EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this “Agreement”), effective as of May 9, 2022 (the “Effective Date”), is by and between Solo Brands, Inc., a Delaware corporation (“Parent”), Solo Brands LLC, a Texas limited liability company (the “Company,” and together with Parent, “Solo Brands”), and Somer Webb (the “Executive”).
1. POSITION AND DUTIES.
(a) GENERAL. The Company shall employ the Executive, and the Executive accepts such employment, upon the terms and conditions set forth in this Agreement. During the Employment Term (as defined in Section 2 hereof), the Executive shall serve as the Chief Financial Officer of Parent beginning May 16, 2022. In this capacity, the Executive shall have the duties, authorities and responsibilities commensurate with the duties, authorities and responsibilities of persons in similar capacities in similarly sized companies, and such other duties, authorities and responsibilities as may reasonably be assigned to the Executive from time to time by the Chief Executive Officer of Solo Brands (the “CEO”). Unless otherwise agreed by the Executive, the Executive shall report directly to the CEO.
(b) OTHER ACTIVITIES. During the Employment Term, the Executive shall devote all of the Executive’s time and best efforts to the performance of the Executive’s duties with Solo Brands; provided, that the foregoing shall not prevent the Executive from, (i) with prior written notice to the Board of Directors of Parent (the “Board”), serving on the boards of directors or as a member of a committee of one or more non-profit organizations, (ii) participating in charitable, civic, educational, professional, community or industry affairs, and (iii) managing the Executive’s passive personal investments, so long as such activities, either individually or in the aggregate, do not interfere or conflict with the Executive’s duties hereunder or create an actual or potential business or fiduciary conflict.
2. EMPLOYMENT TERM. The Company agrees to employ the Executive pursuant to the terms of this Agreement, and the Executive agrees to such employment, commencing as of the Effective Date and continuing until the Executive’s employment hereunder is terminated in accordance with Section 7 hereof, subject to the provisions of Section 8 hereof. The period of time between the Effective Date and the termination of the Executive’s employment hereunder shall be referred to herein as the “Employment Term.”
3. BASE SALARY. During the Employment Term, the Company agrees to pay the Executive a base salary at an annual rate equal to $500,000, payable in accordance with the regular payroll practices of the Company, but not less frequently than monthly. The Executive’s Base Salary shall be subject to annual review by the Board (or a committee thereof) and may be adjusted from time to time by the Board. The base salary as determined herein and adjusted from time to time shall constitute “Base Salary” for purposes of this Agreement.
4. ANNUAL PERFORMANCE BONUS. During each calendar year of the Employment Term (prorated for partial years of service), the Executive shall be eligible to participate in the Company’s annual performance bonus program as may be in effect from time
to time, pursuant to which the Executive may be eligible to receive an annual performance bonus with a target opportunity equal to 40% of the Executive’s Base Salary, based upon the attainment of one or more performance goals (the “Annual Performance Bonus”), and the potential of an additional 40% of the Executive’s Base Salary if the Company achieves performance accelerators (“Bonus Accelerator”). The performance goals and accelerators shall be established by the Board (or a committee thereof), as determined by the Board (or a committee thereof) in its sole discretion. Any Annual Performance Bonus payable hereunder shall be paid in the calendar year immediately following the calendar year to which such Annual Performance Bonus relates, at the same time as annual performance bonuses are paid to other senior executives of the Company, but in no event later than thirty (30) days following the Company’s receipt of the audited financials with respect to such calendar year, subject to the Executive’s continued employment through the applicable payment date (other than as set forth in Section 7 hereof).
5. EQUITY GRANT. The Executive will receive equity awards with an aggregate grant date fair value of $2,000,000 based upon the 30-day Volume Weighted Average Price as of the Effective Date comprised of 50% Restricted Stock Units and 50% Stock Options, in each case in respect of Parent Class A Common Stock, with both awards vesting over 4 years with the first 25% vesting at the first-year anniversary of the grant date and the remainder of each award vesting quarterly thereafter. The Executive will also be eligible for annual equity grants to be determined by the Board (or a committee thereof).
6. EMPLOYEE BENEFITS.
(a) BENEFIT PLANS. During the Employment Term, the Executive shall be eligible to participate in any employee benefit plan that the Company has adopted or may adopt, maintain or contribute to for the benefit of its employees generally, subject to satisfying the applicable eligibility requirements, except to the extent such plans are duplicative of the benefits otherwise provided hereunder. The Executive’s participation will be subject to the terms of the applicable plan documents and generally applicable Company policies. Notwithstanding the foregoing, the Company may modify or terminate any employee benefit plan at any time.
(b) BUSINESS EXPENSES. During the Employment Term, the Company shall reimburse the Executive promptly for all expenses reasonably incurred by the Executive in the performance of the Executive’s duties hereunder, in accordance with policies which may be adopted from time to time by the Company, following presentation by the Executive of an itemized account, including reasonable substantiation, of such expenses.
(c) VACATION. During the Employment Term, the Executive shall be entitled to unlimited paid time off, to be used as the Executive reasonably deems appropriate consistent with past practice and subject to the business needs of the Company and planning with the Executive’s supervisor.
7. TERMINATION. The Executive’s employment and the Employment Term shall terminate on the first of the following to occur:
(a) DUE TO THE EXECUTIVE’S DISABILITY. Upon ten (10) days’ prior written notice by the Company to the Executive of a termination due to Disability. For purposes of this Agreement, “Disability” shall be defined as the inability of the Executive to have performed the Executive’s material duties hereunder after reasonable accommodation due to a physical or mental injury, infirmity or incapacity for one hundred twenty (120) days (including weekends and holidays) in any three hundred sixty-five (365)-day period as determined by the Board in its reasonable discretion. The Executive (or the Executive’s representative) shall cooperate in all respects with the Company if a question arises as to whether the Executive has become disabled (including, without limitation, submitting to reasonable examinations by one or more medical doctors and other health care specialists selected by the Company and authorizing such medical doctors and other health care specialists to discuss the Executive’s condition with the Company).
(b) DUE TO THE EXECUTIVE’S DEATH. Automatically upon the date of death of the Executive.
(c) BY THE COMPANY FOR CAUSE. Immediately upon written notice by the Company to the Executive of a termination for Cause. “Cause” shall mean:
(i) the Executive’s willful misconduct or gross negligence in the performance of the Executive’s duties to the Parent, the Company or any of their direct or indirect subsidiaries or affiliates (collectively, the “Company Group”);
(ii) the Executive’s failure to perform the Executive’s duties to the Company Group or to follow the lawful directives of the Board (other than as a result of death or Disability) that is not cured to the satisfaction of the Board within twenty (20) days after written notice to the Executive specifying the failure;
(iii) the Executive’s indictment for, conviction of, or pleading of guilty or nolo contendere to, a felony;
(iv) the Executive’s commission of an act of moral turpitude, including, without limitation, the Executive engaging in any act of sexual misconduct at or in connection with work, including without limitation sexual harassment or sexual relations with subordinates;
(v) the Executive’s failure to cooperate in any audit or investigation of the business or financial practices of the Company Group (other than as a result of death or Disability) that is not cured to the satisfaction of the Board within five (5) days after written notice to the Executive specifying the failure;
(vi) the Executive’s performance of any act of theft, embezzlement, fraud, malfeasance, dishonesty or misappropriation of the Company Group’s property;
(vii) the Executive’s (A) use of illegal drugs or (B) abuse of alcohol that impairs the Executive’s ability to perform the Executive’s duties contemplated hereunder;
(viii) the Executive’s breach of any fiduciary duty owed to the Company Group (including, without limitation, the duty of care and the duty of loyalty) that is not cured (if susceptible to cure) to the satisfaction of the Board within twenty (20) days after written notice to the Executive specifying the breach; or
(ix) the Executive’s breach of this Agreement, any restrictive covenants (including non-competition and non-solicitation covenants) which the Executive is bound by, or any other material agreement with the Company Group, or a material violation of the Company Group’s code of conduct or other written policy, which is not cured (if susceptible to cure) to the satisfaction of the Board within twenty (20) days after written notice to the Executive specifying the breach or violation.
