Solo Brands, Inc., (NYSE: DTC) a direct-to-consumer platform for rapidly growing lifestyle brands (the “Company,” “we” or “our”), today announced its financial results for the three and twelve month periods ended December 31, 2021.

The operating results in 2021 include the activity of Oru, ISLE, and Chubbies post-acquisition. The operating results of these acquisitions were not included in our financial results in the prior year.

Fourth Quarter 2021 Highlights Compared to 2020 Fourth Quarter

• Net sales of $176.5 million, up $109.6 million or 164.0%
• Net income of $12.4 million, up $58.1 million
• EPS - basic and diluted of $0.17 for 2021
• Adjusted net income⁽¹⁾ of $35.3 million, up $9.7 million
• Adjusted EBITDA⁽¹⁾ of $43.1 million, up $15.3 million or 55.1%
• Adjusted EPS of $0.45 for 2021

Full Year 2021 Highlights Compared to Full Year 2020⁽³⁾

• Net sales of $403.7 million, up $270.3 million or 202.6%
• Net income of $56.5 million, up $80.7 million
• EPS - basic and diluted of $0.17 for 2021
• Adjusted net income⁽¹⁾ of $105.3 million, up $53.8 million
• Adjusted EBITDA⁽¹⁾ of $120.9 million, up $66.0 million or 120.3%
• Adjusted EPS of $1.55 for 2021

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

Operating Results For the Three Months Ended December 31, 2021

Net sales⁽³⁾ increased 164.0% to $176.5 million, compared to $66.8 million in the fourth quarter of 2020 driven by strong results across channels.

• DTC revenues increased 161.9% to $164.2 million compared to $62.7 million in the fourth quarter of 2020.
• Wholesale revenues increased 197.0% to $12.3 million compared to $4.1 million in the fourth quarter of 2020.

Gross profit⁽³⁾ increased 168.7% to $111.7 million, compared to $41.6 million in the fourth quarter of the prior year and adjusted gross profit⁽¹⁾, reflecting the impact of purchase accounting adjustments related to the transactions, increased 147.5% to $117.2 million compared to $47.3 million in the same period in the previous year. Gross margin increased 1.1% to 63.3%. Adjusted gross margin⁽¹⁾ decreased to 66.4% compared to 70.8% in the same period in 2020 due to increased freight rates and higher logistics costs.

Selling, general and administrative (SG&A) expenses⁽³⁾ increased to $82.5 million, compared to $19.6 million in the fourth quarter of 2020. The increase was primarily due to the following: an increase in our advertising and marketing spend of $27.3 million to drive brand awareness, an increase in employee costs of $13.7 million as a result of increased headcount and $6.6 million of equity-based compensation expense, and an increase in shipping costs of $13.5 million.

Depreciation and amortization expenses⁽³⁾ increased to $5.3 million compared to $3.5 million in the prior year. The increase was primarily due to an increase in amortization expense of $1.3 million to $4.8 million driven by the change in control transaction in 2020 and the acquisitions of Oru, ISLE, and Chubbies in 2021.

Other operating expenses⁽³⁾ decreased $55.1 million to $6.6 million, compared to $61.7 million in the fourth quarter of the prior year. In the fourth quarter of 2020, other operating expenses were primarily driven by the settling of the incentive awards and bonuses of $37.9 million, $2.9 million of seller and transaction expenses in connection with the 2020 change in control, $1.9 million of buyer expenses paid for by the seller, and an upward adjustment of $19.1 million to the contingent consideration from the 2020 change in control transaction. In the fourth quarter of 2021, other operating expenses were primarily driven by employee costs related to the acquisitions, international expansion costs and costs to transition to a new global headquarters.

Earnings per Class A common stock basic and diluted is $0.17 and is calculated after the 2021 Reorganization Transactions. A comparison to the same period last year is not meaningful or comparable due to the Reorganization Transactions which occurred in 2021. Refer to the footnote on the unaudited consolidated statements of operations for more information.

Adjusted EPS⁽¹⁾ Our weighted average diluted shares were 63,010,538, as calculated under the treasury stock method of accounting for options and RSUs and under the if-converted method for Class B shares (33,416,783 shares). Our adjusted EPS for the fourth quarter was $0.45.

