SharkNinja(SN) - 2023 Q2 - Quarterly Report

Condensed Consolidated Financial Statements Condensed Consolidated Balance Sheets As of June 30, 2023, total assets reached $3.42 billion, liabilities $1.55 billion, and equity $1.87 billion, reflecting overall balance sheet growth Consolidated Balance Sheet Summary (in thousands) | Account | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | $1,836,342 | $1,715,692 | | Total Assets | $3,421,437 | $3,294,891 | | Total Current Liabilities | $1,110,000 | $968,698 | | Total Liabilities | $1,554,927 | $1,466,602 | | Total Shareholders' Equity | $1,866,510 | $1,828,289 | Condensed Consolidated Statements of Income For the six months ended June 30, 2023, net sales grew 13.7% to $1.81 billion, but increased operating and other expenses led to a 6.0% decrease in net income to $99.0 million Statement of Income Summary (in thousands) | Metric | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | YoY Change | | :--- | :--- | :--- | :--- | | Net sales | $1,805,594 | $1,587,823 | +13.7% | | Gross profit | $797,464 | $643,393 | +23.9% | | Operating income | $178,262 | $158,488 | +12.5% | | Net income | $99,032 | $105,406 | -6.0% | | Net income per share, diluted | $0.71 | $0.76 | -6.6% | Condensed Consolidated Statements of Comprehensive Income For the six months ended June 30, 2023, comprehensive income increased to $98.5 million, primarily due to a positive foreign currency translation adjustment offsetting an unrealized loss on derivatives Comprehensive Income Summary (in thousands) | Item | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net income | $99,032 | $105,406 | | Foreign currency translation adjustments | $8,413 | $(19,857) | | Unrealized loss on derivative instruments, net | $(8,941) | — | | Comprehensive income | $98,504 | $85,549 | Condensed Consolidated Statements of Shareholders' Equity Shareholders' equity increased to $1.87 billion as of June 30, 2023, driven by net income partially offset by a $60.3 million distribution to the Parent Changes in Shareholders' Equity (Six Months Ended June 30, 2023, in thousands) | Description | Amount | | :--- | :--- | | Balance as of December 31, 2022 | $1,828,289 | | Net income | $99,032 | | Distribution paid to Parent | $(60,283) | | Other comprehensive loss, net of tax | $(528) | | Share-based compensation activities | $0 | | Balance as of June 30, 2023 | $1,866,510 | Condensed Consolidated Statements of Cash Flows For the first six months of 2023, operating cash flow significantly improved to $200.4 million, leading to a net cash increase of $60.8 million and a total cash position of $279.6 million Cash Flow Summary (Six Months Ended June 30, in thousands) | Cash Flow Category | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $200,385 | $(14,074) | | Net cash used in investing activities | $(47,816) | $(38,665) | | Net cash used in financing activities | $(97,784) | $(32,024) | | Net increase (decrease) in cash | $60,816 | $(92,419) | | Cash at end of period | $279,586 | $148,178 | Notes to Condensed Consolidated Financial Statements Note 1: Organization and Description of Business SharkNinja, a global product design and technology company known for its 'Shark' and 'Ninja' brands, separated from JS Global and began trading on the NYSE on July 31, 2023 - The company operates under the 'Shark' and 'Ninja' brands, focusing on innovative lifestyle products like cleaning and cooking appliances[22] - SharkNinja completed its separation from parent company JS Global and began trading on the NYSE on July 31, 2023[23] Note 2: Summary of Significant Accounting Policies This note outlines the company's U.S. GAAP accounting policies, highlighting significant customer concentration risk and providing a detailed breakdown of net sales by geography, brand, and product category Concentration of Credit Risks The company faces significant credit risk concentration, with three major customers collectively accounting for 43.7% of net sales and 46.4% of net accounts receivable as of June 30, 2023 Customer Concentration (% of Net Sales) | Customer | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Customer