EDGAR 10-K Filing

Company CIK: 1870600
Filing Year: 2025
Filename: 1870600_10-K_2025_0001870600-25-000029.json

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ITEM 1. BUSINESS
Item 1. Business
Our Mission
We aim to help the customers in our communities live a good life by inspiring moments that create lasting memories. When we are at our best, our products serve as the centerpiece of awesome experiences and unlock nostalgia for past ones. We own and operate premium authentic outdoor brands with ingenious products influenced by customer feedback. We consistently deliver innovative, high-quality products that are loved by our customers and revolutionize the outdoor experience, build community and help everyday people reconnect with what matters most.
Who We Are
Solo Brands operates five premium outdoor brands: Solo Stove, Oru Kayak, Inc. (“Oru”), International Surf Ventures, Inc. (“ISLE”), Chubbies, Inc. (“Chubbies”), and Sconberg, LLC (“TerraFlame”). Our brands develop innovative products and market them directly to customers primarily through e-commerce channels, as well as partnerships with key retailers. Our platform is led by our largest brand, Solo Stove, which was founded in 2011 by two brothers seeking to bring family together in the outdoors. Our founders combined their passion for e-commerce with their love of the outdoors to create a digitally-native platform to market the revolutionary Solo Stove Lite (“Lite”), an ultralight portable backpacking camp stove that can boil water in under 10 minutes using just twigs, sticks, and leaves. Solo Stove followed the success of the Lite with the launch of its iconic, stainless steel, virtually smokeless fire pits in 2016, pioneering a new product category that has helped foster a loyal community of enthusiasts and furthers our efforts to bring people together.
Solo Stove’s historical growth and free cash flow allowed us to make significant investments in our global supply chain and bring fulfillment, research and development, sales and marketing, and customer service in-house. This infrastructure aims to provide an authentic end-to-end customer experience, expedited delivery, greater cost efficiencies, and redundancy in manufacturing. It also laid the groundwork for the creation of Solo Brands, Inc. and acquisition of additional brands.
We believe our business has distinct competitive advantages, including our ability to acquire and operate outdoor brands that have broadened our product assortment, while sharing our values of authenticity, product quality, and community. Through our direct to consumer (“DTC”) and retail channels, we develop connections with our customers, receive real-time feedback that informs our product development roadmap and marketing decisions, and enhance our brands. This connection with our customers helps to drive favorability within the communities in which we operate, including with our retail partners, and positions us for future growth.
For more information, see “Where You Can Find More Information; Available Information” above.
Product Design and Development
Solo Brands and its products are driven by the “create good” philosophy and are designed to get you in touch with whatever “good” is for you. We create good products that foster good moments and memories, so our customers can create a good life.
Our products undergo a rigorous development process designed to maximize performance while minimizing complexity, delivering a superior degree of quality, functionality, portability, style, and ease-of-use. The Lite set the standard, and we have continued to design and develop groundbreaking, high-performance products engineered with purposeful simplicity. We carefully design and engineer every product for immediate enjoyment, free of complexity and intimidating learning curves often found in engineered outdoor and lifestyle products. While employing the same approach that led to the success of our stoves, we have successfully broadened our product line to include virtually smokeless fire pits, cooking systems, pizza ovens, patio heaters, and storage units, and added portable kayaks and paddle boards, lifestyle apparel, and other accessories.
At Solo Brands, not only are our products innovative, but we believe our approach to innovation stands apart from the competition. We do not believe in behind-the-curtain intuition-driven design, but rather customer-driven product development. We employ a data-driven approach to portfolio expansion opportunities and a product development process that is guided by direct customer feedback and market data, which allows for a reduction in the time from ideation to product delivery. Through this approach, we have expanded our product lines by designing solutions around consumer demand, including new products and accessories and additional sizes of existing product lines, as well as through strategic acquisitions that complement the Solo Brands platform.
The Solo Brands product design teams control every aspect of our innovation, including design, construction, material performance requirements, manufacturing protocols, supplier selection, packaging specifications, and quality plans. Utilizing our in house research and development center at our headquarters, as well as industry leading partners, the product development team is able to apply continued design, testing, and quality control. Once we approve the final design and specifications of a new product, depending on the product, we either source materials directly or partner with specialized third-party manufacturers to produce our products according to our performance and quality standards. Each of our brands has established deep relationships with trusted third-party manufacturers-predominantly in China and Southeast Asia, as well as in Mexico through a dedicated facility operated by a manufacturing labor outsourcing company.
Products
We offer wide-ranging and high-quality products directly to our customers through our platform. Our products are carefully designed to maximize performance while minimizing complexity. We create highly functional, yet simple products that are both durable and easy-to-use.
The following products are produced by our Solo Stove segment:
Camping Stoves. We revolutionized the camp stove category with the launch of our Lite in 2011. This ultralight and portable product does not require synthetic fuel and can boil water in under 10 minutes using just twigs, sticks, and leaves found outside. Today, our Stoves include the Lite, Titan, and Campfire, each of which is wood burning and incorporates our secondary burn technology, creating a hotter flame great for cooking. Each Stove also has a variety of cooking pots and accessories.
Fire Pits. We created a new fire pit category in late 2016 with our portable, low smoke product offerings. Solo Stove fire pits provide a mesmerizing, virtually smokeless fire experience in minutes, anywhere our customers want to be-in the mountains under the stars, on the beach, at the campground, tailgating at the game, or at home in the backyard-our products are designed to go where you go. The Solo Stove fire pit product offering includes the new tabletop Mesa, Ranger, Bonfire, Yukon, and Canyon, each of which burns wood fuel to a fine ash for easy cleaning. Made of lightweight, durable stainless steel, our fire pits epitomize the Solo Stove brand promise of uncompromising quality, portability, and function.
Cooking. In 2023, we continued to lean into expanding the cooking category by launching Pi Prime, an easy-to-use standalone durable stainless steel pizza oven with a lower entry price than our original pizza oven. To further support our end users and enhance the cooking experience, we have teamed with prominent influencers in the social media space and offer ingredients for one-time delivery or subscription.
Outdoor Heating. In 2022, we challenged the outdoor heating market norms by launching a wood-pellet burning patio heater. Virtually smokeless, and easy to use with a small bag of wooden pellets, rather than an expensive and heavy propane tank, our patio heater provides head to toe warmth.
Storage. Launched in 2021, the Station provides an optimized storage solution for fire pits, firewood, and other accessories. The Station provides highly functional storage that enables our customers to keep their outdoor products in one convenient location. Built to withstand ice, rain, and snow with a powder-coated aluminum frame and a UV-coated cover, the Station’s dual shelf design supports a carrying weight of up to 250 pounds. The Station has broadened our consumer reach and was designed in response to real-time consumer feedback.
Consumables. Consumables provide a high margin, recurring revenue stream that increases customer lifetime value and supports repeat purchases and engagement with our community. The consumables category includes fun products that enhance the Solo Brands experience, such as Color Packs, and exciting add-ons, including Starters, All-Natural Charcoal, firewood, fuel, and pellets.
Indoor Fire Products. Through our acquisition activity in 2023, we “brought the fire inside” with indoor fire products that allow our customers to enjoy the warmth and comfort of a fire year-round. Utilizing our proprietary fire burning gel and bioethanol, multi-hour burns with the familiar crackle and flame of a traditional wood fire can now be enjoyed anywhere.
The following products are produced by our Chubbies segment:
Lifestyle Apparel. Chubbies is a fun-loving, premium apparel brand that offers well-fitted comfortable clothing with unique style. The Chubbies brand has historically had five main product lines-Swim Trunks, Casual Shorts, Sport, Polos + Shirts, and Lounge. Chubbies has continued to challenge the men’s and kids apparel worlds, with bold patterns, innovative products designed with customer insights in mind and collaborations our customers love, such as the NFL line launched in 2024. Created with high performance stretch fabric, Chubbies offers premium quality with a lightweight and breathable design that can be worn anywhere and anytime.
The following products are produced by our All Other segment:
Recreation. Oru Kayak is the original origami kayak that allows users to go from box to boat in a matter of minutes. Oru offers premier kayaks that require minimal storage space, are portable, and easy-to-use. The Oru brand includes models and sizes to fit the customers’ needs, including the Inlet, Lake, Beach, Bay, Coast and Haven, along with the edgier and eye-pleasing sport versions of the Beach and Inlet that come exclusively in black. Built with durable, corrugated OruPlast™ technology, our kayaks offer premium quality, exceptional control and stability, and starting at just 17 pounds, they are highly portable and can be transported in the trunk of a small car or carried on public transportation.
ISLE produces high-quality stand-up paddle boards and a hybrid kayak with colorful designs that are engineered to accommodate every skill level, style, and interest. ISLE offers an extensive array of paddleboards, kayak hybrids, surfboards, floats and accessories with bold and award winning designs. With an emphasis on form and function, ISLE’s products are intended to help users reconnect with the simple joy of getting outside, and their innovative portable designs allow users take them anywhere they can find floatable water.
Marketing
Our multifaceted marketing strategy engages existing and new customers to promote sales generation and to build brand awareness and affinity. We utilize data-driven performance marketing tactics to engage with our targeted customer base and create differentiated brand marketing content designed to drive an authentic customer experience and fuel brand awareness and loyalty for each of our brands independently.
We employ a wide range of marketing tactics and outlets to cultivate our relationships with experts, enthusiasts, and everyday consumers. Our marketing team actively utilizes a combination of digital, social media, traditional, and grass-roots initiatives to support our brand. Our marketing team is a major differentiator and strength for the Company, as it allows us to execute quickly, pivot when needed, and deliver creative content that drives customer engagement. While our in-house marketing team remains the primary focus, we continue to leverage the expertise and enhanced penetration available through industry leading external marketing agencies, which led to increased brand awareness from campaigns in 2023 and 2024, such as the Snoop Dogg campaigns. With loyal customers already rooted with each of our brands, we also believe a large opportunity exists for effective cross-marketing.
Sales Channels
We are an omni-channel company that leverages the power of e-commerce as well as physical retail stores. In addition to our DTC execution, we are strategically expanding our retail channel through retail partners that support our brand image and share our passion and dedication for innovative, best-in-class products of uncompromising design and performance. Our net sales are concentrated in the United States, though we have a growing international presence.
Direct-to-Consumer (“DTC”). We follow a digital-first strategy which prioritizes a direct connection with customers through e-commerce channels. Our currently owned brands generate the majority of sales online, including through owned social channels such as Facebook and Instagram that route visitors to our sites. This is supplemented by our DTC business via relationships with select third-party e-commerce marketplaces, such as Amazon. We believe these sales channels provide incremental sales reach for our business and opportunities to increase awareness for our brands. In fiscal year 2024, DTC sales accounted for 70.2% of Solo Brands sales. In 2024, we continued to make meaningful investments in our e-commerce and digital platform to drive growth, including the implementation of cutting-edge technology, marketing, and analytics to increase speed and ease of use on both our desktop and mobile sites.
Through our owned brand websites, we offer our entire product portfolio and create a differentiated experience for our customers that reflects some of the same design principles that we incorporate into our products-simple, elegant and high performance. Our sites provide a content-rich and educational shopping experience, inviting customers to experience our brands, learn about our products through extensive overviews, specifications and intuitive FAQs, discover ways to enjoy our products, and hear firsthand from our customers’ experiences with our brands. Customers can access blogs through our websites, where we publish premium digital content, share customer stories and information on products, and further cultivate our community. With ongoing improvement of our existing websites and a shift to increasingly scalable platforms, we believe we are continually enhancing the customer experience. We believe our digital expertise provides us a competitive advantage and is replicable and extendible across other brands.
Our owned brand websites are also where we engage with our corporate customers, which represent a rapidly growing customer segment, particularly as we introduce additional customization options such as logo etchings to our fire pits. We believe our corporate customers and organizations appreciate our authentic brands and product quality and value the opportunity to attach their brands to Solo Brands products, including to provide valued gifts. Our customized products and corporate sales have meaningfully contributed to sales growth while generating attractive margins. The corporate customers represent opportunities for substantial repeat business.
We also operate twelve Chubbies retail stores with plans to continue expanding, and one ISLE surf pro-shop, which provide additional opportunities to interact directly with our customers in person and strengthen customer relationships.
Retail. We have built relationships with well-known outdoor products and sporting goods retailers. We choose our retail partners carefully based on their reputation, demographic, and commitment to appropriately learn and showcase Solo Brands’ portfolio of products, provide hands-on customer service, and willingness to abide by our terms and conditions, including consistent adherence to our minimum-advertised price (“MAP”) policy. We also sell products on websites of retailers. These sites give Solo Brands even more online presence in our effort to ensure customers find us wherever they choose to shop for outdoor and recreation products. Our strategic retail channel distribution is supported by our dedicated sales and account management team. As an added benefit to our strategic retail partners, we provide the opportunity to leverage a variety of our products, including specialized items specific to certain of these partners, further demonstrating our desire to operate as a value adding partner. This team serves our retail partner base and identifies potential new retailers to expand our geographic footprint.
Seasonality
We believe that our sales include a seasonal component. Historically, our net sales have been highest in our second and fourth quarters, with the first quarter typically generating the lowest sales. This historical sales trend is supported by the demand for our products at the beginning of the summer and holiday shopping seasons. We expect that this seasonality will continue to be a factor in our results of operations and sales.
Segment Information
Historically, we have operated as a single reportable segment. In 2024, as a result of the change in the way our new Chief Executive Officer (“CEO”), who we have determined to be the chief operating decision maker (“CODM”), began assessing financial performance and allocating resources, we now operate as two reportable segments: Solo Stove, which includes the Solo Stove and TerraFlame brands and primarily offers indoor and outdoor firepits, stoves, and accessories, and Chubbies, which offers premium casual apparel and activewear. The remaining operating segments are included within the Corporate and All Other category. The CODM makes operating decisions, assesses financial performance, and allocates resources based upon discrete financial information at the reportable segment level.
Supply Chain and Quality Assurance
We manage a supply chain of third-party manufacturing and logistics partners to produce and distribute our products. We work with partners who allow for production flexibility, efficiency and scalability, possess capabilities to support new products, meet our expanding sales channel strategies and other required operational needs. We currently have a number of manufacturing partners located in various countries including the United States, India, Vietnam, Cambodia, and Mexico, with the majority of our manufacturing concentrated with two manufacturers in China.
Our supply chain management team researches materials and equipment, vets potential manufacturing partners, directs our internal demand and production planning, approves and manages product purchasing plans, and oversees product transportation. While we have selected our current manufacturers for commercial and operational reasons, there are currently alternative suppliers that we believe we can qualify and engage to supply products and materials of the same quality, in similar quantities, and on substantially similar terms as our current providers if needed. From time to time, we source new suppliers and manufacturers to support our ongoing innovation and growth, particularly in our more recently introduced product categories, and we evaluate all new suppliers and manufacturers to assess if their standards for quality of manufacturing, ethical working conditions and environmental sustainability practices are shared with ours.
Quality is critically important to us and we work closely with our manufacturing partners with respect to product quality and manufacturing process efficiency. As part of our quality assurance program, we have developed and implemented comprehensive product inspection and facility oversight processes that are performed by our employees and third-party resources, who work with our suppliers to assist them in meeting our quality standards, as well as improving their production yields and throughput. While we do not directly source significant amounts of raw materials and components for most of our products, we control the specifications for key raw materials used in our products.
The U.S. presidential administration recently imposed new or increased tariffs on goods manufactured in China, Mexico and Canada. During 2024, the majority of our products that were imported into the United States from China were already subject to tariffs that were as high as 25%, which adversely impacted our expenses. In addition, our product lines involve production with steel manufactured outside the U.S., including steel manufactured in Mexico, that is also subject to new tariffs. These new tariffs and retaliatory actions by foreign governments are expected to have a significant adverse effect on our results of operations and margins and sales of our products outside the U.S. For additional information, see Part I, Item 1A, Risk Factors, “Tariffs or other restrictions placed on foreign imports and any related counter-measures taken by other countries harm our business and results of operations” and “Our products are manufactured by third parties outside of the United States, and our business may be harmed by legal, regulatory, economic, societal, and political risks associated with those markets.”
Distribution and Inventory Management
A majority of our products are shipped from our manufacturers to one of our three United States distribution centers in Grapevine, Texas; Manchester, Pennsylvania; and Salt Lake City, Utah. These distribution centers, which we operate, are strategically located across the United States, allowing us to provide faster delivery throughout the United States. Certain of our products are distributed directly from our manufacturing facilities in Mexicali, Mexico and Baja California, Mexico. The remaining portion of our products are shipped directly to one of our national retail partners or one of our distributors.
We manage inventory by analyzing product sell-through, forecasting demand, and working with our supply chain to ensure sufficient availability. Additionally, we lease a 20,000 square foot facility in Canada and a 72,000 square foot facility in Rotterdam, Netherlands. Our domestic and international warehouses position Solo Brands to reach customers quickly and position us to realize immediate cost savings. We use a warehouse management system at these distribution centers that interfaces with our enterprise resource planning (“ERP”) system so that we can maintain visibility and control over inventory levels and customer shipments. We believe our domestic capacity and the capacity of international providers is sufficient to meet our future needs.
Intellectual Property and Brand Protection
We take the protection of our intellectual property very seriously and have taken a variety of operational and legal measures to protect our distinctive brand, designs, and inventions. Our engineering and industrial design teams collaborate at our Grapevine, Texas headquarters to create new products, and are supported by individual product design teams at the various brand levels. As part of this process, product designs, specifications, and performance characteristics are developed. After these aspects of the process are complete, we seek intellectual property protection, including applying for patents and for registration of trademarks for new classes where applicable.
We own the patents, trademarks, copyrights, trade dress, and other intellectual property rights that relate to our brands and to key aspects of certain of our products. We have sought to protect these intellectual property rights in the United States as well as in other countries where our products are manufactured and/or sold. We believe these intellectual property rights, combined with our innovation and distinctive product design, performance, and brand name reputation, provide us with a competitive advantage.
We aggressively pursue and defend intellectual property rights to protect our distinctive brand, designs, and inventions. We use third-party enforcement agencies, and have processes and procedures in place to identify, protect, and optimize our intellectual property assets on a global basis. Our experienced legal and brand protection teams initiate claims against those offering infringing products to protect our intellectual property assets, including our distinctive designs, copyrights, and trade dress. In the future, we intend to continue to seek intellectual property protection for our new products and prosecute those who infringe against these valuable assets.
Information Technology
Information technology, or IT, systems are integral to our ability to operate, analyze and manage our business, research and develop new products, enhance our customers’ experience, and optimize our operating costs. Our infrastructure is cloud-first, as we believe it provides the most flexibility, scalability, and is inherently resilient with platform level redundancy in networking and computer hardware. We leverage third-party components and software to enhance our platform capabilities and ERP and e-commerce systems to improve our operations and manage our growth potential. We utilize leading software solutions for key aspects of our information systems. We believe our planned systems infrastructure will be sufficient to support our business for the foreseeable future.
Competition
We compete in the large outdoor, leisure, recreation, and lifestyle apparel markets and may compete in other addressable lifestyle markets. Competition in our markets is based on a number of factors including product quality, performance, durability, styling, ease-of-use, and price, as well as brand image and recognition. We believe that we have been able to compete successfully on the basis of our superior design capabilities and product development, brands, customer service, and our omni-channel approach. We believe that our value proposition and brand strategy create competitive advantages that set us apart from competition in the broader fragmented outdoor, leisure, recreation, and lifestyle apparel markets.
Human Capital Management
The Solo Brands management team has a dedicated focus on developing a strong, intentional company culture. We continue to invest in our people, adding key management personnel to our platform with the goal of accelerating growth, strengthening and complementing our existing leadership team, and leveraging the sharing of best practices across the platform. Our increasingly well-known portfolio of brands and our culture of innovation, collaboration and personal development has enabled us to recruit top talent in all areas of our business.
We are focused on recruitment, retention, and training, all areas where we see significant opportunity as we scale and bring on new team members. We believe the dedicated team of Solo Brands employees is a critical factor to our past and future success and intend to continue investing in our team’s well-being. None of our employees are currently covered by a collective bargaining agreement. We have experienced no labor-related work stoppages and employee relations are considered to be good. As of December 31, 2024, we had approximately 526 employees.
Government Regulation
Our products sold in the United States are subject to the provisions of multiple statutes, including, but not limited to, the Consumer Product Safety Act (“CPSA”), the Federal Hazardous Substances Act (“FHSA”), the Consumer Product Safety Improvement Act of 2008 (“CPSIA”) and the Flammable Fabrics Act (“FFA”), and the regulations promulgated pursuant to such statutes. These statutes and the related regulations ban from the market any consumer products that fail to comply with applicable product safety laws, regulations, and standards. The Consumer Product Safety Commission may require the recall, repurchase, replacement, or repair of any such banned products or products that otherwise create a substantial risk of injury and may seek penalties for regulatory noncompliance under certain circumstances. Similar laws exist in some U.S. states and our products sold worldwide are subject to the provisions of similar laws and regulations in many jurisdictions, including Canada, Australia, and Europe.
We maintain a quality control program to help maintain compliance with applicable product safety requirements. We use independent third-party laboratories that employ testing and other procedures intended to maintain compliance with the CPSA, the FHSA, the CPSIA, the FFA, other applicable domestic and international product standards, as well as our own standards and those of some of our larger retail customers. Nonetheless, there can be no assurance that our products are or will be hazard free, and we may in the future experience issues in products that result in recalls, withdrawals, or replacements of products. A product recall could have a material adverse effect on our results of operations and financial condition, depending on the product affected by the recall and the extent of the recall efforts required. A product recall could also negatively affect our reputation and the sales of other products. See Item 1A, “Risk Factors.”
In relation to our sales and marketing activities, we are subject to various consumer protection rules and regulations promulgated and/or enforced by various federal and state regulators such as the U.S. Federal Trade Commission, and state attorneys general as well as non-U.S. regulatory authorities that relate to advertising, product delivery and other consumer-facing practices. In addition, our online products and services, including our e-commerce and digital communications activities, are or may be subject to U.S. and non-U.S. data privacy and cybersecurity laws, such as the U.S.
Children’s Online Privacy Protection Act, the California Consumer Privacy Act (“CCPA”), the General Data Protection Regulation (the “GDPR”), and the UK General Data Protection Regulation and the UK Data Protection Act 2018 (collectively, the “UK GDPR”).
We are subject to various other federal, state, local and international laws and regulations applicable to our business, including export controls, and have established processes for compliance with these laws and regulations.
For the year ended December 31, 2024, compliance with governmental regulations did not have a material effect on our capital expenditures, earnings or competitive position, and, at this time, we do not expect to incur material capital expenditures related to compliance with regulations in 2025.

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ITEM 1A. RISK FACTORS
Item 1A. Risk Factors
Our business involves significant risks, some of which are described below. You should carefully consider the risks and uncertainties described below, together with all of the other information in this Annual Report on Form 10-K. The risks and uncertainties described below are not the only ones we face. Additional risk and uncertainties that we are unaware of or that we deem immaterial may also become important factors that adversely affect our business. The realization of any of these risks and uncertainties could have a material adverse effect on our results of operations and financial condition. In that event, the trading price and value of our Class A common stock could decline, and you may lose part or all of your investment.
Risk Factors Summary
The principal risks and uncertainties affecting our business include the following:
•Our financial condition raises substantial doubt as to our ability to continue as a going concern.
•We may be unable to realize expected benefits from our strategic plans, any restructuring and cost-reduction efforts, and operational improvements.
•Our limited liquidity poses additional risks to our business and operations.
•We depend on cash generated from our operations to support our business and our growth initiatives.
•Our indebtedness limits our ability to invest in the ongoing needs of our business.
•Our business depends on maintaining and strengthening our brand and generating and maintaining ongoing demand for our products, and a significant reduction in such demand could harm our results of operations.
•If we are unable to successfully design, develop, and introduce new products, our business will be harmed.
•Tariffs or other restrictions placed on foreign imports and any related counter-measures taken by other countries harm our business and results of operations.
•Our products are manufactured by third parties outside of the United States, and our business may be harmed by legal, regulatory, economic, societal, and political risks associated with those markets.
•We rely on third-party manufacturers and problems with, or the loss of, our suppliers or an inability to obtain raw materials could harm our business and results of operations.
•Our historic growth rates have not been sustained and are not indicative of future growth.
•Our business could be harmed if we are unable to accurately forecast demand for our products or our results of operations.
•Our marketing strategy may not be successful with existing and future customers.
•If we fail to attract new customers in a cost-effective manner, our business may be harmed.
•Our net sales and profits depend on the level of customer spending for our products, which is sensitive to general economic conditions and other factors.
•The markets in which we compete are highly competitive and we could lose our market positions.
•Competitors have imitated and will likely continue to imitate our products. If we are unable to protect or preserve our brand image and proprietary rights, our business may be harmed.
•Our business relies on cooperation of our suppliers, but not all relationships include written exclusivity agreements. If they produce similar products for our competitors, it could harm our results of operations.
•Fluctuations in the cost and availability of raw materials, equipment, labor, and transportation could cause manufacturing delays or increase our costs.
•If we fail to timely and effectively obtain shipments of products from our manufacturers and deliver products to our retail partners and customers, our business and results of operations could be harmed.
•We may acquire or invest in other companies, which could divert our management’s attention, result in dilution to our stockholders, and otherwise disrupt our operations, harm our results of operations and negatively impact our financial condition.
•Our collection, use, storage, disclosure, transfer and other processing of personal information could give rise to significant costs and liabilities, including as a result of governmental regulation, uncertain or inconsistent interpretation and enforcement of legal requirements or differing views of personal privacy rights, which may have a material adverse effect on our reputation, business, financial condition and results of operations.
•We rely significantly on the use of information technology, as well as those of our third party service providers. Any significant failure, inadequacy, interruption or data security incident of our information technology systems, or those of our third-party service providers, could disrupt our business operations, which could have a material adverse effect on our business, prospects, results of operations, financial condition and/or cash flows.
•Our business may be affected by the evolving regulatory framework for AI technologies.
•Government regulation of the Internet and e-commerce is evolving, and unfavorable changes or failure by us to comply with these regulations could substantially harm our business and results of operations.
•Our results of operations are subject to seasonal and quarterly variations, which could cause the price of our common stock to decline.
•Our plans for continuing operations in international markets may not be successful.
•An adverse determination in any material product liability related claim against us could adversely affect our operating results or financial condition.
•Our business depends substantially on our ability to attract and retain experienced and qualified talent, including our senior management team.
•The price of our Class A common stock has fluctuated and will likely continue to fluctuate and you may not be able to sell the shares you purchase at or above your purchase price.
•Our failure to regain compliance with the continued listing requirements of the New York Stock Exchange (the “NYSE”) or any future failure to meet such requirements could result in the delisting of our Class A common stock, which would have an adverse impact on the trading, liquidity and market price of our Class A common stock.
•We may become involved in legal or regulatory proceedings and audits.
•Our environmental, social and governance (“ESG”) and sustainability initiatives and the adoption of ESG regulatory frameworks may impose additional costs and expose us to emerging areas of risk.
•The impacts of risks associated with international geopolitical conflicts, including continued tensions between Taiwan and China, the war in Ukraine and the conflicts in the Middle East, on the global economy, energy supplies and raw materials are uncertain, but may prove to negatively impact our business and operations.
Risks Related to our Liquidity and Indebtedness
Our financial condition raises substantial doubt as to our ability to continue as a going concern.
We incurred a net loss of $113.4 million during the year ended December 31, 2024 and had an accumulated deficit of $228.8 million. We had cash and cash equivalents of $12.0 million and total debt outstanding of $150.7 million as of December 31, 2024. In addition, subsequent to December 31, 2024, we drew an additional $277.3 million on our Revolving Credit Facility (as defined herein), which matures on May 12, 2026. As of December 31, 2024, we were in compliance with the financial and operational covenants under the credit agreement governing our Revolving Credit Facility, however, due primarily to uncertainty in our business and our expected levels of indebtedness, without the application of successful mitigating strategies, we expect to experience difficulty remaining in compliance with the quarterly financial covenants. Failure to satisfy either the interest coverage ratio or total net leverage ratio is an event of default under the credit agreement. If an event of default occurs, the lenders could elect to declare all amounts outstanding under the credit facility immediately due and payable and exercise other remedies as set forth in the credit agreement. In such case, we may need to liquidate or seek protection from creditors under Chapter 11 of the U.S. Bankruptcy Code, which would materially harm our business, financial condition, and results of operations and could cause our stockholders to lose all or part of their investment.
We are evaluating strategies to refinance our existing debt. These strategies could include restructuring our debt, issuing new debt or entering into other financing arrangements. In addition, our plans are focused on improving our results and liquidity through a variety of operational improvements throughout 2025, including decreasing costs through a reduction in force and closures of select distribution centers. However, there can be no assurance that we will be able to refinance or restructure our debt or that we will be able to execute any operational improvements. As a result, there can be no assurance that we will be able to obtain or generate additional liquidity when needed or under acceptable terms, if at all.
Our recurring losses, negative cash flow, need for additional financing and the uncertainties surrounding our ability to obtain such financing, improve our results and liquidity, or execute specific initiatives, raise substantial doubt about our ability to continue to execute our operating plan as currently intended. Additional financing, whether in the form of equity or debt, may not be available to us on acceptable terms, on a timely basis, or at all. If adequate funds are not available, or if the terms of potential funding sources are unfavorable, our business would be materially harmed. Furthermore, any new equity we issue will likely result in substantial dilution to our existing stockholders.
If we are unable to obtain additional financing, improve our results or liquidity or execute any operational improvements, we will be unable to continue to fund our operations, continue to sell our products, realize value from our assets, or discharge our liabilities in the normal course of business. If we become unable to continue as a going concern, we could have to liquidate our assets, and potentially realize significantly less than the values at which they are carried on our financial statements, and stockholders could lose all or part of their investment.
If we seek the protection of the U.S. Bankruptcy Court, our operations and ability to develop and execute our business plan, and our ability to continue as a going concern, are subject to the risks and uncertainties associated with bankruptcy. As such, seeking U.S. Bankruptcy Court protection is likely to have a material adverse effect on our business, financial condition, results of operations and liquidity. During any Chapter 11 cases, our senior management would be required to spend a significant amount of time and effort attending to the restructuring of the business instead of focusing exclusively on our business operations. Bankruptcy Court protection also might make it more difficult to retain management and other employees necessary to the success and growth of our business.
Additionally, our financial statements have been prepared assuming that we will continue to operate as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Thus, our financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.
We may be unable to realize expected benefits from any strategic plans, restructuring and cost reduction efforts, and operational improvements.
In 2024, we announced restructuring plans and other cost savings initiatives, in order to operate more efficiently and control costs, which included re-balancing of products to align with our business strategy and workforce reductions. These plans were intended to generate, among other things, operating expense savings and improved margins and profitability. For example, in the third quarter of 2024, we implemented a strategic plan that involved activities related to restructuring, contract termination and related impairments, which was completed in the fourth quarter of 2024. In addition, as described above, our plans are focused on improving our results and liquidity through a variety of operational improvements throughout 2025, including decreasing costs through a reduction in force and closures of select distribution centers.
These types of restructuring and cost reduction activities are complex and may result in unintended consequences and costs, such as unforeseen delays in the implementation of our strategic initiatives, business and operational disruptions, decreased employee morale, loss of institutional
knowledge and expertise, and potential impacts on financial reporting. Reductions in workforce also make it difficult for us to pursue, or can prevent us from pursuing, new opportunities and initiatives due to insufficient personnel, or require us to incur additional and unanticipated costs to hire new personnel to pursue such opportunities or initiatives. If we do not successfully manage our current initiatives and restructuring activities, expected efficiencies and benefits might be delayed or not realized, and our business, financial condition, and results of operations may be materially adversely affected.
Our limited liquidity poses additional risks to our business and operations.
Our limited liquidity has required and will continue to require a substantial portion of time and attention from our senior management team. Our management has spent considerable time participating in the development of strategies and plans to address our limited liquidity. This diversion of management’s attention may have a material adverse effect on the conduct of our business, and, as a result, on our financial condition and results of operations. On February 18, 2025, we announced that our Board appointed John Larson, a member of our Board, as Interim President and Chief Executive Officer. Failure to integrate Mr. Larson into his role could affect the execution of any refinancing, restructuring, revenue-generating or liquidity initiatives. Other risks related to our limited liquidity and any mitigating strategies include, but are not limited to, the high costs of negotiating agreements and seeking and executing liquidity initiatives; our ability to maintain our relationships with our suppliers, service providers, customers, and other third parties; our ability to retain and attract employees; and our ability to maintain contracts that are critical to our operations. These risks affect our business and operations and the price of our Class A common stock.
We depend on cash generated from our operations to support our business and our growth initiatives.
We primarily rely on cash flow generated from our sales to fund our current operations and our growth initiatives. We require significant amounts of cash to purchase inventory, work on our product development, maintain our manufacturer and supplier relationships, pay personnel, pay for the costs associated with operating as a public company, and to further invest in our sales and marketing efforts. As of December 31, 2024, we had cash and cash equivalents of $12.0 million. If our business does not generate sufficient cash flow from operations to fund these activities and sufficient funds are not otherwise available from financing sources, we will not be able to sustain and continue our operations. In such case, we could be required to liquidate our assets, and potentially realize significantly less than the values at which they are carried on our financial statements, and stockholders could lose all or part of their investment.
Our indebtedness limits our ability to invest in the ongoing needs of our business.
On May 12, 2021, we entered into a Credit Agreement among Solo Brands, LLC, Solo Stove Intermediate, LLC, JPMorgan Chase Bank, N.A., and the Lenders and L/C Issuers party thereto (as subsequently amended on June 2, 2021, September 1, 2021 and May 22, 2023, the “Revolving Credit Facility”). The Revolving Credit Facility is jointly and severally guaranteed by Solo Stove Intermediate, LLC and any future subsidiaries that execute a joinder to the guaranty and related collateral agreements, or the Guarantors. The Revolving Credit Facility is also secured by a first priority lien on substantially all of our assets and the assets of the Guarantors, in each case subject to certain customary exceptions.
The Revolving Credit Facility places certain conditions on us, including that it:
•requires us to utilize a portion of our cash flow from operations and dispositions of assets to make repayments of our indebtedness, reducing the availability of our cash flow to fund working capital, capital expenditures, development activity, return capital to our stockholders, and other general corporate purposes;
•increases our vulnerability to adverse economic or industry conditions;
•limits our flexibility in planning for, or reacting to, changes in our business or markets;
•makes us more vulnerable to increases in interest rates, as borrowings under the Revolving Credit Facility bear interest at variable rates;
•limits our ability to obtain additional financing in the future for working capital or other purposes; and
•places us at a competitive disadvantage compared to our competitors that have less indebtedness.
The Revolving Credit Facility places certain limitations on our ability to incur additional indebtedness. However, subject to the qualifications and exceptions in the Revolving Credit Facility, we could incur substantial additional indebtedness, if available. The Revolving Credit Facility also places certain limitations on our ability to enter into certain types of transactions, financing arrangements and investments, to make certain changes to our capital structure, and to guarantee certain indebtedness, among other things. The Revolving Credit Facility also places certain restrictions on the payment of dividends and distributions and certain management fees. These restrictions limit or prohibit, among other things, and in each case, subject to certain customary exceptions, our ability to: (a) pay dividends on, redeem or repurchase our stock, or make other distributions; (b) incur or guarantee additional indebtedness; (c) sell stock in our subsidiaries; (d) create or incur liens; (e) make acquisitions or investments; (f) transfer or sell certain assets or merge or consolidate with or into other companies; (g) make certain payments or prepayments of indebtedness subordinated to our obligations under the Revolving Credit Facility; and (h) enter into certain transactions with our affiliates.
As described above, the Revolving Credit Facility requires us to comply with certain covenants and failure to comply with our Revolving Credit Facility, including the financial and operational covenants thereunder, the occurrence of a change of control or a failure to make scheduled payments on our debt, could result in an event of default.
If an event of default and acceleration of our obligations occurs, the lenders under the Revolving Credit Facility would have the right to foreclose against the collateral we granted to them to secure such indebtedness, which consists of substantially all of our assets, including the equity of
Holdings and certain of its subsidiaries. If the debt under the Revolving Credit Facility were to be accelerated, we would not have sufficient cash or may not be able to sell sufficient collateral to repay this debt, which would immediately and materially harm our business, results of operations, and financial condition. The threat of our debt being accelerated in connection with a change of control could also make it more difficult for us to attract potential buyers or to consummate a change of control transaction that would otherwise be beneficial to our stockholders.
Risks Related to our Business and Industry
Our business depends on maintaining and strengthening our brand and generating and maintaining ongoing demand for our products, and reductions in such demand harm our results of operations.
We have developed a strong and trusted brand that we believe has contributed significantly to the success of our business, and we believe our continued success depends on our ability to maintain and grow the value and reputation of Solo Brands. Maintaining, promoting and positioning our brand and reputation depends on, among other factors, the success of our product offerings, quality assurance, marketing and merchandising efforts, the reliability and reputation of our supply chain, our ability to grow and capture share of the outdoor lifestyle category, and our ability to provide a consistent, high-quality consumer experience. We have made substantial investments in these areas in order to maintain and enhance our brand and these experiences, but such investments are not always successful. Any negative publicity, regardless of its accuracy, could materially adversely affect our business. For example, our business depends in part on our ability to maintain a strong community of engaged customers and social media influencers. We may not be able to maintain and enhance a loyal customer base if we receive customer complaints, negative publicity or otherwise fail to live up to consumers’ expectations, which could materially adversely affect our business, operating results and growth prospects.
The growing use of social and digital media by us, our consumers and third parties increases the speed and extent that information or misinformation and opinions can be shared. Negative publicity about us, our brand or our products on social or digital media could seriously damage our brand and reputation. For example, consumer perception could be influenced by negative media attention regarding any consumer complaints about our products, our management team, ownership structure, sourcing practices and supply chain partners, employment practices, ability to execute against our mission and values, and our products or brand, such as any advertising campaigns or media allegations that challenge the sustainability of our products and our supply chain, or that challenge our marketing efforts regarding the quality of our products, which could have an adverse effect on our business, brand and reputation. Similar factors or events could impact the success of any brands or products we introduce in the future.
Our company image and brand are very important to our vision and growth strategies, particularly our focus on being a “good company” and operating consistent with our mission and values. We will need to continue to invest in actions that support our mission and values and adjust our offerings to appeal to a broader audience in the future in order to sustain our business and to achieve growth, and there can be no assurance that we will be able to do so. If we do not maintain the favorable perception of our company and our brand, our sales and results of operations could be negatively impacted. Our brand and company image is based on perceptions of subjective qualities, and any incident that erodes the loyalty of our consumers, customers, suppliers or manufacturers, including adverse publicity or a governmental investigation or litigation, could significantly reduce the value of our brand and significantly damage our business, which would have a material adverse effect on our business, financial condition, results of operations and cash flows.
If we are unable to successfully design, develop and introduce new products, our business will be harmed.
Solo Stove made up the majority of our total revenue in the year ended December 31, 2024. For the year ended December 31, 2024, we experienced a decrease in our net sales primarily driven by the Solo Stove segment, as a result of a lack of significant new product launches in 2024 when compared to the prior year. Our business and financial results depend in part on our ability to expand sales of our other existing products and to introduce new and enhanced products. The success of our new and enhanced products depends on many factors, including anticipating consumer preferences, finding innovative solutions to consumer problems, differentiating our products from those of our competitors, and maintaining the strength of our brand while also expanding our brand beyond the categories of products we currently sell. The design, development and introduction of our products is costly and we typically have several products in development at the same time. If we misjudge or fail to anticipate consumer preferences or there are problems in the design or quality of our products, or delays in product introduction, our brand, business, financial condition, and results of operations could be harmed.
Tariffs or other restrictions placed on foreign imports and any related counter-measures taken by other countries harm our business and results of operations.
Geopolitical uncertainties and events damage and disrupt international commerce and the global economy, and could have a material adverse effect on us, our suppliers, logistics providers, manufacturing vendors and customers. Changes in commodity prices may also cause political uncertainty and increase currency volatility that can affect economic activity and, in turn, adversely impact our business, results of operations and financial condition.
