UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________________________________________________________________________________________________

FORM 10-Q

__________________________________________________________________________________________________

(Mark One)

☒    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

OR

☐    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number: 001-40828

__________________________________________________________________________________________________

a.k.a. Brands Holding Corp.

(Exact name of registrant as specified in its charter)

__________________________________________________________________________________________________

Delaware	87-0970919
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

100 Montgomery Street, Suite 1600

San Francisco, California 94104

(Address of principal executive offices, including zip code)

415-295-6085

(Registrant’s Telephone Number, Including Area Code)

__________________________________________________________________________________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	AKA	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No ☒

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated Filer	¨
Non-accelerated filer	x	Smaller Reporting Company	x
		Emerging Growth Company	x

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

As of November 3, 2021, the registrant had 128,647,836 shares of common stock outstanding.

Table of Contents

a.k.a. BRANDS HOLDING CORP.

FORM 10-Q

TABLE OF CONTENTS

		Page
	PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)	5
	Condensed Consolidated Balance Sheets	5
	Condensed Consolidated Statements of Income	6
	Condensed Consolidated Statements of Comprehensive Income	7
	Condensed Consolidated Statements of Stockholders’ Equity, Partners' Capital and Redeemable Noncontrolling Interest	8
	Condensed Consolidated Statements of Cash Flows	10
	Notes to Condensed Consolidated Financial Statements	11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	47
Item 4.	Controls and Procedures	48
	PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	49
Item 1A.	Risk Factors	49
Item 2.	Unregistered Sales of Equity Securities	87
Item 3.	Defaults Upon Senior Securities	87
Item 4.	Mine Safety Disclosures	88
Item 5.	Other Information	88
Item 6.	Exhibits	89
Signatures

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FORWARD-LOOKING STATEMENTS

Unless we state otherwise or the context otherwise requires, the terms “we,” “us,” “our,” “our business,” the “Company,” “a.k.a.” and similar references refer: (1) on or following the consummation of the Reorganization Transactions, including the offering as described in the Prospectus, to a.k.a. Brands Holding Corp. and its consolidated subsidiaries, including Excelerate, L.P. and its consolidated subsidiaries, and (2) prior to the consummation of the Reorganization Transactions, to Excelerate, L.P. and its consolidated subsidiaries.

All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations and financial position, or that describe our plans, goals, intentions, objectives, strategies, expectations, beliefs and assumptions, are forward-looking statements. The words “believe,” “may,” “might,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “project,” “plan,” “objective,” “could,” “would,” “should” and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. We caution that the forward-looking statements in this Quarterly Report on Form 10-Q are subject to a number of known and unknown risks, uncertainties and assumptions that may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. Factors that could contribute to these differences include, among other things:

•The continuation of the COVID-19 pandemic may cause disruptions to our operations, customer demand, and our suppliers’ ability to meet our needs;

•Rapidly-changing consumer preferences in the apparel, footwear and accessories industries expose us to the risk of lost sales, harmed customer relationships, and diminished brand loyalty if we are unable to anticipate such changes;

•Our failure to acquire new customers, retain existing customers, or maintain average order value levels;

•The effectiveness of our marketing and our level of customer traffic;

•Merchandise return rates;

•Our success in identifying brands to acquire, integrate and manage on our platform or unable to expand into new markets;

•The global nature of our business exposes us to numerous risks that could materially adversely affect our consolidated financial condition and results of operations;

•Our use of social media platforms and influencer sponsorship initiatives could adversely affect our reputation or subject us to fines or other penalties;

•Certain of our key operating metrics are subject to inherent challenges in measurement, and real or perceived inaccuracies in such metrics may harm our reputation and negatively affect our business;

•We could be required to collect additional sales taxes or be subject to other tax liabilities that may increase the costs our consumers would have to pay for our offerings and adversely affect our operating results;

•Economic downturns and market conditions beyond our control could materially adversely affect our business, operating results, financial condition and prospects;

•Fluctuations between non-U.S. currencies and the U.S. dollar could materially impact our results of operations;

•Our ability to attract and retain highly qualified personnel;

•Fluctuations in wage rates and the price, availability and quality of raw materials and finished goods could increase costs;

•Interruptions in or increased costs of shipping and distribution could affect our ability to deliver our products to the market and impair our operating results; and

•The other factors described in this Quarterly Report on Form 10-Q, including those set forth in the section captioned “Risk Factors.”

Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report on Form 10-Q may not occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

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You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Quarterly Report on Form 10-Q to conform these statements to actual results or changes in our expectations, unless otherwise required by law.

