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What changed in Solo Brands, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Solo Brands, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+330 added−292 removedSource: 10-K (2024-03-14) vs 10-K (2023-03-09)

Top changes in Solo Brands, Inc.'s 2023 10-K

330 paragraphs added · 292 removed · 207 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeInformation Technology Information technology, or IT, systems are integral to our ability to operate, analyze and manage our business, research and develop new products, enhance our customers’ experience, and optimize our operating costs. Our infrastructure is cloud-first, as we believe it provides the most flexibility, scalability, and is inherently resilient with platform level redundancy in networking and computer hardware.
Biggest changeOur infrastructure is cloud-first, as we believe it provides the most flexibility, scalability, and is inherently resilient with platform level redundancy in networking and computer hardware. We leverage third-party components and software to enhance our platform capabilities and ERP and e-commerce systems to improve our operations and manage our growing company.
In addition to our strong DTC execution, we are strategically expanding our wholesale channel through retail partners that support our brand image and share our passion and dedication for innovative, best-in-class products of uncompromising design and performance. Our net sales are concentrated in the United States, though we have a growing international presence. Direct-to-Consumer.
In addition to our strong DTC execution, we are strategically expanding our wholesale channel through retail partners that support our brand image and share our passion and dedication for innovative, best-in-class products of uncompromising design and performance. Our net sales are concentrated in the United States, though we have a growing international presence. Direct-to-Consumer (“DTC”).
We choose our retail partners carefully based on their reputation, demographic, and commitment to appropriately learn and showcase Solo Brands’ portfolio of products, provide hands-on customer service, and abide by our terms and conditions, including consistent adherence to our minimum-advertised price (“MAP”) policy. We also sell products on websites of retailers.
We choose our retail partners carefully based on their reputation, demographic, and commitment to appropriately learn and showcase Solo Brands’ portfolio of products, provide hands-on customer service, and willingness to abide by our terms and conditions, including consistent adherence to our minimum-advertised price (“MAP”) policy. We also sell products on websites of retailers.
It also laid the groundwork for the creation of Solo Brands, Inc. Our business provides distinct competitive advantages, including an attractive financial profile and a unique ability to acquire and operate outdoor brands that broaden our product assortment and share our values of authenticity, product quality, and community.
It also laid the groundwork for the creation of Solo Brands, Inc. and acquisition of additional brands. Our business provides distinct competitive advantages, including an attractive financial profile and a unique ability to acquire and operate outdoor brands that broaden our product assortment and share our values of authenticity, product quality, and community.
In 2022, we have continued to make meaningful investments in our e-commerce and digital platform to drive growth, including the implementation of cutting-edge technology, marketing, and analytics to increase speed and ease of use on both our desktop and mobile sites.
In 2023, we have continued to make meaningful investments in our e-commerce and digital platform to drive growth, including the implementation of cutting-edge technology, marketing, and analytics to increase speed and ease of use on both our desktop and mobile sites.
We go-to-market with a digital-first strategy which prioritizes a direct connection with customers through e-commerce channels. Our currently owned brands generate the majority of sales online, including through owned social channels such as Facebook and Instagram that route visitors to our sites. This is supplemented by our DTC business via relationships with select third-party e-commerce marketplaces, such as Amazon.
We follow a digital-first strategy which prioritizes a direct connection with customers through e-commerce channels. Our currently owned brands generate the majority of sales online, including through owned social channels such as Facebook and Instagram that route visitors to our sites. This is supplemented by our DTC business via relationships with select third-party e-commerce marketplaces, such as Amazon.
Through our DTC and wholesale channels, we develop connections with our customers, receive real-time feedback that informs our product development roadmap and digital marketing decisions, and enhance our brands. This deep connection with our customers helps to drive an attractive return on marketing spend and positions us to capitalize on a significant runway of future expansion.
Through our DTC and wholesale channels, we develop connections with our customers, receive real-time feedback that informs our product development roadmap and digital marketing decisions, and enhance our brands. This deep connection with our customers helps to drive favorable return on marketing spend and positions us to capitalize on a significant runway of future expansion.
While employing the same approach that led to the success of our stoves, we have successfully broadened our product line to include virtually smokeless fire pits, cooking systems, pizza ovens, patio heaters, and storage units, and added portable kayaks and paddle boards, lifestyle apparel and other accessories.
While employing the same approach that led to the success of our stoves, we have successfully broadened our product line to include virtually smokeless fire pits, cooking systems, pizza ovens, patio heaters, and storage units, and added portable kayaks and paddle boards, lifestyle apparel, portable a/c coolers and other accessories.
We also operate five Chubbies retail stores and one ISLE surf pro-shop, which provide additional opportunities to interact directly with our customers in person and strengthen customer relationships. Wholesale. We have built relationships with well-known outdoor products and sporting goods retailers.
We also operate seven Chubbies retail stores with plans to continue expanding, and one ISLE surf pro-shop, which provide additional opportunities to interact directly with our customers in person and strengthen customer relationships. Wholesale. We have built relationships with well-known outdoor products and sporting goods retailers.
As of December 31, 2022, we had approximately 350 employees. Environmental, Social, and Governance Solo Brands believes in creating good and giving back to the communities that have supported our growth.
As of December 31, 2023, we had approximately 400 employees. Environmental, Social, and Governance Solo Brands believes in creating good and giving back to the communities that have supported our growth.
Our approach includes digesting data our customers provide us and incrementally enhancing our offerings to drive customer satisfaction and love of our products and brands.
Our approach includes digesting data our customers share with us and incrementally enhancing our offerings to drive customer satisfaction and love of our products and brands.
We own and operate premium authentic outdoor brands with ingenious products influenced by customer feedback. We consistently deliver innovative, high-quality products that are loved by our customers and revolutionize the outdoor experience, build community and help everyday people reconnect with what matters most.
We own and operate premium authentic outdoor brands with ingenious products influenced by customer feedback. We consistently deliver innovative, high-quality products that are loved by our customers and revolutionize the outdoor experience, build community and help everyday people reconnect with what matters most. Who We Are Solo Brands operates six premium outdoor brands: Solo Stove, Oru Kayak, Inc.
We believe these sales channels provide incremental sales reach for our business and opportunities to increase awareness for our brands. In fiscal year 2022, DTC sales accounted for 81.8% of Solo Brands sales.
We believe these sales channels provide incremental sales reach for our business and opportunities to increase awareness for our brands. In fiscal year 2023, DTC sales accounted for 72.4% of Solo Brands sales.
These sites give Solo Brands even more online presence in our effort to ensure customers find us wherever they choose to shop for outdoor and recreation products. Our strategic retail channel distribution is supported by our dedicated sales and account management team. This team serves our retail partner base and identifies potential new wholesalers to expand our geographic footprint.
These sites give Solo Brands even more online presence in our effort to ensure customers find us wherever they choose to shop for outdoor and recreation products. Our strategic retail channel distribution is supported by our dedicated sales and account management team.
We believe our planned systems infrastructure will be sufficient to support our expected growth for the foreseeable future. 4 Table of Contents Competition We compete in the large outdoor, leisure, recreation, and lifestyle apparel markets and may compete in other addressable lifestyle markets.
We utilize leading software solutions for key aspects of our information systems. We believe our planned systems infrastructure will be sufficient to support our expected growth for the foreseeable future. Competition We compete in the large outdoor, leisure, recreation, and lifestyle apparel markets and may compete in other addressable lifestyle markets.
We are committed to making a long-term impact through our initiatives which cover a broad range of ESG-related topics, including: environmental sustainability, water conservation, diversity, equity, inclusion, and mental health. We partner with leading non-profits to drive meaningful change in supporting the conservation of our natural world.
We are committed to making a long-term impact through our initiatives which cover a broad range of ESG-related topics, including: environmental sustainability, water conservation, diversity, equity, inclusion, and mental health.
Our owned brand websites are also where we engage with our corporate customers, which represent a rapidly growing customer segment, particularly as we introduce additional customization options such as logo etchings to our fire pits.
We believe our digital expertise provides us a competitive advantage and is replicable and extendible across other brands. Our owned brand websites are also where we engage with our corporate customers, which represent a rapidly growing customer segment, particularly as we introduce additional customization options such as logo etchings to our fire pits.
In 2022, Chubbies launched multiple pant styles ranging from business performance pants to joggers and sweats. Created with high performance stretch fabric, Chubbies offers premium quality with a lightweight and breathable design that can be worn anywhere and anytime. Consumables.
The Chubbies brand has historically had five main product lines—Swim Trunks, Casual Shorts, Sport, Polos + Shirts, and Lounge. In 2022, Chubbies launched multiple pant styles ranging from business performance pants to joggers and sweats. Created with high performance stretch fabric, Chubbies offers premium quality with a lightweight and breathable design that can be worn anywhere and anytime. Accessories.
Our experienced legal and brand protection teams initiate claims against those offering infringing products to protect our intellectual property assets, including our distinctive designs, copyrights, and trade dress. In the future, we intend to continue to seek intellectual property protection for our new products and prosecute those who infringe against these valuable assets.
Our experienced legal and brand protection teams initiate claims against those offering infringing products to protect our intellectual property assets, including our distinctive designs, copyrights, and trade dress.
We work with partners who allow for production flexibility, efficiency and scalability, possess capabilities to support new products, meet our expanding sales channel strategies and other required operational needs. We currently have a number of manufacturing partners located in various countries, India, Vietnam, and Mexico, with the majority of our manufacturing concentrated with a single manufacturer in China.
We work with partners who allow for production flexibility, efficiency and scalability, possess capabilities to support new products, meet our expanding sales channel strategies and other required operational needs.
The Solo Stove Lite set the standard, and we have continued to design and develop groundbreaking, high-performance products engineered with purposeful simplicity. We carefully design and engineer every product for immediate enjoyment, free of complexity and intimidating learning curves often found in engineered outdoor and lifestyle products.
We carefully design and engineer every product for immediate enjoyment, free of complexity and intimidating learning curves often found in engineered outdoor and lifestyle products.
Each Stove also has a variety of cooking pots and accessories. Fire Pits. We created a new fire pit category in late 2016 with our portable, low smoke product offerings.
Today, our Stoves include the Lite, Titan, and Campfire, each of which is wood burning and incorporates our secondary burn technology, creating a hotter flame great for cooking. Each Stove also has a variety of cooking pots and accessories. Fire Pits. We created a new fire pit category in late 2016 with our portable, low smoke product offerings.
The Solo Brands product design teams control every aspect of our innovation, including design, construction, material performance requirements, manufacturing protocols, supplier selection, packaging specifications, and quality plans.
The Solo Brands product design teams control every aspect of our innovation, including design, construction, material performance requirements, manufacturing protocols, supplier selection, packaging specifications, and quality plans. Utilizing our state-of-the-art research and development center at our headquarters, the product development team is able to ensure continued design, testing, and quality control while optimizing speed-to-market.
We expect that this seasonality will continue to be a factor in our results of operations and sales. Segment Information We operate as one reportable segment. 3 Table of Contents Supply Chain and Quality Assurance We manage a supply chain of third-party manufacturing and logistics partners to produce and distribute our products.
We expect that this seasonality will continue to be a factor in our results of operations and sales. 3 Table of Contents Segment Information We operate as one reportable segment composed of five reporting units, comprised of our six brands.
Each of our brands has established deep relationships with trusted third-party manufacturers—predominantly in China and Southeast Asia, as well as in Mexico through a dedicated facility operated by a manufacturing labor outsourcing company. 1 Table of Contents We have recently expanded our product development team and have built a new state-of-the-art research and development center at our headquarters to ensure continued design, testing, and quality control while optimizing speed-to-market.
Each of our brands has established deep relationships with trusted third-party manufacturers—predominantly in China and Southeast Asia, as well as in Mexico through a dedicated facility operated by a manufacturing labor outsourcing company. 1 Table of Contents We have recently upgraded Oru’s manufacturing operations in Mexico by moving to a newer and more sophisticated facility.
Products We offer wide-ranging and high quality products directly to our customers through our platform. Our products are carefully designed to maximize performance while minimizing complexity. We create highly functional, yet simple products that are both durable and easy-to-use. Camping Stoves. We revolutionized the camp stove category with the launch of our Solo Stove Lite in 2011.
Additionally, through the acquisition activity undertaken in 2023, we added manufacturing capabilities in Mexico for indoor fire features and outdoor fixtures. Products We offer wide-ranging and high-quality products directly to our customers through our platform. Our products are carefully designed to maximize performance while minimizing complexity. We create highly functional, yet simple products that are both durable and easy-to-use.
We have also contracted with third-party logistics companies to store and manage shipments to customers in Australia. We use a warehouse management system at these distribution centers that interfaces with our ERP system so that we can maintain visibility and control over inventory levels and customer shipments.
We use a warehouse management system at these distribution centers that interfaces with our ERP system so that we can maintain visibility and control over inventory levels and customer shipments. We believe our domestic capacity and the capacity of international providers is sufficient to meet our future needs.
With an emphasis on form and function, ISLE’s products are intended to help users reconnect with the simple joy of getting outside, and their innovative portable designs allow users take them anywhere they can find floatable water. Storage. Launched in 2021, the Station provides an optimized storage solution for fire pits, firewood, and other accessories.
With an emphasis on form and function, ISLE’s products are intended to help users reconnect with the simple joy of getting outside, and their innovative portable designs allow users take them anywhere they can find floatable water. Lifestyle Apparel. Chubbies is a fun-loving, premium apparel brand that offers well-fitted comfortable clothing with unique style.
Virtually smokeless, and easy to use with a small bag of wooden pellets rather than an expensive and heavy propane tank, our patio heater provides head to toe warmth. Recreation. Oru Kayak is the original origami kayak that allows users to go from box to boat in a matter of minutes.
Virtually smokeless, and easy to use with a small bag of wooden pellets rather than an expensive and heavy propane tank, our patio heater provides head to toe warmth. Storage. Launched in 2021, the Station provides an optimized storage solution for fire pits, firewood, and other accessories.
Who We Are Solo Brands operates four premium outdoor brands; Solo Stove, Oru Kayak (“Oru”), ISLE Paddle Boards (“ISLE”), and Chubbies apparel. Our brands develop innovative products and market them directly to customers primarily through e-commerce channels, as well as wholesale partnerships with key retailers.