In recent years, tariffs on goods manufactured in China have increased significantly. In addition, the U.S. presidential administration recently imposed an additional aggregate 20% tariffs on goods manufactured in China, 25% tariffs on all steel manufactured outside of the U.S. and 25% tariffs on almost all goods manufactured in Mexico and Canada. China, Canada and Mexico have retaliated or are expected to retaliate with tariffs on goods manufactured in, or exported by, the United States. During 2024, the majority of our products that were imported into the United States from China were already subject to tariffs that were as high as 25%, which adversely impacted our expenses. In addition, our product lines involve production with steel manufactured outside the U.S., including steel manufactured in Mexico that is subject to the new tariffs, including virtually all of our Solo Stove and TerraFlame brands’ products. Further, certain of our Solo Stove, Oru and TerraFlame brands’ products are produced in Mexico and are subject to the new tariffs on Mexico. These tariffs and retaliatory actions are expected to have a significant adverse effect on our results of operations and margins and sales of our products outside the U.S. Any strategies we implement to mitigate the impact of such tariffs or other trade actions may not be successful. In addition, there can be no assurances that we will be able to pass any increased costs from tariffs on to our customers, that demand or profitability will not be materially adversely impacted, or that we will be successful in implementing efforts to mitigate the effect of tariffs on our business. Sourcing materials from domestic suppliers and manufacturing vendors or transitioning production to the U.S. would be a costly and lengthy process with uncertain results.
Changes in domestic social, political, regulatory and economic conditions or in laws and policies governing foreign trade, manufacturing, development and investment in the territories and countries where we currently develop and sell products, and any negative sentiments towards the United States as a result of such changes, could also adversely affect our business. If the United States government withdraws or materially modifies existing or proposed trade agreements, places greater restriction on free trade generally or imposes additional increases on tariffs on specified commodities and goods imported into the United States, particularly from China or Mexico, our business, financial condition and results of operations will be adversely affected. In addition, negative sentiments towards the United States among non-U.S. customers and among non-U.S. employees or prospective employees could adversely affect sales or hiring and retention, respectively.
The foreign policies of governments are volatile, and have resulted and may result in rapid changes to import and export requirements, customs classifications, tariffs, trade sanctions and embargoes or other retaliatory trade measures that may cause us to raise prices, prevent us from offering products or providing services to particular entities or markets, may cause us to make changes to our operations, or create delays and inefficiencies in our supply chain. Furthermore, if the U.S. government imposes new sanctions against certain countries or entities, such sanctions could sufficiently restrict our ability to market and sell our products and may materially adversely affect our results of operation.
Our products are manufactured by third parties outside of the United States, and our business may be harmed by legal, regulatory, economic, societal, and political risks associated with those markets.
Our products are manufactured outside of the United States, and we sell a small percentage of our products outside of the United States. Our reliance on suppliers and manufacturers in foreign markets, as well as our sales in non-U.S. markets, creates risks inherent in doing business in foreign jurisdictions, including: (a) the burdens of complying with a variety of foreign laws and regulations, including trade and labor restrictions and laws relating to the importation and taxation of goods; (b) weaker protection for intellectual property and other legal rights than in the United States, and practical difficulties in enforcing intellectual property and other rights outside of the United States; (c) compliance with the U.S. Foreign Corrupt Practices Act, or FCPA, the UK Bribery Act 2010, or the Bribery Act, and other applicable anti-corruption laws, which generally prohibit companies from making improper payments to government officials (or in some cases commercial counterparties) for the purpose of obtaining or retaining business or securing an improper business advantage; (d) compliance with applicable trade sanctions and embargoes, such as those issued by the U.S. Office of Foreign Assets Controls, or OFAC, which prohibit transacting with persons in certain territories as well as other sanctioned persons; (e) compliance with U.S. anti-money laundering regulations; (f) economic and political instability and acts of terrorism in the countries where our suppliers are located; (g) transportation interruptions or increases in transportation costs; (h) public health crises, such as pandemics and epidemics; and (i) the imposition of tariffs on components and products that we import into the United States or other markets. We cannot assure you that our directors, officers, employees, representatives, manufacturers, or suppliers have not engaged and will not engage in conduct for which we may be held responsible, nor can we assure you that our manufacturers, suppliers, or other business partners have not engaged and will not engage in conduct that could materially harm their ability to perform their contractual obligations to us or even result in our being held liable for such conduct. Violations of the FCPA, the Bribery Act, OFAC restrictions, or other sanctions, export control, anti-corruption, anti-money laundering, and anti-terrorism laws, or allegations of such acts, could damage our reputation and subject us to civil or criminal investigations in the United States and in
other jurisdictions and related shareholder lawsuits, could lead to substantial civil and criminal, monetary and nonmonetary penalties and could cause us to incur significant legal and investigatory fees, which could harm our business, financial condition, cash flows, and results of operations.
Our historic growth rates have not been sustained and are not indicative of future growth.
We expanded our operations rapidly in recent years. The expansion of our operations was primarily due to our digital marketing strategy and by increased demand for outdoor recreation and leisure lifestyle products, as well as acquisition of additional companies. However, our historical growth rates have not been sustained and are likely not indicative of future growth. We believe that revenue growth will depend upon, among other factors:
•Improving and managing our current limited liquidity;
•Increasing U.S. brand awareness;
•Our ability to obtain adequate protections for our intellectual property; and
•Product innovation to expand our total addressable market.
We have a limited history operating our business at its current scale. As a result of our historic growth, our employee headcount and the scope and complexity of our business increased substantially in recent years, and we are continuing to implement policies and procedures that we believe are appropriate for a company of our size and operating as a public company. We may experience difficulties as we continue to implement changes to our business and related policies and procedures to keep pace with our development and, if our operations resume growth, in managing such growth and building the appropriate processes and controls in the future. Growth may increase the strain on our resources, and we could experience operating difficulties, including difficulties in sourcing, logistics, recruiting, maintaining internal controls, marketing, designing innovative products, and meeting consumer needs. If we do not adapt to meet these evolving challenges, the strength of our brand may erode, the quality of our products may suffer, we may not be able to deliver products on a timely basis to our customers, and our corporate culture may be harmed.
In addition, we expect to continue to make significant investments in our research and development and sales and marketing organizations, expand our operations and infrastructure both domestically and internationally, design and develop new products, and enhance our existing products with newly developed products and through acquisitions. If our sales do not increase at a sufficient rate to offset these increases in our operating expenses, our profitability may continue to decline.
Our business could be harmed if we are unable to accurately forecast demand for our products or our results of operations.
To ensure adequate inventory supply, we forecast inventory needs and place orders with our manufacturers before we receive firm orders from our retail partners or customers and we may not be able to do so accurately. As a result, we have experienced and may continue to experience excess inventory levels or a shortage of product and delays in delivering to our retail partners and through our DTC channel, particularly due to uncertainty and delays related to global supply chain challenges.
If we underestimate the demand for our products, our manufacturers may not be able to scale quickly enough to meet demands, and this could result in delays in the shipment of our products and our failure to satisfy demand, as well as damage to our reputation and retail partner relationships. If we overestimate the demand for our products, we could face inventory levels in excess of demand, which has resulted and could in the future result in inventory write-downs or write-offs and the sale of excess inventory at discounted prices, which harms our gross margins. In addition, failure to accurately predict the level of demand for our products could cause a decline in sales and harm our results of operations and financial condition. Factors that may impact our ability to forecast demand for our products include shifting consumer trends, unforeseen supply chain delays, global economic conditions, increased competition and our limited operating experience.
In addition, we may not be able to accurately forecast our results of operations and growth rate. Forecasts may be particularly challenging as we expand into new markets and geographies, and develop and market new products. Our historical sales, expense levels, and profitability may not be an appropriate basis for forecasting future results in these new markets and with new products.
Failure to accurately forecast our results of operations and growth rate could cause us to make incorrect operating decisions and we may not be able to adjust in a timely manner. Consequently, actual results could be materially lower than anticipated. Even if the markets in which we compete expand, we cannot assure you that our business or profitability will grow at similar rates, if at all.
Our marketing strategy may not be successful with existing and future customers.
We believe that we have been successful in marketing our products by associating our brand and products with indoor and outdoor activities to be experienced with family and friends, as well as other influencer and product-related campaigns. To sustain long-term growth, we must not only continue to successfully promote our products to consumers who identify with or aspire to these activities, as well as to individuals who value the differentiated function, high quality, and specialized design of our products, but also promote new products with which we may not have experience and attract more customers to our existing products. If we fail to successfully market and sell our products to our existing customers or expand our customer base, our sales could decline or we may be unable to grow our business.
If we fail to attract new customers in a cost-effective manner, our business may be harmed.
A large part of our success depends on our ability to attract new customers in a cost-effective manner. We have made, and may continue to make, significant investments in attracting new customers through increased advertising spends on social media, influencers and brand affiliates, radio, podcasts, linear television, and targeted email communications. Marketing campaigns can be expensive and may not result in the cost-effective acquisition of customers. In addition, if the platforms where we have invested in advertising spend are unavailable, that may adversely affect the efficacy of that spend. For example, the proposed ban on TikTok could adversely affect our social media campaigns and results of operations. Further, as our brand becomes more widely known, future marketing campaigns may not attract new customers at the same rate as past campaigns and the cost of acquiring new customers may increase over time. If we are unable to attract new customers, or fail to do so in a cost-effective manner, our business may be harmed.
Our growth depends, in part, on expanding into additional consumer markets, and we may not be successful in doing so.
We believe that our future growth depends not only on continuing to provide our current customers with new products, but also continuing to enlarge our customer base in the United States, as well as into international markets. We have invested significant resources in these areas, and we may face challenges that are different from those we currently encounter, including competitive, merchandising, distribution, hiring, and other difficulties. We may also encounter difficulties in attracting customers due to a lack of consumer familiarity with or acceptance of our brand, or a resistance to paying for premium products, particularly in international markets. In addition, our sales and marketing activities may not be successful. If we are not successful, our business and results of operations may be harmed.
Our net sales and profits depend on the level of customer spending for our products, which is sensitive to general economic conditions and other factors.
Our products are discretionary items for customers. Therefore, the success of our business depends significantly on economic factors and trends in consumer spending. There are a number of factors that influence consumer spending, including actual and perceived economic conditions, consumer confidence, disposable consumer income, consumer credit availability, interest rates, unemployment, inflation, and tax rates in the markets where we sell our products. Consumers also have discretion as to where to spend their disposable income and may choose to purchase other items or services. As global economic conditions continue to be volatile, and economic uncertainty remains, trends in consumer discretionary spending also remain unpredictable and subject to declines. Any of these factors could harm discretionary consumer spending, resulting in a reduction in demand for our products, decreased prices, increased costs to make sales, and harm to our business and results of operations. Moreover, consumer purchases of discretionary items, such as our products, tend to decline during recessionary periods when disposable income is lower or during other periods of economic instability or uncertainty, which may slow our growth more than we anticipate. A downturn in the economies in markets in which we sell our products, particularly in the United States, may materially harm our sales, profitability, and financial condition.
The markets in which we compete are highly competitive and we could lose our market positions.
The markets in which we compete are highly competitive, typically with low barriers to entry. The number of competing companies continues to increase. Competition in these product markets is based on a number of factors including product quality, performance, durability, availability, styling, brand image and recognition, and price. Our competitors may be able to develop and market similar products that compete with our products, sell their products for lower prices, offer their products for sale in more areas, adapt to changes in consumers’ needs and preferences more quickly, devote greater resources to the design, sourcing, distribution, marketing, and sale of their products, or generate greater brand recognition than us. In addition, as we expand into new areas and new product categories we will continue to face, different and, in some cases, more formidable competition. Many of our competitors and potential competitors have significant competitive advantages, including learning from our experiences and taking advantage of new product popularity, greater financial strength, larger research and development teams, larger marketing budgets, and more distribution and other resources than we do. Some of our competitors may aggressively discount their products or offer other attractive sales terms in order to gain market share, which could impact our pricing, profit margins and market share. If we are not able to overcome these potential competitive challenges, effectively market our current and future products, and otherwise compete effectively against our current or potential competitors, our prospects, results of operations, and financial condition could be harmed.
Competitors have imitated and will likely continue to imitate our products. We may not be able to adequately protect our intellectual property, and if we are unable to protect or preserve our brand image and proprietary rights, our business may be harmed.
We attempt to protect our intellectual property rights, both in the United States and in foreign countries, through a combination of patent, trademark, copyright, design, and trade secret laws, as well as licensing, assignment, and confidentiality agreements with our employees, consultants, suppliers and manufacturers. While it is our policy to protect and defend our intellectual property, we cannot be sure that the actions we have taken to establish and protect our patents, trademarks and other proprietary rights will be adequate to protect us, or that any of our intellectual property will not be challenged or held invalid or unenforceable.
Our success depends in large part on our brand image and, in particular, on the strength of our Solo Stove, ISLE, Oru, Chubbies, and TerraFlame trademarks. We rely on trademark protection to protect our brands, and we have registered or applied to register many of these trademarks. While we have registered or applied to register our material trademarks in the United States and several other markets, we have not registered all of our marks in all of the jurisdictions in which we currently conduct or intend to conduct business. Further, even if we seek to register these trademarks, we cannot be sure that our trademark applications will be successful. These applications may also be challenged or opposed by third parties. In the event
that our trademarks are successfully challenged and we lose the rights to use those trademarks, we could be forced to rebrand our products, requiring us to devote resources to advertising and marketing new brands.
In addition, we rely on design patents, as well as registered designs, to protect our products and designs. We have also applied for, and expect to continue to apply for, utility patent and design protection relating to proprietary aspects of existing and proposed products. We cannot be sure that any of our patent or design applications will result in issued patents or registered designs, or that any patents issued as a result of our patent applications will be of sufficient scope or strength to provide us with any meaningful protection or commercial advantage. Third parties may challenge the validity and enforceability of certain of our patents, including through patent office ex parte reexamination, inter partes review or post-grant proceedings. Regardless of outcome, such challenges may result in substantial legal expenses and diversion of management’s time and attention from our other business operations. In some instances, our patent claims could be substantially narrowed or declared invalid or unenforceable. Any significant adverse finding by a patent office or adverse verdict of a court as to the validity, enforceability, or scope of certain of our patents could adversely affect our competitive position and otherwise harm our business.
We regard our intellectual property rights as critical to our success. We regularly monitor for infringement, and we employ third-party watch services in support of these efforts and have from time to time instituted litigation to enforce our trademarks, patents and other intellectual property, and we expect to do so in the future. Nevertheless, the steps we take to protect our proprietary rights against infringement or other violation may be inadequate and we may experience difficulty in effectively limiting the unauthorized use of our patents, trademarks, trade dress, and other intellectual property and proprietary rights worldwide. As our business continues to expand, some of our competitors have imitated, and will likely continue to imitate, our product designs and branding, which could harm our business and results of operations. In addition, our use of third-party suppliers and manufacturers presents a risk of counterfeit goods entering the marketplace. Because our products are manufactured overseas in countries where counterfeiting is more prevalent, and we intend to increase our sales overseas over the long term, we may experience increased copying of our products. Certain foreign countries do not protect intellectual property rights as fully as they are protected in the United States and, accordingly, intellectual property protection may be limited or unavailable in some foreign countries where we choose to do business. It may therefore be more difficult for us to successfully challenge the use of our intellectual property rights by other parties in these countries, which could diminish the value of our brands or products and cause our competitive position and growth to suffer.
As we develop new products and seek to expand internationally, we expect we will continue to incur greater costs in connection with securing the issuance or registration of patents, trademarks, copyrights, and other intellectual property rights. This increased intellectual property activity will also increase our costs to monitor and enforce our intellectual property rights. While we actively seek to secure and protect our intellectual property rights, there can be no assurance that we will be adequately protected in all countries in which we conduct our business or that we will prevail when defending our patent, trademark, and proprietary rights. If difficulties arise securing such rights or protracted litigation is necessary to enforce such rights, our business and financial condition could be harmed.
Additionally, we could incur significant costs and management distraction in pursuing claims to enforce our intellectual property rights through litigation and defending any alleged counterclaims. If we are unable to protect or preserve the value of our patents, trade dress, trademarks, copyrights, or other intellectual property rights for any reason, or if we fail to maintain our brand image due to actual or perceived product or service quality issues, adverse publicity, governmental investigations or litigation, or other reasons, our brand and reputation could be damaged and our business may be harmed.
We may be subject to liability if we infringe upon the intellectual property rights of third parties and have increased costs protecting our intellectual property rights.
Third parties may sue us for alleged infringement of their intellectual property rights. The party claiming infringement might have greater resources than we do to pursue its claims, and we could be forced to incur substantial costs and devote significant management resources to defend against such litigation, even if the claims are meritless and even if we ultimately prevail. Also third parties may make infringement claims against us that relate to technology developed or used by one of our manufacturers for which our manufacturers may or may not indemnify us. Even if we are indemnified against such costs, the indemnifying party may be unable to comply with its contractual obligations and disputes over the scope of these obligations could require additional litigation. If the party claiming infringement were to prevail, we could be forced to modify or discontinue our products, pay significant damages, or enter into expensive royalty or licensing arrangements with the prevailing party, any of which could have a material adverse effect on our business, financial condition and results of operations. Further, we cannot guarantee that a license from the prevailing party would be available on acceptable terms, or at all.
We rely on third-party manufacturers and problems with, or the loss of, our suppliers or an inability to obtain raw materials could harm our business and results of operations.
Our products are produced by third-party manufacturers. We face the risk that these third-party manufacturers may not produce and deliver our products on a timely basis, or at all. We have experienced, and could experience in the future, operational difficulties with our manufacturers and we may face similar or unknown operational difficulties or other risks with respect to future manufacturers, including with respect to new products. These difficulties include reductions in the availability of production capacity, errors in complying with product specifications and regulatory and customer requirements, insufficient quality control, failures to meet production deadlines, failure to achieve our product quality standards, increases in costs of manufacturing and materials, and manufacturing or other business interruptions. The ability of our manufacturers to effectively satisfy our production requirements could also be impacted by manufacturer financial difficulty or damage to their operations caused by fire, terrorist attack, riots, natural disaster, public health issues, pandemics, or other events. The failure of any manufacturer to perform to our expectations could result in
supply shortages or delays for certain products and harm our business. If we develop new products with significantly increased or new manufacturing requirements, otherwise experience significantly increased demand, or need to replace an existing manufacturer due to lack of performance, we may be unable to supplement or replace our manufacturing capacity on a timely basis or on terms that are acceptable to us, which may increase our costs, reduce our margins, and harm our ability to deliver our products on time. Additionally, we do not have long-term agreements in place with most of our third-party manufacturers, and such manufacturers could decide to stop working with us, which would require us to identify and qualify new manufacturers. For certain of our products, it may take a significant amount of time to identify and qualify a manufacturer that has the capability and resources to produce our products to our specifications in sufficient volume and satisfy our service and quality control standards.
The capacity of our manufacturers to produce our products is also dependent upon the availability of raw materials at a competitive rate. Our manufacturers may not be able to obtain sufficient supply of raw materials or do so at a competitive price, which could result in delays in deliveries of our products by our manufacturers or significantly increased costs. Any shortage of raw materials or inability of a manufacturer to produce or ship our products in a timely manner, or at all, could impair our ability to ship orders of our products in a cost-efficient, timely manner and could cause us to miss the delivery requirements of our customers. As a result, we could experience cancellations of orders, refusals to accept deliveries, increased costs, or reductions in our prices and margins, any of which could harm our financial performance, reputation, and results of operations.
We also depend on a limited number of third-party manufacturers for the sourcing of our products. We currently have a number of manufacturing partners located in various locations, including China, India, Vietnam, Cambodia, United States and Mexico. The majority of our fire pits, our highest grossing product, are currently made by two manufacturers in China, with additional limited production in China, India and Vietnam. As a result of this concentration in our supply chain, our business and operations would be negatively affected if our key manufacturer or suppliers were to experience significant disruption affecting the price, quality, availability, or timely delivery of products or were to refuse to supply us. The partial or complete loss of these manufacturers or suppliers, or a significant adverse change in our relationship with any of these manufacturers or suppliers, could result in lost sales, added costs, and distribution delays that could harm our business and customer relationships. For additional information see “Tariffs or other restrictions placed on foreign imports and any related counter-measures taken by other countries harm our business and results of operations” and “Our products are manufactured by third parties outside of the United States, and our business may be harmed by legal, regulatory, economic, societal, and political risks associated with those markets.”
Our business relies on cooperation of our suppliers, but not all relationships include written exclusivity agreements, which means that they could produce similar products for our competitors. If they produce similar products for our competitors, it could harm our results of operations.
With all of our suppliers and manufacturers, we face the risk that they may fail to produce and deliver supplies or our products on a timely basis, or at all, or comply with our quality standards. In addition, they may decide to raise prices in the future, which would increase our costs and harm our margins. Those with whom we have executed supply contracts may still breach these agreements, and we may not be able to enforce our rights under these agreements or may incur significant costs attempting to do so. As a result, we cannot predict our ability to obtain supplies and finished products in adequate quantities, of required quality and at acceptable prices from our suppliers and manufacturers in the future. Any one of these risks could harm our ability to deliver our products on time, or at all, damage our reputation and our relationships with our retail partners and customers, and increase our product costs thereby reducing our margins.
In addition, we do not have written agreements requiring exclusivity with all of our manufacturers and suppliers. As a result, they could produce similar products for our competitors, some of which could potentially purchase products in significantly greater volume. Further, while certain of our contracts stipulate contractual exclusivity against production of similar products to ours, those suppliers or manufacturers could choose to breach our agreements and work with our competitors. Our competitors could enter into restrictive or exclusive arrangements with our manufacturers or suppliers that could impair or eliminate our access to manufacturing capacity or supplies. Our manufacturers or suppliers could also be acquired by our competitors, and may become our direct competitors, thus limiting or eliminating our access to supplies or manufacturing capacity.
In addition, a former supplier holds certain intellectual property in China related to certain products manufactured there. If that manufacturer attempted to revoke or block the production of those products, or began to produce those products for one or more of our competitors, it would likely result in protracted litigation and could harm our other manufacturer relationships, increase our costs, and harm our business, including potentially forcing us to manufacture certain products outside of China.
Fluctuations in the cost and availability of raw materials, equipment, labor, and transportation could cause manufacturing delays or increase our costs.
The price and availability of key components used to manufacture our products have fluctuated significantly during our limited operating history and could continue to do so in the future. In addition, the cost of labor at our third-party manufacturers could increase significantly. For example, manufacturers in China have experienced increased costs in recent years due to shortages of labor and fluctuations of the Chinese Yuan in relation to the U.S. dollar. Additionally, the cost of logistics and transportation fluctuates in large part due to the price of oil, and availability can be limited as a result of political and economic issues. New, increased and proposed tariffs on goods imported from China, Mexico and Canada and steel produced outside of the U.S. will also impact our costs and we may not be able to pass these costs on to customers. Any fluctuations in the cost and availability of any of our raw materials or other sourcing or transportation costs has in the past, and could in the future, harm our gross margins and our ability to meet customer demand. If we are unable to successfully mitigate a significant portion of these product cost increases or fluctuations, our results of operations will be harmed. For additional information see “Tariffs or other restrictions placed on foreign imports and any related counter-measures
taken by other countries harm our business and results of operations” and “Our products are manufactured by third parties outside of the United States, and our business may be harmed by legal, regulatory, economic, societal, and political risks associated with those markets.”
If we fail to timely and effectively obtain shipments of products from our manufacturers and deliver products to our retail partners and customers, our business and results of operations could be harmed.
Our business depends on our ability to source and distribute products in a timely manner. However, we cannot control all of the factors that might affect the timely and effective procurement of our products from our third-party manufacturers and the delivery of our products to our retail partners and customers.
Our third-party manufacturers ship most of our products to our distribution centers in the United States, the largest of which is in Texas. Our large reliance on our one distribution center in Texas makes us vulnerable to natural disasters, weather-related disruptions, accidents, system failures, public health issues, or other unforeseen events that could delay or impair our ability to fulfill retailer orders and/or ship merchandise purchased on our website, which could harm our sales. We import our products, and thus we are also vulnerable to risks associated with products manufactured abroad, including, among other things: (a) risks of damage, destruction, or confiscation of products while in transit to our distribution centers; and (b) transportation and other delays in shipments, including as a result of heightened security screening, port congestion, and inspection processes or other port-of-entry limitations or restrictions in the United States. For additional information see “Tariffs or other restrictions placed on foreign imports and any related counter-measures taken by other countries harm our business and results of operations” and “Our products are manufactured by third parties outside of the United States, and our business may be harmed by legal, regulatory, economic, societal, and political risks associated with those markets.” In order to meet demand for a product, we may choose in the future to arrange for additional quantities of the product, if available, to be delivered through air freight, which is significantly more expensive than standard shipping by sea and, consequently, could harm our gross margins. Failure to procure our products from our third-party manufacturers and deliver merchandise to our retail partners and DTC channels in a timely, effective, and economically viable manner could reduce our sales and gross margins, damage our brand, and harm our business.
We also rely on the timely and free flow of goods through open and operational international shipping lanes and ports from our suppliers and manufacturers. Labor disputes or disruptions of shipping lanes, such as the Suez Canal blockage in 2021 or any issues at the Panama Canal or increased or continued delays at ports, our common carriers, or our suppliers or manufacturers could create significant risks for our business, particularly if these disputes result in work slowdowns, lockouts, strikes, or other disruptions during periods of significant importing or manufacturing, potentially resulting in delayed or cancelled orders by customers, unanticipated inventory accumulation or shortages, and harm to our business, results of operations, and financial condition.
In addition, we rely upon independent land-based and air freight carriers for product shipments from our distribution centers to our retail partners and customers who purchase through our DTC channel. We may not be able to obtain sufficient freight capacity on a timely basis or at favorable shipping rates and, therefore, may not be able to receive products from suppliers or deliver products to retail partners or customers in a timely and cost-effective manner.
Accordingly, we are subject to the risks, including labor disputes, union organizing activity, inclement weather, public health issues, and increased transportation costs, associated with our third-party manufacturers’ and carriers’ ability to provide products and services to meet our requirements. In addition, if the cost of fuel rises, the cost to deliver products may rise, which could harm our profitability.
We depend in part on our retail partners to display and present our products to customers, and our failure to maintain and further develop our relationships with our domestic retail partners could harm our business.
The physical placement of our products at our selected retail partners plays an important part in our sales strategy. Our retail sales have also increased over time. These retail partners may decide to emphasize products from our competitors, to redeploy their retail floor space to other product categories, or to take other actions that reduce their purchases and visibility of our products. We do not receive long-term purchase commitments from our retail partners, and orders received are subject to cancellation. Factors that could affect our ability to maintain or expand our sales to these retail partners include: (a) failure to accurately identify the needs of our customers; (b) a lack of customer acceptance of new products or product expansions; (c) unwillingness of our retail partners and customers to attribute premium value to our new or existing products or product expansions relative to competing products; (d) failure to obtain shelf space from our retail partners; (e) new, well-received product introductions by competitors; (f) damage to our relationships with retail partners; (g) delays or defaults on our retail partners’ payment obligations to us; and (h) store closures, decreased foot traffic, recession or other adverse effects resulting from events outside of our control, such as changes in consumer spending patterns, natural disasters, terrorist attacks or public health crises.
We cannot assure you that our retail partners will continue to carry our current products or carry any new products that we develop. If we lose any of our key retail partners or any key retail partner reduces its purchases of our existing or new products or its number of stores or operations or promotes products of our competitors over ours, our brand, as well as our results of operations and financial condition, could be harmed. Because we are a premium brand, our sales depend, in part, on retail partners effectively displaying our products, including providing attractive space and point of purchase displays in their stores, and training their sales personnel to sell our products. If our retail partners reduce or terminate those activities, we may experience reduced sales of our products, resulting in lower gross margins, which would harm our results of operations. In addition, any store closures, decreased foot traffic and recession may adversely affect the performance and the financial condition of many of these customers. The foregoing could have a material adverse effect on our business and financial condition.
Insolvency, credit problems or other financial difficulties that could confront our retail partners expose us to financial risk.
We sell to the large majority of our retail partners on open account terms and do not require collateral or a security interest in the inventory we sell them. Consequently, our accounts receivable with our retail partners are unsecured. Insolvency, credit problems, or other financial difficulties confronting our retail partners could expose us to financial risk if they are unable to pay for the products they purchase from us. As of December 31, 2024, a single retail partner accounted for 32.6% of our total outstanding accounts receivable. Impairment of outstanding accounts receivables from this and other significant retail partners, their inability to perform under their contracts, or their default in payment could materially harm our business and results of operations. In addition, financial difficulties of our retail partners could also cause them to reduce their sales staff, use of attractive displays, number or size of stores, and the amount of floor space dedicated to our products. Any reduction in sales by, or loss of, our current retail partners or customer demand, or credit risks associated with our retail partners, could harm our business, results of operations, and financial condition.
If our independent suppliers, manufacturing partners and retail partners do not comply with ethical business practices or with applicable laws and regulations, our reputation, business, and results of operations would be harmed.
Our reputation and our customers’ willingness to purchase our products depend in part on our suppliers’, manufacturers’, and retail partners’ compliance with ethical employment practices, such as with respect to child labor, wages and benefits, forced labor, discrimination, safe and healthy working conditions, and with all legal and regulatory requirements relating to the conduct of their businesses and, in the case of retail partners, the promotion and sale of our products. The U.S. government also prohibits imports of items that are made or manufactured (in whole or in part) using forced labor, including under the Tariff Act of 1937 and the Uyghur Forced Labor Protection Act, or UFLPA. While we attempt to only work with entities who agree to our Vendor Code of Conduct, we do not exercise control over our suppliers, manufacturers, and retail partners and they may not comply with ethical and lawful business practices. If our current or future suppliers, manufacturers, or retail partners fail to comply with applicable laws, regulations, safety codes, employment practices, human rights standards, quality standards, environmental standards, production practices, or other obligations, norms, or ethical standards, our reputation and brand image could be harmed, our ability to import certain items in the United States could be impacted, and we could be exposed to litigation and additional costs that would harm our business, reputation, and results of operations.
We are subject to payment-related risks that may result in higher operating costs or the inability to process payments, either of which could harm our brand, reputation, business, financial condition and results of operations.
For our DTC sales, as well as for sales to certain retail partners, we accept a variety of payment methods, including credit cards, debit cards, electronic funds transfers, electronic payment systems, and gift cards. Accordingly, we are, and will continue to be, subject to significant and evolving regulations and compliance requirements, including obligations to implement enhanced authentication processes that could result in increased costs and liability, and reduce the ease of use of certain payment methods. For certain payment methods, including credit and debit cards, as well as electronic payment systems, we pay interchange and other fees, which may increase over time. We rely on independent service providers for payment processing, including credit and debit cards. If these independent service providers become unwilling or unable to provide these services to us or if the cost of using these providers increases, our business could be harmed. We are also subject to payment card association operating rules and agreements, including data security rules and agreements, certification requirements and rules governing electronic funds transfers, which could change or be reinterpreted to make it difficult or impossible for us to comply. In particular, we must comply with the Payment Card Industry Data Security Standard, or PCI-DSS, a set of requirements designed to ensure that all companies that process, store or transmit payment card information maintain a secure environment to protect cardholder data. We rely on vendors to handle PCI-DSS matters and to ensure PCI-DSS compliance. Should a vendor be subject to claims of non-compliance, or if our data security systems are breached or compromised, we may be liable for losses incurred by card issuing banks or customers, subject to fines and higher transaction fees, lose our ability to accept credit or debit card payments from our customers, or process electronic fund transfers or facilitate other types of payments. Any failure to comply could significantly harm our brand, reputation, business, financial condition and results of operations. In addition, PCI-DSS compliance may not prevent illegal or improper use of our payment systems or the theft, loss, or misuse of payment card data or transaction information.
We may acquire or invest in other companies, which could divert our management’s attention, result in dilution to our stockholders, and otherwise disrupt our operations, harm our results of operations and negatively impact our financial condition.
We have acquired, and may in the future acquire or invest in, other businesses, products, or technologies that we believe could complement or expand our business, enhance our capabilities, or otherwise offer growth opportunities. The pursuit of potential acquisitions may divert the attention of management and cause us to incur various costs and expenses in identifying, investigating, and pursuing suitable acquisitions, whether or not they are consummated.
In any future acquisitions, we may not be able to successfully integrate acquired personnel, operations, and technologies, or effectively manage the combined business following the acquisition because of unforeseen complexity or costs. We also may not achieve the anticipated benefits from either past or future acquisitions due to a number of factors, including:
•risks associated with conducting due diligence;
•problems integrating the purchased businesses, products or technologies;
•anticipated and unanticipated costs or liabilities associated with the acquisition;
•inability to achieve anticipated synergies;
•issues maintaining uniform standards, procedures, controls and policies across our brands;
•the diversion of management’s attention from other business concerns;
•the loss of our or the acquired business’s key employees;
•adverse effects on existing business relationships with suppliers, distributors, retail partners and customers;
•risks associated with entering new markets in which we have limited or no experience;
•increased legal, accounting and compliance costs; or
•the issuance of dilutive equity securities, the incurrence of debt, or the use of cash to fund such acquisitions.
In addition, a significant portion of the purchase price of companies we acquire may be allocated to acquired goodwill and other intangible assets, which must be assessed for impairment at least annually. If our acquisitions do not yield expected returns, we may be required to take charges to our results of operations based on this impairment assessment process, which could harm our results of operations. For example, in 2024, we incurred impairment charges related to acquired goodwill associated with the IcyBreeze reporting unit after we determined to wind-down that business unit.
Our future success depends on the continuing efforts of our management and key employees, and on our ability to attract and retain highly skilled personnel and senior management.
We depend on the talents and continued efforts of our senior management, key employees and skilled personnel. The loss of members of our management, key employees or skilled personnel disrupts our business and harms our results of operations. We believe that our senior management team is key to establishing our focus and executing our corporate strategies and is difficult to replace. On February 18, 2025, we announced that our Board appointed John Larson, a member of our Board, as Interim President and Chief Executive Officer. Failure to integrate Mr. Larson into his role could affect the execution of our business strategy.
Furthermore, our ability to manage our business requires us to continue to attract, motivate, and retain additional qualified personnel. For instance, we rely on skilled and well-trained engineers for the research, development and design of our products and marketing personnel for our overall brand and individual brand’s growth. Our inability to attract or retain qualified employees in our research, development and design and marketing functions or elsewhere in our Company could result in diminished quality of our products and delinquent production schedules, impede our ability to develop new products and prevent us from growing our brand, in aggregate and individually. Competition for this type of personnel is intense, particularly in Texas where several of our brands are headquartered, and we may not be successful in attracting, integrating, and retaining the personnel required to grow and operate our business effectively, which risk is exacerbated by our current liquidity situation. There can be no assurance that our current management team, or any new members of our management team, will be able to successfully execute our business, operating strategies and liquidity initiatives.
Our plans for continuing international operations may not be successful.
Continued operations in markets outside the United States is one of our key long-term strategies for the future growth of our business. These continued operations require significant investments of capital and human resources, new business processes and marketing platforms, legal compliance, and the attention of many managers and other employees who would otherwise be focused on other aspects of our business. There are significant costs and risks inherent in selling our products in international markets, including: (a) failure to effectively establish our core brand identity; (b) increased employment costs; (c) increased shipping and distribution costs, which could increase our expenses and reduce our margins; (d) potentially lower margins in some regions; (e) longer collection cycles in some regions; (f) increased competition from local providers of similar products; (g) compliance with foreign laws and regulations, including taxes and duties, laws governing the marketing and use of e-commerce websites and enhanced data privacy laws and security, rules, and regulations; (h) establishing and maintaining effective internal controls at foreign locations and the associated increased costs; (i) increased counterfeiting and the uncertainty of protection for intellectual property rights in some countries and practical difficulties of enforcing rights abroad; (j) compliance with anti-bribery, anti-corruption, sanctions and anti-money laundering laws, such as the FCPA, the Bribery Act, and OFAC regulations, by us, our employees, and our business partners; (k) currency exchange rate fluctuations and related effects on our results of operations; (l) economic weakness, including inflation, or political instability in foreign economies and markets; (m) compliance with tax, employment, immigration, and labor laws for employees living or traveling abroad; (n) workforce uncertainty in countries where labor unrest is more common than in the United States; (o) business interruptions resulting from geopolitical actions, including war and terrorism, such as the recent wars between Russia and Ukraine and between Israel and surrounding areas, or natural disasters, including earthquakes, typhoons, floods, fires, and public health issues, including the outbreak of a pandemic or contagious disease, or xenophobia resulting therefrom; (p) the imposition of tariffs on products that we import into international markets that could make such products more expensive compared to those of our competitors; (q) our ability to expand internationally could be impacted by the intellectual property rights of third parties that conflict with or are superior to ours; (r) difficulty developing retail relationships; and (s) other costs and risks of doing business internationally.
These and other factors could harm our international operations and, consequently, harm our business, results of operations, and financial condition. Further, we may incur significant operating expenses as a result of our planned continued international operations, and they may not be successful. We have limited experience with regulatory environments and market practices internationally, and we may not be able to further penetrate or continue to successfully operate in these new markets. We may also encounter difficulty continuing operations in international markets because of limited brand recognition, leading to delayed or limited acceptance of our products by customers in these markets, and increased marketing and customer acquisition costs to continue to establish our brand. Accordingly, if we are unable to successfully continue to operate internationally or manage the complexity of our global operations, we may not achieve the expected benefits of these operations and our financial condition and results of operations could be harmed.
Our business involves the potential for injury, property damage, quality problems, product recalls, product liability and other claims against us, which could affect our earnings and financial condition.
Our Solo Stove products are designed to involve fire. If not properly handled, the fire our products involve poses significant danger for a number of reasons, including the possibility of burns, death, and significant property damage, including as a result of wildfires. As a result of fire or otherwise, if our Solo Stove or other products are defective or misused or if users of our products exercise impaired or otherwise poor judgment in the use of our products, the results could include personal injury to our customers or other third parties, death and significant property damage or destruction, and we could be exposed to significant liability and reputational damage.
As a manufacturer and distributor of consumer products, we are subject to the U.S. Consumer Products Safety Act of 1972, as amended by the Consumer Product Safety Improvement Act of 2008, which empowers the U.S. Consumer Products Safety Commission to exclude from the market products that are found to be unsafe or hazardous, and similar laws under foreign jurisdictions. Under certain circumstances, the Consumer Products Safety Commission or a comparable foreign agency could require us to repurchase or recall one or more of our products. Additionally, other laws and agencies regulate certain consumer products we sell in the United States and abroad, and more restrictive laws and regulations may be adopted in the future. Real or perceived quality problems or material defects in our current and future products could also expose us to credit, warranty or other claims. Although we currently have insurance in place, we also face exposure to product liability claims in the event that one of our products is alleged to have resulted in property damage, bodily injury or other adverse effects, and class action lawsuits related to the performance, safety or advertising of our products.
Any such quality issues or defects, product safety concerns, voluntary or involuntary product recall, government investigation, regulatory action, product liability or other claim or class action lawsuit may result in significant adverse publicity and damage our reputation and competitive position. In addition, real or perceived quality issues, safety concerns or defects could result in a greater number of product returns than expected from customers and our retail partners, and if we are required to remove, or voluntarily remove, one of our products from the market, we may have large quantities of finished products that we cannot sell. In the event of any governmental investigations, regulatory actions, product liability claims or class action lawsuits, we could face substantial monetary judgments or fines and penalties, or injunctions related to the sale of our products.
Although we maintain product liability insurance in amounts that we believe are reasonable, that insurance is, in most cases, subject to large policy premiums for which we are responsible. In addition, we may not be able to maintain such insurance on acceptable terms, if at all, in the future and product liability claims may exceed the amount of insurance coverage. We maintain a limited amount of product recall insurance and may not have adequate insurance coverage for claims asserted in class action lawsuits. As a result, product recalls, product liability claims and other product-related claims could have a material adverse effect on our business, results of operations and financial condition. We devote substantial resources to compliance with governmental and other applicable standards. However, compliance with these standards does not necessarily prevent individual or class action lawsuits, which can entail significant cost and risk. As a result, these types of claims could have a material adverse effect on our business, results of operations and financial condition.
Our collection, use, storage, disclosure, transfer and other processing of personal information could give rise to significant costs and liabilities, including as a result of governmental regulation, uncertain or inconsistent interpretation and enforcement of legal requirements or differing views of personal privacy rights, which may have a material adverse effect on our reputation, business, financial condition and results of operations.
We collect, store, process, transmit and use personal data that is sensitive to the Company and its employees, customers and suppliers. A variety of state, federal, and foreign laws, regulations and industry standards apply to the collection, use, retention, protection, disclosure, transfer and other processing of certain types of data, including the California Consumer Privacy Act, as amended by the California Privacy Rights Act, (collectively, the “CCPA”), Canada’s Personal Information Protection and Electronic Documents Act, the General Data Protection Regulation (the “GDPR”), and the UK General Data Protection Regulation and the UK Data Protection Act 2018 (collectively the “UK GDPR”). As we seek to expand our business, we are, and may increasingly become subject to various laws, regulations and standards, as well as contractual obligations, relating to data privacy and security in the jurisdictions in which we operate. These laws, regulations and standards are continuously evolving and may be interpreted and applied differently over time and from jurisdiction to jurisdiction. We cannot yet determine the impact future laws, regulations, standards, or perception of their requirements may have on our business, and it is possible that they will be interpreted and applied in ways that may have a material adverse effect on our reputation, business, financial condition and results of operations. This evolution may affect our ability to operate in certain jurisdictions or to collect, store, transfer, use and share personal information, necessitate the acceptance of more onerous obligations in our contracts, result in liability or impose additional costs on us. Any failure or perceived failure by us to comply with federal, state or foreign laws or regulations, our internal policies and procedures or our contracts governing our processing of personal information could result in negative publicity, government investigations and enforcement actions, claims by third parties and damage to our reputation, any of which could have a material adverse effect on our business, results of operations, and financial condition.
U.S. Privacy Laws
Domestic privacy and data security laws are complex and changing rapidly. Within the United States, many states are considering adopting, or have already adopted, privacy regulations. For example, the California Consumer Privacy Act of 2018, as amended by the California Privacy Rights Act (collectively, the “CCPA”) requires covered businesses that process the personal information of California residents to, among other things: (i) provide certain disclosures to California residents regarding the business’s collection, use, and disclosure of their personal information; (ii) receive and respond to requests from California residents to access, delete, and correct their personal information, or to opt out of certain disclosures of their personal information; and (iii) enter into specific contractual provisions with service providers that process California resident personal information
on the business’s behalf. Additional compliance investment and potential business process changes may also be required. In addition, similar laws have been passed in other states, and are continuing to be proposed at the state and federal level, reflecting a trend toward more stringent privacy legislation in the United States. Together, these laws will add additional complexity, variation in requirements, restrictions and potential legal risk, require additional investment in resources to compliance programs, could impact strategies and availability of previously useful data, and could result in increased compliance costs and/or changes in business practices and policies.
Our communications with our customers are subject to certain laws and regulations, including the Controlling the Assault of Non-Solicited Pornography and Marketing, or CAN-SPAM, Act of 2003, the Telephone Consumer Protection Act of 1991, or TCPA, and the Telemarketing Sales Rule and analogous state laws, that could expose us to significant damages awards, fines and other penalties that could materially impact our business. For example, the TCPA imposes various consumer consent requirements and other restrictions in connection with certain telemarketing activity and other communication with consumers by phone, fax or text message. The CAN-SPAM Act and the Telemarketing Sales Rule and analogous state laws also impose various restrictions on marketing conducted use of email, telephone, fax or text message. As laws and regulations, including the Federal Trade Commission, or FTC, enforcement, rapidly evolve to govern the use of these communications and marketing platforms, the failure by us, our employees or third parties acting at our direction to abide by applicable laws and regulations could adversely impact our business, financial condition and results of operations or subject us to fines or other penalties. The Federal Communications Commission, as the agency that implements and enforces the TCPA, may disagree with our interpretation of the TCPA and subject us to penalties and other consequences for noncompliance. Determination by a court or regulatory agency that our practices violate the TCPA could subject us to civil penalties and could require us to change some portions of our business. Even an unsuccessful challenge by plaintiffs or regulatory authorities of our activities could result in adverse publicity and could require a costly response from and defense by us.
In addition, some laws may require us to notify governmental authorities, supervisory bodies, the media, other parties, and/or affected individuals of data breaches involving certain personal information or other unauthorized or inadvertent access to or disclosure of such information. For example, laws in all 50 U.S. states may require businesses to provide notice to consumers whose personal information has been disclosed as a result of a data breach. These laws are not consistent, and compliance in the event of a widespread data breach may be difficult and costly. We also may be contractually required to notify consumers or other counterparties of a security breach. Any actual or perceived security breach or breach resulting in a loss of, or damage to, our data systems or inappropriate disclosure of confidential or proprietary or personal information could harm our reputation and brand, erode confidence in the effectiveness of our security measures and lead to regulatory scrutiny, expose us to potential liability, including litigation exposure, penalties and fines, regulatory action or investigation, or require us to expend significant resources on data security and in responding to any such actual or perceived breach, which could materially and adversely affect our business, results of operations or financial condition.
Non-U.S. Privacy Laws
In Canada, the Personal Information Protection and Electronic Documents Act, or PIPEDA, and various provincial laws require that companies give detailed privacy notices to consumers, obtain consent to use personal information, with limited exceptions, allow individuals to access and correct their personal information, and report certain data breaches. In addition, Canada’s Anti-Spam Legislation, or CASL, prohibits email marketing without the recipient’s consent, with limited exceptions. Failure to comply with PIPEDA, CASL, or provincial privacy or data protection laws could result in significant fines and penalties or possible damage awards.
In the European Economic Area (the “EEA”), we are subject to the GDPR and in the United Kingdom, or UK, we are subject to the UK GDPR, in each case in relation to our collection, control, processing, sharing, international transfers, disclosure and other use of personal data. The GDPR and national implementing legislation in EEA member states, and the UK regime, impose a strict data protection compliance regime including: providing detailed disclosures about how personal data is collected and processed (in a concise, intelligible and easily accessible form); demonstrating that an appropriate legal basis is in place or otherwise exists to justify data processing activities; granting rights for data subjects in regard to their personal data (including data access rights, the right to be “forgotten” and the right to data portability); introducing the obligation to notify data protection regulators or supervisory authorities (and in certain cases, affected individuals) of significant data breaches; defining pseudonymized (i.e., key-coded) data; imposing limitations on retention of personal data; maintaining a record of data processing; and complying with the principal of accountability and the obligation to demonstrate compliance through policies, procedures, training and audit. The GDPR and the UK GDPR impose substantial fines for breaches and violations (up to the greater of €20 million (or £17.5 million) or 4% of global annual turnover). In addition to fines, a breach may result in regulatory investigations, reputational damage, orders to cease/ change our data processing activities, enforcement notices, assessment notices (for a compulsory audit) and/ or civil claims (including class actions). Since we are under the supervision of relevant data protection authorities in the EEA and the UK, we may be fined under both the GDPR and UK GDPR for the same breach. In addition to the foregoing, a breach of the GDPR or UK GDPR could result in regulatory investigations, reputational damage, orders to cease/ change our processing of our data, enforcement notices, and/ or assessment notices (for a compulsory audit). We may also face civil claims including representative actions and other class action type litigation (where individuals have suffered harm), potentially amounting to significant compensation or damages liabilities, as well as associated costs, diversion of internal resources, and reputational harm. As we continue to expand into other foreign countries and jurisdictions, we may be subject to additional laws and regulations that may affect how we conduct business.
Third Party Data Processing and Transfers
We depend on a number of third parties in relation to the operation of our business, a number of which process personal data on our behalf. With each such provider we attempt to mitigate the associated risks of using third parties by performing security assessments and due diligence, entering into contractual arrangements to ensure that providers only process personal data according to our instructions, and that they have sufficient technical and organizational security measures in place. There is no assurance that these contractual measures and our own privacy and security-related safeguards will protect us from the risks associated with the third-party processing, storage and transmission of such information. Any violation of data or security laws by our third party processors could have a material adverse effect on our business and result in the fines and penalties outlined below.
We are also subject to the European Union, or EU, and UK rules with respect to cross-border transfers of personal data from the EEA and the UK to the United States and other jurisdictions that the European Commission/ UK competent authorities do not recognize as having “adequate” data protection laws unless a data transfer mechanism has been put in place, and the efficacy and longevity of current transfer mechanisms between the EEA and the United States remains uncertain. Case law from the Court of Justice of the European Union, or CJEU, states that reliance on the standard contractual clauses - a standard form of contract approved by the European Commission as an adequate personal data transfer mechanism - alone may not necessarily be sufficient in all circumstances and that transfers must be assessed on a case-by-case basis. In relation to cross-border transfers of personal data, we expect the existing legal complexity and uncertainty regarding international personal data transfers to continue. In particular, we expect the European Commission approval of the current EU-US Data Privacy Framework for data transfers to be certified entities in the United States to be challenged and international transfers to the United States and to other jurisdictions more generally to continue to be subject to enhanced scrutiny by regulators. On October 12, 2023, the UK Extension to the Data Privacy Framework came into effect (as approved by the UK Government), as a data transfer mechanism from the UK to U.S. entities self-certified under the Data Privacy Framework. As we continue to expand into other foreign countries and jurisdictions, we may be subject to additional laws and regulations that may affect how we conduct business. As a result, we may have to make certain operational changes and we will have to implement revised standard contractual clauses and other relevant documentation for existing data transfers within required time frames. As supervisory authorities issue further guidance on personal data export mechanisms, including circumstances where the SCCs cannot be used, and/or start taking enforcement action, we could suffer additional costs, complaints and/or regulatory investigations or fines, and/or if we are otherwise unable to transfer personal data between and among countries and regions in which we operate, it could affect the manner in which we provide our services, the geographical location or segregation of our relevant systems and operations, and could adversely affect our financial results.
Self-Regulatory Industry Standards
In addition to government regulation, privacy advocates and industry groups have proposed, and may propose in the future, self-regulatory standards. These and other industry standards may legally or contractually apply to us, or we may elect to comply with such standards. If we fail to comply with these contractual obligations or standards, we may face substantial liability or fines. We expect that there will continue to be new proposed laws and regulations concerning data privacy and security in the United States and other jurisdictions in which we operate. We cannot yet determine the impact such future laws, regulations and standards may have on our business or operations.
Consumer Protection Laws and FTC Enforcement
We make public statements about our use and disclosure of personal information through our privacy policies that are posted on our websites. The publication of our privacy policies and other statements that provide promises and assurances about data privacy and security can subject us to potential government or legal action if they are found to be deceptive, unfair or misrepresentative of our actual practices.
In addition, the FTC expects a company’s data security measures to be reasonable and appropriate in light of the sensitivity and volume of consumer information it holds, the size and complexity of its business, and the cost of available tools to improve security and reduce vulnerabilities. Our failure to take any steps perceived by the FTC as appropriate to protect consumers’ personal information may result in claims by the FTC that we have engaged in unfair or deceptive acts or practices in violation of Section 5(a) of the FTC Act. State consumer protection laws provide similar causes of action for unfair or deceptive practices for alleged privacy, data protection and data security violations. Federal and state consumer protection laws are also increasingly being applied by FTC and states’ attorneys general to regulate the collection, use, storage, and disclosure of personal or personally identifiable information, through websites or otherwise, and to regulate the presentation of website content.
We rely on a variety of marketing techniques and practices to sell our products and to attract new customers and consumers, and we are subject to various current and future data protection laws and obligations that govern marketing and advertising practices. Governmental authorities continue to evaluate the privacy implications inherent in the use of third-party “cookies” and other methods of online tracking for behavioral advertising and other purposes, such as by regulating the level of consumer notice and consent required before a company can employ cookies or other electronic tracking tools or the use of data gathered with such tools. In particular, we are subject to evolving EU and UK privacy laws on cookies, tracking technologies and e-marketing. In the EU and the UK, regulators are increasingly focusing on compliance with requirements in the online behavioral advertising ecosystem, and informed consent is required for the placement of certain cookies or similar technologies on a user’s device and for direct electronic marketing. The GDPR also imposes conditions on obtaining valid consent, such as a prohibition on pre-checked consents and a requirement to ensure separate consents are sought for each type of cookie or similar technology. Further, recent European court and regulator decisions and guidance and recent campaigns by a not for profit organization are driving increased attention to cookies and tracking technologies. If regulators start to enforce the strict approach to opt-in consent for all but essential use cases, as seen in recent guidance and decisions, this could lead to substantial costs, require significant systems changes, limit the effectiveness of our marketing activities, divert the attention of our technology
personnel, adversely affect our margins, increase costs and subject us to additional liabilities. In light of the complex and evolving nature of EEA and UK privacy laws on cookies and tracking technologies, there can be no assurance that we will be successful in our efforts to comply with such laws; violations of such laws could result in regulatory investigations, fines, orders to cease / change our use of such technologies, as well as civil claims including class actions and reputational damage. Additionally, some providers of consumer devices, web browsers and application stores have implemented, or announced plans to implement, means to make it easier for Internet users to prevent the placement of cookies or to block other tracking technologies, require additional consents, or limit the ability to track user activity, which could if widely adopted result in the use of third-party cookies and other methods of online tracking becoming significantly less effective. Private parties are also seeking to limit the ability to monitor and market customer behavior. Those increased limitations may also impact marketing techniques and effectiveness.
We rely significantly on the use of information technology, as well as those of our third party service providers. Any significant failure, inadequacy, interruption or data security incident of our information technology systems, or those of our third-party service providers, could disrupt our business operations, which could have a material adverse effect on our business, prospects, results of operations, financial condition and/or cash flows.
Information Technology Dependencies
We increasingly rely on information technology systems to market and sell our products, process, transmit and store electronic and financial information, manage a variety of business processes and activities and comply with regulatory, legal and tax requirements. We are increasingly dependent on the reliability and capacity of a variety of information systems to effectively manage our business, process customer orders, and coordinate the manufacturing, sourcing, distribution and sale of our products. We rely on information technology systems to effectively manage, among other things, our digital marketing activities, business data, electronic communications among our personnel, customers, manufacturers and suppliers around the world, supply chain, inventory management, customer order entry and order fulfillment, processing transactions, summarizing and reporting results of operations, human resources benefits and payroll management, compliance with regulatory, legal and tax requirements and other processes and data necessary to manage our business. These information technology systems, most of which are managed by third parties, may be susceptible to damage, disruptions or shutdowns due to failures during the process of upgrading or replacing software, databases or components, power outages, hardware failures, computer viruses, and malware (e.g. ransomware), misconfigurations, “bugs” or other vulnerabilities, malicious code, natural disasters, terrorism, war, telecommunication and electrical failures, cyberattacks, phishing attacks and other social engineering schemes, employee theft or misuse, human error, fraud, denial or degradation of service attacks, sophisticated nation-state and nation-state--supported actor, attacks by computer hackers, telecommunication failures, user errors or catastrophic events. Any material disruption of our systems, or the systems of our third-party service providers, could disrupt our ability to track, record and analyze the products that we sell and could negatively impact our operations, shipment of goods, ability to process financial information and transactions, and our ability to receive and process online orders or engage in normal business activities. If our information technology systems suffer damage, disruption or shutdown and we do not effectively resolve the issues in a timely manner, our business, financial condition and results of operations may be materially and adversely affected, and we could experience delays in reporting our financial results.
E-commerce is central to our business. We generate a majority of our sales through our websites, which is also a key component of our marketing strategy. We supplement our websites through relationships with select third-party e-commerce marketplaces, such as Amazon. As we do not control our third-party service providers, we cannot guarantee that they will respond satisfactorily to website downtime and other technical failures. Our or such third parties’ failure to successfully respond to these risks could reduce e-commerce sales and, in the case of our website, damage our brand’s reputation. The future operation, success and growth of our business depends on streamlined processes made available through information systems, global communications, internet activity and other network processes.
Our information technology systems, and those of our third-party service providers, strategic partners, and other contractors or consultants, may be subject to damage or interruption from telecommunications problems, data corruption, software errors, fire, flood, global pandemics and other natural disasters, power outages, systems disruptions, system conversions, and/or human error. Our existing safety systems, data backup, access protection, user management and information technology emergency planning may not be sufficient to prevent data loss or long-term network outages.
In addition, we may have to upgrade our existing information technology systems or choose to incorporate new technology systems from time to time in order for such systems to support the increasing needs of our expanding business. Costs and potential problems and interruptions associated with the implementation of new or upgraded systems and technology or with maintenance or adequate support of existing systems could disrupt or reduce the efficiency of our operations, including through impairment of our ability to leverage our e-commerce channels and fulfill customer orders, potential disruption of our internal control structure, substantial capital expenditures, additional administration and operating expenses, acquisition and retention of sufficiently skilled personnel to implement and operate the new systems, demands on management time, the introduction of errors or vulnerabilities and other risks and costs of delays or difficulties in transitioning to or integrating new systems into our current systems. These implementations, modifications and upgrades may not result in productivity improvements at a level that outweighs the costs of implementation, or at all. Additionally, difficulties with implementing new technology systems, delays in our timeline for planned improvements, significant system failures, or our inability to successfully modify our information systems to respond to changes in our business needs may cause disruptions in our business operations and have a material adverse effect on our business, financial condition and results of operations.
Further, as part of our normal business activities, we collect and store certain confidential information, including personal information with respect to customers and employees, as well as information related to intellectual property, and the success of our e-commerce operations depends on the secure transmission of confidential and personal data over public networks, including the use of cashless payments. We may share some of this information with third party service providers who assist us with certain aspects of our business. Any failure on the part of us or our third party service providers
to maintain the security of this confidential data and personal information, including via the penetration of our network security (or those of our third party service providers) and the misappropriation of confidential and personal information, could result in business disruption, damage to our reputation, financial obligations to third parties, fines, penalties, regulatory proceedings and private litigation, any or all of which could result in the Company incurring potentially substantial costs. Such events could also result in the deterioration of confidence in the Company by employees, consumers and customers and cause other competitive disadvantages.
Security Incidents
Security incidents compromising the confidentiality, integrity, and availability of our confidential or personal information and our third-party service providers’ information technology systems could result from cyber-attacks, computer malware, viruses, social engineering (including spear phishing and ransomware attacks), credential stuffing, supply chain attacks, efforts by individuals or groups of hackers and sophisticated organizations, including state-sponsored organizations, errors or malfeasance of our personnel, and security vulnerabilities in the software or systems on which we and our third party service providers rely. Any of these incidents could lead to interruptions or shutdowns of our platform, loss or corruption of data, or unauthorized access to or disclosure of personal data or other sensitive information. Cyberattacks could also result in the theft of our intellectual property. If we gain greater visibility, we may face a higher risk of being targeted by cyberattacks. Advances in computer capabilities, new technological discoveries or other developments may result in cyberattacks becoming more sophisticated and more difficult to detect. We and our third-party service providers may not have the resources or technical sophistication to anticipate or prevent all such cyberattacks. Moreover, techniques used to obtain unauthorized access to systems change frequently and may not be known until launched against us or our third-party service providers. Security breaches can also occur as a result of non-technical issues, including intentional or inadvertent actions by our employees, our third-party service providers, or their personnel.
Moreover, we and our third-party service providers may be more vulnerable to such attacks in remote work environments. As techniques used by cyber criminals change frequently, a disruption, cyberattack or other security breach of our information technology systems or infrastructure, or those of our third-party service providers, may go undetected for an extended period and could result in the theft, transfer, unauthorized access to, disclosure, modification, misuse, loss or destruction of our employee, representative, customer, vendor, consumer and/or other third-party data, including sensitive or confidential data, personal information and/or intellectual property. We cannot guarantee that our security efforts will prevent breaches or breakdowns of the Company’s or its third-party service providers’ information technology systems. If we or our third party service providers suffer, or are believed to have suffered, a material loss or disclosure of personal or confidential information as a result of an actual or potential breach of our information technology systems, we may suffer reputational, competitive and/or business harm, incur significant costs and be subject to government investigations, litigation, fines and/or damages, which could have a material adverse effect on our business, prospects, results of operations, financial condition and/or cash flows. Moreover, while we maintain cyber insurance that may help provide coverage for these types of incidents, we cannot assure you that our insurance will be adequate to cover financial, legal, business, or reputational losses, costs, and liabilities related to these incidents. There can be no assurance that our cybersecurity risk management program and processes, including our IRP, and other preventative actions the Company has taken and continues to take to reduce the risk of cybersecurity threats and incidents and protect its systems and information, will be fully implemented, complied with or successful in protecting against all cybersecurity threats and incidents.
In addition, any such access, disclosure or other loss or unauthorized use of information or data, whether actual or perceived, could result in legal claims or proceedings, regulatory investigations or actions, and other types of liability under laws that protect the privacy and security of personal information, including federal, state and foreign data protection and privacy regulations, violations of which could result in significant penalties and fines in the United States, Canada, EU and UK. Further, the costs associated with the investigation, remediation and potential notification of the breach to counter-parties and data subjects could be material. In addition, although we seek to detect and investigate all data security incidents, security breaches and other incidents of unauthorized access to our information technology systems and data can be difficult to detect and even if identified, we may be unable to adequately investigate or remediate incidents or breaches due to attackers increasingly using tools and techniques that are designed to circumvent controls, to avoid detection, and to remove or obfuscate forensic evidence. Any delay in identifying such breaches or incidents may lead to increased harm and legal exposure of the type described above.
Our business may be affected by the evolving regulatory framework for AI Technologies.
We have incorporated and expect in the future that we will continue to incorporate machine learning and artificial intelligence technologies
(collectively, “AI Technologies”) into our business operations. For example, we are currently using chatbots as one of our customer service tools. As the use of AI Technologies is a novel business model without an established track record, data sourcing, technology, integration and process issues, program bias into decision-making algorithms, concerns over intellectual property, the evolving regulatory landscape, security problems, and the protection of privacy could impair the adoption and acceptance of AI solutions and expose us to new risks. Furthermore, any sensitive information that we input into a third-party generative AI platform could be leaked or disclosed to others, including if sensitive information is used to train the third party’s model.
The regulatory framework for AI Technologies is rapidly evolving as many federal, state, and foreign government bodies and agencies have introduced or are currently considering additional laws and regulations. Additionally, existing laws and regulations may be interpreted in ways that would affect the operation of our AI Technologies. As a result, implementation standards and enforcement practices are likely to remain uncertain for the foreseeable future, and we cannot yet determine the impact future laws, regulations, standards, or market perception of their requirements may have on our business and may not always be able to anticipate how to respond to these laws or regulations.
It is possible that new laws and regulations will be adopted in the United States and in other non-U.S. jurisdictions, or that existing laws and regulations, including competition and antitrust laws, may be interpreted in ways that would limit our ability to use AI Technologies for our business,
or require us to change the way we use AI Technologies in a manner that negatively affects the performance of our products, services, and business
and the way in which we use AI Technologies. We may need to expend resources to adjust our products or services in certain jurisdictions if the laws, regulations, or decisions are not consistent across jurisdictions. Further, the cost to comply with such laws, regulations, or decisions and/or guidance interpreting existing laws, could be significant and would increase our operating expenses (such as by imposing additional reporting obligations regarding our use of AI Technologies). Such an increase in operating expenses, as well as any actual or perceived failure to comply with such laws and regulations, could adversely affect our business, financial condition and results of operations. Any failure or perceived failure by us to comply with our policies or applicable legal and regulatory requirements related to consumer protection, information security, data protection, use of AI and privacy could result in a loss of confidence in us; damage to our brands; the loss of users of our services, consumers, business partners and advertisers; and proceedings against us by governmental authorities or others, including regulatory fines and private litigation, any of which could hinder our operations and adversely affect our business.
Our business may be adversely affected if we are unable to provide our customers a cost-effective e-commerce platform that is able to respond and adapt to rapid changes in technology.
The number of people who access the internet through devices other than personal computers, including mobile phones, smartphones, handheld computers such as notebooks and tablets, video game consoles, and television set-top devices, has increased dramatically in the past few years. The smaller screen size, functionality, and memory associated with some alternative devices may make the use of our sites and purchasing our products more difficult. The versions of our e-commerce sites developed for these devices may not be compelling to consumers. In addition, it is time consuming and costly to keep pace with rapidly changing and continuously evolving technology. In 2024, the majority of orders were placed from a mobile device. However, we cannot be certain that our mobile applications or our mobile-optimized sites will be successful in the future.
As existing mobile devices and e-commerce platforms evolve and new mobile devices and e-commerce platforms are released, it is difficult to predict the problems we may encounter in adjusting and developing applications for changed and alternative devices and platforms, and we may need to devote significant resources to the creation, support and maintenance of such applications. If we are unable to attract consumers to our e-commerce websites through these devices or are slow to develop a version of our websites that is more compatible with alternative devices or a mobile application, we may fail to capture a significant share of consumers, which could materially and adversely affect our business.
Government regulation of the Internet and e-commerce is evolving, and unfavorable changes or failure by us to comply with these regulations could substantially harm our business and results of operations.
We are subject to general business regulations and laws as well as regulations and laws specifically governing the Internet and e-commerce. Existing and future regulations and laws could impede the growth of the Internet, e-commerce or mobile commerce. These regulations and laws may involve taxes, tariffs, privacy, data protection, data security, anti-spam, content protection, electronic contracts and communications, consumer protection, website accessibility, Internet neutrality and gift cards. It is not clear how existing laws governing issues such as property ownership, sales and other taxes and consumer privacy apply to the Internet as many of these laws were adopted prior to the advent of the Internet and do not contemplate or address the unique issues raised by the Internet or e-commerce. It is possible that general business regulations and laws, or those specifically governing the Internet or e-commerce, may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices. We cannot be sure that our practices have complied, comply or will comply fully with all such laws and regulations. Any failure, or perceived failure, by us to comply with any of these laws or regulations could result in damage to our reputation, a loss in business and proceedings or actions against us by governmental entities or others. Any such proceeding or action could hurt our reputation, force us to spend significant amounts in defense of these proceedings, distract our management, increase our costs of doing business, decrease the use of our sites by consumers and suppliers and may result in the imposition of monetary liability. We may also be contractually liable to indemnify and hold harmless third parties from the costs or consequences of non-compliance with any such laws or regulations. In addition, it is possible that governments of one or more countries or territories may seek to censor content available on our sites or may even attempt to completely block access to our sites. Adverse legal or regulatory developments could substantially harm our business. In particular, in the event that we are restricted, in whole or in part, from operating in one or more countries or territories, our ability to retain or increase our customer base may be adversely affected, and we may not be able to maintain or grow our net sales and expand our business as anticipated.
We have identified a material weakness in our internal control over financial reporting, which, if not corrected, could affect the reliability of our consolidated financial statements and have other adverse consequences.
As a public company, we are required to comply with the SEC’s rules implementing Sections 302 and 404 of the Sarbanes-Oxley Act, which require management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of internal controls over financial reporting. However, as an emerging growth company, our independent registered public accounting firm will not be required to formally attest to the effectiveness of our internal control over financial reporting pursuant to Section 404(b) until the date we are no longer an emerging growth company. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating.
To comply with the requirements of being a public company, we have undertaken various actions, and may need to take additional actions, such as implementing new internal controls and procedures and hiring additional accounting or internal audit staff. Testing and maintaining internal controls can divert our management’s attention from other matters that are important to the operation of our business. Additionally, during the fourth quarter
of 2024, a material weakness in our internal control over financial reporting was identified for the aggregation of control deficiencies over segregation of duties, information technology change management, and finance resource constraints in the Company’s accounting function supporting the preparation and review of significant accounting transactions. We are taking steps to remediate these deficiencies and continue to devote significant time and attention to these efforts. However, the material weakness will not be considered remediated until the applicable remedial processes and procedures have been in place for a sufficient period of time and management has concluded, through testing, that these controls are effective. For more information on this material weakness, please see “Part II - Item 9A - Controls and Procedures” of this annual report on Form 10-K.
We cannot assure you that we will be able to correct this material weakness in a timely manner, or be able to identify and remediate additional control deficiencies, including material weaknesses, in the future. If we do not successfully remediate the material weakness, or if other material weaknesses or other deficiencies arise in the future, we may be unable to accurately report our financial results, which could cause our financial results to be materially misstated. In such case, we may be unable to comply with the requirements of Section 404 in a timely manner, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our Class A common stock could be adversely affected, and we could become subject to investigations by the stock exchange on which our securities are listed, the SEC or other regulatory authorities, which could require additional financial and management resources.
Our results of operations are subject to seasonal and quarterly variations, which could cause the price of our common stock to decline.
We believe that our sales include a seasonal component. In the DTC channel, our historical net sales tend to be highest in our second and fourth quarters, while our retail channel has generated higher sales in the first and third quarters. However, fluctuations in our quarterly operating results and the price of our common stock may be particularly pronounced in the current economic environment.
Our annual and quarterly results of operations may also fluctuate significantly as a result of a variety of other factors, including, among other things, the timing of the introduction of and advertising for our new products and those of our competitors and changes in our product mix. Variations in weather conditions may also harm our quarterly results of operations. In addition, we may not be able to adjust our spending in a timely manner to compensate for any unexpected shortfall in our sales. As a result of these seasonal and quarterly fluctuations, we believe that comparisons of our results of operations between different quarters within a single fiscal year, or the same quarters of different fiscal years, are not necessarily meaningful and that these comparisons cannot be relied upon as indicators of our future performance. In the event that any seasonal or quarterly fluctuations in our net sales and results of operations result in our failure to meet our forecasts or the forecasts of the research analysts that may cover us in the future, the market price of our common stock could fluctuate or decline.
If our goodwill, other intangible assets, or fixed assets become impaired, we may be required to record a charge to our earnings.
We have in the past and may be required to record future impairments of goodwill, other intangible assets, or fixed assets to the extent the fair value of these assets falls below their book value. For example, in 2024, we incurred impairment charges related to acquired goodwill associated with IcyBreeze reporting unit after we determined to wind-down that business unit. Our estimates of fair value are based on assumptions regarding future cash flows, gross margins, expenses, discount rates applied to these cash flows, and current market estimates of value. Estimates used for future sales growth rates, gross profit performance, and other assumptions used to estimate fair value could cause us to record material non-cash impairment charges, which could harm our results of operations and financial condition.
We are subject to credit risk.
We are exposed to credit risk primarily on our accounts receivable. We provide credit to our retail partners in the ordinary course of our business. While we believe that our exposure to concentrations of credit risk with respect to trade receivables is mitigated by limiting our retail partners to well-known businesses, we nevertheless run the risk of our retail partners not being able to meet their payment obligations, particularly in a future economic downturn. If a material number of our retail partners are not able to meet their payment obligations, our results of operations could be harmed.
An adverse determination in any material product liability related claim against us could adversely affect our operating results or financial condition.
The use of our products by consumers, exposes us to risks associated with product liability claims. If our products are defective or used incorrectly by our customers, bodily injury, property damage or other injury, including death, may result in, and could give rise to product liability claims against us, which could adversely affect our brands' image or reputation. We have encountered product liability claims in the past and carry product liability insurance to help protect us against the costs of such claims, although our insurance may not be sufficient to cover all losses. Any losses that we may suffer from product liability claims, and the effect that any product liability litigation may have upon the reputation and marketability of our products, may have a negative impact on our business, financial condition or results of operations.
Risks Related to Our Organizational Structure and the Tax Receivable Agreement
Solo Brands, Inc.’s sole material asset is its interest in Holdings, and, accordingly, it will depend on distributions from Holdings to pay its taxes and expenses, including payments under the Tax Receivable Agreement. Holdings’ ability to make such distributions may be subject to various limitations and restrictions.
Solo Brands, Inc. is a holding company and has no material assets other than its ownership in Holdings. As such, Solo Brands, Inc. has no independent means of generating revenue or cash flow, and its ability to pay taxes and operating expenses or declare and pay dividends in the future, if any, is dependent upon the financial results and cash flows of Holdings and its subsidiaries, and distributions Solo Brands, Inc. receives from Holdings. There can be no assurance that Holdings and its subsidiaries will generate sufficient cash flow to distribute funds to Solo Brands, Inc., or that applicable state law and contractual restrictions, including negative covenants in any debt agreements of Holdings or its subsidiaries (including the Revolving Credit Facility), will permit such distributions. The terms of Holdings’ or its subsidiaries’ current and future debt instruments or other agreements may restrict the ability of Holdings to make distributions to Solo Brands, Inc. or of Holdings’ subsidiaries to make distributions to Holdings.
Holdings is treated as a partnership for U.S. federal income tax purposes and, as such, generally will not be subject to any entity-level U.S. federal income tax. Instead, taxable income will be allocated to holders of LLC Interests, including Solo Brands, Inc. Accordingly, Solo Brands, Inc. will incur income taxes on its allocable share of any net taxable income of Holdings. Under the terms of the Holdings LLC Agreement, Holdings will be obligated, subject to various limitations and restrictions, including with respect to any debt agreements (including the Credit Facility), to make tax distributions to holders of LLC Interests, including Solo Brands, Inc. In addition to tax expenses, Solo Brands, Inc. will also incur expenses related to its operations, including payments under the Tax Receivable Agreement, which could be substantial. Solo Brands, Inc. intends, as its sole manager, to cause Holdings to make cash distributions to the owners of LLC Interests in an amount sufficient to (i) fund all or part of such owners’ tax obligations in respect of taxable income allocated to such owners and (ii) cover Solo Brands, Inc.’s operating expenses, including payments under the Tax Receivable Agreement. However, Holdings’ ability to make such distributions may be subject to various limitations and restrictions, such as restrictions on distributions under contracts or agreements to which Holdings is then a party, including debt agreements, or any applicable law, or that would have the effect of rendering Holdings insolvent. Further, under certain circumstances, the existing covenants under the Revolving Credit Facility regarding tax distributions may not permit Holdings or its subsidiaries to make the full amount of tax distributions contemplated under the Holdings LLC Agreement unless another exception to such covenants is available; and there can be no assurance that any such other exception will be available. If Solo Brands, Inc. does not have sufficient funds to pay tax or other liabilities or to fund its operations, it may have to borrow funds, which could materially adversely affect its liquidity and financial condition and subject it to various restrictions imposed by any such lenders. To the extent that Solo Brands, Inc. is unable to make timely payments under the Tax Receivable Agreement for any reason, the unpaid amounts will be deferred and will accrue interest until paid. Solo Brands, Inc.’s failure to make any payment required under the Tax Receivable Agreement (including any accrued and unpaid interest) within 60 calendar days of the date on which the payment is required to be made will constitute a material breach of a material obligation under the Tax Receivable Agreement, which will terminate the Tax Receivable Agreement and accelerate future payments thereunder, unless the applicable payment is not made because (i) Holdings is prohibited from making such payment under the terms of the Tax Receivable Agreement or the terms governing certain of its indebtedness or (ii) Holdings does not have, and despite using commercially reasonable efforts cannot obtain, sufficient funds to make such payment. In addition, if Holdings does not have sufficient funds to make distributions, its ability to declare and pay cash dividends will also be restricted or impaired.
Under the Holdings LLC Agreement, Holdings will, from time to time, make distributions in cash to its equity holders (including Solo Brands, Inc.) pro rata, in amounts at least sufficient to cover the taxes on their allocable share of taxable income of Holdings (subject to the limitations and restrictions described above, including under the Credit Facility). As a result of (i) potential differences in the amount of net taxable income allocable to Solo Brands, Inc. and to Holdings’ other equity holders, (ii) the lower tax rates currently applicable to corporations as opposed to individuals, and (iii) the favorable tax benefits that Solo Brands, Inc. anticipates from any purchase of LLC Interests from the Continuing LLC Owners in connection with the Transactions and future redemptions or exchanges of LLC Interests by the Continuing LLC Owners for Solo Brands, Inc. Class A common stock or cash pursuant to the Holdings LLC Agreement, tax distributions payable to Solo Brands, Inc. may be in amounts that exceed its actual tax liabilities with respect to the relevant taxable year, including its obligations under the Tax Receivable Agreement. Solo Brands, Inc.’s board of directors will determine the appropriate uses for any excess cash so accumulated, which may include, among other uses, the payment of other expenses or dividends on Solo Brands, Inc.’s stock, although Solo Brands, Inc. will have no obligation to distribute such cash (or other available cash) to its stockholders.
Except as otherwise determined by Solo Brands, Inc. as the sole manager of Holdings, no adjustments to the exchange ratio for LLC Interests and corresponding shares of Solo Brands, Inc. Class A common stock will be made as a result of any cash distribution by Solo Brands, Inc. or any retention of cash by Solo Brands, Inc. To the extent Solo Brands, Inc. does not distribute such excess cash as dividends on its Solo Brands, Inc. Class A common stock, it may take other actions with respect to such excess cash-for example, holding such excess cash or lending it (or a portion thereof) to Holdings, which may result in shares of Solo Brands, Inc. Class A common stock increasing in value relative to the value of LLC Interests. The Continuing LLC Owners may benefit from any value attributable to such cash balances if they acquire shares of Solo Brands, Inc. Class A common stock in exchange for their LLC Interests, notwithstanding that such holders may previously have participated as holders of LLC Interests in distributions by Holdings that resulted in such excess cash balances.
The Tax Receivable Agreement requires Solo Brands, Inc. to make cash payments to the Continuing LLC Owners in respect of certain tax benefits to which Solo Brands, Inc. may become entitled, and no such payments will be made to any holders of Solo Brands, Inc. Class A
common stock unless such holders are also Continuing LLC Owners. The payments Solo Brands, Inc. will be required to make under the Tax Receivable Agreement may be substantial.
Solo Brands, Inc. is a party to the Tax Receivable Agreement with the Continuing LLC Owners and Holdings. Under the Tax Receivable Agreement, Solo Brands, Inc. generally will be required to make cash payments to the Continuing LLC Owners equal to 85% of the tax benefits, if any, that Solo Brands, Inc. actually realizes, or in certain circumstances is deemed to realize, as a result of (1) increases in Solo Brands, Inc.’s proportionate share of the tax basis of the assets of Holdings resulting from (a) any future redemptions or exchanges of LLC Interests by the Continuing LLC Owners for Solo Brands, Inc. Class A common stock or cash pursuant to the Holdings LLC Agreement, as filed as Exhibit 10.2 with the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2021, or (b) certain distributions (or deemed distributions) by Holdings and (2) certain other tax benefits arising from payments under the Tax Receivable Agreement. No such payments will be made to any holders of Solo Brands, Inc. Class A common stock unless such holders are also Continuing LLC Owners.
The amount of the cash payments that Solo Brands, Inc. will be required to make under the Tax Receivable Agreement may be substantial. Payments under the Tax Receivable Agreement are not conditioned on the Continuing LLC Owners’ ownership of our shares. The actual amounts payable under the Tax Receivable will be determined in part by reference to the market value of our Class A common stock at the time of the sale and the prevailing tax rates applicable to us over the life of the tax receivable agreement and will generally be dependent on us generating sufficient future taxable income to realize the benefit. Any payments made by Solo Brands, Inc. to the Continuing LLC Owners under the Tax Receivable Agreement will not be available for reinvestment in the business and will generally reduce the amount of cash that might have otherwise been available to Solo Brands, Inc. and its subsidiaries. To the extent Solo Brands, Inc. is unable to make timely payments under the Tax Receivable Agreement for any reason, the unpaid amounts will be deferred and will accrue interest until paid. Furthermore, Solo Brands, Inc.’s future obligations to make payments under the Tax Receivable Agreement could make Solo Brands, Inc. and its subsidiaries a less attractive target for an acquisition, particularly in the case of an acquirer that cannot use some or all of the tax benefits that are the subject of the Tax Receivable Agreement.
The actual amount and timing of any payments under the Tax Receivable Agreement will vary depending upon a number of factors, including the timing of redemptions or exchanges by the Continuing LLC Owners, the price of shares of Solo Brands, Inc. Class A common stock at the time of any exchange, the extent to which such exchanges are taxable, the amount of gain recognized by the Continuing LLC Owners, the amount and timing of the taxable income Holdings generates in the future, and the tax rates and laws then applicable. Our organizational structure, including the Tax Receivable Agreement, confers certain tax benefits upon the Continuing LLC Owners that may not benefit Class A Common Stockholders to the same extent as they will benefit the Continuing LLC Owners.
