Sharkninja Inc.
03/31/2025 | Press release | Distributed by Public on 03/31/2025 14:16
Annual Report for Fiscal Year Ending December 31, 2024 (Form 20-F)
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following discussion and analysis provide information that management believes is relevant to an assessment and understanding of our results of operations and financial condition. You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our audited consolidated financial statements and the related notes and other information for the years ended December 31, 2024, 2023 and 2022 included elsewhere in this Annual Report .
The following discussion contains statements of future expectations and other forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, or Section 21E of the Securities Exchange Act of 1934, each as amended, particularly in the sections "-Comparison of the Years Ended December 31, 2024 and 2023", "-Non-GAAP Financial Measures", "- Liquidity and Capital Resources" Critical Accounting Estimates", "- Business Outlook", "- Liquidity and Capital Resources" and "- Financial Outlook: Capital Investment." Our actual results may differ significantly from those projected in the forward-looking statements. For a discussion of factors that might cause future actual results to differ materially from our recent results or those projected in the forward-looking statements in addition to the factors set forth below, see "Cautionary Note Regarding Forward-Looking Statements" and Item 3. "Key Information - Risk Factors." We assume no obligation to update the forward-looking statements or such risk factors.
A. Operating results
Overview
SharkNinja is a global product design and technology company that creates innovative 5-star rated lifestyle solutions for consumers around the world. We have built two billion-dollar brands that drive strong growth and innovation across the 36 sub-categories in which we compete today. We have a proven track record of entering and establishing leadership positions by disrupting the market across household product categories, including Cleaning, Cooking and Beverage, Food Preparation, and Beauty and Home Environment.
Our success is centered around our advanced engineering and innovation capabilities coupled with our deep understanding of consumer needs. We relentlessly seek to deliver innovative home appliances at compelling value in order to delight consumers. Our continued growth in sales and increasing market share demonstrate that our products deliver lifestyle solutions that meet our consumers' evolving needs and desires.
We drive high brand engagement through our dynamic approach to solutions-driven storytelling in categories that we believe have not been historically known for high engagement. This solutions-driven approach focuses on educating the consumer on our innovative solution to a consumer problem that makes their experience more efficient and more enjoyable. Our differentiated storytelling complements our innovative products across a variety of channels, including in-store, online, on television and across social media. This approach engages current and new consumers, fueling demand for our solutions across a variety of categories. Utilizing this strategy, we have built a global community of passionate brand ambassadors who we believe value our innovation, quality and performance.
We sell our products using an omnichannel distribution strategy that consists primarily of retail and DTC channels. Our retail channel covers brick-and-mortar retailers, e-commerce platforms and multichannel retailers, which, in turn, sell our products to the end consumers. Some of the largest retailers we sell to include Walmart, Amazon, Target and Best Buy, as well as a significant number of independent retailers. Our DTC channel covers sales directly to consumers through our websites. The goal of our omnichannel distribution strategy is to be the most prominent and relevant brand wherever our consumers choose to shop.
We have built an agile and efficient supply chain over time and have made significant investments to optimize manufacturing and sourcing. Our supply chain infrastructure harnesses three differentiating factors: (i) long-standing factory partnerships that allow us to rapidly develop and produce our products, (ii) factory flexibility that allows us to incorporate insights and adapt at any stage of the production process and (iii) our volumes and long-term strategic partnerships with key shippers allow us to attain competitive inbound freight rates, even when the market is constrained. We have also made significant investments in local talent to help oversee the production process and ensure that our manufacturers' products meet our strenuous quality standards.
Key Components of Results of Operations
Net Sales
We offer a broad range of products that span 36 sub-categories primarily within small household appliances. We generate net sales from product sales to retailers, both brick-and-mortar and online, as well as through DTC sales and distributors. We recognize sales upon transfer of control of products to retailers, consumers and distributors, net of returns, discounts and allowances provided to retailers and funding provided to retailers for promotions and advertising of our products. Control is generally transferred upon shipment or delivery of the products, depending on shipping terms. Net sales are impacted by the effect of foreign exchange rates, competition, consumer spending habits and general economic conditions.
We disaggregate the net sales of our products across four categories:
•Cleaning Appliances, which includes corded and cordless vacuums, including handheld and robotic vacuums, as well as other floorcare products including steam mops, wet/dry cleaning floor products and carpet extraction;
•Cooking and Beverage Appliances, which includes air fryers, multi-cookers, outdoor and countertop grills and ovens, coffee systems, carbonation, cookware, cutlery, kettles, toasters and bakeware;
•Food Preparation Appliances, which includes blenders, food processors, ice cream makers, juicers, frozen drink appliances and coolers; and
•Beauty and Home Environment Appliances, which includes beauty appliances in both haircare and skincare, home environment products, such as air purifiers and fans.
Gross Profit and Gross Margin
Gross profit reflects net sales less the cost of sales. Cost of sales primarily consists of the purchase cost of our products from third-party manufacturers, inbound freight costs, tariffs, product quality testing and inspection costs, the costs associated with receiving inventory into our warehouses, depreciation on molds and tooling that we own, warranty costs, damages, obsolescence and shrinkage costs and allocated overhead, including the service fee paid to JS Global for supply chain services.
We calculate gross margin as gross profit divided by net sales. Gross margin is generally impacted by changes in channel mix since our DTC sales usually generate a higher gross margin than sales to retailers and distributors. Additionally, gross margin is also impacted by product category mix, changes in foreign currency fluctuations, changes in tariff policies, fluctuations in inbound freight costs and fluctuations in commodity and component costs.
Operating Expenses
Our operating expenses consist of research and development, sales and marketing and general and administrative expenses. Advertising expenses are the most significant component of our operating expenses and consist of television advertising as well as digital advertising. Personnel-related expenses are the second most significant component of operating expenses and consist of salaries and bonuses, share-based compensation and employee benefit costs. Our operating expenses also include allocated overhead. Overhead costs that are not substantially dedicated for use by a specific functional group are allocated based on headcount. Allocated overhead costs include shared costs associated with facilities, including rent and utilities, information technology and related personnel and depreciation of property and equipment. We expect our operating expenses to increase on an absolute dollar basis for the foreseeable future as we continue to increase investments to support our growth including through increasing staff levels, expanding research and development and greater marketing activities. We also anticipate increased administrative and compliance costs as a result of becoming a public company.
Research and Development
Research and development costs primarily consist of personnel-related costs for our engineering and product development personnel responsible for the design, development and testing of our products, contractors and consulting expenses, the cost of components and test equipment used for product, tooling and prototype development, prototype expenses, overhead cost and amortization of intangible assets related to patents and amortization expenses related to capitalized development software.
Sales and Marketing
Sales and marketing expenses primarily consist of advertising, marketing and other brand-building costs, salaries and associated expenses for sales and marketing teams, shipping and fulfillment costs, including costs for third-party delivery services and shipping materials, overhead cost, amortization expenses of intangible assets related to customer relationships and depreciation expenses.
General and Administrative
General and administrative expenses primarily consist of personnel-related costs for finance, legal, human resources, information technology and administrative functions, third-party professional service fees for external legal, accounting and other consulting services, depreciation expenses, overhead costs and expenses associated with operating as a public company, including expenses to comply with the rules and regulations of the SEC and the listing rules of NYSE, as well as expenses for corporate insurance, director and officer insurance, and investor relations.
Interest Expense, Net
Interest expense, net of any interest earned on our cash and cash equivalents, primarily consists of interest on our borrowings, including our term loan facility. See "Item 5B - Operating and Financial Review and Prospects - Liquidity and Capital Resources - Indebtedness."
