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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 September 30, 2023
or
    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)
solobrandslogo.jpg

Delaware87-1360865
State or Other Jurisdiction of
Incorporation or Organization
I.R.S. Employer Identification No.
1001 Mustang Dr.
Grapevine, TX
76051
Address of Principal Executive OfficesZip Code
(817) 900-2664
Registrant’s Telephone Number, Including Area Code

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A Common Stock, $0.001 par value per shareDTCNew 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 November 3, 2023, there were 57,846,404 shares of the registrant’s Class A common stock, $0.001 par value per share, outstanding and 33,004,689 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

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, and in Part II, Item 1A., “Risk Factors” in this Quarterly Report, 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, X (formerly Twitter), Facebook, Instagram 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.
i


PART I - FINANCIAL INFORMATION
Item 1. Financial Statements

SOLO BRANDS, INC.
Consolidated Balance Sheets
(Unaudited)

(In thousands, except par value and per unit data)
September 30, 2023
December 31, 2022
ASSETS
Current assets
Cash and cash equivalents$16,551 $23,293 
Accounts receivable, net of allowance for credit losses of $2.2 million and $1.5 million
30,743 26,176 
Inventory114,077 132,990 
Prepaid expenses and other current assets23,511 12,639 
Total current assets184,882195,098
Non-current assets
Property and equipment, net26,021 15,166 
Intangible assets, net240,697 234,632 
Goodwill405,206 382,658 
Operating lease right-of-use assets32,078 34,259 
Other non-current assets9,976 534 
Total non-current assets713,978667,249
Total assets$898,860$862,347
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable$11,528 $11,783 
Accrued expenses and other current liabilities42,219 43,377 
Deferred revenue3,970 6,848 
Current portion of long-term debt5,000 5,000 
Total current liabilities62,71767,008
Non-current liabilities
Long-term debt, net160,278 108,383 
Deferred tax liability51,359 82,621 
Operating lease liabilities25,722 29,133 
Other non-current liabilities13,224 205 
Total non-current liabilities250,583220,342
Commitments and contingencies (Note 1)
Shareholders’ equity
Class A common stock, par value $0.001 per share; 468,767,205 shares authorized, 57,751,375 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, 32,832,755 shares issued and outstanding; 50,000,000 shares authorized, 32,157,983 issued and outstanding
33 32 
Additional paid-in capital352,758 358,118 
Retained earnings (accumulated deficit)8,735 5,746 
Accumulated other comprehensive income (loss)(741)(499)
Treasury stock(315)(35)
Equity attributable to the controlling interest360,528 363,426 
Equity attributable to non-controlling interests225,032211,571
Total equity585,560574,997
Total liabilities and equity$898,860$862,347

See Notes to Consolidated Financial Statements (Unaudited)
1


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

Three Months Ended September 30,Nine Months Ended September 30,
(In thousands, except per unit data)2023202220232022
Net sales$110,324 $102,162 $329,458$320,384
Cost of goods sold42,065 37,482 123,725 120,175 
Gross profit68,259 64,680 205,733 200,209 
Operating expenses
Selling, general & administrative expenses61,333 59,489 169,479 174,299 
Depreciation and amortization expenses7,052 6,216 19,579 18,194 
Impairment charges   30,589 
Other operating expenses1,199 2,260 3,736 3,580 
Total operating expenses69,584 67,965 192,794 226,662 
Income (loss) from operations(1,325)(3,285)12,939 (26,453)
Non-operating (income) expense
Interest expense, net2,766 1,805 7,542 3,838 
Other non-operating (income) expense(983)(90)(6,861)514 
Total non-operating (income) expense1,783 1,715 681 4,352 
Income (loss) before income taxes(3,108)(5,000)12,258 (30,805)
Income tax expense (benefit)(6,191)(980)(3,272)(3,677)
Net income (loss)3,083 (4,020)15,530 (27,128)
Less: net income (loss) attributable to noncontrolling interests(1,045)(1,816)3,054 (10,850)
Net income (loss) attributable to Solo Brands, Inc.$4,128 $(2,204)$12,476 $(16,278)
Other comprehensive (loss) income
Foreign currency translation, net of tax$(593)$(21)$(472)$49 
Comprehensive (loss) income2,490 (4,041)15,058 (27,079)
Less: other comprehensive income (loss) attributable to noncontrolling interests(214)(7)(171)16 
Less: net (loss) income attributable to noncontrolling interests(1,045)(1,816)3,054 (10,850)
Comprehensive (loss) income attributable to Solo Brands, Inc.$3,749 $(2,218)$12,175 $(16,245)
Income (loss) per Class A common stock
Basic$0.07$(0.03)$0.20$(0.26)
Diluted$0.07$(0.03)$0.20$(0.26)
Weighted-average Class A common stock outstanding
Basic57,883 63,470 61,370 63,429 
Diluted58,368 63,470 61,581 63,429 

