Solo Brands Inc.

11/06/2025 | Press release | Distributed by Public on 11/06/2025 07:23

Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations
In the following discussion, references to "we," "us," "our," the "Company," and similar references mean Solo Brands, Inc. and its consolidated subsidiaries, unless the context otherwise requires. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and the related notes to those statements included elsewhere in this Quarterly Report, as well as our audited consolidated financial statements included in our 2024 Form 10-K. Some of the numbers included herein have been rounded for the convenience of the presentation. In addition to historical consolidated financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under Item I, Part 1A, "Risk Factors" of our 2024 Form 10-K and elsewhere in this Quarterly Report. See further our "Forward-Looking Statements" in this Quarterly Report.
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 three and nine months ended September 30, 2025, we experienced a decrease in our net sales from $94.1 million and $311.0 million for the three and nine months ended September 30, 2024 to $53.0 million and $222.5 million, respectively. The decline in net sales, for both the three and nine months ended September 30, 2025 when compared to the prior year periods, was primarily driven by the decline in DTC and retail channel net sales within the Solo Stove segment, with the nine month period being offset in part by an increase in net sales across both channels within the Chubbies segment. The Chubbies segment, while experiencing a decline in retail and relatively flat DTC channel net sales in the three months ended September 2025, continues to exceed the prior year period net sales in both channels on a year to date basis.
Economic Factors Affecting our Performance
Tariffs
We sell our products in the U.S. as well as various foreign countries, primarily Europe, Canada and Australia. We also have historically sourced and procured inventory primarily out of China and Vietnam, with some products sourced through Mexico. Tariffs on certain foreign origin goods, particularly from China, continue to put pressure on our input costs. As a result of higher tariffs and tariff uncertainty, in 2025, we diversified our supply base and began to place a higher volume of purchase orders from Vietnam and Cambodia, reducing our sourcing from China for Solo Stove and eliminating our sourcing from China almost entirely for Chubbies. Additionally, we closed and relocated the operations of a distribution center in Mexico to the U.S., in response to the repeal of the 321 Tariff Relief as of August 31, 2025. As a result of lower purchase volumes in the first half of 2025, we increased purchasing activity in the third quarter in anticipation of the holiday selling season. This led to higher tariff impacts on inventory reflected in the consolidated balance sheets and on cost of goods sold within the consolidated statements of operations and comprehensive income (loss). We expect inventory and costs of goods sold, on a per unit basis, to increase in future periods as a result of these tariffs, to the extent they remain effective. However, the proposed tariff reductions that are scheduled to go into effect on November 10, 2025 are anticipated to provide limited relief from the current tariffs. The tariff environment remains fluid and any expectations may be subject to change.
Our product lines involve production with steel manufactured outside the U.S., the target of recent tariff actions, impacting virtually all of our Solo Stove brand products. In addition, certain of our Oru and TerraFlame brands are manufactured in and distributed from Mexico. As such, they are subject to any applicable tariffs placed on goods imported from Mexico.
New or increased tariffs and retaliatory actions, if sustained, are expected to have a significant adverse effect on our results of operations and margins and on the sales of our products outside the U.S. The strategies we have implemented and continue to 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" in our 2024 Form 10-K, "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."
Tax Legislation
On July 4, 2025, the U.S. government enacted The One Big Beautiful Bill Act of 2025 which includes, among other provisions, changes to the U.S. corporate income tax system including the allowance of immediate expensing of qualifying research and development expenses and permanent extensions of certain provisions within the Tax Cuts and Jobs Act. Certain provisions are effective beginning in 2026. We will continue to evaluate the future impact of these tax law changes on our financial statements; however, we believe that due to our sustained losses we will not realize a material benefit from these changes.
Current macroeconomic factors, including overall economic and political uncertainty, financial and capital markets instability, new or increasing tariffs, high interest rates and high inflation, remain very dynamic and highly uncertain. The effects of the macroeconomic environment could further reduce our net sales and negatively impact our gross margin, net income (loss) and cash flows.
Discussion within the relevant comparative periods and sections have been included below.
