a.k.a. Brands (AKA) - 2025 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial information for the interim periods, including financial statements and management's analysis ITEM 1. FINANCIAL STATEMENTS This section presents the unaudited condensed consolidated financial statements of a.k.a. Brands Holding Corp. for the periods ended June 30, 2025, and December 31, 2024, including balance sheets, statements of income, comprehensive income, changes in stockholders' equity, and cash flows, along with detailed notes on significant accounting policies, assets, liabilities, equity, and other financial disclosures Condensed Consolidated Balance Sheets This statement provides a snapshot of the company's assets, liabilities, and equity at specific points in time | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------------- | :----------------------------- | :------------------------------- | | Total assets | $410,823 | $385,204 | | Total current assets | $155,175 | $144,769 | | Cash and cash equivalents | $23,105 | $24,192 | | Inventory | $92,455 | $95,750 | | Total liabilities | $296,683 | $267,570 | | Total current liabilities | $117,167 | $97,038 | | Total stockholders' equity | $114,140 | $117,634 | - Total assets increased by $25.6 million (6.6%) from December 31, 2024, to June 30, 2025, primarily driven by increases in property and equipment, operating lease right-of-use assets, and goodwill[17] - Total liabilities increased by $29.1 million (10.9%) over the same period, mainly due to increases in accounts payable, accrued liabilities, and operating lease liabilities[17] Condensed Consolidated Statements of Income This statement details the company's revenues, expenses, and net loss over specific reporting periods | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net sales | $160,524 | $148,931 | $289,181 | $265,771 | | Gross profit | $92,344 | $85,969 | $166,000 | $151,643 | | (Loss) income from operations | $(491) | $636 | $(5,874) | $(5,457) | | Net loss | $(3,625) | $(2,261) | $(11,975) | $(11,194) | | Net loss per share (Basic and diluted) | $(0.34) | $(0.22) | $(1.13) | $(1.07) | - Net sales increased by 8% for the three months ended June 30, 2025, and by 9% for the six months ended June 30, 2025, compared to the respective prior periods[19] - The company reported an increased net loss for both the three-month period (from $(2,261) thousand to $(3,625) thousand) and the six-month period (from $(11,194) thousand to $(11,975) thousand) year-over-year[19] Condensed Consolidated Statements of Comprehensive Income This statement presents the net loss and other comprehensive income items, such as currency translation adjustments | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss | $(3,625) | $(2,261) | $(11,975) | $(11,194) | | Currency translation | $4,555 | $1,573 | $5,197 | $(3,407) | | Total comprehensive income (loss) | $930 | $(688) | $(6,778) | $(14,601) | - Total comprehensive income improved significantly for the three months ended June 30, 2025, reaching $930 thousand compared to a loss of $(688) thousand in the prior year, primarily due to positive currency translation adjustments[20] - For the six months ended June 30, 2025, total comprehensive loss decreased to $(6,778) thousand from $(14,601) thousand in the prior year, also driven by favorable currency translation[20] Condensed Consolidated Statements of Changes in Stockholders' Equity This statement details changes in the company's equity components, including net loss, equity-based compensation, and share repurchases | Metric (in thousands) | Balance as of Dec 31, 2024 | Balance as of Jun 30, 2025 | | :-------------------- | :------------------------- | :------------------------- | | Total Stockholders' Equity | $117,634 | $114,140 | | Equity-based compensation | $2,059 (Q1) / $1,843 (Q2) | $3,902 (6 months) | | Net loss | $(8,350) (Q1) / $(3,625) (Q2) | $(11,975) (6 months) | | Cumulative translation adjustment | $642 (Q1) / $4,555 (Q2) | $5,197 (6 months) | - Total stockholders' equity decreased from $117,634 thousand at December 31, 2024, to $114,140 thousand at June 30, 2025, primarily due to net losses, partially offset by equity-based compensation and positive cumulative translation adjustments[22] - The company repurchased shares totaling $257 thousand in Q1 2025 and $111 thousand in Q2 2025[22] Condensed Consolidated Statements of Cash Flows This statement summarizes the cash inflows and outflows from operating, investing, and financing activities | Metric (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :----------------------------- | :----------------------------- | | Net cash provided by (used in) operating activities | $10,013 | $(4,198) | | Net cash used in investing activities | $(7,922) | $(2,731) | | Net cash (used in) provided by financing activities | $(3,817) | $12,002 | | Net (decrease) increase in cash | $(910) | $3,763 | | Cash, cash equivalents and restricted cash at end of period | $25,569 | $27,792 | - Net cash provided by operating activities significantly improved to $10,013 thousand for the six months ended June 30, 2025, compared to net cash used of $(4,198) thousand in the prior year, primarily due to better inventory sell-through[24][100] - Net cash used in investing activities increased to $(7,922) thousand, up from $(2,731) thousand, mainly due to additional capital expenditures for new store openings[24][137] - Net cash used in financing activities was $(3,817) thousand, a shift from $12,002 thousand provided in the prior year, largely due to additional debt repayments[24][139] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations of the company's significant accounting policies and financial statement line items Note 1. Organization and Description of Business This note describes the company's business model as a portfolio of 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, audience reach, scale, and profitability[25] - The company's headquarters are in San Francisco, California, with primary operational functions (buying, studio, marketing, fulfillment, and administration) located in Australia and the United States[26] Note 2. Significant Accounting Policies This note outlines the key accounting principles and methods used in preparing the interim financial statements - The interim financial statements are prepared in accordance with SEC's Regulation S-X, condensing certain GAAP disclosures, and are not necessarily indicative of full fiscal year results[27] - Revenue is primarily from apparel sales via online websites, stores, third-party marketplaces, and wholesale, recognized when control of the product passes to the customer (e.g., transfer to carrier or point of sale)[29][30] - The sales return reserve was $9.8 million as of June 30, 2025, up from $7.6 million at December 31, 2024, reflecting historical refund experience[32] - The company has aggregated its four brands into one reportable segment due to similar product nature, processes, target customers, and economic characteristics[34] - New accounting pronouncements, ASU 2023-09 (Improvements to Income Tax Disclosures) and ASU 2024-03 (Disaggregation of Income Statement Expenses), will require incremental disclosures in future annual reports, effective for fiscal years ending December 31, 2025, and 2027, respectively[35][36] Note 3. Prepaid Expenses and Other Current Assets This note details the composition and changes in the company's prepaid expenses and other current assets | Category | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :----------------------------- | :----------------------------- | :------------------------------- | | Inventory prepayments | $2,204 | $6,693 | | Other | $12,421 | $10,027 | | Total prepaid expenses and other current assets | $14,625 | $16,720 | - Total prepaid expenses and other current assets decreased by $2.1 million from December 31, 2024, to June 30, 2025, primarily due to a reduction in inventory prepayments[37] Note 4. Property and Equipment, Net This note outlines the company's property and equipment, including changes and depreciation expense | Category | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :----------------------------- | :----------------------------- | :------------------------------- | | Total property and equipment, net | $36,109 | $31,262 | | Total depreciation expense (6 months) | $3,901 | $3,041 | - Net property and equipment increased by $4.8 million from December 31, 2024, to June 30, 2025, mainly driven by an increase in leasehold improvements[38] - Depreciation expense for the six months ended June 30, 2025, was $3.9 million, an increase from $3.0 million in the prior year period[38] Note 5. Goodwill This note discusses the carrying value of goodwill and the results of impairment assessments | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :----------------------------- | :----------------------------- | :------------------------------- | | Carrying value of goodwill | $92,222 | $89,254 | | Changes in foreign currency translation | $2,968 | N/A | - Goodwill increased by $2.9 million from December 31, 2024, to June 30, 2025, primarily due to changes in foreign currency translation[40] - No goodwill impairment was required for the three and six months ended June 30, 2025, despite revised forecasts due to uncertain trade policy and tariffs, and a decrease in stock price[39] - As of June 30, 2025, the mnml reporting unit's fair value exceeded its carrying value by 4.6%, with related goodwill of $30.0 million[39] Note 6. Intangible Assets This note provides details on the company's intangible assets, including amortization expense | Category | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :----------------------------- | :----------------------------- | :------------------------------- | | Total intangible assets, net | $47,938 | $52,354 | | Accumulated amortization | $(39,607) | $(38,716) | | Amortization expense (6 