a.k.a. Brands (AKA) - 2025 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents the Company's unaudited condensed consolidated financial statements and management's discussion and analysis Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements, including balance sheets, income statements, cash flows, and detailed notes on financial disclosures Condensed Consolidated Balance Sheets This section provides a snapshot of the Company's financial position, detailing assets, liabilities, and equity at specific dates Condensed Consolidated Balance Sheets (in thousands) | Assets/Liabilities & Equity | March 31, 2025 | December 31, 2024 | | :-------------------------- | :------------- | :---------------- | | Assets | | | | Cash and cash equivalents | $26,679 | $24,192 | | Accounts receivable, net | $13,402 | $8,107 | | Inventory | $94,401 | $95,750 | | Total current assets | $148,844 | $144,769 | | Property and equipment, net | $32,636 | $31,262 | | Operating lease ROU assets | $73,445 | $65,382 | | Intangible assets, net | $49,889 | $52,354 | | Goodwill | $89,606 | $89,254 | | Total assets | $396,569 | $385,204 | | Liabilities | | | | Accounts payable | $27,409 | $30,299 | | Accrued liabilities | $31,226 | $31,216 | | Sales returns reserve | $9,634 | $7,587 | | Deferred revenue | $13,175 | $12,215 | | Income taxes payable | $654 | $1,039 | | Operating lease liabilities, current | $8,884 | $8,382 | | Current portion of long-term debt | $7,000 | $6,300 | | Total current liabilities | $97,982 | $97,038 | | Long-term debt | $112,910 | $105,411 | | Operating lease liabilities | $72,373 | $63,496 | | Other long-term liabilities | $1,825 | $1,625 | | Total liabilities | $285,090 | $267,570 | | Stockholders' Equity | | | | Total stockholders' equity | $111,479 | $117,634 | | Total liabilities & equity | $396,569 | $385,204 | - Total assets increased by $11.365 million from December 31, 2024, to March 31, 2025, reaching $396.569 million[17] - Total liabilities increased by $17.52 million, while total stockholders' equity decreased by $6.155 million during the same period[17] Condensed Consolidated Statements of Income This section details the Company's financial performance over specific periods, showing net sales, expenses, and net loss Condensed Consolidated Statements of Income (in thousands, except per share amounts) | Income Statement Item | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Net sales | $128,657 | $116,840 | | Cost of sales | $55,001 | $51,166 | | Gross profit | $73,656 | $65,674 | | Operating expenses: | | | | Selling | $38,184 | $34,215 | | Marketing | $15,173 | $14,879 | | General and administrative | $25,682 | $22,673 | | Total operating expenses | $79,039 | $71,767 | | Loss from operations | $(5,383) | $(6,093) | | Other expense, net: | | | | Interest expense | $(2,663) | $(2,278) | | Other expense | $(295) | $(543) | | Total other expense, net | $(2,958) | $(2,821) | | Loss before income taxes | $(8,341) | $(8,914) | | Provision for income taxes | $(9) | $(19) |\ | Net loss | $(8,350) | $(8,933) | | Net loss per share: | | | | Basic and diluted | $(0.78) | $(0.85) | | Weighted average shares outstanding: | 10,686,730 | 10,520,458 | - Net sales increased by 10.1% to $128.657 million in Q1 2025 from $116.840 million in Q1 2024[20] - Net loss improved to $(8.350) million in Q1 2025 from $(8.933) million in Q1 2024, and net loss per share improved to $(0.78) from $(0.85)[20] Condensed Consolidated Statements of Comprehensive Income This section presents the Company's total comprehensive income, including net loss and other comprehensive income items Condensed Consolidated Statements of Comprehensive Income (in thousands) | Comprehensive Income Item | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :------------------------ | :-------------------------------- | :-------------------------------- | | Net loss | $(8,350) | $(8,933) | | Other comprehensive income (loss): | | | | Currency translation | $642 | $(4,980) | | Total comprehensive loss | $(7,708) | $(13,913) | - Total comprehensive loss significantly improved to $(7.708) million in Q1 2025 from $(13.913) million in Q1 2024, primarily driven by a positive currency translation adjustment of $642 thousand compared to a $(4.980) million loss in the prior year[21] Condensed Consolidated Statements of Changes in Stockholders' Equity This section outlines changes in the Company's stockholders' equity, reflecting net loss, compensation, and currency adjustments Condensed Consolidated Statements of Changes in Stockholders' Equity (in thousands, except share data) | Item | Balance as of Dec 31, 2024 | Equity-based compensation | Issuance of common stock | Repurchase of shares | Cumulative translation adjustment | Net loss | Balance as of Mar 31, 2025 | | :------------------------------------------ | :------------------------- | :------------------------ | :----------------------- | :------------------- | :-------------------------------- | :------- | :------------------------- | | Common Stock (Shares) | 10,669,649 | — | 39,225 | (15,910) | — | — | 10,692,964 | | Common Stock (Amount) | $128 | — | — | — | — | — | $128 | | Additional Paid-In Capital | $471,758 | $2,059 | $(249) | $(257) | — | — | $473,311 | | Accumulated Other Comprehensive Income (Loss) | $(60,849) | — | — | — | $642 | — | $(60,207) | | Accumulated Deficit | $(293,403) | — | — | — | — | $(8,350) | $(301,753) | | Total Stockholders' Equity | $117,634 | $2,059 | $(249) | $(257) | $642 | $(8,350) | $111,479 | - Total stockholders' equity decreased from $117.634 million at December 31, 2024, to $111.479 million at March 31, 2025, primarily due to a net loss of $8.350 million, partially offset by equity-based compensation and positive currency translation adjustment[23] Condensed Consolidated Statements of Cash Flows This section details the Company's cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Item | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(1,875) | $(7,687) | | Net cash used in investing activities | $(3,436) | $(755) | | Net cash provided by financing activities | $7,595 | $8,899 | | Effect of exchange rate changes on cash | $108 | $(590) | | Net increase (decrease) in cash | $2,392 | $(133) | | Cash, cash equivalents and restricted cash at beginning of period | $26,479 | $24,029 | | Cash, cash equivalents and restricted cash at end of period | $28,871 | $23,896 | - Net cash used in operating activities significantly decreased from $(7.687) million in Q1 2024 to $(1.875) million in Q1 2025[25] - Net cash used in investing activities increased to $(3.436) million in Q1 2025 from $(755) thousand in Q1 2024, while net cash provided by financing activities decreased to $7.595 million from $8.899 million[25] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations of the condensed consolidated financial statements, covering accounting policies, assets, liabilities, debt, leases, and equity Note 1. Organization and Description of Business This note describes a.k.a. Brands Holding Corp.'s business as a portfolio of next-generation fashion brands and its operational structure - a.k.a. Brands Holding Corp. operates as a portfolio of next-generation fashion brands, leveraging industry expertise and operational synergies to accelerate brand growth, reach broader audiences, achieve greater scale, and enhance profitability[26] - The Company is headquartered in San Francisco, California, with primary functions located in Australia and the United States[27] Note 2. Significant Accounting Policies This note outlines the significant accounting policies used in preparing the financial statements, including revenue recognition and segment reporting - The unaudited condensed consolidated interim financial statements are prepared in accordance with Article 10 of SEC's Regulation S-X, condensing or omitting certain GAAP footnotes, and include all necessary normal recurring adjustments for fair statement[28] - Revenue is primarily derived from the sale of apparel merchandise through online websites, stores, third-party marketplaces, wholesale partnerships, and shipping, recognized when control of the product passes to the customer[30][31] Sales Return Reserve Activity (in thousands) | Item | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :---------------- | :-------------------------------- | :-------------------------------- | | Beginning balance | $7,587 | $9,610 | | Returns | $(25,105) | $(25,900) | | Provision | $27,152 | $23,625 | | Ending balance | $9,634 | $7,335 | Net Sales by Geography (in thousands) | Geography | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :------------------ | :-------------------------------- | :-------------------------------- | | U.S. | $88,054 | $77,138 | | Australia & New Zealand | $35,593 | $33,516 | | Rest of world | $5,010 | $6,186 | | Total | $128,657 | $116,840 | - The Company has aggregated its four operating brands into one reportable segment due to similar product nature, production, distribution, target customers, and economic characteristics[35] - The FASB issued ASU 2023-09 (Improvements to Income Tax Disclosures) effective for fiscal year ending December 31, 2025, and ASU 2024-03 (Disaggregation of Income Statement Expenses) effective for fiscal year ending December 31, 2027, requiring incremental disclosures[36][37] Note 3. Prepaid Expenses and Other Current Assets This note details the composition of prepaid expenses and other current assets, including inventory prepayments Prepaid Expenses and Other Current Assets (in thousands) | Item | March 31, 2025 | December 31, 2024 | | :-------------------- | :------------- | :---------------- | | Inventory prepayments | $5,342 | $6,693 | | Other | $9,020 | $10,027 | | Total | $14,362 | $16,720 | Note 4. Property and Equipment, Net This note provides a breakdown of property and equipment, net, and associated depreciation expenses Property and Equipment, Net (in thousands) | Item | March 31, 2025 | December 31, 2024 | | :---------------------------- | :------------- | :---------------- | | Furniture and fixtures | $5,618 | $5,608 | | Machinery and equipment | $4,734 | $4,686 | | Computer equipment & software | $5,738 | $7,444 | | Leasehold improvements | $32,170 | $31,230 | | Total property and equipment | $48,260 | $48,968 | | Less: accumulated depreciation | $(15,624) | $(17,706) | | Total property and equipment, net | $32,636 | $31,262 | Depreciation Expense (in thousands) | Expense Category | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :---------------------------- | :-------------------------------- | :-------------------------------- | | Selling expenses | $1,569 | $1,282 | | General and administrative expenses | $286 | $254 | | Total depreciation expense | $1,855 | $1,536 | Note 5. Goodwill This note details the carrying value of goodwill and changes due to foreign currency translation - The carrying value of goodwill increased slightly from $89.3 million as of December 31, 2024, to $89.6 million as of March 31, 2025, primarily due to changes in foreign currency translation[40] Goodwill Activity (in thousands) | Item | Amount | | :------------------------------ | :----- | | Balance as of December 31, 2024 | $89,254 | | Changes in foreign currency translation | $352 | | Balance as of March 31, 2025 | $89,606 | Note 6. Intangible Assets This note provides a breakdown of intangible assets, net, and their estimated future amortization expense Intangible Assets, Net (in thousands) | Item | March 31, 2025 | December 31, 2024 | | :------------------------ | :------------- | :---------------- | | Total intangible assets | $86,406 | $91,070 | | Less: accumulated amortization | $(36,517) | $(38,716) | | Total intangible assets, net | $49,889 | $52,354 | - Amortization expense for acquired intangible assets decreased to $2.5 million for the three months ended March 31, 2025, from $2.8 million in the prior year period[41] Future Estimated Amortization Expense (in thousands) | Year ending December 31: | Amortization Expense | | :----------------------- | :------------------- | | Remainder of 2025 | $6,806 | | 2026 | $9,069 | | 2027 | $9,069 | | 2028 | $8,270 | | 2029 | $7,203 | | Thereafter | $9,472 | | Total | $49,889 | Note 7. Debt This note details the Company's senior secured credit facility, outstanding debt, and compliance with covenants - The Company's senior secured credit facility includes a $100.0 million term loan and a $50.0 million revolving line of credit, both maturing in September 2026, with interest rates based on Term SOFR plus an applicable margin[43] - The Company was in compliance with all financial debt covenants as of March 31, 2025, requiring a maximum total net leverage ratio of 3.50 to 1.00 and a minimum fixed charge coverage ratio of 1.25 to 1.00[44] Outstanding Debt (in thousands) | Item | March 31, 2025 | December 31, 2024 | | :------------------------ | :------------- | :---------------- | | Term loan | $86,950 | $89,050 | | Revolving credit facility | $33,500 | $23,300 | | Capitalized debt issuance costs | $(540) | $(639) | | Total debt | $119,910 | $111,711 | | Less: current portion | $(7,000) | $(6,300) | | Total long-term debt | $112,910 | $105,411 | - Interest expense increased to $2.7 million for the three months ended March 31, 2025, from $2.3 million in the prior year, primarily due to a higher long-term debt balance[46] Maturities of Principal Debt Obligations (in thousands) | Year ending December 31: | Amount | | :----------------------- | :----- | | Remainder of 2025 | $4,200 | | 2026 | $116,250 | | Total | $120,450 | Note 8. Leases This note describes the Company's operating lease agreements, lease costs, and future lease liabilities maturities - The Company leases office locations, warehouse facilities, and stores under non-cancellable operating lease agreements with remaining terms of approximately 1 to 10 years[48] Operating Lease Costs (in thousands) | Lease Cost Item | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :---------------- | :-------------------------------- | :-------------------------------- | | Operating lease costs | $4,175 | $2,648 | | Variable lease costs | $436 | $311 | | Short-term lease costs | $126 | $84 | | Total lease costs | $4,737 | $3,043 | Operating Lease Liabilities Maturities (in thousands) | Year ending December 31: | Amount | | :----------------------- | :----- | | Remainder of 2025 | $10,176 | | 2026 | $16,386 | | 2027 | $15,075 | | 2028 | $14,086 | | 2029 | $14,086 | | Thereafter | $35,810 | | Total remaining lease payments | $105,619 | | Less: imputed