(d) BY THE COMPANY WITHOUT CAUSE. Immediately upon written notice by the Company to the Executive of an involuntary termination without Cause (other than for death or Disability).
(e) BY THE EXECUTIVE FOR GOOD REASON. The Executive may terminate the Executive’s employment hereunder upon written notice of a termination for Good Reason. A termination of employment by the Executive for “Good Reason” shall mean a termination by the Executive of the Executive’s employment with the Company on account of an occurrence or failure described in any or any combination of (i) through (iv) below without the Executive’s written consent, but only if (A) the Executive gives written notice to the Company specifying in reasonable detail the circumstances claimed to provide the basis for such termination and does so within twenty (20) days following the initial occurrence of such circumstance, (B) the Company fails to correct the circumstances set forth in the Executive’s written notice within twenty (20) days of receipt of such notice, and (C) the Executive terminates the Executive’s employment within twenty (20) days following the end of such twenty (20)-day cure period: (i) a material breach by the Company of any material provision of this Agreement, (ii) a reduction in the Executive’s Base Salary or target Annual Performance Bonus opportunity (unless such reduction affects all senior executive employees of the Company on a proportionate basis), (iii) the relocation of the Executive’s principal place of employment to a location greater than 45 miles from the Executive’s then-current principal place of employment, or (iv) a diminution in the Executive’s title, duties or responsibilities.
(f) BY THE EXECUTIVE WITHOUT GOOD REASON. Upon thirty (30) days’ prior written notice by the Executive to the Company of the Executive’s voluntary termination of employment without Good Reason (which the Company may, in its sole discretion, make effective earlier than any notice date, provided that the Company continues to pay the Executive’s Base Salary for the full period of the Executive’s notice).
8. CONSEQUENCES OF TERMINATION.
(a) TERMINATION DUE TO THE EXECUTIVE’S DEATH. In the event that the Executive’s employment and the Employment Term ends on account of the Executive’s death, the Executive or the Executive’s estate, as the case may be, shall be entitled to the following (with the amounts due under Sections 8(a)(i) through 8(a)(iv) hereof to be paid within
sixty (60) days following termination of employment, or such earlier date as may be required by applicable law):
(i) any earned and unpaid Base Salary through the date of termination;
(ii) any Annual Performance Bonus earned but unpaid with respect to the calendar year ending on or preceding the date of termination;
(iii) reimbursement for any unreimbursed business expenses incurred through the date of termination;
(iv) any accrued but unused vacation time in accordance with Company policy; and
(v) all other accrued and vested payments, benefits or fringe benefits to which the Executive shall be entitled under the terms of any applicable compensation arrangement or benefit, equity or fringe benefit plan or program or grant or this Agreement (collectively, Sections 8(a)(i) through 8(a)(v) hereof shall be hereafter referred to as the “Accrued Benefits”).
(b) TERMINATION DUE TO THE EXECUTIVE’S DISABILITY. In the event that the Executive’s employment and/or Employment Term ends on account of the Executive’s Disability, the Company shall pay or provide the Executive with the Accrued Benefits.
(c) TERMINATION BY THE COMPANY FOR CAUSE OR BY THE EXECUTIVE WITHOUT GOOD REASON. If the Executive’s employment and the Employment Term are terminated (i) by the Company for Cause or (ii) by the Executive without Good Reason, the Executive shall be entitled only to the Accrued Benefits. (other than the amount set forth in Section 8(a)(ii) hereof), however, if Executive’s employment is terminated under this provision within 2 years of the Effective Date, the Executive will pay to the Company $175,000.
(d) TERMINATION BY THE COMPANY WITHOUT CAUSE OR BY THE EXECUTIVE FOR GOOD REASON. If the Executive’s employment and the Employment Term are terminated (x) by the Company other than for Cause (and not due to Executive’s death or Disability) or (y) by the Executive for Good Reason, then the Company shall pay or provide the Executive with the following:
(i) the Accrued Benefits;
(ii) subject to the Executive’s continued compliance with the obligations in Sections 9, 10 and 11 hereof, an amount equal to 12 months of the Executive’s Base Salary (but not as an employee), paid monthly in accordance with the Company’s payroll practices in effect on the date of termination (the “Severance Payments”) for a period of 12 months following such termination (the “Severance Period”); provided that to the extent that the payment of any amount constitutes “nonqualified deferred compensation” for purposes of “Code Section 409A” (as defined in Section 21 hereof), any such payment scheduled to occur during the first sixty (60) days following such termination
shall not be paid until the regularly scheduled pay period following the sixtieth (60th) day following such termination and shall include payment of any amount that was otherwise scheduled to be paid prior thereto; and provided, further, that payment of the Severance Payments shall immediately cease upon the Executive beginning any subsequent employment or consulting relationship during the Severance Period; and
(iii) subject to the Executive’s continued compliance with the obligations in Sections 9, 10 and 11 hereof and the Executive’s timely election of continuation coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), the Company will reimburse the Executive for the monthly COBRA premium paid by the Executive for the Executive and the Executive’s eligible dependents (if any) until the earliest to occur of (A) the end of the Severance Period, (B) the date on which the Executive is no longer eligible for COBRA coverage, and (C) the date on which the Executive becomes eligible to participate in another plan that offers group health benefits (such reimbursement, the “COBRA Subsidy”) (the Severance Payments and the COBRA Subsidy, together, the “Severance Benefits”), provided that the Company may modify the subsidized COBRA continuation coverage contemplated hereby to the extent reasonably necessary to avoid the imposition of any excise taxes on the Company for failure to comply with the nondiscrimination requirements of Section 105(h) of the Internal Revenue Code of 1986, as amended; the Patient Protection and Affordable Care Act of 2010, as amended; and/or the Health Care and Education Reconciliation Act of 2010, as amended, and in each case, the regulations and guidance promulgated thereunder (to the extent applicable). During such time that the Executive is receiving any Severance Benefits, if (A) the Company discovers grounds constituting Cause existed prior to the Executive’s termination of employment, or (B) the Executive breaches any restrictive covenants set forth in Section 10 below, the Executive’s right to receive any Severance Benefits shall immediately cease and be forfeited, and the Executive shall immediately repay to the Company any Severance Benefits previously paid to the Executive. Any Severance Benefits provided in this Section 8(d) shall be in lieu of any termination or severance payments or benefits for which the Executive may be eligible under any of the plans, policies or programs of the Company or under the Worker Adjustment Retraining Notification Act of 1988 or any similar state statute or regulation. For the avoidance of doubt, in the event that the Executive dies while receiving Severance Benefits under this Section 8(d), the remainder of any amounts owed to the Executive shall be paid to the Executive’s estate.
(e) OTHER OBLIGATIONS. Upon any termination of the Executive’s employment with the Company, the Executive shall be deemed to have resigned from any position as an officer, director or fiduciary of any Company-related entity.
(f) EXCLUSIVE REMEDY. The amounts payable to the Executive following termination of employment and the Employment Term hereunder pursuant to Section 8 hereof shall be in full and complete satisfaction of the Executive’s rights under this Agreement and any other claims that the Executive may have in respect of the Executive’s employment with the
Company or any of its affiliates, and the Executive acknowledges that such amounts are fair and reasonable, and are the Executive’s sole and exclusive remedy, in lieu of all other remedies at law or in equity, with respect to the termination of the Executive’s employment hereunder or any breach of this Agreement.
