Solo Brands reported a loss in the second quarter after taking a $27.9 million impairment charge related to goodwill for the company’s Isle Paddleboards business. Sales jumped 53 percent in the period. The parent of Solo Stove reduced its guidance for the year due to macroeconomic challenges.

Second Quarter 2022 Highlights Compared to Second Quarter 2021

  • Net sales of $136.0 million, up $47.3 million or 53.3 percent;
  • Net loss of $19.9 million, down $39.6 million;
  • Loss per Class A common stock, basic and diluted, of $(0.19) for the second quarter of 2022;
  • Adjusted net income of $17.3 million, down $10.1 million, or 36.8 percent;
  • Adjusted EBITDA of $23.7 million, down $7.4 million, or 23.8 percent; and
  • Adjusted EPS of $0.40 for the second quarter of 2022.

Solo Brands’ businesses include Solo Stove firepits, stoves and accessories; Chubbies casual apparel and activewear; Oru Kayak, origami folding kayaks; and Isle inflatable paddleboards.

“We delivered solid top-line results with sales trends strengthening as we moved through the quarter. Importantly, our strong sales growth was achieved with healthy gross margin rates despite worldwide supply chain headwinds. Our direct-to-consumer (DTC) approach is highly-differentiated, allowing us to continue delivering profit while simultaneously investing in innovation and systems, which we believe will position us to deliver consistent, long-term growth for our shareholders,” said John Merris, CEO of Solo Brands. “We are excited about our opportunity to drive organic growth led by a direct connection to our customers and a strong pipeline of innovative products.”

Operating Results for the Three Months Ended June 30, 2022
Net sales increased 53.3 percent to $136.0 million, compared to $88.7 million in the second quarter of 2021. The increase was driven by activity from acquired businesses and improved demand in both the wholesale and DTC sales channels.

  • DTC revenues increased 63.2 percent to $116.1 million compared to $71.1 million in the second quarter of 2021; and
  • Wholesale revenues increased 13.1 percent to $19.9 million compared to $17.6 million in the second quarter of 2021.

Gross profit increased 45.2 percent to $86.7 million, compared to $59.7 million in the second quarter of 2021. Adjusted gross profit increased 46.2 percent to $88.4 million compared to $60.4 million in the same period of the prior year, reflecting the impact of purchase accounting adjustments related to acquired businesses. Gross margin decreased 3.5 percent to 63.7 percent. Adjusted gross margi2 decreased to 65.0 percent compared to 68.1 percent in the same period in 2021 due to increased freight rates and higher logistics costs.

SG&A expenses increased to $69.2 million, compared to $29.7 million in the second quarter of 2021. $17.3 million of the increase was due to activity from acquired businesses. The remaining increases in SG&A were primarily driven by the following—an $8.2 million increase in employee costs as a result of equity-based compensation and increased headcount, a $6.3 million increases in advertising and marketing spend, a $4.1 million increase in distribution and logistics costs, a $1.4 million increase in professional services, and a $1.1 million increase in rent.

Depreciation and amortization expenses increased to $6.0 million compared to $4.3 million in the second quarter of 2021. The increase in depreciation and amortization expenses was driven by a $1.0 million increase in amortization primarily related to increases indefinite-lived intangible assets as a result of acquisition activity and a $0.7 million increase in depreciation primarily related to a new global headquarters facility.

Impairment Charges of $30.6 million were recorded in the second quarter of 2022, of which $27.9 million was related to goodwill for the company’s Isle reporting unit and $2.7 million was related to the Isle trademark intangible. No impairment charges were recorded during the second quarter of 2021.

Loss per Class A common stock basic and diluted per share was $0.19. A comparison to the same period last year is not meaningful or comparable due to the reorganization transactions which occurred in 2021. 

Adjusted EPS for the second quarter of 2022 was $0.40. Weighted average basic and diluted shares were 63,416,047.

Operating Results For the Six Months Ended June 30, 2022
Net sales increased 38.3 percent to $218.2 million, compared to $157.8 million in the prior year period primarily driven by activity from acquired businesses.

  • DTC revenues increased 32.2 percent to $176.3 million compared to $133.4 million in the prior year period; and
  • Wholesale revenues increased 71.7 percent to $41.9 million compared to $24.4 million in the prior year period.

Gross profit increased 27.7 percent to $135.5 million, compared to $106.2 million in the prior year and adjusted gross profit, reflecting the impact of purchase accounting adjustments related to the acquisitions, increased 33.3 percent to $143.3 million compared to $107.6 million in the prior year period. Gross margin decreased 5.2 percent to 62.1 percent. Adjusted gross margin decreased to 65.7 percent compared to 68.2 percent in the prior year period, in line with expectations due to increased freight rates and higher logistics costs.

SG&A expenses increased 137.2 percent to $114.8 million, compared to $48.4 million in the prior year period. $27.5 million of the increase was due to activity from acquired businesses. The remaining increases in SG&A was primarily driven by the following—a $15.6 million increase in employee costs as a result of equity-based compensation and increased headcount, a $10.2 million increase in advertising and marketing spend, a $4.1 million increase in distribution and logistics costs, a $2.5 million increase in professional services primarily as a result of the audit of the 2021 Form 10-K, a $2.1 million increase in rent as a result of a new global headquarters facility, and a $1.7 million increase in insurance as a result of becoming a public company.

Depreciation and amortization expenses increased to $12.0 million compared to $7.9 million in the prior year period. The increase in depreciation and amortization expenses was driven by a $2.7 million increase in amortization primarily related to increases in definite-lived intangible assets as a result of acquisition activity and a $1.3 million increase in depreciation primarily related to a new global headquarters facility.

Impairment charges of $30.6 million were recorded in 2022, of which $27.9 million was related to goodwill for the company’s Isle reporting unit and $2.7 million related to the ISLE trademark intangible. No impairment charges were recorded during the prior year.

Loss per Class A common stock basic and diluted per share was $0.22. A comparison to the same period last year is not meaningful or comparable due to the Reorganization Transactions which occurred in 2021. Refer to the footnote on the unaudited consolidated statements of operations for more information.

Adjusted EPS for the six months ended June 30, 2022 was $0.59. Weighted average diluted shares were 63,408,451.

Balance Sheet
Cash and cash equivalents at the end of the second quarter totaled $26.7 million, compared to $25.1 million at December 31, 2021.

Outstanding borrowings were $57.5 million under the Revolving Credit Facility, and $98.1 million under the Term Loan Agreement as of June 30, 2022. The borrowing capacity on the Revolving Credit Facility was $350 million as of June 30, 2022, leaving $292.5 million of availability.

Inventory at the end of the second quarter was $128.2 million, compared to $102.3 million at December 31, 2021. Increases in inventory were driven by a proactive approach for demand planning in light of ongoing inflation and supply chain concerns and preparation for new product launches.

Full Year 2022 Guidance
Solo Brands said it is updating its outlook for the full year 2022 to reflect current visibility into the global macroeconomic environment and consumer trends as follows:

  • Total revenue is expected to grow in the mid-20 percent range;
  • Adjusted gross margin is planned to be above 60 percent of total revenue; and
  • Adjusted EBITDA margin is forecasted to be in the mid-teens as a percentage of total revenue.

Previously, guidance had called for sales in the range of $540 million to $570 million, up between 33.8 percent and 41.1 percent from $403.7 million in 2021. Adjusted EBITDA in the range of $121 million to $132 million, representing a margin of 22.8 percent at the mid-point of guidance.

Photo courtesy Solo Brands/Isle Paddleboards