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

a.k.a. BRANDS HOLDING CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

(unaudited)

	September 30, 2021		December 31, 2020
Assets
Current assets:
Cash and cash equivalents	$	54,449	$	26,259
Restricted cash	2,177		840
Accounts receivable	4,004		1,183
Inventory, net	95,768		33,124
Prepaid income taxes	7,102		—
Prepaid expenses and other current assets	13,090		4,080
Total current assets	176,590		65,486
Property, plant and equipment, net	12,591		2,121
Operating lease right-of-use assets	26,459		4,477
Intangible assets, net	87,313		29,102
Goodwill	331,342		88,253
Other assets	895		—
Total assets	$	635,190	$	189,439
Liabilities, stockholders’ equity and partners’ capital
Current liabilities:
Accounts payable	$	22,535	$	4,689
Accrued expenses and other current liabilities	42,809		18,169
Sales returns reserve	4,122		3,517
Deferred revenue	7,472		4,165
Income taxes payable	—		3,118
Operating lease liabilities, current	5,579		1,234
Current portion of long-term debt	5,000		6,353
Total current liabilities	87,517		41,245
Long-term debt	93,211		—
Operating lease liabilities	21,465		3,262
Other long-term liabilities	1,287		144
Deferred income taxes, net	22,801		5,904
Total liabilities	226,281		50,555
Commitments and contingencies (Note 15)
Stockholders’ equity and partners’ capital:
Preferred stock, $0.001 par value; 50,000,000 and zero shares authorized; zero shares issued or outstanding	—		—
Common stock, $0.001 par value; 500,000,000 and zero shares authorized; 126,590,142 and zero shares issued and outstanding	127		—
Partnership units (1)	—		108,197
Additional paid-in capital	415,341		727
Accumulated other comprehensive income (loss)	(14,706)		5,839
Retained earnings	8,147		14,138
Non-controlling interest	—		9,983
Total stockholders’ equity and partners’ capital	408,909		138,884
Total liabilities, stockholders’ equity and partners’ capital	$	635,190	$	189,439

__________

(1)Excelerate, L.P. was the predecessor entity to a.k.a. Brands Holding Corp. Refer to Note 1 for additional information.

The accompanying notes are an integral part of these condensed consolidated financial statements

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a.k.a. BRANDS HOLDING CORP.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except share and per share amounts)

(unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Net sales	$	161,762	$	63,336	$	379,768	$	145,135
Cost of sales	75,652		24,831		171,636		61,437
Gross profit	86,110		38,505		208,132		83,698
Operating expenses:
Selling	40,582		15,707		98,859		39,735
Marketing	15,463		4,602		36,595		11,839
General and administrative	28,900		7,307		61,550		17,827
Total operating expenses	84,945		27,616		197,004		69,401
Income from operations	1,165		10,889		11,128		14,297
Other expense, net:
Interest expense	(4,104)		(103)		(8,320)		(268)
Loss on extinguishment of debt	(10,924)		—		(10,924)		—
Other expense	(561)		(117)		(623)		(122)
Total other expense, net	(15,589)		(220)		(19,867)		(390)
Income (loss) before income taxes	(14,424)		10,669		(8,739)		13,907
Benefit from (provision for) income taxes	4,331		(3,375)		2,625		(4,399)
Net income (loss)	(10,093)		7,294		(6,114)		9,508
Net loss (income) attributable to noncontrolling interests	199		(232)		123		(302)
Net income (loss) attributable to a.k.a. Brands Holding Corp.	$	(9,894)	$	7,062	$	(5,991)	$	9,206
Net income (loss) per share
Basic	$	(0.11)	$	0.10	$	(0.07)	$	0.13
Diluted	$	(0.11)	$	0.10	$	(0.07)	$	0.13
Weighted average shares outstanding
Basic	88,368,709		69,931,635		81,401,682		69,817,133
Diluted	88,368,709		69,931,635		81,401,682		69,817,133

The accompanying notes are an integral part of these condensed consolidated financial statements

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a.k.a. BRANDS HOLDING CORP.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Net income (loss)	$	(10,093)	$	7,294	$	(6,114)	$	9,508
Other comprehensive income (loss):
Currency translation	(20,146)		9,089		(31,245)		2,129
Total comprehensive income (loss)	(30,239)		16,383		(37,359)		11,637
Comprehensive loss (income) attributable to noncontrolling interests	6,954		(1,080)		10,824		(320)
Comprehensive income (loss) attributable to a.k.a. Brands Holding Corp.	$	(23,285)	$	15,303	$	(26,535)	$	11,317

The accompanying notes are an integral part of these condensed consolidated financial statements

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a.k.a. BRANDS HOLDING CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY, PARTNERS’ CAPITAL(1) AND REDEEMABLE NONCONTROLLING INTEREST

(in thousands, except share and unit data)

(unaudited)