See Notes to Consolidated Financial Statements (Unaudited)
2


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

Nine Months Ended September 30,
(In thousands)20232022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)$15,530 $(27,128)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities
Amortization of intangible assets16,263 15,748 
Equity-based compensation14,714 13,213 
Operating lease right-of-use assets expense6,061 4,891 
Depreciation3,862 2,446 
Deferred income taxes(10,924)(6,592)
Changes in accounts receivable reserves1,312 1,262 
Amortization of debt issuance costs645 645 
Loss (gain) on disposal of property and equipment
186 (8)
Impairment charges 30,589 
Changes in assets and liabilities— 
Accounts receivable(5,472)(2,003)
Inventory24,607 (64,244)
Prepaid expenses and other current assets(10,838)(9,342)
Accounts payable(891)11,198 
Accrued expenses and other current liabilities(5,370)(2,151)
Deferred revenue(2,878)(96)
Operating lease ROU assets and liabilities(6,799)(3,989)
Other non-current assets and liabilities(844)231 
Net cash (used in) provided by operating activities39,164 (35,330)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures(6,943)(7,512)
Payments of contingent consideration(9,386) 
Acquisitions, net of cash acquired(34,620)(774)
Net cash (used in) provided by investing activities(50,949)(8,286)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt60,000 45,000 
Repayments of long-term debt(8,750)(1,875)
Common stock repurchases
(36,957) 
Distributions to non-controlling interests(8,944)(7,275)
Stock issued under employee stock purchase plan106 246 
Taxes paid related to net share settlement of equity awards(42) 
Net cash (used in) provided by financing activities5,413 36,096 
Effect of exchange rate changes on cash(370)(403)
Net change in cash and cash equivalents(6,742)(7,923)
Cash and cash equivalents balance, beginning of period23,293 25,101 
Cash and cash equivalents balance, end of period$16,551 $17,178 
SUPPLEMENTAL NONCASH INVESTING AND FINANCING DISCLOSURES:
Treasury stock retirements
31,164  
Re-issuance of treasury stock
5,342  

See Notes to Consolidated Financial Statements (Unaudited)
3


SOLO BRANDS, INC.
Consolidated Statement of Equity
(Unaudited)

Class A Common StockClass B Common Stock
(In thousands)SharesAmountSharesAmountAdditional Paid-in CapitalRetained Earnings (Accumulated Deficit)
Accumulated Other Comprehensive Income (Loss)
Treasury Stock
Non-controlling Interest
Total Shareholders’ Equity
Balance at December 31, 202263,651$6432,158$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)
Employee stock purchase plan— — — — — — — — —  
Surrender of stock to settle taxes on equity awards— — — — — — — — —  
Vested equity-based compensation and re-allocation of ownership percentage38 — 227 — (829)— — — 829  
Balance at March 31, 202363,689 $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 plan36 — — — 106 — — — — 106 
Common stock repurchase(5,639)— — — — 19,888 — (28,479)— (8,591)
Treasury stock retirement— (6)— — — (28,022)— 28,028 —  
Surrender of stock to settle taxes on equity awards— — — — 52 — — — — 52 
Vested equity-based compensation and re-allocation of ownership percentage216 — 225 1 (13,115) — — 13,116 2 
Balance at June 30, 202358,302 $58 32,610 $33 $353,380 $5,960 $(312)$(486)$224,512 $583,145 
4


Class A Common StockClass B Common Stock
(In thousands)SharesAmountSharesAmountAdditional Paid-in CapitalRetained Earnings (Accumulated Deficit)
Accumulated Other Comprehensive Income (Loss)
Treasury Stock
Non-controlling Interest
Total Shareholders’ Equity
Balance at June 30, 202358,302 $58 32,610 $33 $353,380 $5,960 $(312)$(486)$224,512 $583,145 
Net income (loss)— — — — — 4,128 — — (1,045)3,083 
Equity-based compensation— — — — 1,083 — — — 1,141 2,224 
Other comprehensive income (loss)— — — — — — (429)— (284)(713)
Tax distributions to non-controlling interests— — — — — — — — (1,540)(1,540)
Employee stock purchase plan— — — — — — — — —  
Common stock repurchase(1,696)— — —  1,783 — (8,213)— (6,430)
Re-issuance of treasury stock1,068 — — — 545 — — 5,342 — 5,887 
Treasury stock retirement— — — — — (3,136)— 3,136 —  
Surrender of stock to settle taxes on equity awards77 — — — — — — (94)— (94)
Vested equity-based compensation and re-allocation of ownership percentage— — 223 — (2,250)— — — 2,248 (2)
Balance at September 30, 202357,751 $58 32,833 $33 $352,758 $8,735 $(741)$(315)$225,032 $585,560 

