dtc-20230331

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 March 31, 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 May 1, 2023, there were 63,688,899 shares of the registrant’s Class A common stock, $0.001 par value per share, outstanding and 32,564,669 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 March 31, 2023 and December 31, 2022			1
Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three Month Periods Ended March 31, 2023 and 2022			2
Consolidated Statements of Cash Flows for the Three Month Periods Ended March 31, 2023 and 2022			3
Consolidated Statement of Equity for the Three Month Period Ended March 31, 2023			4
Consolidated Statement of Equity for the Three Month Period Ended March 31, 2022			5
Notes to the Unaudited Consolidated Financial Statements			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			13
Item 3. Quantitative and Qualitative Disclosures About Market Risk			17
Item 4. Controls and Procedures			18
PART II. OTHER INFORMATION			19
Item 1. Legal Proceedings			19
Item 1A. Risk Factors			19
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			19
Item 3. Defaults Upon Senior Securities			19
Item 4. Mine Safety Disclosures			19
Item 5. Other Information			19
Item 6. Exhibits			20
Signatures			21

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 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)	March 31, 2023		December 31, 2022
ASSETS
Current assets
Cash and cash equivalents	$	25,693	$	23,293
Accounts receivable, net of allowance for credit losses of $1.6 million and $1.5 million	17,198		26,176
Inventory	125,009		132,990
Prepaid expenses and other current assets	11,013		12,639
Total current assets	178,913		195,098
Non-current assets
Property and equipment, net	15,358		15,166
Intangible assets, net	229,580		234,632
Goodwill	382,658		382,658
Other non-current assets	33,535		34,793
Total non-current assets	661,131		667,249
Total assets	$	840,044	$	862,347

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	8,830	$	11,783
Accrued expenses and other current liabilities	36,574		43,377

Deferred revenue	3,701		6,848
Current portion of long-term debt	5,000		5,000
Total current liabilities	54,105		67,008
Non-current liabilities
Long-term debt, net	102,348		108,383
Deferred tax liability	81,062		82,621
Other non-current liabilities	27,909		29,338
Total non-current liabilities	211,319		220,342

Commitments and contingencies (Note 1)

Shareholders’ equity
Class A common stock, par value $0.001 per share; 475,000,000 shares authorized, 63,688,692 shares issued and outstanding; 475,000,000 shares authorized, 63,651,051 issued and outstanding	64		64
Class B common stock, par value $0.001 per share; 50,000,000 shares authorized, 32,384,766 shares issued and outstanding; 50,000,000 shares authorized, 32,157,983 issued and outstanding	32		32
Additional paid-in capital	360,992		358,118
Retained earnings (accumulated deficit)	6,670		5,746
Accumulated other comprehensive income (loss)	(429)		(499)
Treasury stock	(35)		(35)
Equity attributable to the controlling interest	367,294		363,426
Equity attributable to non-controlling interests	207,326		211,571
Total equity	574,620		574,997
Total liabilities and equity	$	840,044	$	862,347

See Notes to Unaudited Consolidated Financial Statements

SOLO BRANDS, INC.

Consolidated Statements of Operations and Comprehensive Income (Loss)

(Unaudited)


	Three Months Ended
(In thousands, except per unit data)		March 31, 2023		March 31, 2022
Net sales		$	88,207	$	82,203
Cost of goods sold		33,804		33,350
Gross Profit		54,403		48,853
Operating expenses
Selling, general & administrative expenses		44,622		45,644
Depreciation and amortization expenses		6,178		5,935

Other operating expenses		405		500
Total operating expenses		51,205		52,079
Income (loss) from operations		3,198		(3,226)
Non-operating (income) expense
Interest expense, net		2,286		796
Other non-operating (income) expense		(332)		91
Total non-operating (income) expense		1,954		887
Income (loss) before income taxes		1,244		(4,113)
Income tax expense (benefit)		311		(878)
Net income (loss)		933		(3,235)
Less: net income (loss) attributable to noncontrolling interests		9		(1,200)
Net income (loss) attributable to Solo Brands, Inc.		$	924	$	(2,035)

Other comprehensive (loss) income
Foreign currency translation, net of tax		$	13	$	24
Comprehensive (loss) income		946		(3,211)
Less: comprehensive income attributable to noncontrolling interests		4		8
Less: net (loss) income attributable to noncontrolling interests		9		(1,200)
Comprehensive (loss) income attributable to Solo Brands, Inc.		$	933	$	(2,019)

Income (loss) per Class A common stock
Basic		$	0.01	$	(0.03)
Diluted		$	0.01	$	(0.03)

Weighted-average Class A common stock outstanding
Basic		63,670		63,401
Diluted		63,890		63,401

See Notes to Unaudited Consolidated Financial Statements

SOLO BRANDS, INC.