A | 18.8% | 18.6% | | Customer B | 10.1% | 11.7% | | Customer C | 14.8% | 15.2% | Customer Concentration (% of Accounts Receivable, Net) | Customer | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Customer A | 20.1% | 15.1% | | Customer B | 13.6% | <10% | | Customer C | 12.7% | 19.8% | Transfer of Financial Instruments The company's Deferred Purchase Price (DPP) receivable from its August 2022 Receivable Purchase Agreement, valued at $22.3 million at year-end 2022, was fully collected by June 30, 2023 - The company's risk of loss related to the RPA was limited to the uncollected portion of the DPP, which was $22.3 million as of December 31, 2022[44] - All amounts on sold receivables under the RPA were collected as of June 30, 2023, and the DPP receivable balance was reduced to zero[44][46] Disaggregation of Net Sales For the six months ended June 30, 2023, North America remained the largest market at 69.1% of net sales, while Europe showed significant growth to 25.2%, with Cooking and Beverage Appliances also increasing their contribution Net Sales by Region (Six Months Ended June 30, in thousands) | Region | 2023 | % of Total | 2022 | % of Total | | :--- | :--- | :--- | :--- | :--- | | North America | $1,247,641 | 69.1% | $1,243,530 | 78.3% | | Europe | $455,730 | 25.2% | $262,007 | 16.5% | | Rest of World | $102,223 | 5.7% | $82,286 | 5.2% | | Total | $1,805,594 | 100% | $1,587,823 | 100% | Net Sales by Product Category (Six Months Ended June 30, in thousands) | Category | 2023 | % of Total | 2022 | % of Total | | :--- | :--- | :--- | :--- | :--- | | Cleaning Appliances | $828,667 | 45.9% | $848,187 | 53.4% | | Cooking and Beverage Appliances | $599,732 | 33.2% | $436,131 | 27.5% | | Food Preparation Appliances | $261,224 | 14.5% | $266,166 | 16.8% | | Other | $115,971 | 6.4% | $37,339 | 2.3% | | Total | $1,805,594 | 100% | $1,587,823 | 100% | Note 3: Condensed Consolidated Balance Sheet Components This note details key balance sheet components, showing property and equipment increasing to $143.2 million, prepaid expenses decreasing to $96.8 million, and accrued expenses growing to $639.0 million Property and Equipment, Net (in thousands) | Category | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Molds and tooling | $237,458 | $209,984 | | Computer and software | $93,172 | $88,483 | | Displays | $98,935 | $90,722 | | Less: accumulated depreciation | $(364,788) | $(322,022) | | Construction in progress | $17,317 | $12,788 | | Total | $143,178 | $137,341 | Accrued Expenses and Other Current Liabilities (in thousands) | Category | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Accrued customer incentives | $321,182 | $230,195 | | Accrued expenses | $119,363 | $99,962 | | Accrued compensation and benefits | $51,526 | $71,762 | | Total | $638,955 | $552,023 | Note 4: Fair Value Measurements As of June 30, 2023, the company's fair value measurements primarily included $23.4 million in Level 2 derivative liabilities, while the $22.3 million Level 3 DPP receivable was reduced to zero - As of June 30, 2023, the company held $23.4 million in derivative liabilities (forward contracts), classified as Level 2 fair value measurements[61] - The DPP receivable, a Level 3 asset, had a balance of $0 as of June 30, 2023, down from $22.3 million at the end of 2022[61] Note 5: Derivative Financial Instruments and Hedging The company uses USD-denominated forward contracts for foreign currency risk, with a total notional amount of $813.5 million as of June 30, 2023, and recognized a $25.7 million loss from non-hedging derivatives Notional Amount of Forward Contracts (in thousands) | Type | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Designated as Hedging Instruments | $330,200 | $0 | | Not Designated as Hedging Instruments | $483,260 | $956,191 | | Total | $813,460 | $956,191 | - For the six months ended June 30, 2023, the company recognized a loss of $25.7 million from derivatives not designated as hedging instruments[66] Note 6: Intangible Assets, Net and Goodwill As of June 30, 2023, net intangible assets totaled $485.2 million, primarily indefinite-lived