See Notes to Consolidated Financial Statements (Unaudited)
5



SOLO BRANDS, INC.
Consolidated Statement of Equity
(Unaudited)

Class A Common StockClass B Common Stock
(In thousands)SharesAmountSharesAmountAdditional Paid-in CapitalRetained Earnings (Accumulated Deficit)
Accumulated Other Comprehensive Income (Loss)
Non-controlling InterestTotal Equity
Balance at December 31, 202163,397$6331,179$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 percentage4 — 90 (380)380
Balance at March 31, 202263,401 $63 31,269 $31 $353,008 $8,656 $22 $209,327 $571,107 
Net income (loss)— — — — — (12,039)— (7,834)(19,873)
Equity-based compensation— — — — 2,293 — — 1,134 3,427 
Other comprehensive income (loss)— — — — — — 31 15 46 
Tax distributions to non-controlling interests— — — — — — — (251)(251)
Employee stock purchase plan60 — — — 246 — — — 246 
Vested equity-based compensation and re-allocation of ownership percentage— — 94 (1,726)1,726
Balance at June 30, 202263,461 $63 31,363 $31 $353,821 $(3,383)$53 $204,117 $554,702 
Net income (loss)— — — — — (2,204)— (1,816)(4,020)
Equity-based compensation— — — — 2,710 — — 1,114 3,824 
Other comprehensive income (loss)— — — — — — (14)(7)(21)
Tax distributions to non-controlling interests— — — — — — — (2,706)(2,706)
Vested equity-based compensation and re-allocation of ownership percentage12 — 73 (427)427
Balance at September 30, 202263,473 $63 31,436 $31 356,104 (5,587)39  201,129 551,779 

See Notes to Consolidated Financial Statements (Unaudited)
6


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 nine months ended September 30, 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. Certain prior period amounts have been conformed to the current period’s presentation.
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 receivable, net consist of amounts due to the Company from retailers and direct-to-corporate customers. Accounts receivable, net are recorded at invoiced amounts, less contractual allowances for trade terms, sales incentive programs, and discounts. The Company maintains an allowance for expected credit 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.

Business Combinations

The Company applies the acquisition method to all transactions and other events in which the Company obtains control over one or more other businesses. Assets acquired and liabilities assumed are measured at fair value as of the acquisition date. Liabilities related to contingent consideration are recognized at the acquisition date and re-measured at fair value in each subsequent reporting period. Goodwill is recognized if the consideration transferred exceeds the fair value of the net assets acquired.

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 September 30, 2023 and December 31, 2022.
7



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.

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. Due to the forthcoming discontinuation of LIBOR and under the relief provided by Topic 848, the Company modified the terms of its Revolving Credit Facility and Term Loan (as defined in the Company’s 2022 Form 10-K) by replacing references to LIBOR with references to the adjusted secured overnight financing rate (“SOFR”). The adoption of Topic 848 and the related modification to the agreements did not have a significant impact on the Company’s consolidated financial statements and disclosures. The Company did not have any other agreements or transactions that would be impacted by the adoption of Topic 848.

Recently Issued Accounting Pronouncements - Not Yet Adopted
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 (“DTC”) 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 September 30,Nine Months Ended September 30,
2023202220232022
Net sales by channel
Direct-to-consumer$76,337$86,306$230,737$262,632
Wholesale33,987 15,856 98,721 57,752 
Net sales$110,324$102,162$329,458$320,384

8


NOTE 3 – Acquisitions

The following transactions were accounted for under the acquisition method of accounting for business combinations.

Sconberg, LLC
On May 1, 2023, Solo Brands, LLC, a wholly-owned subsidiary of Solo Stove Holdings, LLC (“Holdings”), entered into an Equity Purchase Agreement to acquire 100% of the voting equity interests in Sconberg, LLC (“TerraFlame”), that constitute a business for purposes of Accounting Standards Codification (“ASC”) 805, Business Combinations, for total purchase consideration of $13.2 million, of which $5.5 million was cash paid at closing. The remainder of the consideration, an earnout and post-closing payment liabilities of $7.7 million, was recorded as contingent consideration, which are tied to TerraFlame achieving certain specified profitability metrics. The total purchase consideration was primarily allocated to $5.6 million of intangible assets, $4.3 million of property and equipment and $1.9 million of goodwill. The Company acquired TerraFlame to increase its brand and market share in the overall outdoor activities industry and penetrate the indoor fire and decor industry, as TerraFlame manufactures, markets, and sells fire features for both outdoor and indoor use.