interest | $(24,362) | | Total operating lease liabilities | $81,257 | | Less: current portion | $(8,884) | | Long-term operating lease liabilities | $72,373 | Note 9. Income Taxes This note explains the Company's effective tax rate and the provision for income taxes - The Company's effective tax rate was flat at 0% for the three months ended March 31, 2025 and 2024, primarily due to non-deductible permanent differences and a full valuation allowance on net deferred tax assets[54] Effective Tax Rate Summary (in thousands) | Item | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :------------------------ | :-------------------------------- | :-------------------------------- | | Loss before income taxes | $(8,341) | $(8,914) | | Provision for income taxes | $(9) | $(19) |\ | Effective tax rate | —% | —% | Note 10. Accrued Liabilities This note provides a detailed breakdown of the Company's accrued liabilities, including salaries, freight, and marketing costs Accrued Liabilities (in thousands) | Item | March 31, 2025 | December 31, 2024 | | :---------------------------- | :------------- | :---------------- | | Accrued salaries and other benefits | $13,050 | $10,504 | | Accrued freight costs | $2,672 | $4,551 | | Sales tax payable | $3,624 | $3,132 | | Accrued marketing costs | $4,559 | $5,800 | | Accrued professional services | $1,290 | $1,160 | | Other accrued liabilities | $6,031 | $6,069 | | Total accrued liabilities | $31,226 | $31,216 | Note 11. Deferred Revenue This note details the composition of deferred revenue, primarily from gift cards and other sources Deferred Revenue (in thousands) | Item | March 31, 2025 | December 31, 2024 | | :------------ | :------------- | :---------------- | | Gift cards | $11,530 | $11,473 | | Other | $1,645 | $742 | | Total | $13,175 | $12,215 | Note 12. Equity-based Compensation This note describes the Company's equity award plans, performance-based options, and compensation expense by award type - The 2021 Omnibus Incentive Plan and 2021 Employee Stock Purchase Plan govern equity awards, with 2,662,075 shares reserved for the 2021 Plan and 422,475 for the ESPP as of March 31, 2025[57][58][60] - Performance-based stock options were granted to Wesley Bryett (416,667 options) and Ciaran Long (100,000 options), vesting upon achievement of stock price targets[62][63] Equity-Based Compensation Expense by Award Type (in thousands) | Award Type | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :------------------------ | :-------------------------------- | :-------------------------------- | | Stock options | $220 | $180 | | RSUs | $1,671 | $1,128 | | ESPP purchase rights | $38 | $20 | | Time-based incentive units | $130 | $628 | | Total | $2,059 | $1,956 | Note 13. Stockholders' Equity This note outlines the Company's authorized shares, common stock details, and share repurchase program activity - The Company has 50,000,000 authorized shares of preferred stock (none issued) and 500,000,000 authorized shares of common stock ($0.001 par value), with a one-for-12 reverse stock split effected on September 29, 2023[72][73][74] - The Share Repurchase Program authorized repurchases of up to $5.0 million of common stock, with 31,336 shares repurchased for $0.5 million in Q1 2025 at an average price of $16.13 per share[75][77] Note 14. Net Loss Per Share This note details the computation of basic and diluted net loss per share for the reporting periods Net Loss Per Share Computation | Item | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :-------------------------------------- | :-------------------------------- | :-------------------------------- | | Net loss | $(8,350) | $(8,933) | | Weighted-average common shares outstanding, basic and diluted | 10,686,730 | 10,520,458 | | Net loss per share, basic and diluted | $(0.78) | $(0.85) | - Due to net losses, no potentially dilutive securities had an impact on diluted loss per share, with 434,436 shares in 2025 and 217,355 shares in 2024 excluded as anti-dilutive[78] Note 15. Commitments and Contingencies This note discloses the Company's commitments and contingencies, including an accrued copyright infringement claim - The Company accrued $2.0 million to general and administrative expenses for estimated losses related to a copyright infringement cease and desist letter received in April 2024[79] Note 16. Segment Information This note explains the Company's operating segments and the key metrics used by management to evaluate performance - The Company's four brands are aggregated into one reportable segment due to similar product nature, production, distribution, target customers, and economic characteristics, with the CEO using gross margin and Adjusted EBITDA to evaluate performance[80] Gross Margin (in thousands) | Item | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :------------ | :-------------------------------- | :-------------------------------- | | Net sales | $128,657 | $116,840 | | Cost of sales | $55,001 | $51,166 | | Gross profit | $73,656 | $65,674 | | Gross margin | 57.2% | 56.2% | Note 17. Subsequent Events This note reports on significant events occurring after the balance sheet date, including revolving credit facility activity - On April 1, 2025, the Company borrowed $5.8 million under its revolving line of credit at an 8.00% interest rate, with $6.0 million repaid in April and May 2025[83] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition and operational results, highlighting key metrics, influencing factors, and liquidity Overview This section provides an overview of a.k.a. Brands' business model as a portfolio of fashion brands targeting Millennial and Gen Z audiences - a.k.a. Brands is a portfolio of next-generation fashion brands (Princess Polly, Petal & Pup, Culture Kings, mnml) targeting Millennial and Gen Z audiences, with a focus on accelerating growth, expanding reach, and enhancing profitability[85][86] Key Operating and Financial Metrics This section outlines key operating and financial metrics, including active customers, average order value, gross margin, net loss, Adjusted EBITDA, and Free Cash Flow Operating Metrics This section presents key operating metrics such as active customers, average order value, and number of orders Key Operating Metrics (in millions, other than dollar figures) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :------------------ | :-------------------------------- | :-------------------------------- | | Active customers | 4.13 | 3.83 | | Average order value | $78 | $77 | | Number of orders | 1.66 | 1.52 | - Active customers increased to 4.13 million in Q1 2025 from 3.83 million in Q1 2024, indicating growth in customer base[87][88] - Average order value slightly increased to $78 in Q1 2025 from $77 in Q1 2024, while the number of orders grew to 1.66 million from 1.52 million[87][89][90] Key Financial Metrics This section presents key financial metrics including gross margin, net loss, Adjusted EBITDA, and cash flow Key Financial Metrics (dollars in thousands) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :---------------------- | :-------------------------------- | :-------------------------------- | | Gross margin | 57% | 56% | | Net loss | $(8,350) | $(8,933) | | Net loss margin | (6)% | (8)% | | Adjusted EBITDA | $2,665 | $874 | | Adjusted EBITDA margin | 2% | 1% | | Net cash used in operating activities | $(1,875) | $(7,687) | | Free Cash Flow | $(5,311) | $(8,441) | - Gross margin improved to 57% in Q1 2025 from 56% in Q1 2024, and Net loss margin improved to (6)% from (8)%[91] - Adjusted EBITDA significantly increased to $2.665 million in Q1 2025 from $874 thousand in Q1 2024, with Adjusted EBITDA margin rising to 2% from 1%[91] - Net cash used in operating activities decreased to $(1.875) million from $(7.687) million, and Free Cash Flow improved to $(5.311) million from $(8.441) million[91] Non-GAAP Financial Measures This section defines and reconciles non-GAAP financial measures like Adjusted EBITDA and Free Cash Flow to GAAP results - Adjusted EBITDA and Free Cash Flow are non-GAAP measures used to evaluate operating performance and liquidity, providing supplemental information to GAAP results[92][95] Reconciliation of Adjusted EBITDA to Net Loss (dollars in thousands) | Item | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :---------------------------------- | :-------------------------------- | :-------------------------------- | | Net loss | $(8,350) | $(8,933) | | Total other expense, net | $2,958 | $2,821 | | Provision for income tax | $9 | $19 | | Depreciation and amortization expense | $4,374 | $4,298 | | Equity-based compensation expense | $2,059 | $1,956 | | Distribution center relocation costs | $737 | — | | Non-routine legal matters | $711 | $163 | | Non-routine items | $167 | $550 | | Adjusted EBITDA | $2,665 | $874 | | Net loss margin | (6)% | (8)% | | Adjusted EBITDA margin | 2% | 1% | Reconciliation of Free Cash Flow to Net Cash Used in Operating Activities (dollars in thousands) | Item | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :---------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(1,875) | $(7,687) | | Less: purchases of property and equipment | $(3,436) | $(754) | | Free Cash Flow | $(5,311) | $(8,441) | Factors Affecting Our Performance This section discusses internal and external factors influencing performance, including macroeconomic conditions, brand awareness, customer strategies, inventory, and foreign currency - Macroeconomic factors like inflation, interest rates, and geopolitical tensions significantly impact consumer spending and the Company's cost of goods sold, potentially requiring product sourcing changes and price adjustments[99] - Maintaining