9. RELEASE; SET-OFFS. Any and all amounts payable and benefits or additional rights provided pursuant to this Agreement beyond the Accrued Benefits shall only be payable if the Executive executes, delivers to the Company and does not revoke a general release of claims in the form provided by the Company. Such release shall be executed and delivered (and no longer subject to revocation, if applicable) within thirty (30) days following termination (or such longer period as may be required to obtain a full and valid release of claims under applicable law). Subject to the provisions of Section 22(b)(v) hereof, the Company’s obligations to pay the Executive amounts hereunder shall be subject to set-off, counterclaim or recoupment of amounts owed by the Executive to the Company or any of its affiliates.
10. RESTRICTIVE COVENANTS.
(a) CONFIDENTIALITY. During the course of the Executive’s employment and service with the Company, the Executive will have access to Confidential Information. For purposes of this Agreement, “Confidential Information” means the Company Group’s or its affiliates’ confidential and/or proprietary information and/or trade secrets that have been developed or used and/or will be developed and that cannot be obtained readily by third parties from outside sources, including, by way of example and without limitation, all data, information, ideas, concepts, discoveries, trade secrets, inventions (whether or not patentable or reduced to practice), innovations, improvements, know-how, developments, techniques, methods, processes, treatments, drawings, sketches, specifications, designs, patterns, models, plans and strategies, customers, suppliers, pricing, acquisition targets or strategies, and all other confidential or proprietary information or trade secrets in any form or medium (whether merely remembered or embodied in a tangible or intangible form or medium) whether now or hereafter existing, relating to or arising from the past, current or potential business, activities and/or operations of the Company Group or any of its affiliates, including, without limitation, any such information relating to or concerning finances, sales, marketing, advertising, transition, promotions, pricing, personnel, customers, suppliers, vendors, raw partners and/or competitors. The Executive agrees that the Executive shall not, directly or indirectly, use, make available, sell, disclose or otherwise communicate to any person, other than in the course of the Executive’s assigned duties and for the benefit of the Company Group, either during the period of the Executive’s employment or service or at any time thereafter, any Confidential Information or other confidential or proprietary information received from third parties subject to a duty on the Company Group’s and its affiliates’ part to maintain the confidentiality of such information, and to use such information only for certain limited purposes, in each case, which shall have been obtained by the Executive during the Executive’s employment by or service to the Company (or any predecessor). The foregoing shall not apply to information that (i) was known to the public prior to its disclosure to the Executive; (ii) becomes generally known to the public subsequent to disclosure to the Executive through no wrongful act of the Executive or any representative of the
Executive; or (iii) the Executive is required to disclose by applicable law, regulation or legal process (provided that the Executive provides the Company with prior notice of the contemplated disclosure and reasonably cooperates with the Company at the Company’s expense in seeking a protective order or other appropriate protection of such information). The terms and conditions of this Agreement shall remain strictly confidential, and the Executive hereby agrees not to disclose the terms and conditions hereof to any person or entity, other than immediate family members, legal advisors or personal tax or financial advisors, or prospective future employers, as to the latter, solely for the purpose of disclosing the limitations on the Executive’s conduct imposed by the provisions of this Section 10 who, in each case, agree to keep such information confidential.
(b) NON-COMPETITION. The Executive acknowledges that (i) the Executive performs services of a unique nature for the Company Group, and that the Executive’s performance of such services to a competing business may result in irreparable harm to the Company Group, (ii) the Executive has had and will continue to have access to Confidential Information which, if disclosed, may unfairly and inappropriately assist in competition against the Company Group or any of its affiliates, (iii) in the course of the Executive’s employment by a competitor, the Executive may inevitably use or disclose such Confidential Information, (iv) the Company Group and its affiliates have substantial relationships with their customers and the Executive has had and may continue to have access to these customers, (v) the Executive has received and will receive specialized training from the Company Group and its affiliates, and (vi) the Executive has generated and will continue to generate goodwill for the Company Group and its affiliates in the course of the Executive’s employment and service. Accordingly, during the Executive’s employment or service with the Company Group and for a period of two (2) years thereafter (the “Restricted Period”), the Executive agrees that the Executive will not, directly or indirectly, own, manage, operate, control, be employed by (whether as an employee, consultant, independent contractor or otherwise, and whether or not for compensation) or render services to any person, firm, corporation or other entity, in whatever form, engaged in any business that competes with, at the date of termination, the then present business of the Company Group (which on the date of this Agreement is an outdoor products company that manufactures, markets, sells, and distributes fire pits, stoves, grills, casual men’s clothing and weekend wear, as well as kayaks, paddleboards and related products) (the “Restricted Business”) within (I) the United States or (II) any other country in which the Company Group conducts the Restricted Business during the Executive’s employment or service with the Company Group during the Restricted Period. Notwithstanding the foregoing, nothing herein shall prohibit the Executive from being a passive owner of not more than five percent (5%) of the equity securities of a publicly traded corporation or privately held company engaged in a business that is in competition with the Company Group or any of its affiliates, so long as the Executive has no active participation in the business of such corporation and does not increase any current holdings or make new investments in privately held entities.
(c) NON-SOLICITATION; NON-INTERFERENCE. During the Restricted Period, the Executive agrees that the Executive shall not, except in the furtherance of the Executive’s duties hereunder, directly or indirectly, individually or on behalf of any other person,
firm, corporation or other entity, (i) solicit, aid or induce any customer of the Company Group or any of its affiliates to purchase goods or services related to the Restricted Business from another person, firm, corporation or other entity or assist or aid any other person or entity in identifying or soliciting any such customer, (ii) solicit, aid or induce any employee, representative or agent of the Company Group or any of its affiliates to leave such employment or retention or to accept employment with or render services to or with any other person, firm, corporation or other entity unaffiliated with the Company Group or hire or retain any such employee, representative or agent, or take any action to materially assist or aid any other person, firm, corporation or other entity in identifying, hiring or soliciting any such employee, representative or agent; or (iii) intentionally interfere, or intentionally aid or induce any other person or entity in interfering, with the relationship between the Company Group or any of its affiliates and any of their respective vendors, joint venturers or licensors which causes harm to the Company Group. An employee, representative or agent shall be deemed covered by this Section 10(c) while so employed or retained and for a period of twelve (12) months thereafter. Notwithstanding the foregoing, the provisions of this Section 10(c) shall not be violated by general advertising or solicitation not specifically targeted at Company Group-related persons or entities.
(d) NON-DISPARAGEMENT. The Executive agrees not to, at any time, make negative comments or otherwise disparage the Company Group or its officers, directors, employees, shareholders, members, agents or products other than in the good faith performance of the Executive’s duties to the Company. The foregoing shall not be violated by truthful statements in response to legal process, required governmental testimony or filings, or administrative or arbitral proceedings (including, without limitation, depositions in connection with such proceedings).
(e) INVENTIONS.