(“Oru”), International Surf Ventures, Inc. (“ISLE”), Chubbies, Inc. (“Chubbies”), Sconberg, LLC (“TerraFlame”) and IcyBreeze Cooling, LLC (“IcyBreeze”). Our brands develop innovative products and market them directly to customers primarily through e-commerce channels, as well as wholesale partnerships with key retailers.
Product Design and Development We approach product design and development with the goal of advancing our mission to build community, revolutionize the outdoor experience, and help everyday people reconnect with what matters most. Solo Brands and its products are driven by the “create good” philosophy, and are designed to get you in touch with whatever “good” is for you.
Product Design and Development Solo Brands and its products are driven by the “create good” philosophy and are designed to get you in touch with whatever “good” is for you. We create good products that foster good moments and memories, so our customers can create a good life.
We create good products that foster good moments and memories, so our customers can create a good life. Our products undergo a rigorous development process designed to maximize performance while minimizing complexity, delivering a superior degree of quality, functionality, portability, style, and ease-of-use.
Our products undergo a rigorous development process designed to maximize performance while minimizing complexity, delivering a superior degree of quality, functionality, portability, style, and ease-of-use. The Solo Stove Lite set the standard, and we have continued to design and develop groundbreaking, high-performance products engineered with purposeful simplicity.
This ultralight and portable product does not require synthetic fuel and can boil water in under 10 minutes using just twigs, sticks, and leaves found outside. Today, our Stoves include the Lite, Titan, and Campfire, each of which is wood burning and incorporates our secondary burn technology, creating a hotter flame great for cooking.
Camping Stoves. We revolutionized the camp stove category with the launch of our Solo Stove Lite in 2011. This ultralight and portable product does not require synthetic fuel and can boil water in under 10 minutes using just twigs, sticks, and leaves found outside.
Customers can access blogs through our websites, where we publish premium digital content, share customer stories and information on products, and further cultivate our community. We believe our digital expertise provides us a competitive advantage and is replicable and extendible across other brands.
Customers can access blogs through our websites, where we publish premium digital content, share customer stories and information on products, and further cultivate our community. With continuous improvement of our existing websites and a shift to increasingly scalable platforms, enhancement of the customer experience is ever evolving in a positive direction.
Certain of our products are distributed directly from our manufacturing facility in Mexicali, Mexico. The remaining portion of our products are shipped directly to one of our National Retail Partners or one of our distributors. Additionally, we leased a 20,000 square foot facility in Canada and a 72,000 square foot facility in Rotterdam, Netherlands.
Certain of our products are distributed directly from our manufacturing facilities in Mexicali, Mexico and Baja California, Mexico. The remaining portion of our products are shipped directly to one of our National Retail Partners or one of our distributors. We manage inventory by analyzing product sell-through, forecasting demand, and working with our supply chain to ensure sufficient availability.
Consumables provide a high margin, recurring revenue stream that increases customer lifetime value and supports repeat purchases and engagement with our community. The consumables category includes fun products that enhance the Solo Brands experience, such as Color Packs, and exciting add-ons, including Starters, All Natural Charcoal, firewood, and pellets. Accessories.
The consumables category includes fun products that enhance the Solo Brands experience, such as Color Packs, and exciting add-ons, including Starters, All-Natural Charcoal, firewood, fuel, and pellets. Indoor Fire Products . Through our acquisition activity in 2023, we “brought the fire inside” with indoor fire products that allow our customers to enjoy the warmth and comfort of a fire year-round.
The Accessories category spans the Solo Stove, Oru, and ISLE brands and includes products such as the Shelter, Shield, Roasting Sticks, Tools, Paddles, and Pumps. 2 Table of Contents Marketing Our multifaceted marketing strategy engages existing and new customers and has proven instrumental in driving sales and building brand awareness and affinity.
The Accessories category spans the Solo Stove, Oru, and ISLE brands and includes products such as the Shelter, Shield, Roasting Sticks, Tools, Paddles, and Pumps. Portable Air Conditioning Cooler . Through our acquisition activity in 2023, we added the next level of consumer comfort to our already strong portfolio of products with the addition of portable air conditioning units.
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Our space features over 10,000 square feet of fabrication, test space, and machinery to facilitate experimentation and the ideation and development of new offerings. We are also expanding Oru’s manufacturing operations in Mexico by adding additional supply lines and seeking additional suppliers for other recreational products.
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In 2023 we continued to lean into expanding the cooking category by launching Pi Prime, an easy-to-use standalone durable stainless steel pizza oven with a lower entry price than our original pizza oven.
Removed
In 2022 we continued to lean into expanding the cooking category. In addition to the multiple Cook Top surfaces (cast iron griddle, skillet, and wok) used in connection with our fire pits, we launched Solo Stove Pi, a standalone durable stainless steel pizza oven with a collection of accessories. We continue to see opportunity for expansion in the cooking category.
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We continue to see opportunity for expansion in the cooking category, have teamed with prominent influencers in the social media space and offer ingredients for one-time delivery or subscription. Outdoor Heating. In 2022, we disrupted the outdoor heating market by launching a wood-pellet burning patio heater.
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We recently introduced Pi Fire, a convenient pizza oven attachment to be used over a Solo Stove fire pit, and a collection of accessories and grilling tools to further enhance our customers’ cooking experiences. Outdoor Heating. In 2022, we disrupted the outdoor heating market by launching a wood-pellet burning patio heater.
Added
The Station has broadened our consumer reach and was designed in response to real-time consumer feedback. Consumables. Consumables provide a high margin, recurring revenue stream that increases customer lifetime value and supports repeat purchases and engagement with our community.
Removed
The Station has broadened our consumer reach and was designed in response to real-time consumer feedback. Lifestyle Apparel. Chubbies is a fun-loving, premium apparel brand that offers well-fitted comfortable clothing with unique style. The Chubbies brand has historically had five main product lines—Swim Trunks, Casual Shorts, Sport, Polos + Shirts, and Lounge.
Added
Utilizing our proprietary fire burning gel and bioethanol, multi-hour burns with the familiar crackle and flame of a traditional wood fire can now be enjoyed anywhere. Recreation. Oru Kayak is the original origami kayak that allows users to go from box to boat in a matter of minutes.
Removed
Our domestic and international warehouses position Solo Brands to reach customers quickly and position us to realize immediate cost savings. We believe our domestic capacity and the capacity of international providers is sufficient to meet our future needs. We manage inventory by analyzing product sell-through, forecasting demand, and working with our supply chain to ensure sufficient availability.
Added
Easily transportable and able to be powered by multiple sources, including a long-lived battery, the portable air conditioner allows our customers to experience another level of comfort in the outdoors when the weather conditions do not favor a fire. 2 Table of Contents Marketing Our multifaceted marketing strategy engages existing and new customers and has proven instrumental in driving sales and building brand awareness and affinity.
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We leverage third-party components and software to enhance our platform capabilities and recently implemented upgraded ERP and e-commerce systems to improve our operations and manage our growing company. We utilize leading software solutions for key aspects of our information systems.
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While our in-house marketing team remains the primary focus, we have leveraged the expertise and enhanced penetration available through external marketing agencies, which led to increased brand awareness from campaigns in 2023, such as Snoop Dogg and the Macy’s Day Parade.
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For example, our donations to-date as part of our partnerships are expected to result in the planting of more than ten thousand trees across the globe—with the goal of our donations over the next five years supporting the planting of one million trees.
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As an added benefit to our strategic retail partners, we provide the opportunity to leverage a variety of our products, including specialized items specific to certain of these partners, further demonstrating our desire to operate as a value adding partner. This team serves our retail partner base and identifies potential new wholesalers to expand our geographic footprint.
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We also strive to serve individuals within our communities more directly, and have launched projects and foundations to do so.
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The Chief Executive Officer (“CEO”) is the chief operating decision maker of the Company and makes operating decisions, assesses financial performance, and allocates resources based upon discrete financial information at a consolidated level. Supply Chain and Quality Assurance We manage a supply chain of third-party manufacturing and logistics partners to produce and distribute our products.
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In 2020, we launched Project Good, which provides free Solo Brands products to people in need and provides a variety of local service projects, and in 2021, we launched Foundation 43, which expands access to mental health and suicide prevention services through local community organizations.
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We currently have a number of manufacturing partners located in various countries including the United States, India, Vietnam, Cambodia , and Mexico, with the majority of our manufacturing concentrated with a single manufacturer in China.
Removed
We are also committed to fostering diversity in the workplace, with a five year goal of building a Solo Brands workforce that is fully representative of the diverse U.S. population. At Solo Brands, we believe businesses of the future must be accountable for leaving the world better than we found it.
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Additionally, we leased a 20,000 square foot facility in Canada and a 72,000 square foot facility in Rotterdam, Netherlands. Our domestic and international warehouses position Solo Brands to reach customers quickly and position us to realize immediate cost savings.
Added
In the future, we intend to continue to seek intellectual property protection for our new products and prosecute those who infringe against these valuable assets. 4 Table of Contents Information Technology Information technology, or IT, systems are integral to our ability to operate, analyze and manage our business, research and develop new products, enhance our customers’ experience, and optimize our operating costs.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThe Tax Receivable Agreement provides that if (i) Solo Brands, Inc. materially breaches any of its material obligations under the Tax Receivable Agreement, (ii) certain mergers, asset sales, other forms of business combinations, or other changes of control were to occur, or (iii) Solo Brands, Inc. elects an early termination of the Tax Receivable Agreement, then Solo Brands, Inc.’s future obligations, or its successor’s future obligations, under the Tax Receivable Agreement to make payments thereunder would accelerate and become due and payable, based on certain assumptions, including an assumption that Solo Brands, Inc. would have sufficient taxable income to fully utilize all potential future tax benefits that are subject to the Tax Receivable Agreement, and an assumption that, as of the effective date of the acceleration, any Continuing LLC Owner that has LLC Interests not yet exchanged shall be deemed to have exchanged such LLC Interests on such date, even if Solo Brands, Inc. does not receive the corresponding tax benefits until a later date when the LLC Interests are actually exchanged.
Biggest changeThe Tax Receivable Agreement provides that if (i) Solo Brands, Inc. materially breaches any of its material obligations under the Tax Receivable Agreement, (ii) certain mergers, asset sales, other forms of business combinations, or other changes of control were to occur, or (iii) Solo Brands, Inc. elects an early termination of the Tax Receivable Agreement, then Solo Brands, Inc.’s future obligations, or its successor’s future obligations, under the Tax Receivable Agreement to make payments thereunder would accelerate and become due and payable, based on certain assumptions, including an assumption that Solo Brands, Inc. would have sufficient taxable income to fully utilize all potential future tax benefits that are subject to the Tax Receivable Agreement, and an assumption that, as of the effective date of the acceleration, any Continuing LLC Owner that has LLC Interests not yet exchanged shall be deemed to have exchanged such LLC Interests on such date, even if Solo Brands, Inc. does not receive the corresponding tax benefits until a later date when the LLC Interests are actually exchanged. 22 Table of Contents As a result of the foregoing, Solo Brands, Inc. would be required to make an immediate cash payment equal to the estimated present value of the anticipated future tax benefits that are the subject of the Tax Receivable Agreement, based on certain assumptions, which payment may be made significantly in advance of the actual realization, if any, of those future tax benefits and, therefore, Solo Brands, Inc. could be required to make payments under the Tax Receivable Agreement that are greater than the specified percentage of the actual tax benefits it ultimately realizes.
Among other things, the CCPA gives California consumers expanded rights related to their personal information, including the right to access and delete their personal information, receive detailed information about how their personal information is used and shared. The CCPA also provides California consumers the right to opt-out of certain sales and sharing of personal information.
Among other things, the CCPA gives California consumers expanded rights related to their personal information, including the right to access and delete their personal information and receive detailed information about how their personal information is used and shared. The CCPA also provides California consumers the right to opt-out of certain sales and sharing of personal information.
There are significant costs and risks inherent in selling our products in international markets, including: (a) failure to effectively establish our core brand identity; (b) increased employment costs; (c) increased shipping and distribution costs, which could increase our expenses and reduce our margins; (d) potentially lower margins in some regions; (e) longer collection cycles in some regions; (f) increased competition from local providers of similar products; (g) compliance with foreign laws and regulations, including taxes and duties, laws governing the marketing and use of e-commerce websites and enhanced data privacy laws and security, rules, and regulations; (h) establishing and maintaining effective internal controls at foreign locations and the associated increased costs; (i) increased counterfeiting and the uncertainty of protection for intellectual property rights in some countries and practical difficulties of enforcing rights abroad; (j) compliance with anti-bribery, anti-corruption, sanctions and anti-money laundering laws, such as the FCPA, the Bribery Act, and OFAC regulations, by us, our employees, and our business partners; (k) currency exchange rate fluctuations and related effects on our results of operations; (l) economic weakness, including inflation, or political instability in foreign economies and markets; (m) compliance with tax, employment, immigration, and labor laws for employees living or traveling abroad; (n) workforce uncertainty in countries 13 Table of Contents where labor unrest is more common than in the United States; (o) business interruptions resulting from geopolitical actions, including war and terrorism, such as the recent war between Russia and Ukraine, or natural disasters, including earthquakes, typhoons, floods, fires, and public health issues, including the outbreak of a pandemic or contagious disease, such as COVID-19, or xenophobia resulting therefrom; (p) the imposition of tariffs on products that we import into international markets that could make such products more expensive compared to those of our competitors; (q) that our ability to expand internationally could be impacted by the intellectual property rights of third parties that conflict with or are superior to ours; (r) difficulty developing retail relationships; and (s) other costs and risks of doing business internationally.