brand awareness and loyalty through marketing, wholesale, and store expansion is crucial for growth, alongside cost-effective customer acquisition and retention strategies[100][101][102] - The Company employs a 'test, repeat & clear' inventory strategy, particularly for Princess Polly and Petal & Pup, involving small initial purchases and data-driven re-orders to manage demand shifts and price sensitivity[103] - Ongoing investments in headcount, inventory, stores, fulfillment, logistics, and software are planned to drive growth and operational efficiencies, with foreign currency fluctuations impacting international net sales and operating income[104][105] Results of Operations This section compares the Company's financial performance for Q1 2025 versus Q1 2024, analyzing changes in net sales, cost of sales, gross profit, and operating expenses Net Sales This section analyzes the changes in net sales, driven by increases in orders and average order value Net Sales (in thousands) | Item | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change ($) | Change (%) | | :-------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | Net sales | $128,657 | $116,840 | $11,817 | 10% | - The 10% increase in net sales was primarily driven by a 9% increase in the number of orders and a 1% increase in average order value, mainly from U.S. growth across all sales channels[108] Cost of Sales This section analyzes the changes in cost of sales and its percentage of net sales Cost of Sales (in thousands) | Item | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change ($) | Change (%) | | :-------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | Cost of sales | $55,001 | $51,166 | $3,835 | 7% | | Percent of net sales | 43% | 44% | -1% | | - The 7% increase in cost of sales was due to the 10% increase in net sales and growing wholesale initiatives, partially offset by incremental full-price selling and improved inventory position[109] Gross Profit This section analyzes the changes in gross profit and gross margin, reflecting sales and cost impacts Gross Profit (in thousands) | Item | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change ($) | Change (%) | | :----------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | Gross profit | $73,656 | $65,674 | $7,982 | 12% | | Gross margin | 57% | 56% | 1% | | - Gross profit increased by 12% due to higher net sales and the positive impact of incremental full-price selling and improved inventory position, partially offset by growing wholesale initiatives[110] Selling Expenses This section analyzes the changes in selling expenses, driven by store openings and increased net sales Selling Expenses (in thousands) | Item | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change ($) | Change (%) | | :------------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | Selling expenses | $38,184 | $34,215 | $3,969 | 12% | | Percent of net sales | 30% | 29% | 1% | | - Selling expenses increased by 12% due to the opening of additional stores and the 10% increase in net sales, leading to a 1% increase as a percentage of net sales[111] Marketing Expenses This section analyzes the changes in marketing expenses and their impact on net sales percentage Marketing Expenses (in thousands) | Item | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change ($) | Change (%) | | :------------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | Marketing expenses | $15,173 | $14,879 | $294 | 2% | | Percent of net sales | 12% | 13% | -1% | | - Marketing expenses increased by 2% due to higher marketing spend, but decreased as a percentage of net sales by 1% due to higher net sales[112] General and Administrative Expenses This section analyzes the changes in general and administrative expenses, including wages and legal matters General and Administrative Expenses (in thousands) | Item | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change ($) | Change (%) | | :---------------------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | General and administrative expenses | $25,682 | $22,673 | $3,009 | 13% | | Percent of net sales | 20% | 19% | 1% | | - General and administrative expenses increased by 13%, primarily due to a $1.8 million increase in wages and incentive compensation, a $0.5 million increase in non-routine legal matters, and a $0.4 million increase in professional fees[113] Other Expense, Net This section analyzes the changes in other expense, net, primarily driven by interest expense Other Expense, Net (in thousands) | Item | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change ($) | Change (%) | | :-------------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | Interest expense | $(2,663) | $(2,278) | $(385) | 17% | | Other expense | $(295) | $(543) | $248 | -46% | | Total other expense, net | $(2,958) | $(2,821) | $(137) | 5% | | Percent of net