Other Income (Expense), Net
Other income (expense), net primarily consists of gains and losses on foreign currency transactions, foreign currency forward contracts and other income and expenses that are not part of our normal operating activities. See "Item 11 - Quantitative and Qualitative Disclosures About Market Risk - Foreign Currency Exchange Risk."
Provision for Income Taxes
Provision for income taxes consists primarily of income taxes in the United States and other foreign jurisdictions in which we conduct our business.
Results of Operations
The following table sets forth our selected consolidated statements of income information for each of the periods indicated:
| Year Ended December 31, | |||||||||||||||||
| ($ in thousands) | 2024 | 2023 | 2022 | ||||||||||||||
| Net sales | $ | 5,528,639 | $ | 4,253,710 | $ | 3,717,366 | |||||||||||
| Cost of sales | 2,866,648 | 2,345,858 | 2,307,172 | ||||||||||||||
| Gross profit | 2,661,991 | 1,907,852 | 1,410,194 | ||||||||||||||
| Operating expenses: | |||||||||||||||||
|
Research and development(1)
|
341,289 | 249,387 | 215,660 | ||||||||||||||
|
Sales and marketing(1)
|
1,243,145 | 897,585 | 621,953 | ||||||||||||||
|
General and administrative(1)
|
433,395 | 387,316 | 251,207 | ||||||||||||||
| Total operating expenses | 2,017,829 | 1,534,288 | 1,088,820 | ||||||||||||||
| Operating income | 644,162 | 373,564 | 321,374 | ||||||||||||||
| Interest expense, net | (63,715) | (44,909) | (27,021) | ||||||||||||||
| Other (expense) income, net | (7,980) | (35,427) | 7,631 | ||||||||||||||
| Income before income taxes | 572,467 | 293,228 | 301,984 | ||||||||||||||
| Provision for income taxes | 133,762 | 126,150 | 69,630 | ||||||||||||||
| Net income | $ | 438,705 | $ | 167,078 | $ | 232,354 | |||||||||||
(1) Includes share-based compensation as follows:
| Year Ended December 31, | |||||||||||||||||
| ($ in thousands) | 2024 | 2023 | 2022 | ||||||||||||||
| Research and development | $ | 10,411 | $ | 7,696 | $ | 1,741 | |||||||||||
| Sales and marketing | 13,576 | 4,934 | 459 | ||||||||||||||
| General and administrative | 60,544 | 34,336 | 3,309 | ||||||||||||||
| Total share-based compensation | $ | 84,531 | $ | 46,966 | $ | 5,509 | |||||||||||
The following table sets forth our selected consolidated statements of income information as a percentage of our total net sales for each of the periods indicated:
| Year Ended December 31, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| Net sales | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||||
| Cost of sales | 51.9 | 55.1 | 62.1 | ||||||||||||||
| Gross profit | 48.1 | 44.9 | 37.9 | ||||||||||||||
| Operating expenses: | |||||||||||||||||
| Research and development | 6.2 | 5.9 | 5.8 | ||||||||||||||
| Sales and marketing | 22.5 | 21.1 | 16.7 | ||||||||||||||
| General and administrative | 7.8 | 9.1 | 6.8 | ||||||||||||||
| Total operating expenses | 36.5 | 36.1 | 29.3 | ||||||||||||||
| Operating income | 11.6 | 8.8 | 8.6 | ||||||||||||||
| Interest expense, net | (1.2) | (1.1) | (0.7) | ||||||||||||||
| Other (expense) income, net | (0.1) | (0.8) | 0.2 | ||||||||||||||
| Income before income taxes | 10.3 | 6.9 | 8.1 | ||||||||||||||
| Provision for income taxes | 2.4 | 3.0 | 1.8 | ||||||||||||||
| Net income | 7.9 | % | 3.9 | % | 6.3 | % | |||||||||||
Comparison of the Years Ended December 31, 2024, 2023 and 2022
Net Sales
| Year Ended December 31, | % Change | ||||||||||||||||||||||||||||
| ($ in thousands, except %) | 2024 | 2023 | 2022 |
2023 to 2024
|
2022 to 2023
|
||||||||||||||||||||||||
| Net sales | $ | 5,528,639 | $ | 4,253,710 | $ | 3,717,366 | 30.0 | % | 14.4 | % | |||||||||||||||||||
2024 Compared to 2023
Our net sales increased by $1,274.9 million, or 30.0%, for the year ended December 31, 2024, compared to the year ended December 31, 2023. The increase in net sales resulted from growth across all four product categories, led by Food Preparation Appliances which grew over 80%.
Net sales in our product categories were as follows:
| Year Ended December 31, | |||||||||||||||||||||||
| ($ in thousands, except %) | 2024 | 2023 | $ Change | % Change | |||||||||||||||||||
| Cleaning Appliances | $ | 2,063,514 | $ | 1,819,465 | $ | 244,049 | 13.4 | % | |||||||||||||||
| Cooking and Beverage Appliances | 1,717,654 | 1,441,634 | 276,020 | 19.1 | |||||||||||||||||||
| Food Preparation Appliances | 1,178,735 | 653,615 | 525,120 | 80.3 | |||||||||||||||||||
| Beauty and Home Environment Appliances | 568,736 | 338,996 | 229,740 | 67.8 | |||||||||||||||||||
| Total net sales | $ | 5,528,639 | $ | 4,253,710 | $ | 1,274,929 | 30.0 | % | |||||||||||||||
•Cleaning Appliances net sales increased by $244.0 million, or 13.4%, to $2,063.5 million in the year ended December 31, 2024, compared to $1,819.5 million for the year ended December 31, 2023 driven by the carpet extractor, hard floor, and cordless vacuums sub-categories.
•Cooking and Beverage Appliances net sales increased by $276.0 million, or 19.1%, to $1,717.7 million in the year ended December 31, 2024, compared to $1,441.6 million for the year ended December 31, 2023. This increase was driven by growth in Europe. Global growth was supported by the success of the outdoor grill and outdoor oven across both the US and European markets.
•Food Preparation Appliances net sales increased by $525.1 million, or 80.3%, to $1,178.7 million in the year ended December 31, 2024, compared to $653.6 million for the year ended December 31, 2023 driven by strong sales of our ice cream makers and compact blenders, specifically our portable blenders, as well as the launch of our frozen drink appliances.
•Beauty and Home Environment Appliances net sales increased by $229.7 million, or 67.8%, to $568.7 million in the year ended December 31, 2024, compared to $339.0 million for the year ended December 31, 2023. This increase was driven by continued strength of haircare products, our FlexBreeze fans, and air purifiers.
2023 Compared to 2022
Our net sales increased by $536.3 million, or 14.4%, for the year ended December 31, 2023, compared to the year ended December 31, 2022. The increase in net sales resulted primarily from growth in the Cooking and Beverage Appliances, Food Preparation Appliances and other net sales product categories, partially offset by a decline in the Cleaning Appliances product category.
Net sales in our product categories were as follows:
| Year Ended December 31, | |||||||||||||||||||||||
| ($ in thousands, except %) | 2023 | 2022 | $ Change | % Change | |||||||||||||||||||
| Cleaning Appliances | $ | 1,819,465 | $ | 1,931,732 | $ | (112,267) | (5.8) | % | |||||||||||||||
| Cooking and Beverage Appliances | 1,441,634 | 1,078,610 | 363,024 | 33.7 | |||||||||||||||||||
| Food Preparation Appliances | 653,615 | 590,438 | 63,177 | 10.7 | |||||||||||||||||||
| Beauty and Home Environment Appliances | 338,996 | 116,586 | 222,410 | 190.8 | |||||||||||||||||||
| Total net sales | $ | 4,253,710 | $ | 3,717,366 | $ | 536,344 | 14.4 | % | |||||||||||||||
•Cleaning Appliances net sales decreased by $112.3 million, or 5.8%, to $1,819.5 million in the year ended December 31, 2023, compared to $1,931.7 million for the year ended December 31, 2022 driven by softness in the North America market for corded and cordless vacuums. This was further reduced by the transfer of Asia Pacific Region and Greater China ("APAC") to JS Global. This net sales decline was partially offset by growth in the carpet extraction sub-category drive by new product innovation.