Our organizational structure, including the Tax Receivable Agreement, confers certain tax benefits upon the Continuing LLC Owners that may not benefit the holders of our Class A common stock to the same extent as they will benefit the Continuing LLC Owners. The Tax Receivable Agreement provides for our payment to the Continuing LLC Owners of 85% of the amount of tax benefits, if any, that we actually realize (or in some circumstances are deemed to realize) as a result of (i) increases in the tax basis of assets of Holdings resulting from (a) any future redemptions or exchanges of LLC Interests, and (b) certain distributions (or deemed distributions) by Holdings and (ii) certain other tax benefits arising from payments under the Tax Receivable Agreement. Although Solo Brands, Inc. will retain 15% of such tax benefits, this and other aspects of our organizational structure may adversely impact the future trading market for the Class A common stock.
In certain cases, future payments under the Tax Receivable Agreement to the Continuing LLC Owners may be accelerated or significantly exceed the actual benefits Solo Brands, Inc. realizes in respect of the tax attributes subject to the Tax Receivable Agreement.
The Tax Receivable Agreement provides that if (i) Solo Brands, Inc. materially breaches any of its material obligations under the Tax Receivable Agreement, (ii) certain mergers, asset sales, other forms of business combinations, or other changes of control were to occur, or (iii) Solo Brands, Inc. elects an early termination of the Tax Receivable Agreement, then Solo Brands, Inc.’s future obligations, or its successor’s future obligations, under the Tax Receivable Agreement to make payments thereunder would accelerate and become due and payable, based on certain assumptions, including an assumption that Solo Brands, Inc. would have sufficient taxable income to fully utilize all potential future tax benefits that are subject to the Tax Receivable Agreement, and an assumption that, as of the effective date of the acceleration, any Continuing LLC Owner that has LLC Interests not yet exchanged shall be deemed to have exchanged such LLC Interests on such date, even if Solo Brands, Inc. does not receive the corresponding tax benefits until a later date when the LLC Interests are actually exchanged.
As a result of the foregoing, Solo Brands, Inc. would be required to make an immediate cash payment equal to the estimated present value of the anticipated future tax benefits that are the subject of the Tax Receivable Agreement, based on certain assumptions, which payment may be made significantly in advance of the actual realization, if any, of those future tax benefits and, therefore, Solo Brands, Inc. could be required to make payments under the Tax Receivable Agreement that are greater than the specified percentage of the actual tax benefits it ultimately realizes. In addition, to the extent that Solo Brands, Inc. is unable to make payments under the Tax Receivable Agreement for any reason, the unpaid amounts will be deferred and will accrue interest until paid. Solo Brands, Inc.’s failure to make any payment required under the Tax Receivable Agreement (including any accrued and unpaid interest) within 60 calendar days of the date on which the payment is required to be made will constitute a material breach of a material obligation under the Tax Receivable Agreement, which will terminate the Tax Receivable Agreement and accelerate future payments thereunder, unless the applicable payment is not made because (i) Holdings is prohibited from making such payment under the terms of the Tax Receivable Agreement or the terms governing certain of its indebtedness or (ii) Holdings does not have, and despite using commercially reasonable efforts cannot obtain, sufficient funds to make such payment. In these situations, Solo Brands, Inc.’s obligations under the Tax Receivable Agreement could have a substantial negative impact on Solo Brands, Inc.’s liquidity and could have the effect of delaying, deferring, or preventing
certain mergers, asset sales, other forms of business combinations, or other changes of control. There can be no assurance that Holdings will be able to fund or finance Solo Brands, Inc.’s obligations under the Tax Receivable Agreement.
Solo Brands, Inc. will not be reimbursed for any payments made to the Continuing LLC Owners under the Tax Receivable Agreement in the event that any tax benefits are disallowed.
Payments under the Tax Receivable Agreement will be based on the tax reporting positions that Solo Brands, Inc. determines, and the IRS or another tax authority may challenge all or part of the tax basis increases or other tax benefits Solo Brands, Inc. claims, as well as other related tax positions it takes, and a court could sustain any such challenge. If the outcome of any such challenge would reasonably be expected to materially and adversely affect a recipient’s payments under the Tax Receivable Agreement, then we will not be permitted to settle or fail to contest such challenge without the consent (not to be unreasonably withheld or delayed) of certain representatives of the Continuing LLC Owners. The interests of such representatives of the Continuing LLC Owners in any such challenge may differ from or conflict with our interests and your interests, and they may exercise their consent rights relating to any such challenge in a manner adverse to our interests. In addition, Solo Brands, Inc. will not be reimbursed for any cash payments previously made to the Continuing LLC Owners under the Tax Receivable Agreement in the event that any tax benefits initially claimed by Solo Brands, Inc. and for which payment has been made to the Continuing LLC Owners are subsequently challenged by a taxing authority and are ultimately disallowed. Instead, any excess cash payments made by Solo Brands, Inc. to the Continuing LLC Owners will be netted against any future cash payments that Solo Brands, Inc. might otherwise be required to make to the Continuing LLC Owners under the terms of the Tax Receivable Agreement. However, Solo Brands, Inc. might not determine that it has effectively made an excess cash payment to the Continuing LLC Owners for a number of years following the initial time of such payment, and, if any of its tax reporting positions are challenged by a taxing authority, Solo Brands, Inc. will not be permitted to reduce any future cash payments under the Tax Receivable Agreement until any such challenge is finally settled or determined. Moreover, the excess cash payments Solo Brands, Inc. previously made under the Tax Receivable Agreement could be greater than the amount of future cash payments against which Solo Brands, Inc. would otherwise be permitted to net such excess. The applicable U.S. federal income tax rules for determining applicable tax benefits Solo Brands, Inc. claims are complex and factual in nature, and there can be no assurance that the IRS or a court will not disagree with Solo Brands, Inc.’s tax reporting positions. As a result, payments could be made under the Tax Receivable Agreement in excess of the tax savings that Solo Brands, Inc. actually realizes in respect of the tax attributes with respect to the Continuing LLC Owners that are the subject of the Tax Receivable Agreement.
Unanticipated changes in effective tax rates or adverse outcomes resulting from examination of our income or other tax returns could adversely affect our results of operations and financial condition.
We are subject to taxes by the U.S. federal, state, local and foreign tax authorities, and our tax liabilities will be affected by the allocation of expenses to differing jurisdictions. Our future effective tax rates could be subject to volatility or adversely affected by a number of factors, including:
•changes in the valuation of our deferred tax assets and liabilities;
•expected timing and amount of the release of any tax valuation allowances;
•tax effects of equity-based compensation;
•changes in tax laws, regulations or interpretations thereof; or
•future earnings being lower than anticipated in countries where we have lower statutory tax rates and higher than anticipated earnings in countries where we have higher statutory tax rates.
In addition, we may be subject to audits of our income, sales and other transaction taxes by U.S. federal, state, local and foreign taxing authorities. Outcomes from these audits could adversely affect our business, results of operations and financial condition.
Additionally, tax authorities at the foreign, federal, state and local levels are currently reviewing the appropriate treatment of companies engaged in e-commerce. New or revised foreign, federal, state or local tax regulations or court decisions may subject us or our customers to additional sales, income and other taxes. There is also uncertainty over sales tax liability as a result of the U.S. Supreme Court’s decision in South Dakota v. Wayfair, Inc., which held that states could impose sales tax collection obligations on out-of-state sellers even if those sellers lack any physical presence within the states imposing the sales taxes. Under Wayfair, a person requires only a “substantial nexus” with the taxing state before the state may subject the person to sales tax collection obligations therein. An increasing number of states (both before and after the publication of Wayfair) have considered or adopted laws that attempt to impose sales tax collection obligations on out-of-state sellers. The Supreme Court’s Wayfair decision has removed a significant impediment to the enactment and enforcement of these laws. While we do not expect the Court’s decision to have a significant impact on our business, other new or revised taxes and, in particular, sales taxes, VAT and similar taxes could increase the cost of doing business online and decrease the attractiveness of selling products over the internet. New taxes and rulings could also create significant increases in internal costs necessary to capture data and collect and remit taxes.
If we were deemed to be an investment company under the Investment Company Act of 1940, as amended, or the 1940 Act, as a result of our ownership of Holdings, applicable restrictions could make it impractical for us to continue our business as contemplated and could adversely affect our business, results of operations and financial condition.
Under Sections 3(a)(1)(A) and (C) of the 1940 Act, a company generally will be deemed to be an “investment company” for purposes of the 1940 Act if (i) it is, or holds itself out as being, engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities or (ii) it engages, or proposes to engage, in the business of investing, reinvesting, owning, holding or trading in securities and it owns or proposes to acquire investment securities having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and
cash items) on an unconsolidated basis. We do not believe that we are an “investment company,” as such term is defined in either of those sections of the 1940 Act.
As the sole managing member of Holdings, we control and operate Holdings. On that basis, we believe that our interest in Holdings is not an “investment security” as that term is used in the 1940 Act. However, if we were to cease participation in the management of Holdings, our interest in Holdings could be deemed an “investment security” for purposes of the 1940 Act.
We and Holdings intend to conduct our operations so that we will not be deemed an investment company. However, if we were to be deemed an investment company, restrictions imposed by the 1940 Act, including limitations on our capital structure and our ability to transact with affiliates, could make it impractical for us to continue our business as contemplated and could adversely affect our business, results of operations and financial condition.
Solo Brands, Inc. is controlled by the Original LLC Owners, whose interests may differ from those of our public stockholders.
The Original LLC Owners control the majority of the combined voting power of our common stock through their ownership of both Class A common stock and Class B common stock. The Original LLC Owners will, for the foreseeable future, have the ability to substantially influence us through their ownership position over corporate management and affairs, and will be able to control virtually all matters requiring stockholder approval. The Original LLC Owners are able to, subject to applicable law, and the voting arrangements described in our stockholders agreement, elect a majority of the members of our board of directors and control actions to be taken by us and our board of directors, including amendments to our certificate of incorporation and bylaws and approval of significant corporate transactions, including mergers and sales of substantially all of our assets. The directors so elected will have the authority, subject to the terms of our indebtedness and applicable rules and regulations, to issue additional stock, implement stock repurchase programs, declare dividends and make other decisions. It is possible that the interests of the Original LLC Owners may in some circumstances conflict with our interests and the interests of our other stockholders, including you. For example, the Continuing LLC Owners may have different tax positions from us, especially in light of the Tax Receivable Agreement that could influence our decisions regarding whether and when to dispose of assets, whether and when to incur new or refinance existing indebtedness, and whether and when Solo Brands, Inc. should terminate the Tax Receivable Agreement and accelerate its obligations thereunder. In addition, the determination of future tax reporting positions and the structuring of future transactions may take into consideration the Continuing LLC Owners’ tax or other considerations, which may differ from the considerations of us or our other stockholders.
Risks Related to Ownership of our Class A Common Stock
The price of our Class A common stock has fluctuated and will likely continue to fluctuate and you may not be able to sell the shares you purchase at or above your purchase price.
The market price of our Class A common stock has fluctuated significantly and is highly volatile and may continue to fluctuate substantially due to many factors, including:
•our ability to continue as a going concern;
•our ability to satisfy the covenants under our Revolving Credit Facility;
•the execution of liquidity, cost-saving and restructuring initiatives;
•the volume and timing of sales of our products;
•the introduction of new products or product enhancements by us or our competitors;
•disputes or other developments with respect to our or others’ intellectual property rights;
•our ability to develop, obtain regulatory clearance or approval for, and market new and enhanced products on a timely basis;
•product liability claims or other litigation;
•quarterly variations in our growth, profitability or results of operations, or those of our competitors;
•media exposure of our products or our competitors;
•announcement or expectation of additional equity or debt financing efforts;
•additions or departures of key personnel;
•issuance of new or updated research or reports by securities analysts;
•failure to meet or exceed financial estimates and projections of the investment community or that we provide to the public;
•changes in governmental regulations or in reimbursement;
•changes in earnings estimates or recommendations by securities analysts; and
•general market conditions and other factors, including factors unrelated to our operating performance or the operating performance of our competitors.
In recent years, the stock markets generally have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Broad market and industry factors may significantly affect the market price of our Class A common stock, regardless of our actual operating performance.
In addition, in the past, class action litigation has often been instituted against companies whose securities have experienced periods of volatility in market price. Securities litigation brought against us following volatility in our stock price, regardless of the merit or ultimate results of such litigation, could result in substantial costs, which would hurt our financial condition and operating results and divert management’s attention and resources from our business.
Our failure to regain compliance with the continued listing requirements of the NYSE, or any future failure to remain in compliance with such standards, could result in the delisting of our Class A common stock, which would have an adverse impact on the trading, liquidity and market price of our Class A common stock.
On February 25, 2025, we received notice from the NYSE that the average per share closing price of our Class A common stock over the 30 consecutive trading-day period ended February 24, 2025 was below $1.00, which is one of the NYSE’s continued listing standards. The Company has until August 25, 2025 to regain compliance with the minimum price criteria or cure the deficiency, which may include, if necessary, effecting a reverse stock split, subject to approval by our Board of Directors and stockholders. We cannot guarantee that the average closing price of our Class A common stock will increase such that we will regain compliance with the NYSE’s continued listing standards during the six-month cure period; that, if necessary, we will obtain stockholder approval with respect to a reverse stock split in order to cure the deficiency; or that we will remain in compliance with any of the NYSE’s other applicable continued listing standards. Our failure to regain compliance with the NYSE’s minimum price criteria within the applicable cure period could lead to suspension and delisting procedures. Any suspension and delisting procedures taken by the NYSE, any future failure to remain in compliance with the NYSE’s continued listing standards, and any subsequent failure to timely resume compliance with the NYSE’s continued listing standards within the applicable cure period, if any, could have adverse consequences, including, among others, reducing the number of investors willing to hold or acquire our common stock, reducing the liquidity and market price of our Class A common stock, adverse publicity, and a reduced interest in us from investors, analysts and other market participants. In addition, a suspension or delisting could impair our ability to raise additional capital through the public markets result in negative publicity, adversely affect the market liquidity of our securities, decrease securities analysts’ coverage of us, diminish investor, supplier and employee confidence and impair our ability to attract and retain employees by means of equity compensation.
Substantial future sales, or the perception of future substantial sales, by us or our existing stockholders in the public markets could cause the market price of our Class A common stock to decline.
Sales of substantial amounts of our Class A common stock in the public market, or the perception that such sales could occur, could adversely affect the price of our Class A common stock and could impair our ability to raise capital through the sale of additional shares.
As of March 10, 2025, 59,186,521 shares of Class A common stock were issued and outstanding and an additional 4,037,886 shares had the potential to vest in the future. Additionally, 33,091,989 shares of Class B common stock were issued and outstanding. As of March 10, 2025, we have an aggregate of 409,580,684 shares of Class A common stock authorized but unissued, including approximately 33,091,989 shares of Class B common stock issuable upon redemption of LLC Interests, all of which had vested and are held by the Continuing LLC Owners.
We have entered into the Registration Rights Agreement with the Original LLC Owners, certain of our other stockholders and Holdings pursuant to which the shares of Class A common stock issued upon redemption or exchange of LLC Interests held by the Continuing LLC Owners and the shares of Class A common stock issued to the Former LLC Owners in connection with the Reorganization Transactions are eligible for resale, subject to certain limitations set forth therein.
In addition, any shares of Class A common stock that we issue under the Solo Brands, Inc. 2021 Incentive Award Plan (the “2021 Incentive Plan”), the Solo Brands, Inc. 2021 Employee Stock Purchase Plan (the “2021 ESPP”) or other equity incentive plans that we may adopt in the future would dilute the percentage ownership held by holders of our Class A Common Stock.
In the future, we may also issue additional securities if we need to raise capital, which could constitute a material portion of our then-outstanding shares of common stock.
The Continuing LLC Owners have the right to have their LLC Interests redeemed pursuant to the terms of the Holdings LLC Agreement, which may dilute the owners of the Class A common stock.
As of March 10, 2025, we have an aggregate of 409,580,684 shares of Class A common stock authorized but unissued, including approximately 33,091,989 shares of Class B common stock issuable upon redemption of LLC Interests, all of which had vested and are held by the Continuing LLC Owners. In connection with the completion of our IPO, Holdings entered into the Holdings LLC Agreement and, subject to certain restrictions set forth therein, the Continuing LLC Owners are entitled to have their LLC Interests redeemed for shares of our Class A common stock. We also entered into the Registration Rights Agreement with the Original LLC Owners, certain of our other stockholders and Holdings pursuant to which the shares of Class A common stock issued to the Continuing LLC Owners upon redemption of their LLC Interests and the shares of Class A common stock issued to the Former LLC Owners in connection with the Transactions are eligible for resale, subject to certain limitations set forth therein.
We cannot predict the size of future issuances of our Class A common stock or the effect, if any, that future issuances and sales of shares of our Class A common stock may have on the market price of our Class A common stock. Sales or distributions of substantial amounts of our Class A common stock, including shares issued in connection with an acquisition, or the perception that such sales or distributions could occur, may cause the market price of our Class A common stock to decline.
Taking advantage of the reduced disclosure requirements applicable to “emerging growth companies” and “smaller reporting companies” may make our Class A common stock less attractive to investors.
The JOBS Act provides that, so long as a company qualifies as an “emerging growth company,” it will, among other things:
•be exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that its independent registered public accounting firm provide an attestation report on the effectiveness of its internal control over financial reporting;
•be exempt from the “say on pay”, “pay versus performance” and “say on golden parachute” advisory vote requirements of the Dodd-Frank Wall Street Reform and Customer Protection Act, or the Dodd-Frank Act;
•be exempt from certain disclosure requirements of the Dodd-Frank Act relating to compensation of its executive officers and be permitted to omit the detailed compensation discussion and analysis from proxy statements and reports filed under the Exchange Act; and
•be permitted to provide a reduced level of disclosure concerning executive compensation and be exempt from any rules that have been adopted by the PCAOB requiring a supplement to the auditor’s report on the financial statements or that may be adopted requiring mandatory audit firm rotations.
Similar exceptions apply for “smaller reporting companies.” For as long as we continue to be an emerging growth company or a smaller reporting company, we may choose to take advantage of certain exemptions from various reporting requirements, as well as the cost savings as a result of such exemptions, which are applicable to other public companies that do not qualify as an emerging growth company or a smaller reporting company. We may remain an “emerging growth company” until as late as December 31, 2026, the fiscal year-end following the fifth anniversary of the completion of our initial public offering, though we may cease to be an “emerging growth company” earlier under certain circumstances, including if (i) we have more than $1.235 billion in annual revenue in any fiscal year, (ii) we become a “large accelerated filer,” with at least $700 million of equity securities held by non-affiliates as of the end of the second quarter of that fiscal year or (iii) we issue more than $1.0 billion of non-convertible debt over a three-year period. Additionally, even after we no longer qualify as an emerging growth company, we may still qualify as a smaller reporting company if the market value of our common stock held by non-affiliates is below $250 million (or $700 million if our annual revenue is less than $100 million) as of December 31 in any given year, which would allow us to continue taking advantage of certain of these exemptions.
We cannot predict if investors will find our Class A common stock less attractive if we elect to rely on these exemptions, or if taking advantage of these exemptions would result in less active trading or more volatility in the price of our Class A common stock. Also, as a result of our intention to take advantage of some or all of the reduced regulatory and reporting requirements that will be available to us as long as we qualify as an “emerging growth company” or as a “smaller reporting company” our financial statements may not be comparable to those of companies that fully comply with regulatory and reporting requirements upon the public company effective dates.
We do not currently expect to pay any cash dividends.
We do not anticipate declaring or paying any cash dividends to holders of our Class A common stock in the foreseeable future. We currently intend to retain future earnings, if any, to finance our growth. Any determination to pay cash dividends in the future will be at the sole discretion of our board of directors, subject to limitations under applicable law and may be discontinued at any time. In addition, our ability to pay cash dividends is currently restricted by the terms of our Revolving Credit Facility. Therefore, you are not likely to receive any dividends on your Class A common stock for the foreseeable future, and the success of an investment in our Class A common stock will depend upon any future appreciation in its value. Consequently, investors may need to sell all or part of their holdings of our Class A common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment. Our Class A common stock may not appreciate in value or even maintain the price at which our stockholders have purchased our Class A common stock. Investors seeking cash dividends should not purchase our Class A common stock.
In addition, our operations are currently conducted entirely through Holdings and its subsidiaries and our ability to generate cash to meet our debt service obligations or to make future dividend payments, if any, is highly dependent on the earnings and the receipt of funds from Holdings and its subsidiaries via dividends or intercompany loans.
Our amended and restated certificate of incorporation contains provisions renouncing our interest and expectation to participate in certain corporate opportunities identified or presented to certain of our Original LLC Owners.
Certain of the Original LLC Owners are in the business of making or advising on investments in companies and these Original LLC owners may hold, and may, from time to time in the future, acquire interests in or provide advice to businesses that directly or indirectly compete with certain portions of our business or the business of our suppliers. Our amended and restated certificate of incorporation provides that, to the fullest extent permitted by law, none of the Original LLC Owners or any director who is not employed by us or his or her affiliates has any duty to refrain from engaging in a corporate opportunity in the same or similar lines of business as us. The Original LLC Owners may also pursue acquisitions that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us. As a result, these arrangements could adversely affect our business, results of operations, financial condition or prospects if attractive business opportunities are allocated to any of the Original LLC Owners instead of to us.
We may issue shares of preferred stock in the future, which could make it difficult for another company to acquire us or could otherwise adversely affect holders of our Class A common stock, which could depress the price of our Class A common stock.
Our amended and restated certificate of incorporation authorizes us to issue one or more series of preferred stock. Our board of directors has the authority to determine the preferences, limitations and relative rights of the shares of preferred stock and to fix the number of shares constituting any series and the designation of such series, without any further vote or action by our stockholders. Our preferred stock could be issued with voting, liquidation, dividend and other rights superior to the rights of our Class A common stock. The potential issuance of preferred stock may delay or prevent a change in control of us, discourage bids for our Class A common stock at a premium to the market price, and materially and adversely affect the market price and the voting and other rights of the holders of our Class A common stock.
Anti-takeover provisions in our governing documents and under Delaware law could make an acquisition of our company more difficult, limit attempts by our stockholders to replace or remove our current management and depress the market price of our common stock.
Our amended and restated certificate of incorporation, amended and restated bylaws and Delaware law contain provisions that could have the effect of rendering more difficult, delaying or preventing an acquisition deemed undesirable by our board of directors. Among others, our amended and restated certificate of incorporation and amended and restated bylaws include the following provisions:
•authorizes the issuance of “blank check” preferred stock that could be issued by our board of directors to increase the number of outstanding shares and thwart a takeover attempt;
•a classified board of directors so that not all members of our board of directors are elected at one time;
•the removal of directors only for cause;
•prohibits the use of cumulative voting for the election of directors;
•limits the ability of stockholders to call special meetings or amend our bylaws;
•requires all stockholder actions to be taken at a meeting of our stockholders; and
•advance notice and duration of ownership requirements for nominations for election to the board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings.
These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in our management. As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation Law, or the DGCL, which prevents interested stockholders, such as certain stockholders holding more than 15% of our outstanding common stock from engaging in certain business combinations unless (i) prior to the time such stockholder became an interested stockholder, the board approved the transaction that resulted in such stockholder becoming an interested stockholder, (ii) upon consummation of the transaction that resulted in such stockholder becoming an interested stockholder, the interested stockholder owned 85% of the common stock or (iii) following board approval, the business combination receives the approval of the holders of at least two-thirds of our outstanding common stock not held by such interested stockholder. Because we have “opted out” of Section 203 of the DGCL in our amended and restated certificate of incorporation, the statute will not apply to business combinations involving us.
Any provision of our amended and restated certificate of incorporation, amended and restated bylaws or Delaware law that has the effect of delaying, preventing or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock and could also affect the price that some investors are willing to pay for our common stock.
Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Our amended and restated certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the exclusive forum for the following types of actions or proceedings under Delaware statutory or common law:
•any derivative action or proceeding brought on our behalf;
•any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees, or stockholders to us or our stockholders;
•any action asserting a claim arising pursuant to any provision of the DGCL or our amended and restated certificate of incorporation and bylaws; and
•any action asserting a claim governed by the internal affairs doctrine.
Furthermore, our amended and restated certificate of incorporation also provides that unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. However, these provisions would not apply to suits brought to enforce a duty or liability created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. In addition, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. To the extent the exclusive forum provision restricts the courts in which claims arising under the Securities Act may be brought, there is uncertainty as to whether a court would enforce such a provision. We note that investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder.
Any person purchasing or otherwise acquiring or holding any interest in shares of our capital stock is deemed to have received notice of and consented to the foregoing provisions. These choice of forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds more favorable for disputes with us or with our directors, officers, other employees or agents, or our other stockholders, which may discourage such lawsuits against us and such other persons, or may result in additional expense to a stockholder seeking to bring a claim against us. Alternatively, if a court were to find this choice of forum provision inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business, results of operations and financial condition.
Stock repurchases undertaken by the Company could have adverse effects, including potentially increasing the volatility of the price of our Class A common stock and potentially diminishing our cash reserves while not producing hoped for stockholder value.
Our Board of Directors has in the past and may from time to time in the future authorize stock repurchases, pursuant to which repurchases of Class A common stock may be made either through open market transactions (including pre-set trading plans) or through other transactions, such as through privately negotiated transactions or in such other manners as may be determined by our Board of Directors in accordance with applicable securities laws. Any repurchase authorizations may be modified, suspended, or terminated at any time and there can be no assurance that our Board of Directors may authorize a stock repurchase in the future. Any failure to repurchase stock after we have announced our intention to do so may negatively impact our reputation and investor confidence in us and may negatively impact our stock price.
The existence of a stock repurchase authorization could cause our stock price to trade higher than it otherwise would be and could potentially reduce the market liquidity for our stock. Although stock repurchase authorizations may be intended to enhance long-term stockholder value, there is no assurance they will do so because the market price of our Class A common stock may decline below the levels at which we repurchased shares and short-term stock price fluctuations could reduce the effectiveness of any such authorization.
Repurchasing our Class A common stock reduces the amount of cash we have available to fund working capital, capital expenditures, strategic acquisitions or business opportunities, and other general corporate purposes, and we may fail to realize the anticipated long-term stockholder value of any stock repurchase authorization.
In addition, the Inflation Reduction Act of 2022 imposed a non-deductible 1% excise tax on the fair market value of stock repurchases, net of stock issuances, that exceed $1 million in a taxable year, which will make any potential stock repurchases more expensive to us.
General Risk Factors
We may become involved in legal or regulatory proceedings and audits.
Our business requires compliance with many laws and regulations, including labor and employment, sales and other taxes, customs, data privacy, data security, and consumer protection laws and ordinances that regulate retailers generally and/or govern the importation, promotion, and sale of merchandise, and the operation of e-commerce and warehouse facilities. Failure to comply with these laws and regulations could subject us to lawsuits and other proceedings, and could also lead to damage awards, fines, and penalties. We have in the past and may become in the future involved in a number of legal proceedings and audits, including government and agency investigations, and consumer, employment, tort, and other litigation. The outcome of some of these legal proceedings, audits, and other contingencies could require us to take, or refrain from taking, actions that could harm our operations or require us to pay substantial amounts of money, harming our financial condition and results of operations. Additionally, we may pursue legal action of our own to protect our business interests. Prosecuting or defending against these lawsuits and proceedings may be necessary, which could result in substantial costs and diversion of management’s attention and resources, harming our business, financial condition, and results of operations. Any pending or future legal or regulatory proceedings and audits could harm our business, financial condition, and results of operations.
Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.
We are subject to the periodic reporting requirements of the Exchange Act. We are designing our disclosure controls and procedures to provide reasonable assurance that information we must disclose in reports we file or submit under the Exchange Act is accumulated and communicated to management, recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC. Disclosure controls and procedures, no matter how well-conceived and operated, can provide reasonable, but not absolute, assurance that the objectives of the control system are met.
These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by individuals or groups of persons or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements in our public reports due to error or fraud may occur and not be detected.
Our business is subject to the risk of earthquakes, fire, power outages, floods, and other catastrophic events, and to interruption by problems such as terrorism, cyberattacks, or failure of key information technology systems.
Our business is vulnerable to damage or interruption from earthquakes, fires, floods, power losses, telecommunications failures, terrorist attacks, acts of war, human errors, criminal acts, public health crises and pandemics, and similar events. For example, a significant natural disaster, such as an earthquake, fire, or flood, could harm our business, results of operations, and financial condition, and our insurance coverage may be insufficient to compensate us for losses that may occur. Our corporate offices and primary distribution center are located in Texas, a state that frequently experiences floods and storms. In addition, the facilities of our suppliers and where our manufacturers produce our products are located in parts of Asia that frequently experience typhoons and earthquakes. Acts of terrorism and public health crises (or other future pandemics or epidemics) could also cause disruptions in our or our suppliers’, manufacturers’, and logistics providers’ businesses or the economy as a whole. We may not have sufficient protection or recovery plans in some circumstances, such as natural disasters affecting Texas or other locations where we have operations or store significant inventory. Our servers and those belonging to our vendors may also be vulnerable to computer viruses, criminal acts, denial-of-service attacks, ransomware, and similar disruptions from unauthorized tampering with our computer systems, which could lead to interruptions, delays, or loss of critical data. As we rely heavily on our information technology and communications systems and the Internet to conduct our business and provide high-quality customer service, these disruptions could harm our ability to run our business and either directly or indirectly disrupt our suppliers’ or manufacturers’ businesses, which could harm our business, results of operations, and financial condition.
Changes in applicable tax regulations or in their implementation could negatively affect our business and financial results.
The U.S. government, state governments, and foreign jurisdictions may enact significant changes to the taxation of business entities including, among others, an increase in the corporate income tax rate and the imposition of minimum taxes. The likelihood of these changes being enacted or implemented is unclear. We are currently unable to predict whether such changes will occur and, if so, the ultimate impact on our business.
If our estimates or judgments relating to our critical accounting policies prove to be incorrect or change significantly, our results of operations could be harmed.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as provided in the section of this Annual Report on Form 10-K titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements, and related notes included elsewhere in this report. These estimates form the basis for making judgments about the carrying values of assets, liabilities, and equity and the amount of sales and expenses that are not readily apparent from other sources. Our results of operations may be harmed if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our results of operations to fall below the expectations of securities analysts and investors, and could result in a decline in our stock price.
Our ESG and sustainability initiatives and the adoption of ESG regulatory frameworks may impose additional costs and expose us to emerging areas of risk.
Companies across all industries are facing increasing scrutiny from stakeholders related to their ESG and sustainability practices. Investor advocacy groups, certain institutional investors, investment funds and other influential investors are also increasingly focused on ESG practices. Companies which do not adapt to or comply with investor, government or other stakeholder expectations and standards, which are evolving and often in conflict, may suffer from reputational damage and the business, financial condition, and/or stock price of such a company could be materially and adversely affected.
We have adopted certain practices and policies to align our ESG and sustainability approach with our business strategy. However, our stakeholders may look to us to implement more or different ESG procedures, standards or goals in order to continue engaging with us, to remain invested in us, or before they make further investments in us. Stakeholders may also require us to retract or reverse any ESG procedures. If we do not meet our stakeholders’ expectations or we are not effective in addressing social and environmental responsibility matters or achieving relevant sustainability goals, or choose to modify or terminate certain sustainability goals or other ESG practices, trust in our brand may suffer and our business and/or our ability to access capital could be harmed. Moreover, both advocates and opponents to certain ESG matters, including diversity, equity and inclusion, are increasingly resorting to a range of activism forms, including media campaigns and litigation, to advance their perspectives. To the extent we are subject to such activism, it may require us to incur costs or otherwise adversely impact our business.
Further, there is an increased focus, and changing expectations, by governmental and nongovernmental organizations on climate change matters, including increased pressure to expand disclosures related to the physical and transition risks related to climate change or to establish sustainability goals, such as the reduction of greenhouse gas emissions, which could expose us to market, operational and execution costs or risks. Our failure to establish, or decision to modify or terminate sustainability targets or targets that are perceived to be appropriate, as well as to achieve progress on those targets on a timely basis, or at all, could adversely affect the reputation of our brands and sales of and demand for our products. For example, in October 2023, the State of California adopted SB 253, the Climate Corporate Data Accountability Act, which will require companies to annually disclose Scope 1, Scope 2, and Scope 3 greenhouse gas emissions and SB 261, Greenhouse Gases: Climate-Related Financial Risk which will require biennial disclosure of a company’s financial risk caused by climate change. In addition, the SEC has adopted rules with respect to enhanced and standardized climate-related disclosures, which are currently stayed due to ongoing litigation. If we are ultimately required to comply in whole or in part with these rules, or additional legislation that has already been or may be passed, we may incur significant additional costs of compliance due to
the need for expanded data collection, analysis, and certification with respect to greenhouse gas emissions and other climate change related risks. We may also incur additional costs or require additional resources to monitor, report and comply with such stakeholder expectations and standards and legislation, and to meet climate change targets and commitments if established. In addition, the European Union Corporate Sustainability Reporting Directive (“CSRD”) became effective in 2023. CSRD applies to both EU and non-EU in-scope entities and would require them to provide expansive disclosures on various sustainability and ESG topics. We are assessing our obligations under CSRD which will become effective in 2025, in a phased approach pending any updates from the Omnibus package within the EU Competitiveness Compass, for U.S. companies with subsidiaries in the EU that meet certain criteria and expect that compliance could require substantial effort in the future. These requirements may not always be uniform across jurisdictions, and we will likely need to be prepared to contend with overlapping, yet distinct, climate-related disclosure requirements. Additionally, many of our customers, business partners, and suppliers may be subject to similar expectations, which may augment or create additional risks, including risks that may not be known to us.
The occurrence of any of the foregoing could have a material adverse effect on our business and financial condition and expose us to market, operational and execution costs or risks.
The impacts of risks associated with international geopolitical conflicts, including continued tensions between Taiwan and China, the war in Ukraine and the conflicts in the Middle East, on the global economy, energy supplies and raw materials are uncertain, but may prove to negatively impact our business and operations.
In recent years, diplomatic and trade relationships between the U.S. government and China have become increasingly frayed and the threat of a takeover of Taiwan by China has increased. Since much of our production occurs in China, our business, our operations and our supply chain could be materially and adversely impacted by political, economic or other actions from China, or changes in China-Taiwan relations that impact China and its economy. In addition, we continue to monitor any adverse impact that the war in Ukraine and the conflicts in the Middle East. Prolonged conflict may result in ongoing increased inflation, escalating energy prices and constrained availability, and thus increasing costs, of raw materials. To the extent that continuing political tensions between China and Taiwan or the war in Ukraine or the conflicts in the Middle East may adversely affect our business, it may also have the effect of heightening many of the other risks described in our risk factors, such as those relating to data security, supply chain, volatility in prices of inputs, and market conditions, any of which could negatively affect our business and financial condition.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. Unresolved Staff Comments
None.

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ITEM 2. PROPERTIES
Item 2. Properties
Our corporate headquarters are located in a 430,000 square foot leased facility in Grapevine, Texas, which is used by both of our reportable segments. In addition to our corporate headquarters, the Solo Stove segment maintains leases in Texas, Utah, Pennsylvania, Mexico, Canada, and the Netherlands for warehousing, distribution and office space. The Chubbies segment also maintains a lease in Texas for office space as well as leases specific to owned retail store operations in Texas, Georgia, Florida, Minnesota, Nevada, North Carolina and South Carolina. We believe that our facilities are in good condition and are adequate to support our current needs.

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ITEM 3. LEGAL PROCEEDINGS
Item 3. Legal Proceedings
From time to time, we are, have been, and may become subject to arbitration, litigation or claims. The results of any current or future claims or proceedings cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and litigation costs, diversion of management resources, reputational harm and other factors. The Company is not currently a party to any pending litigation that the Company considers material.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information and Holders of Record
Our Class A common stock has been listed and traded on the NYSE under the symbol “DTC” since October 28, 2021. Prior to that time, there was no public market for our common stock. There is no established trading market for our Class B common stock.
As of March 10, 2025, other than shares offered to the public, there were approximately 9 shareholders of record for our Class A common stock and approximately 54 shareholders of record for our Class B common stock. This does not include the significant number of beneficial owners whose stock is in nominee or “street name” accounts through brokers, bank, or other nominees.
Dividend Policy
We have not declared or paid any cash dividends on our common stock. We intend to retain any future earnings and do not expect to pay any dividends in the foreseeable future.
Stock Performance Graph
The following graph and table compares the total shareholder return for our Class A common stock with that of the Standard & Poor’s 500 Stock Index (“S&P 500 Index”) and Standard & Poor’s 500 Apparel, Accessories & Luxury Goods Index. The graph assumes that $100 was invested on October 28, 2021 (the date our common stock commenced trading on the NYSE) in our Class A common stock, the S&P 500 Index, and Standard & Poor’s 500 Apparel, Accessories & Luxury Goods Index and assumes reinvestment of any dividends, if any. Stockholder returns over the indicated period should not be considered indicative of future stockholder returns.
Base Period
Company/Index 10/28/2021 12/31/2021 12/31/2022 12/31/2023 12/31/2024
Solo Brands, Inc. $ 100.00 $ 91.94 $ 23.80 $ 36.24 $ 6.71
S&P 500 Index 100.00 103.69 80.56 103.77 127.96
S&P 500 Apparel, Accessories & Luxury Goods Index $ 100.00 $ 99.33 $ 54.64 $ 52.44 $ 48.58
The performance graph and table shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities under that Section and shall not be deemed to be incorporated by reference into any of our filings under the Securities Act.
Unregistered Sales of Equity Securities
None.
Purchases of Equity Securities by the Issuer or Affiliated Purchasers
We did not repurchase any of our equity securities during the quarter ended December 31, 2024.

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ITEM 6. SELECTED FINANCIAL DATA
Item 6. [Reserved]

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with “Risk Factors” and our audited consolidated financial statements and the related notes to those statements included elsewhere in this Annual Report on Form 10-K. In addition to historical consolidated financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions.
Overview
We own and operate premium brands with ingenious products that we market and deliver through our direct-to-consumer (“DTC”) platform and retail partnerships. We aim to help our customers enjoy good moments that create lasting memories. We consistently deliver innovative, high-quality products that are loved by our customers and revolutionize the outdoor experience, build community and help everyday people reconnect with what matters most. We operate as two reportable segments: Solo Stove, which includes the Solo Stove and TerraFlame brands and primarily offers indoor and outdoor firepits, stoves, and accessories, and Chubbies, which offers premium casual apparel and activewear. The remaining operating segments are included within the Corporate and All Other category. The CODM makes operating decisions, assesses financial performance, and allocates resources based upon discrete financial information at the reportable segment level.
For the year ended December 31, 2024, we experienced a decrease in our net sales from $494.8 million for the year ended December 31, 2023 to $454.6 million. The decline in net sales was primarily driven by the Solo Stove segment, as a result of a lack of significant new product launches in 2024 when compared to the prior year, with the prior year continuing to benefit from the release of new products in the fourth quarter of 2022. This resulted in a decline in DTC channel net sales of 10.9% in 2024 when compared to the prior year. The retail channel net sales similarly experienced a decline, of a lesser magnitude, in 2024 when compared to the prior year, further driven by a non-recurring transaction with a marketing barter partner in the third quarter of 2023. These declines driven by the Solo Stove segment were offset in part by increases within the Chubbies segment in both the retail and DTC net sales channels, primarily driven by continued growth within our retail strategic partnerships.