There are significant costs and risks inherent in selling our products in international markets, including: (a) failure to effectively establish our core brand identity; (b) increased employment costs; (c) increased shipping and distribution costs, which could increase our expenses and reduce our margins; (d) potentially lower margins in some regions; (e) longer collection cycles in some regions; (f) increased competition from local providers of similar products; (g) compliance with foreign laws and regulations, including taxes and duties, laws governing the marketing and use of e-commerce websites and enhanced data privacy laws and security, rules, and regulations; (h) establishing and maintaining effective internal controls at foreign locations and the associated increased costs; (i) increased counterfeiting and the uncertainty of protection for intellectual property rights in some countries and practical difficulties of enforcing rights abroad; (j) compliance with anti-bribery, anti-corruption, sanctions and anti-money laundering laws, such as the FCPA, the Bribery Act, and OFAC regulations, by us, our employees, and our business partners; (k) currency exchange rate fluctuations and related effects on our results of operations; (l) economic weakness, including inflation, or political instability in foreign economies and markets; (m) compliance with tax, employment, immigration, and labor laws for employees living or traveling abroad; (n) workforce uncertainty in countries where labor unrest is more common than in the United States; (o) business interruptions resulting from geopolitical actions, including war and terrorism, such as the recent war between Russia and Ukraine, or natural disasters, including earthquakes, typhoons, floods, fires, and public health issues, including the outbreak of a pandemic or contagious disease, such as COVID-19, or xenophobia resulting therefrom; (p) the imposition of tariffs on products that we import into international markets that could make such products more expensive compared to those of our competitors; (q) that our ability to expand internationally could be impacted by the intellectual property rights of third parties that conflict with or are superior to ours; (r) difficulty developing retail relationships; and (s) other costs and risks of doing business internationally.
We cannot guarantee that our security efforts will prevent breaches or breakdowns of the Company’s or its third-party service providers’ information technology systems. In addition, our information systems are a target of cyberattacks and although the incidents that we have experienced to date have not had a material effect.
We cannot guarantee that our security efforts will prevent breaches or breakdowns of the Company’s or its third-party service providers’ information technology systems. In addition, our information systems are a target of cyberattacks although the incidents that we have experienced to date have not had a material effect.
The ability of our manufacturers to effectively satisfy our production requirements could also be impacted by manufacturer financial difficulty or damage to their operations caused by fire, terrorist attack, riots, natural disaster, public health issues, or other events.
The ability of our manufacturers to effectively satisfy our production requirements could also be impacted by manufacturer financial difficulty or damage to their operations caused by fire, terrorist attack, riots, natural disaster, public health issues, pandemics, or other events.
In addition, we expect to make significant investments in our research and development and sales and marketing organizations, expand our operations and infrastructure both domestically and internationally, design and develop new products, and enhance our existing products with newly developed products and through acquisitions.
In addition, we expect to continue to make significant investments in our research and development and sales and marketing organizations, expand our operations and infrastructure both domestically and internationally, design and develop new products, and enhance our existing products with newly developed products and through acquisitions.
We also may not achieve the anticipated benefits from either past or future acquisitions due to a number of factors, including: • risks associated with conducting due diligence; • problems integrating the purchased businesses, products or technologies; • anticipated and unanticipated costs or liabilities associated with the acquisition; • inability to achieve anticipated synergies; • issues maintaining uniform standards, procedures, controls and policies across our brands; • the diversion of management’s attention from other business concerns; • the loss of our or the acquired business’s key employees; • adverse effects on existing business relationships with suppliers, distributors, retail partners and customers; • risks associated with entering new markets in which we have limited or no experience; • increased legal, accounting and compliance costs; or • the issuance of dilutive equity securities, the incurrence of debt, or the use of cash to fund such acquisitions.
We also may not achieve the anticipated benefits from either past or future acquisitions due to a number of factors, including: • risks associated with conducting due diligence; • problems integrating the purchased businesses, products or technologies; • anticipated and unanticipated costs or liabilities associated with the acquisition; • inability to achieve anticipated synergies; • issues maintaining uniform standards, procedures, controls and policies across our brands; • the diversion of management’s attention from other business concerns; • the loss of our or the acquired business’s key employees; • adverse effects on existing business relationships with suppliers, distributors, retail partners and customers; 12 Table of Contents • risks associated with entering new markets in which we have limited or no experience; • increased legal, accounting and compliance costs; or • the issuance of dilutive equity securities, the incurrence of debt, or the use of cash to fund such acquisitions.
Solo Brands, Inc.’s failure to make any payment required under the Tax Receivable Agreement (including any accrued and unpaid interest) within 60 calendar days of the date on which the payment is required to be made will constitute a material breach of a material obligation under the Tax Receivable Agreement, which will terminate the Tax Receivable Agreement and accelerate future payments thereunder, unless the applicable payment is not made because (i) Holdings is prohibited from making such payment under the terms of the Tax Receivable Agreement or the terms governing certain of its indebtedness or (ii) Holdings does not have, and despite using commercially 22 Table of Contents reasonable efforts cannot obtain, sufficient funds to make such payment.
Solo Brands, Inc.’s failure to make any payment required under the Tax Receivable Agreement (including any accrued and unpaid interest) within 60 calendar days of the date on which the payment is required to be made will constitute a material breach of a material obligation under the Tax Receivable Agreement, which will terminate the Tax Receivable Agreement and accelerate future payments thereunder, unless the applicable payment is not made because (i) Holdings is prohibited from making such payment under the terms of the Tax Receivable Agreement or the terms governing certain of its indebtedness or (ii) Holdings does not have, and despite using commercially reasonable efforts cannot obtain, sufficient funds to make such payment.
Under Sections 3(a)(1)(A) and (C) of the 1940 Act, a company generally will be deemed to be an “investment company” for purposes of the 1940 Act if (i) it is, or holds itself out as being, engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities or (ii) it engages, or proposes to engage, in the business of investing, reinvesting, owning, holding or trading in securities and it owns or 23 Table of Contents proposes to acquire investment securities having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis.
Under Sections 3(a)(1)(A) and (C) of the 1940 Act, a company generally will be deemed to be an “investment company” for purposes of the 1940 Act if (i) it is, or holds itself out as being, engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities or (ii) it engages, or proposes to engage, in the business of investing, reinvesting, owning, holding or trading in securities and it owns or proposes to acquire investment securities having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis.
Our large reliance on our distribution center in Texas makes us more vulnerable to natural disasters, weather-related disruptions, accidents, system failures, public health issues, or other unforeseen events that could delay or impair our ability to fulfill retailer orders and/or ship merchandise purchased on our website, which could harm our sales.
Our large reliance on our one distribution center in Texas makes us vulnerable to natural disasters, weather-related disruptions, accidents, system failures, public health issues, or other unforeseen events that could delay or impair our ability to fulfill retailer orders and/or ship merchandise purchased on our website, which could harm our sales.
If we are unable to successfully design and develop new products, our business may be harmed. Solo Stove made up the majority of our total revenue in the year ended December 31, 2022. Our future growth depends in part on our ability to expand sales of our other existing products and to introduce new and enhanced products.
If we are unable to successfully design and develop new products, our business may be harmed. Solo Stove made up the majority of our total revenue in the year ended December 31, 2023. Our future growth depends in part on our ability to expand sales of our other existing products and to introduce new and enhanced products.
As supervisory authorities issue further guidance on personal data export mechanisms, including circumstances where the SCCs cannot be used, and/or start taking enforcement action, we could suffer additional costs, complaints and/or regulatory investigations or fines, and/or if we are otherwise unable to transfer personal data between and among countries and regions in which we operate, it could affect the manner in which we provide our services, the geographical location or segregation of our relevant systems and operations, and could adversely affect our financial results.
As supervisory authorities issue further guidance on 15 Table of Contents personal data export mechanisms, including circumstances where the SCCs cannot be used, and/or start taking enforcement action, we could suffer additional costs, complaints and/or regulatory investigations or fines, and/or if we are otherwise unable to transfer personal data between and among countries and regions in which we operate, it could affect the manner in which we provide our services, the geographical location or segregation of our relevant systems and operations, and could adversely affect our financial results.
In particular, we are subject to evolving EU and UK privacy laws on cookies and e-marketing. In the EU and the UK, regulators are increasingly focusing on compliance with requirements in the online behavioral advertising ecosystem, and informed consent is required for the placement of a cookie or similar technologies on a user’s device and for direct electronic marketing.
In particular, we are subject to evolving EU and UK privacy laws on cookies and e-marketing. In the EU and the UK, regulators are increasingly focusing on compliance with requirements in the online behavioral advertising ecosystem, and informed consent is required for the placement of certain cookies or similar technologies on a user’s device and for direct electronic marketing.
If we or our third party service providers suffer, or are believed to have suffered, a material loss or disclosure of personal or confidential information as a result of an actual or potential breach of our information technology systems, we may suffer reputational, competitive and/or business harm, incur significant costs and be subject to government investigations, litigation, fines and/or damages, which could have a material adverse effect on our business, prospects, results of operations, financial condition and/or cash flows.
If we or our third party service providers suffer, or are believed to have suffered, a material loss or disclosure of personal or confidential information as a result of an actual or potential breach of our information technology systems, we may suffer reputational, competitive and/or business harm, incur significant costs and be subject to government investigations, litigation, fines and/or damages, which could have a material adverse effect on our business, prospects, results 17 Table of Contents of operations, financial condition and/or cash flows.
During 2022, the majority of our products that were imported into the United States from China were subject to tariffs that were as high as 25%. The progress and continuation of trade negotiations between the United States and China continues to be uncertain and a further escalation of the trade war remains a possibility.
During 2023, the majority of our products that were imported into the United States from China were subject to tariffs that were as high as 25%. The progress and continuation of trade negotiations between the United States and China continues to be uncertain and a further escalation of the trade war remains a possibility.
Our success depends in large part on our brand image and, in particular, on the strength of our Solo Stove, Chubbies, ISLE, and Oru trademarks. We rely on trademark protection to protect our brands, and we have registered or applied to register many of these trademarks.
Our success depends in large part on our brand image and, in particular, on the strength of our Solo Stove, ISLE, Oru, Chubbies, TerraFlame and IcyBreeze trademarks. We rely on trademark protection to protect our brands, and we have registered or applied to register many of these trademarks.
As a result of our growth, our employee headcount and the scope and complexity of our business have increased substantially, and we are continuing to implement policies and procedures that we believe are appropriate for a company of our size and operating as a new public company.
As a result of our growth to date, our employee headcount and the scope and complexity of our business have increased substantially, and we are continuing to implement policies and procedures that we believe are appropriate for a company of our size and operating as a public company.
If our retail partners reduce or terminate those activities, we may experience reduced sales of our products, resulting in lower gross margins, which would harm our results of operations. In addition, any store closures, decreased foot traffic and recession may adversely affect the performance and the financial condition of many of these customers.
If our retail partners reduce or terminate those activities, we may experience reduced sales of our products, resulting in lower gross margins, which would harm our results of operations. In addition, any store 11 Table of Contents closures, decreased foot traffic and recession may adversely affect the performance and the financial condition of many of these customers.
These laws, regulations and standards are continuously evolving and may be interpreted and applied 14 Table of Contents differently over time and from jurisdiction to jurisdiction, and it is possible that they will be interpreted and applied in ways that may have a material adverse effect on our reputation, business, financial condition and results of operations. U.S.
These laws, regulations and standards are continuously evolving and may be interpreted and applied differently over time and from jurisdiction to jurisdiction, and it is possible that they will be interpreted and applied in ways that may have a material adverse effect on our reputation, business, financial condition and results of operations. U.S.
If our information technology systems suffer damage, disruption or shutdown and we do not effectively resolve the issues in a timely manner, our business, financial condition and results of operations may be materially and adversely affected, and we could experience delays in reporting our financial results. E-commerce is central to our business.
If our information technology systems suffer damage, disruption 16 Table of Contents or shutdown and we do not effectively resolve the issues in a timely manner, our business, financial condition and results of operations may be materially and adversely affected, and we could experience delays in reporting our financial results. E-commerce is central to our business.
As a result, they could produce similar products for our competitors, some of which could potentially purchase products in significantly greater volume. Further, while certain of our contracts stipulate contractual exclusivity against production of similar products to ours, those suppliers or manufacturers could choose to breach our agreements and work with our competitors.
As a result, they could produce similar products for our competitors, some of which could potentially purchase products in significantly greater volume. Further, while certain of our contracts stipulate contractual exclusivity against production of similar products to ours, those suppliers or manufacturers could choose to breach our 9 Table of Contents agreements and work with our competitors.
Under certain circumstances, the Consumer Products Safety Commission or a comparable foreign agency could require us to repurchase or recall one or more of our products. Additionally, other laws and agencies regulate certain consumer products we sell in the United States and abroad, and more restrictive laws and regulations may be adopted in the future.
Under certain circumstances, the Consumer Products Safety Commission or a comparable foreign agency could require us to repurchase or recall one or more of our products. Additionally, other laws and agencies regulate certain consumer products we sell in the United States and abroad, and more restrictive laws and regulations may be adopted in the 13 Table of Contents future.
Our recent growth rates may not be sustainable or indicative of future growth and we may not be able to effectively manage our growth. We have expanded our operations rapidly, especially over the last few years.
Our historic growth rates may not be sustainable or indicative of future growth and we may not be able to effectively manage our growth. We have expanded our operations rapidly, especially over the last few years.
In 2022, the majority of orders were placed from a mobile device. However, we cannot be certain that our mobile applications or our mobile-optimized sites will be successful in the future.
In 2023, the majority of orders were placed from a mobile device. However, we cannot be certain that our mobile applications or our mobile-optimized sites will be successful in the future.
We may also face civil claims including representative actions and other class action type litigation (where 15 Table of Contents individuals have suffered harm), potentially amounting to significant compensation or damages liabilities, as well as associated costs, diversion of internal resources, and reputational harm.
We may also face civil claims including representative actions and other class action type litigation (where individuals have suffered harm), potentially amounting to significant compensation or damages liabilities, as well as associated costs, diversion of internal resources, and reputational harm.
Any determination to pay cash dividends in the future will be at the sole discretion of our 26 Table of Contents board of directors, subject to limitations under applicable law and may be discontinued at any time. In addition, our ability to pay cash dividends is currently restricted by the terms of our Revolving Credit Facility.
Any determination to pay cash dividends in the future will be at the sole discretion of our board of directors, subject to limitations under applicable law and may be discontinued at any time. In addition, our ability to pay cash dividends is currently restricted by the terms of our Revolving Credit Facility.
We currently have a number of manufacturing partners located in various locations, including China, India, Vietnam, United States and Mexico. The majority of our fire pits, our highest grossing product, are currently made by one manufacturer in China, with additional limited production in China, India and Vietnam.