	Common Stock			Partnership Units(1)			Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Noncontrolling Interest		Total Equity		Redeemable Noncontrolling Interest
	Shares	Amount		Units	Amount
Balance as of December 31, 2020	—	$	—	114,167,842	$	108,197	$	727	$	5,839	$	14,138	$	9,983	$	138,884	$	—
Issuance of units	—	—		25,746,282	82,669		—		—		—		—		82,669		—
Noncontrolling interest from purchase of Culture Kings	—	—		—	—		—		—		—		—		—		142,717
Equity-based compensation	—	—		—	—		523		—		—		—		523		—
Cumulative translation adjustment	—	—		—	—		—		(3,444)		—		(398)		(3,842)		(1,575)
Net income	—	—		—	—		—		—		1,472		318		1,790		—
Balance as of March 31, 2021	—	—		139,914,124	190,866		1,250		2,395		15,610		9,903		220,024		141,142
Equity-based compensation	—	—		—	—		609		—		—		—		609		—
Cumulative translation adjustment	—	—		—	—		—		(3,709)		—		(137)		(3,846)		(1,835)
Net income	—	—		—	—		—		—		2,431		253		2,684		(495)
Balance as of June 30, 2021	—	—		139,914,124	190,866		1,859		(1,314)		18,041		10,019		219,471		138,812
Purchase of Petal & Pup noncontrolling interest	—	—		—	—		(10,599)		—		—		(9,599)		(20,198)		—
Purchase of Culture Kings noncontrolling interest	21,809,804	22		—	—		132,256		—		—		—		132,278		(132,278)
Reorganization transactions	94,780,338	95		(139,914,124)	(190,866)		190,771		—		—		—		—		—
Issuance of common stock upon initial public offering, net of issuance costs	10,000,000	10		—	—		95,472		—		—		—		95,482		—
Equity-based compensation	—	—		—	—		5,582		—		—		—		5,582		—
Cumulative translation adjustment	—	—		—	—		—		(13,392)		—		(471)		(13,863)		(6,283)
Net income (loss)	—	—		—	—		—		—		(9,894)		51		(9,843)		(251)
Balance as of September 30, 2021	126,590,142	$	127	—	$	—	$	415,341	$	(14,706)	$	8,147	$	—	$	408,909	$	—

__________

(1)Excelerate, L.P. was the predecessor entity to a.k.a. Brands Holding Corp. Refer to Note 1 for additional information.

The accompanying notes are an integral part of these condensed consolidated financial statements

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a.k.a. BRANDS HOLDING CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY, PARTNERS’ CAPITAL(1) AND REDEEMABLE NONCONTROLLING INTEREST

(in thousands, except share and unit data)

(unaudited)

	Partnership Units(1)			Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings (Accumulated Deficit)		Noncontrolling Interest		Total Equity
	Units	Amount
Balance as of December 31, 2019	113,761,338	$	107,747	$	494	$	(4,731)	$	(196)	$	8,727	$	112,041
Equity-based compensation	—	—		122		—		—		—		122
Cumulative translation adjustment	—	—		—		(5,845)		—		(726)		(6,571)
Net loss	—	—		—		—		(62)		(2)		(64)
Balance as of March 31, 2020	113,761,338	107,747		616		(10,576)		(258)		7,999		105,528
Issuance of units	406,504	450		—		—		—		—		450
Equity-based compensation	—	—		297		—		—		—		297
Cumulative translation adjustment	—	—		—		(285)		—		(104)		(389)
Net income	—	—		—		—		2,206		72		2,278
Balance as of June 30, 2020	114,167,842	108,197		913		(10,861)		1,948		7,967		108,164
Equity-based compensation	—	—		415		—		—		—		415
Cumulative translation adjustment	—	—		—		8,241		—		848		9,089
Net income	—	—		—		—		7,062		232		7,294
Balance as of September 30, 2020	114,167,842	$	108,197	$	1,328	$	(2,620)	$	9,010	$	9,047	$	124,962

_________

(1)Excelerate, L.P. was the predecessor entity to a.k.a. Brands Holding Corp. Refer to Note 1 for additional information.

The accompanying notes are an integral part of these condensed consolidated financial statements

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a.k.a. BRANDS HOLDING CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Nine Months Ended September 30,
	2021		2020
Cash flows from operating activities:
Net income (loss)	$	(6,114)	$	9,508
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation expense	1,705		220
Amortization expense	9,631		4,499
Amortization of inventory fair value adjustment	12,251		—
Amortization of debt issuance costs	448		—
Loss on extinguishment of debt	10,924		—
Lease incentives	358		—
Non-cash operating lease expense	4,568		616
Equity-based compensation	6,714		834
Deferred income taxes, net	(8,235)		(2,101)
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable	(2,280)		(1,318)
Inventory	(16,446)		(6,234)
Prepaid expenses and other current assets	(5,877)		(2,523)
Accounts payable	3,461		(171)
Income taxes payable	(12,279)		2,407
Accrued expenses and other current liabilities	23,188		4,955
Returns reserve	486		(1,336)
Deferred revenue	3,351		(166)
Lease liabilities	(4,354)		(591)
Foreign currency remeasurement	(869)		373
Net cash provided by operating activities	20,631		8,972
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired	(226,228)		(580)
Purchase of noncontrolling interest	(20,198)		—
Purchase of intangible assets	(661)		—
Purchases of property and equipment	(4,715)		(1,003)
Net cash used in investing activities	(251,802)		(1,583)
Cash flows from financing activities:
Proceeds from initial public offering, net of issuance costs	98,558		—
Proceeds from line of credit, net of issuance costs	14,150		10,408
Repayment of line of credit	(22,071)		(9,905)
Proceeds from issuance of debt, net of issuance costs	242,735		—
Repayment of debt	(154,513)		—
Proceeds from issuance of units	82,669		450
Net cash provided by financing activities	261,528		953
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(830)		(444)
Net increase in cash, cash equivalents and restricted cash	29,527		7,898
Cash, cash equivalents and restricted cash at beginning of period	27,099		5,791
Cash, cash equivalents and restricted cash at end of period	$	56,626	$	13,689
Reconciliation of cash, cash equivalents, and restricted cash:
Cash and cash equivalents	$	54,449	$	13,352
Restricted cash	2,177		337
Total cash, cash equivalents and restricted cash	$	56,626	$	13,689