Key Factors Affecting Our Financial Condition and Results of Operations
2025 Restructuring Activity
To date in 2025, management, along with our Board of Directors, engaged strategic consulting firms to assist with improving the financial results of our operations. This operational improvement involved the engagement of restructuring, legal and investment banking consultants to perform financial planning, forecasting and project management activities. Certain of these strategic consulting firms assisted in developing operational plans for the near- and long-term, as well as having assisted and continuing to assist in identifying cost saving initiatives to reduce our operational expenses and aid in the development of enhanced internal reporting to deliver timely insight to management.
The cost saving initiatives identified and executed upon in the three and nine months ended September 30, 2025 were designed to reduce operational expenditures over the long-term. The key cost saving initiatives and operational planning activities undertaken so far in 2025 were as follows:
•retention payments for key personnel to support the sustainment of operations and focus on cost saving and operational improvements;
•reduction in force ("RIF") of management and non-management personnel in an effort to align headcount with the operational needs of the business, resulting in a moderate decline in related expenses in the short term, with the significance of the savings anticipated to be recognized in future periods;
•closure of two distribution centers in the first half of 2025, with the closure of a third in the third quarter of 2025, to reduce fixed costs in the short term and in future periods, as well as unnecessary capacity;
•termination of an underperforming licensing agreement in an effort to redeploy the allocated funds for operational purposes;
•renegotiated a settlement of a termination fee with a former advertising services vendor at a more favorable amount to the Company, reducing the cash outflow necessary;
•revision of pricing structure throughout our brands in order to mitigate, in part, the expected impacts of tariffs in subsequent periods; and
•reduction in marketing spend and promotional activity within the Solo Stove segment to better align product pricing with our retail partners.
While these activities are intended to provide future benefit to the Company, most of these activities required cash outlays in the current period, with certain additional cash outlays expected to occur throughout the remainder of 2025. In order to fund these cash outlays, the Company used cash from operations and borrowings under the 2021 Revolving Credit Facility (as defined below) and the 2025 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
Reduction in force
$ 914
Fiscal year 2025
Closure of distribution centers
976 Q1 & Q3 2025
Engagement of strategic consulting firms
7,187
Fiscal year 2025
Retention payments to key personnel
5,655
Q2 2025
We are evaluating and identifying additional cost saving initiatives that we may execute in the near term, with certain upfront costs to be reflected within restructuring, contract termination and impairment charges.
2024 Restructuring Activity
In 2024, the Company underwent significant changes to its management team, bringing about a change in strategic vision and evaluation of the Company's initiatives and brands. The evaluation included analysis of the brand level financials, strengths of each of the brands, product design and customer service metrics, marketing campaign effectiveness and cost, efficiencies of brands on a standalone or aggregated basis, amongst other things. This evaluation, performed over the course of the nine months ended September 30, 2024, led the Company to undertake the following activities within the third quarter of 2024:
•terminated underperforming marketing agreements with marketing barter partners that no longer aligned with the Company's current marketing strategy;
•charges related to the IcyBreeze reporting unit stemming from underperformance and management's determination to revise product designs under the Solo Stove segment; and
•reorganized the Oru and ISLE reporting units to eliminate costs and capitalize on potential synergies, through restructuring under a revised management structure.
In order to fund the cash outlays required for these initiatives, the Company leveraged income from operations and draws on the 2021 Revolving Credit Facility. 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
Discussion within the relevant comparative periods and sections have been included below.
Consolidated Results for the Three and Nine Months Ended September 30, 2025 Compared to the Three and Nine Months Ended September 30, 2024
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.
Three Months Ended September 30,
Change
(dollars in thousands) 2025 2024
$
%
Net sales
$ 53,038 $ 94,139 $ (41,101) (43.7) %
Direct-to-consumer net sales 42,027 64,480 (22,453) (34.8) %
Retail net sales 11,011 29,659 (18,648) (62.9) %
Nine Months Ended September 30,
Change
(dollars in thousands) 2025 2024
$
%
Net sales
$ 222,547 $ 311,013 $ (88,466) (28.4) %
Direct-to-consumer net sales 135,493 214,293 (78,800) (36.8) %
Retail net sales 87,054 96,720 (9,666) (10.0) %
The decrease in net sales for the three and nine months ended September 30, 2025 compared to the three and nine months ended September 30, 2024 was primarily driven by a decline in net sales within the Solo Stove segment, the result of our retail partners reducing excess inventory and our resetting promotional activity across retail and DTC channels. For the nine months ended September 30, 2025, when compared to the prior year period, these declines in both DTC and retail channels within the Solo Stove segment were offset, in part, by an increase in net sales across both channels within the Chubbies segment driven by sustained consumer demand within the DTC sales channel and continued growth with retail strategic partnerships, respectively.