(i) The Executive acknowledges and agrees that all ideas, methods, inventions, discoveries, improvements, work products, developments, software, know-how, processes, techniques, methods, works of authorship and other work product, whether patentable or unpatentable, (A) that are reduced to practice, created, invented, designed, developed, contributed to, or improved with the use of any Company Group resources and/or within the scope of the Executive’s work with the Company Group and that are made or conceived by the Executive, solely or jointly with others, during the period of the Executive’s employment or service with the Company Group (or any of its predecessors in interest), whether before or after the Effective Date, or (B) suggested by any work that the Executive performs in connection with the Company Group (or any of its predecessors in interest), either while performing the Executive’s duties with the Company Group (or any of its predecessors in interest) or on the Executive’s own time, but only insofar as they are related to the Executive’s work as an employee or other service provider to the Company Group (or any of its predecessors in interest) (the “Inventions”), shall belong exclusively to the Company Group (or its designee), whether or not patent or other applications for intellectual property protection are filed thereon. The Executive will keep full and complete written records (the “Records”), in the manner
prescribed by the Company Group, of all Inventions, and will promptly disclose all Inventions completely and in writing to the Company Group. The Records shall be the sole and exclusive property of the Company Group, and the Executive will surrender them upon the termination of the Employment Term, or upon the Company Group’s request. The Executive hereby irrevocably conveys, transfers and assigns to the Company Group the Inventions and all patents or other intellectual property rights that may issue thereon in any and all countries, whether during or subsequent to the Employment Term, together with the right to file, in the Executive’s name or in the name of the Company Group (or its designee), applications for patents and equivalent rights (the “Applications”). The Executive will, at any time during and subsequent to the Employment Term, make such applications, sign such papers, take all rightful oaths, and perform all other acts as may be reasonably requested from time to time by the Company Group to perfect, record, enforce, protect, patent or register the Company Group’s rights in the Inventions, all without additional compensation to the Executive from the Company Group. The Executive will also execute assignments to the Company Group (or its designee) of the Applications, and give the Company Group and its attorneys all reasonable assistance (including the giving of testimony) to obtain the Inventions for the Company Group’s benefit, all without additional compensation to the Executive from the Company Group, but entirely at the Company Group’s expense.
(ii) In addition, the Inventions will be deemed Work for Hire, as such term is defined under the copyright laws of the United States, on behalf of the Company Group and the Executive agrees that the Company Group will be the sole owner of the Inventions, and all underlying rights therein, in all media now known or hereinafter devised, throughout the universe and in perpetuity without any further obligations to the Executive. If the Inventions, or any portion thereof, are deemed not to be Work for Hire, or the rights in such Inventions do not otherwise automatically vest in the Company Group, the Executive hereby irrevocably conveys, transfers and assigns to the Company Group, all rights, in all media now known or hereinafter devised, throughout the universe and in perpetuity, in and to the Inventions, including, without limitation, all of the Executive’s right, title and interest in the copyrights (and all renewals, revivals and extensions thereof) to the Inventions, including, without limitation, all rights of any kind or any nature now or hereafter recognized, including, without limitation, the unrestricted right to make modifications, adaptations and revisions to the Inventions, to exploit and allow others to exploit the Inventions and all rights to sue at law or in equity for any infringement, or other unauthorized use or conduct in derogation of the Inventions, whether known or unknown as of the Effective Date, including, without limitation, the right to receive all proceeds and damages from any of the foregoing. In addition, the Executive hereby waives any so-called “moral rights” with respect to the Inventions. To the extent that the Executive has any rights in the results and proceeds of the Executive’s service to the Company Group that cannot be assigned in the manner described herein, the Executive agrees to unconditionally waive the enforcement of such rights. The Executive hereby waives any and all currently existing and future monetary rights in and
to the Inventions and all patents and other registrations for intellectual property that may issue thereon, including, without limitation, any rights that would otherwise accrue to the Executive’s benefit by virtue of the Executive being an employee of or other service provider to the Company Group (or any of its predecessors in interest).
(iii) 18 U.S.C. §1833(b) provides: “An individual shall not be held criminally or civilly liable under any Federal or State trade secret law for the disclosure of a trade secret that (A) is made (i) in confidence to a Federal, State, or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (B) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.” Nothing in this Agreement is intended to conflict with 18 U.S.C. §1833(b) or create liability for disclosures of trade secrets that are expressly allowed by 18 U.S.C. §1833(b). Accordingly, the parties to this Agreement have the right to disclose in confidence trade secrets to federal, state, and local government officials, or to an attorney, for the sole purpose of reporting or investigating a suspected violation of law. The parties also have the right to disclose trade secrets in a document filed in a lawsuit or other proceeding, but only if the filing is made under seal and protected from public disclosure.
(f) RETURN OF COMPANY PROPERTY. On the date of the Executive’s termination of employment with the Company Group for any reason (or at any time prior thereto at the Company Group’s request), the Executive shall return all property belonging to the Company Group or its affiliates (including, but not limited to, any Company Group-provided laptops, computers, cell phones, wireless electronic mail devices or other equipment, or documents and property belonging to the Company Group).
(g) REASONABLENESS OF COVENANTS. In signing this Agreement, the Executive gives the Company Group assurance that the Executive has carefully read and considered all of the terms and conditions of this Agreement, including the restraints imposed under this Section 10. The Executive agrees that these restraints are necessary for the reasonable and proper protection of the Company Group and its affiliates and their Confidential Information and that each and every one of the restraints is reasonable in respect of subject matter, length of time and geographic area, and that these restraints, individually or in the aggregate, will not prevent the Executive from obtaining other suitable employment during the period in which the Executive is bound by the restraints. The Executive acknowledges that each of these covenants has a unique, very substantial and immeasurable value to the Company Group and its affiliates and that the Executive has sufficient assets and skills to provide a livelihood while such covenants remain in force. The Executive further covenants that the Executive will not challenge the reasonableness or enforceability of any of the covenants set forth in this Section 10. It is also agreed that each of the Company Group’s affiliates will have the right to enforce all of the Executive’s obligations to that affiliate under this Agreement, including without limitation pursuant to this Section 10.
(h) REFORMATION. If it is determined by a court of competent jurisdiction in any state that any restriction in this Section 10 is excessive in duration or scope or is unreasonable or
unenforceable under applicable law, it is the intention of the parties that such restriction may be modified or amended by the court to render it enforceable to the maximum extent permitted by the laws of that state.
(i) TOLLING. In the event of any violation of the provisions of this Section 10 by the Executive, the Executive acknowledges and agrees that the post-termination restrictions contained in this Section 10 shall be extended by a period of time equal to the period of such violation, it being the intention of the parties hereto that the running of the applicable post-termination restricted period shall be tolled during any period of such violation.
(j) SURVIVAL OF PROVISIONS. The obligations contained in this Section 10 and Section 11 hereof shall survive the termination or expiration of the Employment Term and the Executive’s employment or service with the Company Group and shall be fully enforceable thereafter.
11. COOPERATION. Upon the receipt of reasonable notice from the Company Group (including its outside counsel), the Executive agrees that while employed by, or providing services to, the Company Group and thereafter, the Executive will respond and provide information with regard to matters in which the Executive has knowledge as a result of the Executive’s employment or service with the Company Group, and will provide reasonable assistance to the Company Group, its affiliates and their respective representatives in defense of all claims that may be made against the Company Group or its affiliates, and will assist the Company Group and its affiliates in the prosecution of all claims that may be made by the Company Group or its affiliates, to the extent that such claims may relate to the period of the Executive’s employment or service with the Company Group. The Executive agrees to promptly inform the Company Group if the Executive becomes aware of any lawsuit involving such claims that is likely to be filed or threatened against the Company Group or its affiliates. The Executive also agrees to promptly inform the Company Group (to the extent that the Executive is legally permitted to do so) if the Executive is asked to assist in any investigation of the Company Group or its affiliates (or their actions), regardless of whether a lawsuit or other proceeding has then been filed against the Company Group or its affiliates with respect to such investigation, and shall not do so unless legally required. Upon presentation of appropriate documentation, the Company shall reimburse the Executive for any reasonable expenses the Executive incurs in connection with the Executive’s cooperation under this provision.