We currently have a number of manufacturing partners located in various locations, including China, India, Vietnam, Cambodia, United States and Mexico. The majority of our fire pits, our highest grossing product, are currently made by a single manufacturer in China, with additional limited production in China, India and Vietnam.
The GDPR also imposes conditions on obtaining valid consent, such as a prohibition on pre-checked consents and a requirement to ensure separate consents are sought for each type of cookie or similar technology. Further, a recent European court decision, regulators’ recent guidance and recent campaigns by a not for profit organization are driving increased attention to cookies and tracking technologies.
The GDPR also imposes conditions on obtaining valid consent, such as a prohibition on pre-checked consents and a requirement to ensure separate consents are sought for each type of cookie or similar technology. Further, recent European court and regulator decisions and guidance and recent campaigns by a not for profit organization are driving increased attention to cookies and tracking technologies.
On May 12, 2021, we entered into a Credit Agreement among Solo Brands, LLC, Solo Stove Intermediate, LLC, JPMorgan Chase Bank, N.A., and the Lenders and L/C Issuers party thereto (as subsequently amended on June 2, 2021 and September 1, 2021, the “Revolving Credit Facility”). As of December 31, 2022 we had $20.0 million outstanding under the Revolving Credit Facility.
On May 12, 2021, we entered into a Credit Agreement among Solo Brands, LLC, Solo Stove Intermediate, LLC, JPMorgan Chase Bank, N.A., and the Lenders and L/C Issuers party thereto (as subsequently amended on June 2, 2021 and September 1, 2021, the “Revolving Credit Facility”). As of December 31, 2023 we had $60.0 million outstanding under the Revolving Credit Facility.
Many of our competitors and potential competitors have significant competitive advantages, including learning from our experiences and taking advantage of new product popularity, greater financial strength, larger research and development teams, larger marketing budgets, and more distribution and other resources than we do.
Many of our competitors and potential competitors have significant competitive advantages, including learning from our experiences 7 Table of Contents and taking advantage of new product popularity, greater financial strength, larger research and development teams, larger marketing budgets, and more distribution and other resources than we do.
We may experience difficulties as we continue to implement changes to our business and related policies and procedures to keep pace with our recent growth and, if our operations continue to grow at a rapid pace, in managing such growth and building the appropriate processes and controls in the future.
However, we may experience difficulties as we continue to implement changes to our business and related policies and procedures to keep pace with our historical growth and, if our operations continue to grow at a rapid pace, in managing such growth and building the appropriate processes and controls in the future.
Any shortage of raw materials or inability of a manufacturer to produce or ship our products in a timely manner, or at all, could impair our ability to ship orders of our products in a cost-efficient, timely manner and could cause us 9 Table of Contents to miss the delivery requirements of our customers.
Any shortage of raw materials or inability of a manufacturer to produce or ship our products in a timely manner, or at all, could impair our ability to ship orders of our products in a cost-efficient, timely manner and could cause us to miss the delivery requirements of our customers.
The threat of our debt being accelerated in 19 Table of Contents connection with a change of control could make it more difficult for us to attract potential buyers or to consummate a change of control transaction that would otherwise be beneficial to our stockholders.
The threat of our debt being accelerated in connection with a change of control could make it more difficult for us to attract potential buyers or to consummate a change of control transaction that would otherwise be beneficial to our stockholders.
Class A common stock increasing in value relative to the value of LLC Interests. The Continuing LLC Owners may benefit from any value attributable to such cash balances if they acquire shares of Solo Brands, Inc.
Class A common stock increasing in value relative to the value of LLC 21 Table of Contents Interests. The Continuing LLC Owners may benefit from any value attributable to such cash balances if they acquire shares of Solo Brands, Inc.
We believe that our continued revenue growth will depend upon, among other factors: • Increasing U.S. brand awareness; • Our ability to obtain adequate protections for our intellectual property; • Product innovation to expand our total addressable market; • Complementary acquisitions; and • International expansion. We have a limited history operating our business at its current scale.
We believe that revenue growth will depend upon, among other factors: • Increasing U.S. brand awareness; • Our ability to obtain adequate protections for our intellectual property; and • Product innovation to expand our total addressable market. We have a limited history operating our business at its current scale.
Assuming no material changes in the relevant tax law, that we earn sufficient taxable income to realize all tax benefits that are subject to the Tax Receivable Agreement and that all Continuing LLC Owners exchanged their common units for Class A common stock immediately following the completion of this offering, we would recognize an incremental deferred tax asset of approximately $6.4 million and a related liability for payments under the Tax Receivable Agreement of approximately $5.5 million based on our estimate of the aggregate amount that we will pay under the Tax Receivable Agreement as a result of such future exchanges.
Assuming no material changes in the relevant tax law, that we earn sufficient taxable income to realize all tax benefits that are subject to the Tax Receivable Agreement and that all Continuing LLC Owners exchanged their common units for Class A common stock immediately following the completion of this offering, we would recognize an incremental deferred tax asset of approximately $28.7 million and a related liability for early termination payments under the Tax Receivable Agreement of approximately $15.7 million based on our estimate of the aggregate amount that we will pay under the Tax Receivable Agreement as a result of such future exchanges.
If our goodwill, other intangible assets, or fixed assets become impaired, we may be required to record a charge to our earnings. We may be required to record future impairments of goodwill, other intangible assets, or fixed assets to the extent the fair value of these assets falls below their book value.
If our goodwill, other intangible assets, or fixed assets become impaired, we may be required to record a charge to our earnings. We have in the past and may be required to record future impairments of goodwill, other intangible assets, or fixed assets to the extent the fair value of these assets falls below their book value.
If these independent service providers become unwilling or unable to provide these services 12 Table of Contents to us or if the cost of using these providers increases, our business could be harmed.
If these independent service providers become unwilling or unable to provide these services to us or if the cost of using these providers increases, our business could be harmed.
We have limited experience with regulatory environments and market practices internationally, and we may not be able to penetrate or successfully operate in new markets.
We have limited experience with regulatory environments and market practices internationally, and we may not be able to further penetrate or continue to successfully operate in these new markets.
We face the risk that these third-party manufacturers may not produce and deliver our products on a timely basis, or at all. We have experienced, and will likely continue to experience, operational difficulties with our manufacturers and we may face similar or unknown operational difficulties or other risks with respect to future manufacturers, including with respect to new products.
We face the risk that these third-party manufacturers may not produce and deliver our products on a timely basis, or at all. We have experienced, and could experience in the future, operational difficulties with our manufacturers and we may face similar or unknown operational difficulties or other risks with respect to future manufacturers, including with respect to new products.
In the European Economic Area (the EEA), we are subject to the GDPR and in the United Kingdom, or UK, we are subject to the UK data protection regime consisting primarily of the UK GDPR and the UK DPA, in each case in relation to our collection, control, processing, sharing, disclosure and other use of data relating to an identifiable living individual (personal data).
In the European Economic Area (the “EEA”), we are subject to the GDPR and in the United Kingdom, or UK, we are subject to the UK data protection regime consisting primarily of the UK GDPR and the UK DPA, in each case in relation to our collection, control, processing, sharing, disclosure and other use of data relating to an identifiable living individual (“personal data”).
These and other factors could harm our international operations and, consequently, harm our business, results of operations, and financial condition. Further, we may incur significant operating expenses as a result of our planned international expansion, and it may not be successful.
These and other factors could harm our international operations and, consequently, harm our business, results of operations, and financial condition. Further, we may incur significant operating expenses as a result of our planned continued international operations, and they may not be successful.
Privacy Laws Domestic privacy and data security laws are complex and changing rapidly. Within the United States, many states are considering adopting, or have already adopted, privacy regulations. Such regulations include the CCPA, which came into effect in 2020. The CCPA increases privacy rights for California consumers and imposes obligations on companies that process their personal information.
Privacy Laws Domestic privacy and data security laws are complex and changing rapidly. Within the United States, many states are considering adopting, or have already adopted, privacy regulations. Such regulations include the CCPA, which came into effect on January 1, 2020. The CCPA creates certain privacy rights for California consumers and imposes obligations on companies that process their personal information.
We are also subject to the European Union, or EU, and UK rules with respect to cross-border transfers of personal data from the EEA and the UK to the United States and other jurisdictions that the European Commission/ UK competent authorities do not recognize as having “adequate” data protection laws unless a data transfer mechanism has been put in place.
We are also subject to the European Union, or EU, and UK rules with respect to cross-border transfers of personal data from the EEA and the UK to the United States and other jurisdictions that the European Commission/ UK competent authorities do not recognize as having “adequate” data protection laws unless a data transfer mechanism has been put in place, and the efficacy and longevity of current transfer mechanisms between the EEA and the United States remains uncertain.
We regularly monitor for infringement, and we employ third-party watch services in support of these efforts and have from time to time instituted litigation to enforce our trademarks, patents and other intellectual property, and we expect to do so in the future.
We regard our intellectual property rights as critical to our success. We regularly monitor for infringement, and we employ third-party watch services in support of these efforts and have from time to time instituted litigation to enforce our trademarks, patents and other intellectual property, and we expect to do so in the future.
Our business is vulnerable to damage or interruption from earthquakes, fires, floods, power losses, telecommunications failures, terrorist attacks, acts of war, human errors, criminal acts, and similar events.
Our business is vulnerable to damage or interruption from earthquakes, fires, floods, power losses, telecommunications failures, terrorist attacks, acts of war, human errors, criminal acts, public health crises and pandemics, and similar events.
Although we have policies and controls to mitigate our risks in these areas, we cannot assure you that our directors, officers, employees, representatives, manufacturers, or suppliers have not engaged and will not engage in conduct for which we may be held responsible, nor can we assure you that our manufacturers, suppliers, or other business partners have not engaged and will not engage in conduct that could materially harm their ability to perform their contractual obligations to us or even result in our being held liable for such conduct.
We cannot assure you that our directors, officers, employees, representatives, manufacturers, or suppliers have not engaged and will not engage in conduct for which we may be held responsible, nor can we assure you that our manufacturers, suppliers, or other business partners have not engaged and will not engage in conduct that could materially harm their ability to perform their contractual obligations to us or even result in our being held liable for such conduct.
Restricted securities may not be sold in the public market unless the sale is registered under the Securities Act or an exemption from registration is available. The outstanding 48,558,927 shares of Class A common stock held by the Former LLC Owners are subject to certain restrictions on sale.
Restricted securities may not be sold in the public market unless the sale is registered under the Securities Act or an exemption from registration is available. The outstanding 29,953,415 shares of Class A common stock held by the Former LLC Owners are subject to certain restrictions on sale.
We may acquire or invest in other companies, which could divert our management’s attention, result in dilution to our stockholders, and otherwise disrupt our operations and harm our results of operations.
We may acquire or invest in other companies, which could divert our management’s attention, result in dilution to our stockholders, and otherwise disrupt our operations, harm our results of operations and negatively impact our financial condition.
We may also encounter difficulty expanding into international markets because of limited brand recognition, leading to delayed or limited acceptance of our products by customers in these markets, and increased marketing and customer acquisition costs to establish our brand.
We may also encounter difficulty continuing operations in international markets because of limited brand recognition, leading to delayed or limited acceptance of our products by customers in these markets, and increased marketing and customer acquisition costs to continue to establish our brand.
Our results of operations may be harmed if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our results of operations to fall below the expectations of securities analysts and investors, and could result in a decline in our stock price. Item 1B. Unresolved Staff Comments None.
Our results of operations may be harmed if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our results of operations to fall below the expectations of securities analysts and investors, and could result in a decline in our stock price.
We are currently unable to predict whether such changes will occur and, if so, the ultimate impact on our business. If our estimates or judgments relating to our critical accounting policies prove to be incorrect or change significantly, our results of operations could be harmed.
The likelihood of these changes being enacted or implemented is unclear. We are currently unable to predict whether such changes will occur and, if so, the ultimate impact on our business. If our estimates or judgments relating to our critical accounting policies prove to be incorrect or change significantly, our results of operations could be harmed.
If we identify any material weaknesses in our internal controls over financial reporting or are unable to comply with the requirements of Section 404 in a timely manner or assert that our internal controls over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal controls over financial reporting once we are no longer an emerging growth company, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our Class A common stock could be adversely affected, and we could become subject to investigations by the stock exchange on which our securities are listed, the SEC or other regulatory authorities, which could require additional financial and management resources. 24 Table of Contents The Continuing LLC Owners have the right to have their LLC Interests redeemed pursuant to the terms of the Holdings LLC Agreement, which may dilute the owners of the Class A common stock.
If we identify any additional material weaknesses in our internal controls over financial reporting or are unable to comply with the requirements of Section 404 in a timely manner or assert that our internal controls over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal controls over financial reporting once we are no longer an emerging growth company, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our Class A common stock could be adversely affected, and we could become subject to investigations by the stock exchange on which our securities are listed, the SEC or other regulatory authorities, which could require additional financial and management resources.
Even if the markets in which we compete expand, we cannot assure you that our business or profitability will grow at similar rates, if at all. Our marketing strategy of associating our brand and products with outdoor, group activities may not be successful with existing and future customers.
Even if the markets in which we compete expand, we cannot assure you that our business or profitability will grow at similar rates, if at all. Our marketing strategy may not be successful with existing and future customers.
Our plans for international expansion may not be successful. Continued expansion into markets outside the United States is one of our key long-term strategies for the future growth of our business.
Our plans for continuing international operations may not be successful. Continued operations in markets outside the United States is one of our key long-term strategies for the future growth of our business.
Accordingly, if we are unable to successfully expand internationally or manage the complexity of our global operations, we may not achieve the expected benefits of this expansion and our financial condition and results of operations could be harmed.
Accordingly, if we are unable to successfully continue to operate internationally or manage the complexity of our global operations, we may not achieve the expected benefits of these operations and our financial condition and results of operations could be harmed.
The Tax Receivable Agreement requires Solo Brands, Inc. to make cash payments to the Continuing LLC Owners in respect of certain tax benefits to which Solo Brands, Inc. may become entitled, and no such payments will be made to any holders of Solo Brands, Inc.