months) | $4,802 | $5,527 | - Net intangible assets decreased by $4.4 million from December 31, 2024, to June 30, 2025, primarily due to ongoing amortization[41] - Amortization expense for acquired intangible assets was $4.8 million for the six months ended June 30, 2025, a decrease from $5.5 million in the prior year period[41] Note 7. Debt This note details the company's debt obligations, including term loans, revolving credit, and interest rates | Debt Type (in thousands) | June 30, 2025 | December 31, 2024 | | :----------------------- | :------------ | :---------------- | | Term loan | $84,850 | $89,050 | | Revolving credit facility | $24,300 | $23,300 | | Total debt | $108,707 | $111,711 | | Current portion of long-term debt | $7,700 | $6,300 | | Interest expense (6 months) | $5,163 | $4,954 | - Total debt decreased by $3.0 million from December 31, 2024, to June 30, 2025, with a reduction in the term loan partially offset by an increase in the revolving credit facility[46] - The company borrowed $27.3 million and repaid $26.3 million under its revolving line of credit during the six months ended June 30, 2025[45] - As of June 30, 2025, the all-in interest rate for the term loan and revolving line of credit was 7.93%, and the company was in compliance with all financial debt covenants[44][45] Note 8. Leases This note provides information on the company's lease arrangements, including costs and right-of-use assets | Lease Metric (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------- | :----------------------------- | :----------------------------- | | Total lease costs | $9,942 | $6,206 | | Cash paid for operating lease liabilities | $5,839 | $5,189 | | Operating lease right-of-use assets | $77,111 (June 30, 2025) | $65,382 (Dec 31, 2024) | | Total operating lease liabilities | $86,663 (June 30, 2025) | $63,496 (Dec 31, 2024) | - Total lease costs increased to $9.9 million for the six months ended June 30, 2025, from $6.2 million in the prior year, reflecting an increase in operating lease costs[51] - The weighted-average remaining lease term is 6.6 years, with a weighted-average discount rate of 7.1% as of June 30, 2025[52] Note 9. Income Taxes This note details the company's income tax provision and effective tax rate | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Loss before income taxes | $(3,615) | $(1,795) | $(11,956) | $(10,709) | | Provision for income taxes | $(10) | $(466) | $(19) | $(485) | | Effective tax rate | 0% | (26)% | 0% | (5)% | - The provision for income taxes significantly decreased to $(10) thousand for the three months ended June 30, 2025, from $(466) thousand in the prior year, and to $(19) thousand for the six months, from $(485) thousand[55] - The effective tax rate was 0% for both the three and six months ended June 30, 2025, primarily due to non-deductible permanent differences and a full valuation allowance on net deferred tax assets in the U.S. and Australia[55] Note 10. Accrued Liabilities This note outlines the components and changes in the company's accrued liabilities | Category (in thousands) | June 30, 2025 | December 31, 2024 | | :---------------------- | :------------ | :---------------- | | Accrued salaries and other benefits | $8,559 | $10,504 | | Accrued freight costs | $3,005 | $4,551 | | Sales tax payable | $4,054 | $3,132 | | Accrued marketing costs | $7,064 | $5,800 | | Total accrued liabilities | $33,158 | $31,216 | - Total accrued liabilities increased by $1.9 million from December 31, 2024, to June 30, 2025, driven by increases in sales tax payable, accrued marketing costs, and professional services, partially offset by decreases in accrued salaries and freight costs[56] Note 11. Deferred Revenue This note details the company's deferred revenue, primarily from gift cards and other sources | Category (in thousands) | June 30, 2025 | December 31, 2024 | | :---------------------- | :------------ | :---------------- | | Gift cards | $11,544 | $11,473 | | Other | $1,321 | $742 | | Total deferred revenue | $12,865 | $12,215 | - Total deferred revenue increased by $0.6 million from December 31, 2024, to June 30, 2025, primarily due to an increase in other deferred revenue[57] Note 12. Equity-based Compensation This note describes the company's equity compensation plans and related expenses - The 2021 Omnibus Incentive Plan and 2021 Employee Stock Purchase Plan (ESPP) are the primary equity compensation plans, with 2,662,075 shares and 422,475 shares reserved for issuance, respectively, as of June 30, 2025[58][59] - Performance-based stock options were granted to Wesley Bryett (416,667 options) and Ciaran Long (100,000 options) in September 2023 and January 2025, respectively, vesting upon achievement of stock price targets[63][64] - Total equity-based compensation expense for the six months ended June 30, 2025, was $3.9 million, slightly up from $3.85 million in the prior year, with RSUs being the largest component[73] | Award Type (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Stock options | $193 | $179 | $413 | $359 | | RSUs | $1,599 | $1,242 | $3,270 | $2,370 | | ESPP purchase rights | $38 | $20 | $76 | $40 | | Time-based incentive units | $13 | $454 | $143 | $1,082 | | Total | $1,843 | $1,895 | $3,902 | $3,851 | Note 13. Stockholders' Equity This note provides details on the company's common stock, reverse stock split, and share repurchase activities - The company has 500,000,000 shares of common stock authorized, with 10,752,477 shares issued and outstanding as of June 30, 2025[17][75] - A one-for-12 reverse stock split was effected on September 29, 2023, retrospectively adjusted in financial statements[76] - During the six months ended June 30, 2025, the company repurchased 57,020 shares of common stock for $0.7 million, at an average price of $13.04 per share, including repurchases under the Share Repurchase Program and shares surrendered for tax obligations[79] Note 14. Net Loss Per Share This note presents the calculation of basic and diluted net loss per share for the reporting periods | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss | $(3,625) | $(2,261) | $(11,975) | $(11,194) | | Weighted-average common shares outstanding | 10,711,466 | 10,501,057 | 10,583,844 | 10,509,810 | | Net loss per share, basic and diluted | $(0.34) | $(0.22) | $(1.13) | $(1.07) | - Basic and diluted net loss per share increased to $(0.34) for the three months and $(1.13) for the six months ended June 30, 2025, compared to $(0.22) and $(1.07) respectively in the prior year, reflecting higher net losses[80] - Potentially dilutive securities were excluded from diluted EPS calculations due to the net loss in all periods, indicating an anti-dilutive effect[80] Note 15. Commitments and Contingencies This note discloses the company's legal commitments and contingent liabilities, including a recent settlement - The company settled a copyright infringement claim for $16.5 million on July 23, 2025, with insurers agreeing to pay $14.5 million[81] - An initial accrual of $2.0 million was made in 2024 for estimated losses related to this claim[81] Note 16. Segment Information This note explains the company's operating segments and provides gross margin analysis - The company operates four brands, each considered an operating segment, but aggregated into one reportable segment due to similar product nature, processes, target customers, and economic characteristics[82] - Gross margin for the three months ended June 30, 2025, was 57.5%, slightly down from 57.7% in the prior year, and 57.4% for the six months, up from 57.1%[83] | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net sales | $160,524 | $148,931 | $289,181 | $265,771 | | Cost of sales | $68,180 | $62,962 | $123,181 | $114,128 | | Gross profit | $92,344 | $85,969 | $166,000 | $151,643 | | Gross margin | 57.5% | 57.7% | 57.4% | 57.1% | Note 17. Subsequent Events This note discloses significant events that occurred after the reporting period, such as additional borrowings and new tax legislation - On July 3, 2025, the company borrowed an additional $2.5 million under its revolving line of credit at an initial interest rate of 9.75%[85] - The 'One Big Beautiful Bill Act' (OBBBA) was enacted on July 4, 2025, introducing significant changes to federal tax law and regulatory provisions, the impact of which is currently being evaluated for subsequent periods[86] 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 results of operations, highlighting key business drivers, performance metrics, and factors influencing financial outcomes for the three and six months ended June 30, 2025, compared to the prior year Overview This section introduces a.k.a. Brands' business model, target consumers, and strategic objectives - a.k.a. Brands operates a portfolio of next-generation fashion brands (Princess Polly, Petal & Pup, Culture Kings, mnml) targeting Millennial and Gen Z consumers, primarily through social media[88][89] - The company aims to leverage industry expertise and operational synergies to accelerate brand growth, expand audience reach, achieve greater scale, and enhance profitability[88] Key Operating and Financial Metrics This section presents crucial operational and financial performance indicators for the reporting periods | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Active customers (millions) | 4.13 | 4.01 | 4.13 | 4.01 | | Average order value | $78 | $78 | $78 | $77 | | Number of orders (millions) | 2.05 | 1.92 | 3.71 | 3.44 | | Gross margin | 58% | 58% | 57% | 57% | | Net loss (in thousands) | $(3,625) | $(2,261) | $(11,975) | $(11,194) | | Adjusted EBITDA (in thousands) | $7,520 | $8,012 | $10,186 | $8,885 | | Free Cash Flow (in thousands) | N/A | N/A | $2,091 | $(6,924) | - Active customers increased to 4.13 million as of June 30, 2025, from 4.01 million in the prior year, indicating growth in customer base[90][91] - Number of orders increased by 7% for the three months and 8% for the six months ended June 30, 2025, compared to the prior year periods[90][111][119] Non-GAAP Financial Measures This section defines and reconciles non-GAAP financial measures like Adjusted EBITDA and Free Cash Flow - Adjusted EBITDA is calculated by excluding interest, taxes, depreciation, amortization, equity-based compensation, and certain one-time or non-recurring items from net income (loss)[96] - Free Cash Flow is defined as net cash provided by (used in) operating activities minus purchases of property and equipment[98] | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss | $(3,625) | $(2,261) | $(11,975) | $(11,194) | | Adjusted EBITDA | $7,520 | $8,012 | $10,186 | $8,885 | | Net cash provided by (used in) operating activities | N/A | N/A | $10,013 | $(4,198) | | Free Cash Flow | N/A | N/A | $2,091 | $(6,924) | - Adjusted EBITDA for the six months ended June 30, 2025, increased to $10.2 million from $8.9 million in the prior year, while Free Cash Flow improved to $2.1 million from $(6.9) million[97][99][101] Factors Affecting Our Performance This section discusses macroeconomic conditions, operational strategies, and currency fluctuations impacting the company's financial results - Macroeconomic factors like inflation, elevated interest rates, and geopolitical tensions (e.g., U.S.-China trade tariffs) significantly impact consumer spending and the company's cost of goods sold[102] - The company is evaluating measures to mitigate tariff effects, including sourcing outside China and price increases, but faces challenges like higher costs from new suppliers and potential inventory shortages[102] - Success depends on brand awareness, cost-effective customer acquisition and retention, effective inventory management (using a 'test, repeat & clear' strategy), and continued investment in operations and infrastructure[103][104][105][106][107] - Foreign currency rate fluctuations, particularly against the Australian dollar, significantly affect net sales and operating income due to international operations[108] Results of Operations This section analyzes the company's financial performance, comparing revenues, costs, and profits across reporting periods Comparison of the Three Months Ended June 30, 2025 and 2024 This section compares the company's financial performance for the three-month periods ended June 30, 2025, and 2024 | Metric (in thousands) | 2025 | 2024 | Change ($) | Change (%) | | :-------------------- | :--- | :--- | :--------- | :--------- | | Net sales | $160,524 | $148,931 | $11,593 | 8% | | Cost of sales | $68,180 | $62,962 | $5,218 | 8% | | Gross profit | $92,344 | $85,969 | $6,375 | 7% | | Selling expenses | $45,399 | $41,191 | $4,208 | 10% | | Marketing expenses | $19,918 | $18,275 | $1,643 | 9% | | General and administrative | $27,518 | $25,867 | $1,651 | 6% | | Total other expense, net | $(3,124) | $(2,431) | $(693) | 29% | | Provision for income taxes | $(10) | $(466) | $456 | -98% | - Net sales increased by 8% to $160.5 million, driven by a 7% increase in orders and demand growth in the U.S. On a constant currency basis, net sales would have increased 9%[111] - Gross profit increased by 7% to $92.3 million, with gross margin remaining flat at 58%, as increased tariffs were offset by more full-price selling[113] - Selling expenses rose by 10% due to new store openings and increased net sales, while general and administrative expenses increased by 6% due to higher wages, legal matters, and professional fees[114][116] Comparison of the Six Months Ended June 30, 2025 and 2024 This section compares the company's financial performance for the six-month periods ended June 30, 2025, and 2024 | Metric (in thousands) | 2025 | 2024 | Change ($) | Change (%) | | :-------------------- | :--- | :--- | :--------- | :--------- | | Net sales | $289,181 | $265,771 | $23,410 | 9% | | Cost of sales | $123,181 | $114,128 | $9,053 | 8% | | Gross profit | $166,000 | $151,643 | $14,357 | 9% | | Selling expenses | $83,583 | $75,406 | $8,177 | 11% | | Marketing expenses | $35,091 | $33,154 | $1,937 | 6% | | General and administrative | $53,200 | $48,540 | $4,660 | 10% | | Total other expense, net | $(6,082) | $(5,252) | $(830) | 16% | | Provision for income taxes | $(19) | $(485) | $466 | -96% | - Net sales increased by 9% to $289.2 million, driven by an 8% increase in orders and a 1% increase in average order value, primarily from U.S. demand growth. On a constant currency basis, net sales would have increased 11%[119] - Gross profit increased by 9% to $166.0 million, with gross margin remaining flat at 57%, benefiting from more full-price selling and improved inventory position despite increased tariffs[121] - Selling expenses increased by 11% due to new store openings and higher sales, leading to a slight increase as a percentage of net sales[122] - General and administrative expenses increased by 10%, mainly due to higher incentive and stock-based compensation, non-routine legal matters, and professional services[124] Liquidity and Capital Resources This section assesses the company's ability to generate and manage cash, including available credit facilities - As of June 30, 2025, the company's primary liquidity sources were $23.1 million in cash and cash equivalents, its revolving line of credit, and the term loan accordion provision[127] - The company believes existing cash, operational cash flows, and available borrowing capacity will be sufficient to meet anticipated cash needs for the next 12 months and beyond[128] - The senior secured credit facility includes a $100.0 million term loan and a $50.0 million revolving line of credit, with $84.9 million owed on the term loan and $24.3 million on the revolving line of credit as of June 30, 2025[129] - The company was in compliance with all debt covenants as of June 30, 2025, but notes that variable interest rates and macroeconomic factors could impact future compliance[130] Material Cash Requirements This section addresses any significant changes in the company's anticipated cash obligations - There have been no significant changes in material cash requirements from those reported in the 2024 Form 10-K[132] Historical Cash Flows This section analyzes the company's cash flow trends from operating, investing, and financing activities | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by (used in) operating activities | $10,013 | $(4,198) | | Net cash used in investing activities | $(7,922) | $(2,731) | | Net cash (used in) provided by financing activities | $(3,817) | $12,002 | - Net cash provided by operating activities increased by $14.2 million, primarily due to improved inventory sell-through as net sales grew by 9%[135] - Net cash used in investing activities increased by $5.2 million, mainly due to additional capital expenditures for new store openings[137] - Net cash used in financing activities increased by $15.8 million, primarily due to additional repayments under the senior secured credit facility and line of credit[139] Share Repurchase Program This section details the company's share repurchase initiatives and related activity - The board of directors approved a Share Repurchase Program, initially authorizing $2.0 million and later an additional $3.0 million for common stock repurchases[140] - During the six months ended June 30, 2025, the company repurchased 28,005 shares for $0.4 million under the program, at an average price of $13.14 per share[141] Critical Accounting Estimates This section highlights accounting estimates requiring significant judgment, such as goodwill impairment assessments - Significant judgment and estimates are required for goodwill and intangible asset impairment assessments, including forecasting cash flows and determining discount rates[142] - In June 2025, revised forecasts due to uncertain trade policy and tariffs, along with a stock price decrease, triggered a quantitative test for goodwill impairment. The mnml reporting unit's fair value exceeded its carrying value by 4.6%[142] - A 60 basis points increase in the discount rate for the mnml reporting unit would result in impairment[142] 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 - The company is exempt from providing quantitative and qualitative disclosures about market risk due to its status as a 'smaller reporting company' under Regulation S-K[144] ITEM 4. CONTROLS AND PROCEDURES This section details the evaluation of the company's disclosure controls and procedures, identifying material weaknesses in internal control over financial reporting and outlining ongoing remediation efforts Evaluation of Disclosure Controls and Procedures This section assesses the effectiveness of the company's disclosure controls and procedures - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were not effective at the reasonable assurance level as of June 30, 2025, due to identified material weaknesses[145] - Despite the material weaknesses, management concluded that the condensed consolidated financial statements fairly present the company's financial position, results of operations, and cash flows in conformity with GAAP, based on additional procedures[145] Material Weaknesses This section identifies specific deficiencies in the company's internal control over financial reporting - Material weaknesses were identified in the design and operation of internal control over financial reporting, specifically lacking an effective internal control environment commensurate with public company requirements[146][150] - Deficiencies include insufficient personnel knowledge/experience in financial reporting, lack of formal authority delegation and segregation of duties in finance, and ineffective information technology general controls (ITGCs) related to program change management, user access, computer operations, and program development[150] - These weaknesses could result in a material misstatement of substantially all account balances or disclosures in the financial statements[147] Remediation Status of Material Weaknesses This section outlines the ongoing efforts to address and resolve identified material weaknesses - Remediation efforts are ongoing and include hiring experienced financial reporting personnel, engaging a third-party consulting firm, increasing staff training, formalizing risk assessment, and designing/implementing new controls for segregation of duties and ITGCs[148][151] - The material weaknesses are not yet remediated as of June 30, 2025, and will require sufficient time and testing to confirm effective design and operation of controls[148] Changes in Internal Control over Financial Reporting This section reports any changes in internal control over financial reporting during the period - There were no changes in internal control over financial reporting during the period that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[149] PART II - OTHER INFORMATION This section provides additional disclosures not covered in the financial information, including legal proceedings and risk factors ITEM 1. LEGAL PROCEEDINGS This section discloses legal proceedings, including a recent copyright infringement settlement and the company's general exposure to litigation in the ordinary course of business - The company settled a copyright infringement claim on July 23, 2025, agreeing to pay $16.5 million, with insurers covering $14.5 million[153] - An initial accrual of $2.0 million was made in 2024 for estimated losses related to this claim[153] - The company is subject to other legal proceedings in the ordinary course of business, with no current certainty of a material adverse effect on financial position, results of operations, or cash flows[154] ITEM 1A. RISK FACTORS This section refers to the detailed discussion of risk factors in the company's 2024 Form 10-K, stating that there are no material changes or newly identified undisclosed risks - There are no material changes to the risk factors previously disclosed in the 2024 Form 10-K[155] - The company has not identified any previously undisclosed risks that could materially adversely affect its business, operating results, or financial condition[155] 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 and the activity related to issuer purchases of equity securities during the quarter Issuer Purchases of Equity Securities This section provides a breakdown of shares repurchased by the company, including under its repurchase program - The company's board of directors approved a Share Repurchase Program, initially for $2.0 million and later an additional $3.0 million, with no expiration date[156] | Period | Total Number of Shares Purchased | Average Price Paid per Share | Shares Purchased as Part of a Publicly Announced Plan or Program | | :-------------------------- | :------------------------------- | :--------------------------- | :------------------------------------------------------------- | | April 1, 2025 - April 30, 2025 | 12,942 | $10.19 | 7,985 | | May 1, 2025 - May 31, 2025 | 10,906 | $7.76 | 4,110 | | June 1, 2025 - June 30, 2025 | 1,836 | $11.59 | — | | Total (3 months) | 25,684 | N/A | 12,095 | - During the three months ended June 30, 2025, the company repurchased 25,684 shares, including 12,095 under the program and 13,589 shares surrendered by employees for tax obligations[157][160] - As of June 30, 2025, approximately $1.0 million remained authorized for repurchases under the Share Repurchase Program[157][160] ITEM 3. DEFAULTS UPON SENIOR SECURITIES This item is not applicable to the company for the reporting period - This item is marked as 'Not applicable'[158] ITEM 4. MINE SAFETY DISCLOSURES This item is not applicable to the company for the reporting period - This item is marked as 'Not applicable'[159] ITEM 5. OTHER INFORMATION This section provides information on Rule 10b5-1 trading plans Rule 10b5-1 Trading Plans This section reports on the adoption or termination of Rule 10b5-1 trading plans by insiders - During the three months ended June 30, 2025, no directors or executive officers adopted or terminated any Rule 10b5-1 trading plans or non-Rule 10b5-1 trading arrangements[160] ITEM 6. EXHIBITS This section lists all exhibits filed with the Quarterly Report on Form 10-Q, including corporate governance documents, certifications, and XBRL-related files - Exhibits include the Amended and Restated Certificate of Incorporation, Bylaws, certifications from the Principal Executive Officer and Principal Financial Officer (pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), and 18 U.S.C. Section 1350), and Inline XBRL documents[161][162] Signatures This section contains the required signatures for the Quarterly Report on Form 10-Q, confirming its submission by an authorized signatory - The report was signed on August 6, 2025, by Kevin Grant, Chief Financial Officer, as the Authorized Signatory and Principal Financial and Accounting Officer[164][166]