Operating Results For the Twelve Months Ended December 31, 2021

Net sales⁽³⁾ increased 202.6% to $403.7 million, compared to $133.4 million in the prior year driven by strong results across channels.

• DTC revenues increased 189.9% to $355.7 million compared to $122.7 million in the prior year.

• Wholesale revenues increased 347.4% to $48.1 million compared to $10.7 million in the prior year.

Gross profit⁽³⁾ increased 197.7% to $258.9 million, compared to $87.0 million in the prior year and adjusted gross profit⁽¹⁾⁽³⁾, reflecting the impact of purchase accounting adjustments related to the transactions, increased 186.7% to $271.3 million compared to $94.6 million in the prior year. Gross margin⁽³⁾ decreased 1.1% to 64.1%. Adjusted gross margin⁽¹⁾⁽³⁾ decreased to 67.2% compared to 70.9% in the prior year, in line with expectations due to increased freight rates and higher logistics costs.

Selling, general and administrative (SG&A) expenses⁽³⁾ increased 298.7% to $159.5 million, compared to $40.0 million in the prior year. The increase in SG&A was primarily driven by the following: an increase in our advertising and marketing spend of $57.0 million, an increase in shipping costs of $24.4 million, an increase in employee costs of $20.6 million due to increased headcount and $7.3 million of equity-based compensation expense, and an increase in seller fees of $8.9 million.

Depreciation and amortization expenses⁽³⁾ increased to $18.2 million compared to $5.7 million in the prior year. The increase was primarily due to an increase in amortization expense of $11.9 million to $17.5 million driven by the change in control transaction in 2020 and the acquisitions of Oru, ISLE, and Chubbies in 2021.

Other operating expenses⁽³⁾ decreased 80.1% to $12.3 million, compared to $61.7 million in the prior year. In the fourth quarter of 2020, other operating expenses were primarily driven by the settling of the incentive awards and bonuses of $37.9 million, $2.9 million of seller and transaction expenses in connection with the 2020 change in control, $1.9 million of buyer expenses paid for by the seller, and an upward adjustment of $19.1 million to the contingent consideration from the 2020 change in control transaction. In the fourth quarter of 2021, other operating expenses were primarily driven by $8.1 million of acquisition-related expenses and $2.6 million of business optimization expenses.

Earnings per Class A common stock basic and diluted is $0.17 and is calculated after the 2021 Reorganization Transactions. A comparison to the same period last year is not meaningful or comparable due to the Reorganization Transactions which occurred in 2021. Refer to the footnote on the unaudited consolidated statements of operations for more information.

Adjusted EPS⁽¹⁾⁽³⁾ Our weighted average diluted shares were 63,010,538, as calculated under the treasury stock method of accounting for options and RSUs and under the if-converted method for Class B shares (33,416,783 shares). Our adjusted EPS for the full year of 2021 was $1.55.

Balance Sheet

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

Inventory at the end of the fourth quarter was $102.3 million, compared to $14.3 million at December 31, 2020 when the company experienced significant stock outs and ended the fourth quarter of 2020 with $20.2 million of deferred revenue as compared to $3.5 million of deferred revenue at December 31, 2021. In addition, the company grew net sales by three times with organic growth and the acquisitions of Oru, ISLE, and Chubbies. In light of global pressures on supply chain, our increase in inventory reflects a strong inventory position across brands that we are confident is sufficient to meet demand and position us to deliver on our goal of amazing customer experiences.

Guidance

Our guidance reflects our best estimate of the business as we see it today. Accordingly, we expect the following:

Guidance for Full Fiscal Year 2022

Total revenue is expected to be between $540 million and $570 million.

Adjusted EBITDA⁽¹⁾⁽²⁾ is expected to be between $121 million and $132 million.

Guidance for First Quarter 2022

Total revenue is expected to be between $82 million and $85 million.

Adjusted EBITDA⁽¹⁾⁽²⁾ is expected to be between $12 million and $14 million.

⁽¹⁾ Please see the reconciliation of non-GAAP financial measures to the most comparable GAAP financial measure in the sections titled “Non-GAAP Financial Measures” and “Reconciliation of GAAP to Non-GAAP Financial Information” below.

