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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with “Risk Factors” and our audited consolidated financial statements and the related notes to those statements included elsewhere in this Annual Report on Form 10-K. In addition to historical consolidated financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions.

Our discussion and analysis of the year ended December 31, 2023 compared to the year ended December 31, 2022 is included herein. Our discussion and analysis of the year ended December 31, 2022 compared to the year ended December 31, 2021 can be found in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the SEC on March 9, 2023.

Overview

We own and operate premium brands with ingenious products that we market and deliver through our direct-to-consumer (“DTC”) platform and wholesale partnerships. We aim to help our customers enjoy good moments that create lasting memories. We consistently deliver innovative, high-quality products that are loved by our customers and revolutionize the outdoor experience, build community and help everyday people reconnect with what matters most.

For the year ended December 31, 2023, we experienced a decrease in our net sales from $517.6 million for the year ended December 31, 2022 to $494.8 million for the current year. The decline in net sales was primarily the result of the lack of significant new product launches in the current year when compared to the prior year, in which the Mesa and Pi pizza oven were launched. Similar to the prior year, we continued to see net sales channel mix shift from direct to consumer to wholesale, with wholesale net sales growing 45.1%. Due in part to this shift, within our direct to consumer net sales channel we have seen an increase in the number of customers purchasing accessories for our products that were purchased through our wholesale net sales channel. Further, we experienced a decline in direct to consumer net sales which can be attributed to inefficient marketing spend in the current year as we invested in marketing mediums that did not yield the anticipated returns, in contrasts to the more successful marketing investments made last year.

Results of Operations

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

Net Sales

Net sales are comprised of DTC and wholesale channel sales to retail partners. Net sales in both channels reflect the impact of partial shipments, product returns, and discounts for certain sales programs or promotions.

Our net sales have historically included a seasonal component. In the DTC channel, our historical net sales tend to be highest in our second and fourth quarters, while our wholesale channel has generated higher sales in the first and third quarters. Additionally, we expect variance in our net sales throughout the year relative to the timing of new product launches.

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Year Ended December 31, Change

The decrease in net sales for the year ended December 31, 2023 compared to the year ended December 31, 2022 was primarily driven by the lack of significant new product launches in the current year when compared to the prior year. Within the DTC channel, total orders and average order value decreased 8.1% and 12.4%, respectively, for the year ended December 31, 2023.

Partially offsetting the decrease, DTC channel net sales included $11.0 million of activity related to the businesses acquired in 2023, for which the comparative periods did not include such activity. Growth within the wholesale net sales channel is mainly attributed to the expansion of our strategic partnerships.

Cost of Goods Sold and Gross Profit

Gross profit reflects net sales less cost of goods sold, which primarily includes the purchase cost of our products from our third-party manufacturers, inbound freight and duties, costs related to manufacturing of certain of our products, product quality testing and inspection costs and depreciation on molds and equipment that we own.

Year Ended December 31, Change

Gross margin (Gross profit as a % of net sales) 61.1 % 61.5 % (0.40)

The decrease in cost of goods sold for the year ended December 31, 2023 compared to the year ended December 31, 2022 was primarily driven by reduction in freight costs, with a lower average container cost in 2023 when compared to the prior year, as well as the decline in net sales. Partially offsetting the decreases, cost of goods sold included $6.4 million of activity related to the businesses acquired in 2023, for which the comparative periods did not include such activity, as well as increases in product costs unrelated to the 2023 acquisitions.

The decrease in gross profit for the year ended December 31, 2023 compared to the year ended December 31, 2022 was primarily the result of the decrease in net sales, which simultaneously drove the decrease in cost of goods sold.

Gross margin decreased for the year ended December 31, 2023 compared to the year ended December 31, 2022, the result of the shift in sales channel mix with growth in wholesale sales, which typically have lower gross margins than DTC sales, whereas the DTC sales declined.

Selling, General, and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses consist primarily of marketing costs, wages, equity-based compensation expense, benefits costs, costs of our warehousing and logistics operations, costs of operating on third-party DTC marketplaces, professional fees and services, costs of shipping product to our customers, net one-time advertising contract termination fees and general corporate expenses.

Year Ended December 31, Change

The decrease in SG&A for the year ended December 31, 2023 compared to the year ended December 31, 2022 was driven by $0.3 million of fixed cost decreases and $9.3 million of variable cost decreases.

The fixed cost decreases for the year ended December 31, 2023 compared to the year ended December 31, 2022 were primarily the result of a $3.1 million decrease in employee costs, primarily attributable to a $3.8 million decrease in equity-based compensation, offset in part by an increase in rent of $2.7 million due to warehouse and retail store additions and an increase of $0.5 million in information technology expenses.

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The variable cost decreases for the year ended December 31, 2023 compared to the year ended December 31, 2022 were primarily the result of a $7.5 million decrease in distribution costs primarily due to decreased shipping costs and lower total orders, a $1.6 million decrease in the fair value of contingent consideration related to the current year acquisitions, a $1.6 million decrease in warehouse transition expenses due to completing the transition of the 2021 acquisitions in the prior year and a $1.0 million decrease in bad debt expenses. These variable expense decreases were offset in part by an increase of $3.5 million in advertising and marketing expense.

Depreciation and Amortization Expenses

Depreciation and amortization expenses consist of depreciation of property and equipment and amortization of definite-lived intangible assets.

Year Ended December 31, Change

The increase in amortization and the increase in depreciation for the year ended December 31, 2023 compared to the year ended December 31, 2022, was primarily related to increases in definite-lived intangible assets and additional property and equipment as a result of acquisition activity in 2023.

Impairment Charges

Impairment charges consist of impairments recorded to definite-lived intangible assets and goodwill.

Year Ended December 31, Change

The increase in impairment charges for the year ended December 31, 2023 compared to the year ended December 31, 2022 was primarily related to the goodwill impairment of $234.8 million at Solo Stove, Oru and ISLE in 2023 as a result of the decline in performance of these reporting units compared to previous forecasts versus the $27.9 million impairment for ISLE in 2022 as a result of the weakened demand for the ISLE reporting unit’s products. As a result of the same factors noted above, impairment of $14.2 million to the intangible assets of Oru and ISLE was recorded in 2023, compared to impairment of $2.7 million to the intangible asset of ISLE in 2022. For more information regarding the impairments, see Note 9, Goodwill, and Note 8, Intangible Assets, net in Item 8 of this Annual Report.

Other Operating Expenses

Other operating expenses include certain costs incurred as a result of being a public company, secondary offering completed in May 2023, acquisition-related expenses, business optimization and expansion expenses and management transition costs.

Year Ended December 31, Change

Other operating expenses increased for the year ended December 31, 2023 compared to the year ended December 31, 2022, the result of a $1.4 million increase in acquisition-related expenses as acquisition activity increased during 2023 and a $0.3 million increase in transaction-related activity, offset in part by a $0.4 million decrease in business optimization expenses as a result of non-recurring expenses incurred in 2022 resulting from IT and warehouse transition activity.

Interest Expense, Net

Interest expense, net consists primarily of interest on our Revolving Credit Facility and Term Loan.

Year Ended December 31, Change

Interest expense, net increased for the year ended December 31, 2023 compared to the year ended December 31, 2022 due to an increase in the weighted average interest rate on our total debt balance, as well as a higher average debt balance in the current year when compared to the prior year.

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Income Taxes

Income taxes represents federal, state, and local income taxes on the Company's allocable share of taxable income of Holdings, as well as Oru's and Chubbies' federal, state and foreign tax expense related to international subsidiaries. We are the sole managing member of Holdings, and as a result, consolidate the financial results of Holdings. Holdings is treated as a partnership for U.S. federal and most applicable state and local income tax purposes. As a partnership, Holdings is not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by Holdings is passed through to and included in the taxable income or loss of its members, including us, on a pro rata basis. We are subject to U.S. federal income taxes, in addition to state and local income taxes with respect to our allocable share of any taxable income or loss of Holdings, as well as any stand-alone income or loss generated by Solo Brands, Inc.

Year Ended December 31, Change

Income tax expense decreased for the year ended December 31, 2023 compared to the year ended December 31, 2022, primarily due to the current year goodwill and intangible asset impairments, as well as the current year decrease in the valuation allowance. Additionally, for the year ended December 31, 2023, our effective tax rate was impacted by a decrease in the tax benefit of $3.9 million related to the non-deductible portion of the goodwill impairment charge for Oru.

Liquidity and Capital Resources

Historically, our cash requirements have principally been for working capital purposes and acquisitions. We expect these needs to continue as we develop and grow our business. We fund our working capital, which is primarily comprised of inventory, accounts payable, and accounts receivable, net, and other cash requirements from cash flows from operating activities, cash on hand, and borrowings under our Revolving Credit Facility. Our cash flows from operating activities are our principal sources of liquidity and result primarily from the sales of our portfolio of products as described in Part I, Item 1, Business, of this Annual Report.

In addition, during the year ended December 31, 2023, we repurchased and subsequently retired an aggregate of 6,232,795 shares of our Class A common stock for approximately $31.2 million. We also repurchased an aggregate of 1,068,366 shares of our Class A common stock for approximately $5.3 million that was used to settle a portion of the contingent consideration related to the acquisition of IcyBreeze. We funded these repurchases from cash on hand and borrowings under our Revolving Credit Facility. From time to time, we may continue to repurchase shares of our Class A common Stock through open market transactions (including pre-set trading plans) or through other transactions, such as through privately negotiated transactions or in such other manners as may be determined by our Board of Directors, which may reduce the cash we have available.

We maintain the majority of our cash and cash equivalents in bank deposit and overnight sweep accounts with major highly rated multi-national and local financial institutions, and our deposits at these institutions exceed insured limits. Market conditions can impact the viability of these institutions, and any inability to access or delay in accessing these funds could adversely affect our business and financial position.

The table below reflects our sources, facilities and availability of liquidity as of December 31, 2023. See Note 11, Long-Term Debt, to the consolidated financial statements included elsewhere in this Annual Report.

Liquidity Sources and Facilities Availability

Working capital (excluding cash and cash equivalents) 87,670 87,670

Revolving Credit Facility and Term Loan

On May 12, 2021, we entered into a credit agreement with JPMorgan Chase Bank, N.A., the Lenders and L/C Issuers party thereto (each as defined therein) and the other parties thereto (as subsequently amended on June 2, 2021, and September 1, 2021, the “Revolving Credit Facility”). As so amended, the Revolving Credit Facility allows us to borrow up to $350.0 million of revolving loans, including the ability to issue up to $20.0 million in letters of credit, with $0.6 million of letters of credit issued and outstanding as of December 31, 2023. While our issuance of letters of credit does not increase our borrowings outstanding under the Revolving Credit Facility, it does reduce the amounts available under the Revolving Credit Facility. The Revolving Credit Facility matures on May 12, 2026 and bears interest at a rate equal to the base rate as defined in the agreement plus an

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applicable margin, which as of December 31, 2023, was based on SOFR. Interest is due on the last business day of each March, June, September and December. Principal under the Revolving Credit Facility is not due until maturity.