The accompanying notes are an integral part of these condensed consolidated financial statements

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a.k.a. BRANDS HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(tabular amounts in thousands, except share, per share data, unit, per unit data, ratios, or as noted)

(unaudited)

Note 1. Description of Business

a.k.a. Brands Holding Corp. (together with our wholly-owned subsidiaries, collectively, the “Company”), which operates under the name “a.k.a. Brands” or “a.k.a.,” is an online fashion retailer focused on acquiring and accelerating the growth of next-generation, digitally native fashion brands targeting Gen Z and Millennial customers.

The Company is headquartered in San Francisco, California, with buying, studio, marketing, fulfillment and administrative functions primarily in Australia and the United States.

Initial Public Offering

In September 2021, the Company completed an initial public offering (the “IPO”), in which the Company issued and sold 10,000,000 shares of its newly authorized common stock for $11.00 per share for net proceeds of $95.5 million, after deducting underwriting discounts and commissions of $6.6 million, and offering costs of $7.9 million.

Reorganization Transactions

a.k.a. Brands Holding Corp. was formed as a Delaware corporation on May 20, 2021 to be the issuer of common stock in the IPO. Excelerate, L.P. (“Excelerate”), a Cayman limited partnership, and the predecessor entity to a.k.a. Brands Holding Corp., had historically been the holding company of the entities that owned and operated the a.k.a. businesses prior to the IPO. The equity interests of Excelerate, which included the Series A partner units and incentive units, were owned by affiliates of Summit Partners (“Summit”), certain other investors and certain of our executive officers and directors and other members of management.

In connection with the IPO, a reorganization was undertaken to cause Excelerate to become a wholly-owned subsidiary of a.k.a. Brands Holding Corp. Immediately prior to the reorganization, Summit, management and certain other investors exchanged their limited partnership interests in Excelerate for limited partnership interests in New Excelerate, L.P. (“New Excelerate”), and New Excelerate became a limited partner of Excelerate. Immediately prior to the pricing of the IPO, New Excelerate and other Excelerate investors transferred their interests in Excelerate to a.k.a. Brands Holding Corp., in exchange for common stock in a.k.a. Brands Holding Corp (the “New Excelerate Reorganization”). As a result, Excelerate became a wholly-owned subsidiary of a.k.a. Brands Holding Corp.

As a result of the Culture Kings acquisition in March 2021 (refer to Note 3 for additional information), Excelerate indirectly owned 55% of the equity interests in CK Holdings, LP (“CK Holdings”), which owned 100% of the Company’s Culture Kings business prior to the IPO. The remaining 45% of the equity interests in CK Holdings were held by certain minority investors. Immediately following the New Excelerate Reorganization, the Company completed a series of transactions in which the minority investors exchanged their remaining interests in CK Holdings for 21,809,804 newly issued shares of a.k.a. Brands Holding Corp. common stock. The number of shares issued in exchange for the minority interests was determined based on the relative valuations of CK Holdings and consolidated a.k.a. at the time of the IPO.

Excelerate had historically owned 66.67% of the equity interests in P&P Holdings, LP (“P&P Holdings”), which operated the Company’s Petal & Pup business prior to the IPO. The remaining 33.33% of the equity interests in P&P Holdings were held by certain minority investors. On August 19, 2021, the Company repurchased approximately 6.0% of the equity held by the P&P minority investors for AUD $5.0 million. In connection with the completion of the IPO, the Company used a portion of the net proceeds from the IPO to fund the acquisition of the remaining 27.3% of the equity interests in P&P Holdings then owned by the P&P minority investors for cash of approximately AUD $22.8 million. Following the completion of this purchase, P&P Holdings became a wholly-owned subsidiary of a.k.a. Brands Holding Corp.

Refinancing Transactions

In March 2021, certain subsidiaries of the Company entered into senior secured credit facilities that provided the Company with a $125.0 million senior secured term loan facility and up to $25.0 million aggregate principal in revolving borrowings (the “Fortress Credit Facilities”), and also issued $25.0 million in senior subordinated notes to an affiliate of Summit (the “Summit Notes”) to provide financing for the Company’s acquisition of Culture Kings (refer to Note 3 for additional information on the Culture Kings acquisition).

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In connection with the IPO, certain subsidiaries of the Company entered into a new senior secured credit facility inclusive of a $100 million term loan and a $50 million revolving line of credit. The Company used borrowings under this new senior secured credit facility’s term loan, together with a portion of the proceeds from the IPO, to repay the Fortress Credit Facilities and Summit Notes in full and subsequently terminated them. Refer to Note 8 for additional information.