⁽²⁾ The Company has not provided a quantitative reconciliation of forecasted Adjusted EBITDA to forecasted GAAP net income within this press release because the Company is unable, without making unreasonable efforts, to calculate certain reconciling items with confidence. These items include, but are not limited to, stock-based compensation with respect to future grants and forfeitures, could materially affect the computation of forward-looking GAAP net income, are inherently uncertain and depend on various factors, some of which are outside of the Company’s control. For more information regarding the non-GAAP financial measures discussed in this press release, please see “Non-GAAP Financial Measures” below.

⁽³⁾As a result of the change in control transaction that occurred in 2020, we presented two periods of financial information in the consolidated statements of operations for the twelve months ended 2020 and two periods of financial information in the consolidated statements of operations for the three months ended 2020. The periods presented for the twelve months ended 2020 are January 1, 2020 through October 8, 2020, defined as the Intermediate Successor, and October 9, 2020 through December 31, 2020, defined as the Successor. The periods presented for the three months ended 2020 are October 1, 2020 through October 8, 2020, defined as the Intermediate Successor, and October 9, 2020 through December 31, 2020, defined as the Successor. These periods are not comparable, as the principal impact of the change of control transaction relates to the application of purchase accounting, and the recognition of assets and liabilities at their fair values as of the time of the transaction (this transaction did not involve the combination of our Company with another operating company). Supplemental to the presentation described above, we have combined the Intermediate Successor and Successor for the three and twelve months ended 2020. The combination of these periods is solely for illustrative purposes, only to assist the comparison of the periods presented, and does not represent pro forma financial results compiled in accordance with Regulation S-X of the Securities Act. In particular, this combined presentation does not give effect to the recognition of assets and liabilities at fair market value, in accordance with purchase accounting, as if the transactions had occurred at the beginning of the corresponding fiscal year. The primary impact from the application of purchase accounting in both the Intermediate Successor and Successor periods was the step-up in the cost of our inventory and intangible assets to fair market value, which has a corresponding non-cash, negative impact on gross profit and net income.

Conference Call Details

A conference call to discuss the Company's fourth quarter results is scheduled for March 29, 2022, at 8:30 a.m. ET. To participate, please dial 844-200-6205 or +1 929-526-1599 for international callers, conference ID 878745. The conference call will also be webcast live at https://investors.solobrands.com. A recording will be available shortly after the conclusion of the call. To access the replay, please dial 866-813-9403 or +44 204-525-0658 for international callers, conference ID 836635. A replay of the webcast will also be available approximately two hours after the conclusion of the call on the Company's website as https://investors.solobrands.com.

About Solo Brands, Inc.

Solo Brands, headquartered in Grapevine, TX, develops and produces ingenious lifestyle products that help customers create lasting memories. Through a disruptive and scaled DTC platform, Solo Brands offers innovative products directly to consumers primarily online through four lifestyle brands – Solo Stove firepits, stoves, and accessories, Chubbies premium casual apparel and activewear, Oru Kayak, origami folding kayaks that can be assembled in minutes, and ISLE paddleboards, maker of inflatable paddle boards. Solo Brands is a direct-to-consumer platform that offers innovative products directly to consumers primarily through its owned websites.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained in this press release that do not relate to matters of historical fact should be considered forward-looking statements, including without limitation statements regarding our anticipated GAAP and non-GAAP guidance for the fiscal quarter ending March 31, 2022 and the fiscal year r ending December 31, 2022. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “targets,” “projects,” “contemplates,” “believes,” “estimates,” “forecasts,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. These statements are neither promises nor guarantees, but involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including, but not limited to, the following: our ability to manage our future growth effectively; our ability to expand into additional markets; our ability to maintain and strengthen our brand to generate and maintain ongoing demand for our products; our ability to cost-effectively attract new customers and retain our existing customers; our failure to maintain product quality and product performance at an acceptable cost; the impact of product liability and warranty claims and product recalls; the highly competitive market in which we operate; business interruptions resulting from geopolitical actions, natural disasters, or impacts of the COVID-19 pandemic; risks associated with our international operations; and problems with, or loss of, our suppliers or an inability to obtain raw materials; and the ability of our stockholders to influence corporate matters. These and other important factors discussed under the caption "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2021, and our other filings with the Securities and Exchange Commission could cause actual results to differ materially from those indicated by the forward-looking statements made in this press release. Any such forward-looking statements represent management's estimates as of the date of this press release. While we may elect to update such forward-looking statements at some point in the future, we disclaim any obligation to do so, even if subsequent events cause our views to change, except as may be required under applicable securities laws.

