Solo Brands, Inc. reported sales surged 164 percent in the fourth quarter and 202.6 percent in the year. The operating results in 2021 include the activity of Oru Kayak, Isle paddleboards and Chubbies apparel post-acquisition.

The operating results of these acquisitions were not included in financial results in the prior year. Solo Brands also owns Solo Stove.

Fourth Quarter 2021 Highlights Compared to 2020 Fourth Quarter

  • Net sales of $176.5 million, up $109.6 million or 164.0 percent;
  • Net income of $12.4 million, up $58.1 million;
  • EPS – basic and diluted of $0.17 for 2021;
  • Adjusted net income of $35.3 million, up $9.7 million;
  • Adjusted EBITDA of $43.1 million, up $15.3 million or 55.1 percent; and
  • Adjusted EPS of $0.45 for 2021.

Full Year 2021 Highlights Compared to Full Year 2020

  • Net sales of $403.7 million, up $270.3 million or 202.6 percent;
  • Net income of $56.5 million, up $80.7 million;
  • EPS – basic and diluted of $0.17 for 2021;
  • Adjusted net income of $105.3 million, up $53.8 million;
  • Adjusted EBITDA of $120.9 million, up $66.0 million or 120.3 percent; and
  • Adjusted EPS of $1.55 for 2021.

On January 10, in anticipation of management’s appearance at the 2022 ICR conference, Solo Brands raised its outlook for the year and results came in line with that guidance. Prior to the update, guidance for the year called for total revenue to be between $344 million and $352 million and Adjusted EBITDA between $107 million and $109 million.

“We are incredibly pleased with our performance in the fourth quarter and for the full year, which was driven by strong demand for our brands, especially Solo Stove, which seasonally outperforms in the fourth quarter,” said John Merris, CEO, Solo Brands. “We had an extremely profitable year, and while we are navigating varying challenges like world events, supply chain, and inflation, we continue to see tremendous opportunity for growth across our platform and are excited about the brand performance.”

Operating Results For The Three Months Ended December 31, 2021
Net sales increased 164.0 percent to $176.5 million, compared to $66.8 million in the fourth quarter of 2020 driven by strong results across channels. Direct-to-consumer (DTC) revenues increased 161.9 percent to $164.2 million compared to $62.7 million in the fourth quarter of 2020. Wholesale revenues increased 197.0 percent to $12.3 million compared to $4.1 million in the fourth quarter of 2020.

Gross profit increased 168.7 percent to $111.7 million, compared to $41.6 million in the fourth quarter of the prior year and adjusted gross profit, reflecting the impact of purchase accounting adjustments related to the transactions, increased 147.5 percent to $117.2 million compared to $47.3 million in the same period in the previous year. Gross margin increased 1.1 percent to 63.3 percent. Adjusted gross margin decreased to 66.4 percent compared to 70.8 percent in the same period in 2020 due to increased freight rates and higher logistics costs.

Selling, general and administrative (SG&A) expenses increased to $82.5 million, compared to $19.6 million in the fourth quarter of 2020. The increase was primarily due to an increase in its advertising and marketing spend of $27.3 million to drive brand awareness, an increase in employee costs of $13.7 million as a result of increased headcount, $6.6 million of equity-based compensation expense, and an increase in shipping costs of $13.5 million.

Depreciation and amortization expenses increased to $5.3 million compared to $3.5 million in the prior year. The increase was primarily due to an increase in amortization expense of $1.3 million to $4.8 million driven by the change in control transaction in 2020 and the acquisitions of Oru, Isle and Chubbies in 2021.

Other operating expenses decreased from $55.1 million to $6.6 million, compared to $61.7 million in the fourth quarter of the prior year. In the fourth quarter of 2020, other operating expenses were primarily driven by the settling of the incentive awards and bonuses of $37.9 million, $2.9 million of seller and transaction expenses in connection with the 2020 change in control, $1.9 million of buyer expenses paid for by the seller, and an upward adjustment of $19.1 million to the contingent consideration from the 2020 change in control transaction.

In the fourth quarter of 2021, other operating expenses were primarily driven by employee costs related to the acquisitions, international expansion costs and costs to transition to a new global headquarters.