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.
Three Months Ended September 30, Change
(dollars in thousands) 2025 2024
$
%
Gross profit
31,846 39,319 (7,473) (19.0) %
Gross margin (Gross profit as a % of net sales)(1)
60.0 % 41.8 % 1,820
Nine Months Ended September 30, Change
(dollars in thousands) 2025 2024
$
%
Gross profit
131,050 172,500 (41,450) (24.0) %
Gross margin (Gross profit as a % of net sales)(1)
58.9 % 55.5 % 340
(1) Change in gross margin period over period in basis points
In the third quarter of 2024, the Company wrote down $18.7 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 both the three months and nine months ended September 30, 2024 gross margins being negatively impacted.
Cost of goods sold, when including or excluding the write down of inventory and purchase orders described above, decreased for the three and nine months ended September 30, 2025 compared to the prior year periods, in connection with the decline in net sales, while gross margin increased for each respective period.
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.
•Depreciation and Amortization Expenses- Depreciation and amortization expenses consist of depreciation of property and equipment and amortization of definite-lived intangible assets.
•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.
•Other Operating Expenses - Other operating expenses include certain costs incurred as a result of being a public company, acquisition-related expenses, business optimization and expansion expenses and management transition costs, including severance.
Three Months Ended September 30,
Change
(dollars in thousands) 2025 2024
$
%
Operating expenses
$ 48,023 $ 154,605 $ (106,582) (68.9) %
Selling, general and administrative expenses 39,495 61,119 (21,624) (35.4) %
Depreciation and amortization expenses 5,824 6,574 (750) (11.4) %
Restructuring, Contract Termination and Impairment Charges
1,940 83,618 (81,678) (97.7) %
Other operating expenses 764 3,294 (2,530) (76.8) %
Nine Months Ended September 30,
Change
(dollars in thousands) 2025 2024
$
%
Operating expenses
$ 167,705 $ 291,898 $ (124,193) (42.5) %
Selling, general and administrative expenses 126,171 180,337 (54,166) (30.0) %
Depreciation and amortization expenses 19,107 19,255 (148) (0.8) %
Restructuring, Contract Termination and Impairment Charges
18,030 83,618 (65,588) (78.4) %
Other operating expenses 4,397 8,688 (4,291) (49.4) %
The decrease in operating expenses for the three and nine months ended September 30, 2025 compared to the three and nine months ended September 30, 2024 was primarily driven by a decrease in restructuring, contract termination and impairment charges, as a result of non-recurring impairment charges to both goodwill and intangible assets, net and non-recurring terminations of underperforming marketing agreements, offset in part by the current period activity discussed in Note 2, Restructuring, Contract Termination and Impairment Charges in our Notes to Consolidated Financial Statements. Additionally, SG&A experienced a significant decline for both three and nine months ended September 30, 2025 when compared to the prior year periods, as a result of a significant decrease in advertising and marketing expenses, coupled with a decrease in distribution costs resulting from the decline in DTC net sales.
Additionally, a decrease was realized in other operating expenses, as a result of a reduction in management transition costs consisting of severance for key management personnel, including additional cost associated with onboarding senior leadership positions, and strategic consulting engagements. For the nine months ended September 30, 2025 when compared to the prior year period, this decrease was offset in part by the loss recognized from the disposition of the TerraFlame manufacturing operations, in the second quarter of 2025. See Note 17, Variable Interest Entities for additional information regarding the partial disposition.
Consolidated Interest Expense
Interest expense, net consists primarily of interest on our revolving credit facilities and term loans.
Three Months Ended September 30,
Change
(dollars in thousands) 2025 2024
$
%
Interest expense, net
$ 7,556 $ 3,683 $ 3,873 105.2 %
Nine Months Ended September 30,
Change
(dollars in thousands) 2025 2024
$
%
Interest expense, net
$ 19,115 $ 10,352 $ 8,763 84.7 %
Interest expense, net increased for the three and nine months ended September 30, 2025 compared to the three and nine months ended September 30, 2024 due to a higher average debt balance and higher average interest rates. Interest rates under the 2025 Refinancing Agreement are higher than those previously incurred, which has resulted in the weighted average interest rates on the 2025 Term Loan and 2025 Revolving Credit Facility to be in excess of prior periods.