•Cooking and Beverage Appliances net sales increased by $363.0 million, or 33.7%, to $1,441.6 million in the year ended December 31, 2023, compared to $1,078.6 million for the year ended December 31, 2022. This increase was driven by growth in Europe, specifically in the United Kingdom with air fryers, where we strengthened our leading market position. Our global growth was further supported by the full year of sales of our outdoor grill that launched in the second half of 2022, which continues to perform well across the US and European markets.
•Food Preparation Appliances net sales increased by $63.2 million, or 10.7%, to $653.6 million in the year ended December 31, 2023, compared to $590.4 million for the year ended December 31, 2022 driven by strong sales of our ice cream makers and compact blenders, led by the launch of our new portable blenders. The increase was partially offset by the transfer of APAC to JS Global.
•Other net sales increased by $222.4 million, or 190.8%, to $339.0 million in the year ended December 31, 2023, compared to $116.6 million for the year ended December 31, 2022. This increase was primarily driven by continued strength of haircare products within the beauty category and air purifiers.
Gross Profit and Gross Margin
| Year Ended December 31, | % Change | ||||||||||||||||||||||||||||
| ($ in thousands, except %) | 2024 | 2023 | 2022 |
2023 to 2024
|
2022 to 2023
|
||||||||||||||||||||||||
| Gross profit | $ | 2,661,991 | $ | 1,907,852 | $ | 1,410,194 | 39.5 | % | 35.3 | % | |||||||||||||||||||
| Gross margin | 48.1 | % | 44.9 | % | 37.9 | % | |||||||||||||||||||||||
2024 Compared to 2023
Our gross profit increased by $754.1 million, or 39.5%, for the year ended December 31, 2024, compared to the year ended December 31, 2023.
Our gross margin increased by 320 basis points for the year ended December 31, 2024, compared to the year ended December 31, 2023. The increase in gross margin was driven by optimizations within our supply chain, sourcing and costing strategy, regional expansion, and foreign exchange benefit, as well as a reduction in the contractual sourcing service fee paid to JS Global for supply chain services.
2023 Compared to 2022
Our gross profit increased by $497.7 million, or 35.3%, for the year ended December 31, 2023, compared to the year ended December 31, 2022.
Our gross margin increased by 700 basis points for the year ended December 31, 2023, compared to the year ended December 31, 2022. The increase in gross margin was primarily attributable to continued supply chain tailwinds and other macro-economic factors, including inbound freight, commodity costs, and foreign exchange, as well as cost optimization efforts. We also drove strong sales through our higher margin DTC channel, specifically in the beauty category.
Operating Expenses
| Year Ended December 31, | % Change | ||||||||||||||||||||||||||||
| ($ in thousands, except %) | 2024 | 2023 | 2022 |
2023 to 2024
|
2022 to 2023
|
||||||||||||||||||||||||
| Research and development | $ | 341,289 | $ | 249,387 | $ | 215,660 | 36.9 | % | 15.6 | % | |||||||||||||||||||
| Percentage of net sales | 6.2 | % | 5.9 | % | 5.8 | % | |||||||||||||||||||||||
| Selling and marketing | $ | 1,243,145 | $ | 897,585 | $ | 621,953 | 38.5 | % | 44.3 | % | |||||||||||||||||||
| Percentage of net sales | 22.5 | % | 21.1 | % | 16.7 | % | |||||||||||||||||||||||
| General and administration | $ | 433,395 | $ | 387,316 | $ | 251,207 | 11.9 | % | 54.2 | % | |||||||||||||||||||
| Percentage of net sales | 7.8 | % | 9.1 | % | 6.8 | % | |||||||||||||||||||||||
| Total operating expenses | $ | 2,017,829 | $ | 1,534,288 | $ | 1,088,820 | 31.5 | % | 40.9 | % | |||||||||||||||||||
| Percentage of net sales | 36.5 | % | 36.1 | % | 29.3 | % | |||||||||||||||||||||||
Research and Development
2024 Compared to 2023
Research and development expenses increased by $91.9 million, or 36.9%, for the year ended December 31, 2024, compared to the year ended December 31, 2023. This increase was primarily driven by incremental personnel-related expenses of $44.0 million driven by increased headcount to support new product categories and new market expansion, and includes an increase of $2.7 million in share-based compensation. The overall increase was also driven by an increase of $21.4 million in prototypes and testing costs, an increase of $12.4 million in professional and consulting fees, an increase of $5.5 million in consumer insight initiatives and an increase of $5.5 million in depreciation and amortization expense.
2023 Compared to 2022
Research and development expenses increased by $33.7 million, or 15.6%, for the year ended December 31, 2023, compared to the year ended December 31, 2022. This increase was primarily attributable to an increase of $26.3 million in personnel-related expenses driven by increased headcount to support new product categories and new market expansion, and includes an increase of $6.0 million in share-based compensation. The overall increase was also driven by an increase of $3.3 million in travel expenses and an increase of $3.2 million in professional services expenses.
Sales and Marketing
2024 Compared to 2023
Sales and marketing expenses increased by $345.6 million, or 38.5%, for the year ended December 31, 2024, compared to the year ended December 31, 2023. This increase was primarily attributable to increases of $176.1 million in advertising-related expenses, an increase of $113.7 million in delivery and distribution costs driven by higher volumes, particularly in our DTC business, an increase of $45.1 million in personnel-related expenses to support new product launches and expansion into new markets, which includes an incremental $8.6 million of share-based compensation, an increase of $12.1 million in professional and consulting fees and an increase of $4.9 million in travel costs, offset by a decrease in depreciation and amortization expense of $8.5 million.
2023 Compared to 2022
Sales and marketing expenses increased by $275.6 million, or 44.3%, for the year ended December 31, 2023, compared to the year ended December 31, 2022. This increase was primarily attributable to increases of $145.3 million in advertising-related expenses; an increase of $53.5 million in delivery and distribution costs driven by higher volumes, particularly in our DTC business; $45.1 million in personnel-related expenses to support new product launches and expansion into new markets, which includes an $8.2 million related party bonus paid in December 2023, and an increase of $4.5 million in share-based compensation; and an increase of $10.7 million in consulting fees.
General and Administrative
2024 Compared to 2023
General and administrative expenses increased by $46.1 million, or 11.9%, for the year ended December 31, 2024, compared to the year ended December 31, 2023. This increase was primarily driven by an increase of $36.3 million in professional and consulting fees, an increase of $31.7 million in personnel-related expenses driven by additional headcount to support overall growth, including a $26.2 million increase in share-based compensation, an increase of $18.0 million in technology support costs, an increase of $17.4 million in credit card processing and merchant fees, an increase of $23.6 million in legal fees, a legal settlement of $13.5 million that was paid out, and an increase of $5.4 million in depreciation and amortization expense, offset by a decrease in transaction costs related to the separation and distribution from JS Global and secondary offering of $80.9 million and a legal settlement of $20.0 million.
2023 Compared to 2022
General and administrative expenses increased by $136.1 million, or 54.2%, for the year ended December 31, 2023, compared to the year ended December 31, 2022. This increase was primarily driven by an increase of $79.4 million of costs related to the separation and distribution from JS Global and secondary offering; an increase of $20.1 million in personnel-related expenses driven by additional headcount to support overall growth, including an increase in share-based compensation of $31.0 million that was offset by a decrease in discretionary and related party bonuses of $10.0 million; an increase of $10.2 million in legal fees, and an increase of $9.1 million in technology support costs.