As part of the acquisition, the Company is required to make the earnout and post-closing payments that are contingent on the future performance of TerraFlame. The fair value of the earnout was derived using a Monte Carlo simulation. It was determined that the mean of $2.6 million was the most reasonable estimate of fair value as of the acquisition date, with the simulation producing a range of $0.0 million to $2.8 million. The fair value of the post-closing payment of $5.1 million was derived using a threshold and cap (capped call) structure. Due to the valuation model chosen, there was no applicable range produced. These contingent considerations represent stand-alone liabilities that are measured at fair value on a recurring basis and are considered a level 3 estimate. See Note 2, Significant Accounting Policies in our 2022 Form 10-K for additional information about the fair value framework and the levels within. The earnout contingent consideration is included in accrued expenses and other current liabilities and the post-closing payment contingent consideration is included in other non-current liabilities within the consolidated balance sheets (unaudited).

Transaction related expenses incurred to date as a result of the acquisition of TerraFlame amounted to $0.5 million and are recorded in other operating expenses within the consolidated statements of operations and comprehensive income (loss) (unaudited).

The excess enterprise value of TerraFlame over the estimated fair value of assets and liabilities assumed was recorded as goodwill. Goodwill was recorded to reflect the excess purchase consideration over net assets acquired, which represents the value that is expected to be achieved from expanding the Company’s product offerings and other synergies related to the acquisition of TerraFlame. The primary factor that contributed to the recognition of goodwill was the expected future revenue growth of TerraFlame.
The Company accounted for the acquisition of TerraFlame using the acquisition method of accounting in accordance with ASC 805. This required that assets acquired and liabilities assumed be measured at fair value. The Company determined, using level 3 inputs, the fair value of certain assets and liabilities including fixed assets, inventory and intangible assets. Fixed assets and inventory were fair valued using a mix of cost, comparative sales and market approaches. Specific to intangible assets, customer related intangibles were valued using an excess earnings method and tradename was valued using the relief from royalty method. The fair value of the assets acquired and liabilities assumed have been prepared on a preliminary basis with information currently available, and are subject to change. As of September 30, 2023, the purchase price accounting has not been finalized; however, the Company will complete the purchase price accounting within one year from the acquisition date as required by ASC 805.
Subsequent to the acquisition date and as required by ASC 805, the contingent consideration recorded as part of the acquisition was remeasured as of September 30, 2023. As a result of this remeasurement, the earnout contingent consideration was reduced by $2.6 million and the change to the post-closing payment contingent consideration was negligible. The impacts of the reductions were recorded in selling, general and administrative expenses within the consolidated statements of operations and comprehensive income (loss) (unaudited) as of September 30, 2023.
9


IcyBreeze Cooling, LLC

On July 1, 2023, Solo Brands, LLC entered into an Equity Purchase Agreement to acquire 100% of the voting equity interests in IcyBreeze Cooling, LLC (“IcyBreeze”), which constitutes a business for purposes of ASC 805, for total purchase consideration of $52.1 million. Cash paid at closing was $30.0 million, net of $7.4 million in cash acquired. The remainder of the consideration, an earnout of $14.9 million, was recorded as contingent consideration, which is tied to IcyBreeze achieving certain specified profitability metrics. The total purchase consideration was primarily allocated to $16.1 million of intangible assets, $4.4 million of inventory, and $4.2 million of property and equipment, with the remainder primarily being $20.7 million of goodwill. The Company acquired IcyBreeze to pair a seasonally complimentary in-demand product in the outdoor activities industry to its current product portfolio, as IcyBreeze manufactures, markets, and sells portable air-conditioning products.

As part of the acquisition, the Company is required to make earnout payments that are contingent on the future performance of IcyBreeze. The fair value of the earnout was derived using a Monte Carlo simulation. It was determined the mean of $14.9 million was the most reasonable estimate of fair value as of the acquisition date. These contingent considerations represent stand-alone liabilities that are measured at fair value on a recurring basis and are considered a level 3 estimate. See Note 2, Significant Accounting Policies in our 2022 Form 10-K for additional information about the fair value framework and the levels within. The current portion of the earnout contingent consideration is included in accrued expenses and other current liabilities and the long-term portion of the earnout contingent consideration is included in other non-current liabilities within the consolidated balance sheets (unaudited).