sales | (2)% | (2)% | 0% | | - Total other expense, net, increased by 5% primarily due to higher interest expense resulting from an increase in the long-term debt balance[114] Provision for Income Taxes This section analyzes the provision for income taxes and the effective tax rate Provision for Income Taxes (in thousands) | Item | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change ($) | Change (%) | | :------------------------ | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | Provision for income taxes | $(9) | $(19) | $10 | -53% | | Percent of net sales | —% | —% | 0% | | - Provision for income taxes remained flat at $9 thousand for the three months ended March 31, 2025, compared to $19 thousand in the prior year, maintaining a 0% effective tax rate[115] Liquidity and Capital Resources This section details the Company's liquidity position, including cash, credit facilities, historical cash flows, and the share repurchase program Senior Secured Credit Facility This section describes the Company's senior secured credit facility, including term loan and revolving line of credit - The Company's senior secured credit facility includes a $100.0 million term loan and a $50.0 million revolving line of credit, with $87.0 million in term loan and $33.5 million borrowed under the revolving line of credit as of March 31, 2025[118] - The Company was in compliance with all debt covenants as of March 31, 2025, and anticipates continued compliance, despite potential impacts from macro-economic factors and business seasonality[119] Material Cash Requirements This section notes that there have been no significant changes in the Company's material cash requirements - There have been no significant changes in the Company's material cash requirements from those reported in the 2024 Form 10-K[121] Historical Cash Flows This section presents a comparison of historical cash flows from operating, investing, and financing activities Historical Cash Flows (in thousands) | Cash Flow Type | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change ($) | | :-------------------------------- | :-------------------------------- | :-------------------------------- | :--------- | | Net cash used in operating activities | $(1,875) | $(7,687) | $5,812 | | Net cash used in investing activities | $(3,436) | $(755) | $(2,681) | | Net cash provided by financing activities | $7,595 | $8,899 | $(1,304) | - Net cash used in operating activities decreased by $5.8 million, primarily due to more inventory sell-through as net sales grew by 10%[124] - Net cash used in investing activities increased by $2.7 million due to additional capital expenditures for new stores[126] - Net cash provided by financing activities decreased by $1.3 million due to additional debt repayments[128] Share Repurchase Program This section details the Company's share repurchase program, including authorized capacity and Q1 2025 activity - The Share Repurchase Program, approved in May 2023 and expanded in 2023, authorizes repurchases of up to $5.0 million of common stock[129][130] Critical Accounting Estimates This section notes that there have been no significant changes in the Company's critical accounting estimates - There have been no significant changes in the Company's critical accounting estimates from those reported in the 2024 Form 10-K[131] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, a.k.a. Brands Holding Corp. is not required to provide quantitative and qualitative disclosures about market risk - As a 'smaller reporting company,' the Company is not required to provide quantitative and qualitative disclosures about market risk[132] Item 4. Controls and Procedures This section addresses the effectiveness of the Company's disclosure controls and internal control over financial reporting, identifying material weaknesses and remediation efforts Evaluation of Disclosure Controls and Procedures This section evaluates the effectiveness of the Company's disclosure controls and procedures as of March 31, 2025 - Management concluded that the Company's disclosure controls and procedures were not effective as of March 31, 2025, due to identified material weaknesses, though financial statements fairly present the Company's financial position[133] Material Weaknesses This section identifies persistent material weaknesses in internal control over financial reporting - Material weaknesses in internal control over financial reporting persist, including an ineffective internal control environment due to insufficient personnel knowledge/experience, lack of formal authority delegation, and inadequate segregation of duties[134][137] - Additional material weaknesses include ineffective controls over certain information technology general controls (ITGCs) for financially relevant systems, specifically regarding program change management, user