Solo Brands Announces First Quarter Results

Reaffirms Full Year 2024 Guidance

Solo Brands, Inc. (NYSE: DTC) (“Solo Brands” or “the Company”) today announced its financial results for the three month period ended March 31, 2024.

“We are pleased with our first quarter results as sales and adjusted EBITDA came in ahead of our expectations driven by strong performance in our wholesale channel. We were encouraged to see sales trends accelerate as we moved through the quarter,” said Chris Metz, Chief Executive Officer of Solo Brands. “During the quarter we made considerable progress on developing our strategic plan for our core brands, while continuing to focus on putting the right people and processes in place to position us to generate consistent long-term growth.”

Consolidated First Quarter 2024 Highlights Compared to First Quarter 2023

• Net sales of $85.3 million, down $2.9 million or 3.3%
• Net loss of $6.5 million, down $7.4 million
• Net loss per Class A common stock - basic and diluted of $0.06, down $0.07
• Adjusted net income(1)(2) of $1.7 million, down $8.7 million or 83.8%
• Adjusted EBITDA(1) of $4.3 million, down $11.1 million or 72.1%
• Adjusted net income per Class A common stock(1)(2) of $0.03 per diluted share, down $0.07

Operating Results for the Three Months Ended March 31, 2024

Net sales decreased to $85.3 million, or 3.3%, compared to $88.2 million in the first quarter of 2023. Lower net sales resulted from less effective marketing and thereby lower site traffic within the direct-to-consumer net sales channel in the first quarter of 2024 when compared to the first quarter of 2023. While net sales within the direct-to-consumer net sales channel declined, wholesale net sales increased, period over period, resulting from a continuation of the growth experienced with our strategic partnerships.

• Direct-to-consumer revenues decreased to $51.0 million, or 6.8%, compared to $54.8 million in the first quarter of 2023.
• Wholesale revenues increased to $34.3 million, or 2.5%, compared to $33.5 million in the first quarter of 2023.

Gross profit decreased to $50.5 million, or 7.1%, compared to $54.4 million in the first quarter of 2023 primarily driven by the decrease in net sales, coupled with a shift in channel mix to more wholesale when compared to the prior year. Gross margin decreased to 59.2%, or 250 basis points, when compared to the same period of the prior year due to a shift in channel mix to wholesale from direct-to-consumer as compared to the same quarter in the prior year, as the wholesale channel typically has lower gross margins compared to that of the direct-to-consumer channel.

Selling, general and administrative expenses increased to $48.4 million, or 8.5%, compared to $44.6 million in the first quarter of 2023. The increase was driven by increases of $5.5 million in variable costs, including marketing and distribution expenses. Partially offsetting these increases, fixed costs declined $1.7 million, stemming from reductions in employee related expenses.

Other operating expenses increased to $2.2 million compared to $0.4 million in the first quarter of 2023. The increase was primarily driven by management transition costs, associated with expenses related to additional senior leadership positions, and strategic consulting engagements.

Interest expense, net increased to $3.1 million, or 35.9%, compared to $2.3 million in the first quarter of 2023, as a result of an increase in the weighted average interest rate on our total debt balance, as well as a higher average debt balance when compared to the same period of the prior year.

Net (loss) income per Class A common stock basic and diluted per share was $(0.06) for the first quarter of 2024 compared to $0.01 for the first quarter of 2023.

Adjusted net income per Class A common stock(1)(2) was $0.03 per diluted share for the first quarter of 2024 compared to $0.10 for the first quarter of 2023.

Consolidated Balance Sheet

Cash and cash equivalents were $15.4 million at March 31, 2024 compared to $19.8 million at December 31, 2023.

Inventory was $112.3 million at March 31, 2024 compared to $111.6 million at December 31, 2023.

Outstanding borrowings were $82.0 million under the Revolving Credit Facility, and $90.0 million under the Term Loan Agreement as of March 31, 2024 compared to $60.0 million and $91.3 million at December 31, 2023, respectively. The borrowing capacity on the Revolving Credit Facility was $350.0 million as of March 31, 2024, leaving $267.4 million of availability, net of issued and outstanding letters of credit.

Full Year 2024 Outlook

While first quarter results exceeded our expectations, we will continue to monitor the uncertainty of the macroeconomic environment for the remainder of the year. As such, we are reaffirming guidance for 2024 as follows:

Total revenue is expected to be between $490 million to $510 million for 2024.

Adjusted EBITDA margin* is expected to be between 10% to 12% for 2024.

The Company’s full year 2024 guidance is based on a number of assumptions that are subject to change, 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.

Conference Call Details

A conference call to discuss the Company's first quarter 2024 results is scheduled for May 9, 2024, at 8:30 a.m. ET. Investors and analysts who wish to participate in the call are invited to dial +1 833 470 1428 (international callers, please dial +1 929 526 1599) approximately 10 minutes prior to the start of the call. Please reference Conference ID 803756 when prompted. A live webcast of the conference call will be available in the investor relations section of DTC’s website, https://investors.solobrands.com.

A recorded replay of the call will be available shortly after the conclusion of the call and remain available until May 16, 2024. To access the telephone replay, dial 866 813 9403 (international callers, please dial +44 204 525 0658). The access code for the replay is 635136. A replay of the webcast will also be available within two hours of the conclusion of the call and will remain available on the website, https://investors.solobrands.com, 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 an omni-channel distribution model that leverages e-commerce, strategic wholesale relationships and physical retail stores, Solo Brands offers innovative products to consumers through six lifestyle brands – Solo Stove and TerraFlame, known for firepits, stoves, and accessories; Chubbies, a premium casual apparel and activewear brand; Oru Kayak, innovator of origami folding kayaks; ISLE, maker of inflatable and hard paddle boards and accessories; and IcyBreeze, maker of portable air conditioning coolers.

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 expectations of achieving long-term growth and profitability and our anticipated GAAP and non-GAAP guidance for the fiscal year ending December 31, 2024. 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 pandemics; risks associated with our international operations; 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, 2023, 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/
https://www.facebook.com/groups/368095467245044/

Non-GAAP Financial Measures

We report our financial results in accordance with accounting principles generally accepted in the United States (“U.S. 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 gross profit, adjusted gross profit margin, free cash flow, adjusted net income, adjusted net income (loss) per Class A common stock, adjusted EBITDA and adjusted EBITDA margin 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 U.S. 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 U.S. 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 U.S. GAAP-based financial performance measures.

Free Cash Flow

We calculate free cash flow as net cash provided by (used in) operating activities, reduced by capital expenditures (consisting of purchases of property and equipment, purchases of intangible assets and capitalization of internal use software). We believe free cash flow is an important liquidity measure of the cash that is available for operational expenses, investments in our business, strategic acquisitions, and for certain other activities such as repaying debt obligations and stock repurchases.

Adjusted Net Income (Loss)

We calculate adjusted net income as net income (loss) excluding impairment charges and the costs that are believed by management to be non-operating in nature and not representative of the Company’s core operating performance, as listed below under “Non-GAAP Adjustments”. Adjusted net income (loss) attributable to noncontrolling interests is calculated as income (loss) before income taxes, adjusted in the same manner as adjusted net income, adjusted for the allocable attribution to the noncontrolling interest.

Adjusted Net Income (Loss) per Class A Common Stock

We calculate adjusted net income (loss) as adjusted net income, as defined above, less the allocable portion of net income to the noncontrolling interest, divided by weighted average diluted shares or weighted average shares of Class A common stock, respectively, as calculated under U.S. GAAP.

Beginning with the reporting of our results for the three and twelve month periods ended December 31, 2023, adjusted net income (loss) per Class A Common Stock removes the portion of adjusted net income (loss) attributable to noncontrolling interests as management believes this presentation provides investors with a more concise view of the Company’s results. The Company intends to present adjusted net income (loss) per Class A Common Stock on this basis going forward and will present prior periods on the same basis for comparability purposes.

EBITDA

We calculate EBITDA as net income (loss) before interest expense, income taxes, and depreciation and amortization expenses.

Adjusted EBITDA

We calculate adjusted EBITDA as net income (loss) before interest expense, income taxes, depreciation and amortization expenses, impairment charges, equity-based compensation expense, and the costs that are believed by management to be non-operating in nature and not representative of the Company’s core operating performance, as listed below under “Non-GAAP Adjustments”.

Adjusted EBITDA Margin

We calculate adjusted EBITDA margin as adjusted EBITDA divided by net sales.

Non-GAAP Adjustments

In addition to the costs specifically noted under the non-GAAP metrics above, the Company believes that evaluation of its financial performance can be enhanced by a supplemental presentation of results that exclude costs believed by management to be non-operating in nature and not representative of the Company’s core operating performance. These costs are excluded in order to enhance consistency and comparativeness with results in prior periods that do not include such items and to provide a basis for evaluating operating results in future periods.

• Amortization expense - Represents the non-cash amortization of intangible assets related to the reorganization transactions in 2020 and the 2021 and 2023 acquisitions.
• Management transition costs - Represents costs primarily related to executive transition costs for executive search fees and related costs for the transition of certain members of management.
• Equity-based compensation expense - Represents the non-cash expense related to the incentive units, restricted stock units, options, performance stock units, executive performance stock units and employee stock purchases, with vestings occurring over time and settled with the Company’s common stock.
• Business optimization and expansion expenses - Represents select consulting and software implementation fees.
• Changes in fair value of contingent earn-out liability - Represents the charge to mark the contingent earn-out consideration to fair value in connection with the 2023 acquisitions.
• Inventory fair value write-ups - Represents the recognition of fair market value write-ups of inventory accounted for under ASC 805 related to the 2023 acquisitions.
• Transaction costs - Represents transaction costs primarily related to professional service fees incurred in connection with the secondary offering, S-3 registration statement filed in 2023 and acquisition activities, including financial diligence and legal fees.
• Tax impact of adjusting items - Represents the tax impact of the respective adjustments for each non-GAAP financial measure calculated at an expected statutory rate of 21.0%, adjusted to reflect the allocation to the controlling interest.

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

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

(1) Represents the fair market value write-ups of inventory accounted for under ASC 805 related to the 2023 acquisitions.

The following table reconciles net cash (used in) provided by operating activities to free cash flow for the periods presented:

View source version on businesswire.com: https://www.businesswire.com/news/home/20240509439647/en/