Interest Expense, Net
| Year Ended December 31, | % Change | ||||||||||||||||||||||||||||
| ($ in thousands, except %) | 2024 | 2023 | 2022 |
2023 to 2024
|
2022 to 2023
|
||||||||||||||||||||||||
| Interest expense, net | $ | 63,715 | $ | 44,909 | $ | 27,021 | 41.9 | % | 66.2 | % | |||||||||||||||||||
| Percentage of net sales | 1.2 | % | 1.1 | % | 0.7 | % | |||||||||||||||||||||||
2024 Compared to 2023
Interest expense, net increased by $18.8 million, or 41.9%, for the year ended December 31, 2024, compared to the year ended December 31, 2023. This increase was primarily due to a $16.6 million increase in interest expense on our term loans, which was driven by higher principal and interest on the new debt entered into on July 20, 2023.
2023 Compared to 2022
Interest expense, net increased by $17.9 million, or 66.2%, for the year ended December 31, 2023, compared to the year ended December 31, 2022. This increase was primarily due to a $25.2 million increase in interest expense on our term loans, which was driven by higher principal and interest on the new debt entered into on July 20, 2023. This increase in interest expense was partially offset by an increase in interest income of $4.6 million driven by higher yields on our cash and cash equivalents and a $3.0 million decrease in interest expense on our revolving credit facility, driven by the repayment of outstanding borrowings in December 2022. The remainder of the overall increase, which amounted to $0.3 million, was attributable to other miscellaneous expenses.
Other (Expense) Income, Net
| Year Ended December 31, | % Change | ||||||||||||||||||||||||||||
| ($ in thousands, except %) | 2024 | 2023 | 2022 |
2023 to 2024
|
2022 to 2023
|
||||||||||||||||||||||||
| Other (expense) income, net | $ | (7,980) | $ | (35,427) | $ | 7,631 | (77.5) | % | (564.3) | % | |||||||||||||||||||
| Percentage of net sales | (0.1) | % | (0.8) | % | 0.2 | % | |||||||||||||||||||||||
2024 Compared to 2023
Other expense, net decreased by $27.4 million, or 77.5%, for the year ended December 31, 2024, compared to the year ended December 31, 2023. The decrease was primarily attributable to changes in foreign currency year over year, primarily related to derivatives that were not designated as hedging instruments in the prior year, as well as a $5.0 million gain upon a settlement that was reached with a supplier in the current year.
2023 Compared to 2022
Other (expense) income, net decreased by $43.1 million, or 564.3%, for the year ended December 31, 2023, compared to the year ended December 31, 2022. The decrease was primarily attributable to losses related to foreign currency, including losses on the change in fair value of foreign currency forward contracts.
Provision for Income Taxes
| Year Ended December 31, | % Change | ||||||||||||||||||||||||||||
| ($ in thousands, except %) | 2024 | 2023 | 2022 |
2023 to 2024
|
2022 to 2023
|
||||||||||||||||||||||||
| Provision of income taxes | $ | 133,762 | $ | 126,150 | $ | 69,630 | 6.0 | % | 81.2 | % | |||||||||||||||||||
| Percentage of income before income taxes | 23.4 | % | 43.0 | % | 23.1 | % | |||||||||||||||||||||||
2024 Compared to 2023
Provision for income taxes increased by $7.6 million, or 6.0%, for the year ended December 31, 2024, compared to the year ended December 31, 2023. Our effective tax rate ("ETR") was 23.4% and 43.0% of our income before income taxes for the year ended December 31, 2024 and 2023, respectively. This decrease in the ETR is primarily related to non-deductible executive compensation and the impacts of the separation and distribution and refinancing, such as withholding taxes and certain non-deductible transaction costs.
2023 Compared to 2022
Provision for income taxes increased by $56.5 million, or 81.2%, for the year ended December 31, 2023, compared to the year ended December 31, 2022. Our effective tax rate was 43.0% and 23.1% of our income before income taxes for the years ended December 31, 2023 and 2022, respectively. This increase in the ETR is primarily related to non-deductible executive compensation and the impacts of the separation and distribution and refinancing, such as withholding taxes and certain non-deductible transaction costs.
Non-GAAP Financial Measures
In addition to the measures presented in our consolidated financial statements, we regularly review other financial measures, defined as non-GAAP financial measures by the SEC, to evaluate our business, measure our performance, identify trends, prepare financial forecasts and make strategic decisions.
The key non-GAAP financial measures we consider are Adjusted Net Sales, Adjusted Gross Profit, Adjusted Gross Margin, Adjusted Operating Income, Adjusted Net Income, Adjusted Net Income Per Share, EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin. These non-GAAP financial measures are used by both management and our Board, together with comparable GAAP information, in evaluating our current performance and planning our future business activities. These non-GAAP financial measures provide supplemental information regarding our operating performance on a non-GAAP basis that excludes certain gains, losses and charges of a non-cash nature or which occur relatively infrequently and/or which management considers to be unrelated to our core operations and excludes the financial results from our APAC distribution channels, both of which were transferred to JS Global concurrently with the separation (the "Divestitures"), as well as the cost of sales from (i) inventory markups that are being eliminated as a result of the transition of certain product procurement functions from a subsidiary of JS Global to SharkNinja concurrently with the separation and (ii) costs related to the transitional Sourcing Services Agreement with JS Global that was entered into in connection with the separation (collectively, the "Product Procurement Adjustment"). Management believes that tracking and presenting these non-GAAP financial measures provides management and the investment community with valuable insight into our ongoing core operations, our ability to generate cash and the underlying business trends that are affecting our performance. We believe that these non-GAAP measures, when used in conjunction with our GAAP financial information, also allow investors to better evaluate our financial performance in comparison to other periods and to other companies in our industry and to better understand and interpret the results of the ongoing business following the separation and distribution. These non-GAAP financial measures should not be viewed as a substitute for our financial results calculated in accordance with GAAP and you are cautioned that other companies may define these non-GAAP financial measures differently.
We define Adjusted Net Sales as net sales as adjusted to exclude certain items that we do not consider indicative of our ongoing operating performance following the separation, including net sales from our Divestitures. We believe that Adjusted Net Sales is an appropriate measure of our performance because it eliminates the impact of our Divestitures that do not relate to the ongoing performance of our business.
The following table reconciles Adjusted Net Sales to the most comparable GAAP measure, net sales, for the periods presented:
|
Year Ended December 31,
|
|||||||||||||||||
| ($ in thousands) | 2024 | 2023 | 2022 | ||||||||||||||
| Net sales | $ | 5,528,639 | $ | 4,253,710 | $ | 3,717,366 | |||||||||||
|
Divested subsidiary net sales adjustment(1)
|
- | (77,544) | (97,434) | ||||||||||||||
| Adjusted Net Sales | $ | 5,528,639 | $ | 4,176,166 | $ | 3,619,932 | |||||||||||
(1)Adjusted for net sales from SharkNinja Co., Ltd. ("SNJP") and the APAC distribution channels for the years ended December 31, 2024, 2023 and 2022 as if such Divestitures occurred on January 1, 2022.
We define Adjusted Gross Profit as gross profit as adjusted to exclude certain items that we do not consider indicative of our ongoing operating performance following the separation, including the net sales and cost of sales from our Divestitures and the cost of sales from the Product Procurement Adjustment. We define Adjusted Gross Margin as Adjusted Gross Profit divided by Adjusted Net Sales. We believe that Adjusted Gross Profit and Adjusted Gross Margin are appropriate measures of our operating performance because each eliminates the impact our Divestitures and certain other adjustments that do not relate to the ongoing performance of our business.