The Tax Receivable Agreement requires Solo Brands, Inc. to make cash payments to the Continuing LLC Owners in respect of certain tax benefits to which Solo Brands, Inc. may become entitled, and no such payments will be made to any holders of Solo Brands, Inc. Class A common stock unless such holders are also Continuing LLC Owners.
Risks Related to Ownership of our Class A Common Stock Failure to establish and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could adversely affect our business and stock price.
Failure to establish and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could adversely affect our business and stock price.
If we are unable to protect or preserve the value of our patents, trade dress, trademarks, copyrights, or other intellectual property rights for any reason, or if we fail to maintain our brand image due to actual or perceived product or service quality issues, adverse publicity, governmental investigations or litigation, or other reasons, our brand and reputation could be damaged and our business may be harmed.
If we are unable to protect or preserve the value of our patents, trade dress, trademarks, copyrights, or other intellectual property rights for any reason, or if we fail to maintain our brand image due to actual or perceived product or service quality issues, adverse publicity, governmental investigations or litigation, or other reasons, our brand and reputation could be damaged and our business may be harmed. 8 Table of Contents We may be subject to liability if we infringe upon the intellectual property rights of third parties and have increased costs protecting our intellectual property rights.
Such events could also result in the deterioration of confidence in the Company by employees, consumers and customers and cause other competitive disadvantages. 17 Table of Contents Security Incidents Security incidents compromising the confidentiality, integrity, and availability of our confidential or personal information and our third-party service providers’ information technology systems could result from cyber-attacks, computer malware, viruses, social engineering (including spear phishing and ransomware attacks), credential stuffing, supply chain attacks, efforts by individuals or groups of hackers and sophisticated organizations, including state-sponsored organizations, errors or malfeasance of our personnel, and security vulnerabilities in the software or systems on which we and our third party service providers rely.
Security Incidents Security incidents compromising the confidentiality, integrity, and availability of our confidential or personal information and our third-party service providers’ information technology systems could result from cyber-attacks, computer malware, viruses, social engineering (including spear phishing and ransomware attacks), credential stuffing, supply chain attacks, efforts by individuals or groups of hackers and sophisticated organizations, including state-sponsored organizations, errors or malfeasance of our personnel, and security vulnerabilities in the software or systems on which we and our third party service providers rely.
This expansion requires significant investment of capital and human resources, new business processes and marketing platforms, legal compliance, and the attention of many managers and other employees who would otherwise be focused on other aspects of our business.
These continued operations require significant investments of capital and human resources, new business processes and marketing platforms, legal compliance, and the attention of many managers and other employees who would otherwise be focused on other aspects of our business.
The party claiming infringement might have greater resources than we do to pursue its claims, and we could be forced to incur substantial costs and devote significant management resources to defend against such litigation, even if the claims are meritless and even if we ultimately prevail.
Third parties may sue us for alleged infringement of their intellectual property rights. The party claiming infringement might have greater resources than we do to pursue its claims, and we could be forced to incur substantial costs and devote significant management resources to defend against such litigation, even if the claims are meritless and even if we ultimately prevail.
Our information technology systems may be subject to damage or interruption from telecommunications problems, data corruption, software errors, fire, flood, global pandemics and natural disasters, power outages, systems disruptions, system conversions, and/or human error.
Our information technology systems, and those of our third-party service providers, strategic partners, and other contractors or consultants, may be subject to damage or interruption from telecommunications problems, data corruption, software errors, fire, flood, global pandemics and natural disasters, power outages, systems disruptions, system conversions, and/or human error.
We believe that we have been successful in marketing our products by associating our brand and products with outdoor activities to be experienced with family and friends.
We believe that we have been successful in marketing our products by associating our brand and products with indoor and outdoor activities to be experienced with family and friends, as well as other influencer and product-related campaigns.
The markets in which we compete are highly competitive, typically with low barriers to entry. The number of competing companies continues to increase. Competition in these product markets is based on a number of factors including product quality, performance, durability, availability, styling, brand image and recognition, and price.
The number of competing companies continues to increase. Competition in these product markets is based on a number of factors including product quality, performance, durability, availability, styling, brand image and recognition, and price.
Labor disputes or disruptions of shipping lanes, such as the Suez Canal blockage in 2021 or increased or continued delays at ports, our common carriers, or our suppliers or manufacturers could create significant risks for our business, particularly if these disputes result in work slowdowns, lockouts, strikes, or other disruptions during periods of significant importing or manufacturing, potentially resulting in delayed or cancelled orders by customers, unanticipated inventory accumulation or shortages, and harm to our business, results of operations, and financial condition. 11 Table of Contents In addition, we rely upon independent land-based and air freight carriers for product shipments from our distribution centers to our retail partners and customers who purchase through our DTC channel.
Labor disputes or disruptions of shipping lanes, such as the Suez Canal blockage in 2021 or increased or continued delays at ports, our common carriers, or our suppliers or manufacturers could create significant risks for our business, particularly if these disputes result in work slowdowns, lockouts, strikes, or other disruptions during periods of significant importing or manufacturing, potentially resulting in delayed or cancelled orders by customers, unanticipated inventory accumulation or shortages, and harm to our business, results of operations, and financial condition.
We also to entered into the Registration Rights Agreement with the Original LLC Owners, certain of our other stockholders and Holdings pursuant to which the shares of Class A common stock issued to the Continuing LLC Owners upon redemption of their LLC Interests and the shares of Class A common stock issued to the Former LLC Owners in connection with the Transactions will be eligible for resale, subject to certain limitations set forth therein.
We also to entered into the Registration Rights Agreement with the Original LLC Owners, certain of our other stockholders and Holdings pursuant to which the shares of Class A common stock issued to the Continuing LLC Owners upon redemption of their LLC Interests and the shares of Class A common stock issued to the Former LLC Owners in connection with the Transactions will be eligible for resale, subject to certain limitations set forth therein. 24 Table of Contents We cannot predict the size of future issuances of our Class A common stock or the effect, if any, that future issuances and sales of shares of our Class A common stock may have on the market price of our Class A common stock.
In addition, any shares of Class A common stock that we issue under the Solo Brands, Inc. 2021 Incentive Award Plan (the “2021 Incentive Plan”), the Solo Brands, Inc. 2021 Employee Stock Purchase Plan (the “2021 ESPP”) or other equity incentive plans that we may adopt in the future would dilute the percentage ownership held by the investors who purchase shares of our Class A Common Stock.
In addition, any shares of Class A common stock that we issue under the Solo Brands, Inc. 2021 Incentive Award Plan (the “2021 Incentive Plan”), the Solo Brands, Inc. 2021 Employee Stock Purchase Plan (the “2021 ESPP”) or other equity incentive plans that we may adopt in the future would dilute the percentage ownership held by the investors who purchase shares of our Class A Common Stock. 25 Table of Contents In the future, we may also issue additional securities if we need to raise capital, which could constitute a material portion of our then-outstanding shares of common stock.
In addition, we may be subject to audits of our income, sales and other transaction taxes by U.S. federal, state, local and foreign taxing authorities. Outcomes from these audits could adversely affect our business, results of operations and financial condition.
In addition, we may be subject to audits of our income, sales and other transaction taxes by U.S. federal, state, local and foreign taxing authorities.
The foreign policies of governments may be volatile, and may result in rapid changes to import and export requirements, customs classifications, tariffs, trade sanctions and embargoes or other retaliatory trade measures that may cause us to raise prices, prevent us from offering products or providing services to particular entities or markets, may cause us to make changes to our operations, or create delays and inefficiencies in our supply chain.
In addition, negative sentiments towards the United States among non-U.S. customers and among non-U.S. employees or prospective employees could adversely affect sales or hiring and retention, respectively. 10 Table of Contents The foreign policies of governments may be volatile, and may result in rapid changes to import and export requirements, customs classifications, tariffs, trade sanctions and embargoes or other retaliatory trade measures that may cause us to raise prices, prevent us from offering products or providing services to particular entities or markets, may cause us to make changes to our operations, or create delays and inefficiencies in our supply chain.
Class A 21 Table of Contents common stock unless such holders are also Continuing LLC Owners. The payments Solo Brands, Inc. will be required to make under the Tax Receivable Agreement may be substantial. Solo Brands, Inc. is a party to the Tax Receivable Agreement with the Continuing LLC Owners and Holdings.
The payments Solo Brands, Inc. will be required to make under the Tax Receivable Agreement may be substantial. Solo Brands, Inc. is a party to the Tax Receivable Agreement with the Continuing LLC Owners and Holdings.
Securities litigation brought against us following volatility in our stock price, regardless of the merit or ultimate results of such litigation, could result in substantial costs, which would hurt our financial condition and operating results and divert management’s attention and resources from our business. 25 Table of Contents Substantial future sales, or the perception of future substantial sales, by us or our existing stockholders in the public markets could cause the market price of our Class A common stock to decline.
Securities litigation brought against us following volatility in our stock price, regardless of the merit or ultimate results of such litigation, could result in substantial costs, which would hurt our financial condition and operating results and divert management’s attention and resources from our business.
To the extent the exclusive forum provision restricts the courts in which claims arising under the Securities Act may be brought, there is uncertainty as to whether a court would enforce such a provision. We note that investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder.
To the extent the exclusive forum provision restricts the courts in which claims arising under the Securities Act may be brought, there is uncertainty as to whether a court would enforce such a provision.
Any failure, or perceived failure, by us to comply with any of these laws or regulations could result in damage to our reputation, a loss in 18 Table of Contents business and proceedings or actions against us by governmental entities or others.
We cannot be sure that our practices have complied, comply or will comply fully with all such laws and regulations. Any failure, or perceived failure, by us to comply with any of these laws or regulations could result in damage to our reputation, a loss in business and proceedings or actions against us by governmental entities or others.
As of March 6, 2023, we have an aggregate of 411,348,949 shares of Class A common stock authorized but unissued, including approximately 33,416,783 shares of Class B common stock issuable upon redemption of LLC Interests, 32,362,227 of which had vested and are held by the Continuing LLC Owners.
As of March 11, 2024, we have an aggregate of 410,660,248 shares of Class A common stock authorized but unissued, including approximately 33,120,136 shares of Class B common stock issuable upon redemption of LLC Interests, 33,069,023 of which had vested and are held by the Continuing LLC Owners.
If regulators start to enforce the strict approach in recent guidance, this could lead to substantial costs, require significant systems changes, limit the effectiveness of our marketing activities, divert the attention of our technology personnel, adversely affect our margins, increase costs and subject us to additional liabilities. 16 Table of Contents Additionally, some providers of consumer devices, web browsers and application stores have implemented, or announced plans to implement, means to make it easier for Internet users to prevent the placement of cookies or to block other tracking technologies, require additional consents, or limit the ability to track user activity, which could if widely adopted result in the use of third-party cookies and other methods of online tracking becoming significantly less effective.
Additionally, some providers of consumer devices, web browsers and application stores have implemented, or announced plans to implement, means to make it easier for Internet users to prevent the placement of cookies or to block other tracking technologies, require additional consents, or limit the ability to track user activity, which could if widely adopted result in the use of third-party cookies and other methods of online tracking becoming significantly less effective.
In addition, the U.S. government, state governments, and foreign jurisdictions may enact significant changes to the taxation of business entities including, among others, an increase in the corporate income tax rate and the imposition of minimum taxes. The likelihood of these changes being enacted or implemented is unclear.
Changes in applicable tax regulations or in their implementation could negatively affect our business and financial results. The U.S. government, state governments, and foreign jurisdictions may enact significant changes to the taxation of business entities including, among others, an increase in the corporate income tax rate and the imposition of minimum taxes.
Any provision of our amended and restated certificate of incorporation, amended and restated bylaws or Delaware law that has the effect of delaying, preventing or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock and could also affect the price that some investors are willing to pay for our common stock. 27 Table of Contents Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Any provision of our amended and restated certificate of incorporation, amended and restated bylaws or Delaware law that has the effect of delaying, preventing or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock and could also affect the price that some investors are willing to pay for our common stock.
As laws and regulations, including FTC enforcement, rapidly evolve to govern the use of these communications and marketing platforms, the failure by us, our employees or third parties acting at our direction to abide by applicable laws and regulations could adversely impact our business, financial condition and results of operations or subject us to fines or other penalties.
As laws and regulations, including the Federal Trade Commission, or FTC, enforcement, rapidly evolve to govern the use of these communications and marketing platforms, the failure by us, our employees or third parties acting at our direction to abide by applicable laws and regulations could adversely impact our business, financial condition and results of operations or subject us to fines or other penalties. 14 Table of Contents In addition, some laws may require us to notify governmental authorities and/or affected individuals of data breaches involving certain personal information or other unauthorized or inadvertent access to or disclosure of such information.
Our business may be adversely affected if we are unable to provide our customers a cost-effective platform that is able to respond and adapt to rapid changes in technology.
Any delay in identifying such breaches or incidents may lead to increased harm and legal exposure of the type described above. Our business may be adversely affected if we are unable to provide our customers a cost-effective platform that is able to respond and adapt to rapid changes in technology.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe believe that our facilities are in good condition and are adequate to support our current needs. 29 Table of Contents
Biggest changeWe believe that our facilities are in good condition and are adequate to support our current needs.
Item 2. Properties Our corporate headquarters are located in a 430,000 square foot leased facility in Grapevine, Texas. In addition to our corporate headquarters we maintain leases in Texas, California, Utah, Pennsylvania, Mexico, Canada, Australia and the Netherlands for warehousing, distribution and office space. We also maintain leases specific to retail operations in Texas, Georgia, Florida and South Carolina.
Item 2. Properties Our corporate headquarters are located in a 430,000 square foot leased facility in Grapevine, Texas. In addition to our corporate headquarters we maintain leases in Texas, Utah, Pennsylvania, Mexico, Canada, Australia and the Netherlands for warehousing, distribution and office space. We also maintain leases specific to retail operations in Texas, Georgia, Florida and South Carolina.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 4. Mine Safety Disclosures Not applicable. 30 Table of Contents PART II
Biggest changeItem 4. Mine Safety Disclosures Not applicable. 31 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThis does not include the significant number of beneficial owners whose stock is in nominee or “street name” accounts through brokers, bank, or other nominees. Purchases of Equity Securities by the Issuer or Affiliated Purchasers We did not repurchase any of our equity securities during the quarter ended December 31, 2022.