Consolidated Statements of Cash Flows

(Unaudited)


	Three Months Ended
(In thousands)	March 31, 2023		March 31, 2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	933	$	(3,235)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities

Amortization of intangible assets	5,253		5,258
Equity-based compensation	4,794		4,437
Operating lease right-of-use assets expense	1,961		1,321
Deferred income taxes	(1,604)		—
Depreciation	1,091		677
Other adjustments	328		250



Changes in assets and liabilities
Accounts receivable	8,917		(4,422)
Inventory	8,025		(24,266)
Prepaid expenses and other current assets	1,628		(2,350)
Other non-current assets and liabilities	(2,074)		(5,577)
Accounts payable	(2,658)		2,094
Deferred revenue	(3,148)		192
Accrued expenses and other current liabilities	(8,743)		110


Net cash (used in) provided by operating activities	14,703		(25,511)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures	(1,820)		(1,696)

Acquisitions, net of cash acquired	—		(774)
Net cash (used in) provided by investing activities	(1,820)		(2,470)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt	—		20,000
Repayments of long-term debt	(6,250)		(625)


Distributions to non-controlling interests	(4,304)		(628)




Net cash (used in) provided by financing activities	(10,554)		18,747
Effect of exchange rate changes on cash	71		(4)
Net change in cash and cash equivalents	2,400		(9,238)
Cash and cash equivalents balance, beginning of period	23,293		25,101
Cash and cash equivalents balance, end of period	$	25,693	$	15,863

See Notes to Unaudited Consolidated Financial Statements

SOLO BRANDS, INC.

Consolidated Statement of Equity

(Unaudited)

For the Three Months Ended March 31, 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

See Notes to Unaudited Consolidated Financial Statements

SOLO BRANDS, INC.

Consolidated Statement of Equity

(Unaudited)

For the Three Months Ended March 31, 2022


	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		Non-controlling Interest		Total Equity
Balance at December 31, 2021	63,397	$	63	31,179	$	31	$	350,088	$	10,691	$	6	$	213,292	$	574,171
Net income (loss)	—	—		—	—		—		(2,035)		—		(1,200)		(3,235)
Equity-based compensation	—	—		—	—		3,300		—		—		1,137		4,437
Other comprehensive income (loss)	—	—		—	—		—		—		16		8		24
Tax distributions to non-controlling interests	—	—		—	—		—		—		—		(4,290)		(4,290)

Vested equity-based compensation and re-allocation of ownership percentage	4	—		90	—		(380)		—		—		380		—
Balance at March 31, 2022	63,401	$	63	31,269	$	31	$	353,008	$	8,656	$	22	$	209,327	$	571,107

See Notes to Unaudited Consolidated Financial Statements

SOLO BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 – Significant Accounting Policies

Included below are selected significant accounting policies, including those that were added or modified during the three months ended March 31, 2023 as a result of the adoption of new accounting policies. Refer to Note 2, Significant Accounting Policies, within the annual consolidated financial statements in the Company’s 2022 Form 10-K for the full list of significant accounting policies.

Basis of Presentation

The unaudited consolidated financial statements contained herein have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and the rules of the SEC. The unaudited consolidated financial statements include the wholly-owned subsidiaries. Intercompany balances and transactions are eliminated in consolidation. These unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in the 2022 Form 10-K.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses during the reporting period and disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Estimates and assumptions about future events and their effects cannot be made with certainty. Estimates may change as new events occur when additional information becomes available and if the operating environment changes. Actual results could differ from estimates.

Accounts Receivable, net

Accounts receivables consists of amounts due to the Company from retailers and direct-to-corporate customers. Accounts receivable are recorded at invoiced amounts, less contractual allowances for trade terms, sales incentive programs, and discounts. The Company maintains an allowance for credit losses for expected losses that will result from the inability of customers to make required payments. The allowance is determined based on a review of specific customer accounts where the collection is doubtful, as well as an assessment of the collectability of total receivables considering the aging of balances, historical and anticipated trends, and other factors. All accounts are subject to an ongoing review of ultimate collectability. Receivables are written off against the allowance when it is probable the amounts will not be recovered.

Commitments and Contingencies

From time to time, the Company is involved in various legal proceedings that arise in the normal course of business. While the Company intends to prosecute and defend any lawsuit vigorously, the Company presently believes that the ultimate outcome of any currently pending legal proceeding will not have any material adverse effect on its financial position, cash flows, or results of operations. However, litigation is subject to inherent uncertainties and unfavorable rulings could occur. An unfavorable ruling could include monetary damages, which could impact the Company’s business and the results of operations for the period in which the ruling occurs or future periods. Based on the information available, the Company evaluates the likelihood of potential outcomes. The Company records the appropriate liability when the amount is deemed probable and reasonably estimable. In addition, the Company does not accrue for estimated legal fees and other directly related costs as they are expensed as incurred. The Company is not currently a party to any pending litigation that it considers material. Therefore, the consolidated balance sheets do not include a liability for any potential obligations as of March 31, 2023 and December 31, 2022.

Recently Adopted Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments. The ASU includes changes to the accounting and measurement of financial assets, including the Company’s accounts receivable, by requiring the Company to recognize an allowance for all expected losses over the life of the financial asset at origination. Prior to adoption of this ASU, an allowance was not recognized until the losses were considered probable. In November 2019, the FASB issued ASU 2019-10, deferring the effective date of ASU 2016-13 to annual periods beginning after December 15, 2022. The Company adopted this standard on January 1, 2023 using the modified retrospective transition approach to the beginning of the year of adoption. Based on the evaluation of potential financial statement impacts performed by management, the Company did not record an adjustment to opening retained earnings. The adoption of this standard has not had and is not expected to have a material impact on the Company’s consolidated financial statements. Additionally, the Company modified its accounting policy to conform with the requirements of the adoption of this standard.

Recently Issued Accounting Pronouncements - Not Yet Adopted

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, an update that provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The optional guidance is provided to ease the potential burden of accounting for reference rate reform. The guidance was effective as of March 12, 2020. In December 2022, the FASB issued ASU 2022-06, deferring the date through which Topic 848 is available for contract modifications to December 31, 2024. The Company does not expect the adoption of this standard to have a material impact on its consolidated financial statements.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The ASU requires that an acquirer recognize and measure contract assets and liabilities acquired in a business combination in accordance with ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The guidance is effective for annual periods beginning after December 15, 2023, including interim periods therein, with early adoption permitted. The guidance will be applied prospectively to acquisitions occurring on or after the effective date. The Company will continue to evaluate the impact of this guidance, which will depend on the contract assets and liabilities acquired in future business combinations.

NOTE 2 – Revenue

The Company primarily engages in (1) direct-to-consumer transactions, which are primarily comprised of product sales directly from the Company’s websites, and (2) business-to-business transactions, or wholesale, which are comprised of product sales to retailers, including where possession of the Company's products is taken and sold by the retailer in-store or online.

The following table disaggregates net sales by channel:


	Three Months Ended March 31,
		2023		2022
Net sales by channel
Direct-to-consumer		$	54,750	$	60,230
Wholesale		33,457		21,973
Total net sales		$	88,207	$	82,203

NOTE 3 – Inventory

Inventory consisted of the following:


	March 31, 2023		December 31, 2022
Finished products on hand	$	111,015	$	112,126
Finished products in transit	10,014		16,589
Raw materials	3,980		4,275

Inventory	$	125,009	$	132,990

NOTE 4 – Property and Equipment, net

Property and equipment, net consisted of the following:


	March 31, 2023		December 31, 2022
Machinery	$	9,233	$	8,940
Leasehold improvements	7,436		6,959
Computer, software, and other equipment	2,316		2,003
Furniture and fixtures	1,585		1,463
Construction in progress	144

SEC Form 10-Q filed by Solo Brands Inc.