The following table reconciles Adjusted Gross Profit and Adjusted Gross Margin to the most comparable GAAP measure, gross profit and gross margin, respectively, for the periods presented:
|
Year Ended December 31,
|
|||||||||||||||||
| ($ in thousands, except %) | 2024 | 2023 | 2022 | ||||||||||||||
| Net sales | $ | 5,528,639 | $ | 4,253,710 | $ | 3,717,366 | |||||||||||
| Cost of sales | (2,866,648) | (2,345,858) | (2,307,172) | ||||||||||||||
| Gross profit | 2,661,991 | 1,907,852 | 1,410,194 | ||||||||||||||
|
Gross margin
|
48.1 | % | 44.9 | % | 37.9 | % | |||||||||||
|
Divested subsidiary net sales adjustment(1)
|
- | (77,544) | (97,434) | ||||||||||||||
|
Divested subsidiary cost of sales adjustment(2)
|
- | 45,116 | 64,506 | ||||||||||||||
|
Product Procurement Adjustment(3)
|
53,071 | 83,162 | 70,295 | ||||||||||||||
| Adjusted Gross Profit | $ | 2,715,062 | $ | 1,958,586 | $ | 1,447,561 | |||||||||||
| Adjusted Net Sales | $ | 5,528,639 | $ | 4,176,166 | $ | 3,619,932 | |||||||||||
| Adjusted Gross Margin | 49.1 | % | 46.9 | % | 40.0 | % | |||||||||||
(1)Adjusted for net sales from SNJP and the APAC distribution channels for the years ended December 31, 2024, 2023 and 2022 as if such Divestitures occurred on January 1, 2022.
(2)Adjusted for cost of sales from SNJP and the APAC distribution channels for the years ended December 31, 2024, 2023 and 2022 as if such Divestitures occurred on January 1, 2022.
(3)Represents cost of sales incurred related to the Product Procurement Adjustment. As a result of the separation, we purchase 100% of our inventory from one of our subsidiaries, SharkNinja (Hong Kong) Company Limited ("SNHK"), and no longer purchase inventory from a purchasing office wholly owned by JS Global. Thus, the markup on all inventory purchased subsequent to the separation is completely eliminated in consolidation. As a result of the separation, we pay JS Global a sourcing service fee to provide value-added sourcing services on a transitional basis under a Sourcing Services Agreement.
We define Adjusted Operating Income as operating income excluding (i) share-based compensation, (ii) certain litigation costs, (iii) amortization of certain acquired intangible assets, (iv) certain transaction-related costs, (v) discretionary bonuses, (vi) shareholder-funded executive bonuses and (vii) certain items that we do not consider indicative of our ongoing operating performance following the separation, including operating income from our Divestitures and cost of sales from our Product Procurement Adjustment.
The following table reconciles Adjusted Operating Income to the most comparable GAAP measure, operating income, for the periods presented:
|
Year Ended December 31,
|
|||||||||||||||||
| ($ in thousands) | 2024 | 2023 | 2022 | ||||||||||||||
|
Operating income
|
$ | 644,162 | $ | 373,564 | $ | 321,374 | |||||||||||
|
Share-based compensation(1)
|
84,531 | 46,966 | 5,509 | ||||||||||||||
|
Litigation costs(2)
|
36,807 | 8,973 | 4,513 | ||||||||||||||
|
Amortization of acquired intangible assets(3)
|
19,587 | 19,587 | 19,587 | ||||||||||||||
|
Transaction-related costs(4)
|
1,342 | 82,277 | 2,896 | ||||||||||||||
|
Discretionary executive bonus(5)
|
- | - | 34,000 | ||||||||||||||
|
Shareholder-funded executive bonuses(6)
|
- | 32,200 | - | ||||||||||||||
|
Product Procurement Adjustment(7)
|
53,071 | 83,162 | 70,295 | ||||||||||||||
|
Divested subsidiary operating income adjustment(8)
|
- | (8,456) | (5,093) | ||||||||||||||
|
Adjusted Operating Income
|
$ | 839,500 | $ | 638,273 | $ | 453,081 | |||||||||||
(1)Represents non-cash expense related to awards issued from the SharkNinja and JS Global equity incentive plans.
(2)Represents litigation costs incurred and related settlements for certain patent infringement claims, false advertising claims, and any related settlement costs and recoveries, which were recorded in general and administrative expenses.
(3)Represents amortization of acquired intangible assets that we do not consider normal recurring operating expenses, as the intangible assets relate to JS Global's acquisition of our business. We exclude amortization charges for these acquisition-related intangible assets for purposes of calculating Adjusted Operating Income, although revenue is generated, in part, by these intangible assets, to eliminate the impact of these non-cash charges that are significantly impacted by the timing and valuation of JS Global's acquisition of our business, as well as the inherent subjective nature of purchase price allocations. Of the amortization of acquired intangible assets, $3.7 million for the years ended December 31, 2024, 2023 and 2022 was recorded to research and development expenses, and $15.9 million for the years ended December 31, 2024, 2023 and 2022 was recorded to sales and marketing expenses.
(4)Represents certain costs incurred related to the separation and distribution from JS Global and the secondary offering transactions.
(5)Represents a one-time discretionary bonus.
(6)Represents cash bonuses paid to certain executives by Mr. Xuning Wang, the Chairperson of the board of directors and the Company's controlling shareholder, which had no impact on the Company's overall cash flow.
(7)Represents cost of sales incurred related to the Product Procurement Adjustment. As a result of the separation, we purchase 100% of our inventory from one of our subsidiaries, SNHK, and no longer purchase inventory from a purchasing office wholly owned by JS Global. Thus, the markup on all inventory purchased subsequent to the separation is completely eliminated in consolidation. As a result of the separation, we pay JS Global a sourcing service fee to provide value-added sourcing services on a transitional basis under a Sourcing Services Agreement.
(8)Adjusted for operating income from SNJP and the APAC distribution channels for the years ended December 31, 2024, 2023 and 2022 as if such Divestitures occurred on January 1, 2022.
We define Adjusted Net Income as net income excluding (i) share-based compensation, (ii) certain litigation costs, (iii) foreign currency gains and losses, net, (iv) amortization of certain acquired intangible assets, (v) certain transaction-related costs, (vi) discretionary bonuses, (vii) shareholder-funded executive bonuses, (viii) certain items that we do not consider indicative of our ongoing operating performance following the separation, including net income from our Divestitures and cost of sales from our Product Procurement Adjustment, (ix) the tax impact of the adjusted items and (x) certain withholding taxes.
Adjusted Net Income Per Share is defined as Adjusted Net Income divided by the diluted weighted average number of ordinary shares.