Biggest changePurchases of Equity Securities by the Issuer or Affiliated Purchasers We did not repurchase any of our equity securities during the quarter ended December 31, 2023. Item 6. [Reserved] 33 Table of Contents
Base Period Company/Index 10/28/2021 12/31/2021 12/31/2022 Solo Brands, Inc. $ 100.00 $ 91.94 $ 23.80 S&P 500 Index 100.00 103.69 80.56 S&P 500 Apparel, Accessories & Luxury Goods Index $ 100.00 $ 99.33 $ 54.64 31 Table of Contents The performance graph and table shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities under that Section and shall not be deemed to be incorporated by reference into any of our filings under the Securities Act.
Base Period Company/Index 10/28/2021 12/31/2021 12/31/2022 12/31/2023 Solo Brands, Inc. $ 100.00 $ 91.94 $ 23.80 $ 36.24 S&P 500 Index 100.00 103.69 80.56 103.77 S&P 500 Apparel, Accessories & Luxury Goods Index $ 100.00 $ 99.33 $ 54.64 $ 52.44 The performance graph and table shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities under that Section and shall not be deemed to be incorporated by reference into any of our filings under the Securities Act. 32 Table of Contents Unregistered Sales of Equity Securities None.
There is no established trading market for our Class B common stock. As of March 6, 2023, other than shares offered to the public, there were approximately 15 shareholders of record for our Class A common stock and approximately 73 shareholders of record for our Class B common stock.
There is no established trading market for our Class B common stock. As of March 11, 2024, other than shares offered to the public, there were approximately 9 shareholders of record for our Class A common stock and approximately 54 shareholders of record for our Class B common stock.
Dividend Policy We have not declared or paid any cash dividends on our common stock. We intend to retain any future earnings and do not expect to pay any dividends in the foreseeable future.
This does not include the significant number of beneficial owners whose stock is in nominee or “street name” accounts through brokers, bank, or other nominees. Dividend Policy We have not declared or paid any cash dividends on our common stock. We intend to retain any future earnings and do not expect to pay any dividends in the foreseeable future.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe fixed cost increases for the year ended December 31, 2022 compared to the year ended December 31, 2021 were primarily due to $26.3 million in employee costs as a result of an $10.4 million increase in equity-based compensation, a $0.9 million increase in severance and increased headcount; $3.8 million in professional services costs and $3.2 million in insurance as a result of being a public company; $4.4 million in rent and $1.9 million in investments in information technology.
Biggest changeThe fixed cost decreases for the year ended December 31, 2023 compared to the year ended December 31, 2022 were primarily the result of a $3.1 million decrease in employee costs, primarily attributable to a $3.8 million decrease in equity-based compensation, offset in part by an increase in rent of $2.7 million due to warehouse and retail store additions and an increase of $0.5 million in information technology expenses. 35 Table of Contents The variable cost decreases for the year ended December 31, 2023 compared to the year ended December 31, 2022 were primarily the result of a $7.5 million decrease in distribution costs primarily due to decreased shipping costs and lower total orders, a $1.6 million decrease in the fair value of contingent consideration related to the current year acquisitions, a $1.6 million decrease in warehouse transition expenses due to completing the transition of the 2021 acquisitions in the prior year and a $1.0 million decrease in bad debt expenses.
See Note 7, Intangible Assets, net in Item 8 of this Annual Report, for further details regarding intangible asset balances and related accumulated amortization and impairment losses. We evaluate the carrying value of definite-lived intangible assets whenever a change in circumstances indicates that the net carrying value may not be recoverable from the undiscounted future cash flows from operations.
See Note 8, Intangible Assets, net in Item 8 of this Annual Report, for further details regarding intangible asset balances and related accumulated amortization and impairment losses. We evaluate the carrying value of definite-lived intangible assets whenever a change in circumstances indicates that the net carrying value may not be recoverable from the undiscounted future cash flows from operations.
Because of the uncertainty inherent in these matters, actual results may differ from these estimates and could differ based upon other assumptions or conditions. 38 Table of Contents See Note 2, Significant Accounting Policies, to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for more information about our significant accounting policies, including our critical accounting policies.
Because of the uncertainty inherent in these matters, actual results may differ from these estimates and could differ based upon other assumptions or conditions. 39 Table of Contents See Note 2, Significant Accounting Policies, to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for more information about our significant accounting policies, including our critical accounting policies.
Contractual Obligations Our material cash commitments from known contractual and other obligations primarily consist of obligations for long-term debt and related interest, leases for properties and equipment and purchase obligations as part of normal operations. See Note 10, Long-Term Debt, in Item 8 of this Annual Report for more information regarding scheduled maturities of our long-term debt.
Contractual Obligations Our material cash commitments from known contractual and other obligations primarily consist of obligations for long-term debt and related interest, leases for properties and equipment and purchase obligations as part of normal operations. See Note 11, Long-Term Debt, in Item 8 of this Annual Report for more information regarding scheduled maturities of our long-term debt.
In addition to historical consolidated financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our discussion and analysis of the year ended December 31, 2022 compared to the year ended December 31, 2021 is included herein.
In addition to historical consolidated financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our discussion and analysis of the year ended December 31, 2023 compared to the year ended December 31, 2022 is included herein.
The fair value of the trademark intangible was estimated using the relief-from-royalty method under the income approach, based on the following significant assumptions: management’s estimates of future net sales for the long-lived asset group, the royalty rate and the weighted average cost of capital adjusted for the relevant risk associated with the characteristics of the long-lived asset group, and we recorded a $2.7 million impairment charge.
The fair value of the trademark intangible was estimated using the relief-from-royalty method under the income approach, based on the following significant assumptions: management’s estimates of future net sales for the long-lived asset group, the royalty rate and the weighted average cost of capital adjusted for the relevant risk associated with the characteristics of the long-lived asset group, and we recorded a $30.6 million impairment charge.
At December 31, 2022, we had $96.3 million outstanding on the Term Loan. All required principal payments were made on time and with available cash through the year ended December 31, 2022. Interest payments are due on a quarterly basis under the Term Loan, with the same due dates as noted for the Revolving Credit Facility above.
At December 31, 2023, we had $91.3 million outstanding on the Term Loan. All required principal payments were made on time and with available cash through the year ended December 31, 2023. Interest payments are due on a quarterly basis under the Term Loan, with the same due dates as noted for the Revolving Credit Facility above.
Our discussion and analysis of the year ended December 31, 2021 compared to the year ended December 31, 2020 can be found in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the SEC on March 30, 2022.
Our discussion and analysis of the year ended December 31, 2022 compared to the year ended December 31, 2021 can be found in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the SEC on March 9, 2023.
The Term Loan matures on September 1, 2026 and bears interest at a rate equal to the base rate as defined in the agreement plus an applicable margin, which as of December 31, 2022, was based on LIBOR.. We were required to make quarterly principal payments on the Term Loan beginning on December 31, 2021.
The Term Loan matures on September 1, 2026 and bears interest at a rate equal to the base rate as defined in the agreement plus an applicable margin, which as of December 31, 2023, was based on SOFR.. We were required to make quarterly principal payments on the Term Loan beginning on December 31, 2021.
Gross Profit and Cost of Goods Sold Gross profit reflects net sales less cost of goods sold, which primarily includes the purchase cost of our products from our third-party manufacturers, inbound freight and duties, product quality testing and inspection costs and depreciation on molds and equipment that we own.
Cost of Goods Sold and Gross Profit Gross profit reflects net sales less cost of goods sold, which primarily includes the purchase cost of our products from our third-party manufacturers, inbound freight and duties, costs related to manufacturing of certain of our products, product quality testing and inspection costs and depreciation on molds and equipment that we own.
See Note 8, Goodwill, for further details regarding our goodwill balance and accumulated impairment losses. 39 Table of Contents In the second quarter of 2022, we identified triggering events indicating the fair value of one or more of the reporting units more likely than not did not exceed their carrying values.
See Note 9, Goodwill, for further details regarding our goodwill balance and accumulated impairment losses. In the second quarter of 2022, we identified triggering events indicating the fair value of one or more of the reporting units more likely than not did not exceed their carrying values.
Variable considerations, including cash discounts and rebates, are deducted from gross sales in determining net sales. Variable considerations also include the portion of goods that are expected to be returned and refunded. Any consideration received (or receivable) that we expect to refund to the customer is recognized as a refund liability.
Variable considerations, including cash discounts, rebates and sales incentives programs, are deducted from gross sales in determining net sales at the time revenues are recorded. Variable considerations also include the portion of goods that are expected to be returned and refunded. Any consideration received (or receivable) that we expect to refund to the customer is recognized as a refund liability.
However, the continued growth of our business, including our expansion into international markets, may significantly increase our expenses (including our capital expenditures) and cash requirements. Furthermore, we will continue to seek possible brand and mission consistent acquisition opportunities that would require additional capital.
However, growth opportunities, such as continued expansion into international markets, may significantly increase our expenses (including our capital expenditures) and cash requirements. Furthermore, we will continue to seek possible brand and mission consistent acquisition opportunities that would require additional capital.
The Revolving Credit Facility matures on May 12, 2026 and bears interest at a rate equal to the base rate as defined in the agreement plus an applicable margin, which as of December 31, 2022, was based on LIBOR. Interest is due on the last business day of each March, June, September and December.
The Revolving Credit Facility matures on May 12, 2026 and bears interest at a rate equal to the base rate as defined in the agreement plus an 37 Table of Contents applicable margin, which as of December 31, 2023, was based on SOFR. Interest is due on the last business day of each March, June, September and December.
This purchase obligation includes all enforceable, legally binding agreements to purchase goods or services that specify all significant terms, regardless of the duration of the agreement, and exclude agreements with variable terms for which we are unable to estimate the minimum amounts.
These purchase obligations include all enforceable, legally binding agreements to purchase goods or services that specify all significant terms, regardless of the duration of the agreement, and exclude agreements with variable terms for which we are unable to estimate the minimum amounts.
Selling, General, & Administrative Expenses Selling, general and administrative (“SG&A”) expenses consist primarily of marketing costs, equity-based compensation expense and benefits costs, costs of our warehousing and logistics operations, costs of operating on third-party DTC marketplaces, professional fees and services, costs of shipping product to our customers, and general corporate expenses.
Selling, General, and Administrative Expenses Selling, general and administrative (“SG&A”) expenses consist primarily of marketing costs, wages, equity-based compensation expense, benefits costs, costs of our warehousing and logistics operations, costs of operating on third-party DTC marketplaces, professional fees and services, costs of shipping product to our customers, net one-time advertising contract termination fees and general corporate expenses.
See Note 11, Leases, in Item 8 of this Annual Report for additional information on leases. Interest payable on our long-term debt is expected to be $5.7 million due in the twelve months following December 31, 2022 and $11.5 million due thereafter.
See Note 13, Leases, in Item 8 of this Annual Report for additional information on leases. Interest payable on our long-term debt is expected to be $6.4 million due in the twelve months following December 31, 2023 and $7.8 million due thereafter.
Components of Our Results of Operations Net Sales Net sales are comprised of DTC and wholesale channel sales to retail partners. Net sales in both channels reflect the impact of partial shipments, product returns, and discounts for certain sales programs or promotions. Our net sales have historically included a seasonal component.
Results of Operations Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 Net Sales Net sales are comprised of DTC and wholesale channel sales to retail partners. Net sales in both channels reflect the impact of partial shipments, product returns, and discounts for certain sales programs or promotions. Our net sales have historically included a seasonal component.
There are no significant extended payment terms with our customers. Payment is due at the time of sale for our direct-to-consumer transactions. Our business-to-business customers’ payment terms vary depending on the contract with each retailer, but the most common is net 30 or net 60 days.
Payment is due at the time of sale for our direct-to-consumer transactions. Our business-to-business customers’ payment terms vary depending on creditworthiness and the contract terms with each retailer, but the most common is net 30 or net 60 days.
The discount rate for each reporting unit was based on a weighted average cost of capital adjusted for the relevant risk associated with the characteristics of each reporting unit and its estimated cash flows.
The discount rate for each reporting unit was based on a weighted average cost of capital adjusted for the relevant risk associated with the characteristics of each reporting unit and its estimated cash flows, which ranged from 16.0% to 19.9%.
In addition to the above, the amendment on September 1, 2021 included a provision to borrow up to $100.0 million under a term loan (the “Term Loan”). The proceeds from the Term Loan were used to fund the Chubbies acquisition.
Principal under the Revolving Credit Facility is not due until maturity. In addition to the above, the amendment on September 1, 2021 included a provision to borrow up to $100.0 million under a term loan (the “Term Loan”). The proceeds from the Term Loan were used to fund the Chubbies acquisition.
Gross margin decreased for the year ended December 31, 2022 compared to the year ended December 31, 2021 due to the gross margin profile of the businesses acquired in 2021 and the shift in sales channel mix with greater growth in wholesale sales, which typically have lower gross margins than DTC sales.
Gross margin decreased for the year ended December 31, 2023 compared to the year ended December 31, 2022, the result of the shift in sales channel mix with growth in wholesale sales, which typically have lower gross margins than DTC sales, whereas the DTC sales declined.
Depreciation and Amortization Expenses Depreciation and amortization expenses consist of depreciation of property, plant and equipment and amortization of definite-lived intangible assets. Impairment Charges Impairment charges consist of impairments recorded to definite-lived intangible assets and goodwill.
Impairment Charges Impairment charges consist of impairments recorded to definite-lived intangible assets and goodwill.
Revolving Credit Facility and Term Loan On May 12, 2021, we entered into a credit agreement with JPMorgan Chase Bank, N.A., the Lenders and L/C Issuers party thereto (each as defined therein) and the other parties thereto (as subsequently amended on June 2, 2021, and September 1, 2021, the “Revolving Credit Facility”).
Liquidity Sources and Facilities Availability Cash and cash equivalents $ 19,842 $ 19,842 Working capital (excluding cash and cash equivalents) 87,670 87,670 Revolving Credit Facility 60,000 289,400 Term Loan 91,250 — Revolving Credit Facility and Term Loan On May 12, 2021, we entered into a credit agreement with JPMorgan Chase Bank, N.A., the Lenders and L/C Issuers party thereto (each as defined therein) and the other parties thereto (as subsequently amended on June 2, 2021, and September 1, 2021, the “Revolving Credit Facility”).