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 and state, and the Company's 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.
Three Months Ended September 30, Change
(dollars in thousands) 2025 2024 $ %
Income tax expense (benefit) $ (552) $ (6,897) $ 6,345 (92.0) %
Nine Months Ended September 30, Change
(dollars in thousands) 2025 2024 $ %
Income tax expense (benefit) $ 4,068 $ (7,398) $ 11,466 (155.0) %
The income tax benefit decrease for the three months ended September 30, 2025 compared to the three months ended September 30, 2024 and the income tax expense increase for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024, was primarily driven by valuation allowances on deferred tax assets generated by the losses from the Solo Stove segment in the current year periods.
Solo Stove Segment Results for the Three and Nine Months Ended September 30, 2025 Compared to the Three and Nine Months Ended September 30, 2024
Solo Stove Net Sales
Three Months Ended September 30,
Change
(dollars in thousands) 2025 2024
$
%
Net sales
$ 30,792 $ 59,377 $ (28,585) (48.1) %
Direct-to-consumer net sales 23,787 36,991 (13,204) (35.7) %
Retail net sales 7,005 22,386 (15,381) (68.7) %
Nine Months Ended September 30,
Change
(dollars in thousands) 2025 2024
$
%
Net sales
$ 95,218 $ 181,514 $ (86,296) (47.5) %
Direct-to-consumer net sales 70,940 130,541 (59,601) (45.7) %
Retail net sales 24,278 50,973 (26,695) (52.4) %
The decrease in net sales for the three and nine months ended September 30, 2025 compared to the three and nine months ended September 30, 2024 was primarily the result of our retail partners reducing excess inventory and our resetting promotional activity across retail and DTC channels.
Solo Stove Cost of Goods Sold
Three Months Ended September 30, Change
(dollars in thousands) 2025 2024
$
%
Cost of goods sold
11,958 20,622 (8,664) (42.0) %
Nine Months Ended September 30, Change
(dollars in thousands) 2025 2024
$
%
Cost of goods sold
37,158 66,756 (29,598) (44.3) %
The decrease in cost of goods sold for the three and nine months ended September 30, 2025 compared to the three and nine months ended September 30, 2024 was primarily 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 seller fees, shipping and fulfillment related expenses.
Three Months Ended September 30,
Change
(dollars in thousands) 2025 2024
$
%
Segment operating expenses
$ 17,471 $ 24,170 $ (6,699) 27.7 %
Marketing expenses 6,676 11,506 (4,830) 42.0 %
Employee related compensation 2,348 3,007 (659) 21.9 %
Other segment operating expenses 8,447 9,657 (1,210) 12.5 %
Nine Months Ended September 30,
Change
(dollars in thousands) 2025 2024
$
%
Segment operating expenses
$ 54,789 $ 77,751 $ (22,962) (29.5) %
Marketing expenses 21,476 35,428 (13,952) (39.4) %
Employee related compensation 8,471 7,538 933 12.4 %
Other segment operating expenses 24,842 34,785 (9,943) (28.6) %
Segment operating expenses decreased for the three and nine months ended September 30, 2025 compared to the three and nine months ended September 30, 2024, the result of a decrease in brand level marketing expenses, as well as decreases in other segment operating expenses driven by a decrease in seller fees and shipping expenses, each stemming from the decline in DTC channel net sales.
Chubbies Segment Results for the Three and Nine Months Ended September 30, 2025 Compared to the Three and Nine Months Ended September 30, 2024
Chubbies Net Sales
Three Months Ended September 30,
Change
(dollars in thousands) 2025 2024
$
%
Net sales
$ 16,478 $ 19,605 $ (3,127) (16.0) %
Direct-to-consumer net sales 12,272 12,949 (677) (5.2) %
Retail net sales 4,206 6,656 (2,450) (36.8) %
Nine Months Ended September 30,
Change
(dollars in thousands) 2025 2024
$
%
Net sales
$ 103,622 $ 88,558 $ 15,064 17.0 %
Direct-to-consumer net sales 49,206 46,518 2,688 5.8 %
Retail net sales 54,416 42,040 12,376 29.4 %
The decrease in net sales for the three months ended September 30, 2025 compared to the three months ended September 30, 2024 was primarily driven by timing of retail channel net sales, with retail channel replenishments occurring in the second quarter this year compared to the third quarter of 2024. DTC net sales were essentially flat year over year, supported by sustained consumer demand.