Historical Units

Prior to the IPO, incentive units had been issued to certain directors and members of management. These incentive units had a requirement that such shares could not participate in distributions and earnings of Excelerate, L.P. until after the holders of the Series A partner units received their return of capital plus a specified threshold amount per unit. Accordingly, at no time prior to IPO had such threshold been met. In September 2021, in connection with the IPO, all previous ownership interests in Excelerate, L.P., held by New Excelerate and other Excelerate investors were exchanged for shares of common stock in a.k.a. Brands Holdings Corp. in direct proportion to their respective Series A partner units and incentive units, subject to a reverse split factor of 61.25%. All unit, per unit and related information presented in the accompanying consolidated financial statements have been retroactively adjusted, where applicable, to reflect the impact of the split of units held by New Excelerate investors into a proportionate amount of shares of a.k.a. common stock. The terms of the incentive units remained unchanged and individual holders of such units will only be entitled to participate in the distributions and earnings of New Excelerate once the holders of the Series A partner units receive their return of capital plus a specified threshold amount per unit. However, as New Excelerate was issued shares of common stock in direct proportion to its combined Series A partner units and incentive units, New Excelerate will participate in all distributions and returns of the Company in relation to the total amount of shares of a.k.a. common stock that it holds.

Prior to the IPO, a.k.a. used the two-class method in calculating earnings per unit and had not deemed the incentive units to be potentially dilutive due to the requirement that such shares cannot participate in distributions and earnings of the Company until after the Series A units receive their return of capital plus a specified threshold amount per unit, and such threshold had not been met. Accordingly, basic and diluted earnings per share presented on the condensed consolidated statements of income for all periods prior to the IPO are the same. Post-IPO, the common stock held by New Excelerate includes shares issued in proportion to the ownership interests in respect to the incentive units. Therefore, the impact of the incentive unit ownership is included in the common stock issued and outstanding after the IPO.

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Note 2. Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

The Company’s unaudited condensed consolidated interim financial statements have been prepared in accordance with Article 10 of the Securities and Exchange Commission’s Regulation S-X. As permitted under those rules, certain footnotes or other financial information that are normally required by generally accepted accounting principles in the United States (“GAAP”) can be condensed or omitted. These financial statements have been prepared on the same basis as our annual financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for the fair statement of our financial information. The accompanying unaudited condensed consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and the related notes thereto for the year ended December 31, 2020 which are included in the prospectus filed September 23, 2021 (the “Prospectus”) with the SEC pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended (the “Securities Act”). These interim results are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2021 or for any other interim period or for any other future year. The accompanying condensed consolidated financial statements include the balances of the Company and all of its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities in the consolidated financial statements and accompanying notes. Actual results could materially differ from those estimates. On an ongoing basis, the Company evaluates items subject to significant estimates and assumptions. As of September 30, 2021, the effects of the ongoing COVID-19 pandemic on our business, results of operations and financial condition continue to evolve. As a result, many of our estimates and assumptions require increased judgment and carry a higher degree of variability and volatility. The accounting estimates and assumptions that may be most impacted by this higher degree of variability and volatility are our sales returns reserve and goodwill impairment testing.

Deferred Offering Costs

Deferred offering costs consist primarily of legal, accounting and other fees related to the IPO which were recorded in prepaid expenses and other current assets in the condensed consolidated balance sheets prior to the IPO. Upon the completion of the IPO in September 2021, deferred offering costs of $7.9 million were reclassified to stockholders’ equity and recorded net against the proceeds from the IPO. No offering costs were deferred as of September 30, 2021 or December 31, 2020.

Business Combinations

The Company accounts for business combinations using the acquisition method and accordingly, the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree are recorded at their acquisition date fair values. Goodwill is recorded as the difference, if any, between the aggregate consideration paid for an acquisition and the fair value of the acquired net tangible and intangible assets. Goodwill recorded in an acquisition is assigned to applicable reporting units based on expected revenues or expected cash flows. Identifiable intangible assets with finite lives are amortized over their useful lives. Amortization of intangible assets is recorded in general and administrative expense.

While the Company uses its best estimates and assumptions as a part of the determination of fair value to accurately value assets acquired, liabilities assumed and any noncontrolling interest on the business combination date, the Company’s estimates and assumptions are inherently subject to refinement. As a result, during the preliminary determination of fair value, which may be up to one year from the business combination date, the Company may record adjustments to the assets acquired or liabilities assumed subsequent to the completion of the determination of fair value in the Company’s operating results in the period in which the adjustments were determined.

Noncontrolling interest is part of the aggregate consideration exchanged for an acquired company. It is measured at the noncontrolling interest’s share of the fair value of the subsidiaries’ identifiable assets and liabilities at the date of acquisition by the Company, subject to possible adjustments for up to one year from the business combination date, and the noncontrolling interest’s share of changes in equity since the date of acquisition.

The Company also incurs acquisition-related and other expenses including legal, banking, accounting and other advisory fees of third parties which are recorded as general and administrative expenses as incurred. The results of operations of acquired businesses are included in the consolidated financial statements from the acquisition date.

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Revenue Recognition

Revenue is primarily derived from the sale of apparel merchandise through the Company’s online websites and stores and, when applicable, shipping revenue.