The following table reconciles Adjusted Net Income and Adjusted Net Income Per Share to the most comparable GAAP measures, net income and net income per share, diluted, respectively, for the periods presented:
|
Year Ended December 31,
|
|||||||||||||||||
| ($ in thousands, except share and per share amounts) | 2024 | 2023 | 2022 | ||||||||||||||
| Net income | $ | 438,705 | $ | 167,078 | $ | 232,354 | |||||||||||
|
Share-based compensation(1)
|
84,531 | 46,966 | 5,509 | ||||||||||||||
|
Litigation costs(2)
|
36,807 | 8,973 | 4,513 | ||||||||||||||
|
Foreign currency losses (gains), net(3)
|
16,063 | 35,179 | (9,275) | ||||||||||||||
|
Amortization of acquired intangible assets(4)
|
19,587 | 19,587 | 19,587 | ||||||||||||||
|
Transaction-related costs(5)
|
1,342 | 82,277 | 2,896 | ||||||||||||||
|
Discretionary executive bonus(6)
|
- | - | 34,000 | ||||||||||||||
|
Shareholder-funded executive bonuses(7)
|
- | 32,200 | - | ||||||||||||||
|
Product Procurement Adjustment(8)
|
53,071 | 83,162 | 70,295 | ||||||||||||||
|
Tax impact of adjusting items(9)
|
(33,862) | (39,051) | (28,056) | ||||||||||||||
|
Tax withholding adjustment(10)
|
- | 19,474 | - | ||||||||||||||
|
Divested subsidiary net income adjustment(11)
|
- | (6,586) | (1,458) | ||||||||||||||
|
Adjusted Net Income
|
$ | 616,244 | $ | 449,259 | $ | 330,365 | |||||||||||
|
Net income per share, diluted
|
$ | 3.11 | $ | 1.20 | $ | 1.67 | |||||||||||
|
Adjusted Net Income Per Share
|
$ | 4.37 | $ | 3.22 | $ | 2.38 | |||||||||||
|
Diluted weighted-average number of shares used in computing net income per share and Adjusted Net Income Per Share(12)
|
141,083,853 | 139,420,254 | 138,982,872 | ||||||||||||||
(1)Represents non-cash expense related to awards issued from the SharkNinja and JS Global equity incentive plans.
(2)Represents litigation costs incurred and related settlements for certain patent infringement claims, false advertising claims, and any related settlement costs and recoveries, which were recorded in general and administrative expenses.
(3)Represents foreign currency transaction gains and losses recognized from the remeasurement of transactions that were not denominated in the local functional currency, including gains and losses related to foreign currency derivatives not designated as hedging instruments.
(4)Represents amortization of acquired intangible assets that we do not consider normal recurring operating expenses, as the intangible assets relate to JS Global's acquisition of our business. We exclude amortization charges for these acquisition-related intangible assets for purposes of calculated Adjusted Net Income, although revenue is generated, in part, by these intangible assets, to eliminate the impact of these non-cash charges that are significantly impacted by the timing and valuation of JS Global's acquisition of our business, as well as the inherent subjective nature of purchase price allocations. Of the amortization of acquired intangible assets, $3.7 million for the years ended December 31, 2024, 2023 and 2022 was recorded to research and development expenses, and $15.9 million for the years ended December 31, 2024, 2023 and 2022 was recorded to sales and marketing expenses.
(5)Represents certain costs incurred related to the separation and distribution from JS Global and the secondary offering transactions.
(6)Represents a one-time discretionary bonus.
(7)Represents cash bonuses paid to certain executives by Mr. Xuning Wang, the Chairperson of the board of directors and the Company's controlling shareholder, which had no impact on the Company's overall cash flow.
(8)Represents cost of sales incurred related to the Product Procurement Adjustment. As a result of the separation, we purchase 100% of our inventory from one of our subsidiaries, SNHK, and no longer purchase inventory from a purchasing office wholly owned by JS Global. Thus, the markup on all inventory purchased subsequent to the separation is completely eliminated in consolidation. As a result of the separation, we pay JS Global a sourcing service fee to provide value-added sourcing services on a transitional basis under a Sourcing Services Agreement.
(9)Represents the income tax effects of the adjustments included in the reconciliation of net income to Adjusted Net Income determined using the tax rate of 22.0%, which approximates our effective tax rate, excluding (i) the withholding adjustment described in footnote (10), (ii) divested subsidiary net income adjustment described in footnote (11), and (iii) certain share-based compensation costs and separation and distribution-related costs that are not tax deductible.
(10)Represents withholding taxes associated with the cash dividend paid to JS Global in connection with the separation and related refinancing.
(11)Adjusted for net income (loss) from SNJP and the APAC distribution channels for the years ended December 31, 2024, 2023 and 2022 as if such Divestitures occurred on January 1, 2022.
(12)In calculating net income per share and Adjusted Net Income Per Share, we used the number of shares transferred in the separation and distribution for the denominator for all periods prior to completion of the separation and distribution on July 31, 2023.
We define EBITDA as net income excluding: (i) interest expense, net, (ii) provision for income taxes and (iii) depreciation and amortization. We define Adjusted EBITDA as EBITDA excluding (i) share-based compensation cost, (ii) certain litigation costs, (iii) foreign currency gains and losses, net, (iv) certain transaction-related costs, (v) discretionary bonuses, (vi) shareholder-funded executive bonuses and (vii) certain items that we do not consider indicative of our ongoing operating performance following the separation, including Adjusted EBITDA from our Divestitures and cost of sales from our Product Procurement Adjustment. We define Adjusted EBITDA Margin as Adjusted EBITDA divided by Adjusted Net Sales. We believe EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin are appropriate measures because they facilitate a comparison of our operating performance on a consistent basis from period to period that, when viewed in combination with our results according to GAAP, we believe provide a more complete understanding of the factors and trends affecting our business than GAAP measures alone.
The following table reconciles EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin to the most comparable GAAP measure, net income, for the periods presented:
|
Year Ended December 31,
|
|||||||||||||||||
| ($ in thousands, except %) | 2024 | 2023 | 2022 | ||||||||||||||
| Net income | $ | 438,705 | $ | 167,078 | $ | 232,354 | |||||||||||
| Interest expense, net | 63,715 | 44,909 | 27,021 | ||||||||||||||
| Provision for income taxes | 133,762 | 126,150 | 69,630 | ||||||||||||||
| Depreciation and amortization | 123,109 | 103,821 | 86,708 | ||||||||||||||
| EBITDA | 759,291 | 441,958 | 415,713 | ||||||||||||||
|
Share-based compensation (1)
|
84,531 | 46,966 | 5,509 | ||||||||||||||
|
Litigation costs (2)
|
36,807 | 8,973 | 4,513 | ||||||||||||||
|
Foreign currency losses (gains), net(3)
|
16,063 | 35,179 | (9,275) | ||||||||||||||
|
Transaction-related costs(4)
|
1,342 | 82,277 | 2,896 | ||||||||||||||
|
Discretionary executive bonus(5)
|
- | - | 34,000 | ||||||||||||||
|
Shareholder-funded executive bonuses(6)
|
- | 32,200 | - | ||||||||||||||
|
Product Procurement Adjustment(7)
|
53,071 | 83,162 | 70,295 | ||||||||||||||
|
Divested subsidiary Adjusted EBITDA adjustment(8)
|
- | (11,020) | (4,037) | ||||||||||||||
| Adjusted EBITDA | $ | 951,105 | $ | 719,695 | $ | 519,614 | |||||||||||
| Adjusted Net Sales | $ | 5,528,639 | $ | 4,176,166 | $ | 3,619,932 | |||||||||||
| Adjusted EBITDA Margin | 17.2 | % | 17.2 | % | 14.4 | % | |||||||||||
(1)Represents non-cash expense related to awards issued from the SharkNinja and JS Global equity incentive plans.
(2)Represents litigation costs incurred and related settlements for certain patent infringement claims, false advertising claims, and any related settlement costs and recoveries, which were recorded in general and administrative expenses.
(3)Represents foreign currency transaction gains and losses recognized from the remeasurement of transactions that were not denominated in the local functional currency, including gains and losses related to foreign currency derivatives not designated as hedging instruments.
(4)Represents certain costs incurred related to the separation and distribution from JS Global and the secondary offering transactions.
(5)Represents a one-time discretionary bonus.
(6)Represents cash bonuses paid to certain executives by Mr. Xuning Wang, the Chairperson of the board of directors and the Company's controlling shareholder, which had no impact on the Company's overall cash flow.
(7)Represents cost of sales incurred related to the Product Procurement Adjustment. As a result of the separation, we purchase 100% of our inventory from one of our subsidiaries, SNHK, and no longer purchase inventory from a purchasing office wholly owned by JS Global. Thus, the markup on all inventory purchased subsequent to the separation is completely eliminated in consolidation. As a result of the separation, we pay JS Global a sourcing service fee to provide value-added sourcing services on a transitional basis under a Sourcing Services Agreement.