The increase in net sales for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024 was primarily driven by increases within the retail net sales channel as a result of continued growth within our retail strategic partnerships, coupled with the ongoing ability to identify and meet consumer demands within the DTC net sales channel, with both website and owned retail store performance exceeding the prior year to date period.
Chubbies Cost of Goods Sold
Three Months Ended September 30, Change
(dollars in thousands) 2025 2024
$
%
Cost of goods sold
6,592 7,595 (1,003) (13.2) %
Nine Months Ended September 30, Change
(dollars in thousands) 2025 2024
$
%
Cost of goods sold
42,591 34,797 7,794 22.4 %
The decrease in cost of goods sold for the three months ended September 30, 2025 compared to the three months ended September 30, 2024 was primarily the result of the decrease in net sales.
Similarly, the increase in cost of goods sold for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024 was primarily the result of the increase in net sales.
Chubbies Segment Operating Expenses
Three Months Ended September 30,
Change
(dollars in thousands) 2025 2024
$
%
Segment operating expenses $ 11,117 $ 12,486 $ (1,369) (11.0) %
Marketing expenses 2,928 3,138 (210) (6.7) %
Employee related compensation 3,210 3,693 (483) (13.1) %
Other segment operating expenses 4,979 5,655 (676) (12.0) %
Nine Months Ended September 30,
Change
(dollars in thousands) 2025 2024
$
%
Segment operating expenses $ 39,490 $ 41,564 $ (2,074) (5.0) %
Marketing expenses 10,453 12,925 (2,472) (19.1) %
Employee related compensation 10,054 10,385 (331) (3.2) %
Other segment operating expenses 18,983 18,254 729 4.0 %
Segment operating expense for the three and nine months ended September 30, 2025 compared to the three and nine months ended September 30, 2024 declined, primarily as a result of reductions in marketing expense consistent with prior quarters in 2025 and employee related expenses.
Liquidity and Capital Resources
Historically, our cash requirements have principally been for working capital purposes and acquisitions. In the short-term, our cash requirements are for working capital and payment of restructuring and other fees. We expect these and other cash needs to continue as we seek to improve, develop and transform our business. We fund our working capital, which is primarily comprised of inventory and accounts payable, and other cash requirements from cash flows from operating activities, cash on hand, and borrowings under our 2025 Revolving Credit Facility. Our cash flows from operating activities and borrowings under the 2025 Revolving Credit Facility are our principal sources of liquidity. Cash flows from operating activities result primarily from the sales of our portfolio of products. 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 September 30, 2025. See below for details on our outstanding debt balance as of September 30, 2025.
Liquidity Sources and Facilities Availability
Cash and cash equivalents $ 16,334 $ 16,334
2025 Revolving Credit Facility
- 60,608
2025 Term Loan
247,138 -
We are required to meet a Credit Agreement Adjusted EBITDA floor of $25 million for the twelve months ended December 31, 2025. In addition, the Company must comply with other financial covenants under the 2025 Refinancing Amendment (as defined below), including a minimum fixed charge coverage ratio, a maximum leverage ratio and a minimum liquidity amount, with the first full measurement period for such financial covenants to occur in the third quarter of 2026, as well as other non-financial covenants. While the 2025 Refinancing Amendment included amended financial covenants, as described in further detail below and in Note 11, Debt, Net, we expect to be in compliance with such covenants and believe our cash, cash equivalents and cash from operating activities will be sufficient to fund our obligations for at least the next twelve months following the issuance of these financial statements.
If we fail to realize the expected benefits from our cost saving and operational improvement initiatives, if our liquidity condition deteriorates, or if we pursue potential growth opportunities that are not successful, our business, operating results and financial condition could be materially adversely impacted and could result in the violation of our financial and nonfinancial covenants, which may require us to seek additional funds from issuances of equity or debt, including from additional credit facilities or loans from other sources. There is no guarantee that such sources will be available when needed, or at all.