12. EQUITABLE RELIEF AND OTHER REMEDIES. The Executive acknowledges and agrees that the Company Group’s remedies at law for a breach or threatened breach of any of the provisions of Sections 10 or 11 hereof would be inadequate and, in recognition of this fact, the Executive agrees that, in the event of such a breach or threatened breach, in addition to any remedies at law, the Company Group shall be entitled to obtain equitable relief in the form of specific performance, a temporary restraining order, a temporary or permanent injunction or any other equitable remedy which may then be available, without the necessity of showing actual monetary damages or the posting of a bond or other security. In the event of a violation by the Executive of Section 10 or 11 hereof, any severance being paid to the
Executive pursuant to this Agreement or otherwise shall immediately cease, and any severance previously paid to the Executive shall be immediately repaid to the Company Group.
13. WHISTLEBLOWER PROTECTION. The Executive understands that nothing contained in this Agreement limits the Executive’s ability to file a charge or complaint with the Equal Employment Opportunity Commission, the National Labor Relations Board, the Occupational Safety and Health Administration, the Securities and Exchange Commission or any other federal, state or local governmental agency or commission (“Government Agencies”). The Executive further understands that this Agreement does not limit the Executive’s ability to communicate with any Government Agencies or otherwise participate in any investigation or proceeding that may be conducted by any Government Agency, including providing documents or other information, without notice to the Company. This Agreement does not limit the Executive’s right to receive an award for information provided to any Government Agencies.
14. NO ASSIGNMENTS. This Agreement is personal to each of the parties hereto. Except as provided in this Section 14 hereof, no party may assign or delegate any rights or obligations hereunder without first obtaining the written consent of the other party hereto. The Company may assign this Agreement to its affiliate or to any successor to all or substantially all of the business and/or assets of the Company; provided that the Company shall require such affiliate or successor to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, “Company” shall mean the Company and any affiliate or successor to its business and/or assets, which assumes and agrees to perform the duties and obligations of the Company under this Agreement by operation of law or otherwise.
15. NOTICE. For purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given (a) on the date of delivery, if delivered by hand, (b) on the date of transmission, if delivered by email, (c) on the first business day following the date of deposit, if delivered by guaranteed overnight delivery service, or (d) on the fourth business day following the date delivered or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
At the address shown in the books and records of the Company.
If to the Company or Parent:
Solo Brands, LLC
P.O. Box 726
Grapevine, TX 76099
Attention: Legal Department
Email: john@solobrands.com; kent.christensen@solobrands.com
With a copy, which shall not constitute notice to:
c/o Summit Partners, L.P.
222 Berkeley St, 18th Floor
Boston, MA 02116
Email: mhamilton@summitpartners.com; pfurer@summitpartners.com
Kirkland & Ellis LLP
200 Clarendon Street
Boston, MA 02116
Attn: Matthew D. Cohn, P.C.; Dave Gusella
Email: matthew.cohn@kirkland.com; dave.gusella@kirkland.com
or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt.
16. SECTION HEADINGS; INCONSISTENCY. The section headings used in this Agreement are included solely for convenience and shall not affect, or be used in connection with, the interpretation of this Agreement. In the event of any inconsistency between the terms of this Agreement and any form, award, plan or policy of the Company Group, the terms of this Agreement shall govern and control.
17. SEVERABILITY. The provisions of this Agreement shall be deemed severable. The invalidity or unenforceability of any provision of this Agreement in any jurisdiction shall not affect the validity, legality or enforceability of the remainder of this Agreement in such jurisdiction or the validity, legality or enforceability of any provision of this Agreement in any other jurisdiction, it being intended that all rights and obligations of the parties hereunder shall be enforceable to the fullest extent permitted by applicable law.
18. COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.
19. GOVERNING LAW; JURISDICTION. This Agreement, the rights and obligations of the parties hereto, and all claims or disputes relating thereto, shall be governed by and construed in accordance with the laws of the State of Texas, without regard to the choice of law provisions thereof. Each of the parties agrees that any dispute between the parties shall be resolved only in the courts of the State of Texas or the United States District Court for the Northern District of Texas and the appellate courts having jurisdiction of appeals in such courts. In that context, and without limiting the generality of the foregoing, each of the parties hereto irrevocably and unconditionally (a) submits in any proceeding relating to this Agreement or the Executive’s employment by the Company or any affiliate, or for the recognition and enforcement of any judgment in respect thereof (a “Proceeding”), to the exclusive jurisdiction of the courts of the State of Texas, the court of the United States of America for the Northern District of Texas, and appellate courts having jurisdiction of appeals from any of the foregoing, and agrees that all claims in respect of any such Proceeding shall be heard and determined in such Texas State court or, to the extent permitted by law, in such federal court, (b) consents that any such Proceeding may and shall be brought in such courts and waives any objection that the Executive or the Company may now or thereafter have to the venue or jurisdiction of any such Proceeding in any such court or that such Proceeding was brought in an inconvenient court and agrees not to plead or claim the same, (c) WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY PROCEEDING (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE EXECUTIVE’S EMPLOYMENT BY THE COMPANY OR ANY AFFILIATE OF THE COMPANY, OR THE EXECUTIVE’S OR THE COMPANY’S PERFORMANCE UNDER, OR THE ENFORCEMENT OF, THIS
AGREEMENT, (d) agrees that service of process in any such Proceeding may be effected by mailing a copy of such process by registered or certified mail (or any substantially similar form of mail), postage prepaid, to such party at the Executive’s or the Company’s address as provided in Section 15 hereof, and (e) agrees that nothing in this Agreement shall affect the right to effect service of process in any other manner permitted by the laws of the State of Texas. Each party shall pay all of its own costs and expenses, including, without limitation, its own legal fees and expenses.
20. MISCELLANEOUS. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and such officer or director of the Company as may be designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. This Agreement together with all exhibits hereto, as well as any additional agreements referenced herein, sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersedes any and all prior agreements or understandings between the Executive and the Company with respect to the subject matter hereof. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement.
21. REPRESENTATIONS. The Executive hereby represents and warrants to the Company that (a) the Executive has the legal right to enter into this Agreement and to perform all of the obligations on the Executive’s part to be performed hereunder in accordance with its terms, and (b) the Executive is not a party to any agreement or understanding, written or oral, and is not subject to any restriction, which, in either case, could prevent the Executive from entering into this Agreement or performing all of the Executive’s duties and obligations hereunder.
22. TAX MATTERS.
(a) WITHHOLDING. The Company Group may withhold from any and all amounts payable under this Agreement or otherwise such federal, state and local taxes as may be required to be withheld pursuant to any applicable law or regulation.
(b) SECTION 409A COMPLIANCE.
(i) To the extent applicable, the intent of the parties is that payments and benefits under this Agreement comply with Internal Revenue Code Section 409A and the regulations and guidance promulgated thereunder (collectively, “Code Section 409A”) and, accordingly, to the maximum extent permitted, this Agreement shall be interpreted to be in compliance therewith. To the extent that any provision hereof is modified in order to comply with Code Section 409A, such modification shall be made in good faith and shall, to the maximum extent reasonably possible, maintain the original intent and economic benefit to the Executive and the Company of the applicable provision without violating the provisions of Code Section 409A. In no event whatsoever shall the Company Group be liable for any additional tax, interest or penalty that may be imposed on the Executive by Code Section 409A or damages for failing to comply with Code Section 409A.
(ii) A termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement providing for the payment of any amount or benefit upon or following a termination of employment unless such termination is also a
“separation from service” within the meaning of Code Section 409A and, for purposes of any such provision of this Agreement, references to a “termination,” “termination of employment” or like terms shall mean “separation from service.” Notwithstanding anything to the contrary in this Agreement, if the Executive is deemed on the date of termination to be a “specified employee” within the meaning of that term under Code Section 409A(a)(2)(B), then with regard to any payment or the provision of any benefit that is considered “nonqualified deferred compensation” under Code Section 409A payable on account of a “separation from service,” such payment or benefit shall not be made or provided until the date which is the earlier of (A) the expiration of the six (6)-month period measured from the date of such “separation from service” of the Executive, and (B) the date of the Executive’s death, to the extent required under Code Section 409A. Upon the expiration of the foregoing delay period, all payments and benefits delayed pursuant to this Section 21(b)(ii) (whether they would have otherwise been payable in a single sum or in installments in the absence of such delay) shall be paid or reimbursed to the Executive in a lump sum, and all remaining payments and benefits due under this Agreement shall be paid or provided in accordance with the normal payment dates specified for them herein.
(iii) To the extent that reimbursements or other in-kind benefits under this Agreement constitute “nonqualified deferred compensation” for purposes of Code Section 409A, (A) all expenses or other reimbursements hereunder shall be made on or prior to the last day of the taxable year following the taxable year in which such expenses were incurred by the Executive, (B) any right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit, and (C) no such reimbursement, expenses eligible for reimbursement, or in-kind benefits provided in any taxable year shall in any way affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other taxable year.
(iv) For purposes of Code Section 409A, the Executive’s right to receive installment payments pursuant to this Agreement shall be treated as a right to receive a series of separate and distinct payments. Whenever a payment under this Agreement specifies a payment period with reference to a number of days, the actual date of payment within the specified period shall be within the sole discretion of the Company.
(v) Notwithstanding any other provision of this Agreement to the contrary, in no event shall any payment or benefit under this Agreement that constitutes “nonqualified deferred compensation” for purposes of Code Section 409A be subject to offset by any other amount unless otherwise permitted by Code Section 409A.
23. EFFECTIVENESS. This Agreement shall become effective as of the Effective Date listed above upon execution of all parties.
IN WITNESS WHEREOF, the parties hereto have executed this Employment Agreement as of the date first written above.
SOLO BRANDS, INC.
____/s/ John Merris_________________
John Merris
CEO of Solo Brands
SOLO BRANDS, LLC
____/s/ John Merris_________________
John Merris
CEO of Solo Brands
EXECUTIVE
___/s/ Somer Webb__________________
Somer Webb
Solo Brands Announces First Quarter Fiscal 2022 Results
Reaffirms 2022 Guidance
GRAPEVINE, Texas: Solo Brands, Inc. (NYSE: DTC) (“Solo Brands” or “the Company”), a direct-to-consumer platform for rapidly growing lifestyle brands, today announced its financial results for the three month period ended March 31, 2022.
First Quarter 2022 Highlights Compared to First Quarter 20211
•Net sales of $82.2 million, up $13.1 million or 19.0%
•Net loss of $3.2 million, down $25.5 million
•EPS - basic and diluted of $(0.03) for the first quarter of 2022
•Adjusted net income2 of $11.1 million, down $15.7 million, or 58.7%
•Adjusted EBITDA2 of $14.0 million, down $14.6 million, or 51.1%
•Adjusted EPS2 of $0.19 for the first quarter of 2022
“Despite a challenging macro environment and difficult year ago comparisons, we generated a 19% increase in sales during the first quarter, including the effect of acquisitions. We were pleased with the strong momentum in our wholesale channel and are leaning into this demand,” said John Merris, CEO of Solo Brands. “Looking ahead, we are excited about the continued opportunity for organic growth and strong pipeline of innovative products we plan to roll out in the second half of the year.”
Operating Results for the Three Months Ended March 31, 20221
Net sales increased 19.0% to $82.2 million, compared to $69.1 million in the first quarter of 2021. The increase was driven by the acquisitions and strong wholesale results as the direct-to-consumer channel completed its most difficult comparisons for the year. These increases were partially offset by year on year changes in deferred revenue. The first quarter of 2021 reflected an increase in revenue recognized related to an inflated deferred revenue balance at the end of 2020 due to supply chain disruptions.
•Direct-to-consumer revenues decreased 3.3% to $60.2 million compared to $62.3 million in the first quarter of 2021.
•Wholesale revenues increased 223.6% to $22.0 million compared to $6.8 million in the first quarter of 2021.
Gross profit increased 5.1% to $48.9 million, compared to $46.5 million in the first quarter of 2021. Adjusted gross profit2 increased 16.6% to $55.0 million compared to $47.1 million in the same period of the prior year, reflecting the impact of purchase accounting adjustments related to the transactions. Gross margin decreased 7.9% to 59.4%. Adjusted gross margin2 decreased to 66.9% compared to 68.2% in the same period in 2021 due to increased freight rates and higher logistics costs.
Selling, general and administrative (SG&A) expenses increased to $45.6 million, compared to $18.7 million in the first quarter of 2021. $12.4 million of the increase was due to the acquisitions. Additionally, SG&A increased by $6.7 million in employee costs as a result of equity-based compensation and increased headcount and a $3.4 million increase in advertising and marketing spend. The remaining increase in SG&A was primarily related to smaller increases including the following: professional services primarily as a result of the audit of the 2021 Form 10-K, rent as a result of a new global headquarters facility, insurance as a result of becoming a public company, and seller fees.
Depreciation and amortization expenses increased to $5.9 million compared to $3.6 million in the first quarter of 2021. The increase was primarily due to an increase in amortization expense of $1.6 million to $5.3 million driven by increases in definite-lived intangible assets as a result of the acquisitions.
Loss per Class A common stock basic and diluted is $(0.03). 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 in the unaudited consolidated statements of operations for more information.
Adjusted EPS2 Our weighted average basic and diluted shares were 63,400,772. Our adjusted EPS for the first quarter of 2022 was $0.19.
Balance Sheet
Cash and cash equivalents at the end of the first quarter totaled $15.9 million, compared to $25.1 million at December 31, 2021.
Outstanding borrowings were $52.5 million under the Revolving Credit Facility, and $98.8 million under the Term Loan Agreement as of March 31, 2022. The borrowing capacity on the Revolving Credit Facility was $350 million as of March 31, 2022, leaving $297.5 million of availability.
Inventory at the end of the first quarter was $126.5 million, compared to $102.3 million at December 31, 2021. We are pleased with the level and quality of our inventory as we move into our historical second largest selling season of the year in the second quarter. In addition, in light of global pressures on supply chain, including rising freight costs, 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 reaffirm our guidance for the year as follows:
Guidance for Full Fiscal Year 2022
Total revenue is expected to be between $540 million to $570 million.
Adjusted EBITDA* is expected to be between $121 million to $132 million.
The Company’s full fiscal year 2022 guidance is based on a number of assumptions that are subject to change and many of which are outside the Company’s control. If actual results vary from these assumptions, the Company’s expectations may change. There can be no assurance that the Company will achieve these results.
* 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, equity-based compensation with respect to future grants and forfeitures, which could materially affect the computation of forward-looking GAAP net income, and are inherently uncertain and depend on various factors, some of which are outside of the Company’s control.
1 The operating results in the three month period ended March 31, 2022 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 three month period ended March 31, 2021.
2 This release includes references to non-GAAP financial measures. Refer to “Non-GAAP Financial Measures” later in this release for the definitions of the non-GAAP financial measures presented and a reconciliation of these measures to their closest comparable GAAP measures.
Conference Call Details
A conference call to discuss the Company's first quarter results is scheduled for May 12, 2022, at 8:30 a.m. ET. To participate, please dial 844-200-6205 or +1 929-526-1599 for international callers, conference ID 147929. 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 832858. A replay of the webcast will also be available approximately two hours after the conclusion of the call on the Company's website at https://investors.solobrands.com where it will remain available for one year.
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 direct-to-consumer 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.