Key Factors Affecting Our Financial Condition and Results of Operations
In 2024, the Company refined its strategic vision and conducted a comprehensive evaluation of its initiatives and brands. The evaluation included analysis of the brand level financials, product design, customer metrics, marketing campaign effectiveness and potential synergies, amongst other items. This evaluation, undertaken over the course of 2024, led the Company to undertake the following activities during the second half of 2024:
•termination of underperforming marketing agreements with marketing barter partners that no longer aligned with the Company’s current marketing strategy;
•winding up of the IcyBreeze reporting unit stemming from underperformance and management’s determination to revise product designs; and
•reorganizing the Oru and ISLE reporting units to eliminate costs and capitalize on potential synergies, through restructuring under a revised management structure.
Management undertook these activities with the intent of enhancing the foundation of the Company as part of the strategic initiative to return the Company to growth. The items noted above had the following purposes:
•Through the termination of the underperforming marketing agreements, management could be able to repurpose the funds previously allocated to these marketing contracts, towards increased investment in direct response marketing. Marketing spend under a certain marketing agreement was $16.9 million in 2023 and $3.7 million in 2024. Redirection of these marketing funds to direct response marketing may generate more favorable returns on the marketing dollars spent in future periods, as direct response marketing is better aligned to how our target market consumes their media.
•IcyBreeze was acquired in 2023 to enter the portable cooler market and expand our product offering. Through the course of ownership, IcyBreeze underperformed projections. Management made the decision to wind-down the operations of IcyBreeze in the third quarter of 2024, with sell through of remaining legacy products. This wind-down of operations, while resulting in a direct reduction to revenue attributable to the Company, is also anticipated to benefit net income (loss) in future periods.
•The reorganization of the Oru and ISLE reporting units under a single brand president and leadership team was designed to be strategically beneficial, as both brands operate within the same outdoor watersports space. The Company expects to benefit from improved margins through the consolidation of overhead and exploration of manufacturing and logistics synergies. In addition, the Company expects to be able to better leverage the combined scale of the Oru and ISLE reporting units as we seek to scale and achieve growth.
While these activities are intended to provide future benefit to the Company, the majority of these activities required cash outlays in 2024. In order to fund these cash outlays, the Company leveraged cash from operations and draws on the Revolving Credit Facility (as defined below). The following table outlines the cash outlays and the period in which they occurred.
Activity Cash Outlay
(dollars in thousands)
Period
Termination of marketing agreements $ 9,000 Q4 2024
Reorganization of the Oru and ISLE reporting units 349 Q4 2024
Wind-down of the operations of the IcyBreeze reporting unit 205 Q3 - Q4 2024
Economic Factors Affecting our Performance
We sell our products in the U.S. as well as various foreign countries, primarily Europe, Canada and Australia. We also source and procure inventory, primarily out of China, with some products sourced through Mexico. As such, we are exposed to and impacted by global macroeconomic factors. In recent years, tariffs on goods manufactured in China have increased significantly. In addition, the U.S. presidential administration recently imposed an additional aggregate 20% tariffs on goods manufactured in China, 25% tariffs on all steel manufactured outside of the U.S. and 25% tariffs on almost all goods manufactured in Mexico and Canada. China, Canada and Mexico have retaliated or are expected to retaliate with tariffs on goods manufactured in, or exported by, the United States.
Tariffs on certain foreign origin goods continue to put pressure on input costs, for which we have been able to partially mitigate through the U.S. government’s duty draw-back mechanism, tariff exclusion process, footprint utilization, and prudent sourcing. Our product lines involve production with steel manufactured outside the U.S., including steel manufactured in Mexico that is subject to the new tariffs, including virtually all of our Solo Stove and TerraFlame brands’ products. Further, certain of our Solo Stove, Oru and TerraFlame brands’ products are produced in Mexico and are subject to the new tariffs on Mexico. These tariffs and retaliatory actions are expected to have a significant adverse effect on our results of operations and margins and sales of our products outside the U.S. Any strategies we implement to mitigate the impact of such tariffs or other trade actions may not be successful. In addition, there can be no assurances that we will be able to pass any increased costs from tariffs on to our customers, that demand or profitability will not be materially adversely impacted, or that we will be successful in implementing efforts to mitigate the effect of tariffs on our business. Sourcing materials from domestic suppliers and manufacturing vendors or transitioning production to the U.S. would be a costly and lengthy process with uncertain results. For additional information, see Part I, Item 1A, Risk Factors, “Tariffs or other restrictions placed on foreign imports or any related counter-measures are taken by other countries harm our business and results of operations” and “Our products are manufactured by third parties outside of the United States, and our business may be harmed by legal, regulatory, economic, societal, and political risks associated with those markets.”
Current macroeconomic factors remain very dynamic, such as greater political uncertainty, as well as financial instability, new or increasing tariffs, high interest rates and high inflation, all of which could reduce our net sales or negatively impact our gross margin, net loss and cash flows.
Discussion within the relevant comparative periods and sections have been included below.
Consolidated Results for the Year Ended December 31, 2024 Compared to the Year Ended December 31, 2023
Consolidated Net Sales
Net sales are comprised of DTC and retail channel sales to retail partners. Net sales in both channels reflect the impact of partial shipments, product returns, and discounts for certain sales programs or promotions.
Our net sales have historically included a seasonal component. In the DTC channel, our historical net sales tend to be highest in our second and fourth quarters, while our retail channel has generated higher sales in the first and third quarters. Additionally, we expect variances in our net sales throughout the year relative to the timing of new product launches.
Year Ended December 31, Change
(dollars in thousands) 2024 2023 $
%
Net sales
$ 454,550 $ 494,776 $ (40,226) (8.1) %
Direct-to-consumer net sales 319,064 358,052 (38,988) (10.9) %
Retail net sales 135,486 136,724 (1,238) (0.9) %
The decrease in net sales for the year ended December 31, 2024 compared to the year ended December 31, 2023 was primarily driven by a decline in both DTC and retail channel net sales within the Solo Stove segment as a result of a lack of new product launches in the 2024 period, with the prior year benefiting from new products released in the fourth quarter of 2022, and a non-recurring transaction in 2023 with a marketing barter partner. The non-recurring transaction with a marketing barter partner in the third quarter of 2023 contributed $7.2 million of retail channel net sales to the 2023 period. Partially offsetting these declines, the Chubbies segment experienced increases in both DTC and retail channel net sales.
Consolidated Gross Profit and Gross Margin
Gross profit reflects net sales less cost of goods sold, which primarily includes the purchase cost of our products from our third-party manufacturers, inbound freight and duties, costs related to manufacturing of certain of our products, product quality testing and inspection costs and depreciation on molds and equipment that we own.
Year Ended December 31, Change
(dollars in thousands) 2024 2023 $
%(1)
Gross profit
260,264 302,152 (41,888) (13.9) %
Gross margin (Gross profit as a % of net sales)(1)
57.3 % 61.1 % (377)
(1) Change in gross margin period over period in basis points
In 2024, the Company wrote down $18.3 million of inventory and related purchase orders of the IcyBreeze reporting unit as part of the restructuring, contract termination and impairment charge activity. This write down was reflected in cost of goods sold, resulting in cost of goods sold for 2024 exceeding the respective prior year period amount and negatively impacting the gross margin in the 2024 period.
When excluding the write down of inventory and purchase orders described above, cost of goods sold decreased for the year ended December 31, 2024 compared to the prior year period, in line with the decline in net sales. Similarly, gross profit for the year ended December 31, 2024 compared to the prior year period also declined in line with the decline in net sales, when excluding the write down of IcyBreeze reporting unit.
Consolidated Operating Expenses
Operating expenses consist of (1) selling, general and administrative (“SG&A”) expenses, (2) restructuring, contract termination and impairment charges, (3) depreciation and amortization expenses and (4) other operating expenses, as defined below.
•Selling, General and Administrative (“SG&A”) Expenses - SG&A expenses consist primarily of marketing costs, wages, equity-based compensation expense, benefits costs, costs of our warehousing and logistics operations, costs of operating on third-party DTC marketplaces, professional fees and services, costs of shipping product to our customers and general corporate expenses.
•Restructuring, Contract Termination and Impairment Charges - Restructuring, contract termination and impairment charges consist of severance and employee-related benefits, contract termination fees and asset impairment charges.
•Depreciation and Amortization Expenses - Depreciation and amortization expenses consist of depreciation of property and equipment and amortization of definite-lived intangible assets.
•Other Operating Expenses - Other operating expenses include certain costs incurred as a result of being a public company, secondary offering completed in May 2023, acquisition-related expenses, business optimization and expansion expenses and management transition costs.
Year Ended December 31, Change
(dollars in thousands) 2024 2023 $
%
Operating expenses
$ 434,882 $ 530,002 $ (95,120) (17.9) %
Selling, general and administrative expenses 262,172 249,432 12,740 5.1 %
Restructuring, Contract Termination and Impairment Charges
136,099 248,967 (112,868) (45.3) %
Depreciation and amortization expenses 25,702 26,593 (891) (3.4) %
Other operating expenses 10,909 5,010 5,899 117.7 %
The decrease in operating expenses for the year ended December 31, 2024 compared to the year ended December 31, 2023 was primarily driven by a decrease in restructuring, contract termination and impairment charges, as a result of fewer goodwill and long-lived asset impairment charges, offset in part by the increase in contract termination expenses with the termination of a legacy marketing agreement with a former marketing barter partner.
This decrease was partially offset by increases in SG&A, primarily due to a $6.0 million increase in the fair market value changes in contingent consideration related to certain of our 2023 acquisitions, increases for rent expense of $1.4 million as a result of the addition of seven additional owned retail stores within our Chubbies segment and professional services and information technology expenditures of $1.7 million and $2.6 million, respectively, each of which were incurred to support future growth plans. Increases in other operating expenses were also recognized in the 2024, primarily as a result of increases to management transition costs, including additional cost associated with onboarding senior leadership positions and strategic consulting engagements. These strategic consulting arrangements consisted primarily of engagements for brand and marketing strategy, product roadmap development, cost efficiency program design and information technology and finance transformations.
Consolidated Income (Loss) From Operations
Income (loss) from operations is comprised of gross profit, less selling, general and administrative expenses, depreciation and amortization expense, restructuring, contract termination and impairment charges and other operating expenses.
Year Ended December 31, Change
(dollars in thousands) 2024 2023 $
%
Income (loss) from operations
$ (174,618) $ (227,850) $ 53,232 (23.4) %
The decrease in loss from operations for the year ended December 31, 2024 compared to the year ended December 31, 2023 was primarily driven by a decrease in restructuring, contract termination and impairment charges, offset in part by the decline in gross profit.
Consolidated Interest Expense
Interest expense, net consists primarily of interest on our Revolving Credit Facility and Term Loan.
Year Ended December 31, Change
(dollars in thousands) 2024 2023 $
%
Interest expense, net
$ 14,004 $ 11,004 $ 3,000 27.3 %
Interest expense, net increased for the year ended December 31, 2024 compared to the year ended December 31, 2023 due to an increase in the weighted average interest rate on our total debt balance, as well as a higher average debt balance in 2024 when compared to the prior year.
Consolidated Income Taxes
Income taxes represent federal, state, and local income taxes on the Company's allocable share of taxable income of Holdings, as well as Oru's and Chubbies' federal, state and foreign tax expense related to international subsidiaries. We are the sole managing member of Holdings, and as a result, consolidate the financial results of Holdings. Holdings is treated as a partnership for U.S. federal and most applicable state and local income tax purposes. As a partnership, Holdings is not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by Holdings is passed through to and included in the taxable income or loss of its members, including us, on a pro rata basis. We are subject to U.S. federal income taxes, in addition to state and local income taxes with respect to our allocable share of any taxable income or loss of Holdings, as well as any stand-alone income or loss generated by Solo Brands, Inc.
Year Ended December 31, Change
(dollars in thousands) 2024 2023 $ %
Income tax expense (benefit) $ (8,958) $ (36,225) $ 27,267 (75.3) %
Income tax benefit decreased for the year ended December 31, 2024 compared to the year ended December 31, 2023, primarily driven by the book losses in the prior year due to the restructuring, contract termination and impairment charges (see Note 3, Restructuring, Contract Termination and Impairment Charges for more information) which exceeded those recognized in 2024, as well as by the increase in the Company’s valuation allowance, as compared to the prior year which included a net release of the Company’s valuation allowance.
Solo Stove Segment Results for the Year Ended December 31, 2024 Compared to the Year Ended December 31, 2023
Solo Stove Net Sales
Year Ended December 31, Change
(dollars in thousands) 2024 2023 $
%
Net sales
$ 297,379 $ 351,583 $ (54,204) (15.4) %
Direct-to-consumer net sales 220,552 264,655 (44,103) (16.7) %
Retail net sales 76,827 86,928 (10,101) (11.6) %
The decrease in net sales for the year ended December 31, 2024 compared to the year ended December 31, 2023 was driven by declines in both DTC and retail channel net sales. The DTC and retail channel net sales were both impacted by a lack of new product introductions in 2024, with the prior year benefiting from new products released in the fourth quarter of 2022. The decline in retail channel net sales was further impacted by a non-recurring transaction in the prior year with a marketing barter partner. The non-recurring transaction with a marketing barter partner in the third quarter of 2023 contributed $7.2 million of retail channel net sales to the 2023 period.
Solo Stove Gross Profit and Gross Margin
Year Ended December 31, Change
(dollars in thousands) 2024 2023 $
%(1)
Gross profit
183,402 216,039 (32,637) (15.1) %
Gross margin (Gross profit as a % of net sales)
61.7 % 61.4 % 30
(1) Change in gross margin period over period in basis points
The decrease in gross profit for the year ended December 31, 2024 compared to the year ended December 31, 2023 was primarily the result of the decrease in net sales. During this same period of comparison, gross margin remained relatively flat, in line with the decrease in net sales.
Solo Stove Segment Operating Expenses
Segment operating expenses consist of (1) marketing expenses, (2) employee related expenses, such as wages and benefits, and (3) other segment operating expenses, which primarily consist of shipping and fulfillment related expenses.
Year Ended December 31, Change
(dollars in thousands) 2024 2023 $
%
Segment operating expenses
$ 137,489 $ 136,395 $ 1,094 0.8 %
Marketing expenses 67,682 71,837 (4,155) (5.8) %
Employee related compensation 12,642 8,848 3,794 42.9 %
Other segment operating expenses 57,165 55,710 1,455 2.6 %
Segment operating expenses were relatively flat for the year ended December 31, 2024 compared to the year ended December 31, 2023, with increases in employee related compensation as a result of costs associated with the separation of certain management personnel and addition of senior leadership positions, as well as increases in other segment operating expenses as a result of an increase in seller fees stemming from increased marketplace sales within the DTC net sales channel. Partially offsetting, marketing expense declined in line with the decline in net sales.
Chubbies Segment Results for the Year Ended December 31, 2024 Compared to the Year Ended December 31, 2023
Chubbies Net Sales
Year Ended December 31, Change
(dollars in thousands) 2024 2023 $
%
Net sales
$ 112,713 $ 101,599 $ 11,114 10.9 %
Direct-to-consumer net sales 57,824 56,405 1,419 2.5 %
Retail net sales 54,889 45,194 9,695 21.5 %
The increase in net sales for the year ended December 31, 2024 compared to the year ended December 31, 2023 was driven by increases realized in the Retail net sales channel as a result of continued growth within our retail strategic partnerships, coupled with the continued ability to identify and meet consumer demands within the DTC net sales channel, with both website and owned retail store performance exceeding the prior period.
Chubbies Gross Profit and Gross Margin
Year Ended December 31, Change
(dollars in thousands) 2024 2023 $
%(1)
Gross profit
67,006 61,595 5,411 8.8 %
Gross margin (Gross profit as a % of net sales)
59.4 % 60.6 % (120)
(1) Change in gross margin period over period in basis points
The increase in gross profit for the year ended December 31, 2024 compared to the year ended December 31, 2023 was primarily the result of the increase in net sales. During this same period of comparison, gross margin decreased slightly as a result of the growth in retail channel net sales.
Chubbies Segment Operating Expenses
Year Ended December 31, Change
(dollars in thousands) 2024 2023 $
%
Segment operating expenses $ 51,193 $ 48,039 $ 3,154 6.6 %
Marketing expenses 14,569 13,863 706 5.1 %
Employee related compensation 13,833 10,942 2,891 26.4 %
Other segment operating expenses 22,791 23,234 (443) (1.9) %
The increase in segment operating expenses for the year ended December 31, 2024 compared to the year ended December 31, 2023 was primarily driven by increases in employee related compensation, as a result of the increased headcount for the seven additional owned retail stores opened in 2024.
Liquidity and Capital Resources
Historically, our cash requirements have principally been for working capital purposes and acquisitions. We expect these needs to continue as we seek to develop and grow our business. In the longer-term, growth opportunities, such as continued expansion into international markets and possible brand and mission consistent acquisition opportunities, may significantly increase our expenses (including our capital expenditures) and cash requirements. We fund our working capital, which is primarily comprised of inventory, accounts payable, and accounts receivable, net, and other cash requirements from cash flows from operating activities, cash on hand, and borrowings under our Revolving Credit Facility. Our cash flows from operating activities and borrowings under the Revolving Credit Facility are our principal sources of liquidity and result primarily from the sales of our portfolio of products as described in Part I, Item 1, Business, of this Annual Report. Our future product sales and our cash flows are difficult to predict, and actual sales may not be in line with our forecasts.
We maintain the majority of our cash and cash equivalents in bank deposit and overnight sweep accounts with major highly rated multi-national and local financial institutions, and our deposits at these institutions exceed insured limits. Market conditions can impact the viability of these institutions, and any inability to access or delay in accessing these funds could adversely affect our business and financial position.
The table below reflects our sources, facilities and availability of liquidity as of December 31, 2024. See Note 12, Long-Term Debt in Item 8 of this Annual Report for additional information.
(in thousands) Liquidity Sources and Facilities Availability as of December 31, 2024
Cash and cash equivalents $ 11,980 $ 11,980
Revolving Credit Facility 69,000 279,622
Term Loan 83,000 -
Going Concern
Substantial doubt about our ability to continue as a going concern exists. We incurred a net loss of $113.4 million during the year ended December 31, 2024 and had an accumulated deficit of $228.8 million. We had cash and cash equivalents of $12.0 million and total debt outstanding of $150.7 million as of December 31, 2024. As discussed above, in addition, subsequent to December 31, 2024, we drew an additional $277.3 million on our Revolving Credit Facility (as defined herein), which matures on May 12, 2026. As of December 31, 2024, we were in compliance with the financial and operational covenants under the credit agreement governing our Revolving Credit Facility, however, due to uncertainty in our business and our expected levels of indebtedness, without the application of successful mitigating strategies, we expect to experience difficulty remaining in compliance with the quarterly financial covenants. Failure to satisfy either the interest coverage ratio or total net leverage ratio (each described below) is an event of default under the credit agreement. If an event of default occurs, the lenders could elect to declare all amounts outstanding under the credit facility immediately due and payable and exercise other remedies as set forth in the credit agreement.
We are evaluating strategies to refinance our existing debt. These strategies could include restructuring our debt, issuing new debt or entering into other financing arrangements. In addition, our plans are focused on improving our results and liquidity through a variety of operational improvements throughout 2025, including decreasing costs through a reduction in force and closures of select distribution centers. However, there can be no assurance that we will be able to refinance or restructure our debt or that we will be able to execute any operational improvements. As a result, there can be no assurance that we will be able to obtain or generate additional liquidity when needed or under acceptable terms, if at all. While we believe our plans to refinance or restructure our debt and execute operational improvements can alleviate the conditions that raise substantial doubt, these plans are not entirely within our control and cannot be assessed as being probable of occurring.
Although we cannot predict with certainty all of our particular short-term cash uses or the timing or amount of cash requirements, or the effects of our plan to refinance or restructure our debt or enter into other financing arrangements as described above, there is uncertainty about our ability to meet our cash obligations for the next twelve months.
Revolving Credit Facility and Term Loan
On May 12, 2021, we entered into a credit agreement with JPMorgan Chase Bank, N.A., the Lenders and L/C Issuers party thereto (each as defined therein) and the other parties thereto (as subsequently amended on June 2, 2021, September 1, 2021 and May 22, 2023, the “Revolving Credit Facility”). As so amended, the Revolving Credit Facility allows us to borrow up to $350.0 million of revolving loans, including the ability to issue up to $20.0 million in letters of credit, with $1.4 million of letters of credit issued and outstanding as of December 31, 2024. While our issuance of letters of credit does not increase our borrowings outstanding under the Revolving Credit Facility, it does reduce the amounts available under the Revolving Credit Facility. The Revolving Credit Facility matures on May 12, 2026 and bears interest at a rate equal to the base rate as defined in the agreement plus an applicable margin, which as of December 31, 2024, was based on SOFR. Interest is due on the last business day of each March, June, September and December. Principal under the Revolving Credit Facility is not due until maturity.
In addition to the above, the amendment on September 1, 2021 included a provision to borrow up to $100.0 million under the Term Loan. The proceeds from the Term Loan were used to fund the Chubbies acquisition. The Term Loan matures on May 12, 2026 and bears interest at a rate equal to the base rate as defined in the agreement plus an applicable margin, which as of December 31, 2024, was based on SOFR. We were required to make quarterly principal payments on the Term Loan beginning on December 31, 2021. At December 31, 2024, we had $83.0 million outstanding on the Term Loan. All required principal payments were made on time and with available cash through the year ended December 31, 2024. Interest payments are due on a quarterly basis under the Term Loan, with the same due dates as noted for the Revolving Credit Facility above.
Other Terms of the Revolving Credit Facility
The Revolving Credit Facility provides for incremental term loans, incremental equivalent debt, or revolving commitment increases (we refer to each as an “Incremental Increase”) in amounts such that, after giving pro forma effect to such Incremental Increase, our total secured net leverage ratio (as defined in the Revolving Credit Facility) would not exceed the then-applicable cap under the Revolving Credit Facility. In the event that any lenders fund any of the Incremental Increases, the terms and provisions of each Incremental Increase, including the interest rate, shall be determined by us and the lenders, but in no event shall the terms and provisions, when taken as a whole and subject to certain exceptions, of the applicable Incremental Increase, be more favorable to any lender providing any portion of such Incremental Increase than the terms and provisions of the loans provided under the Revolving Credit Facility unless such terms and conditions reflect market terms and conditions at the time of incurrence or issuance thereof as determined by us in good faith.
The Revolving Credit Facility is (a) jointly and severally guaranteed by the Guarantors (as defined in the Revolving Credit Facility) and any future subsidiaries that execute a joinder to the guaranty and related collateral agreements and (b) secured by a first priority lien on substantially all of our and the Guarantors’ assets, subject to certain customary exceptions.
The Revolving Credit Facility requires us to comply with certain financial ratios, including:
•at the end of each fiscal quarter, a total net leverage ratio (as defined in the Revolving Credit Facility) for the four quarters then ended of not more than: 4.00 to 1.00 for each quarter ended in 2022 and through June 30, 2023; 3.75 to 1.00 for each quarter ending June 30, 2023 through March 31, 2024; and 3.50 to 1.00 for each quarter ending June 30, 2024 or thereafter;
•at the end of each fiscal quarter, an interest coverage ratio (as defined in the Revolving Credit Facility) for the four quarters then ended of not less than 3.00 to 1.00.
In addition, the Revolving Credit Facility contains customary financial and non-financial covenants limiting, among other things, mergers and acquisitions; investments, loans, and advances; affiliate transactions; changes to capital structure and the business; additional indebtedness; additional liens; the payment of dividends; and the sale of assets, in each case, subject to certain customary exceptions. The Revolving Credit Facility contains customary events of default, including payment defaults, breaches of representations and warranties, covenant defaults, defaults under other material debt, events of bankruptcy and insolvency, failure of any guaranty or security document supporting the Revolving Credit Facility to be in full force and effect, and a change of control of our business. We were in compliance with all covenants under the Revolving Credit Facility as of December 31, 2024.
Cash Flows
Year Ended December 31, Change
(dollars in thousands) 2024 2023 $
%
Cash flows provided by (used in):
Operating activities
$ 10,517 $ 62,423 $ (51,906) (83.2) %
Investing activities
(14,512) (53,079) 38,567 72.7 %
Financing activities
$ (3,657) $ (12,866) $ 9,209 71.6 %
Operating activities
The $51.9 million decrease in cash provided by operating activities period over period, was due to a $13.7 million increase in cash usage from changes in operating assets and liabilities (“working capital”), which was primarily driven by increased cash usage in inventory replenishment, as the
prior year benefited from a higher beginning inventory balance that required less replenishment throughout the year. The increase in changes in working capital was coupled with an increase in cash usage of $38.2 million from changes in net income (loss) after non-cash adjustments, driven by a decline in our operations, primarily net sales, reflected through changes in net income (loss).
Investing activities
The $38.6 million decrease in cash used in investing activities, was primarily driven by the $34.6 million decrease in cash used in acquisition activity in 2024, compared to the prior year with the 2023 acquisitions, partially offset by an increase in capital expenditures in 2024, primarily related to the addition of seven owned retail stores within our Chubbies segment in 2024.
Financing activities
The $9.2 million decrease in cash used in financing activities, was primarily due to a $34.4 million decrease in cash used in net drawdowns and payments on our debt and a $6.2 million decrease in cash used in distributions to non-controlling interests, partially offset by a $37.0 million decrease in cash used for the repurchase of the Company’s Class A common stock as compared to 2023, of which $31.2 million was subsequently retired and the remainder utilized as a portion of the contingent consideration payments related to the 2023 acquisitions.
Contractual Obligations
Our material cash commitments from known contractual and other obligations primarily consist of obligations for long-term debt and related interest, leases for properties and equipment and purchase obligations as part of normal operations. See Note 12, Long-Term Debt, in Item 8 of this Annual Report for more information regarding scheduled maturities of our long-term debt. See Note 14, Leases, in Item 8 of this Annual Report for additional information on leases.
As of December 31, 2024, we executed a termination agreement for advertising services, resulting in a remaining commitment of $5.4 million that is due in the first quarter of 2025. These purchase obligations include all enforceable, legally binding agreements to purchase goods or services or pay consideration due that specify all significant terms, regardless of the duration of the agreement, and exclude agreements with variable terms for which we are unable to estimate the minimum amounts.
For information regarding our other contractual obligations, see Note 12 - Long-Term Debt, Note 14 - Leases, and Note 2 - Significant Accounting Policies in Item 8 of this Annual Report.
Critical Accounting Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. In preparing the consolidated financial statements, we make estimates and judgments that affect the reported amounts of assets, liabilities, sales, expenses, and related disclosure of contingent assets and liabilities. We re-evaluate our estimates on an on-going basis. Our estimates are based on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Because of the uncertainty inherent in these matters, actual results may differ from these estimates and could differ based upon other assumptions or conditions.
See Note 2, Significant Accounting Policies, to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for more information about our significant accounting policies, including our critical accounting policies. The critical accounting estimates that reflect our more significant judgments and estimates used in the preparation of our consolidated financial statements include those noted below. Within the context of these critical accounting estimates, we are not currently aware of any reasonably likely events or circumstances that would result in materially different amounts being reported.
Revenue Recognition
Revenue is recognized for the amount of consideration to which we expect to be entitled in exchange for transferring promised goods to a customer. The consideration promised in a contract with a customer includes fixed and variable amounts. The fixed amount of consideration is the standalone selling price of the goods sold. Variable considerations, including cash discounts, rebates and sales incentives programs, are deducted from gross sales in determining net sales at the time revenues are recorded. Variable considerations also include the portion of goods that are expected to be returned and refunded. We determine these estimates based on historical experience and trends. The actual amount of customer returns and rebates may differ from our estimates. We elected to account for shipping costs as fulfillment activities, and not as separate performance obligations. Net sales include shipping costs charged to the customer with the related shipping expense recognized in selling, general and administrative expenses when the revenue is recognized. Sales taxes collected from customers are excluded from net sales, which are subsequently remitted to government authorities.
Inventory
Inventories, consisting primarily of finished goods are recorded at the lower of cost or net realizable value. Cost is determined using an average costing method, calculated using the weighted average cost of historical purchases. Our inventory balances include all costs incurred to deliver inventory to our distribution facilities in its finished state, such as inbound freight, import duties and tariffs. Net realizable value is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. We make ongoing estimates relating to the net realizable value of inventories based upon our assumptions about future demand, market conditions and product obsolescence. As a result, we have not recorded any write-downs to inventory below cost, except as it relates to obsolete or slow-moving inventory. If actual market conditions are less favorable than those projected by management, additional write-downs are recorded. If actual market conditions are more favorable than anticipated, inventory previously written down may be sold to customers, resulting in lower cost of sales and higher income from operations than expected in that period.
Income Taxes
In determining the provision for income taxes, we make estimates and judgments which affect our evaluation of the carrying value of our deferred tax assets as well as our calculation of certain tax liabilities. We evaluate the carrying value of our deferred tax assets on a quarterly basis. In completing this evaluation, we consider all available positive and negative evidence. Such evidence includes historical operating results, the existence of cumulative earnings and losses in the most recent fiscal years, taxable income in prior carryback year(s) if permitted under the tax law, expectations for future pre-tax operating income, the time period over which our temporary differences will reverse, and the implementation of feasible and prudent tax planning strategies. Estimating future taxable income is inherently uncertain and requires judgment. In projecting future taxable income, we consider our historical results and incorporate certain assumptions, including projected revenue growth, and operating margins, among others. Deferred tax assets are reduced by a valuation allowance if, based on the weight of this evidence, it is more likely than not that all or a portion of the recorded deferred tax assets will not be realized in future periods.
We have recorded a valuation allowance against Solo Brands, Inc. and Oru’s deferred tax assets resulting from current losses, as discussed below, resulting in a net deferred tax asset the consolidated group. Solo Brands, Inc. evaluated and concluded that as of December 31, 2024, we had $19.1 million of valuation allowances. However, since future financial results may differ from previous estimates, periodic adjustments to our valuation allowances may be necessary. If we determine in the future that we will be able to fully utilize all or part of these deferred tax assets, we would record a reversal of our valuation allowance through earnings in the period the determination was made, which would have a positive effect on our results of operations and earnings in future periods.
Goodwill
Goodwill is not amortized, but is tested for impairment at the reporting unit level annually or more frequently if events or changes in circumstances indicate that it is more likely than not that the fair value of the reporting unit is less than its carrying amount. In conducting the impairment test, we first review qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. We currently operate as five reporting units. As of our annual assessment date, October 1, 2024, we had two reporting units with remaining goodwill, Solo Stove and Chubbies. As of December 31, 2024, as a result of the goodwill impairment charge recognized for Solo Stove as of that date, discussed in further detail in Note 10, Goodwill, only the Chubbies reporting unit had goodwill remaining.
When testing goodwill for impairment, we have the option of first performing a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. If we elect to bypass the qualitative assessment, or if a qualitative assessment indicates it is more likely than not that carrying value exceeds its fair value, we perform a quantitative goodwill impairment test. Under the quantitative goodwill impairment test, if our reporting unit’s carrying amount exceeds its fair value, we will record an impairment charge based on that difference.
To determine reporting unit fair value as part of the quantitative test, we use a weighting of fair values derived from the income approach and the market approach. Under the income approach, we project the future cash flows and discount these cash flows to reflect their present value, inclusive of their relative risk. The cash flows used are consistent with those we use in our internal planning, which reflects actual business trends experienced and our long-term business strategy. Under the market approach, we use the guideline company method to develop valuation multiples and compare our reporting unit to similar publicly traded companies.
In order to further validate the reasonableness of fair value as determined by the income and market approaches described above, a reconciliation to market capitalization is then performed by estimating a reasonable control premium and other market factors. Future changes in the judgments, assumptions and estimates that are used in the impairment testing for goodwill could result in significantly different estimates of fair value.
Impairment charges related to goodwill are recorded to restructuring, contract termination and impairment charges on the consolidated statements of operations and comprehensive income (loss). See Note 10, Goodwill, for further details regarding our goodwill balance and accumulated impairment losses.
As a result of the identification of goodwill impairment indicators as of September 30, 2024, discussed in further detail in Note 9, Intangible Assets, net, we performed a goodwill impairment test as of September 30, 2024. Through performance of this test, we determined that the carrying amounts of the IcyBreeze and Solo Stove reporting units exceeded their respective fair values and goodwill impairment charges of $19.9 million and $25.0 million, respectively, were recognized. The Chubbies reporting unit was determined to have a fair value exceeding its book value by more than 5% as of September 30, 2024. Goodwill at the remaining reporting units of the Company were fully impaired as of December 31, 2023.
The future occurrence of a potential indicator of impairment could include matters such as: a decrease in expected net earnings, a further decline in equity market conditions, a decline in comparable market multiples, a continued and sustained decline in our common stock price, a significant adverse change in legal factors or the general business climate, an adverse action or assessment by a regulator, and a significant downturn in demand for products offered by us. In the event of significant adverse changes of the nature described above, it may be necessary for us to recognize a non-cash impairment of goodwill, which could have a material adverse effect on our consolidated business, results of operations and financial condition. Based on the results of the quantitative interim goodwill impairment test, the calculated fair value of the Chubbies reporting unit exceeded its book value by less than 10% as of September 30, 2024. Therefore, a 150 basis point (“BPS”) increase in the discount rate, a 175 BPS decrease in the EBITDA margin or a 400 BPS decrease in revenue growth would indicate a potential hypothetical impairment charge for this reporting unit for the amounts reflected in the chart below.
Chubbies
Goodwill as of September 30, 2024 $ 73,119
Sensitivity analysis, approximate hypothetical impairment charge:
Discount rate increase of 150 BPS
(1,383)
EBITDA margin decrease of 175 BPS
(1,383)
Revenue growth rate decrease of 400 BPS
(383)
Intangible Assets
We evaluate the carrying value of definite-lived intangible assets whenever a change in circumstances indicates that the net carrying value may not be recoverable from the undiscounted future cash flows from operations. Events or circumstances that could trigger an impairment review of a long-lived asset or asset group include, but are not limited to: (i) a significant decrease in the market price of the asset, (ii) a significant adverse change in the extent or manner that the asset is used or in its physical condition, (iii) a significant adverse change in legal factors or in the business climate that could affect the value of the asset, (iv) an accumulation of costs significantly in excess of original expectation for the acquisition or construction of the asset, (v) a current period operating or cash flow loss combined with a history of operating or cash flow losses or a forecast of continuing losses associated with the use of the asset and (vi) a more-likely-than-not expectation that the asset will be sold or disposed of significantly before the end of its previously estimated useful life. If an impairment exists, the net carrying values are reduced to fair values. The estimates of undiscounted future cash flows used during an impairment review of a long-lived asset or asset group require judgments and assumptions of future cash flows that are expected to arise as a direct result of the use and eventual disposition of the asset or asset group. If these assets were for sale, our estimates of their values could be significantly different because of market conditions, specific transaction terms and a buyer's perspective on future cash flows.
Impairment charges related to intangible assets are recorded to restructuring, contract termination and impairment charges on the consolidated statements of operations and comprehensive income (loss). See Note 9, Intangible Assets, net in Item 8 of this Annual Report, for further details regarding intangible asset balances and related accumulated amortization and impairment losses.
Recent Accounting Pronouncements
For a description of recent accounting pronouncements, see “Recently Adopted Accounting Pronouncements” and “Recently Issued Accounting Standards-Not Yet Adopted” in Note 2, Significant Accounting Policies, in Item 8 of this Annual Report on Form 10-K.
JOBS Act
We currently qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Accordingly, we are provided the option to adopt new or revised accounting guidance either (i) within the same periods as those otherwise applicable to non-emerging growth companies or (ii) within the same time periods as private companies. We have elected to adopt new or revised accounting guidance within the same time period as private companies, unless management determines it is preferable to take advantage of early adoption provisions offered within the applicable guidance. Our utilization of these transition periods may make it difficult to compare our financial statements to those of non-emerging growth companies and other emerging growth companies that have opted out of the transition periods afforded under the JOBS Act.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily the result of fluctuations in interest rates.
Interest Rate Risk
In order to maintain liquidity and fund business operations, we have a long-term credit facility and separate term loan that bear variable interest rates based on prime, federal funds, or SOFR plus an applicable margin based on our total net leverage ratio. As of December 31, 2024, we had indebtedness of $69.0 million and $83.0 million, with annualized rates of interest of 7.03% and 7.08%, under our Revolving Credit Facility and Term Loan, respectively. The nature and amount of our long-term debt varies as a result of business requirements, market conditions, and other factors. We may elect to enter into interest rate swap contracts to reduce the impact associated with interest rate fluctuations, but as of December 31, 2024, we have not entered into any such contracts. A 100 bps increase in SOFR would increase our interest expense by approximately $1.5 million in any given year.
Inflation Risk
Inflationary factors such as increases in the cost of our product and overhead costs may adversely affect our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross margin and SG&A expenses as a percentage of net sales, if the selling prices of our products do not increase with these increased costs.
Commodity Price Risk
The primary raw materials and components used by our contract manufacturing partners include stainless steel and aluminum. We believe these materials are readily available from multiple vendors. Certain of these products use petroleum or natural gas as inputs. However, we do not believe there is a significant direct correlation between petroleum or natural gas prices and the costs of our products. The U.S. government has imposed tariffs on certain foreign goods from a variety of countries and regions that it perceives as engaging in unfair trade practices. If we become unable to recover a substantial portion of any increased tariff related costs from our customers, manufacturers, or other available avenues, the imposition of the new or increased international tariffs could materially and adversely affect our business, financial condition and results of operations. We will continue to monitor international trade policy and will make adjustments to our supply base where possible to mitigate the impact on our costs. We do not currently hedge commodity price risk.
Foreign Currency Risk
Our international sales are primarily denominated in local currencies. During 2024 and 2023, net sales in international markets accounted for 6.9% and 6.0% of our consolidated revenues, respectively. Therefore, we do not believe exposure to foreign currency fluctuations has had a material impact on our net sales. A portion of our operating expenses are incurred outside the Unites States and are denominated in foreign currencies, which are also subject to fluctuations due to changes in foreign currency exchange rates. In addition, our suppliers may incur many costs, including labor costs, in other currencies. To the extent that exchange rates move unfavorably for our suppliers, they may seek to pass these additional costs on to us, which could have a material impact on our gross margin. In addition, a strengthening of the U.S. dollar may increase the cost of our products to our customers outside of the United States. Our operating results and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates. A 100 bps unfavorable change in foreign currency exchange rates to which we are exposed would increase our operating expenses by approximately $0.3 million and decrease our net sales by approximately $0.3 million for the year ended December 31, 2024.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm - PCAOB Firm ID: 42
Consolidated Balance Sheets
Consolidated Statements of Operations and Comprehensive Income (Loss)
Consolidated Statements of Cash Flows
Consolidated Statements of Equity
Notes to Consolidated Financial Statements
Note 1 - Organization and Description of Business
Note 2 - Significant Accounting Policies
Note 3 - Restructuring, Contract Termination and Impairment Charges
Note 4- Revenue
Note 5 - Acquisitions
Note 6 - Inventory
Note 7 - Prepaid Expenses and Other Current Assets
Note 8 - Property and Equipment, net
Note 9 - Intangible Assets, net
Note 10 - Goodwill
Note 11 - Accrued Expenses and Other Current Liabilities
Note 12 - Long-Term Debt
Note 13 - Other Non-Current Liabilities
Note 14 - Leases
Note 15 - Equity-Based Compensation
Note 16 - Income Taxes
Note 17 - Commitments and Contingencies
Note 18 - Fair Value Measurements
Note 19 - Equity
Note 20 - Net Income (Loss) Per Share
Note 21 - Variable Interest Entities
Note 22 - Segments
Note 23 - Related Parties
Note 24 - Subsequent Events
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Solo Brands, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Solo Brands, Inc. (the Company) as of December 31, 2024 and 2023, the related consolidated statements of operations and comprehensive income (loss), cash flows and equity for each of the two years in the period ended December 31, 2024, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2024, in conformity with U.S. generally accepted accounting principles.
The Company's Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has incurred recurring net losses from operations, has an accumulated deficit, and has stated that substantial doubt exists about the Company’s ability to continue as a going concern. In addition, without the application of successful mitigating strategies, the Company expects to experience difficulty remaining in compliance with financial covenants which would be considered an event of default resulting in all amounts outstanding immediately due and payable. Management's evaluation of the events and conditions and management’s plans regarding these matters are also described in Note 1. The 2024 consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2021.
