solo stove(DTC) - 2023 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Unaudited Financial Statements In Q1 2023, net sales rose 7.3% to $88.2 million, shifting the company to a net income of $0.9 million with significantly improved operating cash flow Consolidated Balance Sheets Total assets decreased to $840.0 million as of March 31, 2023, driven by lower inventory and accounts receivable, while total equity remained stable Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $25,693 | $23,293 | | Inventory | $125,009 | $132,990 | | Total current assets | $178,913 | $195,098 | | Total assets | $840,044 | $862,347 | | Total current liabilities | $54,105 | $67,008 | | Long-term debt, net | $102,348 | $108,383 | | Total liabilities | $265,424 | $287,350 | | Total equity | $574,620 | $574,997 | Consolidated Statements of Operations and Comprehensive Income (Loss) Net sales grew 7.3% to $88.2 million in Q1 2023, resulting in a net income of $0.9 million, a significant turnaround from a loss in the prior-year period Q1 2023 vs. Q1 2022 Statement of Operations (in thousands, except per share data) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net sales | $88,207 | $82,203 | | Gross Profit | $54,403 | $48,853 | | Income (loss) from operations | $3,198 | $(3,226) | | Net income (loss) attributable to Solo Brands, Inc. | $924 | $(2,035) | | Diluted EPS | $0.01 | $(0.03) | Consolidated Statements of Cash Flows Net cash from operating activities was $14.7 million in Q1 2023, a substantial improvement driven by better working capital management Q1 2023 vs. Q1 2022 Cash Flows (in thousands) | Activity | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $14,703 | $(25,511) | | Net cash (used in) provided by investing activities | $(1,820) | $(2,470) | | Net cash (used in) provided by financing activities | $(10,554) | $18,747 | | Net change in cash and cash equivalents | $2,400 | $(9,238) | | Cash and cash equivalents, end of period | $25,693 | $15,863 | Notes to the Unaudited Consolidated Financial Statements Key notes highlight a revenue mix shift towards wholesale, total long-term debt of $102.3 million, and the post-quarter acquisition of Terraflame Net Sales by Channel (in thousands) | Channel | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Direct-to-consumer | $54,750 | $60,230 | | Wholesale | $33,457 | $21,973 | | Total net sales | $88,207 | $82,203 | - Total long-term debt, including the term loan and revolving credit facility, was $107.3 million before deducting the current portion and unamortized costs[41] - On May 1, 2023, the company completed the acquisition of Terraflame, which is not anticipated to have a material impact on the 2023 financials[61] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes Q1 2023 growth to strong wholesale performance offsetting a DTC decline, with improved gross margins and a focus on long-term strategic initiatives - The company's customer base grew to 3.9 million as of March 31, 2023, a 31.6% increase from the prior year[65] - The company believes it is prepared to mitigate macroeconomic pressures and adjust short-term strategies throughout 2023 to promote financial health without jeopardizing long-term growth[68] Results of Operations Net sales increased 7.3% due to a 52.3% surge in wholesale, while gross margin expanded to 61.7% and SG&A expenses decreased by 2.2% Net Sales Change by Channel (Q1 2023 vs Q1 2022) | Channel | Change ($ in thousands) | Change (%) | | :--- | :--- | :--- | | Direct-to-consumer | $(5,480) | (9.1)% | | Wholesale | $11,484 | 52.3% | | Total Net Sales | $6,004 | 7.3% | - Gross margin increased to 61.7% in Q1 2023 from 59.4% in Q1 2022, primarily due to a reduction in promotional pricing[82][83] - The decrease in SG&A was driven by a $5.4 million reduction in variable costs (marketing and distribution), partially offset by a $4.3 million increase in fixed costs (employee costs and rent)[84][85] Liquidity and Capital Resources The company maintains sufficient liquidity through cash, working capital, and its revolving credit facility, with operating cash flow improving by $40.2 million YoY Liquidity Sources and Facilities (as of March 31, 2023) | Source | Amount | Availability | | :--- | :--- | :--- | | Cash and cash equivalents | $25,693 | $25,693 | | Revolving Credit Facility | $15,000 (drawn) | $335,000 | | Term Loan | $95,000 (drawn) | — | - The $40.2 million increase in cash from operating activities was primarily due to a $32.3 million decrease in cash used for inventory and a $13.3 million decrease in cash used for accounts receivable[97][98] - The company was in compliance with all debt covenants as of March 31, 2023[94] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks include interest rate fluctuations, inflation, and commodity prices, with foreign currency risk considered not material - A 100 basis point (1%) increase in LIBOR would increase the company's annual interest expense by approximately $1.1 million[106] - The primary raw materials used are stainless steel and aluminum, and the company is exposed to price fluctuations[108] - International sales accounted for 5.9% of consolidated net sales in Q1 2023, making foreign currency risk exposure not material at this time[109] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2023, with no material changes to internal controls - Based on an evaluation as of the end of the reporting period, the principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective[111] - No material changes to the company's internal control over financial reporting occurred during the quarter ended March 31, 2023[112] PART II. OTHER INFORMATION Item 1. Legal Proceedings There have been no material changes to the legal proceedings as described in the company's 2022 Form 10-K - No material changes to legal proceedings have occurred since the filing of the 2022 Form 10-K[114] Item 1A. Risk Factors There have been no material changes to the risk factors previously identified in the company's 2022 Form 10-K - No material changes to the risk factors have occurred since the filing of the 2022 Form 10-K[116] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company did not engage in any sales of unregistered securities or repurchase any Class A common stock during the first quarter of 2023 - There were no sales of unregistered securities during the three months ended March 31, 2023[117] - The company did not repurchase any shares of its Class A common stock during the three months ended March 31, 2023[118] Item 5. Other Information There is no other information to report for this period - None[121] Item 6. Exhibits The report includes exhibits such as corporate governance documents, a separation agreement, CEO/CFO certifications, and XBRL data files - Exhibits filed include corporate governance documents, a separation agreement, CEO/CFO certifications (Rule 13a-14(a) and Section 1350), and Inline XBRL documents[123]