Transaction related expenses incurred to date as a result of the acquisition of IcyBreeze amounted to $0.4 million and are recorded in other operating expenses within the consolidated statements of operations and comprehensive income (loss) (unaudited).

The excess enterprise value of IcyBreeze over the estimated fair value of assets and liabilities assumed was recorded as goodwill. Goodwill was recorded to reflect the excess purchase consideration over net assets acquired, which represents the value that is expected to be achieved from expanding the Company’s product offerings and other synergies related to the acquisition of IcyBreeze. The primary factor that contributed to the recognition of goodwill was the expected future revenue growth of IcyBreeze.
The Company accounted for the acquisition of IcyBreeze using the acquisition method of accounting in accordance with ASC 805. This required that assets acquired and liabilities assumed be measured at fair value. The Company determined, using level 3 inputs, the fair value of certain assets and liabilities including fixed assets, inventory and intangible assets. Fixed assets and inventory were fair valued using a mix of cost, comparative sales and market approaches. Specific to intangible assets, tradename and technology were valued using the relief from royalty method. The fair value of the assets acquired and liabilities assumed have been prepared on a preliminary basis with information currently available, and are subject to change. As of September 30, 2023, the purchase price accounting has not been finalized; however, the Company will complete the purchase price accounting within one year from the acquisition date as required by ASC 805.
On July 11, 2023, the parties to the acquisition, Solo Brands, LLC and IcyBreeze, entered into that certain First Amendment to Equity Purchase Agreement, that, among other things, revised the terms of the contingent consideration, resulting in an acceleration of the payment of the contingent consideration to the effective date for aggregate consideration of $15.3 million. The difference between the fair value of the contingent consideration of $14.9 million and the payment amount of $15.3 million was recorded in selling, general and administrative expenses on the consolidated statements of operations and comprehensive income (loss) (unaudited) as of September 30, 2023.
Net sales for TerraFlame and IcyBreeze for the three and nine months ended September 30, 2023 were $8.5 million and $9.6 million, respectively, and net income (loss) for the same periods was $2.2 million and $2.1 million, respectively.

NOTE 4 – Inventory

Inventory consisted of the following:
September 30, 2023December 31, 2022
Finished products on hand$94,532 $112,126
Finished products in transit15,772 16,589
Raw materials3,773 4,275
Inventory$114,077 $132,990 

10


NOTE 5 – Property and Equipment, net

Property and equipment, net consisted of the following:
September 30, 2023December 31, 2022
Machinery$14,800 $8,940
Leasehold improvements8,3766,959
Buildings4,421
Computer, software, and other equipment2,868 2,003
Furniture and fixtures2,195 1,463
Land1,090
Construction in progress34267
Property and equipment, gross34,092 19,432 
Accumulated depreciation(8,071)(4,266)
Property and equipment, net$26,021$15,166

Depreciation expense was $1.4 million and $3.8 million for the three and nine months ended September 30, 2023, compared to $0.9 million and $2.4 million for the three and nine months ended September 30, 2022, respectively. Depreciation expense is recorded to depreciation and amortization expenses on the consolidated statements of operations and comprehensive income (loss) (unaudited).

NOTE 6 – Goodwill and Intangible Assets, net
Goodwill
In the third quarter of 2023, the Company identified a triggering event indicating the fair value of one or more of the Company’s reporting units more likely than not did not exceed their carrying values. The triggering event was an adverse change in the plan for each brand approved by the board of directors, resulting in a lower near-term forecast of future operating results. As a result, the Company performed an interim quantitative goodwill impairment test for all of its reporting units and determined that the fair value exceeded the carrying value for each reporting unit. As such, the interim quantitative test did not result in a goodwill impairment for the Company’s reporting units.
The carrying value of goodwill was as follows:

Balance, December 31, 2022
382,658
Acquisitions22,548
Balance, September 30, 2023
405,206 

Intangible Assets, net

Intangible assets consisted of the following:
September 30, 2023December 31, 2022
Gross carrying value
Brand$205,614 $196,114
Trademark33,566 33,566
Customer relationships31,805 28,605
Developed technology17,871 17,871
Patents12,511 2,883
Intangible assets, gross301,367 279,039 
Accumulated amortization and impairments
Brand(39,118)(29,146)
Trademark(1)
(7,747)(5,957)
Customer relationships(6,611)(4,542)
Developed technology(6,170)(4,255)
Patents(1,024)(507)
Accumulated amortization, gross(60,670)(44,407)
Intangible assets, net$240,697 $234,632 
(1) Includes impairment of trademark. See Note 7, Intangible Assets, net, to the audited consolidated financial statements included in the 2022 Form 10-K.
11



Amortization expense was $5.7 million and $16.3 million for the three and nine months ended September 30, 2023, compared to $5.3 million and $15.7 million for the three and nine months ended September 30, 2022. Amortization expense is recorded to depreciation and amortization expenses on the consolidated statements of operations and comprehensive income (loss) (unaudited).