Revenue is recognized in an amount that reflects the consideration expected to be received in exchange for products. To determine revenue recognition for contracts with customers in accordance with Revenue from Contracts with Customers (Topic 606), the Company recognizes revenue from the commercial sales of products and contracts by applying the following five steps: (1) identification of the contract, or contracts, with the customer; (2) identification of the performance obligations in the contract; (3) determination of the transaction price; (4) allocation of the transaction price to the performance obligations in the contract; and (5) recognition of revenue when, or as, the Company satisfies its performance obligation. A contract is created with the customer at the time the order is placed by the customer, which creates a single performance obligation. The Company recognizes revenue for its single performance obligation at the time control of the product passes to the customer, which is when the goods are transferred to a third-party common carrier, for purchases through the Company’s online websites, or at point of sale, for purchases in our stores. In addition, the Company has elected to treat shipping and handling as fulfillment activities and not a separate performance obligation.

Net sales from product sales includes shipping charged to the customer and is recorded net of taxes collected from customers, which are recorded in other current liabilities and are remitted to governmental authorities. Cash discounts earned by the customers at the time of purchase and estimates for sales return allowances are deducted from gross revenue in determining net sales.

The Company generally provides refunds for goods returned within 30 to 45 days from the original purchase date. A returns reserve is recorded by the Company based on historical refund experience with a corresponding reduction of sales and cost of sales. The returns reserve was $4.1 million and $3.5 million as of September 30, 2021 and December 31, 2020, respectively.

The following table presents a summary of the Company’s sales return reserve:

Balance as of December 31, 2019	$	2,585
Returns	(36,796)
Allowance	37,728
Balance as of December 31, 2020	3,517
Returns	(57,795)
Allowance	58,400
Balance as of September 30, 2021	$	4,122

The Company also sells gift cards and issues online credits in lieu of cash refunds or exchanges. Proceeds from the issuance of gift cards and store credits issued are recorded as deferred revenue and recognized as revenue when the gift cards or online credit are redeemed or, upon inclusion in gift card and online credit breakage estimates. Breakage estimates are determined based on prior historical experience. Gift card breakage is recognized proportionally with gift card redemptions in net sales. Gift cards sold to customers do not lose value over periods of inactivity and the Company is not required by law to remit the value of unredeemed gift cards to the jurisdictions in which it operates.

Revenue recognized in net sales on breakage of online credit and gift cards for the three months ended September 30, 2021 and 2020 was $0.1 million and $0.3 million, respectively. Revenue recognized in net sales on breakage of online credit and gift cards for the nine months ended September 30, 2021 and 2020 was $0.1 million and $0.3 million, respectively.

The following table presents the disaggregation of the Company’s net revenues by geography, based on customer address:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
United States	$	76,435	$	37,648	$	190,470	$	83,081
Australia	63,831		19,707		142,163		45,780
Rest of world	21,496		5,981		47,135		16,274
Total	$	161,762	$	63,336	$	379,768	$	145,135

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Segment Information

Operating segments are defined as components of an entity for which separate financial information is available and is regularly reviewed by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources and in assessing performance. The Company has determined that its four brands are each an operating segment. The Company has aggregated its operating segments into one reportable segment based on the similar nature of products sold, production, merchandising and distribution processes involved, target customers and economic characteristics.

Recently Adopted Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which amended its conceptual framework to improve the effectiveness of disclosures around the amount of, and reasons for, transfers between Level 1 and Level 2 of the fair value hierarchy. This guidance also adds new disclosure requirements for Level 3 measurements. The Company adopted this guidance on January 1, 2020, and the adoption did not have a material impact on its condensed consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment. The ASU amended existing guidance to simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognizing an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to that reporting unit. The amendments were effective beginning in 2020. The adoption did not have a material impact on the Company’s condensed consolidated financial statements.

New Accounting Pronouncements Not Yet Adopted

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This standard simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in Topic 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. The guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill and the allocation of consolidated income taxes to separate financial statements of entities not subject to income tax. ASU 2019-12 will be effective for the Company on January 1, 2022. Upon adoption, the Company must apply certain aspects of this standard retrospectively for all periods presented while other aspects are applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. The Company is currently evaluating the impact of this update on its consolidated financial statements and related disclosures.

In March, 2020, the FASB issued ASU 2020-04, Reference Rate Reform (ASC 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The pronouncement provides companies with guidance to ease the process of migrating away from LIBOR and other interbank offered rates to new reference rates. ASC 848 contains optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform, subject to meeting certain criteria that reference LIBOR or another reference rate expected to be discontinued. The Company is currently evaluating the impact of this update on its consolidated financial statements and related disclosures.

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Note 3. Acquisitions

Culture Kings

On March 31, 2021, pursuant to a share sale agreement, the Company, through its subsidiary CK Holdings, acquired a 55% ownership stake in Culture Kings. The previous shareholders of Culture Kings retained a 45% noncontrolling interest in Culture Kings by receipt of an equity interest in CK Holdings. The Company recognized goodwill as the excess of the fair value of the total purchase consideration and noncontrolling interests over the net fair value of the identifiable assets acquired and the liabilities assumed. The purchase price consisted of AUD $307.4 million ($235.9 million) in cash consideration, subject to working capital adjustments, and noncontrolling interest with a fair value of AUD $186.0 million ($142.7 million). In connection with the IPO, the Company completed a series of transactions in which the minority investors exchanged their interests in CK Holdings for newly issued shares of a.k.a. Brands Holding Corp. common stock (refer to Note 1 for additional information).