Dallas, Texas
March 12, 2025
SOLO BRANDS, INC.
Consolidated Balance Sheets
(In thousands, except par value and per unit data) December 31, 2024 December 31, 2023
ASSETS
Current assets
Cash and cash equivalents $ 11,980 $ 19,842
Accounts receivable, net of allowance for credit losses of $1.1 million and $1.3 million for the
years ended December 31, 2024 and 2023, respectively
39,440 42,725
Inventory 108,575 111,613
Prepaid expenses and other current assets 12,223 21,893
Total current assets 172,218 196,073
Non-current assets
Property and equipment, net 24,195 26,159
Intangible assets, net 189,701 221,010
Goodwill 73,119 169,648
Operating lease right-of-use assets 27,683 30,788
Other non-current assets 8,144 15,640
Total non-current assets 322,842 463,245
Total assets $ 495,060 $ 659,318
LIABILITIES AND EQUITY
Current liabilities
Accounts payable $ 69,598 $ 21,846
Accrued expenses and other current liabilities 41,661 55,155
Deferred revenue 1,829 5,310
Current portion of long-term debt 8,625 6,250
Total current liabilities 121,713 88,561
Non-current liabilities
Long-term debt, net 142,060 142,993
Deferred tax liability 6,795 17,319
Operating lease liabilities 22,079 24,648
Other non-current liabilities 9,056 13,534
Total non-current liabilities 179,990 198,494
Commitments and contingencies (Note 17)
Equity
Class A common stock, par value $0.001 per share; 468,767,205 shares authorized, 58,800,001 shares issued and outstanding; 468,767,205 authorized, 57,947,711 issued and outstanding
59 58
Class B common stock, par value $0.001 per share; 50,000,000 shares authorized, 33,091,989 shares issued and outstanding; 50,000,000 shares authorized, 33,047,780 issued and outstanding
33 33
Additional paid-in capital 363,601 357,385
Retained earnings (accumulated deficit) (228,814) (115,458)
Accumulated other comprehensive income (loss) (434) (230)
Treasury stock (733) (526)
Equity attributable to the controlling interest 133,712 241,262
Equity attributable to noncontrolling interests 59,645 131,001
Total equity 193,357 372,263
Total liabilities and equity $ 495,060 $ 659,318
See Notes to Consolidated Financial Statements
SOLO BRANDS, INC.
Consolidated Statements of Operations and Comprehensive Income (Loss)
Year Ended December 31,
(In thousands, except per share data) 2024 2023
Net sales $ 454,550 $ 494,776
Cost of goods sold 194,286 192,624
Gross profit 260,264 302,152
Operating expenses
Selling, general & administrative expenses 262,172 249,432
Restructuring, contract termination and impairment charges 136,099 248,967
Depreciation and amortization expenses 25,702 26,593
Other operating expenses 10,909 5,010
Total operating expenses 434,882 530,002
Income (loss) from operations (174,618) (227,850)
Non-operating (income) expense
Interest expense, net 14,004 11,004
Other non-operating (income) expense 528 (7,297)
Total non-operating (income) expense 14,532 3,707
Income (loss) before income taxes (189,150) (231,557)
Income tax expense (benefit) (8,958) (36,225)
Net income (loss) (180,192) (195,332)
Less: net income (loss) attributable to noncontrolling interests (66,836) (83,985)
Net income (loss) attributable to Solo Brands, Inc. $ (113,356) $ (111,347)
Other comprehensive income (loss)
Foreign currency translation, net of tax (204) (268)
Comprehensive income (loss) (180,396) (195,600)
Less: other comprehensive income (loss) attributable to noncontrolling interests (66) (97)
Less: net income (loss) attributable to noncontrolling interests (66,836) (83,985)
Comprehensive income (loss) attributable to Solo Brands, Inc. (113,494) (111,518)
Net income (loss) per Class A common stock
Basic and diluted $ (1.94) $ (1.84)
Weighted-average Class A common stock outstanding
Basic and diluted 58,388 60,501
See Notes to Consolidated Financial Statements
SOLO BRANDS, INC.
Consolidated Statements of Cash Flows
Year Ended December 31,
(In thousands) 2024 2023
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (180,192) $ (195,332)
Adjustments to reconcile net income (loss) to net cash and cash equivalents provided by (used in) operating activities
Restructuring, contract termination and impairment charges 136,099 248,967
Depreciation and amortization 26,632 27,349
Inventory charges associated with restructuring and consolidation activities 18,309 -
Noncash operating lease expense 8,517 8,373
Equity-based compensation 6,754 15,050
Change in fair value of contingent consideration 4,438 (1,573)
Prepaid marketing charges 1,871 -
Amortization of debt issuance costs 860 860
Other noncash adjustments 922 1,204
Barter credits - (7,160)
Deferred income taxes (11,684) (47,040)
Changes in assets and liabilities
Inventory (14,673) 28,182
Accrued expenses and other current liabilities (14,133) 6,811
Accounts receivable 3,195 (16,328)
Other non-current assets and liabilities 176 2,409
Deferred revenue (3,481) (1,571)
Operating lease liabilities (8,586) (8,113)
Prepaid expenses and other current assets 343 (9,222)
Accounts payable 38,150 9,557
Payments of contingent consideration (3,000) -
Net cash provided by (used in) operating activities 10,517 62,423
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (14,512) (9,093)
Payments of contingent consideration - (9,386)
Acquisitions, net of cash acquired - (34,600)
Net cash provided by (used in) investing activities (14,512) (53,079)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 80,000 70,000
Repayments of long-term debt (79,250) (35,000)
Debt issuance costs paid (167) -
Finance lease liability principal paid (144) (379)
Exercise of Options for Class A common stock - 39
Common stock repurchases - (36,957)
Distributions to non-controlling interests (4,284) (10,511)
Taxes paid related to net share settlement of equity awards (207) (305)
Stock issued under employee stock purchase plan 395 247
Net cash provided by (used in) financing activities (3,657) (12,866)
Effect of exchange rate changes on cash (210) 71
Net change in cash and cash equivalents (7,862) (3,451)
Cash and cash equivalents balance, beginning of period 19,842 23,293
Cash and cash equivalents balance, end of period $ 11,980 $ 19,842
SUPPLEMENTAL DISCLOSURES:
Cash interest paid, net of amounts capitalized $ 13,469 $ 10,327
Cash income taxes paid $ 4,284 $ 11,775
Construction in progress in accounts payable
$ 268 $ -
SUPPLEMENTAL NONCASH INVESTING AND FINANCING DISCLOSURES:
Treasury stock retirements - 31,164
Re-issuance of treasury stock - 5,342
See Notes to Consolidated Financial Statements
SOLO BRANDS, INC.
Consolidated Statements of Equity
(In thousands) Class A Common Stock Class B Common Stock
Shares
Amount
Shares
Amount
Additional Paid-in Capital Retained Earnings (Accumulated Deficit) Accumulated Other Comprehensive Income Treasury Stock Non-controlling Interest Total Equity
Balance at December 31, 2022 63,651 $ 64 32,158 $ 32 $ 358,118 $ 5,746 $ (499) $ (35) $ 211,571 $ 574,997
Net income (loss) - - - - - (111,347) - - (83,985) (195,332)
Equity-based compensation, net of income tax expense (benefit) - - - - 10,272 - - - 3,834 14,106
Equity-based compensation for non-employees - - - - 333 - - - - 333
Other comprehensive income (loss) - - - - - - 58 - 210 268
Tax distributions to non-controlling interests - - - - - - - - (10,511) (10,511)
Employee stock purchase plan 54 - - - 247 - - - - 247
Common stock repurchase (7,301) - - - (1,635) 20,852 - (36,692) - (17,475)
Re-issuance of treasury stock 1,068 - - - 545 - - 5,342 - 5,887
Treasury stock retirement - (6) - - - (31,158) - 31,164 - -
Surrender of stock to settle taxes on equity awards - - - - - - - (305) - (305)
Exercise of options for Class A common stock 8 - - - 39 - - - - 39
Vested equity-based compensation and re-allocation of ownership percentage 468 - 890 1 (10,534) 449 211 - 9,882 9
Balance at December 31, 2023 57,948 $ 58 33,048 $ 33 $ 357,385 $ (115,458) $ (230) $ (526) $ 131,001 $ 372,263
Net income (loss) - - - - - (113,356) - - (66,836) (180,192)
Equity-based compensation, net of income tax expense (benefit) - - - - 3,213 - - - 2,372 5,585
Other comprehensive income (loss) - - - - - - (204) - - (204)
Tax distributions to non-controlling interests - - - - - - - - (4,284) (4,284)
Employee stock purchase plan 239 - - - 396 - - - - 396
Surrender of stock to settle taxes on equity awards - - - - - - - (207) - (207)
Vested equity-based compensation and re-allocation of ownership percentage 613 1 44 - 2,607 - - - (2,608) -
Balance at December 31, 2024 58,800 $ 59 33,092 $ 33 $ 363,601 $ (228,814) $ (434) $ (733) $ 59,645 $ 193,357
See Notes to Consolidated Financial Statements
SOLO BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Organization and Description of Business
Description of Business
Solo Brands, Inc. (“Company” or “Solo Brands”), through a majority-owned subsidiary, Solo Stove Holdings, LLC (“Holdings”), operates five premium brands - Solo Stove, Oru Kayak, Inc. (“Oru”), International Surf Ventures, Inc. (“ISLE”), Chubbies, Inc. (“Chubbies”), and Sconberg, LLC (“TerraFlame”). Solo Stove offers portable, low-smoke fire pits, grills, and camping stoves for backyard and outdoor use in different sizes, fire pit bundles, gear kits, stoves, cookware, dinnerware, and a variety of clothing and accessories. Oru offers a flagship line of lightweight, foldable kayaks. ISLE produces high-quality stand-up paddle boards with colorful designs that are engineered to accommodate every skill level, style, and interest. Chubbies is a fun-loving, premium apparel brand that offers well-fitted comfortable clothing with unique style. TerraFlame provides customers the ability to bring the fire inside with an indoor fire pit. Solo Brands distributes its products through individual brand websites and other partners across North America, Europe and Australia.
Organization
While operating as a limited liability company from 2011 to 2019, Solo Brands, LLC had two owners, or the Founders, which together owned 100% of the outstanding membership interest. Pursuant to the membership interest purchase agreement (“the 2019 Agreement”) dated September 24, 2019, SS Acquisitions, Inc. (which was majority-owned by Bertram Capital) acquired 66.74% of the total Class A-1 and Class A-2 units of Solo Brands, LLC from the Founders. The remaining interests were retained by the Founders and other employees who acquired interest as part of the 2019 Agreement.
Holdings was formed as a single-member limited liability company in the state of Delaware on October 6, 2020. Through a wholly-owned subsidiary, pursuant to the securities purchase agreement (the “2020 Agreement”) dated October 9, 2020, Holdings acquired 100% percent of the outstanding units of Solo Brands, LLC (previously Frontline Advance, LLC dba Solo Stove).
For all periods, the operations of the Company are conducted through Solo Brands, LLC. As a result of the 2020 Agreement, Solo Brands, LLC became a wholly-owned subsidiary of Holdings. In exchange, Holdings issued Class A and B units, through which Summit Partners Growth Equity Funds, Summit Partners Subordinated Debt Funds, and Summit Investors X Funds (collectively, the “Summit Partners”) acquired an effective 58.82% percent of Holdings. The remaining units were retained by the Founders, SS Acquisitions, Inc., and other employees (collectively, the “Continuing LLC Owners”).
Solo Brands, Inc. was incorporated in Delaware on June 23, 2021 for the purpose of facilitating an initial public offering and other related transactions in order to carry on the Company’s business. On October 28, 2021, Solo Brands, Inc. completed its initial public offering (“IPO”) of 14,838,708 shares of Class A common stock.
In connection with the IPO, the organizational structure was converted to an umbrella partnership-C-Corporation with Solo Brands, Inc. having a controlling equity interest in Holdings. The Reorganization Transactions were accounted for as a transaction between entities under common control. As the sole managing member, Solo Brands, Inc. operates and controls all of the business and affairs and, through Holdings and its subsidiaries, conducts the business. Solo Brands, Inc. consolidates Holdings in its consolidated financial statements and reports a non-controlling interest related to the common units held by the Continuing LLC Owners on its audited consolidated financial statements.
Basis of Presentation
The consolidated financial statements contained herein have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and the rules of the U.S. Securities and Exchange Commission (“SEC”). The consolidated financial statements include those of our wholly owned and majority-owned subsidiaries and the entity consolidated under the variable interest entity model. Intercompany balances and transactions are eliminated in consolidation. Certain prior period amounts have been conformed to the current period’s presentation.
Going Concern
The consolidated financial statements have been prepared in accordance with U.S. GAAP assuming the Company will continue as a going concern. The going concern assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business. However, substantial doubt about the Company’s ability to continue as a going concern exists.
The Company incurred a net loss of $113.4 million during the year ended December 31, 2024 and had an accumulated deficit of $228.8 million. The Company had cash and cash equivalents of $12.0 million and total debt outstanding of $150.7 million as of December 31, 2024. In addition, subsequent to December 31, 2024, the Company drew an additional $277.3 million under its Revolving Credit Facility (as defined herein), which matures on May 12, 2026. As of December 31, 2024, we were in compliance with the financial and operational covenants under the credit agreement governing our Revolving Credit Facility, however, due to uncertainty in our business and our expected levels of indebtedness, without the application of successful mitigating strategies, we expect to experience difficulty remaining in compliance with the quarterly financial covenants. Failure to
satisfy either the interest coverage ratio or total net leverage ratio (each described below) is an event of default under the credit agreement. If an event of default occurs, the lenders could elect to declare all amounts outstanding under the credit facility immediately due and payable and exercise other remedies as set forth in the credit agreement.
The Company is evaluating strategies to refinance its existing debt. These strategies could include restructuring our debt, issuing new debt or entering into other financing arrangements. In addition, the Company’s plans are focused on improving its results and liquidity through a variety of operational improvements throughout 2025, including a reduction of force and closures of select distribution centers. However, there can be no assurance that the Company will be able to refinance or restructure its debt or that it will be able to execute any operational improvements. As a result, there can be no assurance that the Company will be able to obtain or generate additional liquidity when needed or under acceptable terms, if at all. While the Company believes its plans to refinance the Revolving Credit Facility and execute operational improvements can alleviate the conditions that raise substantial doubt, these plans are not entirely within our control and cannot be assessed as being probable of occurring.
The consolidated financial statements do not include any adjustments to the carrying amounts and classification of assets, liabilities, and reporting expenses that may be necessary if the Company were unable to continue as a going concern.
NOTE 2 - Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and all wholly-owned and majority-owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation. For our consolidated non-wholly owned subsidiaries, a noncontrolling interest is recognized to reflect the portion of income and equity that is not attributable to the Company.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses during the reporting period and disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Estimates and assumptions about future events and their effects cannot be made with certainty. Estimates may change as new events occur when additional information becomes available and if our operating environment changes. Actual results could differ from our estimates.
Concentrations of Credit Risk
The Company extends trade credit to its retail customers on terms that generally are practiced in the industry. The Company periodically performs credit analyses and monitors the financial condition of its customers to reduce credit risk. The Company performs ongoing credit evaluations of its customers, but generally does not require collateral to support accounts receivable. Accounts receivable mostly consist of amounts due from our business-to-business customers.
For the years ended December 31, 2024 and 2023, Dick’s Sporting Goods accounted for 32.6% and 24.2% of the Company’s total outstanding accounts receivable, respectively. There are no other significant concentrations of receivables that represent a significant credit risk.
For the years ended December 31, 2024 and 2023, no single customer accounted for more than 10% of total net sales.
The Company is exposed to risk due to the concentration of business activity with certain third-party manufacturers of our products. The Company, through the use of these certain third-party manufacturers, manufactures a variety of merchandise in China, including camp stoves, fire pits, kayaks and stand up paddle boards. The majority of the casual wear, sportwear, swimwear, outerwear, loungewear, and other accessories are currently made in Vietnam between a variety of manufacturers. Additional manufacturing is done in India, China, Mexico, and the United States.
Segment Information
The Company’s CEO, as the chief operating decision-maker (“CODM”), organizes the Company, manages resource allocations, and measures performance on the basis of two reportable segments, each of which represents significant product lines. This is supported by the operational structure of the Company, which includes marketing, distribution, information technology, accounting and finance, human resources, payroll and legal functions primarily focused on these two individual product categories.
Fair Value Measurements
Accounting standards require certain assets and liabilities to be reported at fair value in the consolidated financial statements and provide a framework for establishing that fair value. The framework for determining fair value is based on a hierarchy that prioritizes the inputs and valuation techniques used to measure fair value.
Fair values determined by Level 1 inputs use quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.
Fair values determined by Level 2 inputs use other inputs that are observable, either directly or indirectly. These Level 2 inputs include quoted prices for similar assets or liabilities in active markets and other inputs, such as interest rates and yield curves, that are observable at commonly quoted intervals.
Fair values determined by Level 3 inputs are unobservable inputs, including inputs that are available in situations where there is little, if any, market activity for the related asset or liability. These Level 3 fair value measurements are based primarily on management’s own estimates using pricing models, discounted cash flow methodologies, or similar techniques taking into account the characteristics of the asset or liability.
In instances whereby inputs used to measure fair value fall into different levels in the above fair value hierarchy, fair value measurements in their entirety are categorized based on the lowest level input that is significant to the valuation. The Company’s assessment of the significance of particular inputs to these fair value measurements requires judgment and considers factors specific to each asset or liability.
Cash and Cash Equivalents
The Company considers all investments with an original maturity of three months or less when purchased to be cash equivalents. Cash and cash equivalents consist principally of bank deposits and overnight sweep accounts. The Company continually monitors its position with, and the credit quality of, the financial institutions with which it invests. The Company has maintained bank balances in excess of federally insured limits. We have not historically experienced any losses in such accounts.
Accounts Receivable, net
Accounts receivable, net consist of amounts due to the Company from retailers and direct-to-corporate customers, as well as receivables from the credit card and payment application services used by the Company. Accounts receivable, net are recorded at invoiced amounts, less contractual allowances for trade terms, sales incentive programs, and discounts. The Company maintains an allowance for expected credit losses, which is determined based on a review of specific customer accounts where the collection is doubtful, as well as an assessment of the collectability of receivable of customer groups that share similar risk characteristics. This assessment is based on historical and anticipated trends, existing and forecasted economic conditions and other factors. All accounts are subject to an ongoing review of ultimate collectability. Receivables are written off against the allowance when it is certain the amounts will not be recovered.
Bad debt expense is recorded to selling, general, & administrative expenses on the consolidated statements of operations and comprehensive income (loss). Bad debt expense for the years ended December 31, 2024 and 2023 was $0.6 million and $0.3 million, respectively.
Inventory
Inventories, consisting primarily of finished goods are recorded at the lower of cost or net realizable value. Cost is determined using an average costing method, calculated using the weighted average method. Our inventory balances include all costs incurred to deliver inventory to our distribution facilities, such as inbound freight, import duties and tariffs. Net realizable value is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The Company makes ongoing estimates relating to the net realizable value of inventories based upon assumptions about future demand, market conditions and product obsolescence. Obsolete or slow-moving inventory is written down to estimated net realizable value. Acquired inventory is recorded at fair value using a mix of cost, comparative sales and market approaches.
Property and Equipment, net
Property and equipment acquired through acquisitions (as described in Note 5, Acquisitions) are recorded at estimated fair value as of the acquisition date using a mix of cost, comparative sales and market approaches. Costs of maintenance and repairs are charged to expense when incurred. When property and equipment are sold or disposed of, the cost and related accumulated depreciation is written off, and a gain or loss, if applicable, is recorded. The Company reviews property and equipment for impairment whenever events or changes in circumstances indicate the carrying amount of such assets may not be recoverable. Property and equipment are depreciated on a straight-line method over their estimated useful lives. The useful lives for property and equipment are as follows:
Useful Life
Computers, software, and other equipment 3 Years
Machinery 5 - 10 Years
Leasehold improvements Shorter of lease term or 10 Years
Furniture and fixtures 3 - 5 Years
Buildings 29 - 40 Years
Software Costs
We capitalize certain computer software and software development costs incurred in connection with developing or obtaining computer software for
internal use when both the preliminary project stage is completed and it is probable that the software will be used as intended. Capitalized software costs include external direct costs of materials and services utilized in developing or obtaining computer software, compensation and related benefits for employees who are directly associated with the software projects and interest costs incurred while developing internal-use computer software. Capitalized software costs are included in other non-current assets on our consolidated balance sheets and amortized on a straight-line basis when placed into service over the estimated useful lives of the software, which approximate 3 to 10 years.
Software amortization is recorded to selling, general and administrative expenses on the consolidated statements of operations and comprehensive income (loss) and was $0.2 million and nominal for the years ended December 31, 2024 and 2023, respectively. Net capitalized software and development costs were $5.4 million as of December 31, 2024 which are recorded to other non-current assets on the consolidated balance sheets.
Goodwill
Goodwill is determined based upon the excess enterprise value over the estimated fair value of assets and liabilities assumed and is recorded at its estimated fair value at the date of acquisition. The Company reviews goodwill at the reporting unit level, which is one level below the operating segment, for impairment annually on October 1st of each fiscal year and on an interim basis whenever events or changes in circumstances indicate the fair value of such assets may be below their carrying value.
Intangible Assets, net
Intangible assets are comprised of brands, trademarks, developed technology, customer relationships, patents and proprietary software and are recorded at their estimated fair values at the date of acquisition. Acquired definite-lived intangible assets are valued using an excess earnings method for customer related intangibles and a relief from royalty method for tradenames and patents. Intangible assets subject to amortization are amortized using the straight-line method over the estimated useful lives of the assets.
In addition, external legal costs incurred in the defense of our trademarks and patents are capitalized when we believe that the future economic benefit of the intangible asset will be increased, and a successful defense is probable. In the event of a successful defense, the settlements received are netted against the external legal costs that were capitalized. Capitalized trademark and patent defense costs are amortized over the remaining useful life of the asset. Where the defense of the trademark or patent maintains rather than increases the expected future economic benefits from the asset, the costs would generally be expensed as incurred. The external legal costs incurred and settlements received may not occur in the same period.
The useful lives for intangible assets subject to amortization are as follows:
Useful Life
Brand 10-15 Years
Trademarks 5-15 Years
Customer relationships 6-15 Years
Developed technology 6 Years
Patents 8-10 Years
Proprietary software
3 Years
Debt Issuance Costs
Debt issuance costs incurred by the Company in connection with obtaining debt are recorded on the balance sheet as a direct deduction from the carrying value of the associated debt liability. The costs are amortized on a straight-line basis over the term of the related debt and reported as a component of interest expense, net.
Leases
The Company leases space for warehouses, stores and corporate space under operating leases expiring at various times through 2035. The Company also leases warehouse picking robots under financing leases. The Company determines if an arrangement is a lease at inception of a contract if the terms state the Company has the right to direct the use of, and obtain substantially all the economic benefits from, a specific asset identified in the contract.
The right-of-use asset (“ROU’) assets represent the Company's right to use the underlying assets for the lease term, and the lease liabilities represent the obligation to make lease payments arising from the leases. ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments to be made over the lease term. The Company records its operating ROU assets in operating lease right-of-use assets, its current operating lease liabilities in accrued expenses and other current liabilities and its non-current operating lease liabilities in operating lease liabilities. The Company records its finance ROU assets in other non-current assets, its current finance lease liabilities in accrued expenses and other current liabilities and its non-current finance lease liabilities in other non-current liabilities.
Operating lease ROU assets are amortized on a straight-line basis and included within selling, general and administrative expense, along with the lease expense for the lease liability. Finance lease ROU assets are amortized on a straight-line basis over the lease term and included in depreciation
and amortization expenses, while interest expense on the finance lease liability is included in interest expense, net.
Certain of the Company's lease agreements contain options to extend the lease. The Company evaluates these options on a lease-by-lease basis, and if the Company determines it is reasonably certain to be exercised, the lease term includes the extension. The Company uses its incremental borrowing rate at lease commencement to determine the present value of lease payments, and lease expense for operating leases is recognized on a straight-line basis over the lease term. The incremental borrowing rate is the rate of interest the Company could borrow on a collateralized basis over a similar term with similar payments. The Company does not record leases with an initial term of twelve months or less (“short-term leases”).
Certain of the Company's lease agreements include payments for certain variable costs not determinable upon lease commencement, as well as fixed payments for non-lease components, including common area maintenance. These variable and fixed lease payments are recognized in selling, general and administrative expenses, but are not included in the ROU asset or lease liability balances. The Company's lease agreements do not contain any material residual value guarantees, restrictions or covenants.
Commitments and Contingencies
From time to time, the Company is involved in various legal proceedings that arise in the normal course of business. While the Company intends to prosecute and defend any lawsuit vigorously, the Company presently believes that the ultimate outcome of any currently pending legal proceeding will not have any material adverse effect on its financial position, cash flows, or results of operations. However, litigation is subject to inherent uncertainties and unfavorable rulings could occur. An unfavorable ruling could include monetary damages, which could impact the Company’s business and the results of operations for the period in which the ruling occurs or future periods. The Company records the appropriate liability when the amount is deemed probable and reasonably estimable. In addition, the Company does not accrue for estimated legal fees and other directly related costs because they are expensed as incurred. Therefore, the consolidated balance sheets do not include a liability for any potential obligations as of December 31, 2024 or 2023.
Variable Interest Entities
The Company evaluates its ownership, contractual and other interests in entities to determine if it has a variable interest in an entity and if it is the primary beneficiary. These evaluations are complex and involve judgment and the use of estimates and assumptions based on available historical and prospective information, among other factors. If the Company determines that entities for which the Company holds a contractual or ownership interest in are variable interest entities ("VIE") and that the Company is the primary beneficiary, the Company consolidates such entities in the consolidated financial statements. The primary beneficiary of a VIE is the party that meets both of the following criteria: (1) has the power to make decisions that most significantly affect the economic performance of the VIE and (2) has the obligation to absorb losses or the right to receive benefits that in either case could potentially be significant to the VIE. In the event of significant changes in the interest or relationship with the VIE, the Company reconsiders the determination of the primary beneficiary. If the Company is not deemed to be the primary beneficiary in a VIE, the Company accounts for the investment or other variable interests in a VIE in accordance with applicable GAAP.
Revenue Recognition
The Company primarily engages in direct-to-consumer transactions, which are comprised of product sales directly from the Company’s website, and business-to-business transactions, or retail, which are comprised of product sales to retailers, including where possession of the Company’s products is taken and sold by the retailer in-store or online. These revenue transactions comprise a single performance obligation satisfied through the transfer of control of promised goods to the customers, based on the terms of sale.
For the Company’s direct-to-consumer and retail transactions, performance obligations are typically satisfied at the point of shipment. The transfer of control occurs at a point in time based on consideration of when the customer has an obligation to pay for the goods, legal title to, and risk and rewards of ownership have been transferred.
Payment is due at the time of sale on our website for our direct-to-consumer transactions. Business-to-business customers’ payment terms vary depending on creditworthiness and the contract terms with each retailer, but the most common is net 30 or net 60 days.
Revenue is recognized for the amount of consideration to which the Company expects to be entitled in exchange for transferring promised goods to a customer. The consideration promised in a contract with a customer includes fixed and variable amounts. The fixed amount of consideration is the stand-alone selling price of the goods sold. Variable considerations, including cash discounts, rebates, and sales incentive programs, are deducted from gross sales in determining net sales at the time revenues are recorded. Any consideration received (or receivable) that the Company expects to refund to the customer is recognized as a refund liability. We determine these estimates based on historical experience and trends. We elected to account for shipping costs as fulfillment activities, and not as separate performance obligations. Net sales include shipping costs charged to the customer with the related shipping expense recognized in selling, general and administrative expenses when the revenue is recognized. Sales taxes collected from customers are excluded from net sales, which are remitted subsequently to government authorities.
Sales Rebates, Returns and Allowances
Sales rebates relate to price concessions within the retail network in order to maintain the margin requirements for our retail partners. Sales returns are recorded when the customer makes a return of a purchased product or when the customer agrees to keep a purchased product in return for a
reduction in the selling price. The allowance for sales returns is established based on historical return rates and the Company’s analysis of macroeconomic conditions. These amounts are included in net sales at the time of the sale on the consolidated statements of operations and comprehensive income (loss).
Total sales returns and allowances were $19.3 million and $14.7 million for the years ended December 31, 2024 and 2023, respectively. Total sales rebates were $6.3 million and $5.8 million for the years ended December 31, 2024 and 2023, respectively.
Deferred Revenue
Deferred revenue liabilities are recorded when the customer pays consideration, or the Company has a right to an amount of consideration that is unconditional before the transfer of a good to the customer and thus represents the Company’s obligation to transfer the good to the customer at a future date. The Company’s primary deferred revenue liabilities are from its direct-to-consumer channel and represent payments received in advance from customers before the shipment of products.
Cost of Goods Sold
Cost of goods sold includes the purchase cost of our products from our third-party manufacturers, inbound freight and duties, costs related to manufacturing of certain of our products, product quality testing and inspection costs. Cost of goods sold also includes depreciation on molds and equipment that we own, allocated overhead and direct and indirect labor for production facility personnel.
Shipping and Handling Costs
Costs associated with the shipping and handling of customer sales are expensed when the product ships to the customer. These costs are included in selling, general, & administrative expenses on the consolidated statements of operations and comprehensive income (loss).
Marketing Expense
Marketing expense is deferred until the underlying advertisement is shown and recognized in the period of the related program, if within an annual reporting cycle. These costs are included in selling, general, & administrative expenses on the consolidated statements of operations and comprehensive income (loss).
Advertising expense was $96.0 million and $96.9 million for the years ended December 31, 2024 and 2023, respectively.
Research and Development Expense
Research and development costs consist of costs related to new product development, prototyping and testing. These costs are expensed as incurred and included in selling, general, & administrative expenses on the consolidated statements of operations and comprehensive income (loss).
Research and development expense was $1.7 million and $0.7 million for the years ended December 31, 2024 and 2023, respectively.
Restructuring, Contract Termination and Impairment Charges
Restructuring, contract termination and impairment charges are primarily comprised of severance and employee-related benefits, contract termination fees and impairment charges. We recognize employee severance costs as a liability at estimated fair value, at the time of communication to affected employees, unless future service is required, in which case the costs are recognized ratably over the future service period. Contract termination fees include costs incurred to terminate a contract and the impacts to related assets or liabilities associated with these contracts. Asset impairment charges include impairments of long-lived assets, including intangible assets, and goodwill. Restructuring, contract termination and asset impairment activities are recognized when they are incurred and included in restructuring, contract termination and impairment charges on the consolidated statements of operations and comprehensive income (loss).
Other Operating Expenses
Other operating expenses consist of costs incurred for the secondary offering completed in May 2023, acquisition-related expenses, business optimization and expansion expenses and management transition costs.
Income Taxes
The Company accounts for income taxes pursuant to the asset and liability method which requires the recognition of deferred income tax assets and liabilities related to the expected future tax consequences arising from temporary differences between the carrying values and tax bases of assets and liabilities based on enacted statutory tax rates applicable to the periods in which the temporary differences are expected to reverse. Any effects of changes in income tax rates or laws are included in income tax expense (benefit) on the consolidated statements of operations and comprehensive income (loss) in the period of enactment. A valuation allowance is recognized if the Company determines it is more likely than not that all or a portion of a deferred tax asset will not be recognized. In making such determination, the Company considers all available evidence, including
scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent and expected future results of operations.
As a result of the Reorganization Transactions, Solo Brands, Inc. became the sole managing member of Holdings, which is treated as a partnership for U.S. federal and most applicable state and local income tax purposes. As a partnership, Holdings is not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by Holdings is passed through to and included in the taxable income or loss of its members, including Solo Brands, Inc. following the Reorganization Transactions, on a pro rata basis. Solo Brands, Inc. is subject to U.S. federal income taxes, in addition to state and local income taxes with respect to its allocable share of any taxable income of Holdings following the Reorganization Transactions. The Company is also subject to taxes in foreign jurisdictions.
Oru Kayak, Inc. and Chubbies, Inc., wholly owned subsidiaries of Holdings, are subject to federal and state income taxes on corporate earnings and accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.
In accordance with authoritative guidance on accounting for and disclosure of uncertainty in tax positions, the Company follows a more likely than not measurement methodology to reflect the financial statement impact of uncertain tax positions taken or expected to be taken in a tax return. For tax positions meeting the more-likely-than-not threshold, the tax liability recognized in the consolidated financial statements is reduced by the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement with the relevant taxing authority.
The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal, state, and local jurisdictions, where applicable. If such examinations result in changes to income or loss, the tax liability of the Company could be changed accordingly.
Warranty
The Company warrants its products against manufacturing defects and will replace all products sold by an authorized retailer that are deemed defective within a contractual time period, dependent upon the product and brand. The Company does not warranty its products against normal wear or misuse. These costs are included in cost of goods sold on the consolidated statements of operations and comprehensive income (loss).
Warranty expense was $0.4 million and $0.7 million for the years ended December 31, 2024 and 2023, respectively.
Net Income (Loss) Per Class A Common Stock
Basic net income (loss) per Class A common stock is computed by dividing net income (loss) by the weighted average number of shares of Class A common stock outstanding during the period. Diluted net income (loss) per Class A common stock assumes conversion of potentially dilutive securities such as stock options, restricted stock units, and performance stock units.
Equity-Based Compensation
The Company recognizes equity-based compensation expense for employees and non-employees based on the grant-date fair value of the award. Certain awards contain service and performance vesting conditions. The grant date fair values of restricted stock awards that contain service vesting conditions and performance stock awards that contain a performance target are estimated based on the fair value of the underlying shares on the grant date. The Company uses a Black-Scholes option-pricing model to calculate the fair value of stock options. This model requires various judgmental assumptions including volatility, the risk free rate, and expected term. For awards with market vesting conditions, the fair value is estimated using a Monte Carlo simulation model, which incorporates the likelihood of achieving the market condition. For service-based awards and performance-based awards that are considered probable of vesting, compensation cost is recognized on a straight-line basis over the requisite service period. Equity-based compensation expense is recorded in the selling, general and administrative expense line item on the consolidated statements of operations and other comprehensive income (loss).
Recently Adopted Accounting Pronouncements
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The ASU amended the existing segment reporting requirements by requiring disclosure of the significant segment expenses based on how management internally views segment information and by allowing the disclosure of more than one measure of segment profit or loss, as well as by expanding the interim period segment requirements. The ASU also requires single-reportable segment entities to report the disclosures required under Topic 280. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. We adopted this ASU for the period ended December 31, 2024 and the amendments have been applied retrospectively to all prior periods presented in the financial statements consistent with the standard. Refer to our segments disclosure in Note 22, Segments for more information.
Recently Issued Accounting Pronouncements - Not Yet Adopted
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, that requires presentation of specific categories of reconciling items, as well as reconciling items that meet a quantitative threshold, in the reconciliation between the income
tax provision and the income tax provision using statutory tax rates. The ASU also requires disclosure of income taxes paid disaggregated by jurisdiction with separate disclosure of income taxes paid to individual jurisdictions that meet a quantitative threshold. The amendments in this accounting standard are effective for fiscal years beginning after December 15, 2024, on a prospective basis. Early adoption and retrospective application are permitted. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements, but will require certain additional disclosures. We do not expect to early adopt at this time.
In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40), that requires the disclosure of certain amounts included in certain expense captions on the face of the income statement. The FASB subsequently issued ASU 2025-01, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40) to clarify the effective date of ASU 2024-03. The guidance is effective for annual periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements, but will require certain additional disclosures. We do not expect to early adopt at this time.
NOTE 3 - Restructuring, Contract Termination and Impairment Charges
In 2024, the Company underwent a significant change in management and personnel across the organization. The new management team engaged in a detailed review of the business and its brand level components, both internally and through the engagement of external strategic partners. As a result of this review, management executed the following activities:
•termination of underperforming marketing agreements with marketing barter partners that no longer aligned with the Company’s current marketing strategy;
•identification of various asset impairment charges related to the discontinuation of IcyBreeze, stemming from underperformance and management’s determination to revise product design; and
•reorganization of the Oru and ISLE reporting units to eliminate costs and capitalize on potential synergies, through restructuring under a revised management structure, which resulted in severance and other changes totaling $0.6 million.
As a result of these activities, the Company recognized significant charges for restructuring and contract terminations, in addition to asset impairment charges related to IcyBreeze. The key initiatives undertaken by management, as described below, were completed as of December 31, 2024.
Underperforming Marketing Agreements
During 2024, the Company terminated a certain underperforming marketing agreement with a marketing barter partner that it believed did not align to its target customers or business. The terminated contract releases the Company from purchase commitments for advertising services of an aggregate amount of $97.5 million, with $30.0 million due in 2024 and $67.5 million thereafter. The Company recognized an aggregate expense of $21.6 million related to the write-down of certain receivables of $5.4 million, impairment of trade credits of $7.2 million that were recorded in prepaid expenses and other current assets and a payment of $9.0 million to settle the contract.
Charges Related to the IcyBreeze Reporting Unit
During the third quarter of 2024, management performed a strategic review of the IcyBreeze reporting unit, given legacy products driving underperformance of the business. As of December 31, 2024, operations had ceased, with sell through of remaining legacy products being complete and the employees of IcyBreeze being repurposed within other areas of the Company. Accordingly, we performed quantitative impairment tests for long-lived assets and goodwill, as discussed in Note 9, Intangible Assets, net and Note 10, Goodwill. Management also evaluated other IcyBreeze assets and liabilities and recorded certain reserves, where required.
During 2024, the Company recognized $19.9 million and $13.3 million of impairment charges as they relate to the goodwill and intangible assets of the reporting unit, respectively. Furthermore, we recorded impairments of $2.9 million for land, buildings and equipment and $0.3 million related to certain marketing contract terminations and $18.3 million of inventory reserves related to the write-down and disposition of inventory (see Note 6, Inventory). These charges were recorded within Restructuring, contract termination and impairment charges, other than the inventory related charges that were recorded to Cost of goods sold. The aggregate loss recognized for charges related to the IcyBreeze reporting unit was $54.6 million for 2024.
The components of the restructuring, contract termination and impairment charges, inclusive of the $76.0 million of goodwill impairment within our Solo Stove reporting unit and $0.6 million of long-lived asset impairment are as follows:
Year Ended December 31,
(in thousands) 2024 2023
Restructuring charges 580 -
Impairment charges1
120,168 248,967
Contract termination 15,351 -
Total restructuring, contract termination and impairment charges 136,099 248,967
1See Note 9, Intangible Assets, net, Note 10, Goodwill and Note 14, Leases for additional information on the recognized impairment charges as of December 31, 2024 and 2023.
No significant initiatives were undertaken or related amounts recorded in the fourth quarter of 2024.
NOTE 4 - Revenue
The following table disaggregates our net sales by channel (in thousands):
Year Ended December 31,
2024 2023
Net sales by channel
Direct-to-consumer $ 319,064 $ 358,052
Retail 135,486 136,724
Total net sales $ 454,550 $ 494,776
NOTE 5 - Acquisitions
The following transactions were accounted for under the acquisition method of accounting for business combinations as governed by ASC 805, Business Combinations.
2023 Acquisitions
TerraFlame
On May 1, 2023, Solo Brands, LLC, a wholly-owned subsidiary of Holdings, entered into an Equity Purchase Agreement to acquire 100% of the voting equity interests in TerraFlame, that constitute a business for purposes of Accounting Standards Codification (“ASC”) 805, Business Combinations, for total purchase consideration of $13.2 million, of which $5.5 million was cash paid at closing. The Company acquired TerraFlame to increase its brand and market share in the overall outdoor activities industry and penetrate the indoor fire and decor industry, as TerraFlame manufactures, markets, and sells fire features for both outdoor and indoor use.
The excess enterprise value of TerraFlame over the estimated fair value of assets and liabilities assumed was recorded as goodwill. Goodwill was recorded to reflect the excess purchase consideration over net assets acquired, which represents the value that is expected to be achieved from expanding the Company’s product offerings and other synergies related to the acquisition of TerraFlame. The primary factor that contributed to the recognition of goodwill was the expected future revenue growth of TerraFlame.
