance Sheets
(Unaudited)

 

(In thousands)

June 30, 2022

 

December 31, 2021

ASSETS

 

 

 

Current assets

 

 

 

Cash and cash equivalents

$

26,728

 

 

$

25,101

Accounts receivable, net

 

22,766

 

 

 

21,513

Inventory

 

128,238

 

 

 

102,335

Prepaid expenses and other current assets

 

14,316

 

 

 

9,889

Total current assets

 

192,048

 

 

 

158,838

Non-current assets

 

 

 

Property and equipment, net

 

13,265

 

 

 

10,603

Intangible assets, net

 

244,745

 

 

 

257,234

Goodwill

 

382,658

 

 

 

410,559

Other non-current assets

 

26,447

 

 

 

506

Total non-current assets

 

667,115

 

 

 

678,902

Total assets

$

859,163

 

 

$

837,740

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

Current liabilities

 

 

 

Accounts payable

$

13,460

 

 

$

11,774

Accrued expenses and other current liabilities

 

25,909

 

 

 

28,150

Deferred revenue

 

3,994

 

 

 

3,524

Current portion of long-term debt

 

4,375

 

 

 

3,125

Total current liabilities

 

47,738

 

 

 

46,573

Non-current liabilities

 

 

 

Long-term debt, net

 

147,953

 

 

 

125,023

Deferred tax liability

 

86,778

 

 

 

91,244

Other non-current liabilities

 

21,992

 

 

 

729

Total non-current liabilities

 

256,723

 

 

 

216,996

 

 

 

 

Commitments and contingencies (Note 13)

 

 

 

 

 

 

 

Shareholders’ equity

 

 

 

Class A common stock, par value $0.001 per share; 475,000,000 shares authorized; 63,461,208 and 63,397,635 shares issued and outstanding

 

63

 

 

 

63

Class B common stock, par value $0.001 per share; 50,000,000 shares authorized; 31,363,853 and 31,178,815 shares issued and outstanding

 

31

 

 

 

31

Additional paid-in capital

 

353,821

 

 

 

350,088

Accumulated other comprehensive income

 

53

 

 

 

6

Retained earnings (accumulated deficit)

 

(3,383

)

 

 

10,691

Shareholders’ equity

 

350,585

 

 

 

360,879

Shareholders’ equity attributable to non-controlling interests

 

204,117

 

 

 

213,292

Total shareholders’ equity

 

554,702

 

 

 

574,171

Total liabilities and shareholders’ equity

$

859,163

 

 

$

837,740

 

 

 

 

SOLO BRANDS, INC.
Consolidated Statements of Cash Flows
(Unaudited)

 

 

Six Months Ended

(In thousands)

June 30, 2022

 

June 30, 2021

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

Net (loss) income

$

(23,108

)

 

$

41,962

 

Adjustments to reconcile net (loss) income to net cash and cash equivalents (used in) provided by operating activities

 

 

 

Impairment charges

 

30,589

 

 

 

 

Amortization of intangible assets

 

10,478

 

 

 

7,749

 

Equity-based compensation

 

8,887

 

 

 

490

 

Deferred income taxes

 

(5,497

)

 

 

 

Operating lease right-of-use assets expense

 

3,030

 

 

 

 

Depreciation

 

1,500

 

 

 

154

 

Changes in accounts receivable reserves

 

433

 

 

 

104

 

Amortization of debt issuance costs

 

430

 

 

 

 

Loss on disposal of property and equipment

 

(9

)

 

 

 

Non-cash interest expense

 

 

 

 

1,761

 

Changes in assets and liabilities

 

 

 

Accounts receivable

 

(1,879

)

 

 

(10,470

)

Inventory

 

(26,244

)

 

 

(30,084

)

Prepaid expenses and other current assets

 

(4,487

)

 

 

(805

)

Accounts payable

 

2,059

 

 

 

2,517

 

Accrued expenses and other current liabilities

 

(5,358

)

 

 

(3,106

)

Deferred revenue

 

477

 

 

 

(17,296

)

Other non-current assets and liabilities

 

(3,213

)