Culture Kings is focused on street apparel aimed at the young adult age group and has a combination of online sales as well as stores based in Australia and expands the Company’s consumer market to include male consumers and further expansion in the United States.

The following table sets forth the preliminary allocation of the total consideration to the identifiable tangible and intangible assets acquired and liabilities assumed, as of the date of the acquisition, with the excess recorded to goodwill:

Estimated purchase consideration:
Total purchase price, net of cash acquired of $8,831	$	227,053
Fair value of noncontrolling interest	142,717
Total consideration	$	369,770
Identifiable net assets acquired:
Account receivable, net	$	625
Inventory (1)	62,937
Prepaid expenses and other current assets	4,800
Property, plant and equipment, net	8,048
Intangible assets, net (2)	73,209
Operating lease right-of-use assets	24,299
Accounts payable	(13,449)
Deferred revenue	(141)
Income taxes payable	(1,778)
Other current liabilities	(2,533)
Operating lease liabilities	(24,299)
Deferred income taxes, net	(25,439)
Accrued liabilities- non-current	(1,058)
Net assets acquired	105,221
Goodwill	$	264,549

The cash purchase consideration is subject to working capital adjustments that will be concluded before the one-year anniversary of the close of the transaction. The preliminary purchase price allocation includes significant judgments, assumptions and estimates to determine the fair value of assets acquired and liabilities assumed. The valuations involving the most significant assumptions, estimates and judgment are:

(1)Inventory was adjusted by $15.1 million to step-up inventory cost to estimated fair value. The fair value of the inventory was determined utilizing the net realizable value method, which was based on the expected selling price of the inventory to customers adjusted for related disposal costs and a profit allowance for the post-acquisition selling effort.

(2)The fair value of the acquired intangible assets was determined with the assistance of a valuation specialist and include:

	Estimated Fair Value		Annual Amortization Expense		Estimated Useful Life in Years
Brand names	$	68,354	$	6,835	10 years
Customer relationships	4,855		1,214		4 years
Total	$	73,209

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Brand names are valued using a relief from royalty approach, which estimates the license fee that would need to be paid by Culture Kings if it was deprived of the brand names and domain names, and instead had to pay a license fee for their use. The fair value is the present value of the expected future license fee cash flows.

Customer relationship intangible assets are valued using the multi-period excess earnings method, which is the present value of the projected cash flows that are expected to be generated by the existing intangible asset after reduction by an estimated fair rate of return on contributory assets required to generate the customer relationship revenues. Key assumptions included discounted cash flow, estimated life cycle and customer attrition rates.

Total acquisition costs incurred by the Company in connection with its purchase of Culture Kings primarily related to third-party legal, accounting and tax diligence fees, were $3.3 million. These costs are recorded in general and administrative expenses in the condensed consolidated statements of income during the nine months ended September 30, 2021.

Goodwill of $264.5 million, none of which is deductible for tax purposes, represents the excess purchase price over the estimated fair value assigned to tangible and identifiable intangible assets acquired and liabilities assumed. The goodwill arising from the acquisition consists largely of anticipated synergies related to combining with a.k.a.’s existing operations.

The fair value of the noncontrolling interest was determined by measuring the fair value of the subsidiaries’ identifiable assets and liabilities at the date of acquisition, adjusted for a discount to factor the non-marketable, noncontrolling holding.

The noncontrolling interest in Culture Kings contained a put right whereby the minority investors could have caused CK Holdings to purchase all of their units at a per unit price equal to six times the EBITDA of CK Holdings, calculated as of the twelve-month period ending on the end of the most recent fiscal quarter. The put right was only exercisable after December 31, 2023. In accordance with ASC 810, Consolidation, as this put right was redeemable outside of a.k.a.’s control, the noncontrolling interest was classified outside the permanent equity section of the Company’s condensed consolidated balance sheets prior to the IPO. In connection with the IPO, the Company completed a series of transactions in which the CK Holdings minority investors effectively exchanged their interests in CK Holdings for newly issued shares of a.k.a. Brands Holding Corp. common stock, thereby eliminating the noncontrolling interest classified outside of permanent equity.

Since the date of acquisition, March 31, 2021, the results of Culture Kings have been included in the Company’s consolidated results. The following amounts are included in the accompanying condensed consolidated statements of income for the three and nine months ended September 30, 2021, respectively:

	Three Months Ended September 30, 2021		Nine Months Ended September 30, 2021
Net sales	$	62,817	$	121,075
Net loss	$	(3,005)	$	(6,434)

The unaudited pro forma financial information below is presented to illustrate the estimated effects of the acquisition of Culture Kings and the associated financing as if they had occurred on January 1, 2020:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Net sales	$	161,762	$	112,049	$	430,967	$	257,613
Net income attributable to a.k.a. Brands Holding Corp.	$	2,278	$	9,670	$	12,084	$	1,355
Net income per share, basic and diluted	$	0.03	$	0.11	$	0.14	$	0.02

The pro forma information was prepared using the acquisition method of accounting in accordance with ASC 805, Business Combinations. Since this pro forma financial information has been prepared based on preliminary estimates of consideration and fair values, including the identifiable intangibles, the actual amounts eventually recorded for the acquisition of Culture Kings may differ materially from the information herein. The unaudited pro forma financial information has been prepared for informational purposes only and is not indicative of what a.k.a.’s results of operations would have been had the transactions occurred on January 1, 2020, nor does it project the results of operations of the combined company following the transaction.