NOTE 7 – Accrued Expenses and Other Current Liabilities

Significant accrued expenses and other current liabilities were as follows:
September 30, 2023December 31, 2022
Inventory9,8037,543
Leases7,7346,889
Payroll6,9956,999
Non-income taxes3,9136,163
Allowance for sales returns3,6423,937
Marketing3,610451
Income taxes2,7425,490
Shipping costs1,0773,607
Other2,7032,298
Accrued expenses and other current liabilities$42,219$43,377

NOTE 8 – Long-Term Debt, Net

Long-term debt, net consisted of the following:
Weighted-Average Interest Rate at September 30, 2023
September 30, 2023December 31, 2022
Term loan6.44 %$92,500 $96,250
Revolving credit facility6.50 %75,000 20,000
Unamortized debt issuance costs(2,222)(2,867)
Total debt, net of debt issuance costs165,278 113,383 
Less: current portion of long-term debt5,000 5,000
Long-term debt, net$160,278 $108,383 

Long-term debt, net approximates fair value and is valued using Level 2 inputs within the fair value hierarchy, as defined in Note 2, Significant Accounting Policies, in the 2022 Form 10-K.

The Company was in compliance with all covenants under all credit arrangements as of September 30, 2023.

NOTE 9 – Leases

The following table presents the components of the total leased assets and lease liabilities and their classification in the Company's consolidated balance sheets (unaudited):

Classification in Consolidated Balance SheetsSeptember 30, 2023December 31, 2022
Right-of-use assets, net
Operating leases
Operating lease right-of-use assets$32,078 $34,259 
Finance leases
Other non-current assets851  
Total right-of-use assets, net
$32,929 $34,259 
Current lease liabilities
Operating leases
Accrued expenses and other current liabilities$7,590 $6,889 
Finance leases
Accrued expenses and other current liabilities144  
Long-term lease liabilities
Operating leases
Operating lease liabilities25,722 29,133 
Finance leases
Other non-current liabilities486  
Total lease liabilities
$33,942 $36,022 
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The components of lease expense were as follows:

Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Operating lease right-of-use expense$2,079 $1,861 $6,061 $4,891 
Finance lease expense:
Amortization of assets48  48  
Interest on lease liabilities23  23  
Total finance lease expense71  71  
Variable and short-term lease expense543 481 1,843 1,092 
Total lease expense$2,693$2,342$7,975$5,983

The weighted average remaining lease terms and discount rates were as follows:

September 30, 2023December 31, 2022
Weighted average remaining lease term (years)
Operating leases
4.415.05
Finance leases4.33— 
Weighted average discount rate
Operating leases
2.95 %2.66 %
Finance leases6.15 % %

Cash flow and other information related to leases is included in the following table:

Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Cash outflows for amounts included in the measurement of lease liabilities
Operating cash outflows from operating leases
$2,048$1,404$5,991$3,714
Lease right of use assets obtained in exchange for lease obligations
Operating leases
 12,044 2,532 15,287 
Financing leases899  899  

Future maturities of lease liabilities as of September 30, 2023 were as follows:

Years Ending December 31,Operating LeasesFinance Leases
2023 (remaining three months)$2,140 $ 
20248,562 182 
20258,628 182 
20267,216 182 
20275,283 182 
Thereafter4,108  
Total lease payments35,937 728 
Less: imputed interest2,625 98 
Present value of lease liabilities$33,312 $630 

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NOTE 10 – Equity-Based Compensation

Summary of Equity-Based Compensation

The table below summarizes equity-based compensation expense recognized by award type:

Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Common units$3,068 $3,368 $9,441 $10,241 
Restricted stock units1,037 899 2,965 2,507 
Performance stock units690  1,891  
Stock options169 59 417 435 
Employee stock purchase plan  52 30 
Total equity-based compensation$4,964 $4,326 $14,766 $13,213 

Common Units

A summary of the common units was as follows for the periods indicated (in thousands, except per share data):

Outstanding Common Units
Weighted Average Grant Date Fair Value Per Unit
Weighted Average Remaining Contractual Term (Years)
Aggregate Intrinsic Value
Unvested, December 31, 2022
1,193$13.121.16$15,655
Forfeited/canceled(63)12.00(756)
Vested(675)14.40(9,717)
Unvested, September 30, 2023
45511.380.435,182
Exercisable, September 30, 2023(1)
$$
(1) Note there were performance and service-based units that vested by September 30, 2023. However, none of such units are exercisable under the Stockholders Agreement, as described in Note 12, Equity-Based Compensation, to the audited consolidated financial statements included in our 2022 Form 10-K.