In addition to the above, the amendment on September 1, 2021 included a provision to borrow up to $100.0 million under a term loan (the “Term Loan”). The proceeds from the Term Loan were used to fund the Chubbies acquisition. The Term Loan matures on September 1, 2026 and bears interest at a rate equal to the base rate as defined in the agreement plus an applicable margin, which as of December 31, 2023, was based on SOFR.. We were required to make quarterly principal payments on the Term Loan beginning on December 31, 2021. At December 31, 2023, we had $91.3 million outstanding on the Term Loan. All required principal payments were made on time and with available cash through the year ended December 31, 2023. Interest payments are due on a quarterly basis under the Term Loan, with the same due dates as noted for the Revolving Credit Facility above.

Although we cannot predict with certainty all of our particular short-term cash uses or the timing or amount of cash requirements, we believe that our available cash on hand, along with amounts available under our Revolving Credit Facility will be sufficient to satisfy our liquidity requirements for at least the next twelve months. However, growth opportunities, such as continued expansion into international markets, may significantly increase our expenses (including our capital expenditures) and cash requirements. Furthermore, we will continue to seek possible brand and mission consistent acquisition opportunities that would require additional capital. In addition, the amount of our future product sales is difficult to predict, and actual sales may not be in line with our forecasts. As a result, we may be required to seek additional funds in the future from issuances of equity or debt, obtaining additional credit facilities, or loans from other sources.

Other Terms of the Revolving Credit Facility

We may request incremental term loans, incremental equivalent debt, or revolving commitment increases (we refer to each as an Incremental Increase) in amounts such that, after giving pro forma effect to such Incremental Increase, our total secured net leverage ratio (as defined in the Revolving Credit Facility) would not exceed the then-applicable cap under the Revolving Credit Facility. In the event that any lenders fund any of the Incremental Increases, the terms and provisions of each Incremental Increase, including the interest rate, shall be determined by us and the lenders, but in no event shall the terms and provisions, when taken as a whole and subject to certain exceptions, of the applicable Incremental Increase, be more favorable to any lender providing any portion of such Incremental Increase than the terms and provisions of the loans provided under the Revolving Credit Facility unless such terms and conditions reflect market terms and conditions at the time of incurrence or issuance thereof as determined by us in good faith.

The Revolving Credit Facility is (a) jointly and severally guaranteed by the Guarantors (as defined in the Revolving Credit Facility) and any future subsidiaries that execute a joinder to the guaranty and related collateral agreements and (b) secured by a first priority lien on substantially all of our and the Guarantors’ assets, subject to certain customary exceptions.

The Revolving Credit Facility requires us to comply with certain financial ratios, including:

•at the end of each fiscal quarter, a total net leverage ratio (as defined in the Revolving Credit Facility) for the four quarters then ended of not more than: 4.00 to 1.00 for each quarter ended in 2022 and through June 30, 2023; 3.75 to 1.00 for each quarter ending June 30, 2023 through March 31, 2024; and 3.50 to 1.00 for each quarter ending June 30, 2024 or thereafter;

•at the end of each fiscal quarter, an interest coverage ratio (as defined in the Revolving Credit Facility) for the four quarters then ended of not less than 3.00 to 1.00.

In addition, the Revolving Credit Facility contains customary financial and non-financial covenants limiting, among other things, mergers and acquisitions; investments, loans, and advances; affiliate transactions; changes to capital structure and the business; additional indebtedness; additional liens; the payment of dividends; and the sale of assets, in each case, subject to certain customary exceptions. The Revolving Credit Facility contains customary events of default, including payment defaults, breaches of representations and warranties, covenant defaults, defaults under other material debt, events of bankruptcy and insolvency, failure of any guaranty or security document supporting the Revolving Credit Facility to be in full force and effect, and a change of control of our business. We were in compliance with all covenants under the Revolving Credit Facility as of December 31, 2023.

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Cash Flows

Year Ended December 31, Change

Cash flows provided by (used in):

Operating activities

The $30.0 million increase in cash provided by operating activities period over period, as shown in the table above, was due to a $44.1 million decline in cash usage from changes in operating assets and liabilities (“working capital”), partially offset by an increase in cash usage of $14.1 million from changes in net income (loss) after non-cash adjustments, primarily driven by the impacts related to the goodwill and intangible asset impairments and the related impacts to deferred income taxes.

The increase in cash provided by working capital was primarily due to:

•a $59.1 million increase in cash provided by changes in inventory as a result of a higher inventory balance at the beginning of 2023 than the prior year, resulting in fewer inventory purchases in 2023, as well as a reduction in replenishment of inventory exiting the year in line with management’s focus on reducing on-hand inventory;

•a $6.9 million increase in cash provided by changes in accounts payable as a result of an increase in accrued advertising and marketing costs in 2023.

•a $10.4 million increase in cash used in changes in accounts receivable as a result of the larger volume of wholesale sales through our key strategic retailers and our wholesale network towards the end of 2023 compared to the end of 2022; and

•the remaining changes to working capital were deemed immaterial to disclose separately.

Investing activities

The $43.1 million increase in cash used in investing activities, as shown in the table above, was primarily due to a $33.8 million increase in cash used in acquisition activity in 2023 compared to the prior year related to the 2023 acquisitions. Additionally, cash usage for contingent consideration increased by $9.4 million due to earnout payments for the 2023 acquisitions.

Financing activities

The $10.7 million increase in cash provided by financing activities, as shown in the table above, was primarily due to a $50.6 million increase in cash provided by net debt activities, partially offset by a $37.0 million increase in cash used in the repurchase of the Company’s Class A common stock, of which $31.2 million was subsequently retired and the remainder utilized as a portion of the contingent consideration payments related to the 2023 acquisitions, and a $2.2 million increase in cash used in distributions to non-controlling interests.

Contractual Obligations

Our material cash commitments from known contractual and other obligations primarily consist of obligations for long-term debt and related interest, leases for properties and equipment and purchase obligations as part of normal operations. See Note 11, Long-Term Debt, in Item 8 of this Annual Report for more information regarding scheduled maturities of our long-term debt. See Note 13, Leases, in Item 8 of this Annual Report for additional information on leases. Interest payable on our long-term debt is expected to be $6.4 million due in the twelve months following December 31, 2023 and $7.8 million due thereafter.

As of December 31, 2023, we had a purchase commitment to purchase $30.0 million of advertising services in 2024 and $67.5 million thereafter, with a minimum required payment of $10.3 million in 2024 and $16.2 million thereafter. In addition, we had a contractual obligation of $2.7 million, due in full in 2024, with a prominent influencer for marketing and consulting services. These purchase obligations include all enforceable, legally binding agreements to purchase goods or services that specify all significant terms, regardless of the duration of the agreement, and exclude agreements with variable terms for which we are unable to estimate the minimum amounts.

Critical Accounting Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. In preparing the consolidated financial statements, we make estimates and judgments that affect the reported amounts of assets, liabilities, sales, expenses, and related disclosure of contingent assets and liabilities. We re-evaluate our estimates on an on-going basis. Our estimates are based on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Because of the uncertainty inherent in these matters, actual results may differ from these estimates and could differ based upon other assumptions or conditions.

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See Note 2, Significant Accounting Policies, to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for more information about our significant accounting policies, including our critical accounting policies. The critical accounting estimates that reflect our more significant judgments and estimates used in the preparation of our consolidated financial statements include those noted below. Within the context of these critical accounting estimates, we are not currently aware of any reasonably likely events or circumstances that would result in materially different amounts being reported.

Revenue Recognition

We primarily engage in direct-to-consumer transactions, which are comprised of product sales directly from our brands’ websites, through Amazon, and from our retail locations. We also sell products via business-to-business transactions, which are comprised of sales to retailers, including where possession of our products is taken and sold by the retailer in-store or online. These revenue transactions typically comprise a single performance obligation satisfied through the transfer of control of promised goods to the customers, based on the terms of sale. The transfer of control typically occurs at a point in time based on consideration of when the customer has an obligation to pay for the goods, and physical possession of, legal title to, and risk and rewards of ownership has been transferred, and the customer has accepted the goods.

There are no significant extended payment terms with our customers. Payment is due at the time of sale for our direct-to-consumer transactions. Our business-to-business customers’ payment terms vary depending on creditworthiness and the contract terms with each retailer, but the most common is net 30 or net 60 days.

Revenue is recognized for the amount of consideration to which we expect to be entitled in exchange for transferring promised goods to a customer. The consideration promised in a contract with a customer includes fixed and variable amounts. The fixed amount of consideration is the standalone selling price of the goods sold. Variable considerations, including cash discounts, rebates and sales incentives programs, are deducted from gross sales in determining net sales at the time revenues are recorded. Variable considerations also include the portion of goods that are expected to be returned and refunded. Any consideration received (or receivable) that we expect to refund to the customer is recognized as a refund liability. We determine these estimates based on historical experience and trends. The actual amount of customer returns and refunds may differ from our estimates. We elected to account for shipping costs as fulfillment activities, and not as separate performance obligations. Net sales include shipping costs charged to the customer with the related shipping expense recognized in selling, general and administrative expenses when the revenue is recognized. Sales taxes collected from customers are excluded from net sales, which are remitted to government authorities.

Inventory

Inventories, consisting primarily of finished goods are recorded at the lower of cost or net realizable value. Cost is determined using an average costing method, calculated using the weighted average method. Our inventory balances include all costs incurred to deliver inventory to our distribution facilities, such as inbound freight, import duties and tariffs. Net realizable value is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. We make ongoing estimates relating to the net realizable value of inventories based upon our assumptions about future demand and market conditions. As a result, we have not recorded any write-downs to inventory below cost, except as it relates to obsolete or slow-moving inventory. If actual market conditions are less favorable than those projected by management, additional write-downs may be required. If actual market conditions are more favorable than anticipated, inventory previously written down may be sold to customers, resulting in lower cost of sales and higher income from operations than expected in that period.

Income Taxes

In determining the provision for income taxes for financial statement purposes, we make estimates and judgments which affect our evaluation of the carrying value of our deferred tax assets as well as our calculation of certain tax liabilities. We evaluate the carrying value of our deferred tax assets on a quarterly basis. In completing this evaluation, we consider all available positive and negative evidence. Such evidence includes historical operating results, the existence of cumulative earnings and losses in the most recent fiscal years, taxable income in prior carryback year(s) if permitted under the tax law, expectations for future pre-tax operating income, the time period over which our temporary differences will reverse, and the implementation of feasible and prudent tax planning strategies. Estimating future taxable income is inherently uncertain and requires judgment. In projecting future taxable income, we consider our historical results and incorporate certain assumptions, including projected revenue growth, and operating margins, among others. Deferred tax assets are reduced by a valuation allowance if, based on the weight of this evidence, it is more likely than not that all or a portion of the recorded deferred tax assets will not be realized in future periods.

During the quarter ended September 30, 2023, the Company concluded, based on the weight of all available positive and negative evidence, that all of the partnership deferred tax assets are more likely than not to be realized. As a result, the remaining valuation allowance on the partnership deferred tax assets was released.

We have recorded a valuation allowance against Oru’s deferred tax assets resulting from the impairment of Oru's book goodwill and intangible assets, as discussed below, resulting in a net deferred tax asset for the Oru consolidated group. Solo Brands, Inc. evaluated and concluded that as of December 31, 2023, we had $1.4 million of deferred tax assets, net of $0.8 million of valuation allowances. We expect to realize future tax benefits related to the utilization of these assets. However, since future financial results may differ from previous estimates, periodic adjustments to our valuation allowances may be necessary. If we determine in the future that we will not be able to fully utilize all or part of these deferred tax assets, we would record a valuation allowance through earnings in the period the determination was made, which would have an adverse effect on our results of operations and earnings in future periods.

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Goodwill

Goodwill is determined based upon the excess enterprise value over the estimated fair value of assets and liabilities assumed at acquisition date and is recorded at its estimated fair value at the date of acquisition. See Note 9, Goodwill, for further details regarding our goodwill balance and accumulated impairment losses.

In the second quarter of 2022, we identified triggering events indicating the fair value of one or more of the reporting units more likely than not did not exceed their carrying values. The triggering events included: (1) adverse equity market conditions resulting in a sustained decline in our stock price subsequent to the issuance of our first quarter 2022 results on Form 10-Q and (2) weakened demand for the ISLE reporting unit’s products resulting in a lower near-term forecast of future operating results. As a result, we performed an interim quantitative goodwill impairment test for all of our reporting units and recorded a $27.9 million goodwill impairment charge related to the ISLE reporting unit, which has $1.7 million of remaining goodwill after the impairment. The results of the interim quantitative test did not result in a goodwill impairment for the other reporting units. As determined by the results of our interim test, the fair value of the remaining reporting units exceeded their carrying values by greater than 10%. The impairment charge was recorded to impairment charges on the consolidated statements of operations and comprehensive income (loss).

In the third quarter of 2023, the Company identified a triggering event indicating the fair value of one or more of the Company’s reporting units more likely than not did not exceed their carrying values. The triggering event was an adverse change in the plan for each brand approved by the board of directors, resulting in a lower near-term forecast of future operating results. As a result, the Company performed an interim quantitative goodwill impairment test for all of its reporting units and determined that the fair value exceeded the carrying value for each reporting unit. Based on the results of the quantitative interim goodwill impairment test in the third quarter of 2023, the calculated fair values of the Solo Stove, Chubbies and ISLE reporting units exceeded their book values by more than 10% and no additional testing was necessary. For the Oru reporting unit, the fair value exceeded the book value by less than 5%. As a result of the identified fair value in excess of the carrying values of the respective reporting units as of September 30, 2023, there were no impairment charges recognized.

Per our accounting policy in Note 2, Significant Accounting Policies, we completed our annual goodwill impairment test as of October 1, 2023. Due to the proximity of the quantitative analysis performed as of the third quarter of 2023, we performed a qualitative analysis of our goodwill and determined that there were no indicators of impairment. This assessment was made based on relevant information, including applicable facts and circumstances, known as of the goodwill impairment assessment date. As a result of the non-persistent nature of the triggering event identified in the third quarter of 2023 and the lack of impairment indicators identified through the qualitative assessment performed, as of October 1, 2023, we determined it was more likely than not that the fair value of our reporting units exceeded their carrying values and, as such, we did not record goodwill impairment for our reporting units.

In the fourth quarter of 2023, subsequent to our annual goodwill impairment analysis, we identified goodwill impairment indicators indicating the fair value of one or more of our reporting units more likely than not did not exceed their carrying values. The goodwill impairment indicators observed were as follows:

•A significant decline in performance of the Solo Stove and ISLE reporting units in comparison to previous forecasts for the fourth quarter of 2023;

•Changes in management, with the departure of the CFO in the fourth quarter of 2023 and release and replacement of the CEO after year end December 31, 2023, however, in relative proximity to the fourth quarter of 2023. This change in management resulted in a shift of investment within each of our brands, inclusive of a reduction in investment for Oru; and

•A significant decline in share price of the Company’s Class A common stock after year end December 31, 2023, however, in relative proximity to the fourth quarter of 2023.

As a result of the goodwill impairment indicators noted above, we determined it appropriate to perform an interim quantitative goodwill impairment test for all of our reporting units as of December 31, 2023.

For the quantitative goodwill impairment analysis performed as of December 31, 2023, we estimated the fair value of the reporting units using a weighting of fair values derived from the income and market approaches, where comparable market data was available. Under the income approach, we determined the fair value of a reporting unit based on the present value of estimated future cash flows. Cash flow projections were based on management’s estimates of revenue growth rates and operating margins, EBITDA margins, consideration of industry and market conditions, terminal growth rates and management’s estimates of working capital requirements. The discount rate for each reporting unit was based on a weighted average cost of capital adjusted for the relevant risk associated with the characteristics of each reporting unit and its estimated cash flows, which ranged from 16.0% to 19.9%. Under the market approach, we utilized a combination of methods, including estimates of fair value based on: (1) market multiples of revenue and earnings derived from comparable publicly-traded companies with similar operating and investment characteristics as the reporting unit and (2) pricing multiples derived from recent merger and acquisition transactions of comparable publicly-traded companies.

As a result of the quantitative goodwill impairment test performed as of December 31, 2023, we determined that the carrying amounts of the Solo Stove, Oru and ISLE reporting units exceeded their fair values and goodwill impairment charges were recognized at each. The remaining reporting units were determined to have fair values exceeding their book values by more than 10%. The following table presents the goodwill impairment charges and remaining goodwill by reporting unit:

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Reporting Unit Impairment Charge ($) Remaining Goodwill ($)

The impairment was driven by the significant decline in performance of the Solo Stove, Oru and ISLE reporting units in comparison to previous forecasts primarily due to lower net sales resulting from new product launches that were not as successful as those in the prior year, coupled with less effective marketing campaigns, as well as the decline in market capitalization driven by the decline in share price. The impairment charges were recorded to impairment charges on the consolidated statements of operations and comprehensive income (loss).

The fair value determination of our reporting units and our goodwill is judgmental in nature and requires the use of estimates and assumptions that are sensitive to changes. Assumptions include estimation of the estimation of future revenue and projected margins, which are dependent on internal cash flow forecasts, estimation of the terminal growth rates and capital spending, and determination of discount rates. Some of the inherent estimates and assumptions used in determining fair value of the reporting units are outside the control of management, including interest rates, cost of capital, tax rates, market EBITDA comparables and credit ratings. While we believe we have made reasonable estimates and assumptions to calculate the fair value of the reporting units, it is possible a material change could occur. As a result, there can be no assurance that the estimates and assumptions made for purposes of the quantitative goodwill and indefinite-lived intangible impairment tests will prove to be an accurate prediction of future results.

The future occurrence of a potential indicator of impairment could include matters such as: a decrease in expected net earnings, a further decline in equity market conditions, a decline in comparable market multiples, a continued and sustained decline in our common stock price, a significant adverse change in legal factors or the general business climate, an adverse action or assessment by a regulator, and a significant downturn in demand for products offered by us. In the event of significant adverse changes of the nature described above, it may be necessary for us to recognize a non-cash impairment of goodwill, which could have a material adverse effect on our consolidated business, results of operations and financial condition.

Intangible Assets

Intangible assets are comprised of brands, trademarks, customer relationships, developed technology and patents and are recorded at their estimated fair values at the date of acquisition. Acquired definite-lived intangible assets subject to amortization are amortized using the straight-line method over the estimated useful lives of the assets. See Note 8, Intangible Assets, net in Item 8 of this Annual Report, for further details regarding intangible asset balances and related accumulated amortization and impairment losses.

We evaluate the carrying value of definite-lived intangible assets whenever a change in circumstances indicates that the net carrying value may not be recoverable from the undiscounted future cash flows from operations. Events or circumstances that could trigger an impairment review of a long-lived asset or asset group include, but are not limited to: (i) a significant decrease in the market price of the asset, (ii) a significant adverse change in the extent or manner that the asset is used or in its physical condition, (iii) a significant adverse change in legal factors or in the business climate that could affect the value of the asset, (iv) an accumulation of costs significantly in excess of original expectation for the acquisition or construction of the asset, (v) a current period operating or cash flow loss combined with a history of operating or cash flow losses or a forecast of continuing losses associated with the use of the asset and (vi) a more-likely-than-not expectation that the asset will be sold or disposed of significantly before the end of its previously estimated useful life. If an impairment exists, the net carrying values are reduced to fair values. The estimates of undiscounted future cash flows used during an impairment review of a long-lived asset or asset group require judgments and assumptions of future cash flows that are expected to arise as a direct result of the use and eventual disposition of the asset or asset group. If these assets were for sale, our estimates of their values could be significantly different because of market conditions, specific transaction terms and a buyer's perspective on future cash flows.

As a result of the identification of triggering events to perform an interim quantitative goodwill impairment test in the second quarter of 2022, we first considered the extent to which the adverse events and circumstances identified could affect the reporting units’ carrying amounts. We observed weakened paddleboard sales resulting in a lower near-term forecast of future operating results, which constituted a triggering event for one of our held and used long-lived asset groups primarily consisting of the ISLE trademark. We reviewed the undiscounted future cash flows for the identified long-lived asset group, and the results of the analysis indicated the carrying amount for the long-lived asset group was not expected to be recovered. The fair value of the trademark intangible was estimated using the relief-from-royalty method under the income approach, based on the following significant assumptions: management’s estimates of future net sales for the long-lived asset group, the royalty rate and the weighted average cost of capital adjusted for the relevant risk associated with the characteristics of the long-lived asset group, and we recorded a $30.6 million impairment charge. This impairment charge was recorded to impairment charges on the consolidated statements of operations and comprehensive income (loss). There were no impairment charges recognized through September 30, 2023.

In the fourth quarter of 2023, as a result of the Company’s identification of triggering events requiring the Company to perform an interim quantitative goodwill impairment test (see Note 9, Goodwill for more information), the Company first considered the extent to which the adverse events and circumstances identified could affect the Company’s held and used long-lived asset groups. The Company observed the following triggering events for the Company’s held and used long-lived asset groups:

•A significant decline in performance of the Solo Stove and ISLE reporting units in comparison to previous forecasts for the fourth quarter of 2023;

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•A significant decline in share price of the Company’s Class A common stock after year end December 31, 2023, however, in relative proximity to the fourth quarter of 2023.

The Company recorded an aggregate $13.4 million impairment charge to the intangible assets of Oru and a $0.8 million impairment charge to the Trademark intangible asset of ISLE as of December 31, 2023. These impairment charges were recorded to impairment charges on the consolidated statements of operations and comprehensive income (loss). As a result of this impairment charge, the Company also reassessed the useful life of the intangible assets of Oru and ISLE. As of December 31, 2023, there was no further value attributed to the intangible assets of Oru or ISLE, resulting in the useful lives of the intangible assets for both reporting units being fully depleted. This change does not have a material impact to amortization expense in any future year.

Recent Accounting Pronouncements

For a description of recent accounting pronouncements, see “Recently Adopted Accounting Pronouncements” and “Recently Issued Accounting Standards—Not Yet Adopted” in Note 2, Significant Accounting Policies, of this Annual Report on Form 10-K.

JOBS Act

We currently qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Accordingly, we are provided the option to adopt new or revised accounting guidance either (i) within the same periods as those otherwise applicable to non-emerging growth companies or (ii) within the same time periods as private companies. We have elected to adopt new or revised accounting guidance within the same time period as private companies, unless management determines it is preferable to take advantage of early adoption provisions offered within the applicable guidance. Our utilization of these transition periods may make it difficult to compare our financial statements to those of non-emerging growth companies and other emerging growth companies that have opted out of the transition periods afforded under the JOBS Act.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily the result of fluctuations in interest rates.