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Purchase of Noncontrolling Interests

Immediately following the New Excelerate Reorganization (as described in Note 1), the Company completed a series of transactions in which the minority investors exchanged their interests in CK Holdings for 21,809,804 newly issued shares of a.k.a. Brands Holding Corp. common stock. The number of shares issued in exchange for the minority interests was determined based on the relative valuations of CK Holdings and the consolidated a.k.a. group at the time of the IPO. This exchange resulted in the elimination of the noncontrolling interest in Culture Kings, with a value of $132.3 million, and an increase in additional paid-in capital with a nominal amount recorded as common stock at a value of $0.001 per issued share in the exchange. Following the completion of this transaction, CK Holdings became a wholly-owned subsidiary of a.k.a. Brands Holding Corp.

The Company had historically owned 66.67% of the equity interests in P&P Holdings, which operated the Company’s Petal & Pup business prior to the IPO. The remaining 33.33% of the equity interests in P&P Holdings were held by certain minority investors. On August 19, 2021, the Company repurchased approximately 6.0% of the equity held by the P&P minority investors for AUD $5.0 million. In connection with the completion of the IPO, the Company used a portion of the net proceeds from the IPO to fund the acquisition of the remaining 27.3% of the equity interests in P&P Holdings then owned by the P&P minority investors for cash of approximately AUD $22.8 million. As a result of the transaction, noncontrolling interest of $9.6 million was eliminated and the $10.6 million paid in excess of the noncontrolling interest was recorded as a reduction to additional paid-in capital. Following the completion of this purchase, P&P Holdings became a wholly-owned subsidiary of a.k.a. Brands Holding Corp.

Note 4. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets are comprised of the following:

	September 30, 2021		December 31, 2020
Security deposits	$	295	$	334
Inventory prepayments	9,247		3,722
Other	3,548		24
Total prepaid expenses and other current assets	$	13,090	$	4,080

Note 5. Property, Plant and Equipment, Net

Property, plant and equipment, net is comprised of the following:

	September 30, 2021		December 31, 2020
Furniture and fixtures	$	1,203	$	411
Machinery and equipment	285		185
Computer equipment and capitalized software	2,369		753
Leasehold improvements	11,231		2,020
Total property and equipment	15,088		3,369
Less accumulated depreciation	(2,497)		(1,248)
Total property and equipment, net	$	12,591	$	2,121

Total depreciation and amortization expense was $0.9 million and $0.1 million for the three months ended September 30, 2021 and 2020, respectively, and $1.7 million and $0.2 million for the nine months ended September 30, 2021 and 2020, respectively.

Note 6. Goodwill

The carrying value of goodwill as of September 30, 2021 and December 31, 2020, was $331.3 million and $88.3 million, respectively. No goodwill impairment was recorded during the nine months ended September 30, 2021 or the year ended December 31, 2020.

The goodwill of the acquired companies is primarily related to anticipated synergies of acquired companies in combination with a.k.a.’s existing operations, expected improvements in technology performance and functionality, as well as sales growth from future product and service offerings and new customers, together with certain intangible assets that do not qualify for separate recognition. The goodwill of acquired companies is generally not deductible for tax purposes.

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The following table summarizes goodwill activity:

Balance as of December 31, 2020	$	88,253
Acquisitions (Note 3)	264,549
Changes in foreign currency translation	(21,460)
Balance as of September 30, 2021	$	331,342

Note 7. Intangible Assets

The gross amounts and accumulated amortization of acquired identifiable intangible assets with finite useful lives as of September 30, 2021 and December 31, 2020, included in intangible assets, net in the accompanying condensed consolidated balance sheets, are as follows:

		September 30, 2021			December 31, 2020
	Useful life	Weighted Average Amortization Period 2021	2021		Weighted Average Amortization Period 2020	2020
Customer relationships	4 years	2.5 years	$	21,859	1.8 years	$	17,100
Brands	10 years	9.0 years	87,860		7.8 years	26,680
Website design and software system	3 years	2.5 years	1,836		2.4 years	903
Trademarks	5 years	3.8 years	114		4.5 years	103
Total intangible assets			111,669			44,786
Less accumulated amortization			(24,356)			(15,684)
Total intangible assets, net			$	87,313		$	29,102

Amortization of acquired intangible assets with finite useful lives is included in general and administrative expenses and was $3.7 million and $1.8 million for the three months ended September 30, 2021 and 2020, respectively, and $9.9 million and $4.7 million for the nine months ended September 30, 2021 and 2020, respectively.

Future estimated amortization expense for acquired identifiable intangible assets is as follows:

	Amortization Expense
Year ending December 31:
Remainder of 2021	$	3,569
2022	13,312
2023	10,952
2024