As of December 31, 2022, we had $2.5 million of deferred tax assets, net of $26.9 million of valuation allowances. We expect to realize future tax benefits related to the utilization of these assets. However, since future financial results may differ from previous estimates, periodic adjustments to our valuation allowances may be necessary.
Solo Brands, Inc. evaluated and concluded that as of December 31, 2023, we had $1.4 million of deferred tax assets, net of $0.8 million of valuation allowances. We expect to realize future tax benefits related to the utilization of these assets. However, since future financial results may differ from previous estimates, periodic adjustments to our valuation allowances may be necessary.
If we determine in the future that we will not be able to fully utilize all or part of these deferred tax assets, we would record a valuation allowance through earnings in the period the determination was made, which would have an adverse effect on our results of operations and earnings in future periods.
If we determine in the future that we will not be able to fully utilize all or part of these deferred tax assets, we would record a valuation allowance through earnings in the period the determination was made, which would have an adverse effect on our results of operations and earnings in future periods. 40 Table of Contents Goodwill Goodwill is determined based upon the excess enterprise value over the estimated fair value of assets and liabilities assumed at acquisition date and is recorded at its estimated fair value at the date of acquisition.
Holdings is treated as a partnership for U.S. federal and most applicable state and local income tax purposes. As a partnership, Holdings is not subject to U.S. federal and certain state and local income taxes.
We are the sole managing member of Holdings, and as a result, consolidate the financial results of Holdings. Holdings is treated as a partnership for U.S. federal and most applicable state and local income tax purposes. As a partnership, Holdings is not subject to U.S. federal and certain state and local income taxes.
Recent Accounting Pronouncements For a description of recent accounting pronouncements, see “Recently Adopted Accounting Pronouncements” and “Recently Issued Accounting Standards—Not Yet Adopted” in Note 2, Significant Accounting Policies, to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
This change does not have a material impact to amortization expense in any future year. Recent Accounting Pronouncements For a description of recent accounting pronouncements, see “Recently Adopted Accounting Pronouncements” and “Recently Issued Accounting Standards—Not Yet Adopted” in Note 2, Significant Accounting Policies, of this Annual Report on Form 10-K.
In the DTC channel, our historical net sales tend to be highest in our second and fourth quarters, while our wholesale channel has generated higher sales in the first and third quarters. Additionally, we expect variance in the results of operations throughout the year relative to the timing of new product launches.
In the DTC channel, our historical net sales tend to be highest in our second and fourth quarters, while our wholesale channel has generated higher sales in the first and third quarters.
Financing activities The $170.0 million increase in cash used in financing activities, as shown in the table above, was primarily due to a $234.6 million decrease in cash provided by Class A common stock issuance and a $68.3 million decrease in cash provided by net debt activities, partially offset by a $100.0 million increase in cash as a result of a decrease in payments for contingent consideration and a $33.2 million increase in cash as a result of decreases in distributions to non-controlling interests.
Financing activities The $10.7 million increase in cash provided by financing activities, as shown in the table above, was primarily due to a $50.6 million increase in cash provided by net debt activities, partially offset by a $37.0 million increase in cash used in the repurchase of the Company’s Class A common stock, of which $31.2 million was subsequently retired and the remainder utilized as a portion of the contingent consideration payments related to the 2023 acquisitions, and a $2.2 million increase in cash used in distributions to non-controlling interests.
Other Operating Expenses Year Ended December 31, Change (dollars in thousands) 2022 2021 $ % Other operating expenses $ 3,582 $ 12,293 $ (8,711) (70.9) % Other operating expenses decreased for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily due to a $7.9 million decrease in acquisition-related expenses as a result of lower acquisition activity during 2022 and a $1.8 million decrease in business optimization expenses as a result of non-recurring warehouse and headquarters transition costs primarily incurred in the fourth quarter of 2021, partially offset by $0.7 million of management transition costs incurred during 2022.
Year Ended December 31, Change (dollars in thousands) 2023 2022 $ % Other operating expenses $ 5,010 $ 3,582 $ 1,428 39.9 % Other operating expenses increased for the year ended December 31, 2023 compared to the year ended December 31, 2022, the result of a $1.4 million increase in acquisition-related expenses as acquisition activity increased during 2023 and a $0.3 million increase in transaction-related activity, offset in part by a $0.4 million decrease in business optimization expenses as a result of non-recurring expenses incurred in 2022 resulting from IT and warehouse transition activity.
We consistently deliver innovative, high-quality products that are loved by our customers and revolutionize the outdoor experience, build community and help everyday people reconnect with what matters most.
We consistently deliver innovative, high-quality products that are loved by our customers and revolutionize the outdoor experience, build community and help everyday people reconnect with what matters most. For the year ended December 31, 2023, we experienced a decrease in our net sales from $517.6 million for the year ended December 31, 2022 to $494.8 million for the current year.
We were in compliance with all covenants under the Revolving Credit Facility as of December 31, 2022. 37 Table of Contents Cash Flows Year Ended December 31, (dollars in thousands) 2022 2021 Cash flows provided by (used in): Operating activities $ 32,395 $ (10,246) Investing activities (10,015) (143,889) Financing activities $ (23,542) $ 146,478 Operating activities The $42.6 million increase in cash provided by operating activities period over period, as shown in the table above, was due to a $59.2 million decline in cash usage from changes in operating assets and liabilities (“working capital”), partially offset by greater cash usage of $16.6 million from changes in net income (loss) after non-cash adjustments, predominantly due to increases in SG&A.
We were in compliance with all covenants under the Revolving Credit Facility as of December 31, 2023. 38 Table of Contents Cash Flows Year Ended December 31, Change (dollars in thousands) 2023 2022 $ % Cash flows provided by (used in): Operating activities $ 62,423 $ 32,395 $ 30,028 92.7 % Investing activities (53,079) (10,015) (43,064) 430.0 % Financing activities $ (12,866) $ (23,542) $ 10,676 (45.3) % Operating activities The $30.0 million increase in cash provided by operating activities period over period, as shown in the table above, was due to a $44.1 million decline in cash usage from changes in operating assets and liabilities (“working capital”), partially offset by an increase in cash usage of $14.1 million from changes in net income (loss) after non-cash adjustments, primarily driven by the impacts related to the goodwill and intangible asset impairments and the related impacts to deferred income taxes.
As so amended, the Revolving Credit Facility allows us to borrow up to $350.0 million of revolving loans, including the ability to issue up to $20.0 million in letters of credit. While our issuance of letters of credit does not increase our borrowings outstanding under the Revolving Credit Facility, it does reduce the amounts available under the Revolving Credit Facility.
As so amended, the Revolving Credit Facility allows us to borrow up to $350.0 million of revolving loans, including the ability to issue up to $20.0 million in letters of credit, with $0.6 million of letters of credit issued and outstanding as of December 31, 2023.
We estimated the fair value of the reporting units using a weighting of fair values derived from the income and market approaches, where comparable market data was available. Under the income approach, we determined the fair value of a reporting unit based on the present value of estimated future cash flows.
For the quantitative goodwill impairment analysis performed as of December 31, 2023, we estimated the fair value of the reporting units using a weighting of fair values derived from the income and market approaches, where comparable market data was available.
Cash flow projections were based on management’s estimates of revenue growth rates and operating margins, considering industry and market conditions, and management’s estimates of working capital requirements.
Under the income approach, we determined the fair value of a reporting unit based on the present value of estimated future cash flows. Cash flow projections were based on management’s estimates of revenue growth rates and operating margins, EBITDA margins, consideration of industry and market conditions, terminal growth rates and management’s estimates of working capital requirements.
Additionally, cost of goods sold increased due to greater net sales as well as higher inbound freight costs. The increase in gross profit for the year ended December 31, 2022 compared to the year ended December 31, 2021 was primarily due to acquisition activity.
The decrease in gross profit for the year ended December 31, 2023 compared to the year ended December 31, 2022 was primarily the result of the decrease in net sales, which simultaneously drove the decrease in cost of goods sold.
Based on our review of inventories, obsolete or slow-moving inventories were not material as of December 31, 2022. If actual market conditions are less favorable than those projected by management, additional write-downs may be required.
As a result, we have not recorded any write-downs to inventory below cost, except as it relates to obsolete or slow-moving inventory. If actual market conditions are less favorable than those projected by management, additional write-downs may be required.
This impairment charge was recorded to impairment charges on the consolidated statements of operations and comprehensive income (loss). There were no impairment charges recognized in 2021. 40 Table of Contents Inventory Inventories are comprised primarily of finished goods and are recorded at the lower of cost or net realizable value.
This impairment charge was recorded to impairment charges on the consolidated statements of operations and comprehensive income (loss). There were no impairment charges recognized through September 30, 2023.
The variable cost increases for the year ended December 31, 2022 compared to the year ended December 31, 2021 were primarily due to $6.1 million in distribution costs, $6.1 million in marketing spend and $1.8 million in supplies. 35 Table of Contents Depreciation and Amortization Expenses Year Ended December 31, Change (dollars in thousands) 2022 2021 $ % Depreciation and amortization expenses $ 24,592 $ 18,228 $ 6,364 34.9 % Amortization 21,019 17,453 3,566 20.4 % Depreciation 3,573 775 2,798 361.0 % The increase in amortization for the year ended December 31, 2022 compared to the year ended December 31, 2021 was primarily related to increases in definite-lived intangible assets as result of acquisition activity in 2021, and the increase in depreciation for the same comparative periods was primarily related to a new global headquarters facility completed in the fourth quarter of 2021.
Year Ended December 31, Change (dollars in thousands) 2023 2022 $ % Depreciation and amortization expenses $ 26,593 $ 24,592 $ 2,001 8.1 % Amortization 22,396 21,019 1,377 6.6 % Depreciation 4,197 3,573 624 17.5 % The increase in amortization and the increase in depreciation for the year ended December 31, 2023 compared to the year ended December 31, 2022, was primarily related to increases in definite-lived intangible assets and additional property and equipment as a result of acquisition activity in 2023.
Due to the triggering events identified in the second quarter of 2022 and the subsequent quantitative impairment test performed at that time that resulted in the recognition of $27.9 million of impairment charges to goodwill, the non-persistent nature of the triggering events in the second half of 2022 and the qualitative assessment performed as of October 1, 2022, we do not believe that it is more likely than not that the carrying value of our reporting units exceed their fair values as of the annual goodwill impairment test dates.
As a result of the non-persistent nature of the triggering event identified in the third quarter of 2023 and the lack of impairment indicators identified through the qualitative assessment performed, as of October 1, 2023, we determined it was more likely than not that the fair value of our reporting units exceeded their carrying values and, as such, we did not record goodwill impairment for our reporting units.
Selling, General, and Administrative Expenses Year Ended December 31, Change (dollars in thousands) 2022 2021 $ % Selling, general, and administrative expenses $ 259,048 $ 159,524 $ 99,524 62.4 % SG&A as a % of net sales 50.0 % 39.5 % 10.5 % The increase in SG&A for the year ended December 31, 2022 compared to the year ended December 31, 2021, included $43.7 million, or a 7.3% increase as a percent of net sales, related to the businesses acquired in 2021, which did not include activity for the full comparative period.
Year Ended December 31, Change (dollars in thousands) 2023 2022 $ % Selling, general, and administrative expenses $ 249,432 $ 259,048 $ (9,616) (3.7) % SG&A as a % of net sales 50.4 % 50.0 % 0.40 The decrease in SG&A for the year ended December 31, 2023 compared to the year ended December 31, 2022 was driven by $0.3 million of fixed cost decreases and $9.3 million of variable cost decreases.
The decrease in cash used by working capital was primarily due to: • a $21.3 million increase in cash provided by changes in deferred revenue, primarily driven by shipments that were backordered in 2020 shipping in 2021; • an $18.5 million decrease in cash used by changes in inventory due to a higher inventory balance at the beginning of 2022 than the prior year, resulting in fewer inventory purchases in 2022, as well as a reduction in replenishment of inventory exiting the year; and • a $9.1 million decrease in cash used by changes in accounts receivable as a result of improved collection efforts.
The increase in cash provided by working capital was primarily due to: • a $59.1 million increase in cash provided by changes in inventory as a result of a higher inventory balance at the beginning of 2023 than the prior year, resulting in fewer inventory purchases in 2023, as well as a reduction in replenishment of inventory exiting the year in line with management’s focus on reducing on-hand inventory; • a $6.9 million increase in cash provided by changes in accounts payable as a result of an increase in accrued advertising and marketing costs in 2023. • a $10.4 million increase in cash used in changes in accounts receivable as a result of the larger volume of wholesale sales through our key strategic retailers and our wholesale network towards the end of 2023 compared to the end of 2022; and • the remaining changes to working capital were deemed immaterial to disclose separately.
Other Operating Expenses Other operating expenses include certain costs incurred for the initial public offering, acquisition-related expenses, business optimization and expansion expenses and management transition costs. Interest Expense, Net Interest expense, net consists primarily of interest on our Revolving Credit Facility and Term Loan.
Interest Expense, Net Interest expense, net consists primarily of interest on our Revolving Credit Facility and Term Loan.
Our refund liability is based on historical experience and trends. The actual amount of customer returns and refunds may differ from our estimates. Net sales include shipping costs charged to the customer and is recorded net of sales taxes collected from customers, which are remitted to government authorities.
We determine these estimates based on historical experience and trends. The actual amount of customer returns and refunds may differ from our estimates. We elected to account for shipping costs as fulfillment activities, and not as separate performance obligations.
Investing activities The $133.9 million decrease in cash used in investing activities, as shown in the table above, was due to a $132.5 million decrease in acquisition activity in the current period compared to the prior period. Additionally, cash usage for capital expenditures decreased by $1.4 million, primarily due to reduced equipment purchases for factory and warehouse build outs.
Investing activities The $43.1 million increase in cash used in investing activities, as shown in the table above, was primarily due to a $33.8 million increase in cash used in acquisition activity in 2023 compared to the prior year related to the 2023 acquisitions.