(8)Adjusted for Adjusted EBITDA from SNJP and the APAC distribution channels for the years ended December 31, 2024, 2023 and 2022 as if such Divestitures occurred on January 1, 2022. The divested subsidiary Adjusted EBITDA adjustment represents net loss from our Divestitures excluding interest expense, income tax expense, depreciation and amortization expense and foreign currency gains and losses recorded at the subsidiary level.
B. Liquidity and capital resources
Our principal sources of liquidity are our cash and cash equivalents, cash generated from operations and our revolving credit facility ("2023 Revolving Facility"). Our principal uses of cash in recent periods have been investing in international expansion, new product development, working capital, capital expenditures, payment of dividends, distributions to JS Global prior to the separation and distribution, and repayment of debt. As of December 31, 2024, our principal sources of liquidity were cash and cash equivalents of $363.7 million and our available balance of $488.9 million under our 2023 Revolving Facility. Our cash and cash equivalents consist primarily of cash on deposits with banks.
We believe that our existing cash and cash equivalents together with cash provided by operations and the availability under our 2023 Revolving Facility will be sufficient to meet our needs for at least the next 12 months from the date of the filing of this Annual Report. We plan to use our current cash on hand, cash generated by operations and our 2023 Revolving Facility to support our core business operations and strategic plan to accelerate our go-to-market strategy, invest in new product development and enhance our global distribution. We may be required to seek additional equity or debt financing to fund our activities. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, the results of operations and financial conditions of the business would be materially and adversely affected.
We have lease obligations and other contractual obligations and commitments as part of our ordinary course of business. See "Note 8 - Operating Leases," "Note 9 - Debt" and "Note 10 - Commitments and Contingencies" to our audited consolidated financial statements found within "Item 18. Financial Statements" in this Annual Report for information about our lease obligations and other contractual obligations. We did not have during the periods presented and we do not currently have, any off-balance sheet arrangements involving commitments or obligations, including contingent obligations, arising from arrangements with unconsolidated entities or persons that have or are reasonably likely to have a material current or future effect on our business, financial condition, results of operations, liquidity, cash requirements or capital resources.
Indebtedness
In March 2020, we, along with JS Global, entered into a term loan and revolving credit agreement ("2020 Facilities Agreement") with Bank of China Limited, Macau Branch, as administrative agent, and certain banks and financial institutions party thereto as lenders and issuing banks. The 2020 Facilities Agreement provided for a $500.0 million term loan facility ("2020 Term Loans") and $200.0 million revolving credit facility ("2020 Revolving Facility").
We were required to meet certain financial covenants customary with this type of agreement, including, but not limited to, maintaining a maximum ratio of indebtedness and a minimum specified interest coverage ratio.
During 2022, there were $260.0 million in draw downs on the 2020 Revolving Facility, which were all repaid during 2022. No amounts were outstanding as of December 31, 2022 and there were no draw downs under the 2020 Revolving Facility in 2023.
In July 2023, we entered into a credit agreement ("2023 Credit Agreement") with Bank of America, N.A., as administrative agent, and certain banks and financial institutions party thereto as lenders and issuing banks. The 2023 Credit Agreement provides for an $810.0 million term loan facility (the "2023 Term Loans") and a $500.0 million 2023 Revolving Facility. The 2023 Term Loans and 2023 Revolving Facility mature in July 2028, and both facilities bear interest at the Secured Overnight Financing Rate ("SOFR") plus 1.75%. We may request increases to the 2023 Term Loans or 2023 Revolving Facility in a maximum aggregate amount not to exceed the greater of $520.0 million or 100% of adjusted earnings before interest, taxes, depreciation, and amortization, as defined in the 2023 Credit Agreement, for the most recently completed fiscal year. As of December 31, 2024, we had $779.6 million debt outstanding under the 2023 Credit Agreement.
During the year ended December 31, 2023, there were $125.5 million in draw downs on the 2023 Revolving Facility, which were all repaid during 2023. During the year ended December 31, 2024, there were $285.0 million in draw downs on the 2023 Revolving Facility, which were all repaid during 2024. No amounts were outstanding on the 2023 Revolving Facility as of December 31, 2024. As of December 31, 2024, $11.1 million of letters of credit were outstanding, resulting in an available balance of $488.9 million under the 2023 Revolving Facility.
Cash Flows
The following table summarizes our cash flows for the periods presented:
|
Year Ended December 31,
|
|||||||||||||||||
| ($ in thousands) | 2024 | 2023 | 2022 | ||||||||||||||
| Net cash provided by operating activities | $ | 446,620 | $ | 280,601 | $ | 204,964 | |||||||||||
| Net cash used in investing activities | (151,181) | (118,075) | (52,384) | ||||||||||||||
| Net cash used in financing activities | (81,221) | (234,868) | (160,170) | ||||||||||||||
Operating Activities
Net cash provided by operating activities for the year ended December 31, 2024 of $446.6 million was primarily related to our net income of $438.7 million, adjusted for non-cash charges of $185.3 million and net cash outflows of $177.4 million from changes in our operating assets and liabilities. Non-cash charges primarily consisted of depreciation and amortization of $123.1 million, share-based compensation of $84.5 million, non-cash lease expenses of $19.5 million, provision for credit losses of $4.7 million and other non-cash adjustments of $0.9 million, offset by deferred income tax of $47.4 million. The main drivers of the net cash outflows derived from the changes in operating assets and liabilities were related to an increase in accounts receivable of $299.2 million, an increase in inventories of $204.9 million, an increase in prepaid expenses and other assets of $57.9 million and a decrease in operating lease liabilities of $10.2 million, partially offset by an increase in accrued expenses and other liabilities of $222.0 million, an increase in accounts payable of $157.3 million and an increase in tax payable of $15.5 million.
Net cash provided by operating activities for the year ended December 31, 2023 of $280.6 million was primarily related to our net income of $167.1 million, adjusted for non-cash charges of $168.4 million and net cash outflows of $54.9 million from changes in our operating assets and liabilities. Non-cash charges primarily consisted of depreciation and amortization of $103.8 million, share-based compensation of $47.0 million, shareholder-funded executive compensation of $32.2 million, non-cash lease expenses of $14.7 million, provision for credit losses of $4.4 million and other non-cash adjustments of $8.0 million, offset by deferred income tax of $41.7 million. The main drivers of the net cash outflows derived from the changes in operating assets and liabilities were related to an increase in accounts receivable of $229.7 million, an increase in inventories of $155.8 million and a decrease in operating lease liabilities of $14.2 million, partially offset by an increase in accounts payable of $147.5 million, a decrease in prepaid expenses and other assets of $99.2 million, an increase in accrued expenses and other liabilities of $78.5 million and an increase in tax payable of $19.5 million.
Net cash provided by operating activities for the year ended December 31, 2022 of $205.0 million was primarily related to our net income of $232.4 million, adjusted for non-cash charges of $100.8 million and net cash outflows of $128.2 million from changes in our operating assets and liabilities. Non-cash charges primarily consisted of depreciation and amortization of $86.7 million, non-cash lease expenses of $15.5 million, provision for credit losses of $9.0 million. share-based compensation of $5.5 million and other non-cash adjustments of $0.8 million, offset by deferred income tax of $16.6 million. The main drivers of the net cash outflows derived from the changes in operating assets and liabilities were related to a decrease in accounts payable of $118.2 million, an increase in prepaid expenses and other assets of $114.2 million, a decrease in operating lease liabilities of $14.3 million and a decrease in tax payable of $5.2 million, partially offset by an increase in accrued expenses and other liabilities of $69.2 million, a decrease in inventories of $53.9 million and a decrease in accounts receivable of $0.5 million.
Investing Activities
Investing activities consist primarily of purchases of property and equipment and intangible assets and cash receipts on beneficial interest in sold receivables.
Cash used in investing activities for the year ended December 31, 2024 of $151.2 million consisted of purchases of property and equipment of $137.7 million, purchases of intangible assets of $9.9 million and capitalized software development costs of $3.6 million.
Cash used in investing activities for the year ended December 31, 2023 of $118.1 million consisted of purchases of property and equipment of $122.7 million, purchases of intangible assets for $8.5 million, capitalized software development costs of $0.6 million and other investing activities, net of $3.1 million, which was partially offset by cash receipts on deferred payments in sold receivables of $16.8 million.
Cash used in investing activities for the year ended December 31, 2022 of $52.4 million consisted of purchases of property and equipment of $80.3 million, purchases of intangible assets for $7.3 million, capitalized software development costs of $6.8 million, equity investments of $0.1 million and other investing activities, net of $0.3 million, which was partially offset by cash receipts on deferred payments in sold receivables of $42.4 million.
Financing Activities
Financing activities consist primarily of proceeds we receive from the issuance of debt and debt repayments, as well as dividend payments, and contributions and distributions to and from JS Global prior to the separation and distribution.
Cash used in financing activities for the year ended December 31, 2024 of $81.2 million consisted of net ordinary shares withheld for taxes of $61.4 million and principal payments on the 2023 Term Loans of $25.3 million, which was partially offset by proceeds from employee stock purchase plan contributions of $5.5 million.
Cash used in financing activities for the year ended December 31, 2023 of $234.9 million consisted of repayment of the principal balance on the 2020 Term Loans of $442.6 million, distributions paid to JS Global of $435.3 million, dividend payments of $150.2 million, net ordinary shares withheld for taxes of $4.3 million and a recharge from JS Global for share-based compensation of $3.2 million, which was partially offset by the net proceeds from the issuance of the 2023 Term Loans of $800.7 million.
Cash used in financing activities for the year ended December 31, 2022 of $160.2 million consisted of repayment of debt of $310.0 million, a note payable to JS Global of $49.3 million, distributions paid to JS Global of $45.4 million and a recharge from JS Global for share-based compensation of $15.3 million, which was partially offset by proceeds from the issuance of debt of $259.8 million.
C. Research and development, patents and licenses, etc.
See "Item 4. Information on the Company-B. Business Overview-Intellectual Property."
D. Trend information
The information required by this item is set forth in "Item 3. Key Information-D. Risk Factors", "Item 4. Information on the Company-B. Business Overview", and "Item 5. Operating and Financial Review and Prospects-A. Operating Results" within this Annual Report.
E. Critical accounting estimates
Our discussion and analysis of results of operations, financial condition, and liquidity are based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and judgements that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We based our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may materially differ from these estimates under different assumptions or conditions. On an ongoing basis, we review our estimates to ensure that they appropriately reflect changes in our business or new information as it becomes available. For additional information on our significant accounting policies, please refer to "Note 2 - Summary of Significant Accounting Policies" to our consolidated financial statements included in this Annual Report. We believe that the following critical accounting policies and estimates have the greatest potential impact on our financial statements.
Net Sales Recognition
We recognize net sales when control of our products is transferred to retailers, consumers and distributors. Generally, control transfers when products are shipped or delivered to the customer, depending on the terms of the contract. Net sales related to service-type warranties recognized ratably over the contract period is immaterial.
Sales are made primarily under agreements allowing for rights of return in limited circumstances and various incentive rebates. We have an established history for these arrangements, and we record the estimated reserves as a reduction to net sales at the time the related net sales are recognized. Depending on whether we have the right to offset, the allowance for sales returns and the allowance for rebates are recorded on the balance sheet as either contra accounts receivable or accrued liabilities. Sales returns and rebates are estimated based on relevant historical and current data. Any significant changes in experience as compared to historical returns and rebates will impact the estimate.
We recognized $86.6 million, $58.8 million and $45.5 million in accrued return liabilities and $291.4 million, $207.6 million and $230.2 million in accrued customer incentives as of December 31, 2024, 2023 and 2022, respectively. A hypothetical 10% change in the estimated ending liability balance would have resulted in a $8.7 million, $5.9 million and $4.6 million change in the estimated accrued return liability and a $29.1 million, $20.8 million and $23.0 million change in the estimated accrued rebate liability for the years ended December 31, 2024, 2023 and 2022, respectively, which would have been recognized as an increase or decrease to net sales.
Goodwill and Intangible Assets
Goodwill represents the excess of the purchase price over the fair value of net assets acquired in a business combination and has been assigned to our one reporting unit. Indefinite-lived intangible assets consist of trade name and trademarks acquired through business acquisitions. Goodwill and indefinite-lived intangible assets are not amortized but rather tested for impairment at least annually, or more frequently if events or changes in circumstances indicate that they may be impaired. Evaluating goodwill and indefinite-lived intangible assets for impairment involves the determination of the fair value of our reporting unit in which goodwill and indefinite-lived intangible assets is recorded using a qualitative or quantitative analysis. If fair value exceeds the carrying value, impairment is not indicated. If the carrying amount of a reporting unit is higher than its estimated fair value, the excess is recorded as an impairment expense.
For the years ended December 31, 2024 and 2023, we performed a qualitative (Step 0) assessment and we concluded that it was more likely than not that the fair value of the reporting unit exceeded its carrying value. Therefore, we did not recognize any goodwill or indefinite-lived intangible asset impairments during the years ended December 31, 2024 and 2023. Beginning in the fourth quarter of 2023, the Company's annual assessment date was changed from December 31 to October 1. It was determined that this change in date does not represent a material change in our method of applying an accounting principal.
For the year ended December 31, 2022, we elected to bypass the qualitative assessment process and proceed directly to comparing the fair value of our reporting unit to carrying value. For goodwill, quantitative testing consists of a comparison of our reporting unit's fair value to its carrying value. For indefinite-lived intangible assets, quantitative testing consists of a comparison of the fair value of each indefinite-lived intangible asset with its carrying value. Management utilized a third-party valuation firm to assist in estimating the fair value, which used a combination of income and market approaches.
For the year ended December 31, 2022, our annual assessment for goodwill and indefinite-lived intangible asset impairment was performed on December 31. We have not experienced any conditions that would require a write-down of our other assets, including long-lived assets. The quantitative assessment indicated that the fair value exceeded the carrying value and no impairment charge was required as a result of the quantitative assessment. Therefore, we did not recognize any goodwill or indefinite-lived intangible asset impairments during the year ended December 31, 2022. Changes in economic and operating conditions that occur in the future, may result in a future goodwill or indefinite-lived intangible asset impairment charge.
Acquired intangible assets consist of identifiable intangible assets, primarily developed software technology, customer relationships and trade name and trademarks, resulting from business acquisitions. Other intangible assets consist of purchased patents. Intangible assets are initially recorded at fair value on the date of acquisition and are amortized over their estimated useful lives, with the exception of trade name and trademarks which were deemed to have an indefinite life and are tested for impairment as described above. We evaluate our intangible assets for indicators of possible impairment when events or changes in circumstances indicate the carrying amount of an asset or asset group may not be recoverable. This includes but is not limited to significant adverse changes in business climate, market conditions or other events that indicate an asset's carrying amount may not be recoverable. When measuring the recoverability of these assets, we will make assumptions regarding our estimated future cash flows expected to be generated by the assets. If our estimates or related assumptions change in the future, we may be required to impair these assets. An asset is considered impaired if the carrying amount exceeds the undiscounted future net cash flows that the asset or asset group is expected to generate.
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