Interest Rate Risk

In order to maintain liquidity and fund business operations, we have a long-term credit facility and separate term loan that bear variable interest rates based on prime, federal funds, or SOFR plus an applicable margin based on our total net leverage ratio. As of December 31, 2023, we had indebtedness of $60.0 million and $91.3 million, with annualized rates of interest of 6.59% and 6.49%, under our Revolving Credit Facility and Term Loan, respectively. The nature and amount of our long-term debt can be expected to vary as a result of future business requirements, market conditions, and other factors. We may elect to enter into interest rate swap contracts to reduce the impact associated with interest rate fluctuations, but as of December 31, 2023, we have not entered into any such contracts. A 100 bps increase in SOFR would increase our interest expense by approximately $1.5 million in any given year.

Inflation Risk

Inflationary factors such as increases in the cost of our product and overhead costs may adversely affect our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross margin and SG&A expenses as a percentage of net sales, if the selling prices of our products do not increase with these increased costs.

Commodity Price Risk

The primary raw materials and components used by our contract manufacturing partners include stainless steel and aluminum. We believe these materials are readily available from multiple vendors. Certain of these products use petroleum or natural gas as inputs. However, we do not believe there is a significant direct correlation between petroleum or natural gas prices and the costs of our products.

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Foreign Currency Risk

Our international sales are primarily denominated in local currencies. During 2023 and 2022, net sales in international markets accounted for 6.0% and 7.1% of our consolidated revenues, respectively. Therefore, we do not believe exposure to foreign currency fluctuations has had a material impact on our net sales. A portion of our operating expenses are incurred outside the Unites States and are denominated in foreign currencies, which are also subject to fluctuations due to changes in foreign currency exchange rates. In addition, our suppliers may incur many costs, including labor costs, in other currencies. To the extent that exchange rates move unfavorably for our suppliers, they may seek to pass these additional costs on to us, which could have a material impact on our gross margin. In addition, a strengthening of the U.S. dollar may increase the cost of our products to our customers outside of the United States. Our operating results and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates. A 100 bps unfavorable change in foreign currency exchange rates to which we are exposed would increase our operating expenses by approximately $0.3 million for the year ended December 31, 2023.

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Item 8. Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm - PCAOB Firm ID: 42 46

Consolidated Balance Sheets 47

Consolidated Statements of Operations and Comprehensive Income (Loss) 48

Consolidated Statements of Cash Flows 49

Consolidated Statements of Equity 51

Notes to Consolidated Financial Statements

Note 1 - Organization and Description of Business 54

Note 2 - Significant Accounting Policies 54

Note 3 - Revenue 61

Note 4 - Acquisitions 62

Note 5 - Inventory 66

Note 6 - Prepaid Expenses and Other Current Assets 66

Note 7 - Property and Equipment, net 66

Note 8 - Intangible Assets, net 67

Note 9 - Goodwill 68

Note 10 - Accrued Expenses and Other Current Liabilities 69

Note 11 - Long-Term Debt 70

Note 12 - Other Non-Current Liabilities 71

Note 14 - Equity-Based Compensation 73

Note 15 - Income Taxes 77

Note 16 - Commitments and Contingencies 80

Note 17 - Fair Value Measurements 81

Note 19 - Net Income (Loss) Per Share 82

Note 20 - Barter Arrangements 83

Note 21 - Variable Interest Entities 83

Note 22 - Subsequent Events 83

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Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Solo Brands, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Solo Brands, Inc. (the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations and comprehensive income (loss), cash flows and equity for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2021.

Dallas, Texas

March 14, 2024

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SOLO BRANDS, INC.

Consolidated Balance Sheets

ASSETS

Current assets

Prepaid expenses and other current assets 21,893 12,639

Non-current assets

LIABILITIES AND EQUITY

Current liabilities

Accrued expenses and other current liabilities 55,155 43,377

Current portion of long-term debt 6,250 5,000

Non-current liabilities

Commitments and contingencies (Note 16)

Equity

Retained earnings (accumulated deficit) (115,458) 5,746

Accumulated other comprehensive income (loss) (230) (499)

Equity attributable to the controlling interest 241,262 363,426

Equity attributable to noncontrolling interests 131,001 211,571

See Notes to Consolidated Financial Statements

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SOLO BRANDS, INC.

Consolidated Statements of Operations and Comprehensive Income (Loss)

Year Ended December 31,

Operating expenses

Non-operating (income) expense

Other non-operating (income) expense (7,297) 712 208

Other comprehensive income (loss)

Foreign currency translation, net of tax (268) (827) 5

Less: net income earned prior to the Reorganization Transactions — — 37,963

Net income (loss) per Class A common stock

Weighted-average Class A common stock outstanding

See Notes to Consolidated Financial Statements

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SOLO BRANDS, INC.

Consolidated Statements of Cash Flows

Year Ended December 31,

CASH FLOWS FROM OPERATING ACTIVITIES:

Operating lease right-of-use assets expense 8,373 6,889 —

Changes in accounts receivable reserves 295 1,293 77

Amortization of debt issuance costs 860 860 507

Warranty provision 690 — —

Equity-based compensation for non-employees 333 — —

Loss (gain) on disposal of property and equipment 219 66 187

Change in fair value of contingent consideration (1,573) — —

Barter credits (7,160) — —

Non-cash interest expense — — 1,652

Changes in assets and liabilities

Accrued expenses and other current liabilities 6,811 7,587 (8,835)

Other non-current assets and liabilities 2,409 (542) 653

Operating lease right-of-use assets and liabilities (8,113) (5,817) —

Prepaid expenses and other current assets (9,222) (2,802) (8,134)

CASH FLOWS FROM INVESTING ACTIVITIES:

Payments of contingent consideration (9,386) — —

Proceeds from the sale of property and equipment — — 64

CASH FLOWS FROM FINANCING ACTIVITIES:

Debt issuance costs paid — — (4,234)

Finance lease liability principal paid (379) — —

Payment of contingent consideration — — (100,000)

Contributions from members before Reorganization Transactions — — 250

Distributions to members before Reorganization Transactions — — (33,163)

Payments of initial public offering costs — — (5,594)

Exercise of Options for Class A common stock 39 — —

Common stock repurchases (36,957) — —

Distributions to non-controlling interests (10,511) (8,304) (2,256)

Taxes paid related to net share settlement of equity awards (305) (35) —

Stock issued under employee stock purchase plan 247 422 —

Effect of exchange rate changes on cash 71 (646) 5

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Net change in cash and cash equivalents (3,451) (1,808) (7,652)

SUPPLEMENTAL DISCLOSURES:

Construction in progress in accounts payable $ — $ 293 $ —

SUPPLEMENTAL NONCASH INVESTING AND FINANCING DISCLOSURES:

Treasury stock retirements $ 31,164 $ — $ —

Re-issuance of treasury stock 5,342 — —

Non-cash issuance of Class B units - ISLE — — 16,494

Non-cash issuance of Class B units - Chubbies — — 29,075

See Notes to Consolidated Financial Statements

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SOLO BRANDS, INC.

Consolidated Statements of Equity

(In thousands) Class A Common Stock Class B Common Stock

Other comprehensive income (loss) — — — — — — (505) — (322) (827)

Tax distributions to non-controlling interests — — — — — — — — (7,859) (7,859)

Employee stock purchase plan 103 — — — 422 — — — — 422

Surrender of stock to settle taxes on equity awards — — — — — — — (35) — (35)

Equity-based compensation for non-employees — — — — 333 — — — — 333

Other comprehensive income (loss) — — — — — — 58 — 210 268

Tax distributions to non-controlling interests — — — — — — — — (10,511) (10,511)

Employee stock purchase plan 54 — — — 247 — — — — 247

Treasury stock retirement — (6) — — — (31,158) — 31,164 — —

Surrender of stock to settle taxes on equity awards — — — — — — — (305) — (305)

Exercise of options for Class A common stock 8 — — — 39 — — — — 39

See Notes to Consolidated Financial Statements

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SOLO BRANDS, INC.

Consolidated Statements of Equity

Member tax distributions — — — — — (31,503) — (1,660) — — — — — (33,163)

Contributions — — — — — — 60 250 — — — — — 250

Noncontrolling interest in Oru — — — — — — — — — — — — 15,320 15,320

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See Notes to Consolidated Financial Statements

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SOLO BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – Organization and Description of Business

Description of Business

Solo Brands, Inc. (“Company” or “Solo Brands”), through a majority-owned subsidiary, Solo Stove Holdings, LLC (“Holdings”), operates six premium brands—Solo Stove, Oru Kayak, Inc. (“Oru”), International Surf Ventures, Inc. (“ISLE”), Chubbies, Inc. (“Chubbies”), Sconberg, LLC (“TerraFlame”) and IcyBreeze Cooling, LLC (“IcyBreeze”). Solo Stove offers portable, low-smoke fire pits, grills, and camping stoves for backyard and outdoor use in different sizes, fire pit bundles, gear kits, stoves, cookware, dinnerware, and a variety of clothing and accessories. Oru offers a flagship line of lightweight, foldable kayaks. ISLE produces high-quality stand-up paddle boards with colorful designs that are engineered to accommodate every skill level, style, and interest. Chubbies is a fun-loving, premium apparel brand that offers well-fitted comfortable clothing with unique style. TerraFlame provides customers the ability to bring the fire inside with a indoor fire pit. IcyBreeze offers the next level of outdoor comfort with portable air conditioners for use when weather conditions do not favor a fire. Solo Brands distributes its products through individual brand websites and other partners across North America, Europe and Australia.

Organization

Solo Brands, Inc. was incorporated in Delaware on June 23, 2021 for the purpose of facilitating an initial public offering and other related transactions in order to carry on the Company’s business. On October 28, 2021, Solo Brands, Inc. completed its initial public offering of 14,838,708 shares of Class A common stock.

In connection with the IPO, the organizational structure was converted to an umbrella partnership-C-Corporation with Solo Brands, Inc. having a controlling equity interest in Holdings. The Reorganization Transactions were accounted for as a transaction between entities under common control. As the sole managing member, Solo Brands, Inc. operates and controls all of the business and affairs and, through Holdings and its subsidiaries, conducts the business. Solo Brands, Inc. consolidates Holdings in its consolidated financial statements and reports a non-controlling interest related to the common units held by the Continuing LLC Owners on its audited consolidated financial statements.

Holdings was formed as a single-member limited liability company in the state of Delaware on October 6, 2020. Through a wholly-owned subsidiary, pursuant to the securities purchase agreement (the “2020 Agreement”) dated October 9, 2020, Holdings acquired 100% percent of the outstanding units of Solo Brands, LLC (previously Frontline Advance, LLC dba Solo Stove).

While operating as a limited liability company from 2011 to 2019, Solo Brands, LLC had two owners, or the Founders, which together owned 100% of the outstanding membership interest. Pursuant to the membership interest purchase agreement (“the 2019 Agreement”) dated September 24, 2019, SS Acquisitions, Inc. (which was majority-owned by Bertram Capital) acquired 66.74% of the total Class A-1 and Class A-2 units of Solo Brands, LLC from the Founders. The remaining interests were retained by the Founders and other employees who acquired interest as part of the 2019 Agreement.

For all periods, the operations of the Company are conducted through Solo Brands, LLC. As a result of the 2020 Agreement, Solo Brands, LLC became a wholly-owned subsidiary of Holdings. In exchange, Holdings issued Class A and B units, through which Summit Partners Growth Equity Funds, Summit Partners Subordinated Debt Funds, and Summit Investors X Funds (collectively, the “Summit Partners”) acquired an effective 58.82% percent of Holdings. The remaining units were retained by the Founders, SS Acquisitions, Inc., and other employees (collectively, the “Continuing LLC Owners”).

Basis of Presentation

The consolidated financial statements contained herein have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and the rules of the U.S. Securities and Exchange Commission (“SEC”). The consolidated financial statements include those of our wholly-owned and majority-owned subsidiaries and the entity consolidated under the variable interest entity model. Intercompany balances and transactions are eliminated in consolidation. Certain prior period amounts have been conformed to the current period’s presentation.

NOTE 2 – Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and all wholly-owned and majority-owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation. For our consolidated non-wholly owned subsidiaries, a noncontrolling interest is recognized to reflect the portion of income and equity that is not attributable to the Company.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses during the reporting period and disclosure of contingent assets and liabilities at

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the date of the consolidated financial statements. Estimates and assumptions about future events and their effects cannot be made with certainty. Estimates may change as new events occur when additional information becomes available and if our operating environment changes. Actual results could differ from our estimates.

Concentrations of Credit Risk

The Company extends trade credit to its business-to-business customers on terms that generally are practiced in the industry. The Company periodically performs credit analyses and monitors the financial condition of its customers to reduce credit risk. The Company performs ongoing credit evaluations of its customers, but generally does not require collateral to support accounts receivable. Accounts receivable mostly consist of amounts due from our business-to-business customers.

For the year ended December 31, 2023, Dick’s Sporting Goods and Costco accounted for 24.2% and 19.0%, respectively, of the Company’s total outstanding accounts receivable. For the year ended December 31, 2022, Costco accounted for 42.5% of the Company’s total outstanding accounts receivable. There are no other significant concentrations of receivables that represent a significant credit risk.

For the years ended December 31, 2023, 2022, and 2021, no single customer accounted for more than 10% of total net sales.

The Company is exposed to risk due to the concentration of business activity with certain third-party manufacturers of our products. The majority of the camp stoves and fire pits are currently made in China by two manufacturers, with additional manufacturing and available capacity between two separate manufacturers in China. Further, limited manufacturing occurs in India and Vietnam. The kayaks were made by one manufacturer in Mexico and the kayak accessories are made between a variety of manufacturers in China and Vietnam. The majority of the stand up paddle boards and paddle board accessories are currently made in China between a number of manufacturers, with an additional manufacturer in Vietnam. The majority of the casual wear, sportwear, swimwear, outerwear, loungewear, and other accessories are currently made in Vietnam between a variety of manufacturers, with additional manufacturers in India, China, and the United States. The indoor fire and decor products acquired in 2023 are made by one manufacturer in Mexico. The portable air conditioning coolers are assembled in-house with components made in China by two manufacturers, Cambodia by one manufacturer and in the United States by three manufacturers.

Segment Information

The Company’s CEO, as the chief operating decision-maker, organizes the Company, manages resource allocations, and measures performance on the basis of one operating segment. We report the Company’s operations as a single reportable segment and manage the business as a single-brand outdoor consumer products business. This is supported by the operational structure of the Company, which includes marketing, distribution, information technology, accounting and finance, human resources, payroll and legal functions focused on the entire product suite rather than individual product categories. The chief operating decision maker does not regularly review financial information for individual product categories, sales channels, or geographic regions that would allow decisions to be made about the allocation of resources or performance.

Fair Value Measurements

Accounting standards require certain assets and liabilities to be reported at fair value in the consolidated financial statements and provide a framework for establishing that fair value. The framework for determining fair value is based on a hierarchy that prioritizes the inputs and valuation techniques used to measure fair value.

Fair values determined by Level 1 inputs use quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.

Fair values determined by Level 2 inputs use other inputs that are observable, either directly or indirectly. These Level 2 inputs include quoted prices for similar assets or liabilities in active markets and other inputs, such as interest rates and yield curves, that are observable at commonly quoted intervals.

Fair values determined by Level 3 inputs are unobservable inputs, including inputs that are available in situations where there is little, if any, market activity for the related asset or liability. These Level 3 fair value measurements are based primarily on management’s own estimates using pricing models, discounted cash flow methodologies, or similar techniques taking into account the characteristics of the asset or liability.

In instances whereby inputs used to measure fair value fall into different levels in the above fair value hierarchy, fair value measurements in their entirety are categorized based on the lowest level input that is significant to the valuation. The Company’s assessment of the significance of particular inputs to these fair value measurements requires judgment and considers factors specific to each asset or liability.

Cash and Cash Equivalents

The Company considers all investments with an original maturity of three months or less when purchased to be cash equivalents. Cash and cash equivalents consist principally of bank deposits and overnight sweep accounts. The Company continually monitors its position with, and the credit quality of, the financial institutions with which it invests. The Company has maintained bank balances in excess of federally insured limits. We have

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not historically experienced any losses in such accounts.

Accounts Receivable, net

Accounts receivable, net consist of amounts due to the Company from retailers and direct-to-corporate customers, as well as receivables from the credit card and payment application services used by the Company. Accounts receivable, net are recorded at invoiced amounts, less contractual allowances for trade terms, sales incentive programs, and discounts. The Company maintains an allowance for expected credit losses, which is determined based on a review of specific customer accounts where the collection is doubtful, as well as an assessment of the collectability of receivable of customer groups that share similar risk characteristics. This assessment is based on historical and anticipated trends, existing and forecasted economic conditions and other factors. All accounts are subject to an ongoing review of ultimate collectability. Receivables are written off against the allowance when it is probable the amounts will not be recovered.

Bad debt expense is recorded to selling, general, & administrative expenses on the consolidated statements of operations and comprehensive income (loss). Bad debt expense for the years ended December 31, 2023, 2022, and 2021 was $0.3 million, $1.3 million, and $0.3 million, respectively.

Inventory

Inventories, consisting primarily of finished goods are recorded at the lower of cost or net realizable value. Cost is determined using an average costing method, calculated using the weighted average method. Our inventory balances include all costs incurred to deliver inventory to our distribution facilities, such as inbound freight, import duties and tariffs. Net realizable value is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. We make ongoing estimates relating to the net realizable value of inventories based upon our assumptions about future demand and market conditions. Obsolete or slow-moving inventory is written down to estimated net realizable value. Acquired inventory is fair valued using a mix of cost, comparative sales and market approaches.

Inventory obsolescence expense is recorded to cost of goods sold on the consolidated statements of operations and comprehensive income (loss) and was 2.0 million and nominal for the years ended December 31, 2023, 2022 and 2021 respectively

Property and Equipment, net

Property and equipment acquired through acquisitions (as described in Note 4, Acquisitions) are recorded at estimated fair value as of that date using a mix of cost, comparative sales and market approaches. Property and equipment acquired subsequent to acquisitions are recorded at cost, net of accumulated depreciation. Costs of maintenance and repairs are charged to expense when incurred. When property and equipment are sold or disposed of, the cost and related accumulated depreciation is written off, and a gain or loss, if applicable, is recorded. The Company reviews property and equipment for impairment whenever events or changes in circumstances indicate the carrying amount of such assets may not be recoverable. Property and equipment are depreciated on a straight-line method over their estimated useful lives. The useful lives for property and equipment are as follows:

Useful Life

Computers, software, and other equipment 3 Years

Machinery 5 - 10 Years

Leasehold improvements Shorter of lease term or 10 Years

Furniture and fixtures 5 Years

Buildings 29 - 40 Years

Goodwill

Goodwill is determined based upon the excess enterprise value over the estimated fair value of assets and liabilities assumed and is recorded at its estimated fair value at the date of acquisition. The Company reviews goodwill at the reporting unit level, which is one level below the operating segment, for impairment annually on October 1st of each fiscal year and on an interim basis whenever events or changes in circumstances indicate the fair value of such assets may be below their carrying value.

Intangible Assets, net

Intangible assets are comprised of brands, trademarks, developed technology, customer relationships, patents and proprietary software and are recorded at their estimated fair values at the date of acquisition. Acquired definite-lived intangible assets are valued using an excess earnings method for customer related intangibles and a relief from royalty method for tradenames and patents, and intangibles subject to amortization are amortized using the straight-line method over the estimated useful lives of the assets.

In addition, external legal costs incurred in the defense of our trademarks and patents are capitalized when we believe that the future economic benefit of the intangible asset will be increased, and a successful defense is probable. In the event of a successful defense, the settlements received are netted against the external legal costs that were capitalized. Capitalized trademark and patent defense costs are amortized over the remaining useful life of the asset. Where the defense of the trademark or patent maintains rather than increases the expected future economic benefits from the asset, the costs would generally be expensed as incurred. The external legal costs incurred and settlements received may not occur in the same period.

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The useful lives for intangible assets subject to amortization are as follows:

Useful Life

Trademarks 5-15 Years

Customer relationships 6-15 Years

Developed technology 6 Years

Patents 8-10 Years

Proprietary software 3 Years

Debt Issuance Costs

Debt issuance costs incurred by the Company in connection with obtaining debt are recorded on the balance sheet as a direct deduction from the carrying value of the associated debt liability. The costs are amortized on a straight-line basis over the term of the related debt and reported as a component of interest expense, net.

Leases

The Company leases space for warehouses, stores and corporate space under operating leases expiring at various times through 2029. The Company also leases warehouse picking robots under financing leases. The Company accounts for leases in accordance with Accounting Standards Codification (“ASC”) No. 842, Leases. The Company determines if an arrangement is a lease at inception of a contract if the terms state the Company has the right to direct the use of, and obtain substantially all the economic benefits from, a specific asset identified in the contract.

Right-Of-Use Asset (“ROU”)

The ROU assets represent the Company's right to use the underlying assets for the lease term, and the lease liabilities represent the obligation to make lease payments arising from the leases. ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments to be made over the lease term. The Company records its operating ROU assets in operating lease right-of-use assets, its current operating lease liabilities in accrued expenses and other current liabilities and its non-current operating lease liabilities in operating lease liabilities. The Company records its finance ROU assets in other non-current assets, its current finance lease liabilities in accrued expenses and other current liabilities and its non-current finance lease liabilities in other non-current liabilities.

Operating lease ROU assets are amortized on a straight-line basis and included within selling, general and administrative expense, along with the lease expense for the lease liability. Finance lease ROU assets are amortized on a straight-line basis over the lease term and included in depreciation and amortization expenses, while interest expense on the finance lease liability is included in interest expense, net.

Certain of the Company's lease agreements contain options to extend the lease. The Company evaluates these options on a lease-by-lease basis, and if the Company determines it is reasonably certain to be exercised, the lease term includes the extension. The Company uses its incremental borrowing rate at lease commencement to determine the present value of lease payments, and lease expense for operating leases is recognized on a straight-line basis over the lease term. The incremental borrowing rate is the rate of interest the Company could borrow on a collateralized basis over a similar term with similar payments. The Company does not record leases with an initial term of twelve months or less (“short-term leases”).

Certain of the Company's lease agreements include payments for certain variable costs not determinable upon lease commencement, including common area maintenance, utilities, property taxes and inflation adjustments, as well as fixed payments for non-lease components, including common area maintenance. These variable and fixed lease payments are recognized in selling, general and administrative expenses, but are not included in the ROU asset or lease liability balances. The Company's lease agreements do not contain any material residual value guarantees, restrictions or covenants.

Variable Interest Entities

The Company evaluates its ownership, contractual and other interests in entities to determine if it has a variable interest in an entity and if it is the primary beneficiary. These evaluations are complex and involve judgment and the use of estimates and assumptions based on available historical and prospective information, among other factors. If the Company determines that entities for which the Company holds a contractual or ownership interest in are variable interest entities ("VIE") and that the Company is the primary beneficiary, the Company consolidates such entities in the consolidated financial statements. The primary beneficiary of a VIE is the party that meets both of the following criteria: (1) has the power to make decisions that most significantly affect the economic performance of the VIE and (2) has the obligation to absorb losses or the right to receive benefits that in either case could potentially be significant to the VIE. Periodically, the Company determines whether any changes in the interest or relationship with the entity impacts the determination of whether the Company is still the primary beneficiary. If the Company is not deemed to be the primary beneficiary in a VIE, the Company accounts for the investment or other variable interests in a VIE in accordance with applicable GAAP.

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Revenue Recognition

The Company primarily engages in direct-to-consumer transactions, which are comprised of product sales directly from the Company’s website, and business-to-business transactions, or wholesale, which are comprised of product sales to retailers, including where possession of the Company’s products is taken and sold by the retailer in-store or online. These revenue transactions comprise a single performance obligation satisfied through the transfer of control of promised goods to the customers, based on the terms of sale. The transfer of control typically occurs at a point in time based on consideration of when the customer has an obligation to pay for the goods, and physical possession of, legal title to, and risk and rewards of ownership has been transferred, and the customer has accepted the goods.

For the Company’s direct-to-consumer and wholesale transactions, performance obligations are satisfied at the point of shipment. To determine the point in time at which a customer obtains control of a promised asset and the Company satisfies a performance obligation, the Company considered the following:

a.The Company has a present right to payment for the asset

b.The customer has legal title to the asset

c.The Company has transferred physical possession of the asset

d.The customer has the significant risks and rewards of ownership of the asset

e.The customer has accepted the asset.

There are no significant extended payment terms with our customers. Payment is due at the time of sale on our website for our direct-to-consumer transactions. Business-to-business customers’ payment terms vary depending on creditworthiness and the contract terms with each retailer, but the most common is net 30 or net 60 days.

Revenue is recognized for the amount of consideration to which the Company expects to be entitled in exchange for transferring promised goods to a customer. The consideration promised in a contract with a customer includes fixed and variable amounts. The fixed amount of consideration is the stand-alone selling price of the goods sold. Variable considerations, including cash discounts, rebates, and sales incentive programs, are deducted from gross sales in determining net sales at the time revenues are recorded. Variable considerations also include the portion of goods that are expected to be returned and refunded. Any consideration received (or receivable) that the Company expects to refund to the customer is recognized as a refund liability. We determine these estimates based on historical experience and trends. We elected to account for shipping costs as fulfillment activities, and not as separate performance obligations. Net sales include shipping costs charged to the customer with the related shipping expense recognized in selling, general and administrative expenses when the revenue is recognized. Sales taxes collected from customers are excluded from net sales, which are remitted to government authorities.

Sales Rebates, Returns and Allowances

Sales rebates are recorded when the Company initiates sales campaigns within the wholesale network in order to maintain the margin requirements for our wholesale partners. Sales returns are recorded when the customer makes a return of a purchased product or when the customer agrees to keep a purchased product in return for a reduction in the selling price. The allowance for sales returns is established based on historical return rates and the Company’s analysis of macroeconomic conditions. These amounts are included in net sales on the consolidated statements of operations and comprehensive income (loss).

Total sales returns and allowances were $14.7 million, $14.8 million and $11.6 million for the years ended December 31, 2023, 2022 and 2021 respectively.

Total sales rebates were $5.8 million, $1.0 million and a nominal amount for the years ended December 31, 2023, 2022 and 2021 respectively.

Barter Arrangements

Barter transactions with commercial substance are recorded at the estimated fair value of the products exchanged, unless the products and/or services received have a more readily determinable estimated fair value. Revenue associated with barter transactions is recorded upon shipment of the inventory consistent with the Company’s standard shipping terms.

Deferred Revenue

Deferred revenue liabilities are recorded when the customer pays consideration, or the Company has a right to an amount of consideration that is unconditional before the transfer of a good to the customer and thus represents the Company’s obligation to transfer the good to the customer at a future date. The Company’s primary deferred revenue liabilities are from its direct-to-consumer channel and represent payments received in advance from the Company’s customers for its products.

Cost of Goods Sold

Cost of goods sold includes the purchase cost of our products from our third-party manufacturers, inbound freight and duties, costs related to manufacturing of certain of our products, product quality testing and inspection costs. Cost of goods sold also includes depreciation on molds and

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equipment that we own, allocated overhead and direct and indirect labor for warehouse personnel.

Shipping and Handling Costs

Costs associated with the shipping and handling of customer sales are expensed when the product ships to the customer. These costs are included in selling, general, & administrative expenses on the consolidated statements of operations and comprehensive income (loss).

Advertising Expense

Advertising costs are deferred until the underlying advertisement is shown. These costs are included in selling, general, & administrative expenses on the consolidated statements of operations and comprehensive income (loss).

Advertising expense was $96.9 million, $93.4 million and $74.5 million for the years ended December 31, 2023, 2022 and 2021, respectively.

Research and Development Expense

Research and development costs consist of costs related to new product development, continued evolution of current products, tools and supplies related to new and current products and prototyping and testing. These costs are expensed as incurred and included in selling, general, & administrative expenses on the consolidated statements of operations and comprehensive income (loss).

Research and development expense was $0.7 million, $1.1 million and $0.3 million for the years ended December 31, 2023, 2022 and 2021, respectively.

Other Operating Expenses

Other operating expenses consist of costs incurred for the initial public offering, secondary offering completed in May 2023, acquisition-related expenses, business optimization and expansion expenses, management transition costs.

Income Taxes

The Company accounts for income taxes pursuant to the asset and liability method which requires the recognition of deferred income tax assets and liabilities related to the expected future tax consequences arising from temporary differences between the carrying values and tax bases of assets and liabilities based on enacted statutory tax rates applicable to the periods in which the temporary differences are expected to reverse. Any effects of changes in income tax rates or laws are included in income tax expense (benefit) on the consolidated statements of operations and comprehensive income (loss) in the period of enactment. A valuation allowance is recognized if the Company determines it is more likely than not that all or a portion of a deferred tax asset will not be recognized. In making such determination, the Company considers all available evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent and expected future results of operations.

As a result of the Reorganization Transactions, Solo Brands, Inc. became the sole managing member of Holdings, which is treated as a partnership for U.S. federal and most applicable state and local income tax purposes. As a partnership, Holdings is not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by Holdings is passed through to and included in the taxable income or loss of its members, including Solo Brands, Inc. following the Reorganization Transactions, on a pro rata basis. Solo Brands, Inc. is subject to U.S. federal income taxes, in addition to state and local income taxes with respect to its allocable share of any taxable income of Holdings following the Reorganization Transactions. The Company is also subject to taxes in foreign jurisdictions.

Oru Kayak, Inc. and Chubbies, Inc., wholly owned subsidiaries of Holdings, are subject to federal and state income taxes on corporate earnings and accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.

In accordance with authoritative guidance on accounting for and disclosure of uncertainty in tax positions, the Company follows a more likely than not measurement methodology to reflect the financial statement impact of uncertain tax positions taken or expected to be taken in a tax return. For tax positions meeting the more-likely-than-not threshold, the tax liability recognized in the consolidated financial statements is reduced by the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement with the relevant taxing authority.

The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal, state, and local jurisdictions, where applicable. If such examinations result in changes to income or loss, the tax liability of the Company could be changed accordingly.

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Warranty

The Company warrants its products against manufacturing defects and will replace all products sold by an authorized retailer that are deemed defective. The Company does not warranty its products against normal wear or misuse. Historically, warranty claims have been nominal, and the Company does not expect large warranty claims in the future. These costs are included in cost of goods sold on the consolidated statements of operations and comprehensive income (loss).

Warranty expense was $0.7 million for the year ended December 31, 2023 and nominal for the years ended December 31, 2022 and 2021 respectively.

Net Income (Loss) Per Class A Common Stock

In the periods following the IPO, basic net income (loss) per Class A common stock is computed by dividing net income (loss) by the weighted average number of shares of Class A common stock outstanding during the period. Diluted net income (loss) per Class A common stock assumes conversion of potentially dilutive securities such as stock options, restricted stock units, and performance stock units.

Equity-Based Compensation

The Company recognizes equity-based compensation expense for employees and non-employees based on the grant-date fair value of the award. Certain awards contain service and performance vesting conditions. The grant date fair values of restricted stock awards that contain service vesting conditions and performance stock awards that contain a performance target are estimated based on the fair value of the underlying shares on the grant date. The Company uses a Black-Scholes option-pricing model to calculate the fair value of stock options. This model requires various judgmental assumptions including volatility, the risk free rate, and expected term. For awards with market vesting conditions, the fair value is estimated using a Monte Carlo simulation model, which incorporates the likelihood of achieving the market condition. For service-based awards and performance-based awards that are considered probable of vesting, compensation cost is recognized on a straight-line basis over the requisite service period. Equity-based compensation expense is recorded in the selling, general and administrative expense line item on the consolidated statements of operations and other comprehensive income (loss).

Recently Adopted Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments. The ASU includes changes to the accounting and measurement of financial assets, including the Company’s accounts receivable, by requiring the Company to recognize an allowance for all expected losses over the life of the financial asset at origination. Prior to adoption of this ASU, an allowance was not recognized until the losses were considered probable. In November 2019, the FASB issued ASU 2019-10, deferring the effective date of ASU 2016-13 to annual periods beginning after December 15, 2022. The Company adopted this standard on January 1, 2023 using the modified retrospective transition approach to the beginning of the year of adoption. Based on the evaluation of potential financial statement impacts performed by management, the Company did not record an adjustment to opening retained earnings. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements. Additionally, the Company modified its accounting policy to conform with the requirements of the adoption of this standard.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, an update that provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The optional guidance is provided to ease the potential burden of accounting for reference rate reform. The guidance was effective as of March 12, 2020. In December 2022, the FASB issued ASU 2022-06, deferring the date through which Topic 848 is available for contract modifications to December 31, 2024. Due to the forthcoming discontinuation of LIBOR and under the relief provided by Topic 848, the Company modified the terms of its Revolving Credit Facility and Term Loan (as defined in the Company’s 2022 Form 10-K) by replacing references to LIBOR with references to the adjusted secured overnight financing rate (“SOFR”). The adoption of Topic 848 and the related modification to the agreements did not have a significant impact on the Company’s consolidated financial statements and disclosures. The Company did not have any other agreements or transactions that would be impacted by the adoption of Topic 848.

Recently Issued Accounting Pronouncements - Not Yet Adopted

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The ASU requires that an acquirer recognize and measure contract assets and liabilities acquired in a business combination in accordance with ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The guidance is effective for annual periods beginning after December 15, 2023, including interim periods therein, with early adoption permitted. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The ASU amended the existing segment reporting requirements by requiring disclosure of the significant segment expenses based on how management internally views segment information and by allowing the disclosure of more than one measure of segment profit or loss, as well as by expanding the interim period segment requirements. The ASU also requires single-reportable segment entities to report the disclosures required under Topic 280. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15,

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2024. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements, but will require certain additional disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, that requires presentation of specific categories of reconciling items, as well as reconciling items that meet a quantitative threshold, in the reconciliation between the income tax provision and the income tax provision using statutory tax rates. The ASU also requires disclosure of income taxes paid disaggregated by jurisdiction with separate disclosure of income taxes paid to individual jurisdictions that meet a quantitative threshold. The amendments in this accounting standard are effective for fiscal years beginning after December 15, 2024, on a prospective basis. Early adoption and retrospective application are permitted. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements, but will require certain additional disclosures.

NOTE 3 – Revenue

The following table disaggregates our net sales by channel:

Year Ended December 31,

Net sales by channel

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NOTE 4 – Acquisitions

The following transactions were accounted for under the acquisition method of accounting for business combinations as governed by ASC 805, Business Combinations.

2023 Acquisitions

TerraFlame

On May 1, 2023, Solo Brands, LLC, a wholly-owned subsidiary of Holdings, entered into an Equity Purchase Agreement to acquire 100% of the voting equity interests in TerraFlame, that constitute a business for purposes of Accounting Standards Codification (“ASC”) 805, Business Combinations, for total purchase consideration of $13.2 million, of which $5.5 million was cash paid at closing. The Company acquired TerraFlame to increase its brand and market share in the overall outdoor activities industry and penetrate the indoor fire and decor industry, as TerraFlame manufactures, markets, and sells fire features for both outdoor and indoor use.

The excess enterprise value of TerraFlame over the estimated fair value of assets and liabilities assumed was recorded as goodwill. Goodwill was recorded to reflect the excess purchase consideration over net assets acquired, which represents the value that is expected to be achieved from expanding the Company’s product offerings and other synergies related to the acquisition of TerraFlame. The primary factor that contributed to the recognition of goodwill was the expected future revenue growth of TerraFlame. As of December 31, 2023, the purchase price accounting has been finalized.

The following table summarizes the fair values of the assets acquired and liabilities assumed by the Company at the acquisition date:

Cash consideration to the seller $ 5,456

Fair value of the earnout liability 2,617

Fair value of the post-closing payment liability 5,125

Total Purchase Consideration $ 13,198

Accounts receivable 421

Property and equipment 4,510

Prepaid expenses and other assets 5

Intangible assets 5,600

Accounts payable and accrued liabilities (913)

Deferred revenue (33)

Total identifiable net assets 11,289

Subsequent to the acquisition date and as required by ASC 805, the contingent consideration recorded as part of the acquisition was remeasured as of December 31, 2023. As a result of this remeasurement, the earnout contingent consideration was reduced by $2.6 million and the post-closing payment contingent consideration was increased by $0.7 million. The impacts of the remeasurement were recorded in selling, general and administrative expenses within the consolidated statements of operations and comprehensive income (loss) as of December 31, 2023.

Transaction related expenses incurred to date as a result of the acquisition of TerraFlame amounted to $0.5 million and are recorded in other operating expenses within the consolidated statements of operations and comprehensive income (loss).

Net sales of TerraFlame included in the Company’s consolidated statements of operations and comprehensive income (loss) since the acquisition date for the years ended December 31, 2023 was $4.5 million and net income for the same period was $1.7 million.

IcyBreeze

On July 1, 2023, Solo Brands, LLC, a wholly-owned subsidiary of Holdings, entered into an Equity Purchase Agreement to acquire 100% of the voting equity interests in IcyBreeze, which constitutes a business for purposes of ASC 805, for total purchase consideration of $52.1 million. Cash paid at closing was $29.4 million, net of $7.8 million in cash acquired. The Company acquired IcyBreeze to pair a seasonally complimentary in-demand product in the outdoor activities industry to its current product portfolio, as IcyBreeze manufactures, markets, and sells portable air-conditioning products.

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The excess enterprise value of IcyBreeze over the estimated fair value of assets and liabilities assumed was recorded as goodwill. Goodwill was recorded to reflect the excess purchase consideration over net assets acquired, which represents the value that is expected to be achieved from expanding the Company’s product offerings and other synergies related to the acquisition of IcyBreeze. The primary factor that contributed to the recognition of goodwill was the expected future revenue growth of IcyBreeze. As of December 31, 2023, the purchase price accounting has been finalized.

The following table summarizes the fair values of the assets acquired and liabilities assumed by the Company at the acquisition date:

Cash consideration to the seller $ 37,180

Fair value of the earnout liability 14,897

Total Purchase Consideration $ 52,077

Property and equipment 4,187

Prepaid expenses and other assets 26

Accounts payable and accrued liabilities (711)

Deferred revenue (159)

Total identifiable net assets 32,225

On July 11, 2023, the parties to the acquisition, Solo Brands, LLC and IcyBreeze, entered into that certain First Amendment to Equity Purchase Agreement, that, among other things, revised the terms of the contingent consideration, resulting in an acceleration of the payment of the contingent consideration to the effective date for aggregate consideration of $15.3 million, of which $9.4 million was paid in cash and the remaining $5.9 million paid in shares of the Company’s Class A common stock. The difference between the fair value of the contingent consideration of $14.9 million and the payment amount of $15.3 million was recorded in selling, general and administrative expenses on the consolidated statements of operations and comprehensive income (loss) as of December 31, 2023.

Transaction related expenses incurred to date as a result of the acquisition of IcyBreeze amounted to $0.4 million and are recorded in other operating expenses within the consolidated statements of operations and comprehensive income (loss).

Net sales of IcyBreeze included in the Company’s consolidated statements of operations and comprehensive income (loss) since the acquisition date for the years ended December 31, 2023 was $7.6 million and net loss for the same period was $2.8 million.

2021 Acquisitions

Oru

On May 3, 2021, Solo Brands, LLC, a wholly-owned subsidiary of Holdings, acquired 60% of the voting equity interests in Oru for total cash consideration of $25.4 million. Additionally, the Company had the option to purchase the remaining 40% upon a liquidity event, which it did on September 8, 2021 in exchange for 9.3 million Class B Units of Holdings. The exercise price of the option was equal to Oru’s last twelve months adjusted EBITDA times a predetermined multiple. The Company acquired Oru to increase its brand and market share in the overall outdoor activities industry, as Oru manufactures, markets, and sells kayak boats and kayak accessories.

The excess enterprise value of Oru over the estimated fair value of assets and liabilities assumed was recorded as goodwill. Goodwill was recorded to reflect the excess purchase consideration over net assets acquired, which represents the value that is expected from expanding the Company’s product offerings and other synergies. Factors that contributed to the recognition of goodwill included the expected future revenue growth of Oru. None of the goodwill recognized was expected to be deductible for tax purposes. A working capital settlement of $0.2 million was paid during the first quarter of 2022 and purchase accounting has been finalized.

The following table summarizes the fair values of the assets acquired and liabilities assumed by the Company at the acquisition date:

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Accounts receivable 357

Property and equipment 436

Prepaid expenses and other assets 902

Accounts payable and accrued liabilities (4,119)

Deferred revenue (746)

Deferred tax liability (6,247)

Total identifiable net assets 22,176

Noncontrolling interest (15,320)

Less: cash acquired (6,307)

Total, net of cash acquired $ 19,330

Acquisition-related costs, which include legal, accounting, and valuation fees, totaled $0.7 million in the Successor period for the year ended December 31, 2021, and were paid by the Company subsequent to the transaction date. These costs are included in other operating expenses on the consolidated statements of operations.

Net sales of Oru included in the Company’s consolidated statements of operations and comprehensive income (loss) since the acquisition date for the years ended December 31, 2023, 2022 and 2021 was $22.7 million, $28.2 million and $19.9 million, respectively. Net loss for the 2023 period was $30.6 million and net income for the 2022 and 2021 periods was $2.8 million and $2.8 million, respectively.

ISLE

On August 2, 2021, Solo Brands, LLC, a wholly-owned subsidiary of Holdings, acquired 100% of the voting equity interests in ISLE for total consideration of cash paid of $24.8 million and Class B units of $16.5 million. The Company acquired ISLE to increase its brand and market share in the overall outdoor activities industry, as ISLE manufactures, markets, and sells stand up paddle boards and paddle board accessories.

The excess enterprise value of ISLE over the estimated fair value of assets and liabilities assumed was recorded as goodwill. Goodwill was recorded to reflect the excess purchase consideration over net assets acquired, which represents the value that is expected from expanding the Company’s product offerings and other synergies. Factors that contributed to the recognition of goodwill included the expected future revenue growth of ISLE. None of the goodwill recognized was expected to be deductible for tax purposes. Purchase accounting has been finalized.

The following table summarizes the fair values of the assets acquired and liabilities assumed by the Company at the acquisition date:

Accounts receivable 107

Property and equipment 110

Prepaid expenses and other assets 60

Intangible assets 4,121

Accounts payable and accrued liabilities (4,697)

Total identifiable net assets 11,772

Less: fair value of class B units (16,494)

Less: cash acquired (3,085)

Total, net of cash acquired $ 21,757

Acquisition-related costs, which include legal, accounting, and valuation fees, totaled $0.6 million in the Successor period for the year ended December 31, 2021, and were paid by the Company subsequent to the transaction date. These costs are included in other operating expenses on the consolidated statements of operations.

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Net sales of ISLE included in the Company’s consolidated statements of operations and comprehensive income (loss) since the acquisition date for the years ended December 31, 2023, 2022 and 2021 was $15.5 million, $17.8 million and $5.4 million, respectively, and net loss for the same periods was $4.6 million, $33.8 million and $7.1 million, respectively.

Chubbies

On September 1, 2021, Solo Brands, LLC, a wholly-owned subsidiary of Holdings, acquired 100% of the voting equity interests in Chubbies for total consideration of cash paid of $100.4 million and Class B units of $29.1 million. The Company acquired Chubbies to increase its brand and market share in the overall outdoor activities industry, as Chubbies sells casual wear, sportwear, swimwear, outerwear, loungewear, and other accessories.

The excess enterprise value of Chubbies over the estimated fair value of assets and liabilities assumed was recorded as goodwill. Goodwill was recorded to reflect the excess purchase consideration over net assets acquired, which represents the value that is expected from expanding the Company’s product offerings and other synergies. Factors that contributed to the recognition of goodwill included the expected future revenue growth of Chubbies. None of the goodwill recognized was expected to be deductible for tax purposes. A working capital settlement of $0.6 million was paid during the first quarter of 2022 and purchase accounting has been finalized.