As of December 31, 2022, we had a non-cancelable agreement to purchase $8.4 million of advertising services, of which 50% is due in 2023 and the remainder is due in 2024.
As of December 31, 2023, we had a purchase commitment to purchase $30.0 million of advertising services in 2024 and $67.5 million thereafter, with a minimum required payment of $10.3 million in 2024 and $16.2 million thereafter.
For our annual goodwill impairment tests in the fourth quarters of 2022 and 2021, we performed a qualitative assessment to determine whether the fair value of goodwill was more likely than not less than the carrying value for each reporting unit.
In the fourth quarter of 2023, subsequent to our annual goodwill impairment analysis, we identified goodwill impairment indicators indicating the fair value of one or more of our reporting units more likely than not did not exceed their carrying values.
We fund our working capital, primarily inventory, from cash flows from operating activities, cash on hand, and borrowings under our Revolving Credit Facility. 36 Table of Contents Current Liquidity As of December 31, 2022, we had a cash balance of $23.3 million, working capital (excluding cash) of $104.8 million, and $330.0 million of borrowings available under the Revolving Credit Facility.
We expect these needs to continue as we develop and grow our business. We fund our working capital, which is primarily comprised of inventory, accounts payable, and accounts receivable, net, and other cash requirements from cash flows from operating activities, cash on hand, and borrowings under our Revolving Credit Facility.
Income Taxes Income taxes represents federal, state, and local income taxes on the Company's allocable share of taxable income of Holdings, as well as Oru's, ISLE’s and Chubbies' federal, state and foreign tax expense related to international subsidiaries. We are the sole managing member of Holdings, and as a result, consolidate the financial results of Holdings.
Year Ended December 31, Change (dollars in thousands) 2023 2022 $ % Interest expense, net $ 11,004 $ 6,271 $ 4,733 75.5 % Interest expense, net increased for the year ended December 31, 2023 compared to the year ended December 31, 2022 due to an increase in the weighted average interest rate on our total debt balance, as well as a higher average debt balance in the current year when compared to the prior year. 36 Table of Contents Income Taxes Income taxes represents 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, state and foreign tax expense related to international subsidiaries.
Removed
Key performance indicators used by management to monitor the health of the business include customer volume and growth by year with 3.8 million total customers as of December 31, 2022, an increase of 34.7% from December 31, 2021, total email subscriptions and growth by year with 5.6 million email subscribers as of December 31, 2022, an increase of 33.1% from December 31, 2021 and our repeat purchase rate of 42.0% in 2022.
Added
The decline in net sales was primarily the result of the lack of significant new product launches in the current year when compared to the prior year, in which the Mesa and Pi pizza oven were launched.
Removed
We are deliberate in keeping the customer at the center of what we do in order to drive solid customer lifetime value that we believe will result in long-term financial value to the Company.
Added
Similar to the prior year, we continued to see net sales channel mix shift from direct to consumer to wholesale, with wholesale net sales growing 45.1%.
Removed
Our net sales increased from $403.7 million for the year ended December 31, 2021 to $517.6 million for the year ended December 31, 2022, representing a growth rate of 28.2%, including the effect of acquisitions.
Added
Due in part to this shift, within our direct to consumer net sales channel we have seen an increase in the number of customers purchasing accessories for our products that were purchased through our wholesale net sales channel.
Removed
Our revenue growth was driven by greater demand in both the DTC and wholesale sales channels, with the growth in wholesale outpacing the growth in DTC. During 2022 and 2021, DTC sales were 81.8% and 88.1% of net sales, respectively, and wholesale sales were 18.2% and 11.9% of net sales, respectively.
Added
Further, we experienced a decline in direct to consumer net sales which can be attributed to inefficient marketing spend in the current year as we invested in marketing mediums that did not yield the anticipated returns, in contrasts to the more successful marketing investments made last year.
Removed
Our net income decreased to a net loss of $7.6 million for the year ended December 31, 2022 from net income of $56.5 million for the year ended December 31, 2021.
Added
Additionally, we expect variance in our net sales throughout the year relative to the timing of new product launches. 34 Table of Contents Year Ended December 31, Change (dollars in thousands) 2023 2022 $ % Net sales $ 494,776 $ 517,627 $ (22,851) (4.4) % Direct-to-consumer net sales 358,052 423,412 (65,360) (15.4) % Wholesale net sales 136,724 94,215 42,509 45.1 % The decrease in net sales for the year ended December 31, 2023 compared to the year ended December 31, 2022 was primarily driven by the lack of significant new product launches in the current year when compared to the prior year.
Removed
The net loss for the year ended December 31, 2022 was primarily due to $30.6 million of impairment charges recorded during the second quarter of 2022, coupled with higher selling, general and administrative costs compared to the corresponding period as a result of investments in long-term strategic initiatives, costs associated with being a public company and headcount.
Added
Within the DTC channel, total orders and average order value decreased 8.1% and 12.4%, respectively, for the year ended December 31, 2023. Partially offsetting the decrease, DTC channel net sales included $11.0 million of activity related to the businesses acquired in 2023, for which the comparative periods did not include such activity.
Removed
Additionally, marketing and distribution expenses increased along with the increases in net sales. Outlook We continue to focus on our long-term growth strategies, including product innovation, channel and category expansion, strategic acquisitions, and investments in information technology to drive efficiencies. As the macroeconomy continues to face uncertainty around inflation and rising interest rates, consumer behavior is unknown.
Added
Growth within the wholesale net sales channel is mainly attributed to the expansion of our strategic partnerships.
Removed
Our business is not immune to the impacts resulting from decreased discretionary spending. However, we believe we are prepared to mitigate these pressures and quickly adjust our short-term strategies as necessary throughout 2023 to ensure financial health without jeopardizing our long-term growth expectations.
Added
Year Ended December 31, Change (dollars in thousands) 2023 2022 $ % Cost of goods sold $ 192,624 $ 199,452 $ (6,828) (3.4) % Gross profit 302,152 318,175 (16,023) (5.0) % Gross margin (Gross profit as a % of net sales) 61.1 % 61.5 % (0.40) The decrease in cost of goods sold for the year ended December 31, 2023 compared to the year ended December 31, 2022 was primarily driven by reduction in freight costs, with a lower average container cost in 2023 when compared to the prior year, as well as the decline in net sales.
Removed
Key Factors Affecting Our Financial Condition and Results of Operations We believe that our performance and future success depend on a number of factors that present significant opportunities for us, but also pose risks and challenges, including those discussed in Part I, Item 1A, Risk Factors , and included elsewhere in this Annual Report on Form 10-K.
Added
Partially offsetting the decreases, cost of goods sold included $6.4 million of activity related to the businesses acquired in 2023, for which the comparative periods did not include such activity, as well as increases in product costs unrelated to the 2023 acquisitions.
Removed
During 2022, demand for our products remained healthy; however, we were minimally impacted by global economic conditions including supply chain disruptions, inflation and rising interest rates. In 2022, some of our factories in China closed periodically due to COVID-19, which did temporarily delay the delivery of the Solo Stove Pi.
Added
These variable expense decreases were offset in part by an increase of $3.5 million in advertising and marketing expense. Depreciation and Amortization Expenses Depreciation and amortization expenses consist of depreciation of property and equipment and amortization of definite-lived intangible assets.
Removed
Our other products were insignificantly impacted due to our strong inventory position. Freight rates were, in general, higher in 2022 than the prior year, which put pressure on gross margin in 2022. However, we saw spot rates decrease in the second half of 2022, and we opportunistically used the spot rates if they were lower than our contracted rates.
Added
Year Ended December 31, Change (dollars in thousands) 2023 2022 $ % Impairment charges $ 248,967 $ 30,589 $ 218,378 713.9 % The increase in impairment charges for the year ended December 31, 2023 compared to the year ended December 31, 2022 was primarily related to the goodwill impairment of $234.8 million at Solo Stove, Oru and ISLE in 2023 as a result of the decline in performance of these reporting units compared to previous forecasts versus the $27.9 million impairment for ISLE in 2022 as a result of the weakened demand for the ISLE reporting unit’s products.
Removed
We re-negotiate contracted freight rates early in the year on an annual basis and expect to take advantage of lower freight rates in the second half of 2023. Although we have been able to navigate inflationary pressures through December 31, 2022, we expect the volatility we experienced in 2022 to continue to impact the Company in 2023.
Added
As a result of the same factors noted above, impairment of $14.2 million to the intangible assets of Oru and ISLE was recorded in 2023, compared to impairment of $2.7 million to the intangible asset of ISLE in 2022.
Removed
We have not historically raised the prices of our products and have mitigated inflationary pressures through cost management. We believe consumers will continue to feel the strain of higher inflation, thereby impacting their spending. We expect to continue to monitor inflation and consider strategies to minimize the impact.
Added
For more information regarding the impairments, see Note 9, Goodwill, and Note 8, Intangible Assets, net in Item 8 of this Annual Report. Other Operating Expenses Other operating expenses include certain costs incurred as a result of being a public company, secondary offering completed in May 2023, acquisition-related expenses, business optimization and expansion expenses and management transition costs.
Removed
As interest rates rose during 2022, we mitigated the impact via strategic 33 Table of Contents repayments of borrowings on our Revolving Credit Facility. We expect to continue to monitor interest rates and balance our working capital needs with the cost of debt. If current macroeconomic pressures persist or worsen, our business may continue to be adversely impacted.
Added
We are subject to U.S. federal income taxes, in addition to state and local income taxes with respect to our allocable share of any taxable income or loss of Holdings, as well as any stand-alone income or loss generated by Solo Brands, Inc.
Removed
We are subject to U.S. federal income taxes, in addition to state and local income taxes with respect to our allocable share of any taxable income or loss of Holdings, as well as any stand-alone income or loss generated by Solo Brands, Inc. 34 Table of Contents Results of Operations Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 Net Sales Year Ended December 31, Change (dollars in thousands) 2022 2021 $ % Net sales $ 517,627 $ 403,717 $ 113,910 28.2 % Direct-to-consumer net sales 423,412 355,658 67,754 19.1 % Wholesale net sales 94,215 48,059 46,156 96.0 % The increase in net sales for the year ended December 31, 2022 compared to the year ended December 31, 2021 was primarily driven by a 47.0% increase in total orders as a result of $93.6 million of activity related to acquisitions and 8.8% organic growth in total orders.
Added
Year Ended December 31, Change (dollars in thousands) 2023 2022 $ % Income tax expense $ (36,225) $ 1,001 $ (37,226) (3718.9) % Income tax expense decreased for the year ended December 31, 2023 compared to the year ended December 31, 2022, primarily due to the current year goodwill and intangible asset impairments, as well as the current year decrease in the valuation allowance.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

7 edited+1 added−2 removed4 unchanged
Biggest changeCommodity Price Risk The primary raw materials and components used by our contract manufacturing partners include stainless steel and aluminum. We believe these materials are readily available from multiple vendors. We have, and may continue to, negotiate prices with suppliers of these products on behalf of our third-party contract manufacturers in order to leverage the cumulative impact of our volume.
Biggest changeCommodity Price Risk The primary raw materials and components used by our contract manufacturing partners include stainless steel and aluminum. We believe these materials are readily available from multiple vendors. Certain of these products use petroleum or natural gas as inputs.
Therefore, we do not believe exposure to foreign currency fluctuations has had material impact on our net sales. A portion of our operating expenses are incurred outside the Unites States and are denominated in foreign currencies, which are also subject to fluctuations due to changes in foreign currency exchange rates.
Therefore, we do not believe exposure to foreign currency fluctuations has had a material impact on our net sales. A portion of our operating expenses are incurred outside the Unites States and are denominated in foreign currencies, which are also subject to fluctuations due to changes in foreign currency exchange rates.
Interest Rate Risk In order to maintain liquidity and fund business operations, we have a long-term credit facility and separate term loan that bear variable interest rates based on prime, federal funds, or LIBOR plus an applicable margin based on our total net leverage ratio.
Interest Rate Risk In order to maintain liquidity and fund business operations, we have a long-term credit facility and separate term loan that bear variable interest rates based on prime, federal funds, or SOFR plus an applicable margin based on our total net leverage ratio.
We may elect to enter into interest rate swap contracts to reduce the impact associated with interest rate fluctuations, but as of December 31, 2022, we have not entered into any such contracts. A 100 bps increase in LIBOR would increase our interest expense by approximately $1.2 million in any given year.
We may elect to enter into interest rate swap contracts to reduce the impact associated with interest rate fluctuations, but as of December 31, 2023, we have not entered into any such contracts. A 100 bps increase in SOFR would increase our interest expense by approximately $1.5 million in any given year.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk We are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk We are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily the result of fluctuations in interest rates.
However, we do not believe there is a significant direct correlation between petroleum or natural gas prices and the costs of our products. 41 Table of Contents Foreign Currency Risk Our international sales are primarily denominated in U.S. dollars. During 2022 and 2021, net sales in international markets accounted for 7.1% and 6.7% of our consolidated revenues, respectively.
However, we do not believe there is a significant direct correlation between petroleum or natural gas prices and the costs of our products. 43 Table of Contents Foreign Currency Risk Our international sales are primarily denominated in local currencies. During 2023 and 2022, net sales in international markets accounted for 6.0% and 7.1% of our consolidated revenues, respectively.
As of December 31, 2022, we had indebtedness of $20.0 million and $96.3 million under our Revolving Credit Facility and Term Loan, respectively. The nature and amount of our long-term debt can be expected to vary as a result of future business requirements, market conditions, and other factors.
As of December 31, 2023, we had indebtedness of $60.0 million and $91.3 million, with annualized rates of interest of 6.59% and 6.49%, under our Revolving Credit Facility and Term Loan, respectively. The nature and amount of our long-term debt can be expected to vary as a result of future business requirements, market conditions, and other factors.
Removed
We do not, however, source significant amounts of these products directly. Certain of these products use petroleum or natural gas as inputs.
Added
A 100 bps unfavorable change in foreign currency exchange rates to which we are exposed would increase our operating expenses by approximately $0.3 million for the year ended December 31, 2023. 44 Table of Contents
Removed
However, we believe that the exposure to foreign currency fluctuations from operating expenses is not material at this time. 42 Table of Contents

Other SBDS 10-K year-over-year comparisons