Contact
Bruce Williams
Investors@solobrands.com
332-242-4303
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 year 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,” “guidance,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. These statements are neither promises nor guarantees, and 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 any subsequent Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, or other filings we make 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. Forward-looking statements speak only as of the date the statements are made and are based on information available to Solo Brands at the time those statements are made and/or management's good faith belief as of that time with respect to future events. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.
Availability of Information on Solo Brands’ Website and Social Media Profiles
Investors and others should note that Solo Brands routinely announces material information to investors and the marketplace using SEC filings, press releases, public conference calls, webcasts and the Solo Brands investors website at https://investors.solobrands.com. We also intend to use the social media profiles listed below as a means of disclosing information about us to our customers, investors and the public. While not all of the information that the Company posts to the Solo Brands investors website or to social media profiles is of a material nature, some information could be deemed to be material. Accordingly, the Company encourages investors, the media, and others interested in Solo Brands to review the information that it shares at the “Investors” link located at the top of the page on https://solobrands.com and to regularly follow our social media profiles. Users may automatically receive email alerts and other information about Solo Brands when enrolling an email address by visiting "Investor Email Alerts" in the "Resources" section of Solo Brands investor website at https://investors.solobrands.com.
Social Media Profiles:
https://linkedin.com/company/solo-brands/
https://instagram.com/solobrands/
SOLO BRANDS, INC.
Consolidated Statements of Operations and Comprehensive Income
(Unaudited)
| | | | | | | | | | | | | | | |
| Three Months Ended | | |
| (In thousands, except per unit data) | March 31, 2022 | | March 31, 2021 | | | | |
| Net sales | $ | 82,203 | | | $ | 69,071 | | | | | |
| Cost of goods sold | 33,350 | | | 22,607 | | | | | |
| Gross profit | 48,853 | | | 46,464 | | | | | |
| Operating expenses | | | | | | | |
| Selling, general & administrative expenses | 45,644 | | | 18,734 | | | | | |
| Depreciation and amortization expenses | 5,935 | | | 3,593 | | | | | |
| Other operating expenses | 500 | | | 122 | | | | | |
| Total operating expenses | 52,079 | | | 22,449 | | | | | |
| Income (loss) from operations | (3,226) | | | 24,015 | | | | | |
| Non-operating expenses | | | | | | | |
| Interest expense | 796 | | | 1,730 | | | | | |
| Other non-operating expenses | 91 | | | 7 | | | | | |
| Total non-operating expenses | 887 | | | 1,737 | | | | | |
| Income (loss) before income taxes | (4,113) | | | 22,278 | | | | | |
| Income tax expense (benefit) | (878) | | | 44 | | | | | |
| Net income (loss) | (3,235) | | | 22,234 | | | | | |
| | | | | | | |
| Less: net income (loss) attributable to noncontrolling interest | (1,200) | | | — | | | | | |
| Net income (loss) attributable to Solo Brands, Inc. | $ | (2,035) | | | $ | 22,234 | | | | | |
| | | | | | | |
| Other comprehensive income (loss) | | | | | | | |
| Foreign currency translation, net of tax | $ | 24 | | | $ | — | | | | | |
| Comprehensive income (loss) | (3,211) | | | 22,234 | | | | | |
| Less: comprehensive income (loss) attributable to noncontrolling interests | 8 | | | — | | | | | |
| Comprehensive income (loss) attributable to Solo Brands, Inc. | $ | (3,203) | | | $ | 22,234 | | | | | |
| | | | | | | |
| Net income (loss) per unit | | | | | | | |
| Basic | $ | (0.03) | | * | | | | |
| Diluted | $ | (0.03) | | * | | | | |
| | | | | | | |
| Weighted-average units outstanding | | | | | | | |
| Basic | 63,401 | | | * | | | | |
| Diluted | 63,401 | | | * | | | | |
* The Company analyzed the calculation of earnings per unit for the periods prior to the reorganization transactions and determined that it resulted in values that would not be meaningful to the users of these unaudited consolidated financial statements. Therefore, earnings per unit information has not been presented for the three month period ended March 31, 2021.
SOLO BRANDS, INC.
Consolidated Balance Sheets
(Unaudited)
| | | | | | | | | | | |
| (In thousands) | March 31, 2022 | | December 31, 2021 |
| ASSETS | | | |
| Current assets | | | |
| Cash and cash equivalents | $ | 15,863 | | | $ | 25,101 | |
| Accounts receivable, net | 25,866 | | | 21,513 | |
| Inventory | 126,518 | | | 102,335 | |
| Prepaid expenses and other current assets | 12,179 | | | 9,889 | |
| Total current assets | 180,426 | | 158,838 |
| Non-current assets | | | |
| Property and equipment, net | 11,327 | | | 10,603 | |
| Intangible assets, net | 252,334 | | | 257,234 | |
| Goodwill | 410,559 | | | 410,559 | |
| Other non-current assets | 27,577 | | | 506 | |
| Total non-current assets | 701,797 | | 678,902 |
| Total assets | $ | 882,223 | | $ | 837,740 |
| | | |
| LIABILITIES AND MEMBERS’ EQUITY | | | |
| Current liabilities | | | |
| Accounts payable | $ | 13,289 | | | $ | 11,774 | |
| Accrued expenses and other current liabilities | 31,778 | | | 28,150 | |
| | | |
| Deferred revenue | 3,716 | | | 3,524 | |
| Current portion of long-term debt | 3,750 | | | 3,125 | |
| Total current liabilities | 52,533 | | 46,573 |
| Non-current liabilities | | | |
| Long-term debt, net | 143,988 | | | 125,023 | |
| Deferred tax liability | 91,244 | | | 91,244 | |
| Other non-current liabilities | 23,351 | | | 729 | |
| Total non-current liabilities | 258,583 | | 216,996 |
| | | |
Commitments and contingencies (Note 12) | | | |
| | | |
| Shareholders’ equity | | | |
Class A common stock, par value $0.001 per share; 475,000,000 shares authorized; 63,400,772 and 63,397,635 shares issued and outstanding | 63 | | | 63 | |
Class B common stock, par value $0.001 per share; 50,000,000 shares authorized; 31,269,421 and 31,178,815 shares issued and outstanding | 31 | | | 31 | |
| | | |
| Additional paid-in capital | 353,008 | | | 350,088 | |
| Accumulated other comprehensive income | 22 | | | 6 | |
| Retained earnings | 8,656 | | | 10,691 | |
| Shareholders’ equity | 361,780 | | | 360,879 | |
| Shareholders’ equity attributable to non-controlling interests | 209,327 | | 213,292 |
| Total shareholders’ equity | 571,107 | | 574,171 |
| Total liabilities and shareholders’ equity | $ | 882,223 | | $ | 837,740 |
| | | |
SOLO BRANDS, INC.