Incentive Award Plan

Restricted Stock Units

The following table summarizes the activity related to the Company’s restricted stock units:

Restricted Stock Units Outstanding
Number of AwardsWeighted-Average Grant Date Fair Value
Outstanding, December 31, 2022
1,784 $6.05 
Granted361 4.80 
Vested and converted to shares(334)8.40 
Forfeited/canceled(336)6.73 
Outstanding, September 30, 2023
1,475 $5.06 

Performance Stock Units

The following table summarizes the activity related to the Company’s performance stock units:

Performance Stock Units Outstanding
Number of AwardsWeighted-Average Grant Date Fair Value
Outstanding, December 31, 2022
1,296 $3.86 
Granted150 5.41 
Forfeited/canceled(49)3.97 
Outstanding, September 30, 2023
1,397 $4.02 

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Stock Options

The following table summarizes the activity related to the Company’s stock options:

Number of Stock OptionsWeighted-Average Grant Date Fair ValueWeighted-Average Exercise PriceWeighted-Average Remaining Contractual Term (Years)
Aggregate Intrinsic Value (1)
Outstanding, December 31, 2022
687 $4.34 $8.29 4.98$ 
Forfeited or expired(217)3.72 6.44 — 
Vested(126)3.72 8.75 
Outstanding, September 30, 2023
344 $4.70 9.28 4.42 
Exercisable, September 30, 2023(1)
188 $5.36 $11.46 — $3.3 
(1) The aggregate intrinsic value represents only those vested options that have a weighted-average exercise price below the closing Class A common stock price at the end of each period.

Employee Stock Purchase Plan

As of September 30, 2023, 139,032 shares of Class A common stock have been issued under the Solo Brands, Inc. 2021 Employee Stock Purchase Plan.

NOTE 11 – Income Taxes

Provision for Income Taxes

The effective income tax rate was 199.2% and (26.7)% for the three and nine months ended September 30, 2023, compared to 19.6% and 11.9% for the corresponding periods in 2022. The change for the three and nine months ended September 30, 2023 was primarily due to the current quarter release of the Company’s remaining valuation allowance against deferred tax assets. The three months ended September 30, 2023 effective tax rate of 199.2% is due to the income tax benefit on the current quarter valuation allowance release as compared to the small pre-tax loss for the three months ended September 30, 2023.

Income tax benefit for the three and nine months ended September 30, 2023 was $6.2 million and $3.3 million, respectively, compared to $1.0 million and $3.7 million in the corresponding periods for 2022, respectively. Income taxes represent federal, state, and local income taxes on the Company’s allocable share of taxable income of Holdings, as well as Oru's and Chubbies' federal and state tax expense and foreign tax expense related to international subsidiaries.

The weighted-average ownership interest in Holdings was 63.8% and 64.8% for the three and nine months ended September 30, 2023, respectively, and 67.0% for the three and nine months ended September 30, 2022.

Deferred Tax Assets and Liabilities

As of September 30, 2023, the total deferred tax liability related to the basis difference in the Company's investment in Holdings was $40.5 million. However, a portion of the total basis difference will only reverse upon the eventual sale of its interest in Holdings, which the Company expects would result in a capital loss. Previously, a valuation allowance was established against the deferred tax asset to which this portion relates. As of September 30, 2023, the Company concluded, based on the weight of all available positive and negative evidence, that all of the deferred tax assets are more likely than not to be realized. As a result, $6.7 million of the remaining valuation allowance on the partnership deferred tax assets was released in the quarter ended September 30, 2023. The remaining $0.3 million of the valuation allowance will be released through the effective tax rate during the quarter ending December 31, 2023.The Company’s valuation allowance previously decreased by $19.9 million during the six months ended June 30, 2023 primarily due to a remeasurement of its investment in partnership as a result of the secondary offering completed in May 2023.

During the three and nine months ended September 30, 2023, the Company did not recognize any deferred tax assets related to additional tax basis increases generated from expected future payments under the Tax Receivable Agreement, as defined in Note 13, Income Taxes, to the audited consolidated financial statements included in our 2022 Form 10-K.

The Company evaluates the realizability of its deferred tax assets on a quarterly basis and establishes valuation allowances when it is more likely than not that all or a portion of a deferred tax asset may not be realized. As of September 30, 2023, the Company concluded, based on the weight of all available positive and negative evidence, that all of its deferred tax assets are more likely than not to be realized.

During the nine months ended September 30, 2023, the Company received a one-time refund payment of $5.1 million related to COVID-19 era employment tax, which is recorded to other non-operating (income) expense on the consolidated statements of operations and comprehensive income (loss) (unaudited).

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NOTE 12 – Net Income (Loss) Per Share

Basic net income (loss) per share of Class A common stock is computed by dividing net income (loss) attributable to Solo Brands, Inc. by the weighted average number of shares of Class A common stock outstanding during the period. Diluted net income (loss) per share of Class A common stock is computed by dividing net income (loss) attributable to Solo Brands, Inc. by the weighted average number of shares of Class A common stock outstanding adjusted to give effect to potentially dilutive securities.

The following table sets forth the calculation of the basic and diluted net income (loss) per share for the Company’s Class A common stock:

Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Net income (loss)
$3,083 $(4,020)$15,530 $(27,128)
Less: Net income (loss) attributable to non-controlling interests
(1,045)(1,816)3,054 (10,850)
Net income (loss) attributable to Solo Brands, Inc.
$4,128 $(2,204)$12,476 $(16,278)
Weighted average shares of Class A common stock outstanding - basic57,883 63,470 61,370 63,429 
Effect of dilutive securities485  211  
Weighted average shares of Class A common stock outstanding - diluted58,368 63,470 61,581 63,429 
Net income (loss) per share of Class A common stock outstanding - basic
$0.07 $(0.03)$0.20 $(0.26)
Net income (loss) per share of Class A common stock outstanding - diluted
$0.07 $(0.03)$0.20 $(0.26)

During the three months ended September 30, 2023 and 2022, 0.2 million and 0.6 million options and 0.4 million and 1.2 million restricted stock units, respectively, were not included in the computation of diluted net income per share because their effect would have been anti-dilutive. During the nine months ended September 30, 2023 and 2022, 0.3 million and 0.6 million options and 0.3 million and 1.2 million restricted stock units, respectively, were not included in the computation of diluted net income per share because their effect would have been anti-dilutive. The Company has determined that the performance stock units and the shares of Class B common stock will in all cases neither be dilutive nor anti-dilutive and has excluded them from the calculation of net income (loss) per Class A common stock for all periods presented.

NOTE 13 – Equity

Class A Common Stock
    
During the three months ended September 30, 2023, the Board of Directors of the Company approved the repurchase of an aggregate of 627,286 shares of Class A common stock. During the nine months ended September 30, 2023, pursuant to the Stock Purchase Agreements, dated as of May 10, 2023 and July 12, 2023, by the Company and the selling stockholders party thereto, the Company repurchased 5,605,509 and 627,286 shares of its Class A common stock for $28.0 million and $3.1 million, respectively, which shares were subsequently retired in accordance with resolutions of the Board of Directors’, which is a classified as a non-cash financing activity within the statements of cash flows.

As of September 30, 2023, the Company has 468,767,205, shares of Class A common stock, par value 0.001 per share, authorized, a decrease from the balance as of December 31, 2022 of 475,000,000, as a result of the repurchase and retirement of an aggregate of 6,232,795 shares in the nine months ended 2023. Holders of Class A common stock are entitled to one vote per share on all matters presented to the stockholders in general. In the event of liquidation, dissolution or winding up, each holder of Class A common stock will be entitled to a pro rata distribution of any assets available for distribution to common stockholders.

NOTE 14 - Barter Arrangements

In the third quarter of 2023, the Company entered into a trade credit agreement with a third-party vendor, whereby the Company provided inventory in exchange for trade credits to be used for purchases of media advertising with the third-party provider. The Company exchanged $7.2 million of inventory for trade credits during the three and nine month periods ended September 30, 2023. As of September 30, 2023, the Company had fully recognized the $7.2 million as a part of net sales.

As of September 30, 2023, The Company had $7.2 million of unused trade credits remaining, which are included in other non-current assets on the consolidated balance sheets (unaudited).

The Company accounts for barter transactions under ASC 606. Barter transactions with commercial substance are recorded at the estimated fair value of the products exchanged, unless the products and/or services received have a more readily determinable estimated fair value. Revenue associated with barter transactions is recorded upon shipment of the inventory consistent with the Company’s standard shipping terms.
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