 

 

93

 

Net cash (used in) provided by operating activities

 

(11,912

)

 

 

(6,931

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

Capital expenditures

 

(4,582

)

 

 

(1,811

)

Acquisitions, net of cash acquired

 

(774

)

 

 

(19,135

)

Net cash (used in) provided by investing activities

 

(5,356

)

 

 

(20,946

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

Proceeds from long-term debt

 

25,000

 

 

 

195,600

 

Repayments of long-term debt

 

(1,250

)

 

 

(54,600

)

Debt issuance costs paid

 

 

 

 

(3,334

)

Payment of contingent consideration

 

 

 

 

(100,000

)

Distributions to members before Reorganization Transactions

 

 

 

 

(34,660

)

Distributions to non-controlling interests

 

(4,984

)

 

 

 

Stock issued under employee stock purchase plan

 

246

 

 

 

 

Net cash provided by financing activities

 

19,012

 

 

 

3,006

 

Effect of exchange rate changes on cash

 

(117

)

 

 

 

Net change in cash and cash equivalents

 

1,627

 

 

 

(24,871

)

Cash and cash equivalents balance, beginning of period

 

25,101

 

 

 

32,753

 

Cash and cash equivalents balance, end of period

$

26,728

 

 

$

7,882

 

SUPPLEMENTAL DISCLOSURES:

 

 

 

Cash interest paid

$

1,374

 

 

$

4,489

 

Cash income taxes paid

$

8,546

 

 

$

 

Liabilities for capital expenditure additions

$

479

 

 

$

145

 

 

Non-GAAP Financial Measures

We report our financial results in accordance with GAAP; however, management believes that certain non-GAAP financial measures provide users of our financial information with useful supplemental information that enables a better comparison of our performance across periods. We use adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted gross profit, adjusted gross profit margin, and adjusted EPS non-GAAP financial measures, because we believe they are useful indicators of our operating performance. Our management uses these non-GAAP measures principally as measures of our operating performance and believes that these non-GAAP measures are useful to our investors because they are frequently used by securities analysts, investors and other interested parties in their evaluation of the operating performance of companies in industries similar to ours. Our management also uses these non-GAAP measures for planning purposes, including the preparation of our annual operating budget and financial projections.

None of these non-GAAP measures is a measurement of financial performance under GAAP. These non-GAAP measures should not be considered in isolation or as a substitute for a measure of our liquidity or operating performance prepared in accordance with GAAP and are not indicative of net income (loss) from continuing operations as determined under U.S. GAAP. In addition, the exclusion of certain gains or losses in the calculation of non-GAAP financial measures should not be construed as an inference that these items are unusual or infrequent as they may recur in the future, nor should it be construed that our future results will be unaffected by unusual or non-recurring items. These non-GAAP financial measures have limitations that should be considered before using these measures to evaluate our liquidity or financial performance. Some of these limitations are as follows:

These non-GAAP measures exclude certain tax payments that may require a reduction in cash available to us; do not reflect our cash expenditures, or future requirements, for capital expenditures (including capitalized software developmental costs) or contractual commitments; do not reflect changes in, or cash requirements for, our working capital needs; do not reflect the cash requirements necessary to service interest or principal payments on our debt; exclude certain purchase accounting adjustments related to acquisitions; and exclude equity-based compensation expense, which has recently been, and will continue to be for the foreseeable future, a significant recurring expense for our business and an important part of our compensation strategy.

In addition, other companies may define and calculate similarly-titled non-GAAP financial measures differently than us, thereby limiting the usefulness of these non-GAAP financial measures as a comparative tool. Because of these and other limitations, you should consider our non-GAAP measures only as supplemental to other GAAP-based financial performance measures.

Adjusted Gross Profit and Adjusted Gross Profit Margin

We calculate adjusted gross profit as gross profit excluding the fair value write-up of inventory as a result of the change in control transaction in 2020 and the Oru, ISLE, and Chubbies acquisitions. We calculate adjusted gross profit margin as adjusted gross profit divided by net sales.

Adjusted Net Income

We calculate adjusted net income as net income (loss) excluding impairment charges, inventory fair value write-up, amortization of intangible assets, incentive unit and equity-based compensation expense, acquisition related costs, business optimization expenses, one-time transaction costs, business expansion expenses, management transition costs, and the tax impact of these adjusting items.

Adjusted EBITDA and Adjusted EBITDA Margin

We calculate adjusted EBITDA as net income (loss) before interest expense, income taxes, and depreciation and amortization expenses, adjusted to exclude impairment charges, inventory fair value write-up, incentive unit and equity-based compensation expense, acquisition related costs, business optimization expenses, one-time transaction costs, management transition costs, and business expansion expenses. We calculate adjusted EBITDA margin as adjusted EBITDA divided by net sales.

Adjusted EPS

We calculate adjusted EPS as adjusted net income, as defined above, divided by weighted average diluted shares as calculated under U.S. GAAP.

SOLO BRANDS, INC.
Reconciliation of Non-GAAP Financial Information to GAAP
(Unaudited) (In thousands except per share amounts)

The following table reconciles gross profit to adjusted gross profit for the periods presented:

 

Three Months Ended June 30,

 

Six Months Ended June 30,

(dollars in thousands)

2022

 

2021

 

2022

 

2021

Gross profit

$

86,676

 

 

$

59,700

 

 

$

135,529

 

 

$

106,164

 

Inventory fair value write-up(1)

 

1,708

 

 

 

746

 

 

 

7,813

 

 

 

1,405

 

Adjusted gross profit

$

88,384

 

 

$

60,446

 

 

$

143,342

 

 

$

107,569

 

Adjusted gross profit margin (Adjusted gross profit as a % of net sales)

 

65.0

%

 

 

68.1

%

 

 

65.7

%

 

 

68.2

%

(1) Represents the fair market value write-up of inventory accounted for under ASC 805 related to the acquisitions.

The following tables reconcile the non-GAAP financial measures to their most comparable GAAP measure for the periods presented:

 

Three Months Ended June 30,

 

Six Months Ended June 30,

(dollars in thousands)

2022

 

2021

 

2022

 

2021

Net (loss) income

$

(19,873

)

 

$

19,728

 

$

(23,108

)

 

$

41,962

Impairment charges(1)

 

30,589

 

 

 

 

 

30,589

 

 

 

Amortization expense

 

5,229

 

 

 

4,216

 

 

10,487

 

 

 

7,749

Equity based compensation expense(2)

 

4,450

 

 

 

261

 

 

8,887

 

 

 

490

Inventory fair value write-up(3)

 

1,708

 

 

 

746

 

 

7,813

 

 

 

1,405

Management transition costs(4)

 

541

 

 

 

 

 

664

 

 

 

Acquisition related costs(5)

 

480

 

 

 

1,261

 

 

901

 

 

 

1,303

Transaction costs(6)

 

95

 

 

 

1,119

 

 

221

 

 

 

1,147

Business optimization expense(7)

 

142

 

 

 

88

 

 

225

 

 

 

88

Business expansion expense(8)

 

73

 

 

 

20

 

 

148

 

 

 

72

Tax impact of adjusting items(9)

 

(6,085

)

 

 

 

 

(8,424

)

 

 

Adjusted net income

$

17,349

 

 

$

27,439

 

$

28,403

 

 

$

54,216

Adjusted EPS

$

0.40

 

 

*

 

$

0.59

 

 

*

 

 

 

 

 

 

 

 

(amounts per share)

 

 

 

 

 

 

 

Loss per Class A common stock - diluted (GAAP)

$

(0.19

)

 

*

 

$

(0.22

)

 

*

Impairment charges(1)

 

0.48

 

 

*

 

 

0.48

 

 

*

Amortization expense

 

0.08

 

 

*

 

 

0.17

 

 

*

Equity based compensation expense(2)

 

0.07

 

 

*

 

 

0.14

 

 

*

Inventory fair value write-up(3)

 

0.03

 

 

*

 

 

0.12

 

 

*

Management transition costs(4)

 

0.01

 

 

*

 

 

0.01

 

 

*

Acquisition related costs(5)

 

0.01

 

 

*

 

 

0.01

 

 

*

Transaction costs(6)

 

 

 

*

 

 

 

 

*

Business optimization expense(7)

 

 

 

*

 

 

 

 

*

Business expansion expense(8)

 

 

 

*

 

 

 

 

*

Tax impact of adjusting items(9)

 

(0.10

)

 

*

 

 

(0.13

)

 

*

Adjusted EPS(10)

$

0.40

 

 

*

 

$

0.59

 

 

*

 

 

 

 

 

 

 

 

Weighted-average Class A common stock outstanding - diluted

 

63,416

 

 

*

 

 

63,408

 

 

*

 

 

 

Net (loss) income

$

(19,873

)

 

$

19,728

 

$

(23,108

)

 

$

41,962

Interest expense

 

1,237

 

 

 

3,387

 

 

2,033

 

 

 

5,117

Income tax expense

 

(1,819

)

 

 

128

 

 

(2,697

)

 

 

172

Depreciation and amortization expense

 

6,043

 

 

 

4,312

 

 

11,978

 

 

 

7,905

Impairment charges(1)

 

30,589

 

 

 

 

 

30,589

 

 

 

Equity based compensation expense(2)

 

4,450

 

 

 

261

 

 

8,887

 

 

 

490

Inventory fair value write-up(3)

 

1,708

 

 

 

746

 

 

7,813

 

 

 

1,405

Management transition costs(4)

 

541

 

 

 

 

 

664

 

 

 

Acquisition related costs(5)

 

480

 

 

 

1,261

 

 

901

 

 

 

1,303

Transaction costs(6)

 

95

 

 

 

1,119

 

 

221

 

 

 

1,147

Business optimization expense(7)

 

142

 

 

 

88

 

 

225

 

 

 

88

Business expansion expense(8)

 

73

 

 

 

20

 

 

148

 

 

 

72

Adjusted EBITDA

$

23,666

 

 

$

31,050

 

$

37,654

 

 

$

59,661

Adjusted EBITDA margin (Adjusted EBITDA as a % of net sales)

 

17.4

%

 

 

 

 

17.3

%

 

 

*

The Company analyzed the calculation of earnings per unit for the periods prior to the 2021 reorganization transactions and determined that it resulted in values that would not be meaningful to the users of these consolidated financial statements. Therefore, earnings per unit information has not been presented for the periods ended June 30, 2021.

(1)

Represents trademark and goodwill impairments recorded during the three months ended June 30, 2022.

(2)

Represents employee compensation expense associated with equity-based awards. This includes expense associated with the incentive unit awards as well as awards issued on and subsequent to the IPO including options and restricted stock units.

(3)

Represents the fair market value write-up of inventory accounted for under ASC 805 related to the acquisitions and the 2020 change in control transaction.

(4)

Represents costs primarily related to recruiting senior level management including a new CFO.

(5)

Represents expenses that we do not believe are reflective of our ongoing operations, primarily warehouse and employee transition costs associated with the acquisitions.

(6)

Represents transaction costs primarily related to professional service fees incurred in connection with the IPO and professional service fees incurred for valuations performed in connection with the impairment charges.

(7)

Represents various start-up and transition costs, including warehouse optimization charges associated with new global headquarters infrastructure with new and expanded distribution facilities in Texas, Pennsylvania, and the Netherlands.

(8)

Represents costs for expansion into new international and domestic markets.

(9)

Represents the tax impact of adjustments calculated at the federal statutory rate of 21% less the portion of the tax impact of the adjustments attributable to noncontrolling interests. We calculated the tax impact of the adjusting items in the three and six month periods ended June 30, 2022, as we were a limited liability company. We were not subject to corporate income taxes in the three and six month periods ended June 30, 2021.

(10)

Adjusted Earnings Per Share (“Adjusted EPS”) is calculated independently for each component and may not sum to Adjusted EPS due to rounding.

 

Bruce Williams
Investors@solobrands.com
332-242-4303

Source: Solo Brands, Inc.

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