Consolidated Statements of Cash Flows
(Unaudited)
| | | | | | | | | | | |
| Three Months Ended |
| (In thousands) | March 31, 2022 | | March 31, 2021 |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | |
| Net income (loss) | $ | (3,235) | | | $ | 22,234 | |
| Adjustments to reconcile net income (loss) to net cash and cash equivalents provided by (used in) operating activities | | | |
| Amortization of intangible assets | 5,258 | | | 3,533 | |
| Equity-based compensation | 4,437 | | | 229 | |
| Operating lease right-of-use assets expense | 1,321 | | | — | |
| Depreciation | 677 | | | 60 | |
| Amortization of debt issuance costs | 215 | | | 90 | |
| | | |
| | | |
| Bad debt expense | 35 | | | 21 | |
| | | |
| | | |
| | | |
| | | |
| Changes in assets and liabilities | | | |
| Accounts receivable | (4,422) | | | (2,957) | |
| Inventory | (24,266) | | | (2,618) | |
| Prepaid expenses and other current assets | (2,350) | | | (684) | |
| | | |
| Accounts payable | 2,094 | | | 176 | |
| Accrued expenses and other current liabilities | 110 | | | (8,943) | |
| Deferred revenue | 192 | | | (17,069) | |
| Other non-current assets and liabilities | (5,577) | | | 122 | |
| | | |
| | | |
| | | |
| Net cash provided by (used in) operating activities | (25,511) | | | (5,806) | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | | | |
| Capital expenditures | (1,696) | | | (684) | |
| | | |
| Acquisitions, net of cash acquired | (774) | | | — | |
| Net cash provided by (used in) investing activities | (2,470) | | | (684) | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | | |
| Proceeds from long-term debt | 20,000 | | | — | |
| Repayments of long-term debt | (625) | | | (113) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Distributions to non-controlling interests | (628) | | | — | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Net cash provided by (used in) financing activities | 18,747 | | | (113) | |
| Effect of exchange rate changes on cash | (4) | | | — | |
| | | |
| | | |
| | | |
| Net change in cash and cash equivalents | (9,238) | | | (6,603) | |
| Cash and cash equivalents balance, beginning of period | 25,101 | | | 32,753 | |
| Cash and cash equivalents balance, end of period | $ | 15,863 | | | $ | 26,150 | |
| SUPPLEMENTAL DISCLOSURES: | | | |
| Cash interest paid | $ | 1,233 | | | $ | 916 | |
| Cash income taxes paid | $ | 3 | | | $ | — | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
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 equity-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, other companies may define and calculate similarly-titled non-GAAP financial measures differently than us, thereby limiting the usefulness of these non-GAAP financial measures as a comparative tool. Because of these and other limitations, you should consider our non-GAAP measures only as supplemental to other GAAP-based financial performance measures.
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 inventory fair value write-up, amortization of intangible assets, incentive unit and equity-based compensation expense, acquisition related costs, business optimization expenses, one-time transaction costs, business expansion expenses, management transition costs, 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 equity-based compensation expense, acquisition related costs, business optimization expenses, one-time transaction costs, management transition costs, and business expansion expenses. We calculate adjusted EBITDA margin as adjusted EBITDA divided by net sales.
Adjusted EPS
We calculate adjusted EPS as adjusted net income, as defined above, divided by weighted average diluted shares as calculated under U.S. GAAP.
SOLO BRANDS, INC.
Reconciliation of Non-GAAP Financial Information to GAAP
(Unaudited) (In thousands except per share amounts)
The following table reconciles gross profit to adjusted gross profit for the periods presented:
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| (dollars in thousands) | 2022 | | 2021 | | | | |
| Gross profit | $ | 48,853 | | | $ | 46,464 | | | | | |
Inventory fair value write-up(1) | 6,105 | | | 659 | | | | | |
| Adjusted gross profit | $ | 54,958 | | | $ | 47,123 | | | | | |
| Adjusted gross profit margin (Adjusted gross profit as a % of net sales) | 66.9 | % | | 68.2 | % | | | | |
(1) Represents the fair market value write-up of inventory accounted for under ASC 805 related to the acquisitions.
The following tables reconcile the non-GAAP financial measures to their most comparable GAAP measure for the periods presented:
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| (dollars in thousands) | 2022 | | 2021 | | | | |
| Net income (loss) | $ | (3,235) | | | $ | 22,234 | | | | | |
Inventory fair value write-up(1) | 6,105 | | | 659 | | | | | |
Amortization expense | 5,258 | | | 3,533 | | | | | |
Equity based compensation expense(2) | 4,437 | | | 229 | | | | | |
Acquisition related costs(3) | 421 | | | 42 | | | | | |
Transaction costs(4) | 126 | | | 28 | | | | | |
Management transition costs(5) | 123 | | | — | | | | | |
Business optimization expense(6) | 83 | | | — | | | | | |
Business expansion expense(7) | 75 | | | 52 | | | | | |
| | | | | | | |
| | | | | | | |
Tax impact of adjusting items(8) | (2,339) | | | — | | | | | |
| Adjusted net income (loss) | $ | 11,054 | | | $ | 26,777 | | | | | |
| Adjusted EPS | $ | 0.19 | | | * | | | | |
| | | | | | | |
| (amounts per share) | | | | | | | |
Loss per Class A common stock - diluted (GAAP) | $ | (0.03) | | | * | | | | |
| | | | | | | |
| | | | | | | |
Inventory fair value write-up(1) | 0.10 | | | * | | | | |
Amortization expense | 0.08 | | | * | | | | |
Equity based compensation expense(2) | 0.07 | | | * | | | | |
Acquisition related costs(3) | 0.01 | | | * | | | | |
Transaction costs(4) | — | | | * | | | | |
Management transition costs(5) | — | | | * | | | | |
Business optimization expense(6) | — | | | * | | | | |
Business expansion expense(7) | — | | | * | | | | |
| | | | | | | |
| | | | | | | |
Tax impact of adjusting items(8) | (0.04) | | | * | | | | |
Adjusted EPS(9) | $ | 0.19 | | | * | | | | |
| | | | | | | |
| Weighted-average Class A common stock outstanding - diluted | 63,401 | | | * | | | | |
| | |
| Net income (loss) | $ | (3,235) | | | $ | 22,234 | | | | | |
Interest expense | 796 | | | 1,730 | | | | | |
Income tax expense | (878) | | | 44 | | | | | |
Depreciation and amortization expense | 5,935 | | | 3,593 | | | | | |
Inventory fair value write-up(1) | 6,105 | | | 659 | | | | | |
Equity based compensation expense(2) | 4,437 | | | 229 | | | | | |
Acquisition related costs(3) | 421 | | | 42 | | | | | |
Transaction costs(4) | 126 | | | 28 | | | | | |
Management transition costs(5) | 123 | | | — | | | | | |
Business optimization expense(6) | 83 | | | — | | | | | |
Business expansion expense(7) | 75 | | | 52 | | | | | |
| | | | | | | |
| | | | | | | |
| Adjusted EBITDA | $ | 13,988 | | | $ | 28,611 | | | | | |
| Adjusted EBITDA margin (Adjusted EBITDA as a % of net sales) | 17.0 | % | | 41.4 | % | | | | |
* The Company analyzed the calculation of earnings per unit for the periods prior to the 2021 reorganization transactions and determined that it resulted in values that would not be meaningful to the users of these consolidated financial statements. Therefore, earnings per unit information has not been presented for the period ended March 31, 2021.
(1) Represents the fair market value write-up of inventory accounted for under ASC 805 related to the acquisitions and the 2020 change in control transaction.
(2) Represents employee compensation expense associated with equity-based awards. This includes expense associated with the incentive unit awards as well as awards issued on and subsequent to the IPO including options and restricted stock units.
(3) Represents expenses that we do not believe are reflective of our ongoing operations, primarily warehouse and employee transition costs associated with the acquisitions.
(4) Represents transaction costs primarily related to professional service fees incurred in connection with the IPO.
(5) Represents costs primarily related to recruiting senior level management including a new CFO.
(6) Represents various start-up and transition costs, including warehouse optimization charges associated with new global headquarters infrastructure with new and expanded distribution facilities in Texas, Pennsylvania, and the Netherlands.
(7) Represents costs for expansion into new international and domestic markets.
(8) Represents the tax impact of adjustments calculated at the federal statutory rate of 21% less the portion of the tax impact of the adjustments attributable to noncontrolling interests. We calculated the tax impact of the adjusting items in the three month period ended March 31, 2022, as we were a limited liability company. We were not subject to corporate income taxes in the three month period ended March 31, 2021.
(9) Adjusted Earnings Per Share (“Adjusted EPS”) is calculated independently for each component and may not sum to Adjusted EPS due to rounding.
