Solo Brands issues second quarter impairment charge

Solo Brands posted a loss in the second quarter after taking a $27.9 million impairment charge related to goodwill in the company’s Isle Paddleboards business. Sales jumped 53% over the period. Solo Stove’s parent company cut its forecast for the year due to macroeconomic challenges.

Highlights of the second quarter of 2022 compared to the second quarter of 2021

  • 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 share, basic and diluted, of ($0.19) for the second quarter of 2022;
  • Adjusted net income $17.3 million, down $10.1 million, or 36.8%;
  • Adjusted EBITDA $23.7 million, down $7.4 million, or 23.8%; and
  • Adjusted EPS $0.40 for the second quarter of 2022.

Solo Brands businesses include Solo Stove fireplaces, stoves and accessories; Chubbies casual wear and sportswear; Oru Kayak, folding origami kayaks; and Isle inflatable paddle boards.

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

Results of operations for the three months ended June 30, 2022
Net sales increased 53.3% to $136.0 million from $88.7 million in the second quarter of 2021. The increase was driven by activity from acquired businesses and improved demand in wholesale and DTC channels.

  • DTC revenue increased 63.2% to $116.1 million from $71.1 million in the second quarter of 2021; and
  • Wholesale revenue increased 13.1% to $19.9 million from $17.6 million in the second quarter of 2021.

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

SG&A expenses increased to $69.2 million from $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 general and administrative expenses are primarily due to the following factors: an increase in personnel costs of $8.2 million due to stock-based compensation and increased headcount, an increase of 6, $3 million in advertising and marketing expenses, a $4.1 million increase in distribution and logistics costs, a $1.4 million increase in professional services, and a $1.1 million increase in rent dollars.

Depreciation expense increased to $6.0 million from $4.3 million in the second quarter of 2021. The increase in depreciation expense was due to a $1.0 million increase in amortization primarily related to the increase in indefinite life intangible assets as a result of acquisition activity and a $0.7 million increase in amortization primarily related to a new global headquarters.

Impairment charges of $30.6 million were recorded in the second quarter of 2022, of which $27.9 million related to goodwill in the company’s Isle business unit and $2.7 million were related to the intangible asset of the Isle brand. No impairment charge was recorded during the second quarter of 2021.

The loss per basic and diluted Class A common share per share was $0.19. A comparison with the same period last year is not meaningful or comparable due to the reorganization operations that took place in 2021.

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

Results of operations for the six months ended June 30, 2022
Net sales increased 38.3% to $218.2 million from $157.8 million in the prior year period, primarily due to activity from acquired businesses.

  • DTC revenue increased 32.2% to $176.3 million from $133.4 million in the prior year period; and
  • Wholesale revenue increased 71.7% to $41.9 million from $24.4 million in the prior year period.

Gross margin increased 27.7% to $135.5 million from $106.2 million in the prior year and adjusted gross margin, reflecting the impact of acquisition-related accounting adjustments, increased 33.3% to $143.3 million from $107.6 million in the same prior year period. Gross margin decreased from 5.2% to 62.1%. Adjusted gross margin decreased to 65.7% from 68.2% the previous year, in line with expectations due to increased freight rates and higher logistics costs.

SG&A expenses increased 137.2% to $114.8 million from $48.4 million the previous year. $27.5 million of the increase is attributable to the activity of acquired businesses. The remaining increases in general and administrative expenses are primarily due to the following: an increase in personnel costs of $15.6 million due to stock-based compensation and headcount increases, an increase of 10, $2 million in advertising and marketing expenses, 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 following a new global headquarters, and a $1.7 million increase in insurance following becoming a public company.

Depreciation and amortization expense increased to $12.0 million from $7.9 million in the prior year period. The increase in amortization expense is explained by a $2.7 million increase in amortization primarily related to the increase in finite life intangible assets as a result of acquisition activities and an increase $1.3 million of amortization primarily related to a new global headquarters.

Impairment charges of $30.6 million were recorded in 2022, of which $27.9 million related to goodwill in the Company’s Isle business unit and $2.7 million related to the intangible asset of the ISLE brand. No impairment was recognized during the previous year.

The loss per basic and diluted Class A common share per share was $0.22. A comparison with the same period last year is not meaningful or comparable due to the reorganization transactions that took place in 2021. Refer to the footnote to the unaudited consolidated statements of income for more details. information.

Adjusted EPS for the six months ended June 30, 2022 was $0.59. The weighted average number of diluted shares was 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.

Borrowings outstanding were $57.5 million under the Revolving Credit Facility and $98.1 million under the Term Loan Agreement as of June 30, 2022. borrowing on the revolving credit facility was $350 million as of June 30, 2022, leaving $292.5 million available.

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

Orientations for the year 2022
Solo Brands said it is updating its full-year 2022 outlook to reflect the current visibility of the global macroeconomic environment and consumer trends as follows:

  • Total revenue should grow by around 20%;
  • Adjusted gross margin should exceed 60% of total revenue; and
  • Adjusted EBITDA margin is expected to be approximately 1,200% as a percentage of total revenue.

Previously, the guidelines called for sales in the range of $540 million to $570 million, up 33.8% to 41.1% from $403.7 million in 2021. Adjusted EBITDA between $121 million and $132 million, representing a 22.8% margin at the midpoint of guidance.

Photo courtesy Solo Brands/Isle Paddleboards

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