Earnings per Class A common stock basic and diluted is $0.17 and is calculated after the 2021 Reorganization Transactions. A comparison to the same period last year is not meaningful or comparable due to the Reorganization Transactions which occurred in 2021.

Adjusted EPS, the weighted average of diluted shares, were 63,010,538, as calculated under the treasury stock method of accounting for options and RSUs and under the if-converted method for Class B shares (33,416,783 shares). The company’s adjusted EPS for the fourth quarter was $0.45.

Operating Results For the Twelve Months Ended December 31, 2021
Net sales increased 202.6 percent to $403.7 million compared to $133.4 million in the prior year driven by strong results across channels. DTC revenues increased 189.9 percent to $355.7 million compared to $122.7 million in the prior year, and Wholesale revenues increased 347.4 percent to $48.1 million compared to $10.7 million in the prior year.

Gross profit increased 197.7 percent to $258.9 million, compared to $87.0 million in the prior year and adjusted gross profit, reflecting the impact of purchase accounting adjustments related to the transactions, increased 186.7 percent to $271.3 million compared to $94.6 million in the prior year. Gross margin decreased 1.1 percent to 64.1 percent. Adjusted gross margin decreased to 67.2 percent compared to 70.9 percent in the prior year in line with expectations due to increased freight rates and higher logistics costs.

Selling, general and administrative (SG&A) expenses increased 298.7 percent to $159.5 million, compared to $40.0 million in the prior year. The increase in SG&A was primarily driven by an increase in its advertising and marketing spend of $57.0 million, an increase in shipping costs of $24.4 million, an increase in employee costs of $20.6 million due to increased headcount, $7.3 million of equity-based compensation expense, and an increase in seller fees of $8.9 million.

Depreciation and amortization expenses increased to $18.2 million compared to $5.7 million in the prior year. The increase was primarily due to an increase in amortization expense of $11.9 million to $17.5 million driven by the change in control transaction in 2020 and the acquisitions of Oru, Isle and Chubbies in 2021.

Other operating expenses decreased 80.1 percent to $12.3 million, compared to $61.7 million in the prior year. In the fourth quarter of 2020, other operating expenses were primarily driven by the settling of the incentive awards and bonuses of $37.9 million, $2.9 million of seller and transaction expenses in connection with the 2020 change in control, $1.9 million of buyer expenses paid for by the seller, and an upward adjustment of $19.1 million to the contingent consideration from the 2020 change in control transaction. In the fourth quarter of 2021, other operating expenses were primarily driven by $8.1 million of acquisition-related expenses and $2.6 million of business optimization expenses.

Earnings per Class A common stock basic and diluted is $0.17 and is calculated after the 2021 Reorganization Transactions. A comparison to the same period last year is not meaningful or comparable due to the Reorganization Transactions which occurred in 2021.

Adjusted EPS Our weighted average diluted shares were 63,010,538, as calculated under the treasury stock method of accounting for options and RSUs and under the if-converted method for Class B shares (33,416,783 shares). Its adjusted EPS for the full year of 2021 was $1.55.

Balance Sheet
Cash and cash equivalents at the end of the fourth quarter totaled $25.1 million, compared to $32.8 million at December 31, 2020.

Inventory at the end of the fourth quarter was $102.3 million, compared to $14.3 million at December 31, 2020, when the company experienced significant stock-outs and ended the fourth quarter of 2020 with $20.2 million of deferred revenue as compared to $3.5 million of deferred revenue at December 31, 2021. The company also grew net sales by three times with organic growth and the acquisitions of Oru, Iske and Chubbies. In light of global pressures on the supply chain, its increased inventory reflects strength in its inventory position across brands the company feels confident is sufficient to meet demand customer demand.

Guidance
The company’s guidance reflects the best estimate of its business today. Accordingly, Solo Brands expects
Guidance for Full Fiscal Year 2022 (Total Revenue) to be between $540 million and $570 million, and Adjusted EBITDA between $121 million and $132 million.

Guidance for First Quarter 2022 (Total revenue) is expected to be between $82 million and $85 million, and Adjusted EBITDA is expected to be between $12 million and $14 million.

Photo courtesy Solo Brands/Oru Kayak