The following table summarizes the fair values of the assets acquired and liabilities assumed by the Company at the acquisition date (in thousands):
Cash consideration to the seller
$ 5,456
Fair value of the earnout liability
2,617
Fair value of the post-closing payment liability
5,125
Total Purchase Consideration $ 13,198
Cash $ 286
Accounts receivable 421
Inventory 1,413
Property and equipment 4,510
Prepaid expenses and other assets 5
Intangible assets 5,600
Accounts payable and accrued liabilities (913)
Deferred revenue (33)
Total identifiable net assets 11,289
Goodwill 1,909
Total $ 13,198
Subsequent to the acquisition date, the contingent consideration recorded as part of the acquisition was remeasured as of December 31, 2024. See Note 18, Fair Value Measurements for information related to the activity and remeasurement of contingent consideration.
Transaction related expenses incurred to date as a result of the acquisition of TerraFlame amounted to $0.5 million and are recorded in other operating expenses within the consolidated statements of operations and comprehensive income (loss).
Net sales of TerraFlame included in the Company’s consolidated statements of operations and comprehensive income (loss) since the acquisition date for the years ended December 31, 2024 and 2023 were $5.8 million and $4.5 million, respectively. TerraFlame had a net loss of $3.2 million for the year ended December 31, 2024 and net income of $1.7 million for the year ended December 31, 2023.
IcyBreeze
On July 1, 2023, Solo Brands, LLC, a wholly-owned subsidiary of Holdings, entered into an Equity Purchase Agreement to acquire 100% of the voting equity interests in IcyBreeze, which constitutes a business for purposes of ASC 805, for total purchase consideration of $52.1 million. Cash paid at closing was $29.4 million, net of $7.8 million in cash acquired. The Company acquired IcyBreeze to pair a seasonally complimentary in-demand product in the outdoor activities industry to its current product portfolio, as IcyBreeze manufactures, markets, and sells portable air-conditioning products.
The excess enterprise value of IcyBreeze over the estimated fair value of assets and liabilities assumed was recorded as goodwill. Goodwill was recorded to reflect the excess purchase consideration over net assets acquired, which represents the value that is expected to be achieved from expanding the Company’s product offerings and other synergies related to the acquisition of IcyBreeze. The primary factor that contributed to the recognition of goodwill was the expected future revenue growth of IcyBreeze.
The following table summarizes the fair values of the assets acquired and liabilities assumed by the Company at the acquisition date (in thousands):
Cash consideration to the seller
$ 37,180
Fair value of the earnout liability
14,897
Total Purchase Consideration
$ 52,077
Cash $ 7,750
Inventory 5,232
Property and equipment 4,187
Prepaid expenses and other assets 26
Intangible assets 15,900
Accounts payable and accrued liabilities (711)
Deferred revenue (159)
Total identifiable net assets 32,225
Goodwill 19,852
Total $ 52,077
See Note 18, Fair Value Measurements for information related to the activity and remeasurement of contingent consideration.
Transaction related expenses incurred to date as a result of the acquisition of IcyBreeze amounted to $0.4 million and are recorded in other operating expenses within the consolidated statements of operations and comprehensive income (loss).
Net sales of IcyBreeze included in the Company’s consolidated statements of operations and comprehensive income (loss) since the acquisition date for the years ended December 31, 2024 and 2023 were $14.8 million and $7.6 million, respectively, and net losses for the same periods were $61.7 million and $2.8 million, respectively. For information on the restructuring activities related to IcyBreeze undertaken in the third and fourth quarters of 2024, see Note 3, Restructuring, Contract Termination and Impairment Charges.
NOTE 6 - Inventory
Inventory consisted of the following (in thousands):
December 31, 2024 December 31, 2023
Finished products on hand $ 80,098 $ 83,755
Finished products in transit 21,756 21,488
Raw materials 6,721 6,370
Inventory $ 108,575 $ 111,613
Inventory obsolescence expense is recorded to cost of goods sold on the consolidated statements of operations and comprehensive income (loss) and was $18.0 million and $2.0 million for the years ended December 31, 2024 and 2023, respectively. The increase in inventory obsolescence in 2024 was related to the $18.3 million write down of inventory associated with the wind-down of the operations of IcyBreeze as noted in Note 3, Restructuring, Contract Termination and Impairment Charges.
NOTE 7 - Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following (in thousands):
December 31, 2024 December 31, 2023
Non-trade receivables(1)
$ 2,953 $ 8,128
Insurance
2,556 1,996
Inventory(2)
2,066 4,961
Tax receivable
2,026 2,619
Prepaid software 1,016 642
Other 1,606 3,547
Prepaid expenses and other current assets
$ 12,223 $ 21,893
(1) Non-trade receivables decreased as of December 31, 2024, as a result of the write-down of the receivable from a former marketing barter partner as part of the contract termination, described in detail in Note 3, Restructuring, Contract Termination and Impairment Charges.
(2) Inventory prepaid deposits decreased as of December 31, 2024, as a result of fewer inventory orders not yet shipped in the 2024 period as a result of replenishment timing.
NOTE 8 - Property and Equipment, net
Property and equipment, net consisted of the following (in thousands):
December 31, 2024 December 31, 2023
Machinery $ 14,145 $ 14,371
Leasehold improvements 11,058 9,596
Buildings 4,238 5,345
Furniture and fixtures 5,259 1,548
Website development 1,804 1,500
Computer and other equipment
1,809 1,354
Land 1,090 1,090
Construction in progress 335 836
Property and equipment, gross 39,738 35,640
Accumulated depreciation and amortization
(15,543) (9,481)
Property and equipment, net $ 24,195 $ 26,159
Depreciation expense was $5.2 million and $4.1 million for the years ended December 31, 2024 and 2023, respectively.
Depreciation related to the tooling used to manufacture fire pits is included within cost of goods sold on the consolidated statements of operations and comprehensive income (loss). Depreciation for the tooling was $0.9 million and $0.8 million for the years ended December 31, 2024 and 2023, respectively.
The Company capitalized $0.3 million and $0.6 million in website development costs during the years ended December 31, 2024 and 2023, respectively. Capitalized website development costs are included in property and equipment, net on the consolidated balance sheets. Amortization of website development costs was $0.5 million and $0.4 million for the years ended December 31, 2024 and 2023, respectively, and included in depreciation and amortization expenses on the consolidated statements of operations and comprehensive income (loss).
During the year ended December 31, 2024, the Company recognized impairment of property and equipment in the amount of $2.9 million. See Note 3, Restructuring, Contract Termination and Impairment Charges for more information on the impairment.
NOTE 9 - Intangible Assets, net
Intangible assets, net consisted of the following (in thousands):
December 31, 2024 December 31, 2023
Gross carrying value
Brand $ 205,614 $ 205,614
Trademarks 26,714 26,714
Customer relationships 31,128 31,128
Patents 14,211 12,761
Intangible assets, gross 277,667 276,217
Accumulated amortization and impairments
Brand(1)
(62,783) (42,608)
Trademarks(2)
(5,956) (4,171)
Customer relationships(3)
(9,839) (7,084)
Patents(4)
(9,388) (1,344)
Accumulated amortization and impairments, gross (87,966) (55,207)
Intangible assets, net $ 189,701 $ 221,010
(1) For the year ended December 31, 2024, the Company recorded a brand noncash impairment charge of $6.5 million.
(2) For the year ended December 31, 2023, the Company recorded an aggregate trademark noncash impairment charge of $2.7 million.
(3) For the year ended December 31, 2023, the Company recorded a customer relationships noncash impairment charge of $0.4 million.
(4) For the year ended December 31, 2024, the Company recorded a patents noncash impairment charge of $6.8 million.
2024 Impairment Testing
In the third quarter of 2024, the Company observed the following triggering events for the Company’s held and used long-lived asset groups:
•A sustained decline in the share price of the Company’s Class A common stock as of September 30, 2024; and
•Underperformance of the IcyBreeze reporting unit for the third quarter and year to date period ended September 30, 2024;
As a result of the identified triggering events, the Company performed a recoverability test for the identified long-lived asset groups, and the results of the test indicated that the carrying amounts for the long-lived asset group of IcyBreeze were not expected to be recovered. The Company estimated the fair value of the asset group, which included the use of level 3 inputs, of IcyBreeze and wrote down the intangible assets to their estimated fair value, resulting in nominal value assigned to the existing intangible asset(s). See Note 3, Restructuring, Contract Termination and Impairment Charges for impairment considerations as they relate to the property and equipment, net of IcyBreeze.
The Company recorded an aggregate $13.3 million impairment charge to the intangible assets of IcyBreeze as of December 31, 2024. As a result of this impairment charge, the Company also reassessed the useful life of the intangible assets of IcyBreeze. As of December 31, 2024, $0.9 million of value continued to be attributable to the patent intangible asset of IcyBreeze, for which the Company expects to continue to obtain value over its remaining useful life. As such, the remaining useful life of the patent intangible asset was not revised. The impact of the impairment does not have a material impact to amortization expense in any future year.
In the fourth quarter of 2024, the Company observed the following triggering events for the Company’s held and used long-lived asset groups:
•A sustained decline in the share price of the Company’s Class A common stock as of December 31, 2024; and
•A significant decline in performance of the Solo Stove reporting unit in comparison to previous forecasts for the fourth quarter of 2024;
As a result of the identified triggering events, the Company performed a recoverability test for the identified long-lived asset group, and the results of the test indicated that the carrying amounts for the long-lived asset group of Solo Stove were expected to be recoverable.
2023 Impairment Testing
During the year ended December 31, 2023, the Company recorded aggregate intangible asset impairment charges of $13.4 million and $0.8 million for the Oru and ISLE asset groups, respectively. These impairment charges primarily resulted from the decline in projected future cash flows, indicating that the carrying values as of December 31, 2023 were in excess of the fair values for each respective reporting unit.
Amortization Expense
Amortization expense was $19.4 million and $22.0 million for the years ended December 31, 2024 and 2023, respectively. Amortization expense is recorded to depreciation and amortization expenses on the consolidated statements of operations and comprehensive income (loss).
Estimated amortization expense for the next five years is as follows (in thousands):
Years ending December 31, Amount
2025 $ 18,628
2026 18,573
2027 18,573
2028 18,573
2029 18,573
Thereafter 96,781
Total future amortization expense $ 189,701
NOTE 10 - Goodwill
The carrying value of goodwill was as follows:
Solo Stove Chubbies All Other Consolidated
Balance, December 31, 2022
$ 289,095 $ 73,119 $ 20,444 $ 382,658
Acquisitions 1,909 - 19,852 21,761
Impairment losses
(214,327) - (20,444) (234,771)
Balance, December 31, 2023
76,677 73,119 19,852 169,648
Other (678) - - (678)
Impairment losses
(75,999) - (19,852) (95,851)
Balance, December 31, 2024
$ - $ 73,119 $ - $ 73,119
Impairment Testing
Goodwill is tested at the reporting unit level, which is deemed to be the operating segment, as discreet financial information is not available below the operating segment level. As of the annual impairment testing date, October 1, 2024, the Solo Stove and Chubbies reporting units were the only reporting units with remaining goodwill balances.
Annually, we perform a quantitative test on all reporting units with goodwill balances as of our annual assessment date of October 1. For the quantitative goodwill impairment analyses performed as of the respective periods noted below, the Company estimated the fair value of the reporting units using a weighting of fair values derived from the income and market approaches, which include level 3 inputs, where comparable market data was available. Under the income approach, the Company determined the fair value of a reporting unit based on the present value of estimated future cash flows. Cash flow projections were based on management’s estimates of revenue growth rates, operating margins, EBITDA margins, consideration of industry and market conditions, terminal growth rates and management’s estimates of working capital requirements. The discount rate for each reporting unit was based on a weighted average cost of capital adjusted for the relevant risk associated with the characteristics of each reporting unit and its estimated cash flows. Under the market approach, the Company utilized a combination of methods, including estimates of fair value based on market multiples of revenue and earnings derived from comparable publicly-traded companies with similar operating and investment characteristics as the reporting unit.
The goodwill balance includes $358.5 million and $262.7 million of accumulated impairment charges for the years ended December 31, 2024 and 2023, respectively. Impairment charges are recorded to restructuring, contract termination and impairment charges on the consolidated statements of operations and comprehensive income (loss).
2024 Impairment Testing
In the third quarter of 2024, the Company identified goodwill impairment indicators indicating the fair value of one or more of our reporting units more likely than not did not exceed their carrying values. As a result of the goodwill impairment indicators noted above in Note 9, Intangible Assets, net, the Company determined it appropriate to perform an interim quantitative goodwill impairment test for all of its reporting units as of September 30, 2024.
As a result of the quantitative goodwill impairment test performed as of September 30, 2024, the Company determined that the carrying amounts of the IcyBreeze and Solo Stove reporting units exceeded their respective fair values and goodwill impairment charges of $19.9 million and $25.0 million, respectively, were recognized. The Chubbies reporting unit was determined to have a fair value exceeding its book value by more than 5%.
The Company completed its annual goodwill impairment test as of October 1, 2024. Due to the relative proximity of the quantitative test performed as of September 30, 2024, the Company qualitatively assessed whether it is more likely than not that the fair values of its reporting units were less than their carrying values. This assessment was made based on relevant information, including applicable facts and circumstances, known as of the goodwill impairment assessment date. Based on the results of this qualitative analysis, the Company does not believe that it is more likely than not that the carrying values of its reporting units exceed their fair values as of the test date of October 1, 2024.
In the fourth quarter of 2024, the Company identified goodwill impairment indicators indicating the fair value of one or more of our reporting units more likely than not did not exceed their carrying values. As a result of the goodwill impairment indicators noted above in Note 9, Intangible Assets, net, the Company determined it appropriate to perform an interim quantitative goodwill impairment test for its Solo Stove reporting unit as of December 31, 2024.
As a result of the quantitative goodwill impairment test performed as of December 31, 2024, the Company determined that the carrying amount of the Solo Stove reporting unit exceeded its fair value and a goodwill impairment charge of $51.0 million was recognized, fully impairing the remaining goodwill of the reporting unit.
2023 Impairment Testing
During the year ended December 31, 2023, the Company recorded aggregate goodwill impairment charges of $214.3 million, $18.8 million and $1.7 million for the Solo Stove, Oru and ISLE reporting units, respectively. These impairment charges primarily resulted from the decline in projected future cash flows, indicating that the carrying values as of December 31, 2023 were in excess of the fair values for each respective reporting unit. The remaining reporting units were determined to have fair values exceeding their book values by more than 10%.
NOTE 11 - Accrued Expenses and Other Current Liabilities
Significant accrued expenses and other current liabilities were as follows (in thousands):
December 31, 2024 December 31, 2023
Inventory $ 14,812 $ 14,780
Leases 9,370 7,575
Allowance for sales returns 4,264 3,316
Non-income taxes 3,602 5,374
Allowance for sales rebates
3,434 3,074
Payroll(1)
1,834 6,451
Shipping costs(2)
1,183 3,747
Marketing(3)
42 5,936
Income taxes(4)
56 2,782
Other 3,064 2,120
Accrued expenses and other current liabilities $ 41,661 $ 55,155
(1) Accrued payroll declined to $1.8 million as of December 31, 2024, as a result of the payment in the first quarter of the bonus accrued as of December 31, 2023, with no bonus accrual as of December 31, 2024.
(2) Accrued shipping costs declined to $1.2 million as of December 31, 2024, the result of lower shipping activity within the fourth quarter of 2024.
(3) Accrued marketing declined to a nominal amount as of December 31, 2024, as a result of a payment to a former marketing barter partner in the first quarter of 2024.
(4) Accrued income taxes were substantially alleviated as of December 31, 2024, as a result of the decline in the pre-tax book income for 2024.
NOTE 12 - Long-Term Debt
Long-term debt consisted of the following (dollars in thousands):
Weighted-Average Interest Rate at December 31, 2024
December 31, 2024 December 31, 2023
Term loan 7.08 % $ 83,000 $ 91,250
Revolving credit facility 7.03 % 69,000 60,000
Unamortized debt issuance costs (1,315) (2,007)
Total debt, net of debt issuance costs 150,685 149,243
Less current portion of long-term debt 8,625 6,250
Long-term debt, net $ 142,060 $ 142,993
Long-term debt, net approximates fair value based on the variable nature of interest at market rates and is valued using Level 2 inputs within the fair value hierarchy, as defined in Note 2, Significant Accounting Policies, in this Annual Report. See Note 18, Fair Value Measurements of this Annual Report for more information regarding the fair value considerations for long-term debt, net.
Interest expense related to long-term debt was $14.0 million and $11.0 million for the years ended December 31, 2024 and 2023, respectively.
Revolving Credit Facility and Term Loan
On May 12, 2021, the Company entered into a credit agreement with a bank (the “Revolving Credit Facility”). On June 2, 2021, September 1, 2021 and May 22, 2023, the Company entered into amendments to the Revolving Credit Facility, which resulted in an increase in the maximum amount available under the Revolving Credit Facility to $350 million. Under the terms of the Revolving Credit Facility, the Company has access to certain swing line loans and up to $20.0 million in letters of credit, with $1.4 million of letters of credit issued and outstanding as of December 31, 2024. The Revolving Credit Facility matures on May 12, 2026 and bears interest at a variable rate equal to either the base rate (as defined in the credit agreement) or SOFR plus an applicable margin. Interest is due, at a minimum, on a quarterly basis, with principal in respect of Revolving Credit Facility, not due until maturity. During the year ended December 31, 2024 the Company made draws of $80.0 million and payments of $71.0 million under the Revolving Credit Facility. Availability for future draws on the Revolving Credit Facility was $279.6 million and $289.4 million as of December 31, 2024 and 2023, respectively.
In addition to the above, the amendment on September 1, 2021 included a provision for the Company to borrow up to $100.0 million under a term loan (the “Term Loan”). The proceeds from the Term Loan were used to fund the Chubbies acquisition (see Note 5 for information on the acquisition). The Term Loan matures on May 12, 2026 and bears interest at a variable rate equal to either the base rate (as defined in the credit agreement) or SOFR plus an applicable margin. The Company was required to make quarterly principal payments on the Term Loan beginning on December 31, 2021. The Company was in compliance with all covenants under the credit agreement as of December 31, 2024.
As of December 31, 2024, the future maturities of principal amounts of our total debt obligations, excluding lease obligations (see Note 14 for future maturities of lease obligations), for the next five years and in total, consists of the following (in thousands):
Years Ending December 31, Amount
2025 $ 8,625
2026(1)
143,375
Total $ 152,000
(1) The debt matures in 2026, and, as a result, there are no required payments in 2027 or thereafter.
NOTE 13 - Other Non-Current Liabilities
Significant other non-current liabilities were as follows (in thousands):
December 31, 2024 December 31, 2023
Contingent consideration $ 7,232 $ 5,794
Accrued advertising(1)
- 5,420
Long-term non-income taxes 1,130 1,309
Finance lease liability 694 1,011
Other non-current liabilities
$ 9,056 $ 13,534
(1) Accrued advertising was completely alleviated as of December 31, 2024, as a result of the previously non-current payable to a former marketing barter partner becoming current as of December 31, 2024 and being reclassified to accounts payable on the consolidated balance sheets.
NOTE 14 - Leases
The following tables present the components of the leased assets and lease liabilities and their classification in the Company's consolidated balance sheets (in thousands):
Classification in Consolidated Balance Sheets December 31, 2024 December 31, 2023
Non-current operating lease assets
Operating leases Operating lease right-of-use assets $ 27,683 $ 30,788
Total right-of-use assets, net $ 27,683 $ 30,788
Current operating lease liabilities
Operating leases Accrued expenses and other current liabilities $ 8,898 $ 7,276
Long-term lease liabilities
Operating leases Operating lease liabilities 22,079 24,648
Total operating lease liabilities $ 30,977 $ 31,924
Classification in Consolidated Balance Sheets December 31, 2024 December 31, 2023
Non-current finance lease assets
Finance leases Other non-current assets 1,313 1,689
Total other non-current assets $ 1,313 $ 1,689
Current finance lease liabilities
Finance leases Accrued expenses and other current liabilities 472 299
Long-term finance lease liabilities
Finance leases Other non-current liabilities 694 1,011
Total lease liabilities $ 1,166 $ 1,310
The components of lease expense were as follows (in thousands):
Year Ended December 31,
2024 2023
Operating lease right-of-use expense $ 9,345 $ 8,373
Finance lease expense:
Amortization of assets 376 126
Interest on lease liabilities 75 36
Total finance lease expense 451 162
Variable and short-term lease expense 2,742 2,412
Sublease income (952) (927)
Total lease expense $ 11,585 $ 10,021
The weighted average remaining lease term and discount rate are presented in the following table:
December 31, 2024 December 31, 2023
Weighted average remaining lease term (years)
Operating leases
4.40 4.26
Finance leases 3.47 4.43
Weighted average discount rate
Operating leases
3.78 % 3.08 %
Finance leases 6.15 % 6.15 %
Cash flow and other information related to leases is included in the following table (in thousands):
Year Ended December 31,
2024 2023
Cash outflows for amounts included in the measurement of lease liabilities
Operating cash outflows from operating leases
$ 9,450 $ 8,322
Financing cash outflows from finance leases 144 379
Lease right of use assets obtained in exchange for lease obligations
Finance leases - 1,815
Operating leases
6,890 3,316
ROU asset re-measurement (1,352) -
Future maturities of lease liabilities at December 31, 2024 are presented in the following table (in thousands):
Years Ending December 31, Operating Leases Finance Leases
2025 $ 9,812 $ 576
2026 8,444 379
2027 6,483 379
2028 4,395 -
2029 1,768 -
Thereafter 3,386 -
Total lease payments 34,288 1,334
Less: imputed interest 3,311 168
Present value of lease liabilities $ 30,977 $ 1,166
As of December 31, 2024, the Company had entered into a lease agreement for an additional retail store front with an estimated aggregate ROU asset of $0.6 million, which has not yet commenced. This lease is expected to commence in 2025 with a lease term of 10 years.
NOTE 15 - Equity-Based Compensation
Summary of Equity-Based Compensation Expense
The table below summarizes equity-based compensation expense recognized by award type (in thousands):
Year Ended December 31,
2024 2023
Common units $ 183 $ 10,577
Restricted stock units 3,664 4,111
Executive performance stock units 1,769 -
Special performance stock units 223 -
Performance stock units - (529)
Stock options 248 558
Restricted stock units issued to non-employees or directors 667 333
6,754 15,050
Employee stock purchase plan 48 68
Total equity-based compensation $ 6,802 $ 15,118
The following table summarizes the Company’s total unrecognized equity-based compensation as of December 31, 2024 (in thousands):
Unrecognized Equity-Based Compensation
Restricted stock units 9,351
Executive performance stock units 1,689
Special performance stock units 729
Stock options 175
Total unrecognized equity-based compensation
$ 11,944
Excess tax benefits (detriments) related to equity-based compensation were $(1.2) million and $(0.5) million for the years ended December 31, 2024 and 2023.
Incentive Units
Prior to the IPO, certain employees of the Company purchased incentive units in Solo Stove Holdings, LLC for $0.000001 per unit. The majority of the incentive units were issued in December 2020 with additional issuances in January and March 2021. The Company used the Monte Carlo simulation model to determine the fair value of the incentive units. Each incentive award consists of service-based units (representing one-third (1/3) of the number of incentive units) and performance-based units (representing two-thirds (2/3) of the number of incentive units).
The incentive units with a service condition are scheduled to vest over four years with 25% vesting on the one-year anniversary of the grant date and the remaining 75% of such service-based units vesting in substantially equal monthly installments over the following three years, subject to the employee’s continued employment through each applicable vesting date. Additionally, the vesting of the service-based units will accelerate upon the occurrence of a sale transaction prior to the employee’s termination of employment. The IPO did not meet the definition of a sale transaction per the incentive unit agreement. Therefore, the vesting of the service-based units did not accelerate upon the IPO, nor did the vesting schedule change.
Determining the fair value of awards requires judgment. The Monte Carlo simulation and Black-Scholes models were used to estimate the fair value of awards that have service, performance and/or market vesting conditions. The assumptions used in these models require the input of subjective assumptions, which for the incentive units were as follows:
Expected term (years) 4.0
Expected stock price volatility 36.0 %
Risk-free interest rate 0.3 %
Expected dividend yield -
DLOM estimate 16.0 %
Weighted average fair value at grant date $ 0.25
A summary of the common units is as follows for the periods indicated:
Outstanding Common Units (in thousands)
Weighted Average Grant Date Fair Value Per Unit
Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value
Unvested, December 31, 2022
1,193 $ 13.12 1.16 $ 15,655
Granted - - -
Forfeited/canceled (73) 10.06 (736)
Vested (890) 14.39 (12,804)
Unvested, December 31, 2023
230 $ 9.19 1.03 $ 2,115
Granted - - -
Forfeited/canceled (186) 9.00 (1,670)
Vested (44) 10.22 (445)
Unvested, December 31, 2024
- $ - 0.00 $ -
Exercisable, December 31, 2024(1)
- $ - $ -
(1) Note there were performance and service-based units that vested by December 31, 2024. However, none of them are exercisable due to the Stockholders Agreement, as described above.
The total fair value of incentive units vested and converted into shares during 2024 and 2023 was $0.4 million and $12.8 million, respectively.
Incentive Award Plan
In October 2021, the Board adopted, and the stockholders of the Company approved, the 2021 Incentive Award Plan (“Incentive Award Plan”), which became effective on October 28, 2021. Upon the Incentive Award Plan becoming effective, there were 10,789,561 shares of Class A common stock authorized under the Incentive Award Plan. The shares of Class A common stock authorized under the Incentive Award Plan will increase annually, beginning on January 1, 2023 and continuing through 2031, by the lesser of (i) 5% of the then outstanding common stock, or (ii) a smaller amount as agreed by the Board. As of December 31, 2024, 15,580,013 shares of Class A common stock were authorized under the Incentive Award plan.
Restricted Stock Units
The Company grants restricted stock units (“RSUs”) under the Incentive Award Plan. The RSUs are unfunded, unsecured rights to receive, on the applicable settlement date, shares of our Class A common stock or an amount in cash or other consideration determined by the plan administrator to be of equal value as of such settlement date. RSUs are issued to eligible employees under the Incentive Award Plan, subject to the employee’s continued employment with the Company through the applicable vesting date. The RSUs generally vest between three and four years. Expense related to RSUs granted to non-employee directors is recognized on a straight-line basis over the vesting period, with newly appointed non-employee directors grants and grants to continuing non-employee directors vesting over a one-year period, while historically newly appointed non-employee directors grants vested over a three-year period.
The following table summarizes the activity related to the Company’s restricted stock units:
Restricted Stock Units Outstanding
Number of Awards (in thousands) Weighted-Average Grant Date Fair Value
Outstanding, December 31, 2022
1,784 $ 6.05
Granted 595 4.73
Vested and converted to shares (539) 8.09
Forfeited/canceled (477) 6.53
Outstanding, December 31, 2023
1,363 $ 4.50
Granted 3,017 2.02
Vested and converted to shares (677) 6.01
Forfeited/canceled (721) 4.81
Outstanding, December 31, 2024
2,982 $ 1.57
The total weighted average grant date fair value of RSUs vested and converted into shares during 2024 and 2023 was $4.1 million and $4.4 million, respectively.
Executive Performance Stock Units
In January 2024, the Company granted Executive Performance Stock Units (“EPSUs”) to the Chief Executive Officer (“CEO”) under the Incentive Award Plan. The EPSUs are unfunded, unsecured rights to receive, if the Company achieves certain stock price targets (measured as a volume-weighted stock price over 100 consecutive trading days) at any time until the three and half year anniversary of the grant date and the grantee remains an employee of the Company, shares of our Class A common stock or an amount in cash of equal fair market value of a share on the day immediately preceding the settlement date. As the EPSUs contain a market condition, the Company will recognize the full amount of compensation expense regardless of if the stock price targets are achieved, but only as long as the grantee remains an employee of the Company.
In connection with the grant of SPSUs in April 2024, the Company modified the EPSUs previously granted to increase the number of awards granted, lower the stock price targets and change the number of days used for the volume-weighted stock price measure to 30 consecutive trading days.
The EPSUs are divided into four tranches. The fair value of the EPSUs granted in the year ended December 31, 2024 was derived using a Monte Carlo simulation. It was determined that mid-points between $1.99 to $2.17 for the pre-modification awards and $2.23 to $2.66 post-modification were the most reasonable estimate of grant date fair value for each of the four tranches. The grant date fair values of the EPSUs are a non-recurring measurement and are considered a level 3 estimate. See Note 2 - Significant Accounting Policies for additional information about the fair value framework and the levels within. Additionally, due to the full vesting of the awards upon achievement of the stock price target and continued employment, or within 180 days of termination without cause or Good Reason (as defined in the employment agreement previously filed as referenced in Exhibit 10.26), the period over which compensation expense will be recognized was derived through the same Monte Carlo simulations.
The table below contains the derived service periods over which compensation expense will be recognized for each of the four tranches of EPSUs:
EPSUs’ Vesting Tranche Pre-Modification Derived Service Period Post-Modification Derived Service Period
First Vesting Tranche 1.37 years 1.16 years
Second Vesting Tranche 1.43 years 1.48 years
Third Vesting Tranche 1.48 years 1.70 years
Fourth Vesting Tranche 1.58 years 1.79 years
The following table summarizes the activity related to the Company’s executive performance stock units:
Executive Performance Stock Units Outstanding
Number of Awards (in thousands) Weighted-Average Grant Date Fair Value
Outstanding, December 31, 2023
- $ -
Granted 1,468 2.36
Vested and converted to shares - -
Forfeited/canceled - -
Outstanding, December 31, 2024
1,468 $ 2.36
Special Performance Stock Units
In April 2024, the Company granted SPSUs under the Incentive Award Plan. The SPSUs are unfunded, unsecured rights to receive, if the Company achieves certain stock price targets (measured as a volume-weighted stock price over 30 consecutive trading days) at any time until the three year anniversary of the grant date and the grantee remains an employee of the Company, shares of our Class A common stock or an amount in cash of equal fair market value of a share on the day immediately preceding the settlement date. As the SPSUs contain a market condition, the Company will recognize the full amount of compensation expense regardless of if the stock price targets are achieved, but only as long as the grantee remains an employee of the Company.
The SPSUs are divided into three tranches. The fair value of the SPSUs granted in the twelve months ended December 31, 2024 were derived using a Monte Carlo simulation. It was determined that mid-points between $1.07 to $1.43 were the most reasonable estimate of grant date fair value for each of the three tranches. The grant date fair values of the SPSUs are a non-recurring measurement and are considered a level 3 estimate. The SPSUs have a requisite service period of three years over which compensation expense will be recognized.
The following table summarizes the activity related to the Company’s special performance stock units:
Special Performance Stock Units Outstanding
Number of Awards (in thousands) Weighted-Average Grant Date Fair Value
Outstanding, December 31, 2023
- $ -
Granted 1,001 1.23
Vested and converted to shares - -
Forfeited/canceled (227) 1.24
Outstanding, December 31, 2024
774 $ 1.23
Performance Stock Units
In October 2022 and subsequent to, the Company has granted performance stock units (“PSUs”) under the Incentive Award Plan. The PSUs were unfunded, unsecured rights to receive, if the Company achieved an internally-derived performance target within a two year period after January 1, 2023 during a fiscal quarter, shares of our Class A common stock or an amount in cash of equal fair market value of a share on the day immediately preceding the settlement date. As of December 31, 2023, the Company assessed the likelihood of achieving the internally-derived performance target for the PSUs granted in October 2022 and determined that it was not probable to be achieved. As such, the equity-based compensation recognized from the grant date through the date of assessment, or December 31, 2023, was reversed. As of December 31, 2024, the remaining unvested PSUs as of December 31, 2023 were forfeit due to lack of achievement of the internally-derived performance target.
In limited circumstances, the Company has and will grant PSUs with differing targets and/or vesting periods than those noted above, at the discretion of the plan administrator.
The following table summarizes the activity related to the Company’s performance stock units:
Performance Stock Units Outstanding
Number of Awards (in thousands) Weighted-Average Grant Date Fair Value
Outstanding, December 31, 2022
1,296 $ 3.86
Granted 131 5.37
Vested and converted to shares (18) 5.49
Forfeited/canceled (312) 3.88
Outstanding, December 31, 2023
1,097 $ 4.01
Granted - -
Vested and converted to shares - -
Forfeited/canceled (1,097) 4.01
Outstanding, December 31, 2024
- $ -
No PSUs vested and converted into shares during 2024 or 2022. The total fair value of PSUs vested and converted into shares during 2023 was $0.1 million.
Stock Options
Upon IPO, the Company granted stock options under the Incentive Award Plan. Stock options provide for the purchase of shares of the Company’s Class A common stock in the future at an exercise price set on the grant date. Unless otherwise determined by the plan administrator and except for certain substitute options granted in connection with a corporate transaction, the stock option's exercise price will not be less than 100% of the fair market value of the underlying share on the date of grant. The options vest over four years, with 25% vesting on the first anniversary of the grant date and the remainder vesting in substantially equal quarterly installments over the following three years, subject to the employee’s continued employment with the Company through the applicable vesting date.
The following summary sets forth the stock option activity under the Incentive Award Plan:
Number of Stock Options (in thousands) Weighted-Average Grant Date Fair Value Weighted-Average Exercise Price Weighted-Average Remaining Contractual Term (Years) Aggregate Intrinsic Value (1)
Unvested, December 31, 2022
687 $ 4.34 $ 8.29 4.98 $ -
Granted 1 6.16 17.00
Forfeited or expired (321) 3.96 6.70
Vested and convertible to shares
(159) 3.96 8.99
Unvested, December 31, 2023
208 $ 5.23 $ 10.21 4.80 $ -
Granted - - -
Forfeited or expired (57) 4.40 17.00
Vested and convertible to shares
(67) 4.40 9.16
Unvested, December 31, 2024
84 $ 3.28 $ 6.35 2.14 $ -
Exercisable, December 31, 2024
- $ - $ - - $ -
(1) The aggregate intrinsic value is zero because the closing Class A common stock price at the end of the fiscal year is less than the weighted-average exercise price of the options.
The fair value of each option was estimated at the grant date using the Black-Scholes method with the following assumptions:
Risk-free interest rate 2.7% - 3.1%
Expected term
Expected volatility 40.5% - 40.7%
Employee Stock Purchase Plan
In October 2021, the Board adopted, and the stockholders of the Company approved, the 2021 Employee Stock Purchase Plan (the “ESPP”). The maximum number of shares of common stock which will be authorized for sale under the ESPP is equal to the sum of (a) 1,618,434 shares of Class A common stock and (b) an annual increase on the first day of each fiscal year beginning in 2023 and ending in 2031, equal to the lesser of (i) 0.5% of the shares of the Company’s common stock outstanding on the last day of the immediately preceding fiscal year and (ii) such number of shares of common stock as determined by the Board; provided, however, no more than 6,473,736 shares of common stock may be issued under or transferred pursuant to rights granted under Section 423 Component (as defined within the ESPP) of the ESPP (which numbers may be adjusted pursuant to the ESPP).
As of December 31, 2024, 2,097,479 shares of Class A common stock were authorized for sale under the ESPP and awards with respect to 395,243 shares of Class A common stock have been issued under the ESPP.
NOTE 16 - Income Taxes
Provision for Income Taxes
Income (loss) before income taxes was as follows (in thousands):
Year Ended December 31,
2024 2023
Domestic $ (189,672) $ (233,707)
Foreign 522 2,150
Total income (loss) before income taxes $ (189,150) $ (231,557)
The provision (benefit) for income taxes comprises (in thousands):
Year Ended December 31,
2024 2023
Current income tax expense:
Federal $ 1,856 $ 8,834
State 309 1,684
Foreign 561 297
Total current income tax expense $ 2,726 $ 10,815
Deferred income tax (benefit) expense:
Federal (10,305) (45,381)
State (1,193) (1,713)
Foreign (186) 54
Total deferred income tax benefit (11,684) (47,040)
Total income tax (benefit) expense $ (8,958) $ (36,225)
The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate to income (loss) before the provision for income taxes. The sources and tax effects of the differences are as follows (dollars in thousands):
Year Ended December 31,
2024 2023
Income tax (benefit) provision at the federal statutory rate of 21% $ (39,725) 21.0% $ (48,627) 21.0%
State income tax expense, net of federal benefit (2,326) 1.2% (1,993) 0.9%
Income (loss) attributable to non-controlling interests 14,541 (7.7)% 15,672 (6.8)%
Undistributed earnings of subsidiaries 155 (0.1)% 1,228 (0.5)%
Equity-based compensation 364 (0.2)% 496 (0.2)%
Change in valuation allowance 17,434 (9.2)% (7,323) 3.2%
Foreign tax rate differential 24 -% 104 -%
Impairment
- -% 3,944 (1.7)%
Permanent differences, net 815 (0.4)% (19) -%
Other adjustments (240) 0.1% (1,195) 0.5%
Change in state tax reserves
- -% 511 (0.2)%
Change in tax rates - -% 977 (0.4)%
Total income tax (benefit) expense $ (8,958) 4.7% $ (36,225) 15.6%
The Company’s effective income tax rates for the years ended December 31, 2024 and 2023 were 4.7% and 15.6%, respectively. The decrease in the amount of income tax benefit for the year ended December 31, 2024 when compared to the year ended December 31, 2023 was primarily driven by the book losses in the prior year due to the restructuring, contract termination and impairment charges (see Note 3, Restructuring, Contract Termination and Impairment Charges for more information) which exceeded those recognized in 2024, as well as by the increase in the Company’s valuation allowance, as compared to the prior year which included a net release of the Company’s valuation allowance.
Deferred Tax Assets and Liabilities
Significant components of the Company's net non-current deferred tax assets and liabilities are as follows (in thousands):
December 31, 2024 December 31, 2023
Deferred tax assets:
Investment in partnership $ 12,806 $ -
Net operating losses 3,629 546
Deferred interest 2,188 -
ROU liability 2,441 1,748
Other 2,031 1,664
Total deferred tax assets 23,095 3,958
Valuation allowance (19,142) (770)
Net deferred tax assets $ 3,953 $ 3,188
Deferred tax liabilities:
Investment in partnership - (9,373)
Intangible assets (7,833) (8,895)
ROU asset (2,045) (1,672)
Property and equipment (870) (442)
Other - (125)
Total deferred tax liabilities (10,748) (20,507)
Net deferred tax liabilities $ (6,795) $ (17,319)
As of December 31, 2024, the Company has $3.0 million federal net operating losses ("NOLs") and has state NOLs of $0.6 million. The state NOLs will begin to expire in 2038, while the federal NOLs are indefinite lived. As of December 31, 2024, the Company has no foreign NOLs. The majority of the NOLs were generated from losses incurred in 2024, of which future realizability of these tax benefits will be subject to limitations on future taxable income and interest.
As described in Note 1, Organization and Description of Business, in connection with the IPO and Reorganization Transactions, the organizational structure was converted to an umbrella partnership C-Corporation with Solo Brands, Inc. having a controlling equity interest in Holdings. Due to goodwill and intangible impairments, the difference between the financial reporting basis and tax basis of this investment is a deferred tax asset of $55.4 million as of December 31, 2024.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which those temporary differences are deductible. Management considers the scheduled reversal of deferred tax liabilities (including the effect in available carryback and carryforward periods), projected taxable income, and tax-planning strategies in this assessment. In order to fully realize the deferred tax asset, the Company has considered the reversal of its deferred tax liabilities. Beginning in the quarter ended September 30, 2024, the Company concluded, based on the weight of all available positive and negative evidence, that all of the partnership deferred tax assets, on a more likely than not basis, will not be realized. As a result, a valuation allowance on the partnership deferred tax assets was established. As of December 31, 2024, there has been no change in the valuation allowance assessment related to Oru’s deferred tax assets, with a full valuation allowance remaining in place.