The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed by the Company at the acquisition date:

Accounts receivable 1,962

Property and equipment 401

Prepaid expenses and other assets 893

Accounts payable and accrued liabilities (15,011)

Deferred revenue (392)

Deferred tax liability (12,095)

Other non-current liabilities (12)

Total identifiable net assets 56,942

Less: cash acquired (7,990)

Less: fair value of class B units (29,075)

Total, net of cash acquired $ 92,995

Acquisition-related costs, which include legal, accounting, and valuation fees, totaled $1.6 million in the Successor period for the year ended December 31, 2021, and were paid by the Company subsequent to the transaction date. These costs are included in other operating expenses on the consolidated statements of operations.

Net sales of Chubbies included in the Company’s consolidated statements of operations and comprehensive income (loss) since the acquisition date for the years ended December 31, 2023, 2022 and 2021 was $101.6 million, $89.3 million and $16.4 million, respectively. Net income for the 2023 period was $9.1 million and net loss for the 2022 and 2021 periods was $0.1 million and $8.1 million, respectively.

The table below summarizes the aggregate amount of net sales and net income (loss) attributable to Solo Brands, Inc. for the 2021 and 2023 acquisitions for the years ended December 31, 2023, 2022 and 2021. The amounts for the year ended December 31, 2021 are unaudited pro-forma amounts reflecting the amounts of net sales and net loss as if the significant acquisitions had occurred as of January 1, 2021.

Year Ended December 31,

(Actuals) (Actuals) (Pro-Forma) (Unaudited)

Net sales

Net income (loss) attributable to Solo Brands, Inc.

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Pro-forma net sales, if combined with the net sales of Solo Brands, Inc., for the year ended December 31, 2021 would have been $483.3 million and pro-forma net income, if combined with the net income of Solo Brands, Inc., would have been $48.5 million.

NOTE 5 – Inventory

Inventory consisted of the following:

NOTE 6 –Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following:

Prepaid expenses and other current assets $ 21,893 $ 12,639

NOTE 7 – Property and Equipment, net

Property and equipment, net consisted of the following:

Software and website development 1,500 954

Computer and other equipment 1,354 895

Accumulated depreciation and amortization (9,481) (4,266)

Depreciation expense was $4.1 million, $3.3 million and $0.7 million for the years ended December 31, 2023, 2022, and 2021, respectively.

Depreciation related to the tooling used to manufacture fire pits is included within cost of goods sold, rather than in depreciation and amortization expense, both of which are included in the consolidated statements of operations and comprehensive income (loss). Depreciation for the tooling was $0.8 million for the year ended December 31, 2023 and nominal for the years ended December 31, 2022 and 2021.

The Company capitalized $0.6 million, $0.5 million and $0.4 million in software and website development costs during the years ended December 31, 2023, 2022, and 2021, respectively. Capitalized software and website development costs are included in property and equipment, net on the consolidated balance sheets. Amortization of capitalized software and website development casts was $0.4 million, $0.3 million and $0.1 million for the years ended December 31, 2023, 2022, and 2021, respectively, and included in depreciation and amortization expenses on the consolidated statements of operations and comprehensive income (loss).

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NOTE 8 – Intangible Assets, net

Intangible assets, net consisted of the following:

Gross carrying value

Developed technology — 17,871

Accumulated amortization and impairments

Developed technology — (4,255)

(1) Includes impairment of trademark discussed below.

In the second quarter of 2022, as a result of the Company’s identification of triggering events to perform an interim quantitative goodwill impairment test (see Note 9, Goodwill for additional information), the Company first considered the extent to which the adverse events and circumstances identified could affect the reporting units’ carrying amounts. The Company observed weakened paddleboard sales resulting in a lower near-term forecast of future operating results, which constituted a triggering event for one of the Company’s held and used long-lived asset groups primarily consisting of a trademark intangible asset. The Company reviewed the undiscounted future cash flows for the identified long-lived asset group, and the results of the analysis indicated the carrying amount for the long-lived asset group was not expected to be recovered. The Company estimated the fair value of the trademark intangible using the relief-from-royalty method under the income approach, based on the following significant assumptions: management’s estimates of future net sales for the long-lived asset group, the royalty rate and the weighted average cost of capital adjusted for the relevant risk associated with the characteristics of the long-lived asset group. The fair value was then compared to the carrying value of the long-lived asset group, and the Company recorded a $2.7 million impairment charge to the trademark intangible asset at June 30, 2022. This impairment charge was recorded to impairment charges on the consolidated statements of operations and comprehensive income (loss). As a result of this impairment charge, the Company also reassessed the useful life of this trademark and revised it from fifteen years to five years. This change does not have a material impact to amortization expense in any future year.

In the fourth quarter of 2023, as a result of the Company’s identification of triggering events to perform an interim quantitative goodwill impairment test (see Note 9, Goodwill for more information), the Company first considered the extent to which the adverse events and circumstances identified could affect the reporting units’ carrying amounts. The Company observed the following triggering events for the Company’s held and used long-lived asset groups:

•A significant decline in performance of the Solo Stove and ISLE reporting units in comparison to previous forecasts for the fourth quarter of 2023;

•Changes in management, with the departure of the CFO in the fourth quarter of 2023 and release and replacement of the CEO after year end December 31, 2023, however, in relative proximity to the fourth quarter of 2023,This change in management resulted in a shift of investment within each of our brands, inclusive of a reduction in investment for Oru; and

•A significant decline in share price of the Company’s Class A common stock in relative proximity to the fourth quarter of 2023.

As a result of the identified triggering events, the Company reviewed the undiscounted future cash flows for the identified long-lived asset groups, and the results of the analysis indicated the carrying amounts for the long-lived asset groups of Oru and ISLE were not expected to be recovered. The Company estimated the fair value of the asset group of both Oru and ISLE and determined that other than the intangible asset(s), the remaining assets were materially stated and not subject to impairment. The fair value of both the Oru and ISLE reporting units were then compared to the carrying value of the long-lived asset group at each reporting unit, resulting in nominal value assigned to the existing intangible asset(s). The Company recorded an aggregate $13.4 million impairment charge to the intangible assets of Oru and a $0.8 million impairment charge to the Trademark intangible asset of ISLE as of December 31, 2023. These impairment charges were recorded to impairment charges on the consolidated statements of operations and comprehensive income (loss). As a result of this impairment charge, the Company also reassessed the useful life of the intangible assets of Oru and ISLE. As of December 31, 2023, there was no further value attributed to the intangible assets of Oru or ISLE, resulting in the useful lives of the intangible assets for both reporting units being fully depleted. This change does not have a material impact to amortization expense in any future year.

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Amortization expense was $22.0 million, $21.0 million and $17.5 million for the years ended December 31, 2023, 2022 and 2021, respectively.

Estimated amortization expense for the next five years was as follows:

Years ending December 31, Amount

Total future amortization expense $ 221,010

NOTE 9 – Goodwill

The carrying value of goodwill was as follows:

Impairment losses (27,901)

In the second quarter of 2022, the Company identified triggering events indicating the fair value of one or more of the Company’s reporting units more likely than not did not exceed their carrying values. The triggering events included: (1) adverse equity market conditions resulting in a sustained decline in the Company’s stock price subsequent to the Company’s issuance of its first quarter 2022 results on Form 10-Q and (2) weakened demand for the ISLE reporting unit’s products resulting in a lower near-term forecast of future operating results. As a result, the Company performed an interim quantitative goodwill impairment test for all of its reporting units and recorded a $27.9 million goodwill impairment charge related to its ISLE reporting unit, which has $1.7 million of remaining goodwill after the impairment. The results of the interim quantitative test did not result in a goodwill impairment for the Company’s other reporting units. The impairment charge was recorded to impairment charges on the consolidated statements of operations and comprehensive income (loss).

In the third quarter of 2023, the Company identified a triggering event indicating the fair value of one or more of the Company’s reporting units more likely than not did not exceed their carrying values. The triggering event was an adverse change in the plan for each brand approved by the board of directors, resulting in a lower near-term forecast of future operating results. As a result, the Company performed an interim quantitative goodwill impairment test for all of its reporting units and determined that the fair value exceeded the carrying value for each reporting unit. As such, the interim quantitative test did not result in a goodwill impairment for the Company’s reporting units. Per the accounting policy in Note 2, Significant Accounting Policies, the Company completed its annual goodwill impairment test as of October 1, 2023. Due to the proximity of the quantitative analysis performed as of the third quarter of 2023, we performed a qualitative analysis of our goodwill and determined that there were no indicators of impairment. This assessment was made based on relevant information, including applicable facts and circumstances, known as of the goodwill impairment assessment date. As a result of the non-persistent nature of the triggering events and the lack of impairment indicators identified through the qualitative assessment performed, as of October 1, 2023, we determined it was more likely than not that the fair value of our reporting units exceeded their carrying values and, as such, we did not record goodwill impairment for our reporting units.

In the fourth quarter of 2023, subsequent to the Company’s annual goodwill impairment analysis, the Company identified goodwill impairment indicators indicating the fair value of one or more of our reporting units more likely than not did not exceed their carrying values. The goodwill impairment indicators observed were as follows:

•A significant decline in performance of the Solo Stove and ISLE reporting units in comparison to previous forecasts for the fourth quarter of 2023;

•Changes in management, with the departure of the CFO in the fourth quarter of 2023 and release and replacement of the CEO after year end December 31, 2023, however, in relative proximity to the fourth quarter of 2023,This change in management resulted in a shift of investment within each of our brands, inclusive of a reduction in investment for Oru; and

•A significant decline in share price of the Company’s Class A common stock after year end December 31, 2023, however, in relative proximity to the fourth quarter of 2023.

As a result of the goodwill impairment indicators noted above, the Company determined it appropriate to perform an interim quantitative goodwill impairment test for all of its reporting units as of December 31, 2023.

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For the quantitative goodwill impairment analysis performed as of December 31, 2023, the Company estimated the fair value of the reporting units using a weighting of fair values derived from the income and market approaches, where comparable market data was available. Under the income approach, the Company determined the fair value of a reporting unit based on the present value of estimated future cash flows. Cash flow projections were based on management’s estimates of revenue growth rates and operating margins, EBITDA margins, consideration of industry and market conditions, terminal growth rates and management’s estimates of working capital requirements. The discount rate for each reporting unit was based on a weighted average cost of capital adjusted for the relevant risk associated with the characteristics of each reporting unit and its estimated cash flows, which ranged from 16.0% to 19.9%. Under the market approach, the Company utilized a combination of methods, including estimates of fair value based on: (1) market multiples of revenue and earnings derived from comparable publicly-traded companies with similar operating and investment characteristics as the reporting unit and (2) pricing multiples derived from recent merger and acquisition transactions of comparable publicly-traded companies.

As a result of the quantitative goodwill impairment test performed as of December 31, 2023, the Company determined that the carrying amounts of the Solo Stove, Oru and ISLE reporting units exceeded their fair values and goodwill impairment charges were recognized at each. The remaining reporting units were determined to have fair values exceeding their book values by more than 10%. The following table presents the goodwill impairment charges and remaining goodwill by reporting unit:

SBDS US Equity

SBDS · 10-K · period ended 2023-12-31

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Item 8. Financial Statements and Supplementary Data

SBDS US Equity☆

SBDS · 10-K · period ended 2023-12-31

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Item 8. Financial Statements and Supplementary Data

SBDS US Equity