trade names, while goodwill remained stable at $839.8 million, with $11.2 million in amortization expense Intangible Assets, Net (June 30, 2023, in thousands) | Asset Type | Net Carrying Value | | :--- | :--- | | Customer relationships | $51,669 | | Patents | $31,496 | | Developed technology | $17,697 | | Trade name and trademarks (indefinite) | $384,334 | | Total intangible assets, net | $485,196 | - Goodwill was $839.8 million as of June 30, 2023, a slight decrease from $840.1 million at year-end 2022 due to foreign currency translation[71] Note 7: Debt As of June 30, 2023, $400.0 million in 2020 Term Loans were outstanding, which were subsequently repaid in July 2023 through a new $810.0 million term loan and $500.0 million revolving credit facility - As of June 30, 2023, long-term debt, net of the current portion, was $299.5 million[76] - In July 2023, the company refinanced its debt, replacing the 2020 Facilities Agreement with a new 2023 Credit Agreement that provides for an $810.0 million term loan and a $500.0 million revolving facility[77] Note 8: Commitments and Contingencies The company's commitments and contingencies include immaterial purchase obligations and customer indemnifications, with no current litigation expected to materially impact financial condition - The company is not presently a party to any litigation that it believes would have a material adverse effect on its business or financial results[81] Note 9: Shareholders' Equity and Equity Incentive Plan During the first six months of 2023, the company settled a $50.1 million intercompany note with its Parent, and all outstanding RSUs vested or were forfeited, resulting in no unvested RSUs by June 30, 2023 - An intercompany note to the Parent with an outstanding balance of $50.1 million was satisfied during the six months ended June 30, 2023[82] - As of June 30, 2023, there were no unvested RSUs remaining under the JS Global RSU Plan[83] Note 10: Income Taxes For the six months ended June 30, 2023, the company's effective tax rate decreased to 22.2%, resulting in an income tax expense of $28.3 million Income Tax Summary | Period | Income Tax Expense (in millions) | Effective Tax Rate | | :--- | :--- | :--- | | Six Months Ended June 30, 2023 | $28.3 | 22.2% | | Six Months Ended June 30, 2022 | $32.1 | 23.4% | Note 11: Net Income Per Share For the six months ended June 30, 2023, basic and diluted net income per share was $0.71, calculated using 138,982,872 shares reflecting the post-separation share count - The weighted-average number of shares used for calculating historical EPS is 138,982,872, reflecting the number of shares distributed at the time of separation from JS Global[89] Net Income Per Share | Period | Net Income (in thousands) | Weighted-Average Shares | Basic & Diluted EPS | | :--- | :--- | :--- | :--- | | Six Months Ended June 30, 2023 | $99,032 | 138,982,872 | $0.71 | | Six Months Ended June 30, 2022 | $105,406 | 138,982,872 | $0.76 | Note 12: Related Party Transactions The company engages in significant related party transactions, with purchases of goods totaling $712.0 million for the six months ended June 30, 2023, and accounts payable to related parties at $283.5 million Related Party Transactions (in thousands) | Transaction | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Purchase of goods | $712,027 | $683,644 | | Purchase of services | $1,766 | $1,801 | - As of June 30, 2023, accounts payable to related parties was $283.5 million, a significant liability on the balance sheet[93] Note 13: Subsequent Events Significant subsequent events in July 2023 include debt refinancing, a $375.0 million cash distribution to JS Global, the finalization of separation, and the adoption of a new equity incentive plan - In July 2023, the company paid a special cash distribution of $375.0 million to its parent, JS Global[99] - The separation from JS Global was completed in July 2023, and various agreements were established to govern the post-separation relationship[100] - A new equity incentive plan was adopted in July 2023, reserving 13,898,287 shares of common stock for future grants[101]