The changes in gross unrecognized tax positions are as follows (in thousands):
2024 2023
Balance, beginning of year
$ 1,309 $ -
Gross increases related to current year tax positions
- 511
Gross increases related to prior year tax positions
- 798
Balance, end of year
$ 1,309 $ 1,309
The Company recognizes interest and penalties, if any, related to unrecognized tax positions in income tax expense (benefit) on the consolidated statements of operations and comprehensive income (loss), which were nominal in any period presented.
Solo Brands, Inc. was formed in June 2021 and did not engage in any operations prior to the Reorganization Transactions. The statute of limitations remains open for tax years beginning in 2021 for Solo Brands, Inc. Additionally, although Holdings is treated as a partnership for U.S. federal and
state income tax purposes, it is still required to file an annual U.S. Return of Partnership Income, which is subject to examination by the Internal Revenue Service ("IRS"). The statute of limitations remains open for tax years beginning in 2020 for Holdings.
Pursuant to its election under Section 754 of the Internal Revenue Code (the "Code"), the Company expects to obtain an increase in its share of the tax basis in the net assets of Holdings when LLC Interests are redeemed or exchanged by the non-controlling interest holders and other qualifying transactions. The Company plans to make an election under Section 754 of the Code for each taxable year in which a redemption or exchange of LLC Interests occurs. The Company intends to treat any redemptions and exchanges of LLC Interests by the non-controlling interest holders as direct purchases of LLC Interests for U.S. federal income tax purposes. These increases in tax basis may reduce the amounts that the Company would otherwise pay in the future to various tax authorities. They may also decrease gains (or increase losses) on future dispositions of certain capital assets to the extent tax basis is allocated to those capital assets.
On October 27, 2021, the Company entered into a tax receivable agreement with the then-existing non-controlling interest holders (the "Tax Receivable Agreement") that provides for the payment by the Company to the non-controlling interest holders of 85% of the amount of any tax benefits that the Company actually realizes, or in some cases is deemed to realize, as a result of (i) increases in its share of the tax basis in the net assets of Holdings resulting from any redemptions or exchanges of LLC Interests, (ii) tax basis increases attributable to payments made under the Tax Receivable Agreement, and (iii) deductions attributable to imputed interest pursuant to the Tax Receivable Agreement (the "TRA Payments"). The Company expects to benefit from the remaining 15% of any tax benefits that it may actually realize. The TRA payments are not conditioned upon any continued ownership interest in Holdings or the Company. The rights of each non-controlling interest holder under the Tax Receivable Agreement are assignable to transferees of its LLC Interests.
During the year ended December 31, 2024, there were no redemptions of LLC Interests that would have resulted in an increase in the tax basis of the Company’s investment in Holdings subject to the provisions of the Tax Receivable Agreement. During the year ended December 31, 2024, inclusive of interest, no payments were made to the members of Holdings pursuant to the Tax Receivable Agreement. As of December 31, 2024, there were no payments due under the Tax Receivable Agreement.
NOTE 17 - Commitments and Contingencies
From time to time, the Company is involved in various legal proceedings that arise in the normal course of business. While the Company intends to prosecute and defend any lawsuit vigorously, the Company presently believes that the ultimate outcome of any currently pending legal proceeding will not have any material adverse effect on its financial position, cash flows, or results of operations. However, litigation is subject to inherent uncertainties and unfavorable rulings could occur. An unfavorable ruling could include monetary damages, which could impact the Company’s business and the results of operations for the period in which the ruling occurs or future periods. Based on the information available, the Company evaluates the likelihood of potential outcomes. The Company records the appropriate liability when the amount is deemed probable and reasonably estimable. In addition, the Company does not accrue for estimated legal fees and other directly related costs as they are expensed as incurred. The consolidated balance sheets do not include a liability for any potential obligations as of December 31, 2024 and December 31, 2023.
NOTE 18 - Fair Value Measurements
The Company has established a fair value hierarchy which prioritizes the inputs to the valuation techniques used to measure fair value into three levels. These levels are determined based on the lowest level input that is significant to the fair value measurement. Levels within the hierarchy are defined within Note 2, Significant Accounting Policies.
The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring basis (in thousands):
Fair Value Measurements
December 31, 2024 Total Fair Value Level 1 Level 2 Level 3
Financial liabilities:
Long-term debt, net $ 142,060 $ - $ 142,060 $ -
Contingent Consideration 7,232 - - 7,232
Fair Value Measurements
December 31, 2023 Total Fair Value Level 1 Level 2 Level 3
Financial liabilities:
Long-term debt, net $ 142,993 $ - $ 142,993 $ -
Contingent consideration 5,794 - - 5,794
There were no transfers between the valuation hierarchy Levels 1, 2 and 3 for years ended December 31, 2024 and 2023.
The table below reconciles beginning and ending balances for liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3):
(in thousands) Contingent Consideration
Balance as of December 31, 2022 $ -
Additions 22,639
Total change in fair value gain (loss) included in earnings (1,573)
Payments (15,272)
Balance as of December 31, 2023 5,794
Additions 3,000
Total change in fair value gain (loss) included in earnings 1,438
Payments (3,000)
Balance as of December 31, 2024 $ 7,232
Contingent Consideration
The contingent consideration as of December 31, 2024 consists of an earnout and post-closing payment, resulting from acquisition activity in 2023 and rely on forecasted results through the expected earnout and post-closing payment periods. The fair value of the earnout is valued using a Monte Carlo simulation and the fair value of the post-closing payment is valued using a threshold and cap (capped call) structure. These contingent considerations represent stand-alone liabilities that are measured at fair value on a recurring basis each reporting date using inputs that are unobservable and significant to the overall fair value measurement and are considered a level 3 estimate. See Note 5, Acquisitions for additional information. The contingent consideration liabilities are recorded in accrued expenses and other current liabilities and other non-current liabilities on the consolidated balance sheets. Changes in fair value of contingent consideration are recorded in selling, general and administrative expenses.
On August 22, 2024, the Company and the selling parties of TerraFlame executed an amendment to the Equity Purchase Agreement, modifying specific terms related to the achievement of the contingent consideration thresholds, resulting in an increase in fair value and payment of $3.0 million of the 2023 Earnout, which was paid upon execution of the amendment and recorded in selling, general and administrative expenses. In addition, the post-closing payment terms were amended to provide additional earnout calculation dates to the previously defined post-closing payments. This amendment resulted in the revision of the fair value of the post-closing payment contingent consideration, using the same threshold and cap (capped call) structure as employed for the prior valuations, with the total change in fair value (gain) loss of $1.4 million included in the applicable financial statements as of December 31, 2024.
The Company’s financial instruments consist primarily of cash, accounts receivable, accounts payable, contingent consideration and bank indebtedness. The carrying amount of cash, accounts receivable, and accounts payable, approximates fair value due to the short-term maturity of these instruments.
NOTE 19 - Equity
Class A Common Stock
The Company has 468,767,205 shares of Class A common stock, par value $0.001 per share, authorized. Holders of Class A common stock are entitled to one vote per share on all matters presented to the stockholders in general. In the event of liquidation, dissolution or winding up, each holder of Class A common stock will be entitled to a pro rata distribution of any assets available for distribution to common stockholders.
During the year ended December 31, 2023, pursuant to the Stock Purchase Agreements, dated as of May 10, 2023 and July 12, 2023, by the Company and the selling stockholders party thereto, the Company repurchased 5,605,509 and 627,286 shares of its Class A common stock for $28.0 million and $3.1 million, respectively, which shares were subsequently retired in accordance with resolutions of the Board of Directors’, which is classified as a non-cash financing activity within the consolidated statements of cash flows.
Class B Common Stock
The Company has 50,000,000 shares of Class B common stock, par value $0.001 per share, authorized. Shares of Class B common stock will only be issued in the future to the extent necessary to maintain a one-to-one ratio between the number of LLC Interests held by the Continuing LLC Owners and the number of shares of Class B common stock issued to the Continuing LLC Owners. Shares of Class B common stock are transferable only together with an equal number of LLC Interests. Shares of Class B common stock will be cancelled on a one-for-one basis if the Company, at the election of the Continuing LLC Owners, redeem or exchange their LLC Interests pursuant to the terms of the Holdings LLC Agreement. Holders of Class B common stock are entitled to one vote per share on all matters presented to the stockholders generally. In the event of liquidation, dissolution
or winding up, holders of Class B common stock shall be entitled to receive $0.001 per share and will not be entitled to receive any distribution of the Company’s assets.
Class A Units
Pursuant to the 2020 Agreement, Holdings has authorized 250,000,000 Class A units for issuance at a price of $1 per unit. For so long as any of the Class A units remain outstanding, the Class A units will rank senior to the Class B units discussed below. Holders of Class A units are entitled to one vote per share on all matters to be voted upon by the members. When and if distributions are declared by the Company’s Board, holders of Class A units are entitled to ratably receive distributions until the aggregate unreturned capital with respect to each holder’s Class A units has been reduced to zero. Upon dissolution, liquidation, distribution of assets, or other winding up, the holders of Class A units are entitled to receive ratably the assets available for distribution after payment of liabilities and before the holders of Class B units and incentive units (see Note 15).
Class B Units
Pursuant to the 2020 Agreement, Holdings has authorized 175,000,000 Class B units for issuance at a price of $1 per unit. Holders of Class B units are entitled to one vote per share on all matters to be voted upon by the members. Holders of Class A units and Class B units generally vote together as a single class on all matters presented to the Company’s members for their vote or approval. When and if distributions are declared by the Company’s Board, holders of Class B units are entitled to ratably receive distributions until the aggregate unreturned capital with respect to each holder’s Class B units has been reduced to zero. Upon dissolution, liquidation, distribution of assets, or other winding up, the holders of Class B units are entitled to receive ratably the assets available for distribution after payment of liabilities and Class A unitholders and before the holders of incentive units.
Pursuant to the 2020 Agreement, the Company’s Board may authorize Holdings to create and/or issue additional equity securities, provided that the number of additional authorized incentive units do not exceed 10% of the outstanding Class A and Class B units without the prior written consent of the majority investors. Upon issuance of additional equity securities, all unitholders shall be diluted with respect to such issuance, subject to differences in rights and preferences of different classes, groups, and series of equity securities, and the Company’s Board shall have the power to amend the schedule of unitholders to reflect such additional issuances and dilution.
NOTE 20 - Net Income (Loss) Per Class A Common Stock
Basic net income (loss) per share of Class A common stock is computed by dividing net income (loss) attributable to Solo Brands, Inc. by the weighted average number of shares of Class A common stock outstanding during the period. Diluted net income (loss) per share of Class A common stock is computed by dividing net income (loss) attributable to Solo Brands, Inc. by the weighted average number of shares of Class A common stock outstanding adjusted to give effect to potentially dilutive securities.
The following table sets forth the calculation of the basic and diluted net income (loss) per share for the Company’s Class A common stock (in thousands, except per share data):
Year Ended December 31,
2024 2023
Net income (loss) $ (180,192) $ (195,332)
Less: Net income (loss) attributable to non-controlling interests
(66,836) (83,985)
Net income (loss) attributable to Solo Brands, Inc. $ (113,356) $ (111,347)
Weighted average shares of Class A common stock outstanding - basic and diluted
58,388 60,501
Net income (loss) per share of Class A common stock outstanding - basic and diluted
$ (1.94) $ (1.84)
During the years ended December 31, 2024 and 2023, 0.1 million and 0.2 million options, respectively, and 2.1 million and 0.8 million restricted stock units, respectively, were not included in the computation of diluted net income (loss) per share because their effect would have been anti-dilutive. The Company has determined that the performance stock units and the shares of Class B common stock will in all cases neither be dilutive nor anti-dilutive and has excluded them from the calculation of net income (loss) per Class A common stock for all periods presented.
The shares of Class B common stock and the granted PSUs are subject to a contingency that is not based on the Company’s share price or the price of the convertible instrument, as disclosed in Note 15, Equity-Based Compensation. As such, contingently convertible shares where conversion is not tied to a market price trigger or price of the convertible instrument are excluded from the calculation of diluted EPS until such time as the contingency has been resolved under the if-converted method. Additionally, the Company has issued EPSUs that contain a market condition and vest immediately upon satisfaction of said market condition. As a result of the immediate vesting feature, the EPSUs will in all cases be neither dilutive nor anti-dilutive. Similar to the EPSUs, the SPSUs contain a market condition. However, the SPSUs do not contain an immediate vesting feature, with vesting achieved over the requisite service period of three years. As such, the SPSUs, upon achievement of the market condition, will be
considered for dilution or anti-dilution through the remainder of the vesting period. Until such time that the market condition is achieved, the SPSUs are considered neither dilutive nor anti-dilutive.
As of December 31, 2024, no shares of the EPSUs or SPSUs were considered dilutive or anti-dilutive.
NOTE 21 - Variable Interest Entities
As of December 31, 2024 and 2023, we consolidated one entity that is a VIE, that relates to a manufacturing entity for Oru, for which we are the primary beneficiary. Through a management agreement governing the entity, we manage the entity and handle all day-to-day operating decisions. Accordingly, we have the decision-making power over the activities that most significantly impact the economic performance of our VIE and an obligation to absorb losses or receive benefits from the VIE that could potentially be significant to the VIE. These decisions and significant activities include, but are not limited to, manufacturing schedules, production processes, units of production and types of products. The Company is contractually obligated to provide financial support to the VIE.
Total assets of the VIE included on the consolidated balance sheet as of December 31, 2024 and 2023 were $2.2 million and $3.7 million, respectively. Total liabilities of the VIE included on the consolidated balance sheets as of December 31, 2024 and 2023 were $2.8 million and $3.9 million, respectively.
The VIE’s assets may only be used to settle the VIE’s obligations and may not be used for other consolidated entities. The VIE’s liabilities are non-recourse to the general credit of the Company’s other consolidated entities.
NOTE 22 - Segments
The Company conducts its worldwide operations through separate business segments, each of which represents major product lines. Operations are conducted in the U.S. and various foreign countries, primarily in Europe, Canada and Australia. Segment reporting is based upon the “management approach,” i.e., how we organize operating segments for which separate financial information is (1) available and (2) evaluated regularly by the CODM in deciding how to allocate resources and in assessing performance. Our CODM is our Chief Executive Officer.
The Company’s two reportable segments are as follows:
Segment Key Brands Description of Primary Products
Solo Stove Solo Stove and TerraFlame Indoor and outdoor firepits, stoves, and accessories
Chubbies Chubbies Premium casual apparel and activewear
Our remaining operating segments that did not meet the criteria necessary to be considered a reportable segment are aggregated into All Other.
Our CODM relies on internal management reporting that analyzes our segment's EBITDA, which he utilizes to evaluate performance and allocate resources. As segment assets are not reported to or used by the CODM to measure business performance or allocate resources, total segment assets are not presented below.
The following table presents the percentage of net sales attributable to the Company’s two reportable segments:
Percentage of Net Sales
Solo Stove Chubbies
As of December 31, 2024 65.4 % 24.8 %
As of December 31, 2023 71.1 % 20.5 %
Within our Chubbies segment, a single customer contributed 19.8% and 20.3% of net sales for the years ended December 31, 2024 and 2023, respectively. Within our Solo Stove segment, no single customer contributed more than 10% of net sales for the years ended December 31, 2024 and 2023.
Our sales to foreign customers, mostly attributable to the Solo Stove segment, were $31.5 million and $29.7 million for the years ended December 31, 2024 and 2023, respectively. The following table presents the percentage of international net sales attributable to our two reportable segments:
Percentage of International Net Sales
Solo Stove Chubbies
As of December 31, 2024 83.8 % 2.5 %
As of December 31, 2023 83.6 % 3.3 %
Net sales to no individual country outside the U.S. accounted for more than 5% of our net sales for the years ended December 31, 2024 and 2023.
Year Ended December 31, 2024
(in thousands) Solo Stove Chubbies All Other1,2
Consolidated
Net sales $ 297,379 $ 112,713 $ 44,458 $ 454,550
Cost of goods sold 113,977 45,707 34,602 194,286
Gross profit 183,402 67,006 9,856 260,264
Marketing expense 67,682 14,569 13,787 96,038
Employee related compensation 12,642 13,833 3,760 30,235
Other segment operating expenses3
57,165 22,791 9,568 89,524
Segment EBITDA 45,913 15,813 (17,259) 44,467
Corporate and other non-segment operating expenses4
57,284
Restructuring, contract termination and impairment charges 136,099
Depreciation and amortization expenses 25,702
Interest expense, net 14,004
Other non-operating (income) expense 528
Income (loss) before income taxes $ (189,150)
Depreciation and amortization expenses $ 18,927 $ 4,900 $ 1,875 $ 25,702
Year Ended December 31, 2023
(in thousands) Solo Stove Chubbies All Other1
Consolidated
Net sales $ 351,583 $ 101,599 $ 41,594 $ 494,776
Cost of goods sold 135,544 40,004 17,076 192,624
Gross profit 216,039 61,595 24,518 302,152
Marketing expense 71,837 13,863 11,199 96,899
Employee related compensation 8,848 10,942 4,161 23,951
Other segment operating expenses3
55,710 23,234 7,564 86,508
Segment EBITDA 79,644 13,556 1,594 94,794
Corporate and other non-segment operating expenses4
47,084
Restructuring, contract termination and impairment charges 248,967
Depreciation and amortization expenses 26,593
Interest expense, net 11,004
Other non-operating (income) expense (7,297)
Income (loss) before income taxes $ (231,557)
Depreciation and amortization expenses $ 17,622 $ 4,419 $ 4,552 $ 26,593
1 Includes net sales of our operating segments that did not meet the requirements to be considered a reportable segment, which includes net sales of Oru, ISLE and IcyBreeze, as well as the consolidating elimination entries that are not specific to our reportable segments.
2 Cost of goods sold includes $18.3 million of inventory obsolescence that has been included for reconciliation purposes, but is not considered a component of Segment EBITDA for purposes of resource allocation by the CODM.
3 Includes expenses for shipping and fulfillment, along with other variable expenses incurred in the normal course of business.
4 Includes corporate general and administrative service expenses of $30.8 million and $32.3 million the years ended December 31, 2024 and 2023, respectively, with the remaining non-segment operating expenses being primarily fixed costs.
Net sales exclude all intercompany sales between our reportable segments and All Other, as well as related profits, which were not material for any of the years ended December 31, 2024 and 2023.
NOTE 23 - Related Parties
Related Parties
The Company occasionally enters into transactions with related parties in the normal course of business. One related party, which is wholly owned by an employee of Solo Brands and this employee’s immediate family, purchases merchandise from Solo Brands to sell in a certain geographical market, which is included in net sales on the consolidated statements of operations and comprehensive income (loss). There were no significant
expenses associated with related parties for the years ended December 31, 2024 or 2023.
Year Ended December 31,
(in thousands) 2024 2023
Net sales to related party $ 1,200 $ -
The accounts receivable associated with this related party is included in accounts receivable, net on the consolidated balance sheets. There were no significant liabilities due to related parties as of the years ended December 31, 2024 or 2023.
Year Ended December 31,
(in thousands) 2024 2023
Accounts receivable due from related party $ 1,074 $ -
NOTE 24 - Subsequent Events
Subsequent to December 31, 2024, the Company identified the following significant events, which it has evaluated under the applicable guidance in ASC 855. Based on our evaluation, each of the following is considered as a non-recognized sub-event, as the conditions disclosed did not exist at the balance sheet date of December 31, 2024.
Subsequent to December 31, 2024, the Company drew an additional $277.3 million under its Revolving Credit Facility increasing its total indebtedness to $428.0 million as of March 12, 2025. We are evaluating strategies to refinance our existing debt. These strategies could include restructuring our debt, issuing new debt or entering into other financing arrangements. In addition, our plans are focused on improving our results and liquidity through a variety of operational improvements throughout 2025, including decreasing costs through a reduction in force and closures of select distribution centers. See the Going Concern section in Note 1, Organization and Description of Business for additional information regarding our conclusions that raised substantial doubt about our ability to operate as a going concern.
On February 18, 2025, the Board appointed John Larson, a member of the Company’s Board, as Interim President and CEO. Mr. Larson succeeds Chris Metz, who resigned as the Company’s President and CEO. With the resignation of Chris Metz, 1.5 million EPSUs and 0.2 million RSUs, with a fair value of $3.5 million and $0.5 million, respectively, were immediately forfeited. Mr. Larson will receive cash compensation in the amount of $60 thousand per month and a one-time equity award of 1.0 million RSUs that will be granted following the filing of this Annual Report on Form 10-K, and will vest upon the appointment of a permanent President and CEO, and only if on such date, Mr. Larson has continued to serve as Interim President and CEO.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.

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ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. Controls and Procedures
Limitations on effectiveness of controls and procedures
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Evaluation of disclosure controls and procedures
Our management, with the participation of our principal executive officer and principal financial officer, evaluated, as of the end of the period covered by this Annual Report on Form 10-K, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, our principal executive officer and principal financial officer concluded that, as of December 31, 2024, our disclosure controls and procedures were not effective at the reasonable assurance level.
Management’s annual report on internal control over financial reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act. Our management, including our Chief Executive Officer and Chief Financial Officer, conducted an assessment as of December 31, 2024 of the effectiveness of our internal control over financial reporting based on the criteria set forth in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that assessment, our management concluded that as of December 31, 2024, the Company's internal control over financial reporting was ineffective due to the material weakness described below.
This Annual Report on Form 10-K does not include an attestation report of our independent registered accounting firm on management’s assessment regarding internal control over financial reporting due to the exemption from such requirements established by rules of the SEC for emerging growth companies.
Material weakness in internal control over financial reporting
A “material weakness” is a deficiency or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
During the fourth quarter of 2024, a material weakness in our internal control over financial reporting was identified for the aggregation of control deficiencies over segregation of duties, information technology change management, and resource constraints in the Company’s accounting function to address changes in the business in the fourth quarter of 2024. In management’s view, individually, the potential impacts of these control deficiencies did not present a risk of material misstatement in the Company’s financial statements, however, when aggregated as of December 31, 2024, the potential for a material misstatement in the financial statements increased to a sufficient level to be deemed a material weakness.
To remediate these deficiencies, we are working to (i) identify key systems, processes and controls that require improved documentation, (ii) identify segregation of duties conflicts to remove inappropriate access to systems, (iii) develop policies and procedures to govern the areas of information technology change management, (iv) increase the training of accounting and finance staff in relevant areas, (v) distinguish areas with significant risks posed by resource constraints and augmentation of these areas with qualified and experienced external resources, and (vi) launch enterprise wide system implementation projects. While progress was made to remediate the material weakness, as of December 31, 2024, we were in the process of developing and implementing these enhanced processes and procedures and testing the operating effectiveness of these improved controls. We continue to devote significant time and attention to these efforts. In addition, the material weakness will not be considered remediated until the applicable remedial processes and procedures have been in place for a sufficient period of time and management has concluded, through testing, that these controls are effective.
Remediation of previously disclosed material weakness
During the fourth quarter of 2023, a material weakness in our internal control over financial reporting was identified related to the lack of timely execution of controls within the financial statement close process and the lack of sufficient qualified and experienced resources within the Company’s accounting function. As of December 31, 2023, we finalized the design and implementation of the controls to address the material weakness. During the quarter ended June 30, 2024, we completed our testing of the operating effectiveness of the relevant controls. Specifically, the Company took the following steps to remediate this material weakness and concluded that the material weakness was remediated as of June 30, 2024:
•hired experienced C-Suite personnel to fill vacated positions, including a Chief Accounting Officer and Chief Financial Officer with extensive public company and financial reporting experience; and
•implemented an enhanced control environment over the financial statement close process and certain areas deemed likely to be at higher risk for the potential of misstatement.
Changes in internal control over financial reporting
Except for efforts to remediate the material weakness described above, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth quarter of the fiscal year ended December 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION
Item 9B. Other Information
(a) None.
(b) During the three months ended December 31, 2024, no director or “officer” (as defined in Rule 16a-1(f) of the Exchange Act) of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers and Corporate Governance
The following table provides information regarding our executive officers and members of our board of directors (as of the date of this Annual Report on Form 10-K):
Name Age Position(s)
Executive Officers
John P. Larson 62 Interim President, Chief Executive Officer and Director
Laura Coffey
58 Chief Financial Officer
Non-Employee Directors
Matthew Guy-Hamilton 41 Chairman
Paul Furer 39 Director
Andrea K. Tarbox 74 Director
Michael C. Dennison 57 Director
David Powers 58 Director
Elisabeth Vanzura 60 Director
Executive Officers
John P. Larson. Mr. Larson has served as our interim President and Chief Executive Officer since February 2025 and as a member of our board of directors since December 2024. Mr. Larson served as Chief Executive Officer of Bestop, Inc., a leading manufacturer of soft tops and accessories for Jeep vehicles, from 2015 through 2021. He previously served as Chief Executive Officer of Escort Inc., an automobile electronics manufacturer from 2008 to 2014 and as its President and Chief Operating Officer from 2007 to 2008. Prior to that, he worked in a number of senior management positions at General Motors Company, a leading car manufacturer, from 1986 to 2007. He has served on a number of public and private company boards, including as Chairman of IAA, Inc. from 2019 until 2023; the Lead Independent Director of KAR Auction Services, Inc., a provider of vehicle auction services, from 2015 to 2019, and a director for SCA Performance, Inc. a leading manufacturer of high-end custom trucks for Ford, GM and Dodge, from 2018 to 2020. Mr. Larson received a B.S. in Finance from Northern Illinois University and an M.S. in Management from Purdue University. We believe Mr. Larson’s significant leadership experience in the retail industry make him well-qualified to serve on our board of directors.
Laura Coffey. Ms. Coffey has served as our Chief Financial Officer since February 2024. Prior to her time with the Company, Ms. Coffey served as the CFO for The Vitamin Shoppe, Inc. (formerly NYSE: VSI), a nutritional supplement retailer from June 2020 until June 2023. Prior to the Vitamin Shoppe, Ms. Coffey worked at Pier 1 Imports, Inc. (formerly NYSE: PIR), a national home furnishing and décor retailer, for 23 years, where she held various senior leadership roles including executive vice president for e-commerce and business development and interim chief financial officer. Ms. Coffey currently serves on the board, executive committee and as the chair of the audit committee of Community National Bank & Trust of Texas. Ms. Coffey graduated from the University of Texas at Arlington with a BBA in Business Administration and Accounting.
Non-Employee Directors
Matthew Guy-Hamilton. Mr. Guy-Hamilton has served as a member of our board of directors since October 2020. Mr. Guy-Hamilton is a Managing Director of Summit Partners L.P., a private equity investment company. Mr. Guy-Hamilton joined Summit in 2005, oversees several Summit portfolio companies, and serves as co-head of the Financial Services and Technology Group. Mr. Guy-Hamilton graduated summa cum laude, with a B.A. in Economics, from Colby College. We believe Mr. Guy-Hamilton is qualified to serve on our board of directors due to knowledge of finance, general management, and industry knowledge.
Paul Furer. Mr. Furer has served as a member of our board of directors since October 2020. Mr. Furer is a Partner at Summit Partners L.P. Mr. Furer joined Summit in 2011 and oversees several Summit portfolio companies in the consumer, financial and business services industries. Prior to that, Mr. Furer was an Analyst at Jefferies & Company, from April 2010 to June 2011, and at Bank of America Merrill Lynch, from June 2008 to April 2010. Mr. Furer holds a B.S. in Finance from Indiana University, Kelley School of Business and a M.B.A. from Columbia Business School. We believe Mr. Furer is qualified to serve on our board of directors due to his knowledge of strategy, finance and management.
Andrea K. Tarbox. Ms. Tarbox has been a member of our board of directors since August 2021, and served as the Company’s interim Chief Financial Officer from December 10, 2023 until February 5, 2024. Ms. Tarbox has served on the board of directors of Live Oak Acquisition Corp. V since February 2025. Previously, Ms. Tarbox served as CFO and a member of the board of directors for Live Oak Acquisition Corp. II, a special purpose acquisition company (formerly NYSE: LOKB), from December 2020 until October 2021 and as Chief Financial Officer and a member of the board of directors of Live Oak Acquisition Corp. (formerly NYSE: LOAK), a special purpose acquisition company, from May 2020 until December 2020. Prior to that, Ms. Tarbox served as Chief Financial Officer and Vice President of KapStone Paper & Packaging (formerly NYSE: KS), from 2007 until 2018. Previously, Ms. Tarbox held positions at various companies, including Uniscribe Professional Services, Inc., a provider of paper- and technology-based document management solutions, Gartner Inc., a research and advisory company, British Petroleum, p.l.c., (NYSE:BP) and Fortune
Brands, Inc., a holding company with diversified product lines. Ms. Tarbox earned a B.A. degree in Psychology from Connecticut College and an M.B.A. from the University of Rhode Island. We believe Ms. Tarbox is well-qualified to serve on our board due to her extensive accounting and financial experience, operational background, and her significant experience in acquiring and integrating companies.
Michael C. Dennison. Mr. Dennison has been a member of our board of directors since May 2022 and our Lead Independent Director since February 2023. Mr. Dennison is the Chief Executive Officer of Fox Factory Holding Corp. (“Fox”) and has served in this position since June 2019 and as a director of Fox since February 2018. Mr. Dennison initially joined Fox in August 2018 as President, Powered Vehicles Group. Prior to joining Fox, Mr. Dennison was most recently President and Chief Marketing Officer for Flex Ltd. (“Flex”) from February 2012 to August 2018. While at Flex, Mr. Dennison served in a number of other leadership roles, from leading the procurement and global supply chain organizations for the company, to serving as Senior Vice President of Business Management for both the High-Velocity Solutions group and the Mobile and Consumer Segment. Prior to joining Flex, he was the Regional Director at Arrow Electronics, based in New York. Mr. Dennison earned a Bachelor of Arts degree in liberal arts from Oregon State University in 1989. We believe Mr. Dennison is qualified to serve on our board of directors due to his extensive business experience and knowledge and current experience as a public company chief executive officer.
David Powers. Mr. Powers has been a member of our board of directors since May 2022. Mr. Powers currently is the President and Chief Executive Officer of Deckers Outdoor Corporation, a global footwear and apparel company (“Deckers”), and has served in this position since 2016. Mr. Powers joined Deckers in 2012 and served in various roles with Deckers until being named President and Chief Executive Officer in 2016. Prior to joining Deckers, he held executive leadership roles at Converse, including four years as Vice President of Global Direct-to-Consumer where he successfully guided the expansion of the brand globally, and Timberland, where he led worldwide retail merchandising, marketing, visual and store design, as well as the creation of a sustainable line of footwear and apparel. Mr. Powers earned a B.S. in Marketing from Northeastern University. We believe Mr. Powers is qualified to serve on our board of directors due to his extensive experience in and knowledge of the consumer goods industry and his current experience as a public company chief executive officer.
Elisabeth Vanzura. Ms. Vanzura has been a member of our board of directors since January 2025. Ms. Vanzura is the co-founder of GAI Insights, an advisory firm guiding companies on generative AI strategies, since 2023. Ms. Vanzura served as Head of Brand Strategy, Client Lead and Executive Producer for Conductor Productions, a broadcast and digital content creation partner, from March 2020 to June 2023 and Chief Marketing Officer of Rangoon Ruby, a Burmese food chain, from July 2018 to August 2019. She has served in other senior marketing roles at Wahlburgers & Alma Nove, MMB Advertising General Motors and Volkswagen of America. She received her B.S. in Mechanical Engineering from the General Motors Institute (Kettering University) and her M.B.A. from Harvard University. We believe Ms. Vanzura’s marketing expertise will be a valuable addition to the Board.
Code of Conduct
Our board of directors has adopted a written Code of Business Conduct and Ethics that applies to all of our directors, executive officers and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A current copy of our Code of Business Conduct and Ethics is posted under “Governance” on the Investor Relations section of our website, www.solobrands.com. To the extent required by applicable rules adopted by the SEC and the NYSE, we intend to disclose future amendments to certain provisions of the code, or waivers of such provisions granted to executive officers and directors, in the Investor Relations section of our website at www.solobrands.com.
The remaining information required by this item will be included in our definitive proxy statement for our 2025 Annual Meeting of Stockholders, and such required information is incorporated herein by reference.

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ITEM 11. EXECUTIVE COMPENSATION
Item 11. Executive Compensation
The information required by this item will be included in our definitive proxy statement for our 2025 Annual Meeting of Stockholders, and such information is incorporated herein by reference.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item will be included in our definitive proxy statement for our 2025 Annual Meeting of Stockholders, and such information is incorporated herein by reference.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item will be included in our definitive proxy statement for our 2025 Annual Meeting of Stockholders, and such information is incorporated herein by reference.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. Principal Accountant Fees and Services
The information required by this item will be included in our definitive proxy statement for our 2025 Annual Meeting of Stockholders, and such information is incorporated herein by reference.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibits and Financial Statement Schedules
(a) Financial Statements
The financial statements required by this item are listed in Item 8, “Financial Statements and Supplementary Data” herein.
1. Financial statements
Page Number
Report of Independent Registered Public Accounting Firm 51
Consolidated Balance Sheets 52
Consolidated Statements of Operations and Comprehensive Income (Loss) 53
Consolidated Statements of Cash Flows 54
Consolidated Statements of Equity
(a)(2) Financial Statement Schedules
None
All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted.
(a)(3) Exhibits
The following is a list of exhibits filed as part of this Annual Report on Form 10-K.
3. Exhibits
Incorporated by Reference
Exhibit Number Exhibit Description Form File No. Exhibit Filing Date Filed / Furnished Herewith
3.1 Amended and Restated Certificate of Incorporation of Solo Brands, Inc.
S-8 333-260826 4.1 11/5/2021
3.2 Amended and Restated Bylaws of Solo Brands, Inc.
S-8 333-260826 4.2 11/5/2021
4.1 Specimen Stock Certificate evidencing the shares of Class A Common Stock
S-1/A 333-260026 4.1 10/25/2021
4.2 Stockholders Agreement
10-Q 001-40979 4.2 12/9/2021
4.3 Registration Rights Agreement
10-Q 001-40979 4.3 12/9/2021
4.4 Description of Securities
10-K 001-40979 4.4 3/30/2022
10.1 Tax Receivable Agreement
10-Q 001-40979 10.1 12/9/2021
10.2 Amended and Restated Limited Liability Company Agreement of Solo Stove Holdings, LLC
10-Q 001-40979 10.2 12/9/2021
10.3+ Credit Agreement, dated as of May 12, 2021, among Solo DTC Brands, LLC (f/k/a Frontline Advance LLC), Solo Stove Intermediate, LLC, JPMorgan Chase Bank, N.A., as Lead Arranger, L/C Issuer, Lender, Administrative Agent and Collateral Agent, and the Lenders and L/C Issuers party thereto.
S-1 333-260026 10.5 10/4/2021
10.4 Amendment No. 1, dated as of June 2, 2021, to Credit Agreement, dated as of May 12, 2021, among Solo DTC Brands, LLC (f/k/a Frontline Advance LLC), JPMorgan Chase Bank, N.A., as Lead Arranger, L/C Issuer, Lender, Administrative Agent and Collateral Agent, and the Lenders and L/C Issuers party thereto
S-1 333-260026 10.6 10/4/2021
10.5 Amendment No. 2, dated as of September 1, 2021, to Credit Agreement, dated as of May 12, 2021, among Solo DTC Brands, LLC (f/k/a Frontline Advance LLC), JPMorgan Chase Bank, N.A., as Lead Arranger, L/C Issuer, Lender, Administrative Agent and Collateral Agent, and the Lenders and L/C Issuers party thereto
S-1 333-260026 10.7 10/4/2021
10.6
Amendment No. 3, dated as of May 22, 2023, to Credit Agreement, dated as of May 12, 2021, among Solo Brands, LLC (f/k/a Solo DTC Brands, LLC), JPMorgan Chase Bank, N.A., as Lead Arranger, L/C Issuer, Lender, Administrative Agent and Collateral Agent, and the Lenders and L/C Issuers party thereto
10-Q
001-40979
10.3
8/3/2023
Incorporated by Reference
Exhibit Number Exhibit Description Form File No. Exhibit Filing Date Filed / Furnished Herewith
10.7#
Form of Indemnification Agreement by and between Solo Brands, Inc. and its directors and executive officers
S-1/A 333-260026 10.9 10/25/2021
10.8
Form of Solo Stove Holdings, LLC and SS Management Aggregator, LLC Incentive Equity Agreement
S-1/A 333-260026 10.10 10/25/2021
10.9
Form of Amendment to Solo Stove Holdings, LLC and SS Management Aggregator, LLC Incentive Equity Agreement
S-1/A 333-260026 10.11 10/25/2021
10.10#
Solo Brands, Inc. 2021 Incentive Award Plan.
S-1/A 333-260026 10.12 10/25/2021
10.11#
Form of Stock Option Agreement under the Solo Brands, Inc. 2021 Incentive Award Plan.
S-1/A 333-260026 10.13 10/25/2021
10.12#
Form of Restricted Stock Unit Agreement under the Solo Brands, Inc. 2021 Incentive Award Plan
S-1/A 333-260026 10.14 10/25/2021
10.13#
Form of Restricted Stock Agreement under the Solo Brands, Inc. 2021 Incentive Award Plan
S-1/A 333-260026 10.15 10/25/2021
10.14#
Form of Performance Stock Unit Award under the Solo Brands, Inc. 2021 Incentive Award Plan
10-Q 001-40979 10.1 11/10/2022
10.15#
Form of Restricted Stock Unit Agreement (Non-Employee Director) under the Solo Brands, Inc. 2021 Incentive Award Plan
S-1/A 333-260026 10.16 10/25/2021
10.16#
Solo Brands, Inc. 2021 Employee Stock Purchase Plan
S-1/A 333-260026 10.17 10/25/2021
10.17#+ Employee Agreement, dated as of October 9, 2020, by and between Solo DTC Brands, LLC and Kent Christensen
S-1/A 333-260026
10.21 10/25/2021
10.18#+ Board Letter, dated as of October 1, 2021, by and between Solo Brands and Andrea Tarbox
S-1/A 333-260026
10.25 10/25/2021
10.19#+ Board Letter, dated as of November 4, 2024 by and between Solo Brands and John Larson
*
10.20#+ Board Letter, dated as of January 22, 2025 by and between Solo Brands and Elisabeth Vanzura
*
10.21# Amended and Restated Non-Employee Director Compensation Policy
10-Q 001-40979
10.1 11/7/2024
10.22# Employment Agreement, dated as of January 3, 2024, by and between Solo Brands, Inc. and Chris Metz
10-K 001-40979 10.36 3/14/2024
10.23# Employment Agreement, dated as of February 1, 2024, by and between Solo Brands, Inc, Solo Brands LLC and Laura Coffey
10-K 001-40979 10.37 3/14/2024
10.24# Separation and Release of Claims Agreement, dated January 3, 2024, by and between Solo Brands, LLC and John Merris
10-Q 001-40979 10.1 5/9/2024
10.25# First Amendment to the Separation and Release of Claims Agreement, dated March 5, 2024, by and between Solo Brands, LLC and John Merris
10-Q 001-40979 10.2 5/9/2024
10.26# Performance Stock Unit Grant Notices and Agreements, dated April 8, 2024, by and between Solo Brands, LLC and Christopher Metz
10-Q 001-40979 10.1 8/7/2024
19.1 Insider Trading Compliance Policy
*
21.1 List of subsidiaries of Solo Brands, Inc.
*
23.1 Consent of Independent Registered Public Accounting Firm
*
31.1 Certification of Interim Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a).
*
31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a).
*
32.1 Certification of Interim Chief Executive Officer pursuant to 18 U.S.C. Section 1350.
**
32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350.
**
97.1
Policy for Recovery of Erroneously Awarded Compensation
10-K 001-40979 97.1 3/14/2024
101.INS Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. *
101.SCH Inline XBRL Taxonomy Extension Schema Document *
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document *
Incorporated by Reference
Exhibit Number Exhibit Description Form File No. Exhibit Filing Date Filed / Furnished Herewith
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document *
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document *
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document *
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) *
All other exhibits for which provision is made in the applicable regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted.
* Filed herewith.
** Furnished herewith.
# Indicates management contract or compensatory plan.
+ Certain portions of this exhibit (indicated by “[***]”) have been omitted pursuant to Regulation S-K, Item 601(a)(6).