SOLO STOVE HOLDINGS, LLC

SELECTED FINANCIAL DATA

Reconciliation of GAAP to Non-GAAP Financial Information

(Unaudited) (In thousands except per share amounts)

Non-GAAP Financial Measures

We report our financial results in accordance with GAAP, however, management believes that certain non-GAAP financial measures provide users of our financial information with useful supplemental information that enables a better comparison of our performance across periods. We use Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net Income, Adjusted Gross Profit, Adjusted Gross Profit Margin, and Adjusted EPS non-GAAP financial measures, because we believe they are useful indicators of our operating performance. Our management uses these non-GAAP measures principally as measures of our operating performance and believes that these non-GAAP measures are useful to our investors because they are frequently used by securities analysts, investors and other interested parties in their evaluation of the operating performance of companies in industries similar to ours. Our management also uses these non-GAAP measures for planning purposes, including the preparation of our annual operating budget and financial projections.

None of these non-GAAP measures is a measurement of financial performance under GAAP. These non-GAAP measures should not be considered in isolation or as a substitute for a measure of our liquidity or operating performance prepared in accordance with GAAP and are not indicative of net income (loss) from continuing operations as determined under U.S. GAAP. In addition, the exclusion of certain gains or losses in the calculation of non-GAAP financial measures should not be construed as an inference that these items are unusual or infrequent as they may recur in the future nor should it be construed that our future results will be unaffected by unusual or non-recurring items. These non-GAAP financial measures have limitations that should be considered before using these measures to evaluate our liquidity or financial performance. Some of these limitations are as follows:

These non-GAAP measures exclude certain tax payments that may require a reduction in cash available to us; do not reflect our cash expenditures, or future requirements, for capital expenditures (including capitalized software developmental costs) or contractual commitments; do not reflect changes in, or cash requirements for, our working capital needs; do not reflect the cash requirements necessary to service interest or principal payments on our debt; exclude certain purchase accounting adjustments related to acquisitions; and exclude stock-based compensation expense, which has recently been, and will continue to be for the foreseeable future, a significant recurring expense for our business and an important part of our compensation strategy.

In addition, our definition and calculation of these non-GAAP measures may differ from that of other companies. We compensate for these limitations by relying primarily on our GAAP results and using non-GAAP financial measures as a supplement.

Adjusted Gross Profit and Adjusted Gross Profit Margin

We calculate adjusted gross profit as gross profit excluding the fair value write-up of inventory as a result of the change in control transaction in 2020 and the Oru, ISLE, and Chubbies acquisitions. We calculate adjusted gross profit margin as adjusted gross profit divided by net sales.

Adjusted Net Income

We calculate adjusted net income as net income (loss) excluding amortization of intangible assets recognized from the change in control transaction in 2020, inventory fair value write-up, incentive unit and stock-based compensation expense, one-time transaction costs related to the change in control transaction in 2020 and the IPO, acquisition related costs, business expansion expenses, business optimization expenses, fair value adjustment to contingent consideration, management fees, and the tax impact of these adjusting items.

Adjusted EBITDA and Adjusted EBITDA Margin

We calculate adjusted EBITDA as net income (loss) before interest expense, income taxes, and depreciation and amortization expenses, adjusted to exclude inventory fair value write-up, incentive unit and stock-based compensation expense, one-time transaction costs related to the change in control transaction in 2020 and the IPO, acquisition related costs, business expansion expenses, business optimization expenses, fair value adjustment to contingent consideration, and management fees. We calculated adjusted EBITDA margin as adjusted EBITDA divided by net sales.

The following table reconciles gross profit to adjusted gross profit for the periods presented:

The following tables reconcile the non-GAAP financial measures to their most comparable GAAP measure for the periods presented: