solo stove(US:DTC)2022-08-11 16:11PART I. FINANCIAL INFORMATION Item 1. Financial Statements The unaudited consolidated financial statements for June 30, 2022, reflect increased net sales from acquisitions, a net loss due to impairment charges, and growth in inventory and debt Consolidated Balance Sheets As of June 30, 2022, total assets slightly increased to $859.2 million, driven by inventory growth, while liabilities rose due to long-term debt Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $26,728 | $25,101 | | Inventory | $128,238 | $102,335 | | Intangible assets, net | $244,745 | $257,234 | | Goodwill | $382,658 | $410,559 | | Total Assets | $859,163 | $837,740 | | Liabilities & Equity | | | | Total current liabilities | $47,738 | $46,573 | | Long-term debt, net | $147,953 | $125,023 | | Total Liabilities | $304,461 | $263,569 | | Total Shareholders' Equity | $554,702 | $574,171 | Consolidated Statements of Operations Q2 2022 net sales grew 53.3% to $136.0 million, but the company reported a $19.9 million net loss due to impairment charges and increased expenses Consolidated Statements of Operations Highlights (in thousands) | Metric | Q2 2022 | Q2 2021 | YTD 2022 | YTD 2021 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $136,019 | $88,745 | $218,222 | $157,816 | | Gross profit | $86,676 | $59,700 | $135,529 | $106,164 | | Impairment charges | $30,589 | $0 | $30,589 | $0 | | (Loss) income from operations | $(19,942) | $23,238 | $(23,168) | $47,253 | | Net (loss) income | $(19,873) | $19,728 | $(23,108) | $41,962 | | Basic (Loss) Per Share | $(0.19) | N/A | $(0.22) | N/A | Consolidated Statements of Cash Flows For the six months ended June 30, 2022, net cash used in operating activities increased to $11.9 million, while financing activities provided $19.0 million Six Months Ended June 30, Cash Flow Summary (in thousands) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(11,912) | $(6,931) | | Net cash (used in) provided by investing activities | $(5,356) | $(20,946) | | Net cash provided by financing activities | $19,012 | $3,006 | | Net change in cash and cash equivalents | $1,627 | $(24,871) | Notes to the Unaudited Consolidated Financial Statements Key notes include the adoption of ASC 842, revenue breakdown by channel, details of 2021 acquisitions, and significant impairment charges on goodwill and intangible assets - The company adopted the new lease accounting standard ASU 2016-02 (Topic 842) on January 1, 2022, resulting in the recognition of $24.9 million of right-of-use assets and corresponding lease liabilities39 Net Sales by Channel (in thousands) | Channel | Q2 2022 | Q2 2021 | YTD 2022 | YTD 2021 | | :--- | :--- | :--- | :--- | :--- | | Direct-to-consumer | $116,096 | $71,130 | $176,326 | $133,411 | | Wholesale | $19,923 | $17,615 | $41,896 | $24,405 | | Total net sales | $136,019 | $88,745 | $218,222 | $157,816 | - In Q2 2022, the company identified triggering events, including a sustained stock price decline and weakened demand for ISLE products, leading to an interim impairment test65 - The company recorded a $27.9 million goodwill impairment charge related to its ISLE reporting unit and a $2.7 million impairment charge to a trademark intangible asset6165 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses significant net sales growth driven by acquisitions, offset by impairment charges and increased costs, while maintaining sufficient liquidity despite macroeconomic headwinds - Net sales for Q2 2022 increased 53.3% to $136.0 million, and for H1 2022 increased 38.3% to $218.2 million, primarily driven by acquisitions134153 - The company recorded a net loss of $19.9 million in Q2 2022, compared to net income of $19.7 million in Q2 2021, largely due to $30.6 million in impairment charges134160 - Gross margin decreased from 67.3% to 63.7% for the three months ended June 30, 2022, and from 67.3% to 62.1% for the six-month period, primarily due to fair value inventory write-ups from acquisitions154155 - Management expressed caution regarding macroeconomic headwinds, including inflation impacting discretionary spending, higher freight costs, and potential supply chain disruptions135 - As of June 30, 2022, the company had $26.7 million in cash and $292.5 million available under its revolving credit facility, which management believes is sufficient for at least the next twelve months165170 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from interest rate fluctuations on variable-rate debt, inflation, and commodity price changes, with foreign currency risk currently deemed immaterial - The company is exposed to interest rate risk through its variable-rate Revolving Credit Facility and Term Loan, where a 100 bps increase in LIBOR would raise annual interest expense by about $1.6 million193 - Inflationary factors, such as rising costs for products and overhead, may adversely affect operating results and gross margins if selling prices cannot be increased accordingly194 - Foreign currency risk is not considered material at this time, as international sales (8.7% of revenue in H1 2022) are primarily denominated in U.S. dollars196 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal control over financial reporting - Based on an evaluation as of the end of the period, the principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective199 - No changes in internal control over financial reporting occurred during the quarter ended June 30, 2022, that have materially affected, or are reasonably likely to materially affect, internal controls200 PART II. OTHER INFORMATION Item 1. Legal Proceedings There have been no material changes to the legal proceedings previously described in the company's 2021 Form 10-K - The company reports no material changes to its legal proceedings since its 2021 Form 10-K filing202 Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's 2021 Form 10-K - The company reports no material changes to the risk factors identified in its 2021 Form 10-K204 Other Items (2-5) For Q2 2022, there were no unregistered equity sales, no share repurchases, no defaults on senior securities, and no mine safety disclosures - The company reported no unregistered sales of equity securities or company repurchases of its Class A common stock for the three months ended June 30, 2022205206 - The company reported no defaults upon senior securities, no mine safety disclosures, and no other information requiring disclosure under Item 5207208209 Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL data files