Revolving Credit Facilities and Term Loans
On May 12, 2021, we entered into the 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. The Credit Agreement was subsequently amended on June 2, 2021, September 1, 2021, May 22, 2023 and most recently by the 2025 Refinancing Amendment. Initially, the credit agreement contemplated a revolving credit facility (the "2021 Revolving Credit Facility"), with the amendment on September 1, 2021 including a provision to borrow up to $100.0 million under a term loan (the "2021 Term Loan") which was in addition to the available capacity on the 2021 Revolving Credit Facility.
On June 13, 2025, we entered into Amendment No. 4 to Credit Agreement and Limited Waiver and Amendment No. 1 to Security Agreement (the "2025 Refinancing Amendment"), which effected a reallocation and restructuring of all revolving loans and term loans then outstanding and the waiver of certain then existing events of default. The 2025 Refinancing Amendment resulted in decreased outstanding debt, extended maturities, lower short-term cash requirements as a result of our ability to make certain interest payments in kind, and deferral with respect to compliance with certain financial covenants for a certain period of time, as further described below. As a result, the 2025 Refinancing Amendment provided us with financial flexibility and a longer runway to continue our efforts to stabilize and transform the business. Following the 2025 Refinancing Amendment, our plans continue to be focused on improving our financial results and liquidity through a variety of cost saving and operational improvements throughout 2025 and beyond as further discussed in Note 2, Restructuring, Contract Termination and Impairment Charges.
After giving effect to the loan reallocation and restructuring effected pursuant to the 2025 Refinancing Amendment, the credit facilities evidenced by the Amended Credit Agreement consist of the following: (i) revolving commitments under the Revolving Credit Facility in an aggregate amount equal to $90.0 million (the "2025 Revolving Credit Facility"); and (ii) refinancing term loans, including the 2021 Term Loan (the "2025 Term Loan") in an aggregate principal amount equal to $240.0 million. The 2025 Revolving Credit Facility also includes the ability to issue up to $20.0 million in letters of credit, with $3.7 million of letters of credit issued and outstanding as of September 30, 2025. While our issuance of letters of credit does not increase our borrowings outstanding under the 2025 Revolving Credit Facility, it does reduce the amounts available under the 2025 Revolving Credit Facility.
In connection with the entry into the 2025 Refinancing Amendment, during the nine months ended September 30, 2025, we paid down (i) $136.5 million of loans under the 2021 Revolving Credit Facility, and (ii) $32.5 million of 2021 Term Loan outstanding as of June 13, 2025.
Under the 2025 Refinancing Amendment, the maturity date of the 2025 Revolving Credit Facility and the 2025 Term Loan is June 30, 2028. We are required to make mandatory amortization payments on the 2025 Term Loan as follows: (a) beginning with the fiscal quarter ending on June 30, 2026, the aggregate outstanding principal amount of the 2025 Term Loan as of June 13, 2025 multiplied by 0.25% and (b) beginning with the fiscal quarter ending on June 30, 2027, the aggregate outstanding principal amount of the 2025 Term Loan as of June 13, 2025 multiplied by 1.00%.
Each of the 2025 Revolving Credit Facility and the 2025 Term Loan bear interest at (depending on our election from time to time) either an adjusted term rate defined in the agreement based on SOFR or the base rate defined in the Amended Credit Agreement, each plus an applicable margin. The interest is payable in kind, and thus capitalized thereon and increasing the principal balance thereof, (i) on a quarterly basis through March 31, 2026, and (ii) for the period beginning on April 1, 2026 and ending on March 31, 2027 and for which availability under the 2025 Revolving Credit Facility is less than $20.0 million, upon our election, after which time, it is only payable in cash. The unfunded portion of the commitments under the 2025 Revolving Credit Facility will accrue an annual commitment fee.