access, computer operations, and program development[137] Remediation Status of Material Weaknesses This section outlines the Company's ongoing efforts to remediate identified material weaknesses in internal controls - The Company is actively addressing material weaknesses by hiring experienced financial reporting personnel, engaging a third-party consulting firm, increasing staff training, formalizing risk assessment processes, and designing/implementing new controls for segregation of duties and ITGCs[136][140] - Material weaknesses are not yet remediated as of March 31, 2025, requiring controls to operate effectively for a sufficient period and management testing for full remediation[138] Changes in Internal Control over Financial Reporting This section confirms no material changes in internal control over financial reporting during the reporting period - There were no changes in internal control over financial reporting during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting[139] PART II - OTHER INFORMATION This section provides additional information not covered in the financial statements, including legal proceedings, risk factors, and equity security sales Item 1. Legal Proceedings This section discloses legal matters, including a $2.0 million accrued copyright infringement claim, and notes that other legal proceedings have uncertain outcomes - In April 2024, the Company received a cease and desist letter alleging copyright infringement and related claims, for which $2.0 million has been accrued to general and administrative expenses for estimated losses[142] - The Company is subject to other legal proceedings in the ordinary course of business, with uncertain ultimate outcomes that could materially adversely affect financial position, results of operations, or cash flows[143] Item 1A. Risk Factors This section refers to the detailed discussion of risk factors in the Company's 2024 Form 10-K, confirming no material changes or new undisclosed risks - There are no material changes to the risk factors previously disclosed in the 2024 Form 10-K, nor have any previously undisclosed risks been identified that could materially adversely affect the Company's business, operating results, or financial condition[144] Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities This section details the Company's share repurchase program, including authorized capacity and actual repurchase activity for Q1 2025 - The Share Repurchase Program, approved in May 2023 and expanded in 2023, authorizes the Company to repurchase up to $5.0 million of common stock, with timing and amount at the Company's discretion[145] Share Repurchase Activity (Settlement Date Basis) for Q1 2025 | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of a Publicly Announced Plan or Program | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (millions) | | :-------------------------- | :------------------------------- | :--------------------------- | :------------------------------------------------------------------------------- | :---------------------------------------------------------------------------------------- | | January 1, 2025 - January 31, 2025 | 11,178 | $17.24 | 5,614 | $1.2 | | February 1, 2025 - February 28, 2025 | 13,062 | $16.35 | 5,295 | $1.2 | | March 1, 2025 - March 31, 2025 | 7,096 | $13.98 | 5,001 | $1.1 | | Total | 31,336 | | 15,910 | | - 15,426 of the total shares purchased represent shares surrendered by employees to satisfy tax obligations related to restricted stock vesting under the 2021 Omnibus Incentive Plan[149] Item 3. Defaults Upon Senior Securities This section states that there are no defaults upon senior securities to report - Not applicable[147] Item 4. Mine Safety Disclosures This section states that there are no mine safety disclosures to report - Not applicable[148] Item 5. Other Information This section reports that no Rule 10b5-1 trading plans were adopted or terminated by directors or executive officers during the reporting period - No directors or executive officers adopted or terminated any Rule 10b5-1 trading plans or non-Rule 10b5-1 trading arrangements during the three months ended March 31, 2025[149] Item 6. Exhibits This section lists all exhibits filed with the Quarterly Report on Form 10-Q, including corporate governance documents, certifications, and XBRL data - The report includes various exhibits such as the Amended and Restated Certificate of Incorporation, Bylaws, certifications of Principal Executive and Financial Officers (302 and 906), and Inline XBRL documents[150][151] Signatures This section contains the official signatures for the Quarterly Report on Form 10-Q, confirming its submission by authorized personnel - The report is signed by Kevin Grant, Chief Financial Officer (Authorized Signatory and Principal Financial and Accounting Officer) on May 13, 2025[155]