The 2025 Refinancing Amendment also requires the Company to comply with additional reporting requirements, including, among others, (i) delivering on the date that is twenty (20) days after the end of the previous calendar month (or thirty-five (35) days for the borrowing base certificate and accounts and inventory report due for the months ended May 30, 2025, June 30, 2025, and July 31, 2025), (a) a borrowing base certificate calculating the borrowing base and availability under the 2025 Revolving Credit Facility, (b) a 13-week cash flow forecast for the Company and its
subsidiaries, (c) a liquidity report, and (d) an accounts and inventory report; and (ii) delivering no later than thirty (30) days after the end of the previous calendar month (commencing for the month ending June 30, 2025), a key performance indicator report and certain additional reports on the Company's operating plan and other measures, such as Credit Agreement Adjusted EBITDA. In addition, the 2025 Refinancing Amendment extends the delivery dates for quarterly financial statement deliverables to sixty (60) days after the end of the applicable fiscal quarter.
In addition, pursuant to the 2025 Refinancing Amendment, we are required to comply with the following financial covenants: (a) a maximum Total Leverage Ratio, which is tested on a quarterly basis, commencing with the fiscal quarter ending on September 30, 2026, (b) a minimum Fixed Charge Coverage Ratio, which is tested on a quarterly basis, commencing with the fiscal quarter ending on September 30, 2026, (c) a $10.0 million average minimum liquidity covenant for the first three calendar months of each fiscal year and a $20 million average minimum liquidity covenant for the last nine calendar months of each fiscal year, which in each case, is tested on a monthly basis, commencing with the fiscal month ending on July 31, 2026; and (d) a minimum Credit Agreement Adjusted EBITDA covenant of $25 million for the four fiscal quarter period ending on December 31, 2025.
Cash Flows
Nine Months Ended September 30,
Change
(dollars in thousands) 2025 2024
$
%
Cash flows provided by (used in):
Operating activities
$ (53,019) $ (2,470) $ (50,549) 2046.5 %
Investing activities
(9,590) (11,512) 1,922 16.7 %
Financing activities
66,775 6,812 59,963 (880.3) %
Operating activities
The $50.5 million increase in cash used in operating activities period over period, was due to a $16.1 million increase in cash usage from changes in operating assets and liabilities ("working capital"), which was primarily driven by an increase in cash usage in the first and second quarters of 2025 for accounts payable as of December 31, 2024, mostly related to inventory purchases and marketing expenses incurred in the fourth quarter of 2024, offset in part by the reduction in replenishment of inventory as we focus on prudent management of our inventory balances in the 2025 period. The increase in changes in working capital was coupled with an increase in cash usage of $34.5 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 $1.9 million decrease in cash used in investing activities in the current period when compared to the prior year period was primarily due to a decline in the number of retail store openings within our Chubbies Segment in the current year when compared to the prior, with just one store opening as of September 30, 2025 and six store openings as of September 30, 2024.
Financing activities
The $60.0 million increase in cash provided by financing activities in the current period when compared to the prior year period was primarily driven by a $58.2 million increase in cash provided by net debt activity, inclusive of borrowings, repayments and debt issuance costs in relation to the 2025 Refinancing Amendment, offset in part by a $2.5 million payment in connection with the disposition of the TerraFlame manufacturing operations.
Contractual Obligations
During the nine months ended September 30, 2025, the obligation to pay a former vendor a $5.4 million payment, plus applicable interest in periods beyond January 1, 2025, as a result of terminating an agreement for advertising services in a prior period, as previously disclosed within our 2024 Form 10-K, was settled for an aggregate amount of $4.0 million. The gain recognized from the reduced settlement was recorded to restructuring, contract termination and impairment charges on the consolidated statements of operations and comprehensive income (loss).
For information regarding our contractual obligations, see above under "Revolving Credit Facilities and Term Loans," Note 1, Significant Accounting Policies, Note 11, Debt, Net and Note 17, Variable Interest Entities in this Quarterly Report and Note 14, Leases and Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," included in our 2024 Form 10-K.
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 U.S. GAAP. 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 ongoing 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 audited consolidated financial statements included in our 2024 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 are described in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," included in our 2024 Form 10-K. During the nine months ended September 30, 2025, there were no material changes to our critical accounting policies and estimates from those discussed in our 2024 Form 10-K. 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.
Recent Accounting Pronouncements
For a description of recent accounting pronouncements, see "Recently Adopted Accounting Pronouncements" and "Recently Issued Accounting Pronouncements-Not Yet Adopted" in Note 1 - Significant Accounting Policies, to the unaudited consolidated financial statements included elsewhere in this Quarterly Report.
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. Until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act, 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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